Facts & Rumors # 316

Save these 2019 for Shale Directories Seminars

Utica Midstream March 21, 2019 Walsh University North Canton, OH www.uticasummit.com

Upstream PA 2019 April 17, 2019 Penn Stater Conference Center State College, PA

www.upstreampa.com

 

Latest facts and a rumor from the Marcellus, Utica, Permian, Eagle Ford, and Bakken Shale Plays

Rice Brothers Want To Run EQT.  You can’t beat a proxy fight. Listening to the bombastic charges leveled by both sides against the other, rhetoric spewed at the highest level — nothing beats a company’s management team and board facing off against outsiders. Monday morning, the wraps were pulled off a potential proxy fight in the oil and gas industry. Toby Z. and Derek A. Rice told independent producer EQT Corp. they aren’t satisfied with the direction of the Pittsburgh-based E&P player. It’s early in the potential proxy fight process; the Rices are suggesting improvements they believe will make EQT more efficient, return more on investment, and generally tighten the producer’s modus operandi. But the letter makes it clear: Should EQT pooh-pooh the Rice proposals, including installing Toby Z. as head of operations, and placing more experienced O&G people with plenty of planning expertise, are placed on the board and in the executive offices, fireworks are possible. EQT, for its part, is being polite: “EQT is a refreshed company with a new management team, new operating plan and substantially reconstituted board,” according to a requested comment from the company on the Rice boy’s moves. “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.” Remember, it’s early. While the $8.2 billion cash, stock and assumed debt deal EQT put together to acquire the smaller but highly successful Rice Energy made EQT the largest natural gas producer by volume in the U.S., the Rices as EQT investors aren’t satisfied with size. Yes, they want returns on the market value of their 7-plus million shares of EQT stock, but they also need the company that carried their surname to carry on – not under that name, but in success in the field, on the pad, in the individual well drilled. “EQT must add proven operational experience to the board and senior management team – in particular, individuals with experience in large-scale operational planning,” the Rices recommend. Rice Energy before its acquisition was one of the most successful independent producers of its size in the industry. And much of that success dealt with planning – Rice executives were fanatical when it came to pre-planning of every move involved in D&C – much more than most of its peers. Its executives were often conference speakers, telling the Rice story on how efficiency leads to prosperity. “EQT should improve planning through a coordinated operations schedule to reduce costs of drilling and subsequent derivative operations (e.g., completions, production, marketing, etc.),” states the PowerPoint presentation the Rices have put together in their quest to improve EQT (found online at eqtpathforward.com). Analysts contacted by Kallanish Energy on the EQT-Rice situation said they weren‘t surprised by the Toby and Derek letter and PowerPoint, and that there was little doubt the production wasn’t spur of the moment. “The timing of the release comes before EQT’s conference call this Thursday to discuss the company’s 2019 capital program and updated analyst presentation,” Sameer Panjwani, director, Equity Research with Tudor Pickering Holt, tells Kallanish Energy. “I would be very surprised if this situation is not brought up during that call.” Panjwani told Kallanish Energy the Monday release of the letter to the board and accompanying PowerPoint will be additional pressure on EQT to reveal more details on the direction the company intends to move – and how it intends to get there. “We have a proven, detailed business plan to generate an incremental $400-$600 million of pre-tax free cash flow per year above EQT’s current plans, equaling greater than $1.0 billion of free cash flow per year,” the Rice’s presentation states.