New Report Validates LNG Export

A report released yesterday by the Bipartisan Policy Center (link to report; article about it) concluded the following:

"...The scenario analysis revealed that within the suite of natural gas supply and demand assumptions considered, there are ample domestic supplies of natural gas to meet future demand without significant price increases. 

"Similarly, the analysis shows that the United States is uniquely positioned to take advantage of the economic, environmental, and energy security benefits of the country’s large natural gas resource base. Natural gas resources have the potential to create new market opportunities for expanded natural gas use in ways that will grow the economy and improve the environmental performance of the U.S. energy system, if the environmental challenges associated with natural gas development using horizontal drilling and hydraulic fracturing are addressed by industry in collaboration with state and federal regulators."

Haynesville Shale Rig Count: -1 to 21

For the third consecutive week, the Haynesville Shale rig count was down one rig.  It now stands at 21, with Louisiana shedding two rigs to end the week at 13 (Anadarko and Petrohawk) and Texas adding one rig to end at eight (XTO).

(It's funny how things change.  Encana completely vacated the play (in terms of working rigs) for six months in the middle of 2012, and now they are tied for having the most working Haynesville rigs, likely thanks to the Nucor deal.)

BIG NEWS: Freeport LNG Receives DOE Approval for LNG Export

"The Energy Department announced today that it has conditionally authorized Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (Freeport) to export domestically produced liquefied natural gas (LNG) to countries that do not have a Free Trade Agreement (FTA) with the United States from the Freeport LNG Terminal on Quintana Island, Texas."

So reads the press release from the DOE released at noon today.  The facility is conditionally authorized to export at a rate of up to 1.4 Bcf/day for a period of 20 years.  This is big news.  What's next?  Here is "The Path Forward on LNG Export Applications" in the words of the DOE:

U.S. Rig Count: Unchanged at 1,769

The Baker Hughes U.S. rig count was unchanged this week at 1,769.  Oil rigs were down four to 1,408, gas rigs were up four to 354 and miscellaneous rigs were unchanged at seven.  By type, horizontal rigs were down three to 1,096, vertical rigs were down ten to 462 and directional rigs were up 13 to 211.  Among gas rigs, horizontal rigs were up two to 261, directional rigs were down two to 50 and vertical rigs were up four to 43.

New Louisiana Completions

• Rascoe 1-10-14 H #1, Chesapeake Operating: 13.08 MMcf/day IP on 22/64 in. choke at 6,505 psi; Perfs: 11,534-15,907, length: 4,373 ft.; Benson Field, DeSoto Parish, S12/T10/R14; res. A, serial #244263 
• Rascoe 12-10-14 H #1, Chesapeake Operating: 13.272 MMcf/day IP on 22/64 in. choke at 6,475 psi; Perfs: 11,657-15,932, length: 4,275 ft.; Benson Field, DeSoto Parish, S12/T10/R14; res. A, serial #244835 

EIA: Gas in Storage +99 Bct to 1.964 Tcf

The EIA reported this week that working gas in storage was up 99 Bcf to 1.964 Tcf.  The weekly injection was 77% higher than last year (+56 Bcf) and 19% above the five year average (+83 Bcf). The current storage level is 26.1% below last year (2.658 Tcf) and 4.1% below the five year average (2.047 Tcf).

Haynesville Shale Rig Count: -1 to 22

For the second straight week, the Haynesville Shale rig count was down a rig, this week dropping one rig to 22.  Texas was down two rigs (Chesapeake and XTO Energy) to seven, while Louisiana was up one rig (that same Chesapeake rig) to 15.  Seven Texas rigs is tied for the lowest number (with November 30, 2012) since I began the Haynesville rig count in January 2010.  Right now, only Anadarko (5 rigs) and XTO (2 rigs) are drilling the Texas side of the Haynesville.

U.S. Rig Count: +5 to 1,769

The Baker Hughes U.S. rig count was up five this week to 1,769.  Oil rigs were up nine to 1,412, gas rigs were down four to 350 and miscellaneous rigs were unchanged at seven.  By type, horizontal rigs were up seven to 1,099, vertical rigs were three to 472 and directional rigs were up one to 198.  Among gas rigs, horizontal rigs were up three to 259, directional rigs were down one to 52 and vertical rigs were down six to 39.

This Week's Louisiana Completions

• FHF 17-14-16 H #1, Chesapeake Operating: 13.416 MMcf/day IP on 22/64 in. choke at 6,021 psi; Perfs: 11,420-15,757, length: 4,337 ft.; Bethany Longstreet Field, Caddo Parish, S17/T14/R16; res. A, serial #244036 
• Calhoun 34-12-12 H #1, Chesapeake Operating: 14.904 MMcf/day IP on 22/64 in. choke at 7,480 psi; Perfs: 12,456-16,855, length: 4,399 ft.; Red River-Bull Bayou Field, DeSoto Parish, S34/T12/R12; res. A, serial #243062 
• Nabors 18-11-11 H #1, Chesapeake Operating: 18.168 MMcf/day IP on 22/64 in. choke at 7,760 psi; Perfs: 12,522-16,889, length: 4,367 ft.; Red River-Bull Bayou Field, DeSoto Parish, S19/T11/R11; res. A, serial #244905

Chesapeake Trimming to Core in Marcellus

Recent news stories have seen deals where Chesapeake Energy has sold batches of properties to competing E&P companies in the Marcellus and Utica Shales, first 162,000 net acres to Southwestern Energy and more recently 99,000 acres to EQT Resources.  Under new leadership since the departure of former CEO Aubrey McClendon, the company is looking to trim its unwieldy lease holdings to be able to focus on core operations.

