Replies to This Discussion

Permalink Reply by Tim on February 21, 2014 at 4:51pm

How many acres did they take over from Victory energy?

Permalink Reply by peter gottlund on February 22, 2014 at 12:34am

Tim, I am not sure exactly, but my understanding is that Tenaska pretty much is in operational management of the whole ten thousand acres of what is being called the Germania Project. Tenaska has partnered with UGI to put in the necessary pipeline to take away the product. I am assuming that they will develop the play from the east and move westward from Germania. The TRAUB site and Paul site are in place. There are quite a few wels permitted. Ultra seems to be pushing westward also.

Permalink Reply by peter gottlund on February 28, 2014 at 9:46am

100 views and nary a reply. This really is a quiet group of interested mineral rights!
So, while looking about, I came across the 4th Quarter Earnings conference call with Ultra. Perhaps some of you on the border with Tioga might be interested.

With the 2013 results behind us, let's shift our focus to 2014. In 2014, as we return to profitable growth mode at Ultra, we have a fairly conservative plan put together. We plan to invest where our margins returns are improving, and want to continue generating free cash in our core positions, core assets. With our $560 million capital budget, production grows 7% to 8%, but that's not the key item here. What's more important is our cash flow and EBITDA growth of 40%. And that includes $1.25 per Mcfe basis differential in the Marcellus. We are putting more money to work in Wyoming and Utah and withdrawing capital from Pennsylvania. The result will be a tripling of oil production, fairly constant natural gas production, and we should generate more than $150 million of free cash.

So let's talk about assets and return objectives. In Wyoming, with an estimated natural gas price of $4.50, and our lower cost to drill, and complete wells of approximately $3.8 million, we expect returns of over 70%. In Uinta, with a wellhead oil price of $80 per barrel, and well cost of $1.5 million, we expect returns of over 500%. At a reduced oil price of $64 per barrel, we still expect returns exceeding 300%. Development will be focused in the best areas of the field, where realized oil prices as low as the mid-$20, would still yield returns in excess of 20%.

In Pennsylvania, by investing capital, we could certainly increase production growth in cash flow but not profitability. Due to increasing basis differentials, margins are decreasing, returns are limited and capital efficiency disappears. As a result, we are reducing capital from over $100 million in the Marcellus in 2013 to a mere $25 million, 2014. An early look at the 2014 to '16 3-year plan, show the continuation of the 2014 themes.

Basically they are putting their money into Wyoming and Utah and the wet gas play. Also, apparently Shell and Anadarko are on board with a waiting game.

Tenaska has brought UGI into their plan to fuel electrical energy generation. Interesting. Seneca and National Fuel Gas the same.

Permalink Reply by Jack Young on February 28, 2014 at 3:57pm

I think the reason nobody replied is that nobody has any news. Ultra's results were poor enough that it's unlikely anyone is going to drill additional wells in that area for many years unless prices rise substantially. I would be surprised to see Tenaska do anything more than perhaps try a test well or two before their leases expire just to see if things are any better where they are. But the odds are long. There have been enough uneconomic wells drilled nearby that it woud be pretty foolish to bet that anything Tenaska might do would work out better. We need higher gas prices, better technology and perhaps a different target formation.  

Permalink Reply by peter gottlund on March 1, 2014 at 2:34am

I understand what you're saying, and that has been the story.
But I am wondering if some of the drilling inactivity in general is about marketing and not just price and cost. A well can now be drilled and fractured for half the cost of a few years ago. Time to drill, I've read can be as little as three days!
Infrastructure and market. UGI in its reports, says it will spend 25 million out of a planned 65 million this year on pipeline in the Germania Project. One would assume to take the gas to their power plants. Perhaps that formula will be an answer for the continued development across the northern counties. UGI's hookup to a dedicated supply will control their costs.
Is anyone involved in this side of the equation in Potter? I am not interested in how much money for ROW, but where it is happening. There are pad sites to the east of Germania that must eventually be connected. Then there are the Paul and TRAUB wells and a compressor nearby. This is all sort of old news. As Jack has supposed, maybe there isn't any new news!
Tenaska has an exploration arm, but it's real business is building out electricity generation plants. There are six or seven newly permitted power generating facilities in Pa. Pipelines and where they go and to what use is important. Versus Ultra and others who drill and then are at the mercy of an unpredictable end user, not to mention, someday foreign markets.
And then... What about drilling under State Forest (leased from State) from private leaseholds?
And then... If it doesn't quit snowing, nothing's going to happen!

Permalink Reply by Jack Young on March 1, 2014 at 5:40am

I'm not sure that costs and/or drilling times have fallen that much over time. Tighter regulation has offset much of the savings that might normally have been achieved. But this is rounding error - the main problem for Potter County right now is that the production has been really poor. We have royalties in many of the currently producing wells, and none would be profitable at even double the gas price. No power plant can make money paying more for their gas than the market price - there's no free lunch in either business. So I don't expect any real Marcellus drilling activity in Potter County for some time. We just didn't get lucky with the geology - it's as simple as that.     

