Chesapeake Energy 3Q17: “Pleased” Production Declined, Loses $41M

Yesterday the 800-pound gorilla in the natural gas space, Chesapeake Energy, issued its third quarter 2017 update. One of the highlights during the analyst phone call was CEO Doug Lawler’s bragging about the “world class” Marcellus Shale. During 3Q17 Chessy drilled and put online two Upper Marcellus wells in Susquehanna County, PA that turned in peak initial flow rates of 29.6 and 29.8 million cubic feet per day (Mmcf/d) of natural gas, which is 50% higher than previous Upper Marcellus wells drilled by Chessy. The company used 3,000 pounds of sand per foot in fracking the wells. On the down side, Chesapeake lost $41 million for the quarter after making $470 million in profit during the previous quarter. However, when compared with the same quarter last year (3Q16), losing $41M ain’t so bad. In 3Q16 Chesapeake lost $1.3 billion. The company’s stock price continues to be low, bumping along in the mid-$3 range ($3.66/share as of this morning when we checked). One odd statement from Lawler on the phone call. He said this: “I’m pleased to report our production has started to decline as forecasted following the previously announced weather-related operational delays experienced during the quarter.” He’s “pleased” production is down?! Yes, the company did previously forecast a drop in production–but how can you be “pleased” with that? Converting all hydrocarbons Chessy produces (natural gas, oil, condensate, NGLs) into barrels of oil per day, Chessy produced 542,000 barrels of oil equivalent per day (boe/d) in 3Q17, versus producing 638,000 boe/d in 3Q16–a drop of 15%. Combining the Marcellus and Utica, Chessy produced 246,000 boe/d in 3Q17 versus producing 261,000 boe/d in 3Q16–down 5.7%. The company currently operates 14 drilling rigs across all plays–two of them in the Marcellus/Utica. Below is the full 3Q17 update, including financials, select portions of the analyst phone call, an updated slide deck, and analysis by Reuters…
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DOJ Ends Probes into Chesapeake Royalty Practices, Land Deals

In September 2016, Chesapeake Energy filed disclosure forms with the Securities and Exchange Commission which says the U.S. Dept. of Justice (DOJ), a number of states, and even the U.S. Postal Service have served the company with subpoenas for information (see Everybody Just Subpoenaed Chesapeake Energy for Everything). The filing indicated that Chesapeake had received DOJ, U.S. Postal Service and state subpoenas “seeking information on our royalty payment practices. In addition, we have received a DOJ subpoena seeking information on our accounting methodology for the acquisition and classification of oil and gas properties and related matters.” An enterprising investigative reporter with Reuters noticed Chesapeake recently filed another disclosure form with the SEC–to say that the DOJ has now ended what was a three-year probe into the company’s royalty payment and land purchase practices–ended without taking any action…
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Antero 3Q17: Long Laterals & More Sand, Production Up 24%

Antero Resources turned in their third quarter 2017 update earlier this week. On the ubiquitous analyst phone call, Antero CEO Paul Rady spoke at length about the company’s long laterals. Antero has been a leader in drilling long laterals with nearly 900 wells drilled at an average lateral length of 8,250 feet–with some 230 of those drilled with a lateral length longer than 10,000 feet. Of all the shale wells drilled in the Marcellus/Utica that are over 10,000 feet, Antero has drilled more than 30% of those wells. According to Rady: “Longer laterals at 9,000 plus feet generate materially higher well economics.” But long laterals aren’t the whole story. Antero is also bumping up the amount of sand they use in fracking. In 2016 they used 1,500 pounds per square foot. From there they moved to 1,875. Today? They use 2,500 pounds per foot. The company continues to be one of the best in the business with hedging, or pre-selling their gas on long-term contracts for prices higher than they would get on the day-to-day spot market. After hedging, Antero got $3.39 per thousand cubic feet (Mcf) for gas and equivalents (oil, NGLS) last quarter. Antero drilled and brought online 31 Marcellus wells and 6 Utica wells in 3Q17. Below is the full update, extracts from the analyst phone call, and the the latest slide deck…
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Gulfport 3Q17: Production Up Whopping 63%, Turns a Profit

