M-U NatGas Prices Dramatically Higher Thx to 3 New Pipes Online
“Come on Jim, quit writing so much about pipelines! Write more about upstream/drilling!” We have had MDN subscribers tell us that (no lie). But here’s the thing: What happens with pipelines *directly* affects what happens with drilling–the willingness of companies to drill more. Case in point: Over the past few weeks two new pipelines have come online: Williams’ Atlantic Sunrise and DTE Energy’s NEXUS. More capacity along Energy Transfer’s recently completed Rover also recently came online. The effect of the three combined has been dramatic. Production volumes have shot up another 1 Bcf (billion cubic feet) in the past month, to over 30 Bcf/d. And get this: While the Appalachian spot price for gas was $1/Mcf (thousand cubic feet) on Oct. 8 ($2 *below* the Henry Hub price), on Oct. 24 the Appalachian price was averaging $3/Mcf! Just 12 cents below Henry. A movement of $2/Mcf! Behold the power of pipelines and why we write about them so much.
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EQT Midstream, which is about to be renamed to Equitrans Midstream Corp. in a few weeks, recently issued its third quarter 2018 update (same day that EQT the driller issued its update). As you know, the two are about to split and become two independent companies. As part of the EQT Midstream update, the new midstream company leaders spoke about Mountain Valley Pipeline (MVP), a 303-mile pipeline from West Virginia into southern Virginia. MVP has experienced a lot of setbacks, most of them from a campaign of lawsuits filed by Big Green organizations (like the odious Sierra Club). A new pipeline project related to MVP was mentioned prominently in this week’s quarterly update. The pipeline is called Hammerhead.
On Sept. 10, Energy Transfer’s 24-inch gathering pipeline in Beaver County, PA, called the Revolution Pipeline, caught fire and exploded during testing (see 
The man largely responsible for the huge success of Range Resources in drilling in the Marcellus Shale, Range’s former senior vice president in charge of the Marcellus, John Applegath, is heading to Huntley & Huntley to helm the drilling program there. Applegath recently retired from Range, but he’s not ready for the pasture just yet! He’s jazzed to be working with the much smaller H&H and the team they’ve assembled, to drill in the Pittsburgh area. H&H has roughly 100,000 leased acres in southwest PA.
Moody’s Investor Service is sounding the alarm with respect to oilfield services (OFS) companies and debt. In a publication for Moody’s clients issued earlier this week, analysts said OFS companies don’t have the means to pay back towering debt in the short term, and “limited options” when it comes to raising equity to improve liquidity. What it means is this: Companies like Schlumberger, Halliburton, and Baker Hughes a GE Company are heading for rough waters. However, the biggies, like the three we’ve mentioned, will probably be OK. But their smaller competitors, according to Moody’s, may not be OK.
The “best of the rest”–stories that caught MDN’s eye that you may be interested in reading: PennDOT announces opening of 14th CNG transit fueling station in Indiana County; Main contractor on Atlantic Sunrise, Mariner East gas pipelines declares bankruptcy; Energy undersecretary pitches energy diversity at Southpointe; Duke brings first 820 megawatts online at natural gas plant in Florida; BHGE believes 2019 rig, well counts will grow; Cold snap could send natural gas to $5; BP’s Q3 European natural gas price realization jumps 53% to $7.79/Mcf on year; China’s tariff on US natural gas delays Louisiana LNG project.
A panel discussion at last week’s Shale Insight event focused on a pair of Pennsylvania lawsuits that has the potential (indeed already is) changing the drilling landscape in PA. The first lawsuit discussed was the decision from June 2017–“Pennsylvania Environmental Defense Foundation (PEDF) v. Commonwealth of Pennsylvania.” PEDF is an anti-fossil fuel group. They convinced the PA Supreme Court to issue a decision that tosses out a decades-old “balancing test” in decisions about drilling and instead said land-use and permitting decisions must now meet standards established by the state’s so-called Environmental Rights Amendment (ERA). The PEDF decision is creating big question marks for drillers and has spawned a flurry of lawsuits to define which standards to use. The second case discussed at Shale Insight was the “Briggs” case that tossed out the rule of capture in PA for shale drilling. Both cases have the potential to greatly limit Marcellus drilling in PA.