“ This plan would match EQT’s current five-year production goals but generate twice the cash flow for shareholders.” The Rice letter states that over the past few weeks, in response to repeated outreach by a number of EQT investors asking for their assistance, the Rices engaged in private discussions with EQT chairman Jim Rohr and CEO Rob McNally “to express our concerns and propose solutions, which included, among other things, inserting Toby Rice into the organization with proper authority and support to oversee operations. “Unfortunately, given the lack of reciprocal engagement – and EQT pushing forward with establishing its 2019 operational plan and budget – it has become apparent that they are unwilling to make the changes needed.” The Rices quietly state that should the EQT board and company executives refuse to act upon the Rice recommendations, “we are prepared to nominate identified director candidates for election to the EQT board, if necessary.” “We have been talking to a number of EQT investors, and there appears to be a great deal of support for the Rice team: Tudor Pickering Holt’s Panjwani told Kallanish Energy. “Their proposal is not going away anytime soon.” There is one more unique twist to the potential EQT-Rice boys’ proxy fight. Of EQT’s 12 board members — certainly one not likely to lose his seat to someone with more E&P and planning experience — is Daniel J. Rice IV, former Rice Energy CEO. NatGas Pricing Taking a Pause.  Friday’s natural gas prices dipped below $4.  Many think the upward movement on pricing will proceed once the cold weather returns which could be as soon as days after Christmas.  Meteorologists are predicting very cold weather in January and February.  We’ll see if NatGas gets to $5 in January. PennEast Gets Eminent Domain.  (Thank you, MDN) It certainly seems as if the deck has been stacked against the PennEast Pipeline project, a $1 billion, 120-mile NatGas pipeline that will stretch from northeast PA to the Trenton area of New Jersey. As we pointed out in November, DTE Energy’s NEXUS Pipeline, a 255-mile pipeline from Columbia County in Ohio to Southern Michigan, received its Federal Energy Regulatory Commission (FERC) approval around the same time PennEast did, about a year ago. NEXUS is already built and flowing, PennEast hasn’t turned the first shovelful of dirt yet. It’s been a real battle for PennEast. However, things are finally beginning to look up. Last week a federal judge granted PennEast its first approval in a string of eminent domain cases, giving PennEast the right to enter and survey a property in Carbon County, PA. U.S. LNG Exports to Double by 2019.  U.S. liquefied natural gas (LNG) export capacity will reach 8.9 billion cubic feet per day (Bcf/d) by the end of 2019, making it the third largest in the world behind Australia and Qatar, the Energy Information Administration projects. Currently, U.S. LNG export capacity stands at 3.6 Bcf/d, and it’s expected to end the year at 4.9 Bcf/d as two new liquefaction units (trains) become operational. The U.S. began exporting LNG from the Lower 48 U.S. states in February 2016, when Cheniere Energy’s Sabine Pass liquefaction terminal in western Louisiana shipped its first cargo. Since then, Sabine Pass expanded from one to four operating liquefaction trains, and Dominion Energy’s Cove Point LNG export facility began operation in Maryland. Two more trains, Sabine Pass Train 5 and Corpus Christi LNG Train 1, began LNG production this year, several months ahead of schedule, and are expected to ship their first cargos within the next few weeks. Another two LNG export facilities: Cameron LNG in Louisiana and Freeport LNG in Texas, are currently being commissioned, Kallanish Energy reports. U.S. Crude Exports Get Boost from LOOP.   In the last seven days, three very large crude carriers (VLCCs) have departed LOOP’s Marine Terminal full of domestic crude oil.  As the demand for exports from Louisiana increases, the efficiency of LOOP’s vessel loading service has delivered value to the global petroleum marketplace. The three VLCCs all arrived at the LOOP deepwater port completely empty and departed fully loaded with various crude types that can be sourced from LOOP’s Clovelly Hub, including a light sweet grade. LOOP has been a hub for domestic crude production since 1996 and handles a wide spectrum of domestically produced energy including WTI, LLS, Eagle Ford, Bakken, Mars, and THB and specialty grades. These three VLCCs were loaded one after the other, significantly reducing overall load time at the Port. As the demand to load at LOOP grows, this same loading strategy can be utilized, reducing the time to fully load a VLCC at LOOP to as little as two days. “This is a great proof point of the value of our ownership interest in LOOP” said Kevin Nichols, EVP, Shell Midstream US. “The US Gulf Coast plays an important role in providing the energy that the world needs, and LOOP is strategically positioned and has the capability to respond to the growing global market demand. As we see growth in our key connected systems across the region, we also expect to see future growth at LOOP.” LOOP, as the nation’s only deepwater