Utica shale is deeper still, below the Marcellus shale

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

Despite implementing a plan to cut year-over-year spending by 20% in 2020, Southwestern Energy Co. expects annual production to climb by 10%. The increase in production is driven by the company’s investment in the Appalachian Basin.

The company forecasts capital expenditures of $860-940 million and anticipates overall production of 830-865 Bcfe. Although it expects to bring up to 110 wells to sales this year, mostly in West Virginia, the company’s oil and natural gas production is forecast to increase by 25% and 10%, respectively.

In its continued effort to cut costs, Southwestern managed to cut well costs to $824 per lateral foot last year — a 27% drop. This year, it expects well costs to average $730 per foot — a 10% reduction.

>>>>>>>>>>>>>>>>>>>>>>>>>>

EQT reacts to low natural gas prices, selling assets and cutting costs

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

Last week EQT announced it renegotiated its gas transportation rates and sold half its stake in pipeline company Equitrans Midstream Corp.

These moves are the company’s response to low natural gas prices.

In the fourth quarter, EQT recorded a $1.6 billion non-cash impairment charge. With U.S. natural gas prices trading at its lowest in nearly two decades, the country’s largest natural gas producer has been forced to find ways to mitigate prices.

In addition to selling its stake in the pipeline operator and renegotiating gas transportation rates, EQT has refined its hedging strategy and cut annual capital expenditure. The company expects 2020 capital expenditure between $1.15 billion and $1.25 billion, compared with a prior outlook of between $1.25 billion and $1.35 billion.

>>>>>>>>>>>>>>>>>>>>>>>

CHEVRON to cut 320 jobs in Pennsylvania, markets assets

From a Summary by Sara Welch, Shale Gas Reporter, March 3, 2020

The next step in Chevron’s plan to liquidate its Appalachian Basin assets and close its Appalachian Mountain Business is to eliminate 320 jobs.

“We are taking active steps to reduce job loss and will facilitate the placement of as many impacted employees as we can with other Chevron business units,” said a Feb. 6 letter Chevron company officials sent to state Department of Labor & Industry.

In addition to attempting to reduce job loss, the company said it’s providing advance notice of layoffs to government stakeholders and employees.

The first round of layoffs is scheduled for April 6, although some employees will be offered temporary assignments with extended layoff dates, potentially through Dec. 31. Chevron’s office locations in Moon and Mount Braddock in Penna. will be affected as 320 workers combined will be laid off.

>>>>>>>>>>>>>>>>>>>>>>>>>>>

Range Resources hit by $2.3 Billion in Fourth Quarter impairments

From an Article by Kallanish Energy News, March 2, 2020

Texas-based Range Resources reported a fourth quarter 2019 net loss of $1.81 billion, or $7.27 per share on revenue of $605.6 million. That compares to profit of $1.76 billion, or $7.15 per share in Q4 2018.

Fourth quarter earnings include $2.3 billion in impairments, including unproven properties in North Louisiana.

For full-year 2019, Range reported a net loss of $1.72 billion, or $6.92 per share, on revenue of $2.82 billion. That compares to a $1.74 billion net loss, or $7.10 per share, in full-year 2018.

“Range made solid progress on key strategic objectives in 2019,” said CEO Jeff Ventura, in a statement. “For the year, we reduced absolute debt, lowered well costs, improved our cost structure and delivered our operational plan for $28 million less than budgeted.”

The company, a major player in the Appalachian Basin, expects to spend $520 million in its 2020 capital budget and that will maintain production at about 2.3 billion cubic feet-equivalent per day (Bcfe/d). That includes $490 million on drilling and recompletions and $30 million on leases. About 30% of that production will be liquids.

The company expects to turn to sales 72 Marcellus Shale wells in 2020, with an expected average lateral length of 11,200 feet. Range anticipates drilling about 810,000 feet of lateral in 2020 while turning to sales about 806,400 feet of lateral in the year. That will keep in-progress well inventory nearly unchanged going into 2021.

It expects 2020 well costs to average less than $610 per lateral foot, the lowest rate in the Appalachian Basin.

In 2019, the company spent $728 million on capital spending, about $28 million less than its original budget. The company also sold assets worth $785 million in 2019 to reduce debt.

