By Danny Kennedy, Green Bizz, January 22, 2018

Amidst the madness of 2017, a bigger shift was missed than probably any other — right at the commanding heights of the economy: Natural gas fizzled out of the plan for the future.

That’s major.

Natural gas is no longer a contender or pretender, just a relic of the past, likely to fall as far and as fast as Old King Coal, and maybe faster. This has repercussions for the economy of many states and nations, and the politics of the transition in terms of what we ask for and what we will get.

Here’s what I’m thinking:

The big signal that got some coverage in the pink pages (FT) and energy-wonk trade press in November was the closure of Siemens and GE’s gas turbine-making capacities. Just to recap for those that missed it, first Siemens, the giant European champion of the electric power revolution, laid off 7,000 workers. It reported that it had a capacity to make 400 100MW gas turbines annually but only had received orders for 110 in 2017. Ouch. Retrain!

And then GE: Two weeks later, it laid off 20,000 workers in its gas-related business, including turbine-making teams around the world. Remember, just about five years ago Siemens and GE battled for the gas business of Alstom, the French descendent of the same companies GE came out of in the early 20th century. GE paid $10 billion for it and declared a coup.

But now, they’re writing it off. Their strategic choices under Jeff Immelt are being questioned by the market: while the Dow is up about 30 percent over the past 12 months, GE’s stock is down about 45 percent. (Indeed, GE won the “honor” of being the Dow Jones Industrials worst-performing stock of 2017.)

If we can build large-scale storage that can do all the functions of a fast-ramping gas turbine in less than six months for less money, there will be no market for gas turbines peaking services.

What’s significant is the timing of these announcements. Is it a coincidence that they happened as South Australia was turning on a 100-megawatt battery that had been built in just 100 days by Tesla and a consortium? If the reality is that we can build large-scale storage that can do all the functions of a fast-ramping gas turbine at, say, 100MW scale, and we can build it in less than six months (gas peakers would take six years) for less money, then I think there will be no market for gas turbines to provide peaking services.

It’s pretty binary. And I think Siemens and GE know it.

From an Article by Harry Weber, S & P Global News, December 10, 2018

Houston — Two former Rice Energy executives pushed EQT’s board on Monday to make significant changes in order to fix problems they see with the largest US natural gas producer’s operations since the Northeast drillers’ $6.7 billion combination last year, or face a proxy fight over future corporate oversight.

An open letter sent by brothers Toby and Derek Rice to the company’s board laid bare the friction behind the scenes caused by the about 36% drop in EQT’s stock price since early July despite the dominant position it holds in the Appalachian Basin following the November 2017 acquisition of Rice Energy.

Stuck with a transaction that is a happy marriage no longer, the Rice family members said that over the past few weeks they had private conversations with EQT Chairman Jim Rohr and CEO Rob McNally about their proposed corporate overhaul, but were rebuffed. The plan they discussed included inserting Toby Rice into a position of operational oversight at EQT.

“EQT has the potential to unlock significant value for all its shareholders, but, to deliver the results this asset base deserves, a course correction is needed,” the letter said. “EQT must add proven operational experience to the board and senior management team – in particular, individuals with experience in large-scale operational planning.”

EQT shares rose sharply on news of the letter.

The former Rice chief operating officer and former executive vice president of exploration, who collectively own or are potential beneficiaries of 7 million shares of EQT, said that if they do not reach a “mutually agreeable” outcome that materially benefits all long-term investors, they will nominate their own slate of directors for election to the EQT board at the company’s 2019 annual meeting. Installing some of their own directors would, presumably, give them more power to make changes in the company’s senior leadership.

In an emailed statement, EQT gave no hint of plans to back down.

“EQT is a refreshed company with a new management team, new operating plan and substantially reconstituted board,” the email said. “The company is focused on achieving profitable growth by driving operational efficiency, solid free cash flow, balance sheet strength, disciplined capital allocation and the realization of synergies. We are confident that EQT is taking the right steps to deliver superior value.”

INTERNAL MOVES

By absorbing a Rice footprint in the Marcellus Shale that it maintained was largely contiguous to its own, EQT promised to stretch drilling laterals to 12,000 feet so it could produce more gas at a lower cost.

In February, in an effort to unlock further shareholder value, EQT announced plans to spin off its midstream operations into a standalone company.

A month after the announcement, Steven Schlotterbeck unexpectedly stepped down as CEO and left the company and its affiliates “for personal reasons.” He had been CEO for only about a year, leading EQT through the acquisition of Rice.

EQT’s stock price has been on a roller-coaster ride since the beginning of the year, falling, on a split-adjusted basis, from $31.70 in early January to $25.25 in early April, before closing at $30.83 on July 9. Shares closed at $19.63 on Monday, up 6.6% from Friday.

Toby and Derek Rice, who formed an investment firm with their brothers Daniel and Ryan after the combination, said in their letter to EQT’s board that the company’s performance in recent months has not been reflective of the underlying value of its assets.

NEW STRATEGY

The brothers said they have a plan that would generate an incremental $400-$600 million of pre-tax free cash flow per year above EQT’s current plans, equaling greater than $1 billion of free cash flow per year.

The Rice brothers created a website and posted a presentation that said Rice Energy and its peers demonstrated an ability to achieve much lower well costs per foot than EQT has managed. The brothers proposed EQT streamline its organizational structure and break down silos to facilitate inter-departmental collaboration, as well as increasing operational and logistical efficiency to lower well costs and reduce shut-ins and system constraints.

“With the proper authority and board support, our team is willing to oversee the transformation needed to achieve these results,” the letter said. “We have executed on it before, and we are ready, willing and able to execute on it again.”

https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/121018-eqt-faces-fight-with-former-rice-energy-leaders-over-direction-of-natural-gas-producer

IEEFA U.S.: Frackers continue to underperform —

Investor wariness grows on weak third-quarter results

“The inability of fracking-focused companies to generate consistent free cash flows, even with soaring production and higher oil prices, raises a critical question,” said Kathy Hipple, an IEEFA energy finance analyst and lead author of the brief. “Will these companies ever produce enough cash from oil and gas sales to cover their capital outlays? Only when they do that will the industry have any hope of paying back its sizable debts—or of producing robust rewards for equity investors.”

Hipple added, “Until the fracking sector as a whole can reliably produce cash, money managers should view industry as a risky and highly speculative investment.”

http://ieefa.org/ieefa-u-s-frackers-continue-to-underperform/