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Wednesday, November 19, 2014

Test of Waterless Fracking in Utica Shale Could Be a Big Step Forward

From Columbus Business First:
GasFrac Energy Services Inc. has started fracturing its first trial well in the Utica shale, the company said in its third quarter update. Multiple oil and gas companies have ownership in the well and are eyeing the results to see whether the waterless method can be expanded to other Utica wells. 
The Canadian company uses gelled propane – not water – during hydraulic fracturing. If successful, the technique would be an environmental boon for the industry that typically uses millions of gallons for each well it drills. 
Its Utica well is in eastern Ohio's oil window, which has proven to be difficult for drillers to crack. 
"We think that we've got the right formula for the Utica in the oil window and we are very excited," GasFrac president Jason Munro told analysts. 
Executives say Ohio's recent regulation of earthquakes caused by oil and gas activity could boost the fracking method, too, since not using water to create cracks in shale could lessen seismic activity.
Read the entire article by clicking here.

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Another Ruling on Ohio's Dormant Mineral Act Goes in Favor of Landowners

From Krugliak, Wilkins, Griffiths & Dougherty LPA:
Prior to this decision, the only appellate court in Ohio to confirm that the 1989 Ohio Dormant Mineral Act (R.C. 5301.56 (in effect prior to June 30, 2006)) was self-executing, i.e. contained an automatic abandonment and vesting mechanism, was the Seventh District Court of Appeals. 
The Fifth District Court of Appeals, in affirming the trial court’s decision, followed the holdings in Walker v. Shondrick-Nau, 2014-Ohio-1499 and Swartz v. Householder, 2014-Ohio-2359, and held that the 1989 Ohio Dormant Mineral Act automatically abandoned dormant, severed mineral interests and vested title to the same in the affected surface owners.  
Additionally, the Fifth District Court of Appeals held that the 1989 Ohio Dormant Mineral Act applied to the current litigation (meaning it applied to severed mineral interests which met the abandonment criteria prior to June 30, 2006) and not the amended version of the statute (amended in 2006). 
The Fifth District Court of Appeals also held that the 1989 Ohio Dormant Mineral Act was constitutional.  That portion of the decision relied upon the holding of Texaco v. Short, 454 U.S. 516, 102 S.Ct. 781 (1982), a United States Supreme Court case which reviewed Indiana’s dormant mineral statute, which is substantially similar to the 1989 Ohio Dormant Mineral Act.
Read the whole post here.

