Gulfport Energy Continues Focus on Utica in 2018, No Borrowing

On Monday Gulfport Energy (drills mainly in the Utica but also in Oklahoma and Louisiana) issued it’s fourth quarter and full year 2017 results, along with a preview of what they expect to do in 2018. Gulfport has drilled the second highest number of Utica wells in Ohio, second only to Chesapeake Energy. Gulfport’s production in 4Q17 averaged 1.26 billion cubic feet per day equivalent, up 5% from 3Q17 and up a whopping 61% from 4Q16. Gulfport brought 15 Utica wells online in 4Q17. What’s ahead in 2018? The company will spend $770-$835 million in 2018. Astonishingly, Gulfport will not borrow to spend that kind of cash! Their spending will be 100% funded by the cash flow they generate from selling gas and oil and NGLs. Gulfport figures production will average somewhere around 15-19% more in 2018 than in 2017. Using an “average of 2.5 rigs” (how does that work?), Gulfport will drill 36-40 new Utica wells this year with an average lateral length of 11,200 feet. Gulfport plans to bring online 33-37 Utica wells with an average lateral length of 8,000 feet. Here’s the update of what happened in 2017, and what to expect in 2018, for one of the most important players in the Ohio Utica…
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Impressive 2018 Marcellus Growth Not So Impressive Because of DUCs?

Our lead story today is about Gulfport Energy which highlights some exciting news: This year (in 2018) Gulfport will fund their entire drilling budget out of the cash flow the company generates from selling gas/oil/NGLs (see Gulfport Energy Continues Focus on Utica for 2018, No Borrowing). Thing is, Gulfport isn’t the only Marcellus/Utica driller to advertise the fact that this year they are “living within their means” and not borrowing. Others include Range Resources, EQT and Antero Resources. Wow! We’re finally profitable!! Or are we? MDN spotted some analysis by a hedge fund manager. Writing on the Seeking Alpha investor’s website, Josh Young says (in our words) “hold on a minute” with respect to M-U drillers appearing to be able to grow production without borrowing. Why is Josh not convinced with this good news? Because when you dig deeper into the numbers, you find that “organic growth within cash flow is further from reach” because drillers are using DUCs to spend less on drilling, and grow production, than they otherwise would be. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease (an expensive proposition), drillers will begin the process by drilling, and then leaving, the well, returning later to complete it when prices go up again. Josh’s thesis is that by using DUC inventory drillers aren’t really funding the entire budget from current year cash flow, because some of the money was spent in a previous year to drill the well. They are, in essence, still borrowing–from a different year. Josh estimates an average of 20% of the “new” wells coming online are DUCs and not truly new wells funded by current year dollars–meaning these companies aren’t as “profitable” as they may seem. Does he have a point? Is it all just financial mumbo jumbo? You decide…
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Rover “Frustrated” with FERC Order to Stop Drilling at Tuscarawas

In a strongly worded letter dated Sunday, Rover Pipeline tells the Federal Energy Regulatory Commission (FERC) they are “frustrated by the inaccurate central premise underlying the letter received from” FERC shutting down drilling at the Tuscarawas River location. On Jan. 24 FERC sent a letter to Rover stopping drilling at Tuscarawas, which had only restarted in December (see FERC Stops Rover Drilling Near River After 200K Gal Mud Disappears). In April 2017, some 2 million gallons of drilling mud went down the hole near the Tuscarawas River and popped back out where it should not have, harming a wetland by smothering aquatic life (see Rover Pipeline Accident Spills ~2M Gal. Drilling Mud in OH Swamp). That 2 million gallon “spill” in April triggered a shutdown of all HDD work in Ohio. It was only last December that Rover was allowed, by FERC, to resume more HDD work at the Tuscarawas site (see FERC Gives Rover OK to Resume All HDD Work, Incl. Tuscarawas River). After “losing” another 200K gallons down the hole, FERC shut it down a second time, on the 24th. So why is Rover frustrated? Because (a) losing some drilling mud was predicted and expected, and (b) NONE of the 200K gallons of mud lost has come back to the surface. There is no “inadvertent return,” as it’s called. Rover says 200K gallons staying down the hole, in the ground and not coming back out, is no big deal. That’s why they’re frustrated…
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Part of TGP’s Broad Run Pipe Expansion Starts Up in Kentucky

