Marcellus & Utica Shale Story Links: Mon, Jan 20, 2014

The “best of the rest” – stories that caught MDN’s eye that you may be interested in reading:


Five Of The Fastest Growing E&P Companies
Seeking Alpha
(1) Gulfport Energy. One of the fastest growing oil and gas companies, small or large, is Gulfport. Gulfport is focused on the development of the Utica / Point Pleasant shale play in eastern Ohio. It has already grown rapidly and is projected by analysts to grow its EBITDA a phenomenal 153% (from 2013 to 2014)! Utica wells in the sweet spot, which Gulfport has exposure to, may generate 100%+ IRRs, which will help Gulfport finance its continued growth in 2014 and beyond. One challenge I have had investing in Gulfport is the large premium Gulfport trades at to its proved reserve value. Gulfport trades at over 10x its most recently reported after-tax PV-10. This is likely because of the rapid growth it is experiencing, and reserves may be likely to increase rapidly along with production growth. But as a value investor, this does make investing in Gulfport a challenge. Another challenge is the high EV/EBITDA multiple Gulfport trades at. At ~8x EV/EBTIDA for consensus 2014 estimates, Gulfport trades above its comparable peers. But this is less difficult to reconcile than the reserve multiple, as the production growth could justify this higher than average multiple.

Should Companies in the Utica Be Disappointed by These Numbers?
The Motley Fool
The Utica shale formation was supposed to be “the best thing to hit Ohio since the plow.” Or at least that what former Chesapeake Energy CEO Aubrey McClendon thought. Based on the recent numbers from the Ohio Department of Natural Resources, though, it may not be as spectacular as many had hoped. Recent well data shows that wells in the region are producing about 82% natural gas. This may not sound like a huge deal, but it could be discouraging for big Utica players like Chespeake, Gulfport Energy, Magnum Hunter Resources, and Antero Resources that were hoping to find a considerable amount more liquids in the region than its Pennsylvania counterpart the Marcellus shale.

Hottinger: Proposed tax should benefit counties affected by drilling activities
Newark (OH) Advocate
State Rep. Jay Hottinger, R-Newark, joined with Al Landis, R-Dover, in calling for counties influenced by Ohio’s oil and gas industry to receive greater assistance from a proposed severance tax. The state legislature is debating HB 375, a severance tax on oil and gas companies drilling in eastern Ohio, in the Marcellus and Utica shale fields. The bill, projected to generate nearly $2 billion over a 10-year period, would spend some revenue on nearly 10,000 orphaned wells throughout the state and support regulatory activities in the energy industry. A balance of the money generated would go towards a state income tax reduction for all Ohioans through the Income Tax Reduction Fund. The legislators want revenue from the severance tax set aside for infrastructure and other effects on local governments in contributing counties.


Worry, debate follow court’s drilling decision
AP/Pocono Record
Last month’s state Supreme Court decision that backed the rights of municipalities in their fight against Gov. Tom Corbett’s new gas drilling law has left environmentalists, business owners and lawmakers trying to anticipate how it will change the broader legal landscape. The Dec. 19 decision is viewed as unusual for its length, its legal rationale and the breadth of examination it has prompted. Business advocates consider it a major setback, and not just because it upended a key victory in the Republican-controlled Legislature for the booming natural gas industry. Environmentalists cheered the decision, saying it strengthens the hand that environmental considerations will play in government decisions. The high court’s ruling comes as the energy industry is increasingly able to extract natural gas from previously unreachable formations deep underground and is challenging suburban notions of land use from Pennsylvania to Colorado.

National Fuel Gas: Getting The Gas Utility For Free
Seeking Alpha
National Fuel Gas (NFG) is an often-overlooked diversified utility in the sweet spot of shale natural gas development. NFG is a mid-cap utility with assets in gas distribution in western New York, large acreage in the Marcellus shale gas field, natural gas storage, and oil development in California. NFG’s E&P segment is known as Seneca Resources. NFG has gained about 45% since my write-up in Jan 2013, and the stock is up 24% since an SA update in Sept 2013 – but share prices are not done yet. NFG has several operating units as outlined above. The most important is the Exploration and Production segment, which generated 57% of FY September 2013 adjusted EBITDA. Below is a breakdown of each segment’s contribution during FY2013, from their latest investor’s presentation:

Townships respond in Act 13 case
Washington (PA) Observer-Reporter
Local townships are asking the Pennsylvania Supreme Court to not reconsider its opinion that struck down key provisions of the state’s Act 13 case. Seven municipalities, including Robinson, Mt. Pleasant, Cecil and Peters townships, formally responded Wednesday to a request made by the state Department of Environmental Protection and Public Utility Commission to rehear the case. Both the PUC and DEP argued the court should consider more evidence after it ruled in December that parts of Act 13 were unconstitutional. The municipalities countered state agencies had no compelling reason for rearguing Act 13, which governs oil and gas drilling in Pennsylvania. They also argued in the 15-page document the court’s decision was never based on factual evidence because it was purely a legal determination.

