On May 1, 2015 5:25 pm
By: Rick Stouffer, Senior Energy Editor, Shale Energy Business Briefing
Contribution By: Kristie Kubovic, Director of Communications, Shale Media Group
Edited By: Mindy Gattner, Editor, Shale Media Group
The current status of the shale oil and gas industry has initiated numerous ripple effects within the industry—some positive and others negative. Every company is dealing with these effects in one way or another, whether by forging ahead and growing by acquiring other companies or cutting back through job losses and budget reductions.
One area, seemingly not affected by this wave, is the midstream sector and the pipelines. According to Bentek Energy’s recent Northeast Expansions Report, pipeline capacity expansions are coming online at a jaw-dropping pace. Between 2010 and 2013, there were 36 pipeline projects brought online in the Northeast totaling 8.94 Bcf/d in capacity. However, between 2014 and 2017, there are 52 pipeline projects – new-build and expansions – east of the Mississippi River slated to come online, totaling 35.82 Bcf/d in capacity.
At the recent Upstream PA 2015 conference, held on April 16 in State College, PA, the Atlantic Sunrise Project and Constitution Pipeline were discussed. For example, the approximate 124-mile Constitution Pipeline would be a major transmission pipeline project, connecting the abundant Appalachian natural gas supply in northern Pennsylvania to major northeastern markets.
“Pipelines benefit everyone. New England needs pipeline infrastructure – they’re at the end of the straw and there’s not enough gas at the end of that straw for them,” relayed George Stark, Director of External Affairs, Cabot Oil & Gas Corporation. “It’s crucial to get the Constitution Pipeline up north from Susquehanna, Pennsylvania, where Cabot is producing about 2 Bcf/d there.”
Here is a look at some of these recent ripple effects as they appeared in Shale Energy Business Briefing (SEBB) in around the past month. The midstream pipeline projects, mergers and acquisitions (M&A), and job losses below highlight that even in this industry downturn there are both positive and negative effects.
Positive Pipeline Projects
(Top 4 Recent Pipeline Projects)
- Williams Seeks FERC Approval for Atlantic Sunrise Pipeline Expansion
Energy infrastructure company Williams said Tuesday, March 31, its Transco unit is seeking authorization from the Federal Energy Regulatory Commission (FERC) for its $2.1 billion Atlantic Sunrise expansion project.
The expansion would transport roughly 1.7 billion cubic feet per day of natural gas (Bcf/d) to markets in the Mid-Atlantic and Southeastern US.
“Atlantic Sunrise is a vital piece of North American energy infrastructure needed to transport low-cost, abundant supplies of natural gas from the Marcellus producing region in Pennsylvania to hungry markets along the Atlantic Seaboard,” said Rory Miller, Senior Vice President of Williams Partners’ Atlantic-Gulf operating area. “Shippers have signed long-term commitments for the expansion’s entire capacity … .”
The project consists of compression and looping of the Transco Leidy line in Pennsylvania and various locations along its mainline between Pennsylvania and South Carolina, in addition to a new-construction pipeline segment, referred to as the Central Penn Line, connecting the northeastern Marcellus Shale play to the Transco mainline in southeastern Pennsylvania.
The new construction segment will be jointly owned by Transco and a third party.
Williams expects to place Atlantic Sunrise into service in the second half of 2017 as part of $4.8 billion in transmission projects planned to come online through 2017. Atlantic Sunrise adds to the list of Transco’s projects to connect supplies of domestic natural gas with demand on the Eastern Seaboard from New York City to the far Southeast.
Transco, the nation’s largest-volume interstate natural gas pipeline system, is a wholly owned subsidiary of Williams Partners, of which Williams owns roughly 60%, including the general-partner interest.
- TransCanada’s North Montney Mainline Project Receives NEB Recommendation for Approval
TransCanada’s North Montney Mainline Project Receives NEB Recommendation for Approval
Calgary-based TransCanada said Thursday, April 16, Canada’s National Energy Board has recommended the federal government approve the company’s proposed $1.7 billion North Montney Mainline pipeline project.
“The project is a critical component in the infrastructure chain between prolific and growing Canadian gas supply and existing and new markets, and the NEB recommendation is a significant milestone for the growth of our NOVA Gas Transmission (NGTL) System,” said Russ Girling, CEO, TransCanada.
