Cuts Coming to Shell’s Marcellus Shale Operations

chopping blockIn a statement issued yesterday, and from comments made by Shell’s CEO Ben van Beurden on a “management day” analyst phone call, Shell has signaled they aren’t happy with the return they’re getting from their shale plays in the U.S., including the Marcellus. Specifically Shell has said they plan to decrease spending and investment, and trim operations, in dry gas (methane only) shale areas starting this year. Trim by how much? The statement they issued says 20%, but van Beurden is reported to have said 30% in his statements on the analyst call. In either case, look for Shell to sell some of the their 900,000 acres of Marcellus Shale leases and trim back on the 300 workers they currently have working in the Marcellus play.

It was just four years ago that Shell bought all of East Resources and their Marcellus operations (see East Resources Sells to Royal Dutch Shell for $4.7 Billion, Deal Includes All of East’s Marcellus Shale Operations). Apparently they now believe that was a bit of “irrational exuberance,” to borrow a phrase from Alan Greenspan. The odd thing for us is that much smaller companies, like Cabot Oil & Gas, make money hand over fist in dry gas-only areas of the Marcellus, but the big boys like Shell are hamstrung and don’t make money. Why is that? What gives the smaller players a leg up that simply can’t be matched by companies like Shell?…
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Shell’s Shale Pessimism Signals Worry for Some re PA Cracker

The Shell emotional roller coaster continues to gyrate up and down when it comes to the fate of a multi-billion dollar ethane cracker plant previously announced by Shell for Beaver County, PA. We knew it would be a years-long process just to make a decision, and told you that two years ago almost to the day (see Shell’s Cracker Plant Actually “Years Away”?). Since that time it seemed at one point like all was lost (see Rumor Mill: PA Ethane Cracker Plant on Shell Chopping Block?). Over the past two years we’ve written dozens of stories, at first it seemed like a sure thing, then it wasn’t, then it was again, then it wasn’t again… you get the idea (see our list of Shell cracker stories here).

According to a Morningstar analyst interviewed by the Pittsburgh Post-Gazette, the pendulum has now swung back to the pessimistic side again in light of Shell CEO Ben van Beurden’s comments yesterday knocking U.S. shale (see our companion story today). van Beurden said Shell is triming back on U.S. shale investments this year, “restructuring” those assets (which is CEO talk for selling a good portion of it). Although the ethane cracker will be fed by Marcellus and Utica Shale gas, Shell’s impotence when it comes to turning a profit from shale drilling doesn’t mean they will walk away from a huge petrochemical plant. Such big projects are what they think they’re best at doing. Still, van Beurden’s comments have at least one analyst wondering if the PA cracker plant is now down the list of Shell’s priorities…
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Chesapeake Shafting Landowners out of Royalties Mess Gets Messier

Corporate raider Carl Icahn is likely developing a case of heartburn over his investment in Chesapeake Energy. He’s been responsible for cutting thousands of jobs and selling off billions in assets at Chesapeake, but there is a developing situation he can’t control that will definitely affect his pocketbook. Pennsylvania’s landowners are up in arms over what they perceive to be theft of their royalty payments by Chesapeake Energy. We told you about the recent rally in Bradford County, and about Gov. Corbett and others who invited PA’s anti-drilling Attorney General, Kathleen Kane, to get involved (see Bradford PA Landowner Rally over Chesapeake Royalty Shenanigans). It’s now a royal mess and likely to get messier as time goes on.

The sorta short version of the story is this: A few years ago Chesapeake was hammered by bad press (because the media hates Aubrey McClendon, then CEO). Chessy’s stock tanked and with lots of debt, McClendon couldn’t find any more money to borrow at a reasonable rate. So McClendon invented a clever scheme to re-interpret leases that would allow Chessy to deduct certain pipeline fees from landowner royalties. The expenses would be paid to Access Midstream (spun off from Chesapeake) in return for Access giving Chessy a big, fat pile of cash/investment. The inflated pipeline fees paid to Access–now deducted from royalty checks–would generate enough revenue for Access to recoup their investment in Chessy. It was a clever way of extracting money from landowners by doing it through the intermediary of a pipeline company. At least that’s the theory spun by the anti-drilling ProPublica/Daily Beast. Is it true?…
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Rice Energy Issues First Public Quarterly & Full Year Update

Rice Energy, one of the success stories of a brand new energy company starting up to focus on the Marcellus and Utica Shale region, went public in January (see Rice Energy IPO Soars, Brings in $84M More Than Expected). Along with becoming a publicly traded company comes the responsibility to file quarterly updates with the Securities and Exchange Commission. Rice has done just that. Yesterday they released their fourth quarter and full year 2013 operational and financial update, for the first time. What did it show?