In September, MDN told you that Philadelphia Gas Works (PGW), the country’s largest municipal-owned utility company, floated a plan to partner with a private company to build a new LNG export facility at its Passyunk Plant located in south Philly (see 
When shale drilling activity ramps up, the people who are needed to do all those jobs show up. In droves. Some come from out-of-state. Some are local, and some from in-state but not local. Regardless, they all need a place to sleep. A home away from home (if they aren’t local). Increasingly those places are campgrounds. Problem is, there aren’t enough campgrounds for workers to park their RVs. So enterprising farmers in West Virginia are turning some of their acreage into campgrounds, to profit by hosting shale workers. Some establish small campgrounds, with just a handful of (2-4) sites. But beware–there’s a pile of permits required to operate a campground of any size. Some farmers are skipping the permit process, which is NOT recommended.
A group of 13 landowners in Virginia whose property was force taken by Mountain Valley Pipeline (MVP) using eminent domain is appealing a case they already lost in federal court to the U.S. Supreme Court. The landowners claim MVP has taken private land–their land–to use for private/corporate gain and not (as the law requires) taken for a “public” benefit. Eminent domain allows the taking of private land for public benefit, but not taking private land for private benefit. The issue really revolves around the question of, What is a public benefit? Can a private company use government powers because what they provide benefits the public? The big question is, will the Supreme Court, which gets some 8,000 such appeals each year, make this appeal one of the 80 or so they consider?
Can fracking save butterflies? According to California University of Pennsylvania’s Supervisor of the Fish & Wildlife, you betcha. You heard how important “pollinators” are, right? We immediately think bees when we hear the word pollinator. But monarch butterflies, a species whose population has dropped 90% since 1990, is also a important pollinator. In places across southwestern PA habitats for the monarch have disappeared, long before shale drilling showed up. Range Resources is helping replant vegetation that monarchs love. And it’s having a big impact. Range’s efforts are not just “throw a few seeds here and there” for publicity. Range is working hard and “willing to do it right.”
Columbia Gas of Massachusetts (NiSource) continues to try and recover (physically and reputationally) from a series of explosions in its local delivery pipelines north of Boston in mid-September (see 
For some time we’ve covered the story of MLPs–master limited partnerships–and how they are being phased out. An MLP is an alternative form of organizing a company (or subsidiary company), different from a corporation. The primary purpose of an MLP is for investors, who buy “units” in the MLP instead of shares of stock, so the investor can pay less in taxes. Trump’s tax cut, while benefiting the little guy (yeah!), disadvantages MLPs (boo!). Which has caused many pipeline companies organized as an MLP to give up that form of structure. Meanwhile, new companies are being formed to buy royalty rights–using the MLP structure! So while pipeline companies are dumping the MLP structure, royalty companies are embracing it.
Although Cabot Oil & Gas extracts natural gas from an area of Pennsylvania where gas fetches some of the lowest prices in the country, the company is making money hand over fist. The company made $122 million in profit during 3Q18 and estimates it will generate “free cash flow” (money in the bank) in the range of $650 million to $700 million in 2019. Cabot has moved from growth for growth’s sake to steady growth and higher dividends. A key part of their growth is the addition of new pipelines.
Southwestern Energy’s third quarter 2018 update on Friday showed the company hitting a new record-high for production. While Cabot Oil & Gas’ production is 100% natural gas (dry gas at that), Southwestern has a mix. The jump in production–to an average of 2.77 billion cubic feet equivalent per day (Bcfe/d)–is largely due to an increase in wet gas (NGL) production. CEO Bill Way said he expects “liquids production” will represent one-third of the revenue the company receives in 2018. Although Way says the company experienced an “outstanding quarter both financially and operationally,” we do have to point out they lost $29 million during 3Q18.