MARCELLUS/UTICA REGION: Correcting the record about the severance tax; New York State bans offshore oil and gas drilling; OTHER U.S. REGIONS: Anadarko’s weak performance in U.S. Permian made it a takeover target; Natural gas prices down to zero at Waha Hub; NATIONAL: Increased natural gas production, interregional flows mitigate withdrawals from storage during winter 2018-19; SEC freezes assets over suspected insider trading in Anadarko; INTERNATIONAL: Panama Canal expansion allows more transits of propane and other hydrocarbon gas liquids; WorleyParsons changes name after £2.4bn acquisition of Jacobs ECR.
MARCELLUS/UTICA REGION
Correcting the record about the severance tax
Sunbury (PA) The Daily Item
In recent weeks, The Daily Item has written about how lack of broadband access is holding back businesses in the region. Broadband access is a critical issue not just for business, but for residents, for students, for health care providers, for emergency responders and so many more. Gov. Tom Wolf’s bipartisan Restore Pennsylvania proposal addresses broadband as well as Pennsylvania’s other critical infrastructure needs like blight restoration and flood protection. By providing the funding needed to tackle these problems, Restore Pennsylvania will boost Pennsylvania’s economy and strengthen our communities in every corner of the state. Despite the massive benefits this plan will bring to the Susquehanna Valley, we’re still hearing the same tired, inaccurate arguments against the adoption of a commonsense severance tax on the natural gas industry. Pennsylvania is the second-largest producer of natural gas behind Texas due to the massive quantity of natural gas resources under our feet in the Marcellus and Utica shales. Billions of dollars of natural gas pipeline infrastructure are in place right now. Yet we are still the only gas-producing state that doesn’t make natural gas companies pay their fair share for using our natural resources. It’s no secret that Governor Wolf has proposed some form of severance tax every year he’s been in office. Even with the uncertainty about if a severance tax would be implemented, development of natural gas infrastructure continued – and is continuing to this day. Severance tax or no severance tax, natural gas companies want these resources, and will come to Pennsylvania to get to them. The industry is not deterred by the potential of a severance tax because they understand that Pennsylvania’s natural gas resources present too much opportunity to miss out on. You can find concrete evidence of this in other states. For instance, look at how we compare to Texas. Texas collected more than $1.4 billion in natural gas severance taxes alone in 2018 – not to mention billions more from property taxes and royalties. Groups opposed to the severance tax often claim that we already have a tax in the form of an impact fee — but our impact fee only collected $209.6 million in 2018. Despite only producing 21 percent more natural gas than Pennsylvania, Texas collects nearly 700 percent more revenue from its natural gas severance tax than we do from our impact fee. That’s a staggering difference. And oil and gas companies here pay no local property taxes and very little in state taxes. Making gas companies pay their fair share isn’t scaring away jobs or development from Texas, and it won’t scare away jobs or development here in Pennsylvania either. In fact, the oil and gas industry in Texas brags that it paid the state $14 billion overall in 2018. Our severance tax will be used for the Restore Pennsylvania proposal, which will fund vital infrastructure projects across the commonwealth. Restore Pennsylvania-funded projects will remediate blight, protect our communities from flooding, provide broadband access to every Pennsylvanian, and fix our transportation infrastructure in rural areas. If passed, this proposal will keep the current impact fee in place, and make Pennsylvania a better place to live, work and play, which will attract businesses and boost our economy. These are critical problems not just in the Susquehanna Valley, but in nearly every community across Pennsylvania – and there simply isn’t enough funding on the local, state and federal levels to make a dent in these problems. Restore Pennsylvania, funded through the severance tax, is the only plan we have to rebuild Pennsylvania’s infrastructure and secure our future. And it’s the smart way to fund our infrastructure. The Independent Fiscal Office has determined that the majority of the severance tax will be paid for by residents in other states that are currently consuming our natural gas tax-free. It’s time that Pennsylvanians are paid for their resources so they can reinvest in their communities. If you are frustrated by our lagging, worn infrastructure, contact your legislator and tell them we need Restore Pennsylvania. A severance tax will not hurt our economy or result in job loss, and the benefits brought by Restore Pennsylvania will make our commonwealth stronger for generations to come. Dennis M. Davin is the Secretary of the state Department of Community and Economic Development. [MDN: This was the response we posted on this editorial from Davin: “Taxing and depending on a single industry to fund these Santa Claus giveaways is “smart” Mr. Davin? How sad that Wolf sends you out to represent a poorly conceived plan, a plan that you well know will decimate the very industry (shale) that benefits PA economically. Why won’t Wolf consider an alternative funding plan for Restore PA? Sen. Bartolotta has proposed allowing more shale drilling under (not on) PA state land, to fully fund Restore PA. Yet Wolf (and you) reject it. Why? If these programs are so important, if the funding is so needed, why does it have to come from a single industry? Why not allow more drilling? The fact you insist it MUST come from shale drillers throws up a big, red flag for me.]