The natural question for me is what's for sale in the Haynesville Shale?

EIA: Storage +88 Bcf to 1.865 Tcf

The EIA reported this week that working gas in storage increased 88 Bcf to 1.865 Tcf.  The weekly injection was nearly triple last year's injection (+30 Bcf) and 28% greater than the five year average (+69 Bcf).  The current storage level is now 28.3% lower than last year at this time and 5.0% below the five year average.

This week's higher than average injection broke a winning streak for 2013 storage.  For the previous eleven weeks, the weekly injection beat the five year average:

Natural Gas Export Gaining Ground, but the Clock is Ticking

I'm a big believer that the world is made of shades of gray, not black and white.  Most of my strongly held convictions are constantly tested by conflicting data points.  It makes it incredibly difficult to hear pundits on TV and radio spouting at the mouth with such indelible confidence.  Nowhere is the shades of gray situation more evident than the debate over the export of U.S. natural gas via LNG.  I am a proponent of export because I am a gas fan and I admittedly have a vested interest.

Beyond that natural stance, I generally believe in free markets, and the free market is calling for LNG export.  The U.S. has an oversupply and other nations have constrained supplies, resulting in higher prices.  Boom!  We export our bounty to those countries - that's how the market works.

But an emotional argument is being made by U.S. manufacturing entities that it is in the best economic interest of the country to stifle this potential market to keep gas plentiful and cheap on our shores.  Ayn Rand is spinning in her grave with that self-serving argument, but as a patriotic dude, I do feel somewhat sympathetic.

A Bunch of Texas Completions (Some With Liquids)

4/11/13 - 5/7/13:
OK, so I got a little behind in reporting Texas completions and permits.  But check out the liquids in  wells #2-5 below...

• W.L. Liston #8H, XTO Energy: 13.859 MMcf/day IP, 17/64" choke, 5,152 psi; Perfs: 10,933-18,685, length: 7,752 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: TUTTLE, D SR, A-668 
• CGU 19 #51HH, Anadarko E&P: 5.982 MMcf/day (150 Bbl liquids/day) IP, 18/64" choke, 4,815 psi; Perfs: 10,862-15,699, length: 4,837 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: DUNCAN, S, A-158 

Several Weeks of Texas Permits

4/8/13 - 5/7/13:

• Wynn Trust H Gas Unit #1HB, XTO Energy; Carthage Field (Haynesville Shale), Shelby Co. Co., Survey: ROWE, J, A-464 
• Carthage Gas Unit 17 #15, Valence Operating; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: DIAL, C, A-184 

Fourteen New Louisiana Completions Last Week

• Smith 13 #1-ALT, EXCO Operating: 12.651 MMcf/day IP on 18/64 in. choke at 7,684 psi; Perfs: 13,618-16,839, length: 3,221 ft.; Holly Field, DeSoto Parish, S24/T14/R14; res. A, serial #245493 
• Smith 13 #2-ALT, EXCO Operating: 12.494 MMcf/day IP on 18/64 in. choke at 7,786 psi; Perfs: 12,488-16,883, length: 4,395 ft.; Holly Field, DeSoto Parish, S24/T14/R14; res. A, serial #245494 

Haynesville Shale Rig Count: -1 to 23

The Haynesville Shale rig count was down one this week to 23.  Louisiana was down one (Petrohawk) to 14, while Texas was unchanged at nine.

U.S. Rig Count: +10 to 1,764

The Baker Hughes rig count was up ten this week to 1,764.  Oil rigs were up 22 to 1,403 (their highest level since October 2012), gas rigs were down 12 to 354 (their lowest level since June 1995) and miscellaneous rigs were unchanged at seven.  By type, horizontal rigs were up eight to 1,092, vertical rigs were up four to 475 and directional rigs were down two to 197.  Among gas rigs, horizontal rigs were down three to 256, directional rigs were down six to 53 and vertical rigs were down three to 45.

PXP Illustrates Haynesville Quandary

Plains Exploration (PXP) held its Q1 2013 conference call yesterday, and on the call, CEO James Flores illustrated the case of why I think activity in the Haynesville Shale has already bottomed out.  Obviously, with gas prices nearly double where they were last year, the Haynesville is not quite the pariah it became, but $4/MMBtu gas is not enough on its own to justify a pickup in activity.