port, was constructed specifically for the safe and efficient handling of VLCC’s, and began export operations in February 2018. LOOP offers its vessel loading service using already-built infrastructure that both minimizes environmental risks and impacts and focuses on sustainability as the best use of our nation’s existing assets. As market demand grows, LOOP will expand vessel loading services in coordination with concerned agencies and stakeholders to ensure its activities remain fully protective of the environment and public health. FERC Approves PA-OH Pipeline. (Thank you, MDN)  FERC has finally come out of its funk. At least with respect to the RH energytrans Risberg Line project. We have been waiting and waiting and waiting to bring you this exciting news: The Federal Energy Regulatory Commission has given final approval for the Risberg Line project to begin construction! Risberg is a 60-mile, $86 million pipeline from Crawford County, PA through Erie County and into Ashtabula County, OH. According to FERC’s own schedule, an OK for the project was due no later than Sept. 27, which didn’t happen. In October, RH energytrans was diplomatic and said, “It may take a little longer than we might hope.” Their patience has paid off. On Friday, FERC pulled the trigger and sent. RR Thriving in NE PA.  We love a good railroad story–always have, always will. And here’s a great railroad story. The freight trains in northeastern Pennsylvania will this year, once again, set a new record. Last year the Delaware-Lackawanna Railroad, which operates 85 miles of track in Lackawanna and Monroe counties, hauled 8,572 carloads. This year they will fly by that number, to a new record. Why? Mainly due to frack sand used by Linde Corp, which supplies sand to drillers in the region. Translation: Drilling picked up again in 2018 in northeastern PA. ConocoPhillips Sees 25% Shale Growth in 2019.  ConocoPhillips, the world’s largest independent oil producer, sees shale production growing 25% next year even as crude prices tumble, proving the industry’s resilience in volatile markets, said CEO Ryan Lance. In the U.S., Conoco wells in the Eagle Ford Shale, Permian Basin and the Bakken field generate cash when prices hover around $50/bbl, Lance said in an interview on Monday in Houston. Conoco pumped 313,000 bopd from the three regions combined during the third quarter, or 25% of the Houston-based company’s global production. American crude output is surging, contributing to a global supply glut that has pushed prices down by third since the beginning of October. The subsequent squeeze on shale profits may slow growth next year but the industry is in far better shape than it was at the advent of the last slump four years ago, Lance said. Production growth “slows down at $50 but I don’t think it stops at $50 and it certainly continues if prices get back to $60,” Lance said. Skeptics thought shale “wouldn’t last long but it’s here, it’s a huge resource and it’s going to be resilient and long lasting.” Long Ridge Energy Receives Federal Grant.  The U.S. Department of Transportation has awarded Hannibal, Ohio, a $20 million grant to improve a rail and pipeline energy transload facility. The money will be used to construct a pipeline-to-rail transloading facility that will include truck racks and ladder racks connected to a recently constructed loop track. The Long Ridge Energy Terminal where the funds will be used is located in the heart of the Marcellus and Utica shale gas plays. The facility generates power, stores natural gas liquids and brings in frack sand. In addition to the rail infrastructure, the facility is located on the Ohio River and has two barge docks. The funding for the project was made available through the DOT’s program called the Better Utilizing Investment to Leverage Development Transportation Discretionary Grants program (BUILD). The program is designed to support roads, bridges, transit, rail, ports or intermodal transportation. Chevron Leveraging the Permian.  Chevron Corporation (NYSE:CVX) is successfully leveraging its Permian Basin division to not only offset production losses elsewhere (due to divestments, natural declines) but to also enable company-wide production growth. From 2015 to 2017, Chevron Corporation grew its oil & gas production from 2.62 million barrels of oil equivalent per day net to 2.73 million BOE/d net. That trajectory continued into 2018, with Chevron Corporation producing 2.96 million BOE/d net in Q3 2018 (2.88 million BOE/d net YTD). Let’s go over why the Permian Basin has been crucial to reviving upstream growth at Chevron Corporation.

