Tuesday, April 30, 2013

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.

Monday, April 29, 2013

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.

Saturday, April 27, 2013

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).

Friday, April 26, 2013

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.

Thursday, April 25, 2013

EIA: Storage +30 Bcf to 1.734 Tcf

The EIA reported that working gas in storage was up 30 Bcf this week to 1.734 Tcf.  The weekly injection was 30% lower than last year (+43 Bcf) and 40% below the five year average (+50 Bcf).  The current storage level is 31.8% below last year (2.541 Tcf) and 5.1% below the five year average (1.828 Tcf).

This is worth repeating:  the current storage level is 807 Bcf below where it was last year.  Not bad.

Wednesday, April 24, 2013

One Louisiana Completion (and the Gods of Irony)

  • O E Moore 1 #2-ALT, SWEPI, LP: 14.537 MMcf/day IP on 21/64 in. choke at 7,465 psi; Perfs: 12,990-17,605, length: 4,615 ft.; Bracky Branch Field, Red River Parish, S36/T14/R10; res. A, serial #244174
Interesting - a couple of weeks ago I commented that the backlog of Louisiana Haynesville Shale wells that were drilled but not completed had been in steady decline over the past year.  Somehow the gods of irony are among the seven people who actually read this site and decided to teach  me a lesson by choking off new completions.  The above completion is the only one that has been reported by the Louisiana DNR for the past two weeks.  They really got me, huh?

I think the trend is still generally true, and it's partially because companies that want/need new production from the Haynesville are more likely to complete an existing drilled well than spend +/-$9 million to drill a fresh one.  That logic only holds, however, if the prospective well is located in a highly productive area.  A bunch of those non-completed wells likely will languish for quite a while if they are in less choice areas.  The list won't go close to zero, but it probably won't have much  low hanging fruit left in a few months.

Monday, April 22, 2013

Haynesville Shale Rig Count: -1 to 24

The weekly Haynesville Shale rig count was down one this week to 24.  Louisiana was down one to 14 while Texas held at one.  In Louisiana, J-W is back to zero rigs after a brief resurgence which found the company drilling two Haynesville wells as recently as March 1.

Friday, April 19, 2013

A Picture is Worth a Thousand Words

Of course, it's not as simple as saying that the sudden abundance of shale gas caused a gas price crash and led to a drastic reduction of natural gas drilling.  That's a very big reason, but a surge in oil drilling led to an increase of oil rigs, which makes the "percentage of the whole" comparison a bit misleading.  Still, it's a dramatic image (and yes, I am pooping on my own chart).

U.S. Rig Count: -13 to 1,758

The Baker Hughes U.S. rig count dropped by 13 this week to 1,758.  Oil rigs were down 16 to 1,371, gas rigs were up two to 379 and miscellaneous rigs were up one to eight.  By type, horizontal rigs were down five to 1,097, vertical rigs were down two to 461 and directional rigs were down six to 200.  Among gas rigs, horizontal rigs were up three to 271, directional rigs were up two to 64 and vertical rigs were down three to 44.

Good Piece on Cheniere Energy (and Hypocrisy)

Chris Helman wrote a good profile of soon-to-be-LNG-exporter Cheniere Energy and its CEO Charif Souki in the upcoming issue of Forbes magazine.  There are no new revelations or insights, but it nicely summarizes the market and regulatory situation as well as the hypocrisy of certain large industrial companies that have a protectionist view of natural gas - as far as it benefits their own bottom lines.

The approval process for LNG export licenses to non-free trade agreement countries will be one of the biggest energy stories of 2013.  It's a classic big money battle of lobbyists and conflicting business interests with a twist of odd bedfellows.  A Washington bonanza!

Maybe it's just me getting older and more cynical, but I can't help but thinking that most stories in the media, especially of an op/ed variety, are the product of pricey lobbying campaigns meant to sway public opinion as plainly as a slickly produced 30 second TV commercial.  Each side has their talking points and quips, but at the end of the day, are they really just paid actors?  Do they really care about what they say?  Who is pulling the strings (read: writing the checks)?

I work hard to stay informed, but the more I read, the more I feel like the leading pawn on a chessboard.  Maybe I should just tune out and revert to ignorance.  I hear there is bliss there.

