Chesapeake Loses Less in 2016; Focus Changing from Gas to Oil

Chesapeake Energy, the second largest gas driller in the U.S. behind ExxonMobil, turned in its full year 2016 and fourth quarter 2016 update yesterday. On the accompanying quarterly earnings call, Chesapeake CEO Doug “the ax” Lawler took a bow for turning around a company that just a year ago seemed bound for bankruptcy court. Make no mistake–the company still has a long way to go. But they came a long way in 2016 and you have to give credit where credit is due. Let’s start with the top line numbers: In 2016 Chesapeake lost $4.9 billion, which seems like a lot. But compare that to 2015 when Chessy lost $14.9 billion and you can see the great strides that were made last year. In 4Q16 Chesapeake lost $741 million, down from losing $2.2 billion in 4Q15. One of the millstone’s hanging around the neck of the company was corporate raider Carl Ichan. He dumped most of his Chesapeake stock in 2016, at a considerable loss (see Carl Icahn Toadie Resigns from Chesapeake Energy Board). What about the Marcellus/Utica? Combined production from the M/U represented the single largest block of production in the Chesapeake portfolio–yet this year they will only operate two rigs in the northeast. The company has shifted its focus and strategy on drilling for oil instead of natural gas. In 2017 Lawler said the company will focus 60% of its drilling budget on oil. It means a much-scaled-back drilling program in the Marcellus/Utica region for Chesapeake, with an emphasis on completing already-drilled wells (see Chesapeake Energy 2017: Less New Drilling in M-U, More DUC Work). Below is Chessy’s update, a few select words about the M/U region uttered on yesterday’s earnings call, the latest PowerPoint slide deck, and a mish mash of analysis that we think you’ll find useful…
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Range Resources – Lost $521M in 2016; 1/3 of 2017 Budget for LA

Range Resources released its 2016 update on Wednesday and held an earnings call yesterday to discuss it. In what should be a big red warning flag for Pennsylvania Gov. Tom Wolf, Range CEO Jeff Ventura said, “2016 was a significant year for Range, as we completed the acquisition of Memorial Resource Development in September, providing Range operational and geographic diversity with wells that rival our prolific Marcellus wells.” The Memorial purchase provides Range with 220,000 acres on which to drill–in Louisiana (see Range Resources Buys Louisiana Driller in Deal Worth $4.4B). No, Range isn’t leaving the Marcellus–yet. But if Wolf persists with an idiotic plan to enact the highest severance tax in the country, Range now has options–and they won’t hesitate to use those options. In 2016, Range reported natural gas production of 375.81 billion cubic feet (Bcf), which works out to 1.03 Bcf/d. That’s up 3.6% versus 362.69 Bcf, or 994 MMcf/d, in 2015. For 2017, Range will split its drilling budget. The company is spending $1.15 billion on drilling this year: two-thirds will be spent in the Marcellus and one-third (disappointingly) will be spent in Louisiana. Pay attention Gov. Wolf–already we’re seeing a shift! As for top line numbers, Range lost $521 million in 2016, vs. losing $714 million in 2015. Losses in 4Q16 were down a lot from the previous year: Range lost $161 million in 4Q16 vs. losing $322 million in 4Q15. Below is the Range update, along with a portion of the earnings call (interesting comments by Range’s COO Ray Walker), the latest PowerPoint slide deck and Range’s SEC 10-K report…
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Rice Energy Spending $1.5B in M-U, Leasing 15K Acres in 2017

Rice Energy turned in it’s 2016 update this week, along with a look at what’s coming in 2017. As for top line financial numbers, Rice lost about the same in 2016 as they did in 2015: A loss off $298 million in 2016 vs. a loss of $291 million in 2015. Although Rice owns and drills on a small acreage position in the Texas Barnett Shale, the vast majority of their focus continues to be in the Marcellus/Utica. The company plans to spend $1.5 billion in 2017, broken out as follows: $1.035 billion for drilling and completion activity in the Marcellus/Utica shale plays; $225 million for land purchases; and $315 million spent by Rice Midstream ($255 million for gas gathering and compression and $60 million on water services). With that money, Rice expects to drill 75 new wells and complete another 55 wells in the Marcellus in 2017. In the Utica, Rice plans to drill 20 new wells and complete 20 wells in 2017. Land acquisition will happen in three counties: Greene and Washington Counties (in PA), and Belmont County (in OH). How much will they pay, on average, to lease new acreage? We have an answer for that…
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Energy Transfer – Paper Loss in 2016, Looking Good for 2017

Energy Transfer Equity (ETE) & Energy Transfer Partners (ETP)–essentially the same company in two different pieces, owned by Texas billionaire Kelcy Warren–turned in their 2016 updates this week. ETE and ETP had a wild ride in 2016, with lots of drama over attempting to buy–and then wiggle out of the deal to buy–Williams (see Dead as a Doornail: ETE Terminates Merger with Williams). Also part of the ETE/ETP empire is Sunoco Logistics Partners, which is building the twin Mariner East 2 pipelines. Sunoco LP is in the process of buying out/merging in ETP–so those two “subsidiaries” of Energy Transfer will soon combine into one entity (see ETE Merging Sunoco Logistics and Energy Transfer Partners). ETP is the company behind the Dakota Access Pipeline, which has created unending drama over the past six months or so. What did the updates show for ETE & ETP? A revenue loss–although most of it is a paper loss and not money out-of-pocket. Frankly, it will take an accountant to decipher Energy Transfer’s updates. We have the updates below so you can tackle it, if you want. We also grabbed some commentary below that hopefully sheds light on the two companies and what these updates show…
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Carrizo Actively Considering Sale of Marcellus/Utica Assets

Carrizo Oil & Gas, a Houston-based driller, actively drills in the Eagle Ford Shale in South Texas, the Delaware Basin in West Texas, the Niobrara Formation in Colorado, and until mid-year in 2015, they did have an active drilling program in the Ohio Utica and Pennsylvania Marcellus. No more. They haven’t drilled in Appalachia since 3Q15. According to Carrizo’s latest quarterly update for 4Q16 (and full year 2016), the situation continues. However, there is new news: On an earnings call yesterday, Andy Agosto, vice president of business development for Carrizo, fielded a question about the company’s Marcellus/Utica acreage. He said they get offers to sell their acreage “all the time” and in fact have had discussions with their bankers about the value of their Appalachian assets and about whether or not they should sell. It sounds to us, from the exchange, like Carrizo is actively considering a sale of their Marcellus/Utica acreage–some of it, if not all of it…
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PA Judge Rejects Antis’ Final, Desperate Attempt to Stop ME2 Pipe

As we reported earlier this week, Sunoco Logistics Partners has begun active construction activities related to building the twin Mariner East 2 pipelines (see Mariner East 2 Pipeline Constructions Begins Across PA). Last week the Pennsylvania Dept. of Environmental Protection (DEP) gave its final approval for the project (see Finally! PA DEP Issues Final Permits for Mariner East 2 Pipeline). It didn’t take long for a coordinated attack from the the enviro left–THE Delaware Riverkeeper, the Philadelphia-based Clean Air Council and the Mountain Watershed Association (see Maya & Friends Sue (Once Again) to Stop Mariner East 2 Pipe). Their efforts failed when a judge rejected a last-minute plea to stop construction (see Last Minute Attacks Fail to Stop Mariner East 2 Pipeline Progress). However, Maya & Friends went back to the judge, claiming there was “new” information, and would he ‘pretty please’ reconsider? Yesterday the judge said “no” to reconsidering. Apparently the attempt to shove a binder full of BS in front of the judge didn’t have the desired effect…
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M-U Projects Dominate Top 25 Engineering Construction Projects

Each year Engineering News-Record (ENR) magazine publishes a list of its Top 25 construction projects that began to be built during the previous 12 months. ENR has just released the list for new starts in 2016, and as we looked over the list, we couldn’t help but notice that of the top 25–each project of which had to be worth at least $140 million to get on the list–many of the projects are related to Marcellus/Utica Shale and would not exist without abundant, cheap shale gas. Here is the list of the Top 25 projects begun last year in the states of Delaware, Maryland, Pennsylvania, Virginia, West Virginia and the District of Columbia…
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Augusta County, VA Votes to Illegally Ban Fracking

It’s always breathtaking, and disturbing, when a small group of individuals decide to take away the Constitutional property rights of their fellow citizens. We always wonder, is this how it started in 1920s Germany? The Augusta County (VA) Board of Supervisors voted 6 to 1 Wednesday night to illegally take away the property rights of every citizen in the county by enacting a total ban on fracking in the county. Is there any shale in the county to frack? No idea, but we doubt it. To be fair, the first county in Virginia to become lawless in this regard was King George County, last summer (see King George County, VA Commits Fracking Suicide with Vote to Ban). Not helping matters is the confusing and inaccurate information coming from Virginia’s Attorney General, Mark Herring (see Virginia AG Says Localities Can “Regulate” & “Prohibit” Fracking). We always feel like a funeral is in order when Constitutional property rights are trampled as they have been in Augusta County…
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Anti-Drilling Democrats Ask Pres. Trump to Fill Up FERC

A group of radical, waaaaaaay left Democrats in the U.S. House of Representatives sent a letter to President Trump on Wednesday requesting that Trump appoint new members of the Federal Energy Regulatory Commission post haste. Get ‘er done–now. The ring leader of the House Dems sending the letter is Massachusetts Congressman Joe Kennedy III. Wait a minute. Democrats hate FERC because FERC is “nothing more than a tool of big oil and gas” and a “rubber stamp” approving pipeline projects. Why would Kennedy and his merry band of Lib Dems want Trump to appoint three new Republican members of the Commission? When you figure out the answer to that one, please share it with us–because this makes zero sense to us…
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