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Tuesday, November 18, 2014

Halliburton Reaches Agreement to Acquire Baker Hughes

Baker Hughes Stockholders to Receive 1.12 Halliburton Shares Plus$19.00 in Cash for Each Share They Own
Transaction Values Baker Hughes at $78.62 per Share as of November 12, 2014
Highly Complementary Product Lines, Global Presence and Cutting-Edge Technologies Will enable Combined Company to Create Added Value for Customers
Accretive to Halliburton Cash Flow by the End of Year One, with Nearly$2 Billion in Synergies and Significant Cash Flow to Support Future Returns of Capital to Stockholders
HOUSTON--(BUSINESS WIRE)--Nov. 17, 2014-- Halliburton Company(NYSE:HAL) and Baker Hughes Incorporated (NYSE:BHI) today announced a definitive agreement under which Halliburton will acquire all the outstanding shares of Baker Hughes in a stock and cash transaction. The transaction is valued at $78.62 per Baker Hughesshare, representing an equity value of $34.6 billion and enterprise value of $38.0 billion, based on Halliburton’s closing price on November 12, 2014, the day prior to public confirmation by Baker Hughes that it was in talks with Halliburton regarding a transaction. Upon the completion of the transaction, Baker Hughes stockholders will own approximately 36 percent of the combined company. The agreement has been unanimously approved by both companies’ Boards of Directors.
The transaction combines two highly complementary suites of products and services into a comprehensive offering to oil and natural gas customers. On a pro-forma basis the combined company had 2013 revenues of $51.8 billion, more than 136,000 employees and operations in more than 80 countries around the world.
“We are pleased to announce this combination with Baker Hughes, which will create a bellwether global oilfield services company and offer compelling benefits for the stockholders, customers and other stakeholders of Baker Hughes and Halliburton,” said Dave Lesar, Chairman and Chief Executive Officer of Halliburton. “The transaction will combine the companies’ product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, creating a Houston-based global oilfield services champion, manufacturing and exporting technologies, and creating jobs and serving customers around the globe.”
Lesar continued, “The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company. Our stockholders know our management team and know we live up to our commitments. We know how to create value, how to execute, and how to integrate in order to make this combination successful. We expect the combination to yield annual cost synergies of nearly $2 billion. As such, we expect that the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year. We anticipate that the combined company will also generate significant free cash flow, allowing for the return of substantial capital to stockholders.”
Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes said, “This brings our stockholders a significant premium and the opportunity to own a meaningful share in a larger, more competitive global company. By combining two great companies that have delivered cutting-edge solutions to customers in the worldwide oil and gas industry for more than a century, we will create a new world of opportunities to advance the development of technologies for our customers. We envision a combined company capable of achieving opportunities that neither company would have realized as well – or as quickly – on its own, all while creating exciting new opportunities for employees.”
Lesar concluded, “We believe that the expertise of both companies’ employees and leaders will be a competitive advantage for the combined company. Together with the people of Baker Hughes, we will establish a team to develop a detailed and thoughtful integration plan to make the post-closing transition as seamless, efficient and productive as possible. We look forward to welcoming the talented employees ofBaker Hughes and are pleased they will be joining the Halliburton team.”
Transaction Terms and Approvals
Under the terms of the agreement, stockholders of Baker Hughes will receive, for each Baker Hughes share, a fixed exchange ratio of 1.12 Halliburton shares plus $19.00 in cash. The value of the merger consideration as of November 12, 2014 represents 8.1 times current consensus 2014 EBITDA estimates and 7.2 times current consensus 2015 EBITDA estimates. The transaction value represents a premium of 40.8 percent to the stock price of Baker Hughes on October 10, 2014, the day prior to Halliburton's initial offer to Baker Hughes. And over longer time periods, based on the consideration, this represents a one year, three year and five year premium of 36.3 percent, 34.5 percent, and 25.9 percent, respectively.
Halliburton intends to finance the cash portion of the acquisition through a combination of cash on hand and fully committed debt financing.
The transaction is subject to approvals from each company’s stockholders, regulatory approvals and customary closing conditions. Halliburton’s and Baker Hughes’ internationally recognized advisors have evaluated the likely actions needed to obtain regulatory approval, and Halliburton and Baker Hughes are committed to completing this combination. Halliburton has agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, although Halliburton believes that the divestitures required will be significantly less. Halliburton has agreed to pay a fee of $3.5 billion if the transaction terminates due to a failure to obtain required antitrust approvals. Halliburton is confident that a combination is achievable from a regulatory standpoint.