Thursday, April 18, 2013

EIA: Storage +31 Bcf to 1.701 Tcf

The EIA reported that working gas in storage was up 31 Bcf to 1.704 Tcf this week.  The injection was 10 Bcf higher than last year (+21 Bcf) and 8 Bcf below the five year average (+39 Bcf).  The current storage level is now 31.8% below last year (2.498 Tcf) and 4.2% below the five year average (1.778 Tcf).

Wednesday, April 17, 2013

$850 Million Ammonia Plant Coming to Louisiana

Australian fertilizer and explosives manufacturer Incitec Pivot, PLC has announced construction of a $850 million ammonia plant in the New Orleans suburb of Waggaman.  The company's investment thesis from its presentation says it all, but I'll boil it down for you:  cheap natural gas, incentives to reclaim a brownfield site and access to the U.S. end market.

This is an investment analysis that we will see again and again.

[Update 10:15 p.m. ...and now news comes of a big explosion at a fertilizer plant in West, Texas this evening.  Of course, ammonium is a major component of fertilizer (and explosives).  While I'm pretty excited about the higher level of manufacturing in the U.S., we must also remember that large scale chemical manufacturing has a large set of risks.  Life is full of double edged swords.]

Monday, April 15, 2013

Haynesville Shale Rig Count: +1 to 25

Last week's Haynesville Shale rig count was up one to 25.  Louisiana was up one (Petrohawk) to 15, while Texas held at 10.

Friday, April 12, 2013

U.S. Rig Count: +33 to 1,771

The Baker Hughes U.S. rig count was up big this week, by 33 to 1,771, but most of the new rigs are chasing oil, not gas.  Oil rigs were up 30 to 1,387, gas rigs were up two to 377 and miscellaneous rigs were up one to seven.  By type, horizontal rigs were up 18 to 1,102, vertical rigs were up 12 to 462 and directional rigs were up three to 206.  Among gas rigs, horizontal rigs were up two to 268, while directional and vertical rigs were unchanged at 62 and 47, respectively.

Thursday, April 11, 2013

New Louisiana Completions

  • Ridge 22-15-15 H #1-ALT, Chesapeake Operating: 13.608 MMcf/day IP on 22/64 in. choke at 7,297 psi; Perfs: 11,663-16,014, length: 4,351 ft.; Caspiana Field, Caddo Parish, S22/T15/R15; res. A, serial #245128 
  • Evans 36-11-14 H #1, Chesapeake Operating: 12.984 MMcf/day IP on 24/64 in. choke at 5,910 psi; Perfs: 11,356-15,503, length: 4,147 ft.; Benson Field, DeSoto Parish, S36/T11/R14; res. A, serial #243793 

EIA: Storage -14 Bcf to 1.673 Tcf

The EIA reported that working gas in storage was down 14 Bcf last week to 1.673 Tcf.  The weekly change was net 25 Bcf greater than last year (an injection of 11 Bcf) and 29 Bcf greater than the five year average (an injection of 15 Bcf).  The current storage level is now 804 Bcf, or 32.5%, below last year (2.477 Tcf) and 66 Bcf, or 3.8%, below the five year average (1.739 Tcf).

Wednesday, April 10, 2013

New Texas Completions

3/21/13 - 4/9/13:
(check out the long lateral lengths on some of these completions)
  • Holcombe #15H, XTO Energy: 4.299 MMcf/day IP, 17/64" choke, 4,139 psi; Perfs: 10,991-16,465, length: 5,474 ft.; Carthage Field (Haynesville Shale), Angelina Co., Survey: ELLIOT, H, A-241 
  • Robert Walton #10H, XTO Energy: 12.656 MMcf/day IP, 18/64" choke, 6,325 psi; Perfs: 10,932-18,246, length: 7,314 ft.; Carthage Field (Haynesville Shale), Panola Co., Survey: HAMMER, LT, A-335 

Potential Gas Committee Releases Rosy 2012 Estimate

The Potential Gas Committee, an independent organization of geoscientists and petroleum engineers that is affiliated with the Potential Gas Agency at the Colorado School of Mines, has released its biennial estimate of technically recoverable U.S. natural gas for 2012 (press release).  The PGC estimates that the U.S. has a total natural gas resource of 2,384 Tcf, a 486 Tcf, or 26%, increase over its 2010 estimate.  Of that total, shale gas represents 1,073, or 45%, of the total gas resource.

