By the Numbers – Revenue & Profitability for M-U Drillers

The expert analysts at RBN Energy have just published their “fourth and final” in a series of posts looking in detail at E&Ps (exploration & production companies, or “drillers”). One of the groups of E&Ps they examine are “gas-weighted” E&Ps–or drillers who mostly extract natural gas. In looking through the list, you immediately realize every one of them has operations in the Marcellus and/or Utica Shale region. Yes, a few also have operations in other plays, but they all have at least some operations here. The real value in the article is an accompanying spreadsheet comparing various financial metrics (apples to apples)–things like total revenue, lifting costs, production costs, and “pre-tax income,” meaning profitability. How do our drillers compare with each other?
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CNX 2Q18: 1.3 Bcfe/d; $61M Profit; Utica Production Thru Roof

CNX Resources released their second quarter update yesterday. On the financial front the company made $61 million in profit during 2Q18, down from making $170 million in 2Q17. Hey, at least they’re in the black! During Q2 CNX produced and sold 1.3 billion cubic feet equivalent per day (Bcfe/d) of gas, which is up 33% over the same quarter last year. Nice! Much of the increase was due to a huge 277% jump in Utica Shale gas volumes. CNX ran three drilling rigs for most of 2Q, bringing on a fourth rig in late June. The rigs drilled 16 wells in 2Q, including three dry Utica Shale wells in Monroe County, OH; four Marcellus Shale wells in Greene County, PA; six Marcellus Shale wells in Washington County, PA; and three Marcellus Shale wells in Tyler County, WV. However, CNX only brought online three wells during 2Q. Here’s the details…
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PA DEP Orders CNX, XTO & Diversified to Plug 1,058 Abandoned Wells

Yesterday the Pennsylvania Department of Environmental Protection (DEP) issued administrative orders requiring three oil and gas companies–Alliance Petroleum Corporation (a subsidiary of Diversified Gas & Oil), XTO Energy, and CNX Resources–to plug 1,058 abandoned oil and gas wells across Pennsylvania. Alliance has 638 wells, CNX has 327, and XTO has 93. In a quick scan of the list of wells to be plugged, we didn’t spot a single shale well. All 1,058 wells are conventional/vertical wells. So why is this news for MDN? Because all three drillers (but in particular CNX and XTO) drill shale wells, and plugging old conventional wells takes time and money–time and money that could be spent on drilling shale wells. It takes anywhere from $10,000 to $100,000 to plug an abandoned conventional oil/gas well. Most of the wells are located in the southwestern part of the state. CNX responded that in reviewing the list, some 190 of the wells in their list (out of 327) were part of a recent asset sale. Here’s the details on where, and how long these companies have, to plug old/abandoned oil and gas wells…
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Ascent’s $1.5B OH Utica Deal Yields $1.4M in Fees for 2 Counties

In late June Ascent Resources, a company founded by Aubrey McClendon after he left Chesapeake Energy, announced it is buying 113,400 Utica Shale acres along with 93 operating wells located in eastern Ohio for $1.5 billion (see Ascent Resources Spends $1.5 Billion to Buy OH Utica Acreage, Wells). It’s a big deal, making Ascent one of the largest privately owned exploration and production companies in the U.S. It’s also a big deal for the counties where the land is changing hands. A large part of the acreage is located in Jefferson County, with sizable chunks in Belmont, Noble and Harrison counties. Why is it a big deal for the counties? It takes time (and consequently fees) to transfer all those thousands of leases from one owner to another. Counties stand to make a big windfall. For example, in Jefferson County, some $305 million worth of transfers will take place between CNX and Ascent, netting the Jefferson clerk’s office $1.2 million in fee revenue! It is the single largest ownership transfer in Jefferson County history. In neighboring Belmont County (to the south of Jefferson), $58 million worth of transfers are taking place, netting the county $173,000 in transfer fees. No word yet on how much money Noble and Harrison stand to make…
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CNX Resources Fined $250K for PA Pipe Construction Violation

UPDATE 7/19/18: Aside from stiff fine for letting some muddy water get into a nearby creek, there is a second aspect to this story uncovered by ace reporter Jamison Cocklin at NGI’s Shale Daily: the local gathering pipeline CNX was building (and has now abandoned) in Indiana County was supposed to connect to a test Utica well they are/were drilling there. Abandoning that pipeline puts the future of CNX’s Utica drilling in the area in doubt. See NGI’s story: CNX Cancels Plans for Pipeline to Gather Natural Gas from Deep Utica Test Pad.