The North Montney project will provide new capacity on the NGTL System to meet the transportation requirements associated with increasing development of natural gas in the Montney Basin in northeast British Columbia, TransCanada said.
The project will connect Montney and other Western Canadian Sedimentary Basin supply to both existing and new natural gas markets, notably emerging markets for liquefied natural gas (LNG).
The Mainline project, with initial capacity totaling 2.4 billion cubic feet per day (Bcf/d), will consist of two 42-inch pipeline sections, Aitken Creek and Kahta, totaling roughly 187 miles, and associated metering facilities, valve sites, and compression facilities.
The project will also include an interconnection with TransCanada’s proposed Prince Rupert Gas Transmission Project to provide natural gas supply to the proposed Pacific NorthWest LNG liquefaction and export facility near Prince Rupert, BC.
NGTL expects to have the Aitken Creek section in service in 2016, and the Kahta section in service in 2017.
Progress Energy Canada, a subsidiary of Malaysia’s Petronas, has contracted for 2 Bcf/d of firm receipt service and 2.1 Bcf/d of firm delivery service. Other, unnamed producers have signed contracts for 78 million cubic feet/day (MMcf/d).
- Kinder Morgan Contemplating Second Utopia Pipeline Project
Midstream giant Kinder Morgan is contemplating building a second pipeline to flow natural gas liquids from eastern Ohio’s Utica Shale play to Ontario, Canada.
The second pipeline is known as Utopia (“Utica to Ontario Pipeline Access”) West. Kinder Morgan already has begun work on the $500 million, 240-mile Utopia East project, which will ship ethane and ethane-propane mixtures from Harrison County, Ohio, connect to Kinder’s existing Cochin Pipeline near Riga, MI, then to Windsor, Ontario.
Utopia East is expected to be in service in January 2018, offering an initial capacity of 50,000 barrels per day (BPD).
Kinder saw additional opportunities for a pipeline into which the Utopia systems will feed. Cochin is a 1,900-mile, 12-inch line that transports hydrocarbon liquids that crosses three Canadian provinces and seven states.
“We are recognizing we have some underutilized pipeline on Cochin on a project we’re calling Utopia West,” said Ron McClain, President of Kinder Morgan’s Pipelines Group, during the company’s recent analyst day conference.
The company is considering building Utopia West in parallel to Utopia East. “We think there would be large synergies on the cost of construction if you did them simultaneously,” McClain said. “But we won’t do that without committed shippers. We’re working on that now and will probably have a lot of interest because of the cost of doing this simultaneously.”
Utopia West would ship up to 95,000 BPD of natural gasoline from the Utica and Marcellus Shale plays, according to Kinder Morgan.
- ONEOK, Fermaca Building $450 Million-$500 Million West Texas-to-Mexico Natural Gas Pipeline
ONEOK Partners on Wednesday, April 1, said it’s entered into a 50-50 joint venture with a subsidiary of Mexico City-based natural gas infrastructure company Fermaca Infrastructure BV to construct a $450-$500 million pipeline from the Permian Basin to Mexico.
The Roadrunner Gas Transmission pipeline project extends from ONEOK Partners’ ONEOK WesTex Transmission natural gas pipeline system at Coyanosa in West Texas, west to a new international border-crossing connection near San Elizario, TX, where it will connect with Fermaca’s Tarahumara Gas Pipeline.
“We are pleased to partner with Fermaca on this strategic pipeline project and about the opportunity to add to our extensive 36,000-mile integrated network of natural gas and natural gas liquids pipelines,” said Terry K Spencer, CEO, ONEOK Partners.
The project, to be built in phases, includes roughly 200 miles of new, 30-inch pipeline currently designed to transport up to 640 million cubic feet per day (MMcf/d) of natural gas with up to 570 MMcf/d to be transported to Mexico markets.
Agreements representing the initial design capacity have been executed with the Comisión Federal de Electricidad (CFE), Mexico’s national electric utility, and a subsidiary of Fermaca. All transportation agreements will be firm take-or-pay deals with a 25-year term.
Roadrunner was fully subscribed in its initial design through an open season held in December.
The pipeline’s initial phase for 170 MMcf/d of capacity is expected to be completed by the first quarter of 2016. The second phase, which will increase the pipeline’s capacity to 570 MMcf/d, is projected to be completed in the first quarter 2017.