In December 2016 MDN brought you news about Kinder Morgan’s “Broad Run Expansion Project” that will expand transportation capacity of natural gas on the existing Tennessee Gas Pipeline (TGP) system. Antis tried to stop the project, but the Federal Energy Regulatory Commission rejected their pleas (see FERC Denies Anti Request to Stop KM’s Broad Run Expansion Project). The Broad Run Expansion includes construction of two new compressor stations in Kanawha County, WV, one new compressor station in Davidson County, TN, and one new compressor station in Madison County, KY. TGP is also increasing compression capacity by modifying two of its existing compressor stations in Powell and Boyd counties in KY by replacing existing capacity with new, higher-rated horsepower compression units. The project will provide an extra 200,000 dekatherms per day (Dth/d) of transportation capacity along the same path as the Broad Run Flexibility project, which was placed in service on Nov. 1, 2015. All of the additional gas will come from Antero Resources and their Marcellus/Utica program. Kinder/TGP has been busy working on the $406 million project and the pieces are now coming together. On Monday, FERC sent a letter to KM/TGP telling them the brand new compressor station in Madison County, KY can begin operations. KM plans to have the entire project up and running by June 1st of this year…
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Antero Res. Tells Stockholders: We’re Working on Low Share Price

Antero’s stock price performance last 12 months – click for larger version

We spotted a press release from Antero Resources which says, in essence, “We’re working on it.” What are they working on? Antero’s leadership is working on a way to boost the stock price. The press release begins this way: “Antero Resources announced today that the Company and its Board of Directors are working with its financial and legal advisors to evaluate various potential measures to address the discount in trading value of Antero’s stock relative to some of the premier U.S. large capitalization upstream independents that have a similar profile in terms of leverage, capital efficiency, production growth and free cash flow generation.” Translation: We know our stock price isn’t has high as other companies in our league. We’re working on ways to fix it.” What might those ways be? They don’t say. It has been our observation that companies with a perceived “discount in trading value” are often targets of corporate raiders, aka “activist investors,” who buy up 6-7% of a company’s outstanding shares and proceed to bully the company into laying off people and selling assets in an effort to make the stock price pop. We suspect Antero is positioning itself to fend off such an effort. You know, “He who gets there with the bad news first, wins” kind of thing. Antero is admitting there’s a problem and that they’re working on it (and they don’t need the help of someone like Carl Ichan, thank you very much)…
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Dominion Energy Gives Update on ACP, Greensville Plant & SCANA

Dominion Energy, a huge company with fingers in many pies (gas and electric utility, electric generator, nuke plant owner, pipeline company, LNG exporter) issued its fourth quarter and full year 2017 update on Monday. Dominion’s top brass also held an earnings call with analysts. We reported yesterday that on the earnings call, Dominion CEO Tom Farrell said the Cove Point LNG export plant on the shore of Maryland will begin shipping LNG “in early March” (see Dominion CEO Says Cove Point LNG Operational in “Early March”). Farrell said getting the facility ready is “an enormously complicated process” and safety is front and center. While the Cove Point news was tops in importance for us, Dominion is working on other critically important projects for the Marcellus/Utica. Dominion is the company building the $5 billion Atlantic Coast Pipeline, a huge 1,588-megawatt gas-fired electric plant in Greensville County, VA, and they are in the process of (hopefully) buying South Carolina-based SCANA Corporation–the main electric and gas company for much of South Carolina. What about an update on all these other important projects? We have it for you below…
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PA Senate Ctte Sends “Study Slow DEP” Resolution for Full Vote

