NGI The Weekly Gas Market Report / NGI All News Access

Industry Briefs

The Federal Energy Regulatory Commission has approved a request by El Paso Natural Gas for an early environmental review of a proposed 60-mile lateral that would cross the U.S.-Mexican border to supply more gas to power generation facilities. The 36-inch diameter lateral would extend from El Paso's existing South Mainline System near Tucson, AZ, southward to the U.S.-Mexican border near Sasabe, AZ [PF12-11]. The Sasabe Lateral would have an initial capacity of 160-210 MMcf/d, with the flexibility to increase to 760 MMcf/d through expansions, El Paso said. It noted that it is in the process of negotiating transportation agreements with MGI Supply Ltd. for the initial capacity of the proposed lateral. An open season is to be conducted prior to filing a certificate application close to January . The pipeline called on the Commission to approve the lateral project by October 2013 so it may be placed in service by September 2014.

The Department of the Interior's Office of Natural Resources Revenues (ONRR) has slapped Houston-based Cabot Oil & Gas Corp. with $1.9 million in civil penalties for "knowingly and willfully maintaining false, inaccurate or misleading information" on the ONRR database. "We simply will not tolerate submission and maintenance of inaccurate reports," said ONRR's Greg Gould, acting deputy assistant secretary. ONRR said auditors initially discovered numerous errors in Cabot's royalty reports in 2008 while examining a multi-year period (2004-2008). Cabot worked to correct the allegedly inaccurate reports for the audit period, but it failed to effectively do so for the post-audit period that also contained inaccurate reports, according to ONRR. The civil penalty totaled $1.934 million as of March 31, and will continue to accrue until Cabot corrects its inaccurate reports, according to Interior. The company may request a hearing in the civil penalty.

Nova Scotia plans to auction 7.6 million acres in 11 blocks off the southeastern coast, its largest offshore auction ever, in an area thought to contain about 120 Tcf of natural gas and 8 billion bbl of oil. Premier Darrell Dexter said the call for bids shows the "strong growth potential" of the province's offshore industry and coincidentally follows Shell Canada Ltd.'s C$970 million exploration bid for four parcels in the province's offshore earlier this year, which was the highest bid ever in Eastern Canada. The Canada-Nova Scotia Offshore Petroleum Board issued the call for exploration rights, with six parcels nominated by industry. Nine parcels are in deepwater and skirt the shelf area, including the Sable and Deep Panuke gas projects and Shell's recently acquired offshore parcels. Bids are open until Nov. 7. More information, including geoscientific assessments, may be found at .

A small-scale test of technology to extract natural gas from methane hydrates conducted on Alaska's North Slope was successful and the U.S. Department of Energy (DOE) said it is launching a long-term production test in the Arctic along with research to test technologies to locate, characterize and extract methane hydrates on a larger scale in the U.S. Gulf Coast. Partners ConocoPhillips and the Japan Oil, Gas and Metals National Corp. would test gas extraction from methane hydrate using a production technology developed by the University of Bergen, in Norway and ConocoPhillips. In the proof-of-concept test, which concluded April 10, the team injected a mixture of carbon dioxide (CO2) and nitrogen into the formation and demonstrated that the mixture could promote natural gas production. Analyses of the data sets acquired at the field site will be needed to determine the efficiency of simultaneous CO2 storage in the reservoirs, DOE said. Three years ago a landmark discovery of high saturations of natural gas hydrates within reservoir-quality sands in the Lower Tertiary of the Gulf of Mexico was announced by DOE's Office of Fossil Energy (see NGI, May 18, 2009).

BP Capital CEO and natural gas proponent T. Boone Pickens blames President Obama, Congress and Koch Industries for the lack of a comprehensive U.S. energy policy, although not necessarily in that order. "The biggest deterrent to an energy plan in America is [Wichita, KS-based] Koch Industries," Pickens told Yahoo's The Daily Ticker. "They do not want an energy plan for America because they have the cheapest natural gas prices they've ever had. They're in the fertilizer business and they're in the chemical business, and natural gas is feedstock for that. So their margins are huge and they do not want you to have an energy plan because if you [have] an energy plan then natural gas prices would come up." He spread the blame for the lack of energy policy around in Washington, DC. "Neither [party] can step up...[and] provide the leadership to have an energy plan. They get up to it, [and then say] 'Oh well, hell, let's not do it.' They back off." When asked to rate the president's performance on energy, Pickens quipped, "he hasn't done anything. There hasn't been anything happen on energy" since he took office.

