StatoilHydro has added to its sizable stake in the Gulf of Mexico (GOM) by acquiring a 40% interest from BHP Billiton Ltd. in 50 offshore blocks. The offshore acreage acquired by the Norwegian-based producer is located in the northeastern corner of the deepwater GOM in the under-explored DeSoto Canyon. DeSoto Canyon is located east of the Independence Hub, which serves several natural gas producers in the region, including Statoil (see NGI, Dec. 25, 2006). Statoil, among other things, owns a quarter stake in Walker Ridge Block 758, located in the promising Lower Tertiary of the deepwater GOM. In 2006 Statoil, Chevron Corp. and Devon Energy Corp. completed the deepest extended drill stem test in history at the prospect on Jack No. 2 well (see NGI, Sept. 11, 2006). In the March Central GOM Lease Sale 208, U.S.-based subsidiary Statoil Gulf of Mexico LLC was high bidder at $14.29 million for Keathley Canyon Block 698, which is located in water depths more than 2,000 feet (see NGI, March 23).
The Texas Railroad Commission (RRC) has unanimously denied a request by Chesapeake Energy Corp. that asked for retroactive permission to continue drilling a horizontal natural gas well in the Barnett Shale in Fort Worth. According to the RRC, Chesapeake drilled a 3,553-foot horizontal, or lateral, for the Ramey 1H well in eastern Fort Worth, even though the permit only allowed a lateral of 1,839 feet. The shorter lateral would have maintained the RRC's required distance -- 330 feet -- from unleased property in the Barnett Shale. Chesapeake admitted to the RRC that it had violated provisions of its state-issued drilling permit by extending the well farther than authorized and drilling the horizontal well bore too close to unleased property. Chesapeake told the RRC that it extended the well to maximize gas recovery, and said it began drilling the well before the extension was granted to maintain its leasehold rights. In a 3-0 vote, the RRC supported a staff recommendation to deny the drilling exception. Chesapeake was ordered to plug the horizontal portion of the well. The producer said it plans to file a motion for a rehearing before the commission.
Pinnacle Gas Resources Inc., a junior explorer that focuses on coalbed methane (CBM) resources in the Rocky Mountains, has sold some undeveloped acreage and gas gathering assets in Wyoming for $3.2 million. Some of the proceeds will be used to pay down debt. Pinnacle sold its high-pressure gas gathering assets in the Cabin Creek area of Wyoming to Big Horn Gas Gathering LLC, the field operator. In addition, Pinnacle sold around 800 net undeveloped acres in its Arvada gas project in Wyoming to an undisclosed party. The acreage held no production and was not operated by Pinnacle. The company used a portion of the sales proceeds to reduce the amount borrowed under its existing credit facility to $9 million, which put it in compliance with the current borrowing base. The company also announced the resignation of Chairman Steven A. Webster, who had been with the company since its inception in 2003. Replacing Webster as chairman will be current board member Thomas G. McGonagle, who joined the board of directors in August 2007.
Hurricane restoration efforts in the Gulf of Mexico (GOM) have lifted Chevron Corp.'s natural gas and oil production from late 2008, but lower commodity prices likely will send profits "sharply lower" in 1Q2009, the company reported in an interim earnings update. The interim update provided partial quarterly operating data based on statistics for January and February. Chevron compared the partial data to 4Q2008 data. The producer, the second largest U.S.-based producer after ExxonMobil Corp., is scheduled to issue 1Q2009 earnings on May 1. Chevron's U.S. gas output averaged 1.36 Bcf/d through February, compared with an average 1.32 Bcf/d in 4Q2008. U.S. liquids production was 433,000 b/d in the first two months, compared with 399,000 b/d in 4Q2008. U.S. gas realizations for January and February fell 78 cents to $4.45/Mcf from 4Q2008, Chevron said. U.S. crude oil realizations declined about $18/bbl to $33.37. U.S. upstream results in 1Q2009, which ended March 31, are expected to include charges of $100 million for write-offs mainly associated with exploration activities, Chevron said. In 4Q2008 Chevron had a $600 million gain in its U.S. upstream results because of an asset exchange.
Marathon Oil Corp.'s natural gas and oil production in 1Q2009 is expected to be 7% higher than it was in the last three months of 2008, the Houston-based producer said in an interim quarterly report. Oil and gas sold in 1Q2009 is estimated at 404,000 boe/d, the company said. Production available for sale is expected to be around 429,000 boe/d, up from 4Q2008's 402,000 boe/d. In its U.S. natural gas operations, partial quarterly net sales for January and February were estimated to be 429 MMcf/d, compared with net gas sales of 454 MMcf/d for all three months of 4Q2008. Marathon sold 482 MMcf/d net in 1Q2008. Domestic average natural gas prices in January and February decreased 25 cents to $4.75/Mcf from $5/Mcf received in 4Q2008. Marathon's average Henry Hub (HH) prompt natural gas price for 1Q2009 decreased $1.80/MMBtu to $4.58 from $6.38 in 4Q2008, while the average HH bid week gas price decreased $2.04/MMBtu to $4.91. Total exploration expenses in 1Q2009 were estimated to be around $654 million, within the company's previous guidance. Marathon is scheduled to issue its quarterly results on April 30.
