Marcellus Biggest Drillers Lock in 2017 Gas Prices at $3+ per Mcf
In September, MDN brought you research on 10 of the largest Marcellus/Utica drillers that have “hedged” their 2017 production (see Hedging Gas Prices in Marcellus/Utica – Who Hedges & How Much?). Hedging is a concept of pre-selling the gas you produce at a price you agree to now, in advance. Although that may sound risky, it’s actually an exercise in risk avoidance. It’s less risky to lock in favorable prices now rather than wait and potentially get far less. How do drillers know what the price of gas will be six months or a year from now? They don’t know, for sure, but there is something called the forward market, that predicts what prices will be at future dates. In fact, traders create contracts now based on prices in the future, and those contracts are reported by various news and data services, like NGI’s Forward Look publication. The company that provided the research back in September, S&P, is back with an update. The latest research shows that all of the top 10 drillers have hedged at least some of their production–and some of them have hedged most or even all of their production. What prices have each of these 10 drillers locked in and for how much production?…
Read More “Marcellus Biggest Drillers Lock in 2017 Gas Prices at $3+ per Mcf”
Every now and again it’s fun to read Peak Oil people and their wild theories that oil will run out any year now. Such theories have been exposed as complete bunkum, mainly because those crusty old guys (and gals) in the U.S. oil patch keep figuring out how to do new things to extract oil, at cheaper prices. Technology gets better, procedures get better, we do more with less. And we produce more oil, year after year. But it’s still good to read those with a different viewpoint from time to time, just to keep us on our toes. Sometimes they even make some good points. That’s what we found in an article that posits the theory that shale oil really isn’t as good as it may appear. Why? According to this peak oil author, better technology now being used is not nearly as important as the technique currently employed called “high grading”–or targeting the sweetest of the sweet spots, which are far more productive than the run-of-the-mill drilling locations. The author maintains we’ll run out the best areas to drill soon, leaving us with less-than-optimal areas and therefore much higher costs. And then shale is toast. That’s the theory anyway…
Once a month our favorite government agency, the U.S. Energy Information Administration (EIA), issues a Short-Term Energy Outlook (STEO). The EIA issued their latest edition on Tuesday. We have a full copy below. We’ve grabbed out the section on natural gas because it includes a couple of key points: (1) EIA predicts that natural gas production in the U.S. for 2016 will see a healthy decline over 2015 levels–1.3 billion cubic feet per day (Bcf/d) less in 2016. That’s the first annual production decline since 2005! (2) The EIA predicts the average price for natural gas at the benchmark Henry Hub will climb from $2.49/Mcf (thousand cubic feet) in 2016 to a whopping $3.27/Mcf in 2017. Why the jump? Growing domestic natural gas consumption, along with higher pipeline exports to Mexico and liquefied natural gas exports. Here’s the natgas section of the STEO, along with a copy of the full report…
Middle Eastern counties who sell us oil, including Saudi Arabia, have never been our “friends.” To pretend otherwise is dangerously stupid. We have depended on them for their oil, plain and simple. Oil equals energy and energy equals freedom and prosperity for the U.S. In the 1970s OPEC, the Organization of the Petroleum Exporting Countries, flexed its economic muscles against our country and brought us to our knees with an oil embargo that caused shortages and prices to skyrocket. MDN editor Jim Willis recalls growing up in the 1970s when gas was rationed and you could only buy gas every few days (odd and even days) based on your license plate number. A scary time in our country. Thing is, our enemies haven’t changed–they are still there. They’re just a whole lot richer than they were back then, richer with our money in their pockets. The shale revolution changed all that. We are close to being 100% energy independent–without the need to import oil. Oh, we’ll have to keep importing for the foreseeable future. We don’t have enough refineries here to process the type of oil we produce (light sweet crude). But in a pinch, we’d figure out a way. OPEC and Saudi Arabia have badly misjudged America. They thought they could flood the market with cheap oil and bankrupt America’s shale drillers. Didn’t happen. In fact, we got better. We figured out how to drill for less money. Little known fact: Bakken drillers can now make money with oil selling as low as $29 per barrel! In other words, it’s now time to put the last nail in OPEC’s coffin and kiss them goodbye. We sincerely hope finally defeating OPEC will be a top priority in the new Trump Administration…