You have to understand something about politicians–a lesson we learned long ago when working in Washington, D.C. If a politician floats a plan to “study” something, that really means “we’re not going to do a single thing about it.” Over the past couple of years the Pennsylvania Dept. of Environmental Protection (DEP) has gotten slower and slower in issuing permits for shale drilling–for simple things, like erosion permits a driller needs to push dirt around to create a well pad. The DEP has a policy of issuing erosion and sedimentation permits 14 days from the date of application. These types of permits are common and necessary when building roads, well pads, etc. As of last summer it was taking the DEP 250 days to issue those permits (see More Pushback on PA Senate Plan to Fix Slow DEP Permit Reviews). The drilling industry has been loudly pushing for a change. The DEP says it has fewer people on staff and that’s the reason for the slowdown. The thing is, the number of requests for permits has gone down too–so that particular argument doesn’t hold a lot of water. PA House Republicans have introduced a number of bills to “fix” the DEP, not least of which is a bill introduced that allows certified third parties to assist the DEP in reviewing permit applications (see Bill Introduced to Fix PA DEP’s Extreme Delays Issuing Permits). The House bill got Gov. Wolf’s attention. Last week he introduced his own plan to fix the DEP–by hiring more people and hiking fees on the drilling industry to pay for it (see PA Gov Wolf Floats Plan to Fix DEP Slow Drilling Permits: Hike Fees). Not to be outdone, the PA Senate now wants to weigh in. Last fall a Democrat Senator from Wilkes-Barre, John Yudichak, floated a “let’s study the problem” resolution (see PA Dem Senator Calls for “Study” to Address DEP Permit Delays). That resolution was just reported out of the Senate Energy Committee (of which Yudichak is the Minority Chair). Yep, both the swamp-dwelling Republicans and Democrats on the committee voted to “study” the DEP slowness problem, meaning they plan to do NOTHING about it…
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Marcellus Industry AWOL at Philadelphia DRBC Frack Ban Hearings

Last week the Delaware River Basin Commission (DRBC) held two public hearings in Philadelphia about its proposed plan to ban fracking in the Delaware River Basin (see Low Turnout for Philly DRBC Frack Ban Hearing, Antis Dominate). As we pointed out in our post, you would think a city with 1.5 million residents would turn out more than 120 people on a topic that is sold as “threat to everyone’s drinking water.” But no. Just a relative handful. However, the handful was almost exclusively in favor of the ban. One of two speaker who spoke against the ban was Dan Markind, an attorney in Philly. We’ve highlighted Dan’s comments here on MDN a few times over the years. Smart guy. We don’t always agree with his take, but we do this time. Dan circulated his thoughts after the DRBC hearing. His words are humbling. Dan makes the point that although many who spoke in favor of the frack ban have made up their minds and won’t change, some in the audience were open to being persuaded otherwise. Problem is, nobody from “our side” was there! One rep from the API spoke and left. And that’s it, beside Dan. We fielded nobody to present our side of the argument. As hard as it is to attend these types of events, attend we must. Here’s Dan’s take–that we missed a big opportunity by being AWOL at the DRBC hearings in Philly…
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NYT, Boston Globe Delve into Russian Gas Coming to America

The more we read about and dig into the story of Russian gas coming to Boston, the angrier we get. Just yesterday we told you that a rumored second shipment of Russian gas may be heading to Boston (see 2nd LNG Tanker with Russian Gas Coming to Boston?!). We have more details about the story. According to a New York Times article, in 2014 then-President Obama slapped sanctions on the “financiers and producers of Russian oil and natural gas, not the output.” Russia, at that time and since, has tried to “destabilize eastern Ukraine” with an ongoing occupation of Crimea. Sanctions against the financial services and energy sectors followed. Vladimir Putin (one of his cronies) was building an LNG export plant in the Arctic–Yamal LNG. The sanctions were aimed at stopping the plant from getting built–but it got built anyway with the help of Chinese banks. Yamal’s very first shipment of LNG recently left the facility and (as we previously outlined) was offloaded for a couple of days in the UK (see Confirmed: LNG Coming to Boston on Jan 22 is Illegal Russian Gas). What we still don’t understand is this: How can you impose sanctions on the financers and producers, but not on the outcome, the production (gas) itself? That seems crazy. We still think the gas is illegal–but nobody in D.C. (wake up Trump Administration!) is doing anything to stop it. Regardless of whether or not the shipments are illegal, even the far-left libs at the Boston Globe think this is nuts. It is humiliating (and an outrage) that sanctioned Russian gas–the VERY FIRST SHIPLOAD–is now being unloaded in Boston Harbor…
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Marcellus & Utica Shale Story Links: Wed, Jan 31, 2018

The “best of the rest”–stories that caught MDN’s eye over the break that you may be interested in reading. In today’s lineup: Westmoreland transit growing fleet of natgas buses; Warren County discusses distribution of Act 13 funds; Washington State looks to ban fracking for 10 years; FERC faces complications with new Trump tax cut; why is shale still not profitable; Sierra Club finally drops opposition to Sabine Pass LNG exports; fracked horizontal wells vast majority of new wells drilled; battling weather models; Canadian battle for U.S. gas markets; and more!
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