Gas production from the Sable Offshore Energy Project resumed April 12 following a shut-in that began April 7. The project normally produces 400-500 MMcf/d and about 20,000 b/d of natural gas liquids, according to operator ExxonMobil. Gas production travels on Spectra Energy's Maritimes & Northeast Pipeline, which interconnects with Portland Natural Gas Transmission System, Tennessee Gas Pipeline and Algonquin Gas Transmission. Through laterals Maritimes & Northeast serves markets in Nova Scotia and New Brunswick. Emera Inc. and ExxonMobil Canada own minority interests in the pipeline. The Sable project is owned by ExxonMobil Canada Properties Ltd., Shell Canada Ltd., Imperial Oil Resources, Pengrowth Energy Trust and Mosbacher Operating Ltd.
Fitch Ratings cut its outlook to "negative" from "stable" on DCP Midstream LLC (DCPM) on concerns over low commodity prices and their impact on the company's cash flow. "As a gas processor, DCPM's cash flows are highly sensitive to crude oil, NGL [natural gas liquids] and natural gas prices," Fitch said. "As DCPM does not hedge its commodity price exposure, the recent decline in prices is expected to result in 2009 EBITDA [earnings before interest, taxes, depreciation and amortization] of less than half fiscal-2008 levels. As such, Fitch expects a significant weakening of credit metrics over the short to medium term." DCPM is a 50-50 joint venture of ConocoPhillips and Spectra Energy Capital LLC. DCPM owns the general partner of DCP Midstream Partners LP, a midstream master limited partnership. Fitch affirmed DCPM's senior unsecured debt and issuer default rating (IDR) at "BBB+" and DCPM's short-term IDR at "F2," which applies to its commercial paper program. The rating action affects approximately $3 billion of debt at DCPM.
New Jersey regulators approved $956 million in spending by five of the state's major power and gas utilities. The utilities had submitted proposals earlier this year in response to a call for expedited infrastructure spending as a means to stimulate New Jersey's economy. The approved proposals were submitted to the New Jersey Board of Public Utilities (BPU) by Atlantic City Electric ($28 million), Elizabethtown Gas ($60 million), New Jersey Natural Gas ($71 million), Public Service Electric & Gas Co. (PSE&G) ($694 million) and South Jersey Gas ($103 million). New Jersey Gov. Jon Corzine outlined an economic stimulus plan for the state in a joint session of the New Jersey Legislature last October. A key component of the plan was a call for expedited infrastructure spending. All of the state's major utilities responded. Proposals from Rockland Electric and Jersey Central Power & Light are still pending approval. BPU staff is also reviewing utility proposals for more than $300 million in energy efficiency initiatives.
FERC granted a request of Sempra Energy's Cameron LNG LLC for a seven-month delay to complete and place into service its liquefied natural gas (LNG) import terminal that is under construction near Hackberry, LA. The $850 million import facility was supposed to be finished in May. But Cameron LNG, citing construction delays, requested that the in-service deadline be pushed back to Dec. 31 of this year. Construction of the LNG terminal, which began in August 2005, is more than 93% completed, according to Cameron LNG. The LNG project, which is located on the Calcasieu Ship Channel about 18 miles from the Gulf of Mexico, will have the capacity to regasify up to 1.5 Bcf /d of natural gas, with the potential to be expanded to 2.65 Bcf/d. FERC issued a certificate for the terminal project in September 2003, and then approved a proposal to expand the proposed facility to 2.65 Bcf/d in early 2007 (see NGI, Sept. 15, 2003, Jan. 22, 2007). In August 2005 Sempra signed a 20-year capacity agreement with ENI S.p.A for 40% of the capacity of the Cameron LNG terminal (approximately 600 MMcf/d), according to the company (see NGI, Aug. 8, 2005). The project also will include a 36-mile pipeline by Sempra Pipelines & Storage to transport natural gas from the terminal facility to connect with existing interstate pipelines to the north.