Range reported Q4 2019 production was 2.35 Bcfe/d. The company’s average realized price after hedges was $2.76 per thousand cubic feet-equivalent (Mcfe), with roughly 60% of gas production hedged.

Production in southwest Appalachia averaged 2.06 net Bcfe/d, a 16% increase from Q4 2018. The assets in northeast Pennsylvania averaged 98 net million cubic feet-equivalent per day (Mmcfe/d) in the quarter, including 10 net Mmcf/d of legacy acreage production.

The company brought on line 23 wells in southwest Appalachia in Q4 2019: six in the super-rich area, 10 in the wet area and seven in the dry area, Range said. Half of the wells turned to production in 2020 are from well pads with existing production.

In full-year 2019, the company turned to sales 84 Marcellus wells with an average lateral length of 10,550 feet and seven wells in Louisiana.

#############################

See also: Energy Companies Face Looming Debt Burden – Wall Street Journal, February 19, 2020

The fortunes of exploration and production companies depend on oil and gas prices, which determine the value of their reserves and how much money they are able to borrow.

U.S. natural-gas producers face the highest hurdle, according to Moody’s. Antero Resources Corp. and EQT Corp. have the largest looming debt maturities by 2024, with $2.6 billion and $2.5 billion due, respectively.

U.S. Fracking Oil Industry in Trouble: Investors Losing Faith?

From the Editor of Marketslant, August 10, 2017

Even though U.S. shale oil production continues to reach new record highs, investors might be finally losing faith in the industry that just isn’t profitable. A perfect example of this, legendary oil trader Andy Hall, known as “God” in the industry, is shutting down his main hedge fund. Hall, who is a noted bull in the oil market, saw his hedge fund, Astenbeck Master Commodities Fund II, lose 30% in the first half of 2017.

While Hall’s hedge fund likely lost money betting that oil prices would rise, the entire energy complex took a beating last week, even though oil and natural gas prices increased. According to the article, Oil Has A Crisis Of Faith, the situation in the U.S. E&P energy sector took a turn for the worst:

If tumbling oil and gas prices aren’t the obvious reason for the sell-off in E&P stocks, then what is?

The likeliest culprit is fear that, even if oil prices aren’t falling further, they are low enough to affect E&P firms’ growth plans — as evidenced in guidance given on a number of quarterly earnings calls this week and last.

One of the biggest losers this week has been Pioneer Natural Resources Co., down 16.5 percent since reporting results on Tuesday evening. Part of the reason it was clobbered so badly is that while it merely trimmed its overall growth rate, it sharply cut its guidance for how many more barrels of higher-value oil it will produce this year. Pioneer blamed this on problems it had with what it called “train-wreck” wells suffering from changes in pressure and the amount of water coming up, forcing the company both to delay its drilling schedule and spend more to strengthen wells.

As we can see in the chart above, all types of energy stocks sold off even though the price of oil increased. In addition, Pioneer Resources stock price is now down nearly 17% since their second quarter news release:

Pioneer Resources is one of the larger players in the Permian oil basin in Texas. According to the data put out by Gurufocus.com, Pioneer suffered a negative Free Cash Flow of $155 million Q1 and $252 million in Q2. Actually, Pioneer spent a great deal more on capital expenditures (CAPEX) in the second quarter of 2017, by investing $731 million versus $519 million in the first quarter.

Which means, Pioneer spent $212 million more on CAPEX in the second quarter, only to suffer a larger negative free cash flow of nearly $100 million more versus the previous quarter. Of course, this makes perfect sense in our TOTALLY INSANE business world today to spend $212 million on CAPEX only to lose an additional $100 million in free cash flow.

Another large oil player in the Permian, Occidental Petroleum, lost $300 million in its core upstream U.S. segment. The upstream segment of an oil company’s earnings comes from its oil and gas wells. Downstream is the selling of its petroleum products in retail markets and etc. Not only did Occidental lose $300 million in its domestic U.S. upstream earnings in Q2, it also lost $191 million in the first quarter.