The transaction is expected to close in the second half of 2015.
Compelling Strategic and Financial Benefits
  • Leverages complementary strengths to create a company with an unsurpassed breadth and depth of products and services. The companies are highly complementary from the standpoint of product lines, global presence and cutting-edge technology in the worldwide oil and natural gas industry. The resulting company will provide a comprehensive suite of products and services to customers in virtually every oil and natural gas producing market in the world. This strategic combination will create an oilfield services supplier with the ability to serve customers through strong positions in key business lines, a fully integrated product and services platform, increased capabilities in the unconventional, deepwater and mature asset sectors, substantial and improved growth opportunities and continued high returns on capital.
  • Generates significant opportunities for synergies. In addition to the compelling and immediate premium Baker Hughesstockholders will receive, the transaction will also yield significant synergies. The combination will provide substantial efficiencies of scale and geographic scope, particularly in the Eastern Hemisphere, which will enhance fixed cost absorption. Once fully integrated, Halliburton expects the combination will yield annual cost synergies of nearly $2 billion. These synergies are expected to come primarily from operational improvements, especially North American margin improvement, personnel reorganization, real estate, corporate costs, R&D optimization and other administrative and organizational efficiencies.
  • Enables increased cash returns to stockholders. Halliburton expects the transaction to be accretive to cash flow by the end of the first year after closing and to earnings per share by the end of the second year. Halliburton expects that the combined company will maintain a strong investment grade credit profile and substantial financial flexibility. In addition, the combined company will generate significant free cash flow, allowing the return of cash to the combined investor base through dividends, share repurchases and similar actions.
Headquarters, Management and Board of Directors
The combined company will maintain the Halliburton name and continue to be traded on the New York Stock Exchange under the ticker symbol “HAL.” The company will be headquartered in Houston, Texas.
Dave Lesar will continue as Chairman and Chief Executive Officer of the combined company. Following the completion of the transaction, the combined company’s Board of Directors is expected to expand to 15 members, three of whom will come from the Board of Baker Hughes.
Concurrently with the execution of the merger agreement, Halliburton withdrew its slate of directors nominated for the Board of Directors ofBaker Hughes.
Advisors
Credit Suisse is serving as lead financial advisor and BofA Merrill Lynch is also serving as financial advisor to Halliburton. Baker Botts L.L.P. andWachtell, Lipton, Rosen & Katz are serving as Halliburton’s legal counsel. BofA Merrill Lynch, as lead arranger, and Credit Suisse are providing fully committed debt financing in support of the cash portion of the consideration.
Goldman, Sachs & Co. is serving as financial advisor to Baker Hughes.Davis Polk & Wardwell LLP and Wilmer Cutler Pickering Hale and Dorr LLP are serving as Baker Hughes’ legal counsel on this transaction.
Conference Call
Halliburton (NYSE: HAL) and Baker Hughes (NYSE: BHI) will host a conference call on Monday, November 17, 2014, to discuss the proposed business transaction. The call will begin at 7:00 AM Central Time (8:00 AM Eastern Time).
An accompanying slide deck will be posted to both the Halliburton andBaker Hughes websites at www.halliburton.com andwww.bakerhughes.com/investor. Please visit either website to listen to the call live via webcast. In addition, you may participate in the call by dialing (866) 225-4091 within North America or (703) 639-1128 outsideNorth America. A passcode is not required. Attendees should log in to the webcast or dial in approximately 15 minutes prior to the call’s start time.
A replay of the conference call will be available on both companies’ websites for seven days following the call. Also, a replay may be accessed by telephone at (888) 266-2081 within North America or (703) 925-2533 outside of North America, using the passcode 1648003.
About Halliburton
Founded in 1919, Halliburton is one of the world's largest providers of products and services to the energy industry. With more than 80,000 employees, representing 140 nationalities in over 80 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir - from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field. Visit the company’s website at www.halliburton.com. Connect with Halliburton on FacebookTwitterLinkedInOilpro and YouTube.
About Baker Hughes
Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. The company's 61,000 employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. For more information on Baker Hughes, visit:www.bakerhughes.com.
Forward-Looking Statements