Gulfport Energy, which has drilled the second-highest number of Utica wells in Ohio (331 so far, second only to Chesapeake Energy), issued their full third quarter 2017 update earlier this week. Gulfport, which drills mainly in the Utica (but also in Oklahoma and Louisiana), reported 3Q17 production was up an astonishing 63% over the same period last year, and up 16% from 2Q17. Gulfport produced an average of 1.2 billion cubic feet per day (Bcf/d) of natural gas equivalent in 3Q17. The vast majority of that production (82% of it) came from the Ohio Utica. You can safely say Gulfport has broken into the 1 Bcf/d Club in the Ohio Utica! On the financial front, the company swung into profitability during 3Q17 by making $18.2 million in profit, versus losing $157.3 million in the same quarter last year. The company has four rigs operating in the Utica, and they drilled 23 Utica wells in 3Q17. Below is the full 3Q17 update, excerpts from the analyst call, and the latest slide deck…
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FERC Clears 1 Bcf/d Rayne Xpress Pipe to Begin Service

In January of this year, the Federal Energy Regulatory Commission (FERC) voted to approve and issue a certificate to Columbia Pipeine’s Leach XPress and Rayne XPress pipeline projects (see FERC Approves $1.8B Leach & Rayne XPress Pipeline Projects). The two projects work together to move Marcellus/Utica gas all the way to the Gulf Coast. The Leach XPress project involves construction of approximately 160 miles of natural gas pipeline and compression facilities in southeastern Ohio and West Virginia’s northern panhandle, flowing 1.5 billion cubic feet (Bcf) of gas all the way to Leach, Kentucky (hence the name). Rayne XPress works hand in glove with Leach. There is an existing natgas pipeline from Leach, KY all the way to the Louisiana Gulf Coast. That pipeline is called the Rayne, for Rayne, LA. The Rayne Xpress project beefs up the Rayne pipeline with new compressor stations to add an additional 1 Bcf per day of capacity–Marcellus and Utica Shale gas capacity that will flow to the Gulf Coast. Both projects are scheduled to go online this month. Leach XPress isn’t ready yet, but Rayne XPress is. Yesterday FERC granted Columbia Pipeline (now owned by TransCanada) permission to begin flowing gas along Rayne–Marcellus/Utica gas–all the way to the Gulf Coast…
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Oil Pipeline Near Philly to be Converted to Flow Fracked NatGas

Exciting! We have a brand new pipeline project to tell you about–located in the Greater Philadelphia area. Although the project is new, the pipeline is old–already in the ground. Talen Energy, birthed in June 2015 from a combination between PPL Energy Supply and certain assets of Riverstone Holdings, is one of the largest competitive energy and power generation companies in North America. Talen’s core business is building and operating electric generating power plants. One of the assets Talen inherited in the merger is an 84-mile pipeline called the Interstate Energy Company which runs from Northampton County, PA through Bucks, Montgomery, and Chester counties, terminating in Delaware County at Marcus Hook. Talen announced yesterday they’ve sold the Interstate Energy Company (the pipeline) to Adelphia Gateway, a subsidiary of New Jersey Resources, for $189 million. The northern 34 miles of the pipeline was converted to flow natural gas back in 1996. The southern 50 miles currently flows oil, but Adelphia (NJ Resources) announced yesterday they will convert the oil portion of the pipeline to instead flow natural gas. The bottom line is that a wide swath of Greater Philly is about to get a new source of clean-burning, abundant fracked PA natural gas…
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Sierra Club Asks Fed Court to Stop Atlantic Sunrise Construction