Big 3 U.S. Oil Companies Still Struggling Even With Higher Oil Prices

The Big Three U.S. Oil companies have also suffered losses in their U.S. upstream earnings. Exxonmobil lost $201 million and Chevron lost $22 million in the first half of 2017 in its U.S. upstream earning segment. ConnocoPhillips lost $2.7 billion in its U.S. earnings segment during the first half of 2017, however this was mostly due to a huge impairment write-down.

Regardless, no one is really making money producing oil and gas in the United States. While some of these companies may now be reporting positive free cash flow, this has been mainly due to the huge cutting of their of CAPEX spending. For example, these top three U.S. oil companies were spending a great deal more on CAPEX in 2013 than they will in 2017:

Top 3 CAPEX Spending (Exxonmobil, Chevron & ConnocoPhillips):

2013 = $86.6 billion …….. 2017 Est. = $31 billion

These top three U.S. oil and gas majors will reduce their CAPEX spending by $55.6 billion in 2017 compared to 2013. This is a decline of two-thirds in CAPEX spending in just four years. When a company drastically cuts its CAPEX spending, it becomes easier to make free cash flow. However, by cutting their capital expenditures by two-thirds, these U.S. oil majors will not be adding much in the way of new discoveries or additional oil production in the future.

Moreover, Occidental Petroleum, the largest oil producer in the Permian, enjoyed decent free cash flow during the second quarter of 2017. However, a large percentage of their $1 billion in free cash flow was due to a NOL- Net Operating Loss adjustment of $737 million. Occidental actually suffered a negative free cash flow of $111 million in the first quarter of 2017.

That being said, Occidental, was able to enjoy free cash flow because it cut its overall CAPEX spending from $8.4 billion in 2013, down to an estimated $3.3 billion in 2017. So, by cutting its CAPEX spending by $5 billion, it’s much easy to make positive free cash flow:

Not only has Occidental CAPEX spending declined since 2014, so has its cash from operations. Hence, the reason for the huge cut in CAPEX spending. Occidental reported a healthy $11 billion in operating cash in 2014. However, this fell to $3.4 billion last year as the price of oil dropped to an annual low not seen since 2004.

As U.S. oil companies continue to sacrifice exploration and capital expenditures to become profitable or at least break-even, this will cause big problems for oil supplies in the future. That being said, the oil industry has another negative factor to deal with that could spell additional trouble for the fracking oil industry in the future.

One little factor that seems to be overlooked in the media is the staggering amount of water consumed in the production of shale oil and gas in the United States. According to a study reported by Scientific America back in 2015, stated:

Oil and natural gas fracking, on average, uses more than 28 times the water it did 15 years ago, gulping up to 9.6 million gallons of water per well and putting farming and drinking sources at risk in arid states, especially during drought.

Though fracking is used to produce natural gas in less-arid regions such as Pennsylvania, many of the nation’s fracking operations occur in places where water may become scarcer in a warming world, including Texas, the Rocky Mountains and the Great Plains—regions that have been devastated by drought over the last five years.

As the USGS study indicates, a lot of the oil and gas fracking is taking place in more arid climates. One such arid climate is the Permian Basin in West Texas. According to another article titled, As The Oil Patch Demands More Water, West Texas Fights Over Scarce Resource:

“The Permian Basin is basically a desert, and that immediately presents challenges in finding adequate water,” French said. “You can do without a lot of things. But you can’t do without water.”

At least three other companies in the region are selling or planning projects to sell water to energy companies that use it by the billions of gallons to crack shale rock and release oil and gas. Water use in the Permian has risen six-fold since the start of the shale oil boom, from more than 5 billion gallons in 2011 to almost 30 billion last year. Energy research firm IHS Markit predicts demand will double by the end of this year, to 60 billion gallons, and more than triple by 2020, to almost 100 billion.

As we can see in the chart above, oil and gas companies in the Permian are estimated to consume a staggering 60 billion gallons of water in 2017, double from the 29.6 billion gallons last year. And if these energy companies get enough silly investor money, they will need nearly 100 billion gallons of water by 2020 to produce oil in gas in the Permian. See the graph below!

Unfortunately, water is a scare resource in West Texas as farmers, ranchers, environmentalists and residents are worried that the tapping into billions of gallons of water in underground aquifers will impact the local cattle industry, agricultural crops and possibly dry up natural springs in the area.

