Current Events/Links/Press Releases/General Info

Consol issued a press release today updating their operations, including info on drilling activity in the Marcellus.

http://phx.corporate-ir.net/phoenix.zhtml?c=66439&p=irol-newsAr...=

Randy

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Permalink Reply by Randall P King on June 4, 2012 at 1:30pm

Gulfport Energy has provided an operational update on their website for Utica followers. See the link...

http://ir.gulfportenergy.com/releasedetail.cfm?ReleaseID=679457

Randy

Permalink Reply by Randall P King on June 4, 2012 at 11:13pm

Chesapeake is putting two large blocks of their Ohio Utica acreage up for bid. Looks like they will only retain the NGL fairway of the Play. See the link...

http://www.meagheradvisors.com/resources/project/Chesapeake%20Utica...

Randy

Permalink Reply by Jim Litwinowicz on June 4, 2012 at 11:21pm

Interesting that they are not selling the Trenton Black River or the Rose Run

Permalink Reply by Randall P King on June 5, 2012 at 11:35am

Here's a group of new articles on the Utica. See the link...

http://www.drillingahead.com/page/utica-shale-news

Randy

Permalink Reply by Jack Straw on June 5, 2012 at 12:26pm

An interesting short article:

http://www.zerohedge.com/contributed/2012-06-04/capital-destruction...

 

A particularly interesting plot - note the Marcellus contribution:

 

 

Permalink Reply by Utica Shale on June 16, 2012 at 12:53pm

Jack,

 That appears to be a doubling of production.  When the Ohio Utica comes online that will add even more production. What is going to "consume" all of this production?

 

 Certainly, the drillers knew that if they doubled production that Natural Gas prices would collapse. So, why did they do it? Is this some kind of strategy to kill off the small & med sized drillers? Are the larger drillers trying to form a "monopoly"?

 

Permalink Reply by Jack Straw on June 16, 2012 at 7:50pm

RE: “That appears to be a doubling of production.”

 

The previous plot is for Shale Gas. The production of the unconventional Shale Gas has, as you noted, exploded over the past two years. The economics of unconventional Shale Gas was such that it, to a great degree, resulted in the halt of drilling for traditional (conventional) deposits of Natural Gas.

It would be interesting to additionally see a similar plot of production from conventional gas wells; I would expect such a plot to show a decline over the same period as the Shale Gas plot showed a rapid rise. However, the decline of conventional gas production would not be nearly as dramatic as the observed increase in unconventional Shale Gas.

Before the realization that the unconventional Shale Gas deposits could be economically exploited, the U.S. drillers were on a “treadmill”, attempting to drill enough wells to offset the decline in existing producing wells; the new reality of  unconventional Shale Gas has (temporarily?) thrown us off of that treadmill.

 

 

RE: “When the Ohio Utica comes online that will add even more production.”

 

There has been a “flight” of rigs from the “dry gas” areas to the “wet gas” areas (especially the Utica) as declining Natural Gas prices (resulting from the new oversupply) have crippled the economics of the dry gas areas. The economics of the “wet gas” wells are buoyed up by the high prices afforded to the associated Natural Gas Liquids (NGLs) and Oil constituents. But, as you noted, “wet gas” wells still produce a lot of “dry gas”.

 

 

RE: “What is going to "consume" all of this production?”

 

That is the “Billion Dollar” question.

Unconventional Shale Gas (due to its more attractive economics) will displace declining production from conventional gas drilling.
Unconventional Shale Gas (due to its more attractive economics) will displace a significant amount of Coal in the production of electricity. Some of the substitution of Natural Gas for Coal will be reversed when Natural Gas prices increase; however, for environmental and political reasons, much of the switch to Natural Gas will likely be permanent.

Unconventional Shale Gas (due to its more attractive economics) will displace an amount of diesel and gasoline as a transportation fuel.

Due to its more attractive economics, Natural Gas will result in a resurgence of industry that had migrated overseas due to lower labor costs. The availability of cheap North American Natural Gas as a feedstock will more than offset the higher American labor costs. The availability of cheap North American Natural Gas as an energy source will more than offset the higher American labor costs.

 

From the Summer of 2011 through the Winter and Spring of 2012, weather was atypically mild in the natural Gas consuming areas. A cool Summer and a mild Winter resulted in less need for air conditioning and heating; fewer Cooling-degree days and Heating-degree days required  less Natural Gas. A “kind” 2011 Hurricane season in the Gulf of Mexico resulted in fewer days of Gulf Coast Shut-in Natural Gas production. 2011-2012 weather has (so far) transpired against Natural Gas prices.