One company that has been really smart and savvy when it comes to hedging is Antero Resources. Earlier this year when the average price of natural gas was selling for under $3 per thousand cubic feet (Mcf) on the benchmark Henry Hub, Antero averaged a sale price of $4.54/Mcf–in the Marcellus/Utica! Where prices are always BELOW the Henry Hub (see 
We hate to say “I told you so,” but we’ll say it anyway. If you live in New England, prepare yourself. You’re about to experience more price shocks for natural gas and electricity (4x more than the rest of the country, or higher). Why? Because you’re blocking new pipeline projects that would bring cheap, abundant, clean-burning natural gas to the region. The Pennsylvania Marcellus Shale sits a few hundred miles away–yet very little Marcellus gas is flowing to New England at this point. New England, more than any other region in the country, relies on natgas to power electric generating plants. Without extra supplies, especially in the winter months when natgas gets used for heating, electric generators are forced to pay obscenely high rates to stay in operation. Those obscenely high rates get passed along to ratepayers–businesses AND residences. Yet anti-fossil fuel wackos continue to try and stop new pipelines, sometimes criminally (see 
On Sept. 30 MDN editor Jim Willis attended S&P Global Platts’ 
Last winter was pretty unusual by everyone’s standards. It was much warmer and less snowy than normal in the northeast, and natural gas production/levels remained high over the course of the winter. It meant that the price of natural gas stayed in the basement during the time of year when it normally at least makes it to the first floor. What about this year? MDN recently reported that it’s going to be colder and snowier than average in the northeast this year (see 
David Hill is a geologist and a driller located in Ohio (David R. Hill Inc.). At a recent Coffee and Commerce meeting sponsored by the Cambridge Area Chamber of Commerce, Hill offered his insights into when oil drilling may return to Guernsey County and eastern Ohio. As MDN recently reported, much of the focus on drilling in the Utica has lately turned to dry gas, or methane only (see 
S&P Global Market Intelligence recently conducted research on 10 of the largest Marcellus/Utica drillers to discover which have “hedged” their 2017 production, and for how much. Hedging is a concept of pre-selling the gas you produce at a price you agree to now, in advance. Although that may sound risky, it’s actually an exercise in risk avoidance. It’s less risky to lock in favorable prices in advance rather than wait and potentially get far less. How do these drillers know what the prices will be a year from now? They don’t know, for sure, but there is something called the forward market, that predicts what prices will be at future dates. In fact, traders create contracts now based on prices in the future, and those contracts are reported by various news and data services, like 
Is unconventional (i.e. shale) natural gas supply more responsive to price changes than conventional gas? A new research paper suggests that the answer is yes–specifically, almost three times as responsive, because shale gas wells are far more productive (2.7x more) than conventional gas wells. In “Trophy Hunting vs. Manufacturing Energy: The Price-Responsiveness of Shale Gas” (full copy below), researchers from Resources for the Future (RFF), a nonpartisan think tank devoted exclusively to natural resource and environmental issues, takes a look at how the “new way” of drilling multiple wells from a single pad, which is akin to a manufacturing process, is flattening out the supply curve. A flattened supply curve reduces price volatility–the wild up and down swings in the commodity price of natgas. While the focus of the paper is on how shale wells are leading to lower and more stable prices over the long term and does a deep dive into economic models, the paper also contains a good, basic primer on drilling a shale well. We found it a good read and wanted to share it with you…
The ace reporters and analysts at Natural Gas Intelligence (NGI) recently came through yet another quarterly earnings season with their sanity mostly intact. 😉 MDN editor Jim Willis works with NGI expert analyst Patrick Rau on occasion. Pat is a terrific guy and one of the sharpest energy analysts Jim has had the pleasure of meeting. Pat sat through dozens of quarterly earnings calls for drillers, oilfield services companies and more over the past month or so. What did Pat learn from all those calls? Are there trends emerging? That was the upshot of an article written by NGI reporter Leticia Gonzales last week. It’s a must-read article (see 