22 More Permits Issued for Utica Shale Drilling in Ohio

The Ohio Department of Natural Resources has made the latest weekly permitting report available, and it was another active week in the Utica shale.

22 new well drilling permits were issued.  Monroe County was the hot spot, with 7 permits.  Columbiana was next with 6.  Other counties with new well permits on the report: Belmont (3), Noble (3), Harrison (2), and Tuscarawas (1).  One week after seeing the most new activity it has had in quite a while, Carroll County had no new permits last week.

There have now been 1,630 permits issued for horizontal drilling in Ohio's Utica shale.  1,176 wells have been drilled, 618 are producing, and the Utica rig count went up again, this time to 53.

Click here to view the report.

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Hess Discusses Utica Shale Extensively at Investor Day

From Seeking Alpha, here is a portion of the comments made by Hess senior vice president of global production Michael Turner during a recent day for investors and analysts that was hosted by the company:
So now let's go ahead and talk about the Utica. So we are also very encouraged about our performance to date at the Utica. Obviously, it's a little earlier than the Bakken. We have a very solid post-appraisal plan located in the core positioning of the play. Now we have the highest NRI in the liquids-rich region, which leads to an economic competitive advantage to others. We are also, as we've talked earlier, leveraging Bakken capability to improve efficiencies and reduce costs. And I'll show you some of the transfer in the next couple of slides. 
So with our measured development plan, I state measured, I'll talk about that later, we exceed 40,000 barrels a day equivalent by 2020, with over 500 well locations and a net EUR greater than 300 million barrels equivalent. 
So Hess' acreage is located in the industry recognized sweet spot of the wet gas window. So acreage is located in the Optima, what we call Tier 1 area for both pressure and liquid content as can be seen by the map to the left. 
Test rates are strong in all pads and in all 3 Hess-operated counties as be -- can be seen on the top-right table. And longer-term performance is also very encouraging as we work through the early time facility constraints. Estimated average gross development EURs with a 8,000-foot lateral or approximately 1.2 million barrels equivalent. It is a conservative number. 
So now I would like to compare well designs between the Bakken and the Utica plays. This often gets discussed in the public. The cost are different, but they are both equally profitable. So for well lateral lens, the Bakken has more -- has for the most part, a standardized as Gerbert discussed earlier, 10,000-foot lateral length. This is based on North Dakota DSU acreage pooling. So Ohio has no pulling at this time, and requires 100% land consent. So this leads to nonstandard lateral lengths in the Utica play with varying well productivities, and I'll talk about that a little later. So in the drilling aspects, at Utica state-mandated water protection barriers and safety requirements for potential mine collisions require additional casing strings above and beyond the Bakken. And on the completion side, tighter less permeable rock in the Utica requires higher number of frac initiation points and sand volumes. As Herbert described to you earlier, this takes about 3x to 5x longer in cycle time, but it's very important in this tight, tight rock. So very important to understand that. 
So this translate into higher well cost for Utica. However, Utica has more than double the EURs and 95% NRI in the wet gas window. So these easily offset the higher costs, making both plays very comparative in overall returns. 
But there is one thing that's similar. If you haven't heard this before, I'll say it one more time. The comment thread to both plays is it's repeatable and is standardized. So we're applying the Bakken lean approach to Utica, as well as testing various wells in stage spacings just like Gerbert discussed, looking for the highest value well-designed. 
So the Lean approach is yielding similar results at the Utica. We see reduced spud-to-spud cycle times as a result of cycle times, as well as unit drilling and completion costs. All of which are happening much quicker than we saw in the Bakken. This to me shows we are learning quicker and accelerating improvements as we go to new assets. 
If you take reference to the bottom let plot, Hess' average lateral length is the longest in the industry and this equates to more productivity. This also makes land development capability, a key enabler to success, both getting land consent and also being able to allow yourself the ability to drill the longest well in the DSU, very important enabler to the Utica. 
So we expect these improvements to continue to prove in all areas going forward, as we mature our workflows described earlier. 
So now as we transition out of appraisal into development, our first guidance on the Utica is 40,000 barrels a day equivalent for 2020. Now this is based on a measured development pace that exercises capital discipline. Because we have limited remaining call by production leases, we are able to drill the best wells first in this plan and also be able -- have the capability to accelerate drilling if required. So this plan, this flexible plan equates to 2 to 3 rig program, spending about $300 million to $350 million a year. 
Now we'll watch the third-party infrastructure build outs in the area and pricing uncertainties going forward, and we will react accordingly. So now our infrastructure strategy in Utica is also quite different than the Bakken. We are leveraging existing midstream third parties to minimize capital expenditures. In the near term, third-party gathering and processing will be secure by the end of the year for all our wells drilled through 2018. We have multiple regional outlets that provide us market export flexibility and our commercial strategy is to reduce financial exposure from long-term contracts and take advantage of expected future export oversupply. So I started this presentation talking about how excited I am to work in the growth -- of this growth potential in Utica and the Bakken. They deliver double annual growth in long-term cash flow. The Bakken guidance has increased with our confirmed 7/6 development, and we see significant upside. 
Utica's first guidance indicates a 40,000-barrel a day equivalent rate by 2020 and the flexibility to turn up this program if required.
Read the whole transcript here.