Overview

With 2.2 million net acres in the Permian Basin, a prolific oil & gas producing region that stretches across West Texas and Southeast New Mexico, Chevron has a deep inventory of well locations worth developing. While the oil realizations Permian upstream players require to earn a decent return on new wells is a hotly contested topic, it is clear that when capable of realizing $50/barrel or more (including differentials), the upstream industry starts aggressively deploying capital to the area. 1.7 million acres of Chevron’s Permian position is located in the Delaware and Midland sub-basins, which are prospective for the most economical and prolific well locations in the unconventional realm. By unconventional, that means upstream operations that utilize horizontal drilling and hydraulic fracturing to unlock resources from shale, sandstone, chalk, and other geological formations. Breaking that down further, Chevron notes that 800,000 net acres of its unconventional Permian position is considered core (defined by acreage with development opportunities that sport a net present value north of $50,000 per acre when assuming WTI is held flat at $55/barrel). More Trouble for Atlantic Coast Pipeline.  A panel of federal judges has rejected permits for the Atlantic Coast natural gas pipeline to cross two national forests and the Appalachian Trail in Virginia, finding that the U.S. Forest Service “abdicated its responsibility” and kowtowed to private industry in approving the project. The harshly worded, 60-page decision issued Thursday by three judges from the U.S. Court of Appeals for the 4th Circuit is part of a string of legal setbacks for the 600-mile pipeline. The $7 billion project, being built by a consortium of companies led by Dominion Energy, is intended to carry natural gas from West Virginia through Virginia and into North Carolina. “We trust the United States Forest Service to ‘speak for the trees, for the trees have no tongues,’ ” the ruling said, quoting “The Lorax,” a 1971 Dr. Seuss book. “A thorough review of the record leads to the necessary conclusion that the Forest Service abdicated its responsibility to preserve national forest resources.” PA DEP New Emissions Regs.  The Pennsylvania Department of Environmental Protection (DEP) on Thursday unveiled draft regulations aimed at curbing smog-forming emissions from existing oil and natural gas production and midstream operations. The proposal mirrors Obama-era guidelines for the industry issued in 2016 for limiting emissions of volatile organic compounds (VOC) from older industry sources, part of which the Trump administration is considering rolling back. The rules would apply to storage tanks, pneumatic controllers and pumps, and certain kinds of compressors at natural gas processing plants, other midstream facilities and well sites, according to documents prepared for a meeting with the Air Quality Technical Advisory Committee (AQTAC). Operators would also be required to conduct more stringent leak monitoring and repair quarterly at well sites, gathering and boosting stations, and processing plants. Manchin May Help the O&G Industry.  Democrat U.S. Sen. Joe Manchin from West Virginia will serve as the ranking member of the Senate Committee on Energy and Natural Resources, when Congress reconvenes in January. Manchin has been a member of the committee since being elected to the Senate in 2010. “I am excited for the opportunity to continue to serve West Virginians in this new role as the lead Democrat on the Senate Committee on Energy and Natural Resources,” Manchin said. “This committee has a long history of bipartisanship that has helped propel our nation’s energy technology forward. The problems facing our country are serious, and I am committed to working with my colleagues on both sides of the aisle to find common sense solutions for long-term comprehensive energy policy that incorporates an all-of-the-above strategy ... .” The news of Manchin’s appointment came less than a week after Manchin voted against Bernard McNamee, President Trump’s nominee to the Federal Energy Regulatory Commission. “Climate change is real, humans have made a significant impact, and we have the responsibility and capability to address it urgently,” Manchin later explained in a statement after he voted to advance McNamee’s nomination, but later changed his mind. Progressive Democrats expressed opposition to the potential appointment, citing a television ad in which Manchin shot a bullet through a piece of climate change legislation. Manchin, who won a rough reelection race last month, is a strong supporter of the coal industry and frequently sides with the Trump administration and Republicans on energy matters. He has promised to go in with an open mind and take seriously concerns of the rest of the Democratic caucus, environmentalists, renewable energy advocates and others. Joe Barone jbarone@shaledirectories.com 610.764.1232

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