CNX Resources was installing a pipeline in Indiana County, PA and apparently didn’t, according to the PA Dept. of Environmental Protection (DEP), properly construct erosion barriers for the project. It rained, hard, and sediment-laden water went over the erosion barriers and got into an unnamed stream, which empties into Mudlick Run, a “high quality water” creek. In other words, a tiny creek got muddy, and some of that muddy water *may have* entered a slightly bigger creek. And for that violation, CNX is going to pay a whopping $250,000 fine. The DEP says following an inspection in March, the DEP ordered CNX to fix the problem by April 3, but as of May 16 the problem had still not been fixed. CNX disputes that they violated their permits and has told the DEP they’ve quit building that particular pipeline. In order to make it all go away, CNX is paying the DEP a $250K negotiated shakedown, PLUS pay to fix the “problem”…
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PennFuture Tries to Bully Pittsburgh Airport re Gas Royalties

As is so often the case, radical Big Green groups, like PennFuture, attempt to intimidate (i.e. bully) by using threats of legal action, those who dare to use and (gasp) enjoy the monetary benefits of shale drilling. In early 2013 the Pittsburgh International Airport and Allegheny County, PA signed a deal with CONSOL Energy (now CNX Resources) to lease 9,000 acres surrounding the airport for natural gas drilling (see $50M Check in the Mail: Pittsburgh Airport Lease a Done Deal). The airport received a $50 million signing bonus and the promise of 18% royalties on anything produced and sold. The first wells began to flow natural gas for the first time exactly two years ago, in July 2016 (see CONSOL’s First Pittsburgh Airport Wells Begin to Flow NatGas). So far, for 2016 and 2017, the airport has received a grand total of just over $16 million in royalty payments and another $857,000 from other fees. Yikes! The airport uses the revenue “to reduce airline rates and charges and for capital expenditures…at the Airport.” So along comes the Big Green bullies from PennFuture, threatening to sue the airport if it doesn’t use the money for what PennFuture wants it used for. Yeah, the money does not belong to PennFuture, but that doesn’t stop this rogue “nonprofit” from throwing its weight around and making demands. PennFuture is telling the airport the money MUST be used to “further the interests of citizens under the environmental rights amendment.” Whatever that means. PennFuture told the airport, in a nasty letter, that the airport is in violation of Article I, Section 27 of the Pennsylvania Constitution. Our advice to the airport: Tell PennFuture to take a hike in the vast PA outdoors…
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Ascent Resources Spends $1.5 Billion to Buy OH Utica Acreage, Wells

Last Thursday, Ascent Resources, a company founded by Aubrey McClendon after he left Chesapeake Energy, announced it is buying 113,400 Utica Shale acres along with 93 operating wells located in eastern Ohio for $1.5 billion. The new acreage tips Ascent over the 300,000 Utica acre line and catapults the company into one of the largest privately owned drillers (exploration and production) in the U.S. The companies doing the selling are CNX Resources and Hess (selling a joint venture they co-owned, each selling their share for $400 million each, for a total of $800 million), Utica Minerals Development (a subsidiary of First Reserve, a private equity firm headquartered in Greenwich, CT, and EMG), and a fourth, unnamed mystery seller. The CNX/Hess acreage (78,000 net acres of the 113,400 acres) is located in the wet gas window of Belmont, Guernsey, Harrison and Noble counties. We’re not sure about the location of the other acreage. The CNX/Hess jv sale marks Hess’ total exit from the Utica Shale. So how will Ascent pay for all of their new shiny new assets? After all, they only just emerged from bankruptcy in April (see Ascent Resources Marcellus Exits Chapter 11 Bankruptcy). [Correction: Ascent Resources Marcellus was the part of the Ascent business that filed for bankruptcy and is not related to Ascent Resources Utica and this new transaction.] Ascent will pay for it by issuing $965 million in new shares of equity (private stock), and borrowing $535 million under their existing line of credit…
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EQT Confirms Sale of Huron Shale to Diversified for $575M

MDN exclusively brought you the news, on June 19, that Diversified Gas & Oil had purchased EQT’s Huron Shale assets in Kentucky, Virginia and West Virginia for $575 million (see Diversified Gas & Oil Adds to Conventional Assets in KY, VA, WV). At that time, Diversified did not disclose who it had purchased the assets from. MDN provided a guess, but that guess proved wrong. Within an hour of posting about the sale, an MDN tipster confirmed for us the seller was EQT, which we subsequently updated, providing the MDN audience with the inside skinny. On Friday, June 29, EQT issued a press release (below) confirming that yes, it was they who had sold the acreage/assets, including nearly 12,000 wells with 200 million cubic feet per day of natural gas production, to Diversified. The deal also includes 2.5 million acres of leases and some 6,400 miles of gathering pipelines. What we didn’t know about the deal (until now) is that it includes 8 field offices and 250 employees. Here’s the EQT announcement with full details of the deal…
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New Strategy: CNX Blends Marcellus/Utica Gas, Eliminates Processing

