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Thursday, May 21, 2015

Noble County Chamber of Commerce and Tourism Bureau Speak Out Against Ohio Severance Tax Proposal

From Gas & Oil:
The Noble County Chamber of Commerce and Tourism Bureau, Caldwell, once again voted to oppose the governor’s severance tax proposal on the shale oil and gas industry in Ohio during the monthly Board of Director’s meeting. 
In a statement from the Chamber and Tourism Bureau, Jill McCartney, president of Chamber, said, “The board recognizes that Utica Shale development is in its infancy in Ohio and that it will take several years to determine the full economic opportunity in the shale formation. Ohio has been a business-friendly state and should continue to encourage gas and oil production, and not build barriers that would jeopardize that growth in this industry or any other industry. 
“The Appalachian region has experienced slow growth and high unemployment for many years. Drilling in the Utica Shale play could result in economic growth that has not been seen in decades.

“There are over 30 shale developments in the United States and many more overseas. If we over-tax the industry in Ohio, we will not be able to compete with other areas where the taxes are lower.

“We are not willing to risk this new opportunity. We have the chance to experience unparalleled economic change in a part of the state that lags behind in employment, income and other critical measures.
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PDC Energy May Resume Utica Shale Drilling Earlier Than Expected

From Columbus Business First:
PDC Energy Inc. (NASDAQ: PDCE) suspended its Ohio oil and gas drilling operations in December because it saw better economics in the shale field closer to its Denver home. 
Now, based on positive results from the wells it already drilled in the Utica shale play, PDC could bring back a rig sooner than expected. The company told analysts this month that its Dynamite well pad in southeastern Guernsey County is outperforming cost and production projections.

“The Dynamite continues to, I think, surprise us,” said Scott Reasoner, PDC’s senior vice president of operations. 
The company has high hopes for another wellpad north of the Dynamite pad that is set to start production.
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Wednesday, May 20, 2015

Now Is the Time to Own the Oil & Gas Leaders: Keith Schaefer

Source: Tom Armistead of The Energy Report  (5/19/15)

U.S. shale oil producers have responded to the oil price collapse so quickly, and with such discipline, that they've shown they are able to turn production on and off as if with a light switch. As Keith Schaefer tells The Energy Report, that means it's time to be nimble, and to keep small positions until oil finds a stable new price level.

The Energy Report: Keith, the first U.S. grassroots refinery in nearly 40 years just began operation in North Dakota. Is the growth in U.S. oil production going to catalyze refinery construction?

Keith Schaefer: I'm going to say no. U.S. production has peaked and we're doing just fine, so I don't see any great need for more refineries right now.

There was talk a couple of years ago, particularly in 2012–2013, that with unbridled shale oil growth we would need more refineries. But the producers have been more disciplined than anybody expected in the last three months, with the rig count declining sharply and then staying down. I think we're going to see a drop in U.S. production, so I don't see the need for any new refineries right now. The only thing that could change would be even more demand growth, which we're seeing because of lower prices. Somebody might get the idea that we need another refinery to meet that demand.

Right now, refinery crack spreads are actually very good. They're $20–25 per barrel ($20–25/bbl), which for this time of year is fantastic. But I don't know if that's good enough to warrant somebody spending tens of billions of dollars to build something new. The other thing is that the refinery industry has been pretty good at incrementally adding light oil capacity around the country. A thousand barrels a day (1 Mbbl/d) here, 2 Mbbl/d there—that has added up over the last two or three years. I don't know what the exact number is, but certainly there's been no problem in getting gasoline to market, as you can tell by the big drop we've had in gasoline prices over the last six months.

TER: Is the gasoline price going lower?

KS: No, I don't think the price is going lower. We've had a nice little rally in the last month, with oil prices back to about $60/bbl on the WTI (West Texas Intermediate) and almost $70/bbl on Brent.

I think it's important that investors realize the gasoline price is based on Brent pricing, not on WTI. We're exporting more gasoline-refined products out of the U.S., so we're competing with foreign buyers for our own energy. I think that's why gas prices are a bit higher than people think they should be; they keep thinking about WTI, not Brent.

TER: The new U.S. production is lighter than what U.S. refineries were designed for. Are the U.S. refiners retooling?

KS: Well, a bit. Like I said, you're getting 1 Mbbl/d here, 1 Mbbl/d there, of light oil capacity. Refiners are also trying to increase the amount of distillates they produce, because generally that's a more profitable product—jet fuel and diesel fuel, which is what Asia uses. Asia runs on diesel. That's definitely Brent pricing, so there's more margin in that. Everybody's been trying to reduce heavy oil. The big exception would be BP Plc's (BP:NYSE; BP:LSE) Whiting, Indiana, refinery, which just went from mostly light oil to mostly heavy oil.

TER: How has the delay in approval of the Keystone XL pipeline and resistance to Canadian pipelines going both east and west affected Canadian oil sands producers?