The increase over 2010 largely came from a reevaluation of the Atlantic (Marcellus and Utica Shales), along with new data from the Rocky Mountain (multiple formations) and Gulf Coast (Eagle Ford Shale) areas.

Backlog of Haynesville Non-Completed Wells Steadily Decreasing

It seems pretty clear that rig counts in the Haynesville Shale and most other dry gas plays are not going to increase significantly any time soon, even in reaction to recently increasing natural gas prices.  A combination of producer self-discipline and the fear of investor retribution should keep the lid on dry gas plays for the near term.

Looking at Haynesville rig counts and completions over the past eight months, it appears that both have leveled out (bottomed out?), as shown on the chart below.  Louisiana Haynesville completions in the second half of 2012 declined to fewer than 20 per month, down from a high of 90 in May 2011.  Louisiana Haynesville rigs have averaged around 13 since June 2012.  But look at that green line, which represents the Henry Hub spot price of gas.  It's fluttering up to the $4/MMBtu range.  Hmmm, looks tempting...

Tuesday, April 9, 2013

Are We Seeing Recovery of Fundamental Gas Demand Drivers?

The latest natural gas consumption data from the EIA shows that natural gas consumption was up 4.4% in January 2013 compared to January 2012.  Last year, we would have assumed that kind of increase would have been attributable to increased use in the utility sector.  Instead, all of the increase year-over-year came from the residential (+9.9% vs. January 2012), commercial (+6.6%) and industrial (+3.5%) sectors. Utility usage was actually down 2.9% in January.

Coal Fights Back for Electricity Market Share

The latest EIA electricity generation figures show that natural gas represented 25.3% of net power generation in January 2013, compared to 39.7% for coal and 34.9% for all other sources, including alternatives.  After nearly being equal in the mid-32% range in April 2012, coal and gas have diverged significantly, which mostly has to do with an increase in the price of natural gas.

January 2013 Production: -0.9% vs. January 2012

The EIA reported that natural gas production in January 2013, as measured by total dry gas production, was  2.022 Tcf, a decrease of 0.9%, or 19 Bcf, compared to January 2012.  On a month-to-month basis, January 2013 production was 0.9% below December 2012 production (which actually was identical to Jan. 2012 production).  While down year-over-year, January 2013 production was 18.8%, or 320 Bcf, higher than the trailing ten year YTD average.

The question that only time can answer:  has gas production peaked for now?  Clearly, with the addition of capital and rigs production can increase again, but have we reached the point of a self-induced pause?

January 2012 Natural Gas Consumption: +4.4% vs. 2012

The EIA reported that January 2013 total natural gas consumption, as measured by gas delivered to consumers, was 2.666 Tcf, an increase of 4.4%, or 112 Bcf, versus January 2012.  Compared to the trailing ten year average, consumption in January 2013 was up 8.0%, or 198 Bcf.

This result is hardly surprising given the cooler temperatures this winter versus last.

Monday, April 8, 2013

Beware of Diminished Expectations

Last week came the good news that working gas in storage level finally fell below the five year average, one year to the week after it was 60.5% above the five year average.  This is a notable achievement, no doubt, but before anyone breaks into a victory dance, keep in mind that this five year average is nowhere near the five year average in the pre-Haynesville Shale days.

Last week's storage level was 500 Bcf, or 42.2%, above the average five year trailing average from 2004 to 2008.  True, the total amount of storage capacity has expanded since then, so the relative amount of gas in storage is different, but the point is that last week's storage stats, while nice, are really not that awesome.

As wise owl once told me, beware of diminished expectations.

Haynesville Shale Rig Count: +1 to 24

The Haynesville Shale rig count was up by one this week to 24.  Louisiana held at 14, but Texas was up by one.  This week marks the first one since I started following the weekly rig count in January 2010 that EOG was without a Haynesville Shale rig. Chesapeake moved a rig into Texas for the first time in a while and Valence Operating is back with a vertical well that goes through both the Cotton Valley and Haynesville formation.