Prospects for offshore drillers look promising in the near term, especially for ultra-deepwater (UDW) rigs, which are "essentially sold out" until 2014, according to Raymond James & Associates Inc. Analysts compiled data on global offshore operators on a year-to-date basis and found that offshore drilling, up 22% so far this year, is one of the best performing oilfield service sectors to date. In the near term, "we believe that we are essentially sold out of UDW rigs until 2014, which ushers the prospect of taking leading edge rates north of the $650,000/day mark, up from the current $550,000-600,000/day range." Demand worldwide for UDW rigs is driven mostly because of growth in the U.S. Gulf of Mexico (GOM), Brazil and West Africa. Historically the GOM was one of the first major UDW basins and before the Macondo well blowout was running 30 floating rigs and was contracted to add 10 more to bring total floater demand to 42. Drilling in the GOM today is an "overall growth market that could add five to 10 rigs per year." By 2015, the GOM could have another 20 rigs drilling.

Wyoming Gov. Matt Mead has kicked off a public discussion to establish a network of carbon dioxide (CO2) pipeline corridors that could be used to site other types of energy pipelines, including natural gas, oil and liquids. The immediate goal is to site the CO2 lines to boost the enhanced oil recovery (EOR) operations of declining wells in the state, and the governor envisions a statewide network of CO2 pipeline corridors within federal land boundaries in the state. Mead stressed that CO2 capture and storage have the potential to advance energy technology and improve air quality, and in addition, CO2-driven steam flooding is "a proven method of EOR."

Kinder Morgan Inc.'s (KMI) acquisition of El Paso Corp. has received approval from the Federal Trade Commission (FTC), provided Kinder Morgan Energy Partners relieves itself of some Rocky Mountain pipeline, gas processing and storage assets as it previously said it would do. The FTC is requiring KMI to sell its 50% stake in the Rockies Express pipeline, as well as Kinder Morgan Interstate Gas Transmission and Trailblazer pipelines. KMI also was directed to sell two gas processing plants in the Rocky Mountain region and associated storage capacity within 180 days. KMI previously said it would sell the assets (see NGI, April 23).

Talisman Energy Inc. plans to spend only about C$200 million on all dry gas activities in North America for the remainder of the year, primarily to hold acreage and maintain options for the future, CEO John Manzoni said during an earnings conference call. A warm winter on top of a supply glut kept natural gas prices below what Talisman needed to justify investment, Manzoni said. "With the injection season now upon us, it's quite possible that this gets even worse before it gets better, and we've adjusted our capital plans accordingly." Although encouraged by the ongoing switch from coal to gas for North American power generation, Manzoni said, "We need to be ready for this to last well into 2013." After cutting its Marcellus Shale rig count in half and then in half again, Talisman is now running only a single rig in the play, down from 10 at the end of December. In the Montney Shale of British Columbia, the company is reducing its activity from 11 rigs at the end of the year to four, with further reductions planned. The company earned C$291 million (C28 cents/share) in 1Q2012 up from a net loss of C$326 million (minus C32 cents) a year ago.

Rex Energy Corp. said the Utica Shale joint venture with MFC Drilling Inc. and Abarta Oil & Gas Co. Inc. requires it to drill and complete one well and begin drilling two others by Nov. 15, and requires three additional wells each year until the company satisfies the carry obligation. The JV covers a three county region of eastern Ohio. Rex is calling the additional acreage Warrior South because it sits just south of its Warrior prospect in Carroll County, OH. The area of mutual interest covers around 4,500 gross acres in Guernsey, Noble and Belmont counties. Rex posted a $1.6 million net loss (minus 3 cents/share) in 1Q2012, up from a $7.5 million net loss (minus 17 cents) a year ago, the result of a nearly 50% increase in sales revenue and continued operational efficiencies. Because of those efficiencies, Rex shaved its projected operating expenses for the year to between $48 million and $53 million (down from $50-55 million) and increased its production guidance to 67-72 MMcfe/d (up from 63-68 MMcfe/d).

Eagle Ford Shale-focused Eureka Energy Ltd. has told shareholders to turn down a US$111.7 million unsolicited offer from Australia's Aurora Oil and Gas Ltd. The unconditional, all-cash offer represents "an attractive premium" and would give Eureka shareholders the opportunity to "crystallize immediate and certain value for their shares," and the acquisition would build Aurora's "already strong presence in the Sugarkane Field, growing its portfolio of Eagle Ford interests" in line with its strategy, said Aurora CEO Jon Stewart. Eureka has three core assets with a combined net acreage position of 6,742 acres, all focused on the Eagle Ford, according to the Australian company's website.

