Northeast Petrochemical Conference, Pittsburgh, June 2019

From an Article by Nick Cunningham, OilPrice.com, June 24, 2019

Fracking has been an “unmitigated disaster” for shale companies themselves, according to a prominent former shale executive.

“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Steve Schlotterbeck, former chief executive of EQT, a shale gas giant, said at a petrochemicals conference in Pittsburgh. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

He did not pull any punches. “While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.”

The message is not a new one. The shale industry has been burning through capital for years, posting mountains of red ink. One estimate from the Wall Street Journal found that over the past decade, the top 40 independent U.S. shale companies burned through $200 billion more than they earned. A 2017 estimate from the WSJ found $280 billion in negative cash flow between 2010 and 2017. It’s incredible when you think about it – despite the record levels of oil and gas production, the industry is in the hole by roughly a quarter of a trillion dollars.

The red ink has continued right up to the present, and the most recent downturn in oil prices could lead to more losses in the second quarter.

So, questionable economics is not exactly breaking news when it comes to shale. But the fact that a prominent former shale executive – who presided over one of the largest shale gas companies in the country – called out the industry face-to-face, raised some eyebrows, to say the least. “In a little more than a decade, most of these companies just destroyed a very large percentage of their companies’ value that they had at the beginning of the shale revolution,” Schlotterbeck said. “It’s frankly hard to imagine the scope of the value destruction that has occurred. And it continues.”

“Nearly every American has benefited from shale gas, with one big exception,” he said, “the shale gas investors.”’

The industry is at a bit of a crossroads with Wall Street losing faith and interest, finally recognizing the failed dreams of fracking. The Wall Street Journal reports that Pioneer Natural Resources, often cited as one of the strongest shale drillers in Texas, is largely giving up on growth and instead aiming to be a modest-sized driller that can hand money back to shareholders. “We lost the growth investors,” Pioneer’s CEO Scott Sheffield said in a WSJ interview. “Now we’ve got to attract a whole other set of investors.”

Sheffield has decided to slash Pioneer’s workforce and slow down on the pace of drilling. Pioneer has been bedeviled by disappointing production from some of its wells and higher-than-expected costs.

But, as Schlotterbeck told the industry conference in Pittsburgh, the problem with fracking runs deep. While shale E&Ps have succeeded in boosting oil and gas production to levels that were unthinkable only a few years ago, prices have crashed precisely because of the surge of supply. And, because wells decline at a precipitous rate, capital-intensive drilling ultimately leaves companies on a spending treadmill.

Meanwhile, as the financial scrutiny increases on the industry, so does the public health impact. A new report that studied over 1,700 articles from peer-reviewed journals found harmful impacts on health and the environment. Specifically, 69 percent of the studies found potential or actual evidence of water contamination associated with fracking; 87 percent found air quality problems; and 84 percent found harm or potential harm on human health.

The health impacts have been a point of controversy for years, pitting the industry against local communities. The industry largely won the tug-of-war over fracking, beating back federal and state efforts to regulate it. However, the story is not over. Related: Philadelphia Refinery Explosion To Boost Gasoline Prices

In many cases, there is an abundance of anecdotal evidence pointing to serious health impacts, but peer-reviewed research takes time and has lagged behind the incredible rate of drilling. Now, the public health research is starting to catch up. Of the more than 1,700 peer-reviewed studies looking at these issues, more than half have been published since 2016.

One need not be an opponent of fracking to recognize that this presents a threat to the industry. For instance, a spike of a rare form of cancer has cropped up in southwestern Pennsylvania recently. The causes are unclear, but some public health advocates and environmental groups are pointing the finger at shale gas drilling, and have called on the governor to stop issuing new drilling permits. The Marcellus Shale Coalition, an industry group, said the request was “ridiculous.” The region is right at the heart of high levels of shale drilling, so any regulatory action coming in response the public health outcry could impact drilling operations. Time will tell.

In the meantime, poor financials are the largest drag on the shale sector. “And at $2 even the mighty Marcellus does not make economic sense,” Steve Schlotterbeck, the former EQT executive said at the conference. “There will be a reckoning and the only questions is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system.”

