Cabot O&G 1Q18: Important New Markets Opening Up Now

Note: A previous version of this post incorrectly stated Cabot is pumping 3.75 Bcf/d of natural gas now. The correction is that according to the CEO, the company has the capability to pump that much as soon as all pipelines are in place and existing planned wells are online–likely in 2020. We regret the error!

One of our favorite Marcellus drillers, Cabot Oil & Gas, provided their first quarter 2018 update on Friday. Cabot never disappoints! What did we learn from the update? For one thing, when all pipeline infrastructure is in place and all planned wells are drilled and online, the company will be pumping a massive 3.75 billion cubic feet per day (Bcf/d) of natural gas out of Susquehanna County, PA. Cabot is working with Williams to increase the capacity of their gathering system to support even more gas than 3.75 Bcf/d. It would not surprise us if Cabot becomes the first 4 Bcf/d Marcellus/Utica driller in the next few years. So Cabot has plenty of production. What about demand? Lots of production with little or no demand equals prices in the basement. There was good news on the demand front too. Cabot said there are two gas-fired electric plants starting up by June 1st–both of them powered with Cabot Marcellus gas. Add to that the now-operational Cove Point LNG export plant with Cabot’s contract to sell gas to Japan–and it equals a massive increase in demand for Cabot’s gas going into the second quarter. Later this year, in the second half sometime, Atlantic Sunrise will come online increasing Cabot’s flow to new markets even more. We’d call Cabot’s Friday 1Q18 update the “stars are finally in alignment” update for Cabot. Here are some more pickings from the update, along with a copy of the full update…
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EQT Pays PA DCNR $874,200 to Lease Under Ten Mile Creek

This is a story that continues to bug us. The state of Pennsylvania, specifically the Dept. of Conservation and Natural Resources (DCNR), is grabbing money that we think belongs to private landowners. The DCNR has been, for years, claimed that under a centuries-old law that the state of PA “owns” the property under “navigable” waterways–including rivers and streams (see PA DCNR Publishes Lease Agreements for Deals Under Rivers/Creeks). We understand the state claiming the Delaware River, and maybe the Susquehanna River, is a “navigable” body of water. The DCNR uses the “navigable waterway” excuse to sign leases with drillers under much smaller waterways than the Delaware and Susquehanna–siphoning money that would have gone to landowners. A landowner might own the land on both sides of, say, Ten Mile Creek, as we’re sure happens. However, the land under Ten Mile Creek does not technically belong to them. In fact, certain long portions of the land under Ten Mile Creek are now leased to EQT, and EQT paid handsomely for it. The company leased 218.55 acres under Ten Mile Creek in Greene and Washington counties (southwestern PA) for $874,200, which works out to be exactly $4,000 per acre! Not to mention a whopping 20% royalty! That’s money that (in our opinion) should go to the landowners who own the land along the creek, not to the state. Until landowners sue or the legislature acts, the state will continue to pick the pockets of landowners who own land along PA’s waterways…
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Southwestern 1Q18: New $3.5B Line of Credit, Fayetteville Not Sold

Last Friday Southwestern Energy, one of the biggest drillers in the Marcellus (4th largest natgas producer in the country), issued its first quarter 2018 update. Southwestern drills in two plays: The Marcellus (i.e. Appalachia), and the Fayetteville (in Arkansas). In March the company signaled it wants to sell its Fayetteville Shale assets (see Southwestern 2017: $3.5B Turnaround, Shopping Fayetteville Assets). A sale hasn’t happened yet, according to Friday’s update. In fact, Southwestern CEO Bill Way gave an elaborate “no comment” (our words) on the Fayetteville “process” currently under way with the help of JPMorgan. Southwestern reported earning $205 million in 1Q18, down 27% from the $281 million they earned in 1Q17. The company has just reorganized its debt, paying off a $1.2 billion term loan and arranging a $3.5 billion line of credit. Production in the Marcellus/Utica was 2.4 billion cubic feet equivalent per day (Bcfe/d) of natural gas gross, 159 million cubic feet equivalent per day (MMcfe/d) net. Production was up 42% in southwest Appalachia and up 24% in northeast Appalachia. Across both the M-U and Fayetteville, Southwestern drilled 32 wells, completed 29 wells, and placed 33 wells online into sales. Here’s the full 1Q18 update from Southwestern Energy…
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Cabot Says 2 NEPA Gas-Fired Plants Go Operational by June 1

