How low might the commodity price of natural gas go before drillers really will quit drilling and wait for the price to go up? We’ll give you “the magic number” in a moment. But first, the (rather sketchy) rationale for how we calculate that number.
It seems almost every day we hear in the mainstream news that the low commodity price of natural gas is forcing drillers to suspend or slow drilling operations—especially in the “dry gas” areas of the Marcellus Shale. Contrary to what “everyone” seems to be doing, Shell, Chevron and others have said they will continue drilling regardless of the low price of natural gas. And more than one analyst has said announcements of drilling cutbacks by Chesapeake and others is so much hot air and that they will believe it when they see it.
After the trading markets in the U.S. closed yesterday, Chesapeake Energy announced three deals that will convert some of their considerable assets into $2.6 billion of cash to help fund development and cut down on debt. In a climate of continuing low commodity natural gas prices, Chesapeake has adopted a strategy of selling “non-strategic” assets to keep the momentum going.
An exceptionally well written article about the EPA and their backpedaling on their own tests in Pavillion, Wyoming appears on today’s American Thinker blog. You may recall that the EPA tried to say there is a direct link between chemical contamination of ground water supplies around Pavillion and hydraulic fracturing of gas wells in the area. MDN pointed out early on that even if such a link is eventually made, the geology where those wells were drilled is sandstone (not shale), and the wells are shallow (not deep, like the Marcellus). In other words, the EPA was trying to gin up hysteria by using an apples and oranges comparison (see this MDN story).
Utility customers of Corning Natural Gas Corp. in New York State’s Finger Lakes region can thank their neighbors south of the border in Pennsylvania that they are now paying 50 percent less for their natural gas than they paid just one year ago. And they can also thank the energy companies who use hydraulic fracturing in the Marcellus Shale.
The Pittsburgh newspapers want us to believe there is a huge surge of support behind a lawsuit recently filed against what is known as Act 13—a new law passed just a few months ago in Pennsylvania that updates Marcellus oil and gas drilling rules in the state. Although the law brought much-needed new regulations to the Commonwealth, it also contained two measures that have particularly irked those who oppose drilling: an impact fee instead of a severance tax, and preemption of local oil and gas zoning ordinances with a “one size fits all” set of ordinances from the state. MDN will not recount the arguments for and against, you can read them by doing a search for “Act 13 lawsuit” in our search box (upper right corner).
Calling it a “transformational transaction” for the company, Penn Virginia Resource Partners (PVR) today announced they are buying Chief Gathering for $1 billion in cash and stock. Chief Gathering is a midstream pipeline company with assets (pipelines) located mostly in northeastern Pennsylvania in the Marcellus Shale. The deal includes existing pipeline agreements with drilling heavyweights like Chesapeake, Anadarko, Statoil, Exxon Mobil and others. PVR CEO William Shea says the new combined pipeline operation for PVR will represent 75 percent of its business by the end of next year (it’s currently 40-45 percent of their business).
GASFRAC Energy Services, the Canadian company who pioneered and holds a patent on waterless LPG (liquefied petroleum gas) fracking technology, reports that revenues and profits for the first quarter of 2012 were disappointing. GASFRAC, you may recall, will be the vendor of choice when/if the Tioga County Landowners Group, in New York State, starts drilling on their collective 135,000 acres (see this MDN story).