Marcellus shale region includes “wet gas” portion rich in ethane plus some higher hydrocarbons (propane, butane, etc.)

From an Article by Liz Hampton, Reuters News Service, February 5, 2019

HOUSTON, TX — Two of the founders of Rice Energy, which EQT Corp bought in 2017, are pushing for a change in the company’s strategy and replacement of its board due to its ongoing underperformance.

Appalachian-focused EQT acquired rival Rice Energy for $6.7 billion, making it the largest natural gas producer in the United States. However, its share price has tumbled more than 30 percent since the merger, which brothers Toby and Derek Rice blame on operational and managerial mismanagement.

In a presentation to shareholders, the brothers proposed appointing Toby Rice, former chief operating officer of Rice Energy, as the company’s new chief executive.

When EQT released its 2019 guidance in January, the brothers said they would challenge the board in a shareholder ballot.

The brothers, who own around 3 percent of EQT, said in their presentation they could improve EQT’s free cash flow by $500 million per year. They proposed streamlining aspects of the organization, digitizing workflows, and improving planning to reduce well costs.

A spokeswoman for EQT said on Tuesday the company disagreed with the analysis put forward by the Rices and that the firm looked forward to continued discussions with shareholders. “EQT remains focused on reducing costs and generating substantial free cash flow to create further value for EQT shareholders,” she added.

Shares of EQT were down 2.4 percent to $19.31 in afternoon trading on Tuesday and are off 28 percent in the past 52 weeks.

EQT’s average Marcellus well cost for a 12,000-foot lateral was $1,250 per foot in 2018, while Rice Energy, before its merger with EQT, averaged $790 per foot for wells with laterals reaching 8,800 feet in the same region, according to the Rice presentation. The brothers also said EQT has “erroneously adjusted downwards” its well costs.

In a presentation, the brothers said operations could be improved by altering well designs to include more sand, water and stages per foot. The presentation also said they had initiated dialogue with EQT to improve its business, but claimed those suggestions have been ignored, prompting it to bring their concerns to shareholders.

The Rice brothers owns 7.5 million shares in EQT, worth more than $145 million.

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NOTE (OVERLY?) OPTIMISTIC ECONOMIC OUTLOOK:
EQT Midstream Has Plenty Of Work In The Pipeline, No Puns Intended – EQT Midstream Partners, LP (NYSE:EQM) | Seeking Alpha

Rex Tillerson of Exxon Mobil Keeps on Talking

Commentary by S. Tom Bond, citizen farmer of Lewis County, WV
 
When researching, one may do “wildcating,” too, in the sense one examines places that don’t have a sure return on the time invested.  The other day I hit on a item that proved to be fascinating .  It was a talk by Rex W. Tillerson, Chairman and CEO of Exxon Mobil Corporation to the Council on Foreign Relations.  The CFR is primarily concerns itself with advancing governmental and banking globalization.  The fit of speaker to audience is perfect – both operate with high level generalities, not details.
 
The article (see below) is an almost instantaneous transcription of the introduction plus Tillerson’s talk and questions from the listeners.
 
The interesting way to approach the article is to view it as a myth, in the sense this word is used by sociologists and psychologists.  So myth as used herein is a story which people believe in, with out reference to truth or verifiability of the story.  The value of this approach is to differentiate Tillerson’s Weltanschauung (worldview) from the worldview of people experiencing shale drilling and the citizenry in general.
 
The introduction of Mr. Tillerson referred to a book by Steven Coll called “Private Empire.”  In the book Coll “refers to Exxon Mobil as a corporate state within the American state, with its own intricate web of international relations and, in a sense, its own foreign policy.”  This sets the tone for what followed.
 
First we note Tillerson’s repeated characterization of all opposition as ignorant. “Ours is an industry that is built on technology,” he says “it’s built on science, it’s built on engineering, and because we have a society that by and large is illiterate in these areas, science, math and engineering, what we do is a mystery to them and they find it scary. And because of that, it creates easy opportunities for opponents of development, activist organizations, to manufacture fear.”  Further, “  It requires a lot of education, requires taking an illiterate public …. and trying to help them understand why we can manage these risks…”  And “[the consequences] are not life-threatening, they’re not long-lasting.”  This is said with all the certainty of a critic of medieval village peasants who are afraid of the dragon on the other side of the hill.
 