And, thanks to Marcellus Drilling News, you can view the slides used during the event (pages 44-51 are of particular interest in relation to the portion of the transcript we have quoted from).




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Monday, November 17, 2014

Rice Energy Finds Dry Gas Success in the Utica Shale

From Seeking Alpha:
Summary
  • Rice reported continued drilling success in the dry gas Utica play.
  • Two new wells are performing in line with the first well, the Bigfoot 9H. The Bigfoot is outperforming initial expectations.
  • The company provided a type curve for the play.
  • Firm transportation remains a critical component of the growth plan, with FT costs making a big dent in drilling returns.
Two New Wells Confirm Success In The Utica's Dry Gas Window 
Rice Energy (NYSE:RICE) provided a performance update for its first operated dry gas Utica well located in Belmont County, Ohio, the Bigfoot 9H. As a reminder, the well tested in June of this year with an initial rate of ~42 MMcf/d from a ~7,000-foot lateral with 40 frac stages and was placed into sales during the second quarter. 
The Bigfoot's performance is beating initial expectations. The well has been producing on a restricted choke program for five months at a flat rate of ~14 MMcfe/d. To date, the Bigfoot has cumulatively produced approximately 2.0 Bcfe and continues to flow at 14 MMcfe/d. Most importantly, the well's average pressure decline has been approximately 11 psi/d, which is better than the initial 12.5 psi/d "High Case" model and may indicate a higher production trajectory over time (slide below). Rice's updated High Case for the well suggests cumulative production from the well over the first 18 months online of ~7.3 Bcf. This would put the well at par with some of the best wells drilled in the Marcellus dry gas sweet spot in Susquehanna County of Pennsylvania.
Click here to continue reading this article. 

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Worker Killed in Noble County Well Site Explosion

From the Pittsburgh Business Times:
A fire continues to burn in Noble County, Ohio, near a Consol Energy Inc. well pad after an explosion and fire Wednesday afternoon killed a Blue Racer Midstream contractor while work was being done on a condensate line leading from the well.
The name of the electrical contract worker, a Virginia resident, was not disclosed in a statement by Noble County Sheriff Stephen S. Hannum. No one else was hurt in the 4:15 p.m. Wednesday accident, which occurred on Blue Racer Midstream property next to the well pad. 
Hannum said one fire was quickly contained, but a second, which he termed "small but dangerous," continues to burn and is being monitored by emergency officials, Blue Racer employees and the Ohio Fire Marshal's office.
Click here to read more. 

Here is an NBC 4 report:
NBC4: Columbus, Ohio News, Weather, and Sports (WCMH-TV)

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GASFRAC Releases 3rd Quarter Updates

From a GASFRAC press release:
OPERATIONAL AND STRATEGIC UPDATE
  • A Special Committee of independent directors has been formed to oversee a strategic alternative process on behalf of the Corporation.
  • This Special Committee of GASFRAC's Board has engaged CIBC to identify, examine and consider a range of strategic alternatives available to GASFRAC, with a view to enhance and maximize shareholder value. 
  • During the quarter, GASFRAC successfully deployed its HOOD technology and commenced fracturing its first well in the Utica Shale formation.  
  • GASFRAC's Board is continuing to pursue a search for the appointment of a permanent Chief Executive Officer; with an announcement anticipated by the end of second quarter 2015.  
  • GASFRAC is not expected to be compliant with the terms of its Revolving Credit Facility at December 31, 2014, specifically the obligation to maintain a Fixed Charge Coverage Covenant Ratio of 1.15 to 1.00. GASFRAC is working with its lender to resolve the issue.
Click here to read the whole press release.

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