Permalink Reply by peter gottlund on March 1, 2014 at 6:30am

Okay, I have to believe that you know what's up. Don't want to sound argumentative. Just trying to figure out what Tenaska is doing and why they want to lease a lot of land in a poor performing area? And why, according to UGI's annual report, did they invest $24 million in non-operating interests in Marcellus gas wells? How many wells might that be an interest in? Could storage be an interest? Dare I bring up the "Utica"?!!
Are your wells single or multilateral? How large a unit?

Permalink Reply by Jack Young on March 1, 2014 at 7:33am

Tenaska bought in before it was clear that the geology was so poor in that area. I've spoken to one of their land people - they know the situation now.

We have royalties in 10 active Marcellus wells within a couple miles of the Tenaska acreage (all normal sized units, some multiple wellbores), but you can find the production from everything on line and don't need to be a royalty holder to get the story any more.The Marcellus isn't suitable as a storage reservoir, and any Utica potential in that area is completely speculative. UGI obviously invested in non-operating interests elsewhere, as Tenaska hasn't drilled locally, and many places are much better. The Marcellus is profitable in quite a few counties, just not Potter.

PGE, SM Energy, Range and Penn Virginia essentially let much of their acreage in Potter County go for nothing once the poor productivity got established. Ultra and Shell aren't leasing anything new. A couple years of poor production changed the landscape dramatically.  I wish it wasn't true, but that's where we stand right now.

Permalink Reply by peter gottlund on March 1, 2014 at 8:07am

Okay Jack, you are helping! Still need to push on a little further.
So UGI spent their sheckles somewhere else. But they did announce a deal with Tenaska to install gathering lines, etc. Perhaps Tenaska wants to drill, create proven reserves, of any quantity, and offer up a package to a producer? Silk purse out of...
Would they really want to spend the capital on drilling wells to hold a bunch of leaseholders for the future?

On a more technical note. Your production report experience is the "reality", and no amount of spin can change that. Have you seen seismic studies of your area? Did the predictions from the studies mirror the reality, even if seen in hindsight? Does your geology look pretty much like the area in general? Marcellus wise.

Permalink Reply by Jack Young on March 1, 2014 at 10:35am

To book proven reserves on your adjacent acreage, you need to establish production that's economic/profitable. Drilling a couple marginal wells would therefore merely prove that the adjacent acreage didn't have any proven reserves. There's no trick for turning dud wells into a valuable asset.

My understanding is that some of the pipe UGI was planning to build will be useful to their system regardless of whether Tenaska drills a single well. Either way, they won't be laying pipe without the gas to make that pipe profitable.

Seismic has little value when you're developing the Marcellus. You want to avoid faults, of course, but given all the nearby storage fields I think that the geology in southeastern Potter County is already pretty well known. What has happened over the past couple years is that the industry has discovered that Potter County has thinner Marcellus than they expected, and that the rock appears to be of lower quality in most locations. That's what has put the industry off additional drilling.

The best shale well in the county may be Shell's Geneseo test in Allegany Township. It's not a money-maker either, but has produced over 1 BCF and is shallower than the Marcellus so slightly cheaper to develop. Seneca drilled a Geneseo test in Sweden Township that wasn't so good, however, so who knows if there's any real potential there.

Permalink Reply by peter gottlund on March 3, 2014 at 3:14am

Very sobering!
How about some up beat news from Potter County Today. Penn State Webinar states:

And it’s not just the Marcellus Shale that holds gas, Henderson noted. At least four other shale “plays” at varying depth have been confirmed to be productive. One layer, the Utica Shale, is being tapped in Beaver, Butler and Lawrence counties. Most recently, Royal Dutch Shell tapped a Utica Shale well in Tioga County that has a initial yield more than three times the state’s most productive Marcellus Shale well, Henderson said.

So, Tenaska wants to lease certain parcels in Abbott and West Branch. $500 per, 15%, five years. Perhaps just to play wait and see? If they bought in badly it is one of two choices. The other to walk away. Or
Drill a well or two. Perhaps a bit cheaper than those drilled earlier like Jack's. UGI puts in a pipe. Tenaska sells out. The well must be at least "good" I would imagine. If not, the remainder of area, Pugh Clause or not, will be effectively worthless.
Oh well.
Tomorrow, the sun will come out tomorrow!

Permalink Reply by Jack Young on March 3, 2014 at 7:56am

Tough choice, but I'd certainly take the $500/acre. Tenaska hasn't offered us that on our acreage nearby, unfortunately, but our open acreage isn't right inside their existing acreage position either.

And that report on the Utica in Tioga County needs to be taken with a big grain of salt. They released late 2013 gas production figures for that well in mid-February, and it was nothing like the Penn State webinar suggested.

Either way, at least people are trying to make some money in the Utica, and good things happen only when people drill wells.

 

• ‹ Previous
• 1
• 2
• Next ›
• Page