Marcellus Shale: The Trillion Dollar Question
Pittsburgh Magazine
As gasoline costs skyrocket and the search for clean alternatives gains urgency, the extraction of the region’s massive supply of natural gas may offer a just-in-time solution to the country’s growing energy needs. Dubbed a “super-giant” find by energy companies, Marcellus Shale is now thought to contain 500 trillion cubic feet of natural gas. Even if only 10 percent of that supply is captured, the result would supply the natural gas needs of the U.S. for two years. Drillers say local wells can be expected to produce for the next quarter-century, bringing a steady stream of investment and jobs into western Pennsylvania. Though first discovered in 1839 near Marcellus, N.Y., the energy embedded in a layer of thick black shale was largely undisturbed until the 21st century. That’s when a new technique called hydraulic fracturing and horizontal drills became widely deployed. Forcing large volumes of high-pressure water, sand and chemicals up to 8,000 feet into the earth, “fracking” allows the trapped gas to escape into a well.


3 Ways to Invest Like T. Boone Pickens, and 1 Reason You Can’t
The Motley Fool
T. Boone Pickens made his name through acquisition wheeling and dealing across the American energy landscape. Today he is a major advocate of American energy policy through the “Pickens Plan” and one of the top investors in Clean Energy Fuels. He also happens to have his own hedge fund, BP Capital, that deals almost exclusively in oil and gas. Energy investors can learn a lot by knowing what BP Capital invests in. However, there is one major reason that you and I should never invest like BP Capital. Let’s take a look at what we can learn from the Pickens portfolio and why you shouldn’t follow his portfolio to the letter. Invest in the small, quiet companies: A number of oil and gas companies have garnered lots of media attention lately, but many of those that BP Capital owns fly under the radar. These are mostly small, independent oil and gas producers that focus on a single shale formation. One example is BP Capital’s investment in Gastar Exploration. This small company has mostly focused on drilling in the Marcellus shale, and has grown production by 55% year over year. Gastar is looking to start developing some assets in the midcontinent region it bought from Chesapeake Energy back in June. Small companies like this can go unnoticed from time to time, and picking them up in their infancy can lead to large returns.

A How-To for Economic Growth: North Dakota’s Surge
Heritage Foundation – The Foundry
A modern retelling of “The Little Red Hen” would include ducks and pigs that not only didn’t help grow the wheat and bake the bread, but who wanted to eat the bread after hobbling the Red Hen while she did the work. Politicians in both Washington and New York want to reduce income inequality while blocking access to valuable energy resources. The poor might be better helped if those politicians looked at North Dakota’s experience over the past decade. In 2006, North Dakota ranked 38th among the states in average personal income. By 2012, it was sixth. Department of Commerce data show that over those six years, North Dakota’s per capita personal income went from 14 percent below the national average to 25 percent above.

New England faces record power costs
Worcester News-Telegram
Electricity prices in Boston, which reached record premiums to New York costs last month, are poised to remain at all-time highs through March because of bottlenecks on natural-gas pipelines. New England’s reliance on the fuel for power generation has grown to 52 percent from about 30 percent in 2001, though there have been no new pipelines transporting gas to the six-state region in 40 years. In New York, lines from wells in the Marcellus shale deposits of Pennsylvania and West Virginia boosted deliveries by more than 1 billion cubic feet a day this winter, enough to heat about 3 million homes. Wholesale power in Boston is trading at the highest January premium to New York since at least 2005, according to grid data compiled by Bloomberg. Prices in New York recovered faster from a blast of arctic cold last week because of the increased gas supplies. The power premium may widen later this year and into 2015 as a Vermont nuclear reactor and one of the region’s largest coal plants are set to close, according to BNP Paribas SA. A new gas pipeline to New England isn’t scheduled to begin operations until 2016.

Despite Obama’s Best Efforts – There Is a Massive Energy Boom Taking Place in America Today
Gateway Pundit
Despite the best efforts by the Obama administration there is an energy boom taking place in America today. President Barack Obama cut oil and gas permits since he came into office. In fact he has the worst record on granting permits than any president in recent years. And, Fossil Fuel Production on Public Lands Is At 10 Year Low–The Energy Information Administration (EIA) released its report in June 2013 on, Sales of Fossil Fuels Produced on Federal and Indian Lands, FY 2003 Through FY 2012. The report shows that total fossil fuel production on federal lands is at a ten year low, natural gas production on federal lands is also at a ten year low, and oil production on federal land fell in fiscal years 2011 and 2012 ending two years of increase in fiscal years 2009 and 2010. Despite this… There is a massive oil boom taking place on private lands in America today.


Shale’s ‘Next Big Play’ Draws U.S. Gas Producer to Australia
Bloomberg/Washington Post
Australia has the most attractive shale gas prospects outside North America, according to Magnum Hunter Resources Corp., a Houston-based producer that says it has scoured the world looking for deposits of the gas that has revolutionized energy supply in the U.S. “We’ve looked at Colombia, we’ve looked at Mexico, we’ve looked at Argentina, we’ve looked at Poland, and we’ve looked at China of course,” Kip Ferguson, executive vice president of exploration at the U.S. shale operator, said in an interview in Sydney. “None of those areas are prepared to allow the unconventional technologies to develop these plays. They aren’t as far advanced as Australia.” The Cooper Basin, an area straddling the border of South Australia and Queensland states, has also lured investment from Chevron Corp. and BG Group Plc ahead of expected shortages of the fuel to feed more than $60 billion of liquefied natural gas projects in eastern Australia that will ship to Japan, South Korea and China.