 

Another factor that will speed up the process whereby supply and demand come to be more in balance is the steep decline curve for the unconventional Shale Gas wells.

Once drilling slows and backlogged fracs and well completions are taken care of, the steep decline curve kicks in.

 

All the above elements will take time to effect a reduction in the current oversupply of Natural Gas. The ultimate cure for low Natural Gas prices are low Natural Gas prices.

 

A positive indicator is found within the latest report from the Energy Information Agency. The current slope of the red line on the plot below shows a change in slope (from the curve for the previous five years); the year-over-year surplus in storage appears to reduce (over time) if this “new” slope is maintained. My understanding is that full storage (with line pack) amounts to around 4200 Bcf; we may reach that in November; an exceptionally hot Summer may prevent that from happening.

                       

Plot is from: http://ir.eia.gov/ngs/ngs.html

 

A situation I expect to develop is that as drilling increases in the “wet gas” areas, the North American price for the various components of the Natural Gas Liquids (ethane, propane, butane, and pentane) will decline in price – as these commodities become over supplied. As NGLs become more in surplus, the economic attraction of the “wet gas” areas will temporarily decline.

 

 

RE: “Certainly, the drillers knew that if they doubled production that Natural Gas prices would collapse. So, why did they do it?

 

There was a “land rush” to acquire leases as one company competed against its peers to accumulate an acreage position. And, as a result of this “land rush” there was a requirement to drill in order to hold that acreage. “Boom-bust” cycles seem to be an integral part of the Oil & Gas industry – going back to the years following Col. Edwin L. Drake’s first well.

I give you the Oilman's prayer: “Please, Lord, give us just one more boom.....and this time I promise not to piss it all away!”.

I think that you give the Oil & Gas industry too much credit in proposing that they had the foresight necessary to predict the current price collapse; the industry has a terrible track record in reading a “Crystal Ball” (even when it should be crystal clear).

 

RE: “Is this some kind of strategy to kill off the small & med sized drillers?”

 

The small drillers had the resources and patience to drill the (relatively) cheap shallow conventional wells. These small drillers (to a significant extent) have either sold out  their “Held by Production” acreage to the mid sized or large O & G companies (and retired to their private island with their new found wealth) or are waiting to do so. The small operators lacked the financial resources required to drill up their deep unconventional Shale Gas acreage; why fight it, take the money and run.

The mid sized O & G companies have either stayed in the game, or they have sold out their HBP acreage to the large O & G companies or the Multi-Nationals. Suddenly the (very marginal) HBP acreage of the small and mid sized operators became very valuable; many operators that were barely making expenses were now sitting on an absolute fortune  – they sold out. I do not see this as a strategy to kill off the small & mid sized drillers, simply Capitalism at work.

 

RE: “Are the larger drillers trying to form a "monopoly"?”

 

The large O & G operators and the Multi-Nationals had long been abandoning onshore North America for Offshore and International. As political uncertainty (both International and Federal Offshore) complicated matters and the potential value of the unconventional Shale Gas Plays became apparent, the large O & G operators and the Multi-Nationals moved back into onshore North America and into the Shale plays; the cheapest and quickest way to do this was by buying up smaller companies that had a lot of acreage HBP (though marginal shallow wells).

There still exists a lot of competition, with many companies holding acreage.

The need to tie up large acreage blocks and associate these blocks with pipeline and other infrastructure resources results in particular operators specializing in particular areas. But the situation is far from one that I would characterize as a monopoly.

 

All IMHO,

                    JS

Permalink Reply by Randall P King on June 16, 2012 at 8:47pm

JS, An excellent post. I think your points are right on the money. Thanks for taking the time .

Randy

Permalink Reply by Randall P King on June 12, 2012 at 2:53pm

The Ohio DNR has updated the permit/drilling activity reports for the week of June 3. See the link...

http://www.ohiodnr.com/oil/shale/tabid/23174/Default.aspx

Randy

Permalink Reply by Randall P King on June 15, 2012 at 7:20pm

If you're interested in Chesapeake, their stock, or in their Ohio Utica acreage which is up for sale, you might find this article interesting. See the link...

http://seekingalpha.com/article/661521-chesapeake-lucrative-15-entr...

Randy

Permalink Reply by Randall P King on June 16, 2012 at 3:57pm

Some current info on the Utica/Ohio play. For those near Canton, OH you should read the 3rd article down regarding a session at Stark State on Tue June 19th at 5:30PM. See the link...

http://www.ohio.com/blogs/drilling

Randy

Permalink Reply by craig on June 21, 2012 at 12:20pm

A very informative, to the point, explanation of this gentleman's change of viewpoint on man-made global warming. 

Global warming: second thoughts of an environmentalist

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