Lifted by its Marcellus Shale operations, Range Resources Corp. production in 1Q2009 averaged 426 MMcfe/d, which was 12% higher than in the same period a year ago and 3% more than in the last three months of 2008. The Fort Worth, TX-based independent said it now has posted 25 consecutive quarters of sequential production growth. Previously Range estimated that it would achieve 10% higher year-on-year output growth in 2009 even at reduced spending levels. The quarterly increases were attributed mostly to the company's extensive leasehold in the Marcellus play in Pennsylvania, along with its Nora Field in Virginia and Barnett Shale activity in North Texas. The independent now is operating 15 rigs onshore versus 33 a year ago. Range spent $162 million in 1Q2009 to fund the drilling of 101 wells (64.4 net) and seven net recompletions. The producer expects to recognize $12 million in exploration expenses, including $8 million of seismic expenditures in the Marcellus and Barnett shales. Estimated 1Q2009 gas and oil prices, after adjusting for hedges, averaged $6.60/Mcfe, versus price realizations that averaged $9.55 in 1Q2008 and $6.86 in 4Q2008.
In a move that could jump-start a long-delayed natural gas-fired generation plant in Hayward, CA, the California Public Utilities Commission (CPUC) has approved a power purchase contract for Pacific Gas and Electric Co. with the Russell City Energy Project. Originally proposed by Calpine Corp., Russell City is 65% Calpine-owned and 35% owned by GE Energy Financial Services. The new target date for the 600 MW plant's operation is 2012. The original power purchase agreement was approved by the CPUC in 2006, and the terms of the revised deal are comparable with that one, according to the commission. The location of the newly approved site, approximately 1.5 miles southwest of Hayward Executive Airport, prompted California Energy Commission staff to warn about "possible aviation safety hazards." The staff raised concerns about columns of warm air from the proposed plant that could interfere with flying aircraft. Federal Aviation Administration officials had said thermal plumes from the heat recovery steam generator stacks and cooling towers to be built at the plant "could present a hazard to aircraft" at the airport.
A major residential developer filed a lawsuit against Kern River Gas Transmission Co. in U.S. District Court in Las Vegas to block the Wyoming-to-California pipeline's plans to raise pressure in the line to bump up the throughout of the supplies from the Rockies to Southern California. A Kern River spokesperson told NGI the pipeline is expecting a FERC decision on the pressure upgrade before the end of May. Kern River is still intending to launch the increased pressure through its pipeline by November next year, the spokesperson said. A unit of Chicago-based General Growth Properties Inc., Howard Hughes Corp., filed the lawsuit, citing safety concerns and alleging that Kern River has violated a 1993 settlement in which it committed to keeping the interstate pipeline's pressure at 1,200 psi as it winds through the residential community of Summerlin. Kern River's proposal at the FERC asks to increase the pressure to 1,333 psi from Wyoming to the hub at Daggett, CA. The repressuring and lawsuit are separate from a second upgrade that Kern River is pursuing, adding 29 miles of 36-inch diameter looping pipelines and compression north of Salt Lake City. That project is just in the early stages of the review by FERC, the spokesperson said. Separately, last Wednesday, General Growth Properties sought bankruptcy protection in what the Wall Street Journal reported as "one of the alrgest real-estate failures in U.S. history."
Sacramento Municipal Utility District (SMUD) has signed a $21 million, 15-year deal to buy landfill gas in Texas from Shell Energy North America to expand its renewable energy supplies. The contract calls for 6 billion Btu/d. Most of the supplies will be cleaned methane gas from a landfill near Dallas, supplemented by a variable amount of conventional natural gas. "The proportion of renewable gas will increase as the landfill project is fully developed," a spokesperson said. The California Energy Commission has pre-certified that electricity produced by Shell landfill gas will qualify as renewable under the state renewable portfolio standard (RPS) program. The Sacramento, CA, utility said the landfill gas will fuel its natural gas-fired Cosumnes generation plant, which is the public-sector utility's most efficient gas-fired generator. "The landfill gas will provide between 200 and 300 GWh of renewable power annually, or about 8% of SMUD's renewable target in 2010," the spokesperson said. Electricity produced from the landfill gas will cost about $90/MWh, SMUD said, which is higher than nonrenewable power sources, but lower than most renewables.
Energy Savings Income Fund (ESIF), which operates as a trust and owns a number of natural gas and electricity marketers in the United States and Canada, said it has entered into a nonbinding letter of intent to acquire Universal Energy Group (UEG), a North American energy retailer, in a stock for stock deal. ESIF CEO Ken Hartwick said recent "market events" necessitated his decision to publicly confirm the existence of a nonbinding letter of intent. He added that a consummated deal would offer "significant benefits" to the public holders of both companies. "The merger of two independent contractor sales forces in Canada as well as United States customer bases which do not overlap should be positive for growth going forward," Hartwick said. "In addition, the fact that each company has a substantial general and administrative structure which performs identical services should lead to operating synergies which will make the transaction accretive to Energy Savings distributable cash per unit." ESIF said it does not intend to make any further announcements until either a definitive agreement has been reached or discussions are terminated.
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