New Texas Permits

3/21/13 - 4/7/13:
  • CGU 27 #55HH, Anadarko E&P; Carthage Field (Haynesville Shale), Panola Co. Co., Survey: LINDSEY, C, A-386 
  • Carthage Gas Unit 17 #9, Valence Operating; Carthage Field (Haynesville Shale/Cotton Valley - vertical), Panola Co. Co., Survey: DIAL, C, A-184

Friday, April 5, 2013

U.S. Rig Count: -10 to 1,738

The Baker Hughes U.S. rig count was down ten this week to 1,738.  Oil rigs were up three to 1,357, gas rigs were down 14 to 375 and miscellaneous rigs were up one to six.  By type, horizontal rigs were down 15 to 1,084, vertical rigs were up eight to 451 and directional rigs were down three to 203.  Among gas rigs, horizontal rigs were down 11 to 266, directional rigs were down two to 62 and vertical rigs were down one to 47.

Thursday, April 4, 2013

New Louisiana Completions

  • Moran 23 #2-ALT, EXCO Operating: 12.524 MMcf/day IP on 18/64 in. choke at 7,847 psi; Perfs: 12,434-16,543, length: 4,109 ft.; Kingston Field, DeSoto Parish, S23/T14/R13; res. A, serial #244346 
  • Moran 23 #3-ALT, EXCO Operating: 13.163 MMcf/day IP on 18/64 in. choke at 7,761 psi; Perfs: 12,459-16,636, length: 4,177 ft.; Kingston Field, DeSoto Parish, S23/T14/R13; res. A, serial #244347 

All Hail Jack Frost! EIA: Storage -94 Bcf to 1.687 Tcf

The EIA reported that working gas in storage was down 94 Bcf last week to 1.687 Tcf.  The weekly withdrawal was 137 Bcf greater/below than last year (an injection of 43 Bcf) and 98 Bcf greater/below the five year average (an injection of 4 Bcf).  The current level of working gas in storage is now 31.6% below last year (2.466 Tcf) and 2.1% BELOW the five year average (1.724 Tcf).

Yes, folks, below the five year average.  This is the first time the current storage level has been below the five year average since mid-September 2011.

And the picture we've all been waiting for:

Monday, April 1, 2013

Man Down! GMX Resources Files for Chapter 11

GMX Resources and two affiliated entities filed for Chapter 11 bankruptcy this morning.  The company ran out of external financing options and is looking to sell its assets to the holders of its 2017 Senior Secured Notes.  By filing for Chapter 11, GMX can tap into readily accessible debtor-in-possession (DIP) financing to support its operations (such as making payroll and paying royalties).

GMX was a victim of prolonged low natural gas prices that crushed the company's operating cash flow, so the company couldn't fund its capital investments in new drilling.  It is the same song all of the other natural gas producers are singing.  GMX made a concerted effort a couple of years ago to enter the liquids-rich areas in the Bakken Shale and the Rocky Mountains, but it was a little late.  The company entered those plays on the back end of the ramp-up and didn't have the capital resources to drill the leases it acquired.

It is plenty ironic that GMX filed for bankruptcy the same day Aubrey McClendon left his CEO job at Chesapeake Energy.  Both victims of the same boom fall on the same day.  Who will be next?

Aubrey's Last Day

Seems odd to say, but today is Aubrey McClendon's last day at Chesapeake Energy.  It occurs five years and a week after Chesapeake broke the news of the Haynesville Shale to the world.  The crushing irony is that he would be a significantly wealthier man and would still be employed by the company he founded if it weren't for the Haynesville and other shale plays that he aggressively pushed to lease and drill.  The simultaneous discoveries of multiple shale plays crushed the price of natural gas and made drilling the stuff unprofitable.  But because of leasing commitments, Chesapeake and its cohorts had no choice but to drill.  A Catch 22 if ever there was one.

Bon voyage, Aubrey.  I'm certain we will be reading about you in the papers soon.  I hear that you have already lined up new office space and some staff, so it likely won't be long...