So one wonders if he is unaware of people like Dr. Theo Colborn, Dr. Poune Sabri, Dr. Sandra Steingraber, Arthur E. Berman, Dr. Al Armendariz, Deborah Rogers, Elaine L. Hill, Dr. Marvin Resnikoff, Dr. Anthony Ingraffea, Dr. Karlis Muehienbachs, Dr. Robert W. Howarth and….do I need to go on?  You get the point.  Are these people ignorant?  Or rabble rousers?
 
And by the way, who would be more reliable to judge about ability to “manage these risks” and “not life-threatening and not long-lasting,” the man who constantly flits from one ivory tower to another, or the person who hears, sees, smells and tastes what is going on in the shale fields?
 
A second major Tillerson theme is parsing “energy security” and “energy independence.”  The former is an adequate supply from what-ever sources, he says, the latter is enough to serve the nation’s need, obtained within it’s boundary.  There is no claim the industry will be able to do the latter – ever.  The former will be secure for a while, with the new technology, he says, but we will continue to get energy (energy = petroleum, in Mr. Tillerson’s use) from beyond our borders.  It doesn’t seem to matter where or how the U. S. gets it, however.  Obviously, the military, although unmentioned, looms quite important.  And “If you don’t like the people you’re buying it from, that’s a different issue,” he says.
 
Tillerson seems to consider Canada and Mexico as natural extensions of the United States.  At present they are our principal suppliers of petroleum , and  Canada refines much of it into finished product, too.  This view of greater North America doubtless sits well with the globalist CFR.  Actually, only 22% of U. S. petroleum imports come from the Persian Gulf. Those who deliver from that source are well paid.  A certain Saudi prince recently bought an Airbus jet airliner, equipped as a luxury hotel, for his personal use, paying $485 million.  Nice toy.
 
Also, according to Tillerson, “if people are equating energy independence to some kind of price stability or narrow price band, then they have to be putting that in a context of a very rigid policy and regulatory control around that system, because otherwise it’s going to continue to move with the global prices.”  Translated that means “don’t expect us to keep petroleum prices down.”

He does allow that “the energy mix is switching,” that is, so far the increased use of gas to generate electricity comes from using mostly gas in dual fuel – coal and gas – in plants designed to use gas primarily to meet demand peaks.  He says gas is a clean-burning fuel, divorcing it from the extraction end of the process.  I suppose that is because extraction takes place out where the illiterates live.
 
At one point Tillerson gets in a punch for the shale oil project of Exxon Mobil in Canada, even dirtier and more disgusting than shale drilling.  In another he gives his opinion that oil never drove the relationships with nations in the Middle East.  Further, cheap natural gas will rebuild American manufacturing and he manages to knock electric cars
 
Perhaps the most interesting thing in the talk, however, is how he handles the “white elephant in the room” of fossil fuel discussion, global warming.  “And as human beings as a — as a — as a species, that’s why we’re all still here. We have spent our entire existence adapting, OK? So we will adapt to this. Changes to weather patterns that move crop production areas around — we’ll adapt to that. It’s an engineering problem, and it has engineering solutions. And so I don’t — the fear factor that people want to throw out there to say we just have to stop this, I do not accept.

“I do believe we have to — we have to be efficient and we have to manage it, but we also need to look at the other side of the engineering solution, which is how are we going to adapt to it. And there are solutions. It’s not a problem that we can’t solve.”
Take that, you tree-huggers!  Exxon Mobil and its friends will be around to save you from the damage they caused to the environment! And if that doesn’t work????

One of the ways social scientists analyze myth is to look for the utility of the myth to the elite promoting it.  That method yields results here.

REFERENCE: The New North American Energy Paradigm: Reshaping the Future; Speaker: Rex W. Tillerson, Chairman and CEO, Exxon Mobil Corporation, June 27, 2012. Transcribed by Federal News Service, a private firm not connected to the government, which specializes in quick transcriptions for news release.

http://www.cfr.org/united-states/new-north-american-energy-paradigm-reshaping-future/p28630