The third and final phase of the project is expected to be completed in 2019 and will increase capacity to 640 MMcf/d. ONEOK will manage project construction and will be the pipeline operator upon completion.
“The signing of this joint venture agreement with ONEOK Partners is another key step in Fermaca’s plans to extend its network of gas pipelines across Mexico and into the US,” said Manuel Calvillo Alvarez, Chief Operating Officer, Fermaca.
Mergers and Acquisitions
(Top 4 Recent M&A Deals)
- Oil Major Royal Dutch Shell Offers $69 Billion for UK’s BG Group
Oil major Royal Dutch Shell has confirmed it is in advanced talks to buy UK energy supplier BG Group, in a $69 billion cash-and-stock offer.
The transaction would boost Shell’s growth in liquefied natural gas and deep-water exploration, the company said in a statement.
If the deal is consummated, BG Group shareholders will own roughly 19% of the combined company. Shell said there is a $1.12 billion cancellation fee if no agreement is reached.
Oil prices have plunged roughly 50% since June due to the shale oil “boom” in the US and a decision by Saudi Arabia not to cut production — creating an environment similar to the early 2000s when many super-mergers took place.
At that time, oil major BP acquired rivals Amoco and Arco, Exxon bought Mobil and Chevron merged with Texaco.
BG, which has ambitious production growth targets and multi-billion dollar projects in Brazil, East Africa, Australia, Kazakhstan, and Egypt, has long been seen as a rare potential acquisition target, including by cash-rich rivals such as Shell or Exxon.
Shell is one of the world’s largest energy producers, with a market value of about $192 billion. In addition to being a major oil producer, the Anglo-Dutch company is also among the world’s largest natural gas companies, with more than three trillion cubic feet (Tcf) of output in 2014, even though that represented a 4% drop from the year before.
The deal talks come after Shell scaled back its ambitions to become a major producer of shale gas.
Shell and its other big rivals have largely failed to benefit from the boom in the US after acquiring shale assets that turned out to be unprofitable.
Shell has been unloading some of those fields, as well as pulling back from shale development in Europe and China. A BG investment would refocus Shell’s gas operation on the big, offshore projects it has a history of developing profitably.
After Shell replaced only 26% of the oil and gas it pumped last year, the fastest way to acquire new resources may be an acquisition.
A purchase of BG would also give Shell access to the company’s highly prized offshore Brazilian oil assets, significant undeveloped gas resources in East Africa and a huge liquefied natural gas project in Australia that is ramping up this year.
Shell has been eager to get into East African gas projects, but it was outbid a few years ago and doesn’t have a big position in Brazil. BG’s liquefied natural gas shipping and marketing division may also fit well with Shell’s gas portfolio and LNG expertise.
- C&J Energy Services, Nabors Industries Complete Merger Transaction
C&J Energy Services and Nabors Industries said Tuesday, March 24, the completion of their $2.86 billion merger.
The combined company, renamed C&J Energy Services Ltd, is one of the largest completion and production services providers in North America, led by the current C&J management team, including Josh Comstock serving as CEO, and Randy McMullen serving as President.
The new C&J is headquartered in Bermuda and its common shares have been listed on the NYSE under the ticker symbol “CJES.”
Nabors received approximately $688 million in cash from C&J as a portion of the consideration for the transaction and now owns approximately 53% of the outstanding and issued common shares of the new C&J, with the remainder held by former C&J shareholders.
“Today is an extraordinary and exciting day for both C&J and Nabors,” said Josh Comstock, Founder and CEO of the combined company. “Among the many strategic benefits of this combination is the transformative increase in scale, driving the rapid advancement of our goal of growing C&J from what we started as a single-crew pressure pumping company to what is now a leading diversified provider of technologically advanced oilfield services.”
- Vanguard Natural Resources Acquiring LRR Energy in $539 Million Unit-and-Debt Deal
Houston-based independent producer Vanguard Natural Resources said Monday, April 20, it is acquiring fellow independent LRR Energy for $539 million in units and assumption of debt.
As a result of the deal, LRR Energy and its general partner will become wholly-owned subsidiaries of Vanguard. The transaction will be a tax-free, unit-for-unit transaction with an exchange ratio of 0.55 Vanguard common units for each LRR Energy common unit.