Lackawanna Energy Center – concept drawing

Tucked away in the comments made by Cabot Oil & Gas CEO Dan Dinges on an investor conference call last Friday, MDN picked up on what we consider big news: Both the Moxie Freedom (Luzerne County, Wilkes-Barre area) and Lackawanna Energy Center (Lackawanna County, Scranton area) Marcellus-fired power plants are about to go fully operational–sometime in May (by June 1). Both plants will exclusively use Marcellus gas extracted by Cabot in Susquehanna County, PA. For nearly a year the plan had been for Moxie Freedom to be built and online in May of this year, so that announcement isn’t so much a surprise as it is welcomed news (see NEPA Moxie Freedom Power Plant on Track for May 2018 Launch). However, in March we reported Lackawanna was going through a “short” commissioning stage and would be firing up at any time (see Gas-Fired Power Plant Near Scranton Nears Startup; Yellow Smoke). The Lackawanna project has faced fierce local resistance. A group of Democrats got themselves elected to the local town board in Jessup, taking office in January, trying their best to block startup of the Lackawanna project by employing a Big Green lawyer (who works for Riverkeeper) at a cost to taxpayers of $225/hour. Looks like it was wasted money as Dinges says Lackawanna will be operational, with large volumes of Cabot gas flowing to it, within weeks…
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Philly Dem Senator Tries to Shut Down ME2 Pipe Construction

PA State Senator Andy Dinniman

A Chester County, PA (Philadelphia area) Democrat State Senator by the name of Andy Dinniman (who we think looks like Tony Soprano) continues his mission to stop the Mariner East 2 (ME2) project. This is nothing new for Dinniman. He’s been agitating and lobbying and demanding and pouting for over a year in his quest to shut down ME2 (see our Dinniman stories here). According to a press release from Dinniman issued last Thursday, the Senator has filed “a formal legal complaint and a petition for interim emergency relief with the Pennsylvania Public Utility Commission (PUC) to prohibit construction of the Mariner East 2 (ME2) and Mariner East 2X (ME2X) pipelines in West Whiteland Township.” Dinniman claims Sunoco Logistics Partners (builder of ME2) has 20 days to respond to the complaint. No doubt Sunoco will respond, and there’s little doubt the PUC will not do anything about Dinniman’s request…
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1 MVP Tree Stand Comes Down, VA Gov. Calls Sitters “Unlawful”

Va. Gov. Ralph Northam

An update on the ongoing situation where several radicals are sitting in the tops of trees (or on a platform) to try and stop the Mountain Valley Pipeline from cutting down said trees in order to install the pipeline. There are, by our informal count in sifting through the news, four “tree sits”–with three of them in Virginia and one in West Virginia, along with a “pole sit”–someone perched on top of a pole that is held upright by ropes to nearby trees. The pole sit is in Virginia as well. Democrat politicians in Virginia have by and large supported the illegally trespassing lawbreakers (see Virginia Democrat Lawmakers Side with Lawbreakers in MVP Protest). We pointed out the Dem lawmakers might change their tune if MDN showed up with a tent and camped out in their driveway, trespassing on their land. One can dream. At any rate, the new news is this: One of the tree sitters in Virginia decided to give up the protest. As soon as he/she was on the ground the stand was disassembled and removed by the U.S. Forest Service. So that’s one of the four tree sits gone. Everyone else is still in place. U.S. Senator from Virginia, Tim Kaine (the loser who ran with Hillary) says he supports the lawbreakers. Typical. However, Virginia Gov. Ralph Northam was more nuanced. Northam tried to have his cake and eat it too. He called the protesters “unlawful” and indicates he doesn’t support them, but then he turned around and said police should continue to feed and protect them. Typical swamp dweller response…
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Other Energy Stories of Interest: Mon, Apr 30, 2018

The “best of the rest”–stories that caught MDN’s eye that you may be interested in reading: Rover gets limited FERC OK to start up more of the pipeline; M-U formations generate billions in investment; Marcellus fuels bright future for WV residents; WVU shale gas dev team formed; timetable to shut down 4 nukes in OH, PA; Michigan approves $1B DTE natgas power plant; VT Supreme Court wants review of pipeline costs; crude prices up, production at record high; Al Gore lectures DC media on going green, then drives away in a gas-powered car; the secret weapon to solve global warming; and more!
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