New York State bans offshore oil and gas drilling
National Resource Defense Council (uber-radical, leftist “environmental” group)
Governor Andrew M. Cuomo hammered home New York’s vehement opposition to harmful and outdated offshore drilling today by signing A. 2572/ S. 2316. The legislation, sponsored by Assemblyman Steve Englebright and Senator Todd Kaminsky and passed overwhelmingly by the Legislature the first week of February, amends state law to: Ban oil and gas exploration, development, and production in state coastal and tidal underwater land; and, Prohibit construction of any new infrastructure in New York to transport oil and natural gas developed in the North Atlantic Planning Area, the federal government’s designation for federal waters offshore the tri-state area and New England. Governor Cuomo has made crystal clear his opposition to drilling offshore New York and today’s ban stands in sharp contrast to the Trump Administration’s oil and gas leasing proposal to open some ocean waters more than three miles from shore to oil and gas drilling along the East Coast, West Coast, Gulf Coast, and Alaska. The new law drives home state opposition to offshore oil and gas development and constructs an important roadblock to any efforts to bring ashore oil drilled throughout New England and the tri-state area. [MDN: Just one more bullet to the head of the oil and gas industry in NY. When will the people of NY rise up and eject this tyrannical dictator and those who would coronate him king? We fear NY is now permanently a lost cause.]
OTHER U.S. REGIONS
Anadarko’s weak performance in U.S. Permian made it a takeover target
Reuters
Anadarko Petroleum Corp has become the biggest prize in the energy industry in part because of lagging oil production despite large land holdings in the top U.S. shale field. Occidental Petroleum Corp and Chevron Corp, two of the largest oil and gas producers in the Permian Basin shale field by production volumes, argue they can best squeeze more oil from Anadarko’s 240,000 acres. On Monday, Anadarko agreed to start negotiations with Occidental over a bid that valued the company at $38 billion in cash and stock. It earlier struck an agreement to sell itself to Chevron for $33 billion. Anadarko became the prize because of its large holdings in the southwestern U.S., and their lack of development. It holds “some of the best undrilled well locations in the basin,” estimates energy researcher Drillinginfo. Shares in The Woodlands, Texas-based company rose slightly on Monday to close at $72.93. That was up from $46.80 on April 11, the day before the Chevron deal was announced. However, the shares were down nearly 26 percent in the year prior to the deal. The company’s Permian wells produce less oil and gas per-foot drilled than either Chevron or Occidental, according to consultancy Rystad Energy, leaving room for both to increase its output. Each Anadarko well delivered $1.6 million in revenue in the first three months of its production in the region, compared with $4.5 million for Occidental and $3.5 million for Chevron, according to analysts at Robert W. Baird. The company ranked 48 out of 50 oil producers in the Delaware portion of the Permian by average revenues per well. It “has consistently ranked as one of the worst productivity per well companies in the Delaware,” Baird analysts wrote this month. Anadarko did not respond to a request for comment. [MDN: We’ve known that the Permian in the main interest for both Chevron and Occidental. What we didn’t know is that Anadarko’s performance with their Permian assets has been so lackluster, which is what made it ripe for a takeover. That’s a new piece of the puzzle for us.]