LRR Energy’s production totals roughly 40 million cubic feet-equivalent per day (MMcfe/d), increasing Vanguard’s current production by 10%. The company’s proved reserves at Dec 31, was pegged at approximately 203 billion cubic feet-equivalent (Bcfe), increasing Vanguard’s estimated proved reserves by 10%.
The acquired company’s assets include roughly 1,290 gross producing wells and approximately 158,000 acres located in the Permian Basin in West Texas/Southeast New Mexico, the Mid-Continent region in Oklahoma and East Texas, and the Texas Gulf Coast.
Vanguard also will acquire all of the limited liability company interests in LRR Energy GP for 12,320 Vanguard common units. The offer represents a 13% premium to LRR Energy’s closing price on April 20, and a 19% premium to LRR’s 10-day volume-weighted average price.
Vanguard and LRR Energy expect the transaction to close in the third quarter.
Citigroup Global Markets acted as exclusive financial advisor to Vanguard and Paul Hastings served as legal counsel to Vanguard. Tudor Pickering Holt served as exclusive financial advisor to LRR Energy, while Andrews Kurth and Richards Layton & Finger acted as legal counsel to LRR Energy.
- Tesoro Logistics Acquiring Remaining Portion of QEP Midstream Partners
Oil and gas logistics provider Tesoro Logistics (TLLP) and QEP Midstream Partners on Monday, Aug 6, announced Tesoro will acquire QEP in a unit-for-unit exchange valued at roughly $456.3 million.
Under the terms of the deal, QEP unitholders will receive 0.3088 TLLP common units for each QEP common unit held, which values QEP units at $17.09 based on a Tesoro Logistics closing price Monday, April 6, of $55.34/unit.
The offer represents an 8.5% premium to TLLP’s original proposal of 0.2846 TLLP units announced Dec 2, and an 8.6% premium to Monday’s QEP closing price of $15.74.
“We are pleased to announce the execution of this agreement for the merger of QEP Midstream Partners into Tesoro Logistics,” said Greg Goff, CEO of TLLP’s general partner. “The merger will allow for a more simplified business structure, which is consistent with our integrated logistics strategy.”
TLLP currently owns a roughly 55.8% limited partner interest in QEP, consisting of 3.70 million common units, 26.71 million subordinated units, and 100% of the limited liability company interests of QEP GP, which holds a 2% general partner interest and 100% of the incentive distribution rights in QEP.
The transaction is expected to close in 2015. Norton Rose Fulbright US acted as legal counsel to TLLP.
Negative Job Losses
(Top 4 Recent Job Loss Reports)
- Crude Oil Price Crash Causes Schlumberger to Cut Another 11,000 Jobs
Oilfield services firm Schlumberger announced Thursday, April 16, it plans to chop another 11,000 workers, initiating what some industry watchers say could be a second wave of layoffs across the industry.
The layoffs will bring Schlumberger’s layoffs up to 20,000 employees, roughly 15% of its workforce, since it began cutting payroll earlier this year to cope with low oil prices.
Schlumberger’s workforce peaked in the third quarter of 2014, at 126,000 employees. Joao Felix, a Spokesman for Schlumberger, said the reductions should be completed in this quarter.
Schlumberger took a $390 million charge in the first quarter related to the job cuts and a company leave-of-absence program. It blamed the “severe fall” in North American oil field activity as U.S. producers parked hundreds of drilling rigs and cut billions of dollars in spending.
The firm, the world’s biggest oil field services provider, said its first-quarter revenues fell to $10.2 billion, down 9% from the same January-March period last year.
Schlumberger’s North American revenue fell further than its international sales, declining 13% compared to the 8% revenue drop overseas.
- Baker Hughes Cuts 3,500 Additional Jobs, 17% of Its Total Workforce
Oilfield services firm Baker Hughes, which is being acquired by its service company brethren Halliburton in a $34.6 billion deal, said Tuesday, April 21, it had cut 3,500 more staff during the first quarter than the 7,000 cuts announced in its fourth-quarter report.
The 10,500 employees cut represent 17% of Houston-based Baker Hughes worldwide workforce.
The company said it also closed or consolidated roughly 140 facilities worldwide. Baker Hughes said it expects those decisions to save more than $700 million annually.