The race for the U.S. to produce more oil than we have in more than four decades is costing an arm, leg and a foot, as well as consuming one heck of a lot of fresh water. I believe we are going to look back at this point in history and wonder… WHAT IN THE HELL WERE WE THINKING???

As I have mentioned in several articles and interviews, the wonderful U.S. Shale Oil & Gas Industry really hasn’t made any money for nearly a decade. However, they have added a great deal of debt. Let me present this chart one more time because nothing has changed since the last time I posted it:

Over the next three years, the debt (low investment grade energy bonds) that these energy companies will have to pay back jumps from $67 billion in 2017 to over $230 billion in 2020… just at the time the Permian Basin is forecasted to peak in oil production. However, I have my reservations on that prediction.

While the U.S. continues to produce oil that isn’t really profitable, the overall debt level in the energy sector will likely increase. The only way for this FACADE to continue is under the Fed Policy of low or zero interest rates. If the Fed continues to raise rates, this will certainly put a real KIBOSH on the U.S. Shale Oil and Gas Industry’s ability to finance their ever increasing amount of debt.

Lastly…. oil production in the U.S. will likely continue to rise for a while. The Mainstream media will point to American ingenuity and the push for energy independence as the reasons for all this wonderful new oil production. Unfortunately, someone along the way forgot to mention that most this oil was produced at a loss. The POOR SLOBS that are really going to feel the pain are the investors who went after HIGH YIELD returns as they couldn’t find it in the market today.

Even though the U.S. shale oil and gas companies continue to pay their interest expense (yield to these investors), that has an expiration date. Once that expiration date arrives, and these investors ask for the original funds back….. is when they wish they had purchased gold and silver instead.

But….. sometimes it really takes getting beat up financial to wake up to the fundamentals of owning physical precious metals.

Fracking Oil Wells In The Permian Basin Consumes A Staggering Amount Of Fresh Water

The Workers Know What Is Going On!

What’s going on with oil and gas in the short range –

Commentary by S. Tom Bond, Retired Chemistry Professor & Resident Farmer, Lewis County, WV

The long range prospects for oil and gas were discussed in my last article, posted on February 13^th.  This time I want to present an overview of what is going on in the short time-range.

One aspect is a dramatic cut in what is called “capex” – capital expenditures. These are required for expanding production both to get more production and to compensate for the unavoidable depletion that occurs with any kind of mineral recovery.  New expansion is always more expensive than what has gone on before, because the “easy stuff’ is taken out first. You can read about capex reduction in everything from company statements to industry news reports.

This article is interesting because CONSOL Energy has recently jumped into gas hand over foot, having moved a major part of its capital out of coal. They are doing what everybody is doing, emphasizing current production. The problem is the structure of the industry has produced huge excess production, and there is little way to raise cash except by further production.

Company after company is cutting expansion (capex) but plans to increase production while cutting cost. The problem is, there is nowhere for the gas to go. Until the recent snow storms in the Northeast, consumption of natural gas was low and the storage fields were full. That hasn’t changed significantly.

The slowdown in central West Virginia is quite conspicuous. Water trucks are off the main roads because of the completion of the fresh water pipelines from the Ohio River to the West Fork River, between Jane Lew and Good Hope. Little companies seem to be shut out, with most water trucks now belonging to larger companies.

Flow back must be hauled away from wells that are producing. Sand trucks are much less common than before Christmas. They arrive just in time for fracking, which shows fracking must be down. The permits on Sky Truth Alert are way down, too. If you locate them on Google Earth or other satellite maps, they tend to be on well pads previously completed, rather than out in a new area.

Happy talk abounds in the gas field.  A good article, now a year old, is an example. One author has compared gas prices to the movie Ground Hog Day, in which Bill Murray plays a news reporter caught in a time loop – repeating the same day over and over again. In the case of gas prices, they ratchet lower and lower, reaching $2.43 per thousand on February 6th.

It is hard to keep investors convinced in this climate. If they fly away, company value declines, and it is harder to attract investors and harder to borrow from bankers. Cutting costs on production means paying less to labor, holding onto royalty longer, and shaving off more for “expenses.” Then, moving faster in drilling work that must be done, making jobs less safe and cutting down time for things like letting cement harden when sealing in tubing. This will damage more ground water, of course.