Natural gas prices down to zero at Waha Hub
Midland (TX) Reporter-Telegram
Permian Basin producers have been tremendously successful in quadrupling the amount of crude and natural gas produced in the region. Now they’re paying the price. Natural gas prices at the Waha Hub near Coyanosa have fallen to zero, according to local producers. “Most of the gas in the Delaware Basin portion of the Permian is delivered to plants near Coyanosa commonly referred to as ‘Waha.’ This plant has so much gas available that it outruns their delivery capacity,” Bill Graham, president of Incline Energy, told the Reporter-Telegram by email. “With the supply outrunning their demand, they can reduce their pricing, and have done so drastically now. The Waha hub pricing as listed in the ‘Inside FERC First-of the Month Posting’ for December 2018 was 17 cents. That’s right, 17 cents. Other postings for El Paso, Transwestern and others still ranged about $1.50. “Now, the posting for April 2019 is $0.00, or absolutely nothing,” Graham said. “Something is wrong with this picture. The plant gets more gas than they can handle, but they still sell what they process for about $1.50 and pay the producer nothing. And then charge for treating, compression and transportation that the producer has to pay to sell their gas.” Even Apache Corp. has been prompted to defer natural gas production volumes from its Alpine High play because of the extremely low prices at the Waha Hub. The company said those deferrals represent 250 million cubic feet per day of gross gas production. Apache representatives told the Reporter-Telegram they had no additional comment beyond the announcement and comments from John Christmann IV, Apache’s chief executive officer and president. “As far back as two years ago, Apache foresaw the potential for gas takeaway constraints in the Permian Basin and initiated two significant mitigating actions. First, we contracted more than 1 billion cubic feet (Bcf) per day of long-term, firm takeaway capacity from the Permian Basin, on the Kinder Morgan-operated Gulf Coast Express and Permian Highway pipeline projects.,” Christmann said in the statement. “Gulf Coast Express is expected to be in service later this year, and Permian Highway is expected to be in service later in 2020. At such time, Apache will be selling the vast majority of its Permian gas at a variety of Gulf Coast price points. [MDN: The ongoing story of giving gas away for free at the Waha Hub continue to fascinate us. And horrify us! It’s hard to compete with “free”. At some point, when new pipelines come online, the situation will reverse. But until that time (later this year and next year), you will continue to see super low prices at Waha, with drillers giving their gas away for free (sometimes even paying people to take it!).]
NATIONAL
Increased natural gas production, interregional flows mitigate withdrawals from storage during winter 2018-19
U.S. Energy Information Administration – Natural Gas Storage Dashboard
Working U.S. natural gas stocks entered the 2018–19 winter heating season below the five-year (2013-17) range in each of the storage regions in the Lower 48 states. However, increased U.S. natural gas production and interregional flows supplemented smaller-than-normal withdrawals from storage in most regions to supply winter heating demand for natural gas. Most of the U.S. working natural gas storage capacity is located in the three regions east of the Mountain region, and in that area, natural gas withdrawals followed this pattern. In contrast, the Pacific and Mountain regions reported slightly above-normal net withdrawals from storage during the heating season. When EIA releases updated estimates each week of changes in working U.S. natural gas inventories, many analysts immediately focus on EIA’s estimate for the Lower 48 states. This estimate is one way to assess the balance of natural gas supply and demand across the United States. The aggregate domestic natural gas picture is a reflection of changes in activity in EIA’s five storage reporting regions—East, Midwest, Mountain, Pacific, and South Central—which is further segmented into one total for salt cavern or high deliverability storage fields and another for conventional underground storage facilities. As of April 18, 2019, U.S. natural gas stocks were below the five-year average in each of the five regions for which EIA reports weekly changes in natural gas storage activity. A key reason why each natural gas storage reporting region ended winter with lower-than-normal stocks was that each storage reporting region began winter with lower-than-normal stocks. [MDN: More insights into natgas storage and what happened last winter (entered winter with low storage, and exited with low storage). Storage levels have the power to affect the price of natgas, although what used to be a close correlation is not so close anymore. These days, low storage numbers do not automatically translate into higher prices, the way it did just a few years ago.]