Another interesting story coming from this week’s DUG East Conference in Pittsburgh. CNX Resources (formerly CONSOL Energy), is beginning to use a new strategy of mixing together the natural gas produced from two different rock layers–the Marcellus and Utica. Why do that? The “gas” CNX gets from their Marcellus wells is “damp”–which is a new term for us. Everyone else would call it “wet”–as in there are extra hydrocarbons in the gas, like ethane, propane, butane, etc. In other words, NGLs (natural gas liquids). Interestingly, the Utica wells CNX is drilling in southwestern PA are “dry”–meaning relatively little if any NGLs coming out of the ground along with the methane. By mixing the two together, damp and dry, CNX dilutes the mixture enough that it’s pipeline ready and goes directly to market. That is, the gas doesn’t have to be transported via pipeline (which costs money) to a gas processing plant to remove the extra hydrocarbons (which costs more money). Typically if you can get a good price for those other hydrocarbons, it’s worth the extra transportation and processing costs. But with NGL prices low, and with few markets for ethane (the primary NGL extracted) right now, other than exporting it out of the area, CNX’s “blending” strategy lowers their costs and gets the gas to market quicker. Here’s the beauty of it: CNX can drill both Marcellus and Utica wells on the very same pad, and blend the gas together right at the pad. Less cost and faster to market sounds like a good strategy to us…
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CNX Signs Deal with Evolution to Use 100% Electric Fracking Fleet

CNX Resources announced Tuesday that the company has signed a long-term contract with Evolution Well Services to use Evolution’s 100% natural gas-fueled electric pressure pumping equipment. That is, CNX will use electric fracking equipment, with the electricity generated by burning natural gas (instead of diesel). According to Evolution, their “next generation” equipment saves drillers “up to 95 percent on fuel costs.” Whoa! If that claim is true (we have no reason to disbelieve it), it certainly changes the economics of fracking. Using natgas to generate the electricity, instead of diesel, also has the benefit of cleaner air. And here’s the coolest part: The natural gas used to power the electric generator comes from other other CNX wells in the area, i.e. “field gas.” Look ma, no more endless truck deliveries of diesel fuel! Here’s the exciting news that CNX is a “first-mover” on this new technology…
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Westmoreland Co. Pays Big Bucks for Reservoir Testing 8 Yrs Later

In 2011, the Municipal Authority of Westmoreland County, PA began a new water testing and monitoring program for the Beaver Run Reservoir which supplies water to about 150,000 residents (see Westmoreland County, PA Municipal Authority Initiates New Water Testing for Reservoir Located Near Marcellus Drilling). CONSOL Energy (now CNX Resources) had 100 shallow gas wells on municipal property near the Reservoir, and at the time had started to drill Marcellus Shale wells. The Authority also leased land near the reservoir to Dominion Resources, which ended up drilling more than a dozen shale wells on the property. The water testing program was precautionary, to ensure water is not being affected by nearby drilling activity. The Municipal Authority contracted with Indiana University of Pennsylvania (IUP) to do the monitoring and testing. The early results showed no impact from testing (see Water Tests at PA Reservoir Show No Affects from Gas Drilling). Over the years, the Authority continued to award contracts year after year to IUP–starting at $55,000 and going as high as $100,000 (see Pricetag to Test Water at Reservoir Near CONSOL Drilling Goes Up). The Authority renewed their contract with IUP in 2016 for $85,000 (see Beaver Run Reservoir Tests Since 2011 Show No Harm from Drilling). And they’ve just done it again, paying IUP $99,000 to test water quality, and another for $24,700 to test the air at the reservoir. Our point: Since the first tests began more than eight years ago, there have been a number of shale wells drilled on the property next to the reservoir–and there has been NO negative impacts from shale drilling in all that time…
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Financial Checkup for Marcellus/Utica Drillers