Baker Hughes first-quarter results included a net loss of $589 million, compared to profit totaling $328 million one year earlier.
The loss reflected such adjustments as facility closures, severance payments, adjusted inventory, and merger costs, the company said.
Revenue also underwhelmed, falling nearly 20% year-over-year, to $4.59 billion.
- Halliburton Admits Chopping 9,000 Jobs in Wake of Crude Oil’s Price Plunge
Oilfield services firm Halliburton revealed Monday, April 20, it has cut 9,000 jobs — more than 10% of its worldwide workforce — in roughly the last six months, and is considering more cost-cutting moves to deal with falling crude oil prices.
Halliburton executives disclosed the job cuts Monday, April 20, during a conference call with investors to discuss first-quarter results. The Houston-based company lost $643 million in the quarter.
Oil prices plunged beginning last June, leading to an ongoing decline in drilling. Spot prices for crude have risen slightly since early January, but remain about half their level of last July.
That has led to belt-tightening across the industry as producers move to curb production and chop capital expenditures, with oilfield services and drilling companies especially hard hit.
Halliburton competitor Schlumberger said last week it would chop 11,000 jobs on top of 9,000 planned job cuts announced in January.
“Once we see [drilling] activity stabilize, the healing process can begin, but it takes time,” Jeff Miller, President, Halliburton, told analysts.
The market decline caused Halliburton to take $1.2 billion in charges in the first quarter, including severance and write-offs, said Christian Garcia, Acting Chief Financial Officer, Halliburton. “Over the last two quarters we have reduced our head count by approximately 9,000 employees, more than 10% of our global head count,” he said on the conference call.
Garcia added additional moves are likely in the second quarter but will probably result in much smaller charges.
- Canadian Oil Industry Jobs, Revenue Expected to Plunge in 2015: Conference Board
The Canadian oil industry will drop nearly 8,000 jobs in 2015, as revenue plunges by $33.88 billion in response to the plunge in oil prices, projects the Conference Board of Canada.
A new report released last week by the group predicts a pretax loss of more than $3 billion for the industry.
At current prices, the report says, new projects in the Canadian oil sands and tight-oil plays are seen as uneconomic. The report adds break-even costs in the oil sands are $60-80/Bbl for a steam-assisted gravity drainage (SAGD) project, and $90-100/Bbl for a mine.
The report projects oil investments will fall to $40 billion this year from $56 billion last year.
Still, total crude oil production in Canada will rise to 3.8 million barrels per day (MMBPD) this year from 3.6 MMBPD in 2014, as projects based on past investments come on stream.
The report projects an average oil price of $55/Bbl in 2015. Reduced investment will ease production growth as low oil prices spur demand.
“However, the days of triple-digit oil prices have passed for the immediate future,” the report says. “With the rise of horizontal drilling and hydraulic fracturing, the US industry will be able to quickly respond and increase production if prices reach $80/Bbl, putting a hard cap on prices.”
The shale oil and gas industry affects everyone, whether they work in the industry or not. “People say they don’t have any skin in the game, if they aren’t employed in the oil and gas industry, but I would say everyone has skin in this game,” expressed Dave Spigelmyer, President, Marcellus Shale Coalition (MSC), referring to natural gas production and consumption at Upstream PA 2015.
Defining what having “skin in the game” means, Spigelmyer explained, “To turn your lights on 365 days a year, 24 hours a day, you need gas, coal, and nuclear power to provide baseload fuel supply. … Fossil fuels does not only involve power generation, but also includes: steel, glass, plastics, chemicals, fertilizers, powdered metals, and pharmaceuticals.” Clearly these positive and negative ripple effects in the shale oil and gas industry will affect everyone both now and in the future.
Shale Media Group (SMG) is the news, information, and education resource dedicated to the shale oil and gas industries by messaging across video, Internet, publications, events, and radio. For more, check out ShaleMediaGroup.com to access all platforms. In addition, join us on May 28th for our next Elite Energy Event in front of the Holiday Inn Express in Bentleyville, PA from 5-8pm. Rick Stouffer is the Senior Energy Editor at Shale Energy Business Briefing. Contact him at RStouffer@ShaleMediaGroup.com. Kristie Kubovic is the Director of Communications at Shale Media Group. Contact her at Kristie@ShaleMediaGroup.com.