It puts pressure on building pipelines for the happy anticipated day when gas replaces coal for generating electricity. It will encourage building liquid natural gas facilities, although U. S. reserves are small compared to what is available overseas, as we saw in my last article.

The situation in oil is much the same, but lacks the element of crowding coal out of its traditional market. Most of petroleum is used for transportation. The low cost of gasoline is the result of the fact that no effective long term storage is available. Around 30,000 layoffs have been announced.

The oil workers strike, which is expanding, helps hold gasoline and diesel fuel up. (Or is getting blamed for it.) It is the first strike in the industry in 35 years. As of February 9, it involved over 5000. The issues were safety related, not finances. The issues were “Hundreds of refineries dot US coasts, and many have been running full-tilt to keep up with the boom in Tar Sands bitumen from Canada and Bakken crude from North Dakota.

With increased throughput and lower margins, oil companies like Tesoro, Shell, Chevron and Exxon have increased the risks of injuries, safety hazards and death for workers and communities alike. Confronted with longer hours, more shifts, the same number of staff, and no significant effort by oil companies to increase plant safety, workers are faced with much higher chances of getting sick or being injured or killed on the job.”

Resistance to fracking grows apace. Bans are everywhere. In the UK (the now reduced Great Britain), this is the situation: Fracking banned in Ireland and Wales, also on two fifths of the land offered for shale exploration because it is in the national parks, Areas of Outstanding Natural Beauty and Sites of Special Scientific Interest and groundwater special protection zones.. The fight is tough elsewhere, except in the Marcellus, where the natives are considered “passive” by drillers and the governments with “eyes wide shut” do all that they can to export whatever is saleable.

Research on health and environmental effects of fracking move on. Research takes money, and since the companies donate to universities, many of them throttle interest by their faculty. Cornell and certain others are notable exceptions, so some progress is being made. Public awareness is gradually increasing.  The movement to divest from hydrocarbon production companies is in full swing, with worldwide divestment days on February 13 & 14.

Photovoltaic and wind energy gets cheaper and cheaper. Georgia makes it illegal to loan for such development, and Germany, which lies between 47 and 55 degrees North and has cloudy weather much of the time has 80% of its electrical energy from non-hydrocarbon sources.

Damages to the land and to other industries, demands on local governments, and the removal of the mineral resources without any compensation to local interests are largely ignored. Like the guy at the carnival says, “Round and round she goes, and where she stops, nobody knows.”

Marcellus shale drilling & fracking: boom & bust

The boom is becoming a bust; so how to handle this fracking bust?

From an Article by Lydia DePillis, Washington Post, January 15, 2015

PHOTO: Workers tap into Marcellus natural gas at an active hydraulic fracking operation outside of Wellsboro, Pa., operated by Shell. This rig is the only Shell crew operating in the area.

This is the introduction to a five part series about how communities can deal with a natural gas boom. Find the rest of the installments here: Part One, Part Two, Part Three, Part Four, Part Five.

WELLSBORO, Pa. — The sand trucks barely rumble along the quaint main street in Wellsboro anymore. Three years ago, it was difficult to have a conversation with someone walking next to you, the roar of traffic was so constant. Driving, it could take an hour to get from one end of town to another. But the trucks also came with business: Mining companies had started drilling wells all over the rolling hills surrounding this town in northern Pennsylvania, extracting the precious natural gas that lay beneath.

Hydraulic fracturing (“fracking” for short) brought a bonanza to this town the likes of which it hadn’t seen even in the heydays of lumber and coal. With 800 wells drilled over five years, royalties paid to landowners for their mineral rights flowed through the community, helping people buy new farm equipment and donate to local charities. New tax revenues poured into local government coffers that never had much to begin with.

But like all booms, it only lasted while the money was good. Natural gas prices hit a high of $13.42 per million BTU in October 2005, stayed high for three years, then started falling, fast, bottoming out at $1.95 in April 2012, and stood at $3.48 last month. Without enough profit to justify further investment, most of the activity vaporized. Shell Oil, which had bought up most of the leases in Tioga County, went from a dozen drilling rigs to one. Businesses that had been gearing up for years of sustained growth were left hanging.