It shows that Rice’s natural gas production in 4Q13 was up 120% over 4Q12 (154 million cubic feet per day average, or MMcf/d), and up 20% over 3Q13. They certainly expect their daily volume to grow–a lot. The company has pipeline agreements in place for up to 330 MMcf/d in 2014, up to 654 MMcf/d in 2015 and up to 761 MMcf/d in 2016. As of Dec. 31, Rice owns 43,351 net acres in the Marcellus and 46,488 net acres in the Utica Shale with a big budget to buy more this year. That’s the good news. However, there was a small (very small) spot of “bad” news…
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Gastar Update: First Utica Well Coming in April, Marcellus Grows

Gastar Exploration released their fourth quarter and full year 2013 report yesterday. Gastar drills in both the northeast (Marcellus) and the Mid-Continent shale play areas in the U.S. What do we learn about Gastar’s recent history and plans going forward in our neck of the woods? First, the update says that Gastar plans to drill their very first Utica Shale well in April. Gastar says they believe there is drillable Utica acreage under their leased land in Wetzel and Marshall counties in West Virginia–and they plan to take full advantage of it starting this year.

We also learn that the company’s Marcellus Shale production increased by 37% year over year. In Q412 Gastar produced 29.9 million cubic feet per day of natural gas, and in Q413 it was 41.0 MMcf/d. Which is tiny when compared to the 1 Bcf/d being produced by several Marcellus producers. But still, the numbers are going in the right direction. Here’s a small portion of yesterday’s update that deals with the Utica and Marcellus…
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TransCanada’s ANR Pipeline to Reverse & Carry Marcellus Gas South

This week TransCanada’s ANR Pipeline announced an open season to gauge interest on carrying plain old natural gas from the Marcellus and Utica Shale region all the way to the Gulf Coast. The plan is to reverse the flow of the ANR Pipeline that stretches from Indiana to the Gulf, and get the gas to Indiana by using the ANR Lebanon Lateral, a pipeline that goes from Lenanon, OH to the mainline ANR in Indiana. TransCanada is offering up to 600,000 dekatherms per day (Dth/d).

Here’s the story from NGI’s excellent Shale Daily publication:
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Hocus Pocus Drilling Impacts Health Survey in Wheeling, WV

We spotted a mention that the Wheeling-Ohio County (WV) Health Department has launched a so-called health survey to measure the impacts of Marcellus Shale drilling on area residents. So we took a peek–and we were unimpressed. Survey respondents are asked to self-report (no verification) how they “feel” about their current aches and pains–essentially the common ailments everyone faces no matter where they live. Then they’re asked precisely two questions (that we can determine) that *may* be related to gas drilling: “Have you noticed any changes in road conditions in your region since 2010?” and “Do you work in the gas industry?”

We’re guessing this is the kind of survey where they try to assign blame for headaches, etc. on gas drilling based on your address or occupation. If the people living (or working) within 5 miles of drill site have a statistical 2% increase in headaches, voilà–it was gas drilling that caused it. Which of course is not science at. It’s statistical hocus pocus that proves nothing. It’s all self-reported for goodness sake! How long will this “survey” be live? Oh, a few years, until they can “prove” drilling is causing problems…
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PA Gov Corbett Blocks Promotion of Moonlighter at Game Commission

Last August MDN told you about the moonlighting PA Game Commission employee, William A. Capouillez, the director of the Bureau of Wildlife Habitat Management at the Game Commission (see PA Director of Game Commission Double-Dipping with Gas Leases?). Capouillez’s day job is to oversee leasing 1.4 million acres of public game lands for oil and gas drilling. But in his off hours he negotiates leases for oil and gas drilling for private landowners–sort of an “on the side” landman. When it all came to light in the *Philly Inquirer* last year, it prompted an ethics investigation (see PA Game Comm. Head Not Afraid of Gas Leasing Ethics Investigation).

How’s the investigation going? No one will say. However, the PA Game Commission is considering promoting Capouillez to the top job of executive director. PA Gov. Tom Corbett (Republican) isn’t impressed. In fact, he’s sent a warning shot across the bow of the independent 8-member board of the Commission, saying he will actively work to block the promotion…
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