NiSource Midstream Services (NMS) is in "advanced discussions with a producer counterparty" for a potential midstream joint venture (JV) in eastern Ohio's Utica Shale, NiSource Inc. said. The potential JV partner was not disclosed but an announcement may be made within a month or so, said CEO Robert Skaggs Jr. "The concept would be that we would contribute roughly 15,000 acres that are associated with our Brinker storage field to the counterparty's acreage position. In total, the JV joint acreage would approximate 100,000 acres, give or take."

The Pennsylvania Department of Environmental Protection (DEP) levied a $40,000 fine on Ultra Petroleum Corp. subsidiary Ultra Resources Inc. for several violations from 2011, including operating an illegal transfer station from a Marcellus Shale well pad in Potter County. DEP inspectors visited the Fowler well pad in West Branch Township in February 2011 and found 47 mobile storage tanks holding more than 760,000 gallons of raw flowback fluid. Inspectors found additional violations during inspections in March, July and August. The DEP confirmed that Ultra had fixed the violations by November.

High prices for oil and natural gas liquids (NGL) relative to dry natural gas will continue to save the day for independent exploration and production (E&P) companies, Moody's Investors Service said in a note. The ratings agency has a "positive" outlook on the sector, despite depressed dry gas prices. "Natural gas prices continue to languish amid a shale-based supply glut and the recent warm winter in North America," said Moody's Senior Vice President Terry Marshall. "We see no abatement of crude prices or any improvement in natural gas prices before mid-2013." Some independent E&P companies will find oilfield services and other costs easier to absorb, due to robust oil prices and improved margins from NGLs, the ratings agency said.

The conditions that have been keeping a lid on natural gas prices -- unusually warm winter weather and robust gas supplies -- had both positive and negative impacts on Boardwalk Pipeline Partners LP's business in 1Q2012, said CEO Stan Horten. Utilization-driven revenues were negatively impacted by lower gas prices and lower throughput due to the warm winter weather, but high storage inventory levels, combined with low gas prices, are producing more favorable parking and lending spreads, he said. First quarter net income was $92.6 million, a 12% increase from $83 million a year ago. Operating revenues were $312.9 million, a 1% increase from $311 million in 1Q2011.

Chevron Phillips Chemical Co. LP (CPChem) -- a 50-50 partnership jointly owned by Chevron Corp. and ConocoPhillips -- has selected a site near Old Ocean, TX, for two polyethylene facilities, which will collectively have an annual capacity of 500,000 metric tons (1.1 billion pounds) and utilize the company's Loop Slurry process. CPChem also announced that it had executed engineering and design agreements with Jacobs Engineering Group Inc. for the polypropylene facilities and with Shaw Energy & Chemicals to design a 1.5 million metric tons/year (3.3 billion pounds/year) ethane cracker at its Cedar Bayou facility in Baytown, TX. Both projects are expected to create approximately 400 long-term direct jobs, 10,000 engineering and construction jobs, and be completed in 2017.

Regulators with the Kentucky Public Service Commission (PSC) have approved plans by two PPL Corp. subsidiaries -- Kentucky Utilities Co. (KU) and Louisville Gas & Electric Co. (LG&E) -- to build a 640 MW combined-cycle generating plant and a natural gas pipeline for an estimated $583 million at LG&E's Cane Run facility in Jefferson County and to purchase an existing 495 MW simple-cycle generating plant from Bluegrass Generation Co. in LaGrange, KY, for $110 million. KU and LG&E said they need the facilities to replace three coal-fired plants that are being retired by the end of 2015.

Regional transmission organization PJM has asked FirstEnergy to continue operating three coal-fired plants that the utility had planned to close later this year. PJM asked for reliability-must-run arrangements for FirstEnergy's Eastlake, Ashtabula and Lake Shore plants, according to Reuters. In January FirstEnergy said it planned to retire the coal-fired electric generation plants and three others (Bay Shore Units 2-4 in Ohio, the Armstrong Power Station in Pennsylvania and the R. Paul Smith Power Station in Williamsport, MD) due to more stringent federal mercury and air toxic standards (see NGI, Jan. 30).

Pan EurAsian Enterprises Inc. said it is no longer going tracking daily sendout from U.S. liquefied natural gas (LNG) terminals and instead will focus on global LNG markets. Trunkline LNG in Louisiana, Gulf Gateway deepwater port, Gulf LNG in Mississippi, Cameron LNG in Louisiana, Sabine Pass in Louisiana, Golden Pass LNG in Texas, Freeport LNG, Energia Costa Azul in Baja California, Northeast Gateway, Neptune Deepwater Port in Massachusetts and Cove Point LNG no longer will be tracked. "As everyone is well aware, the U.S. natural gas markets have changed dramatically from the time when plans were made, and implemented, to develop a large number of LNG import terminals in the United States," Pan EurAsian said. "Most of the new terminals that were built are presently operating at or near boil-off rates."