The odious Sierra Club is at it again. Using what appears to be endless supplies of money from people like the Rockefellers, the Sierra Club, along with a mishmash of other radical environmental groups, filed an emergency motion in federal court on Monday, asking the court to stop any further work on the Atlantic Sunrise Pipeline. Atlantic Sunrise is a $3 billion, 198-mile natural gas pipeline project running through 10 Pennsylvania counties to connect Marcellus Shale natural gas from northeastern PA with the Williams’ Transco pipeline in southern Lancaster County. Williams, the company building/owning the project, broke ground in September (see Williams Breaks Ground on Atlantic Sunrise Pipe, Ahead of Schedule). Since that time 29 radicals in two different protests have been arrested for blocking construction in Lancaster County (see Lancaster Pipeline Protesters ‘Do the Hokey Pokey’ & Get Arrested and 6 More Arrested for Blocking Pipe Work at Lancaster Nun Property). However, the work continues–at a rapid pace. Williams knows the longer they take, the more likely antis will find a way to slow or stop the construction. On Monday the Sierra Clubbers filed their latest “throw everything against the wall to see if something sticks” frivolous lawsuit to try and stop it–to give their other (numerous) frivolous lawsuits a chance to work their way through the court system, in hopes something, anything will work to stop the project…
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PA DEP Keeps Up Pressure on Mariner East 2 Pipe in Lebanon County

The Pennsylvania Dept. of Environmental Protection (DEP) continues its quest to put Mariner East 2 (ME2) Pipeline construction under a microscope. Two days ago MDN told you that the DEP had issued a Notice of Violation (NOV) for ME2 work in Lebanon County, PA, for spilling LESS THAN 1 gallon of non-toxic drilling mud (see PA DEP Shuts Down ME2 Drilling in Lebanon, PA for 1 Gal Mud Spill). Because it was the second spill at that location (the first being ~50 gallons), DEP shut down horizontal directional drilling at the Snitz Creek site. The DEP is back, riding ME2 for all they’re worth, with another NOV in Lebanon County. This one is because the DEP “observed sediment flowing into an unnamed tributary of Killinger Creek in South Londonderry Township.” If a body of water is large enough to be called a creek (something that runs year-round), it gets named. If a body of water isn’t even that big, it’s called an unnamed tributary–a body of water that may or may not flow year-round. We call it a drainage ditch. At any rate, DEP says Sunoco Logistics and their contractor building the pipeline in that area woulda/shoulda/coulda stopped a little dirt from washing down that drainage ditch if they had only used “best practices for controlling erosion.” Here’s the latest view under the microscope…
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US Senate Votes to Confirm Final 2 FERC Commissioners

In July, President Trump nominateed Kevin McIntyre, co-leader of the global Energy Practice at the Jones Day law firm, as the fifth (and final) FERC commissioner (see Pres. Trump Finally Nominates Kevin McIntyre to FERC, as Chairman). At that time, Trump also signaled he will make McIntyre chairman of the commission. Previously to that, Trump had nominated Richard Glick–a Chuck Schumer Democrat pick. McIntyre and Glick are the final two Commission members, rounding out a full compliment of five. Trump had previously nominated (later confirmed and now serving) Neil Chatterjee and Rob Powelson. It took the swamp dwellers in the Senate from July until November, but yesterday afternoon the Senate finally confirmed McIntyre and Glick. As soon as they are sworn in, McIntyre will take over the Chairman role from Chatterjee who has been serving in that role as a placeholder (doing a good job, we might add). One of the key issues ahead for all five commissioners is what to do about DOE Sec. Rick Perry’s “save coal and nuke energy” plan. Two of Trump’s picks, Chatterjee and Powelson, already disagree on what to do about Perry’s proposal (see Trump’s FERC Commissioners Disagree on Grid Reliability Plan). Here’s how it went down with the Senate vote to approve McIntyre and Glick…
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Marcellus & Utica Shale Story Links: Fri, Nov 3, 2017

The “best of the rest” – stories that caught MDN’s eye that you may be interested in reading. In today’s lineup: Enterprise reports record ethane volumes on ATEX pipeline; PA Sen Gene Yaw speaking on Marcellus development in Williamsport; EPA holding hearing in WV on repealing Obama Clean Power Plan; get ready for Appalachian gas bonanza; EPA wisely blocks scientists who receive EPA grants from sitting on EPA advisory boards; LNG imports to Puerto Rico resume; World Bank offers shale breakeven prices; 40% of global LNG trade moves through South China Sea; and more!
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