KS: So far there is not much impact. The heavy oil discount is quite tight right now because the Gulf Coast is getting a lot of Canadian oil that it never used to get. Enbridge Inc. (ENB:NYSE) has got the Flanagan South Pipeline moving, so it's able to bring 300–350 Mbbl/d more Canadian crude straight to the Gulf Coast than it used to. That's not quite as big as Keystone, but between what rail has done in the last two years, going from zero to just under 200 Mbbl/d, the incremental oil sands production has been able to find a way down to the Gulf Coast. There's actually more Canadian oil now going to the U.S. than ever before. That's great news for Canadian producers.

As you said, most of the refineries down there are geared toward heavy oil. Keystone probably will start to be important next year or the year after. Rail and the Enbridge Flanagan South line bought Canadian producers one to two years' grace on their growth in production. It's going to hit the wall again very quickly because oil sands production is going to rise anywhere between 50 Mbbl/d and 120 Mbbl/d every year for the next five or six years. Keystone will come back into importance fairly quickly.

TER: Is refinery construction on the table in Canada?

KS: Oh yes. The Alberta government is building a refinery, the North West Upgrader. I think it's relatively small—somewhere around 75 Mbbl/d. But from private industry, there is just no appetite for a refinery in Canada. You need a big petrochemical complex surrounding your refinery complex, and you just don't have that in Canada. The refineries are either in Edmonton, Alberta, or in Sarnia, Ontario. Sarnia has a petrochemical complex, but with the government there now, you're never going to see another refinery in Ontario. You might see one in Alberta, but, again, it's not going be as economic because it would just be producing gasoline, and not as many petrochemical products.

TER: Speaking of Alberta, how will the election results there affect refiners and oil sands producers?

KS: I don't know if it's going to affect oil sands or refineries that much. Because of the dirty oil moniker, if there's one thing the New Democratic Party (NDP) government might go after, it's trying to get the image of the oil sands in better shape. I think stronger environmental rules could really help the industry in the long run. That's going to cost some money, and potentially put a crimp into some cash flows. The producers don't want to disturb their tailings; they just want to plant poplar trees over them and let them go back to nature. I don't know if the NDP is going to allow that.

From a tax point of view, I don't think the elections are going to make much difference. There is talk about raising corporate income taxes, but the reality is that most, if not all, the producers lose money every year on an accounting basis. There's not going to be much impact for the oil patch. Royalties could go a little higher, but I don't see them going much higher. Honestly, the fear is greater than what the reality will be. The bark is worse than the bite.

TER: Has the price of oil found its new level?

Links for 5/20/15: Utica Shale Production Growth Impresses, Natural Gas Prices on the Rise, and More

Market Realist:  Utica Shale Gas Production Races Ahead in April   -   "According to the U.S. Energy Information Administration (or EIA), the Utica Shale in eastern Ohio has become one of the fastest growing gas-producing regions in the United States. In its Drilling Productivity Report (or DPR) released on May 11, 2015, the EIA estimates that in April, Utica Shale gas production reached 2.38..."

Shale Play:  Drillers still taking water from Ohio Creeks   -   "XTO Energy stopped drawing frack water from McMahon Creek in Belmont County in December, but the company is one of several Utica and Marcellus shale drillers once again pulling from streams across Ohio for..."

The Daily Caller:  Two Graphs Show Exactly Why Saudi Arabia Wants To Crush Fracking   -   "There’s an oil price war going on, and OPEC thinks it can win by not cutting production and pricing out companies producing oil from U.S. shale formations. And now, the Energy Information Administration (EIA) has some charts that show why Saudi Arabia and other OPEC nations are afraid of America’s..."

Seeking Alpha:  PDC Energy - Utica Comes Out Swinging, Wattenberg Plugs   -   "A high-flying shale developer focused on the Niobrara and Codell formations in the Wattenberg Field in Colorado and the Utica play in Ohio, PDC Energy Inc (NASDAQ:PDCE), had plenty of good news to give investors in its latest updates. Production from its two areas of operation jumped up by..."

Market Realist:  Natural Gas Prices Touched a 4-Month High Last Week   -   "Natural gas prices had a good week. Prices mostly increased between May 11 and May 15, closing at $3.016 per MMBtu (million British thermal units) on Friday, May 15. This was 4.7% higher than last Fridays close of $2.88 per MMBtu. Natural gas prices affect the profitability of natural gas producers like..."

Bloomberg Business:  Oil CEO Wanted University Quake Scientists Dismissed: Dean's E-Mail   -   "Oil tycoon Harold Hamm told a University of Oklahoma dean last year that he wanted certain scientists there dismissed who were studying links between oil and gas activity and the state's nearly 400-fold increase in earthquakes, according to the dean's e-mail recounting..."

ShaleOhio:  Federal judge rules pipeline can cross holdout properties in Pennsylvania   -   "A federal judge has ruled that the company building a 124-mile pipeline to transport natural gas from the Marcellus shale play to New York can build across seven Pennsylvania properties whose owners had not agreed to provide access to their land, reports Farm and Dairy. In Constitution Pipeline Company, LLC v. A Permanent Easement for 1.84 Acres, M.D. Pa. Case No. 3:14-cv-02458-MEM, Judge Malachy Mannion..."