PXP is a bit of an odd bird in the Haynesville because it does not function as an operator.  It entered the play as a JV partner of Chesapeake, which is where it derives most of its Haynesville production.  But, being a producer, it is judged by its production volumes and revenues, so it has to show growth and vitality in this department.  Overall for the company, gas volumes were up about 7.6% in Q1 2013 to 246.9 MMcf/day vs. Q1 2012, but the gains came from other plays.  Production in the company's Haynesville acreage decreased by 22.7% (-39.3 MMcf/day) over the same period to 134.2 MMcf/day.  Interesting to note that with the production declines the Haynesville still represents 54% of PXP's gas output.  As of the end of March, PXP had a working interest in four rigs in the Haynesville.

Excelon Buying Production in Haynesville?

In business school, we were taught that most business strategies come from a few basic models.  One is vertical integration, where the company diversifies up and down along its supply and production chain (think:  Henry Ford buying rubber plantations in Brazil).  I couldn't help but think of this when I read on Bloomberg that the nation's biggest utility Excelon "has a 'small but growing portfolio' of gas holdings in the Haynesville and Barnett shale regions of Louisiana and Texas."  Apparently the company is considering investing $3 billion in non-core but related energy businesses, including natural gas exploration and distributed solar generation.

This is not really vertical integration, more tangential investment I guess, but being conservative by nature I always get concerned when companies like this stray from their white-hot focus areas.

EIA: Working Gas in Storage +43 Bcf to 1.777 Tcf

The EIA reported that working gas in storage was up 43 Bcf this week to 1.777 Tcf.  The weekly injection was 39% higher than last year (+12 Bcf) but 36% below the five year average (+67 Bcf).  The current storage level is 30.9% below last year (2.575 Tcf) and 6.2% below the five year average (1.895 Tcf).

The Latest on Aubrey

Things just seem a little more boring than usual in the natural gas industry now that Aubrey McClendon is no longer CEO of Chesapeake Energy.  I guess it's both the good boring and the bad boring.  But no fear, he won't be gone long.  He's already opened up an office across the street from his old digs and set up several companies to both manage his personal assets and become the new platform for his empire building tendencies.

American Energy Partners seems to be the new big deal.  Aubrey has put up three billboards around OKC advertising for job openings.  He says he's going to grow the company through drillbit and acquisitions.  Best of all, he says he's "not scared of natural gas."  Huzzah!  Haven't heard that recently.

Godspeed, Aubrey.  I'm sure we'll be writing about you again soon.

EPA Revises Estimates of Fugitive Methane from Drilling Downward

This month, the EPA significantly reduced its estimate of the quantities of methane escaping during natural gas drilling.  So-called fugitive methane has been a big complaint of environmentalists since methane is a more potent greenhouse gas than carbon.  In an April report on greenhouse emissions, the EPA said that emissions have been reduced by about 20% from earlier estimates because of improved pollution controls.  Expect more progress in this area in the future.

This news is hardly unexpected, as more recent studies (also here) have revealed that the problem exposed by the bombshell study by Cornell professor and shale gas critic Robert Howarth may have been overblown to begin with.  If nothing else, it's a fixable (or at least improvable) problem.

Ultimately, this is a no brainer for the gas industry.  Fugitive methane emissions are 1) bad press, 2) lost revenue and 3) the result of shoddy field practices.  Fixing the problem is a win-win-win.  Expect more stories like this in the future as better practices and improved technology conspire to repair a very fixable problem.

Haynesville Shale Rig Count: Unchanged at 24

The weekly Haynesville Shale rig count was unchanged at 24.  Louisiana was up one (Petrohawk/KCS) while Texas was down one (Valence).

U.S. Rig Count: -4 to 1,754

The Baker Hughes rig count was down four rigs this week to  1,754.  Oil rigs were up ten to 1,381, gas rigs were down 13 to 366 and miscellaneous rigs were down one to seven.  By type, horizontal rigs were down 13 to 1,084, vertical rigs were up ten to 471 and directional rigs were down one to 199.  Among gas rigs, horizontal rigs were down 12 to 259, directional rigs were down five to 59 and and vertical rigs were up four to 48.

And the Pendulum Swings Back to Coal...

Yep, I think we all saw that coming.  Natural gas prices have spent nearly the entire month of April above $4/MMBtu.  That's good news for gas fans, but it means that utilities are going to stop using gas in place of coal for the time being.  Gas will still be burned, but the switching from coal that saved natural gas in recent years will no longer be a factor.  In recent years, utilities have driven considerably higher natural gas consumption, which helped set a floor under gas prices when a combination of overproduction and depressed fundamental consumption drove gas storage levels to record highs for several consecutive years.

But with rising gas prices, the pendulum swings back to coal.  At somewhere around $4 coal becomes more economical on a marginal cost basis for to burn.  In a recent story, American Electric Power's CEO noted in a recent article that the company's use of coal has picked up considerably recently:

"Right now, the company’s coal plants are operating at about a 65 percent 'capacity factor,' which refers to how much energy was generated compared with the maximum possible; AEP’s natural-gas plants are operating at about half that level, which is almost a complete reversal from last year at this time..."

It will be interesting to watch the upcoming EIA working gas in storage reports as higher prices and normal spring weather begin to impact consumption trends.