RBN Energy, headed by founder Rusty Braziel (co-founder of Bentek Energy), is, in our opinion, the premier oil and gas analytics firm out there. Smart people working at RBN. And they offer up some amazing content on their blog site–for free! At least it’s free for a while, then it goes behind a paywall. A few days ago RBN published a blog post on the financial health for the 44 major publicly-traded U.S. exploration and production companies (drillers). RBN groups them into three categories: Oil-Weighted, Diversified, and Gas-Weighted. We found the Gas-Weighted list of 10 companies and the information revealed about them to be fascinating and worth studying. Each of the companies has major operations in the Marcellus/Utica–some of them totally focused on our region. Among the data points shared: revenue, production costs, lifting costs and more. We think of the following as a handy financial health scorecard/checkup for 10 of the biggest drillers in the M-U, including Antero Resources, Cabot Oil & Gas, Chesapeake Energy, CNX Resources, EQT, Gulfport Energy, National Fuel Gas (Seneca Resources), Range Resources, Southwestern Energy, and Ultra Petroleum…
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Average Workers at Top Marcellus Drillers Make $100K+ Salary

The average worker who works for producers (i.e. drillers) in the Pennsylvania Marcellus makes among the highest average salaries of any industry in the state. Looking at six of the state’s top Marcellus drillers, the average worker made $113,610 last year! That’s an average taken from workers at CNX Resources, Range Resources, Chesapeake Energy, Southwestern Energy, EQT and Cabot Oil & Gas. We hasten to add not “all workers” but “average” or “median” workers–meaning there are people who make below that number and people who make well above that number. It also means the majority of Marcellus workers in those companies made at least $100,000 per year. Those working for oilfield services (OFS) companies like Halliburton, Baker Hughes and others didn’t fare quite as well, making an average of $52,000-$80,000 per year. Still, hey, it ain’t bad money! Here’s a look at the average wage for top Marcellus drillers and the OFS companies that serve them…
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The Different Ways Range and CNX Dealt with ME1 Pipeline Outage

Now that the Mariner East 1 (ME1) NGL (natural gas liquid) pipeline is back up and running, Marcellus/Utica producers are breathing a sigh of relief–at least, Range Resources, the primary customer for the pipeline, is. Following sinkholes that developed while Sunoco Logistics Partners was drilling for the Mariner East 2 (ME2) project, a portion of ME1 was exposed to open air in Chester County, PA, which prompted the state Public Utility Commission to shut down ME1 in early March (see PA PUC Shuts Down Mariner 1 Pipeline Due to Mariner 2 Sinkhole). Range sends 20,000 barrels a day of ethane and propane through ME1. The closure sent them scrambling for alternatives (see Range, CNX Look for Alternatives to ME1 Pipe Following Shutdown). CNX Resources is also a customer using ME1, but much less so than Range. It took two months, but the PUC finally allowed ME1 to restart last week (see Sunoco’s ME1 Pipe Restarts, ME2 Pipe Pays Another $355K in Fines). Range and CNX coped with the ME1 closure in very different ways…
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CNX Resources 1Q18: Record High Production as Utica Skyrockets

Yesterday CNX Resources, formerly CONSOL Energy, released its first quarter 2018 update–its first full 3-month update since separating from the coal company. CONSOL began life as a coal company 150 years ago and only in recent decades entered the oil and gas business. The company split itself into coal and oil/gas back in November (see CONSOL Energy Split Done – Meet “New” Gas Driller CNX Resources). So 1Q18 is the first full quarter as a standalone o&g company for CNX. And what a quarter it was! Production of everything–gas, NGLs and oil, called “equivalent” was 129.5 billion cubic feet equivalent (Bcfe) in 1Q18, which works out to be 1.4 Bcfe per day–an increase of 36% over 1Q17. Production from Marcellus wells (gas and liquids), which is the majority of CNX’s wells, was up 14%. However, production from CNX’s Utica wells was up a huge 184% over 1Q17. Utica volumes (43.5 Bcfe in 1Q18) are rapidly catching up to Marcellus volumes (65.9 Bcfe in 1Q18). Here’s the latest from CNX…
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CNX Claims “Biggest, Baddest Sandbox in the Appalachian Region”

On Tuesday CNX Resources (formerly CONSOL Energy) held an investors day in Pittsburgh to disclose the company’s strategy for the next few years. CNX is one of the big players in the Marcellus/Utica. The company owns 531,000 net Marcellus acres and 652,000 net Utica acres, with some/much of that acreage the same (the Utica layer sits under the Marcellus layer). The company has only developed about 6% of its acreage so far. Not even on first base! CNX CEO Nicholas “Nick” DeIuliis had some big boasts at Tuesday’s event. DeIuliis said CNX’s stacked pay (layer over layer) acreage gives it a leg up and makes the company “a disruptor” in the region. He also said this, with respect to the company’s acreage position: “We’ve got the biggest, baddest sandbox in the Appalachian region.” Indeed! Below is a summary of the event, along with the PowerPoint presentation used at the event (loaded with great information)…
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