NGI:  Oil / Gas Severance Tax Still Under Consideration in Ohio Senate   -   "The Ohio Senate has opted to craft its own state budget rather than work from a version passed by the state House of Representatives last month or borrow from Gov. John Kasich's proposed budget, which called for a 6.5% severance tax..."

Energy & Environmental Law Blog:  Supreme Court of Ohio Accepts Wendt v. Dickerson   -   "On June 20, 2015, the Supreme Court of Ohio accepted the appeal in Wendt v. Dickerson, a case from Ohio’s Fifth Appellate District involving Ohio’s Dormant Mineral Act (“DMA”). The Court will consider: (1) whether the 2006 version of the DMA is solely applicable in determining the ownership of minerals when the surface owner did not make a claim for the..."  This Innovation Will Help U.S. Companies Win The Oil Price War   -   "Although some US oil companies are struggling with low oil prices, a new wave of innovation is hitting the oil patch, allowing for a significant reduction in drilling costs. A variety of different improvements in production are starting to show up at all levels across the industry from..."

Natural Gas Now:  Penn State Explains Their Groundwater Study   -   "We covered the recent Penn State groundwater study and Penn State has responded. We post the entire response here as a matter of fairness and ensuring all facts are available, only adding emphasis to some key points. Frequently asked questions about the study “Evaluating a groundwater supply contamination incident attributed to Marcellus Shale gas development” by Llewellyn GT, Dorman F, Westland JL, Yoxtheimer D, Grieve P, Sowers T, Humston‐Fulmer E, Brantley SL, 2015 (PNAS, doi: 10.1073/pnas.1420279112). The information presented below was developed by several of the study’s co‐authors including..."

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Third Partner Being Sought for Proposed Ohio Cracker Plant

From Reuters:
Thailand's PTT Global Chemical PCL said it aims to sign in the second half of 2015 a deal with Japan's Marubeni Corp and a new partner to jointly invest in a $5.7 billion petrochemical complex in the United States.

Thailand's largest petrochemical maker will hold a more than 51 percent stake in the project, Patiparn Sukorndhaman, executive vice president for finance told reporters. PTT is seeking a third partner to jointly invest in the project in addition to Marubeni, Sukorndhaman added. 
"Marubeni specialises in trading business. Having Marubeni as a partner will help us to penetrate the North America market," Patiparn said, adding PTT is looking to select one of five potential partners that are interested in the project. 
The stakes that would be held by Marubeni and any third partner are still under negotiation.

PTT Global, petrochemical flagship of state oil and gas company PTT PCL, has selected Ohio as the site of a one-million-tonne olefin cracker so it can use ethane from the Marcellus shale as the feedstock, it said in a statement.
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Tuesday, May 19, 2015

Utica Shale Academy is Expanding

From The Review:
The Utica Shale Academy (USA) is expanding, and beginning this fall high school aged students will be able to enroll at a satellite location within the Columbiana School District.

The Columbiana Board of Education approved the satellite location following a presentation by USA director Eric Sampson this week. 
Superintendent Don Mook said hosting the academy within the high school building will open up the door for students in the northern part of the county who may not have been able or willing to drive to the Southern Local location. 
Formed last year, the academy functions as an open enrollment charter school within the Southern Local High School through an agreement with the Jefferson County Educational Service Center (ESC), and students in grades 9 through 12 can earn certifications through the academy for careers in the oil and gas industry. 
Academy students also fulfill their high school graduation requirements through the courses, which are a combination of online and hands-on learning, allowing for a seamless transition to colleges and universities for their associate degree in related fields.
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Franklin Township Ends Road Use Maintenance Agreement After Chesapeake Refuses to Do Repairs

From Shale Play:
The current state of two Franklin Township roads along with an oil and gas company's refusal to cooperate has prompted trustees to sever its road use maintenance agreement. 
Trustees voted during a recent meeting to terminate its RUMA with Chesapeake Energy after the oil company opted not to take responsibility to repair Acker Road and Nature Road, saying the roads are the township's responsibility. 
The RUMA, which was worth $60,000, states that Chesapeake is responsible for maintenance of the roads as the company conducts drilling activity and is to keep them in "as good" or "better" condition. 
In a voice message received by trustee Mike Lutz, a representative from Chesapeake said the company has ended drilling and is now in "production mode." As a result, the company is not responsible to repair the roads. The representative also said a letter in writing would be needed in the event the township were to end the RUMA.
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Some might say that this doesn't seem like a wise move by Chesapeake from a community relations standpoint.

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Utica Shale Now Over 1,900 Permits; Approaching 900 Producing Wells

Permitting activity continued to be slow and steady last week, according to the latest weekly report from the Ohio Department of Natural Resources.

5 new permits were issued during the week ending May 16.  2 of those permits were for Rex Energy wells in Carroll County, 2 were for Chesapeake Energy wells in Harrison County, and 1 went to XTO Energy for a well in Belmont County.

While this was still a somewhat slow week for permitting, it was enough to push the Utica shale over another milestone number.  There are now 1,902 permits issued for horizontal drilling in Ohio's Utica shale.  Further, 1,484 wells have been drilled and 896 are now producing.  The Utica rig count continues to sag, standing at 25.

View the full report below or in The Daily Digger mobile app.

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