Citing drought conditions in northeastern Pennsylvania, the Susquehanna River Basin Commission (SRBC) last week re-suspended water withdrawal permits for Carrizo Oil & Gas Inc. to withdraw water from an unnamed tributary of the Middle Branch of Wyalusing Creek in Susquehanna County, and for Tennessee Gas Pipeline Co. to take water from an unnamed tributary of North Elk Run in Tioga County. The SRBC had suspended 17 permits in mid-April, but restored all but the Tennessee permit in late April (see NGI, April 30; April 23).

Most of Pennsylvania's Marcellus Shale drilling law, Act 13, has begun to take effect, but two state lawmakers are already proposing tweaks. Republican Sen. Chuck McIlhinney wants to exempt counties without unconventional wells from the statutes to keep his home turf of Bucks County -- where an operator wants to drill a non-Marcellus test well -- from being restricted by zoning provisions. Democratic Sen. Jim Ferlo is proposing amendments that would completely overhaul key provisions by replacing the act's annual impact fee with a 25 cent/Mcf severance tax adjusted according to the price of natural gas. All revenue up to $200 million would be distributed according to the current formula -- generally speaking: 60% at the local level and 40% to specific statewide programs -- with any additional money going into the general fund. Ferio's amendment would increase setbacks, bonding levels and criminal penalties beyond the increases already included in Act 13, eliminate the entire section of Act 13 that restrict local zoning, and impose a two-year moratorium on additional leasing in state forests.

Houston-based eCorp International LLC and Southern Tier Energy Partners LLC (STEP), a property owners organization in New York, have scrapped a plan to create a company indirectly owned by the landowners that was signed in late March that would have allowed unconventional gas drilling using a waterless hydraulic fracturing method (see NGI, April 2). STEP landowners were to receive a majority share in a proposed company in exchange for lower royalties (12.5%) and no bonuses.

Eagle Rock Energy Partners LP said there were no injuries or fatalities from an April 30 explosion and fire at its Phoenix-Arrington Ranch natural gas processing facility near Canadian, TX. The company said damage to the facility, which has a processing capacity of 80 MMcf/d, appeared concentrated at the inlet header system and did not extend to the cryogenic unit or processing towers. Eagle Rock said it has launched an investigation into the incident and would temporarily divert gas elsewhere for processing.

"Closure" is near for Pacific Gas and Electric Co. (PG&E) along with a major regulatory settlement concerning the September 2010 San Bruno, CA, natural gas pipeline explosion, CEO Tony Earley said. The utility hopes to conclude the outstanding proceedings at the California Public Utilities Commission "as soon as possible" to provide "clarity" on the issues for everyone concerned -- the regulators, the utility and its customers. Early said some of the parties have indicated "directly and indirectly" that they would like to seek a settlement, and PG&E has made it clear that this is its preferred route -- "a fast path to closure." However, there haven't been any "substantiative discussions at this point."

The integration of Illinois-based Nicor Inc. to form the largest distribution-only natural gas utility operation in the nation went off without a hitch in the first quarter (see NGI, Dec.12, 2011) but financial results were pressured by unseasonable warm winter weather, AGL Resources Inc. executives stated. The holding company serves 4.5 million customers in Illinois, Georgia, New Jersey, Virginia, Florida, Tennessee and Maryland and with a rate base of $3.8 billion. The combined company delivers 4.7 Bcf/d, and gas storage operations collectively total 31 Bcf in capacity with expansion potential to 90 Bcf. However, in 1Q2012 weather in the traditional AGL utility territories in the Southeast and East was 21% warmer than normal, and in Nicor's territory in Northern Illinois it was 19% warmer than normal, reducing overall corporate holding company profits by $13 million before interest and taxes.

DCP Midstream LLC has several Midcontinent-focused projects under way that combined represent an investment of $2 billion including an infrastructure development to provide natural gas liquids (NGL) takeaway capacity to Mont Belvieu, TX. A "special focus" is on liquids-rich output in the Granite Wash, Woodford Cana, Tonkawa, Marmaton, Cleveland and Mississippi Lime plays, a DCP Midstream executive said. The company's gas gathering infrastructure in the Texas and Oklahoma panhandle areas and western Oklahoma is being extended to accommodate more than 250 MMcf/d of liquids-rich gas.

©Copyright 2012 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus