Marcellus Shale Nat Gas Production Higher Than Anticipated

[jk]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Q3 financial results for the leading shale E&P firms are now available and they confirm an interesting trend: companies like Chespeake, Devon, Hess, Apache, have all drastically reduced their rate of borrowing this year. E.g. Chesapeake borrowed 5.4 Bn$ in Q3 2012, last quarter they repaid 29 M$. Apache borrowed 4.4 Bn$ in Q3 2012, last quarter they repaid 1.4 Bn$. In all cases captial expenditures (mainly drilling I assume) continue to exceed cash from operations, with the difference now being funded by assets disposals. The trend has been going on since the start of the year. Looks like investors have stopped lending money to these companies. The CEOs are claiming they have a new focus on "financial discipline".

how about gross capital expenditures? that would tell us something about the trend in exploration and development.

[unlucky]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

how about gross capital expenditures? that would tell us something about the trend in exploration and development.

It varies. E.g. Chesapeake has spent about 40% less YTD, Devon and Hess are also down. But Apache has spent more.

[GRG55]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

how about gross capital expenditures? that would tell us something about the trend in exploration and development.

Costs for the shale plays have been coming down relentlessly year over year over year...so gross capex trends have to be examined in light of that.

Rig activity is another indicator of the changing activity, and tends to be a leading indicator of a downturn (the rigs drilling new wells get laid down immediately, while completion operations and facilities investment continue longer, in order to get the already drilled reserves producing cash flow).

But these days rig activity is also not perfectly correlated either. Horizontal drilling technology and the experience gained from drilling massive numbers of "identical" wells in each shale play means that the wells are being drilled in less and less time (and therefore less cost)...so fewer rigs needed to drill the same number of wells annually, or taken another way, more wells can be drilled with the same budget funds this year compared to last year.

There is a bit of a virtuous circle effect underway right now from this in the shale plays.

Just as tracking the economy and forecasting the next recession cannot be done watching a single indicator, understanding what is going on in the domestic E&P industry involves a lot of moving parts...

[Bundi]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Marcellus natural gas pipeline projects to primarily benefit New York and New Jersey (October 30, 2013 update)
http://www.eia.gov/todayinenergy/detail.cfm?id=13591#

Multiple pipeline expansion projects are expected to begin service this winter to increase natural gas takeaway capacity from the Appalachian Basin's Marcellus Shale play, where production has increased significantly over the past two years. These new projects are largely focused on transporting gas to the New York/New Jersey and Mid-Atlantic regions and would have limited benefit for consumers in New England, where price spikes during periods of peak winter demand appear likely to persist.

Expansion projects with expected in-service dates between 2013 and 2015 would add at least 3.5 billion cubic feet per day (Bcf/d) of additional capacity to New York/New Jersey and Mid-Atlantic markets. More than 2.0 Bcf/d of expansions are expected for this winter alone. The largest of these is the 0.78 Bcf/d New York-New Jersey Expansion project on a portion of Spectra Energy's Texas Eastern Transmission Company (TETCO) pipeline from Linden, New Jersey, to Manhattan, New York. On October 17, the Federal Energy Regulatory Agency (FERC) authorized the start of initial service on these expansions.

New England consumers, however, would not significantly benefit from currently planned pipeline expansions until 2016. The Algonquin Gas Transmission (AGT) pipeline, which takes gas from Marcellus and other sources to consumers in New England, has traditionally operated at near-full capacity during periods of peak winter demand. The next planned expansion on AGT is the Algonquin Incremental Market (AIM) project, which would enable the pipeline to flow north an additional 0.42 Bcf/d of gas received at its interconnect with Millennium Pipeline in Ramapo, New York. The target in-service date for the AIM Project is November 1, 2016.

The difference in construction activity for New York and New England markets is reflected in market prices for natural gas (see graph). Monthly forward prices for gas purchased at AGT continue to spike in winter months compared to the nationwide benchmark price for gas purchased at Henry Hub in Erath, Louisiana. By contrast, the forward price at the Transco Zone 6-New York (TZ6-NY) trading hub is similar to the Henry Hub forward price.