PHOTO: Workers tap into Marcellus natural gas at an active hydraulic fracking operation outside of Wellsboro, Pa., operated by Shell.

“With really no warning at all, the bottom fell out of that,” says Jim Weaver, the Tioga County planner, who advises the county’s commissioners on land use decisions. “In hindsight, looking at boom and bust cycles that have gone on forever, we should’ve known that. But when the dollar’s dangling in front of you and you’re chasing the carrot, before you know it you’re out on a limb, and the limb gets sawed off.”

Already, some states have decided to avoid the chase: In November, New York Gov. Andrew Cuomo announced that he would not lift the state’s ban on fracking, out of concerns about the potential environmental and health impact. The 185-page report referenced studies conducted in Pennsylvania on outcomes like the birth weight of babies and the accident rate of truck traffic. While the evidence rarely showed conclusive adverse health impacts from fracking, it was enough to convince Cuomo that the benefits didn’t outweigh the risk.

For much of the rest of America with gas beneath it, however, there’s no going back. The discovery of “unconventional” oil and gas reserves in a handful of major subterranean shale formations known as “plays” — the Marcellus underneath Pennsylvania and Ohio, the Eagle Ford in Texas, the Bakken in North Dakota — have completely transformed American energy production, increasing income and tax revenues and driving unemployment down. The shale boom has been credited with reviving domestic manufacturing and bringing natural gas prices to levels many thought America would never see again, and even environmentally-minded politicians are reluctant to give up the economic stimulus the industry provides.

PHOTO: County planner Jim Weaver works in his office in the Tioga County Courthouse building. The natural gas boom has come and gone in Tioga County, Pa., and Weaver is in charge of making sure the community is developed in the way citizens would like.

“I want to have my cake and eat it too,” said Pennsylvania’s new Democratic Gov. Tom Wolf, in response to New York’s decision. But with gas prices so low — and other forms of energy, especially oil, becoming much less expensive — the future of communities who bet their future on fracking is uncertain. They are at risk of falling into what researchers have called the “resource curse,” where local economies over invest in a cash cow, only to sacrifice industries that might provide more sustainable growth over the long term, like tourism or manufacturing.

“Ultimately, Tioga County is a cautionary tale,” the authors wrote. “The economic benefits associated with shale development are limited, come at a price, and may disappear as swiftly as they arrived.”

America, after all, is a nation of booms and busts, from the gold rush of the 1850s to the housing bubble of the 1990s. In this latest boom, worst-case scenarios make headlines all the time: A crime wave and crippling fires and explosions struck North Dakota, for example, where cozy relationships between lawmakers and gas companies led to lax enforcement. Towns in Wyoming suffer when mining booms just pass through, over and over, while profits leave the state and then the country. And then, further down the line, the oil industry blows huge holes in the budgets of drilling-dependent states when prices sink too low to keep the rigs around.

Pennsylvania is trying to avoid that cycle, with mixed success. When gas drilling started in the mid-2000s, Pennsylvania was almost entirely new to the industry. And it has yielded undeniable benefits: According to investment advisors Raymond James, 90 percent of Pennsylvania’s job gains between 2005 and 2012 came from oil and gas. When you’re in the middle of that kind of fossil-fueled expansion, it’s tempting to think it might never come to an end.

But it always does. Whether because some newer, cheaper source of gas gets discovered, or because some key distribution point gets cut off, or because some ballot measure stops drillers in their tracks.

So the question is: If you’re in the path of the oil (and gas) industry, how can you gain from its presence, without becoming so dependent that everything falls apart once it leaves? In other words, can the resource curse be broken?

Tioga County has some of the answers. But they learned them the hard way. In the spring, researchers from the Pennsylvania Budget and Police Center did a case study on the county, and found that the positives and negatives of drilling activity basically came out in the wash.

“Ultimately, Tioga County is a cautionary tale,” the authors wrote. “The economic benefits associated with shale development are limited, come at a price, and may disappear as swiftly as they arrived.”

This is the introduction to a five part series about how communities can deal with a natural gas boom. Find the rest of the installments here: Part One, Part Two, Part Three, Part Four, Part Five.