SEC freezes assets over suspected insider trading in Anadarko
Reuters
The U.S. Securities and Exchange Commission on Monday obtained an asset freeze in connection with suspected insider trading in Anadarko Petroleum Corp before the oil company agreed to be acquired by rival Chevron Corp. U.S. District Judge Gregory Woods in Manhattan granted the freeze over accounts linked to suspicious purchases between Feb. 8 and April 1 by unknown buyers of Anadarko securities, who the SEC said stand to make roughly $2.5 million in illicit profits, according to a court filing. In a separate complaint, the SEC said the traders were unknown as they used accounts located in Britain and Cyprus, making a series of “large, unprecedented purchases” of call option contracts in Anadarko days after the company began acquisition talks, and weeks before the potential agreement was made public. “The timing, size, nature, and profitability of the Defendants’ trades, as well as the lack of prior history of significant Anadarko options trading in the subject accounts, make the trades at issue highly suspicious,” the SEC wrote. Chevron announced on April 12 it would buy Anadarko for about $33 billion. Another oil company, Occidental Petroleum Corp, launched an unsolicited $38 billion bid for Anadarko on April 24, which Anadarko said on Monday it would negotiate. The first suspicious purchases were made on Feb. 8, two days after Chevron privately proposed an acquisition to Anadarko, according to the SEC. All told, 1,650 call options were purchased across four transactions between then and April 1. Each purchase accounted for a large portion of such call purchases on each particular day. Buying a call option conveys the right, but not the obligation, to purchase shares at a fixed price in the future. The value of calls can jump sharply when the underlying stock’s price rises. [MDN: Somebody’s been naughty and they WILL get caught. Bank on it.]
INTERNATIONAL
Panama Canal expansion allows more transits of propane and other hydrocarbon gas liquids
U.S. Energy Information Administration – Today in Energy
In June 2016, the Panama Canal Authority, the body that operates the Panama Canal, opened a third set of locks that facilitated transit of larger ships, the first such expansion since the canal was completed in 1914. In the years since the canal was expanded, the largest change in petroleum flows through the canal has been the increase of hydrocarbon gas liquids (HGL), especially propane, from the U.S. Gulf Coast to destinations in Asia. Most of the petroleum transiting the Panama Canal travels southbound from the Atlantic Ocean to the Pacific Ocean. Flows of HGL are the largest single petroleum commodity transiting the canal, according to data from the Panama Canal Authority. In 2018, about 387,000 barrels per day (b/d) of HGLs moved southbound through the Panama Canal, compared with 266,000 b/d of distillate and 230,000 b/d of motor gasoline. Before 2016, the main constraint for increasing U.S. HGL exports was export infrastructure on the U.S. Gulf Coast. By 2016, the addition of Gulf Coast export infrastructure alleviated this constraint, and the size limitations of the original Panama Canal locks, and the costs associated with alternative shipping routes became the main constraints for increased exports. [MDN: We find this article by the EIA interesting for a few reasons. First and foremost, we find it interesting that HGLs, which is the EIA’s label for what we call NGLs (natural gas liquids), is “the largest single petroleum commodity transiting the canal.” Hmmm. We would have thought LNG (liquefied natural gas, or methane) would be the single largest. EIA says propane and ethane (and butane), the HGLs, are going through in the largest numbers. Another reason we find it interesting is a tie-in with today’s post on the Jones Act (see our guest post from Garland Thompson).]
WorleyParsons changes name after £2.4bn acquisition of Jacobs ECR
Energy Voice
WorleyParsons has announced a rebrand after completing a £2.4bn acquisition of the energy, chemicals and resources division of US firm Jacobs. Management said the new business – known as Worley – will create a “pre-eminent” energy services firm, employing 57,600 people across 51 countries around the world. Worley said the acquisition brings together a highly skilled oil and gas workforce in Aberdeen and The Hague, the chemicals sector in Belgium and Germany and the UK’s minerals industry. The firm said cost savings through synergies of between £70.8m and £87.2m will be made within the next two years. A spokeswoman confirmed there are no plans to reduce employee numbers. The new name “Worley” will be taken on, subject to approval by shareholders at the annual general meeting in October. Making the announcement, the firm said a transition process for combining the business into a new company is now underway. Chief executive Andrew Wood said: “This acquisition is about more than capacity and capability. “It’s about the opportunity to become the partner of choice for our customers, the employer of choice for our people and to deliver enhanced returns for our shareholders. “Our new brand reflects our place at the forefront of the energy, chemicals and resources markets and our ability to support our customers through the global energy transition. “We plan to embrace the heritage of both WorleyParsons and Jacobs ECR while looking firmly ahead to, what promises to be, an exciting future as one entity.” In its 2018 annual report, WorleyParsons said it employed more than 3,000 people in seven offices in the UK and the Middle East and is a leader in the North Sea maintenance market. [MDN: WorleyParsons Limited is headquartered in Australia. It’s a massive engineering company which provides project delivery and consulting services to a number of industries, including the oil and gas industry. WorleyParsons (now just Worley) has/continues to do work in the Marcellus/Utica region.]
This post appeared first on Marcellus Drilling News.