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Oil and Gas Roundup — July 9

July 09, 2013
TOPICS: In the news
A roundup of oil and natural gas news from around the state, nation and world:

Chesapeake moving from risk-taker to profit-maker, NGI reports

Chesapeake Energy Corp., the mega-operator that Aubrey McClendon built shale-by-shale, is being repurposed brick-by-brick as the company transitions from risky exploration to steady production, according to Natural Gas Intelligence (NGI).

The Oklahoma City driller, now the No. 2 natural gas producer in the United States, was built over two decades, and while it holds some of the best unconventional oil and natural gas prospects in the country, it also has a lot of debt and it exceeded its cash flow last year.

But, the house that McClendon built is being whittled down from a money-guzzling machine to a money-making enterprise. Last year almost $12 billion worth of assets were sold in big, splashy deals. This year, the sales targets are lower -- $4-7 billion -- and the announcements won't be quite as sensational, COO Steve Dixon told investors in May. This month, two transactions, one completed and one announced, have moved the company into a much better position to be able to achieve 2013 cash flow projections:

• China's Sinopec International Petroleum Exploration Corp. completed a        $1.2 billion joint venture and now is half-operator of the 850,000 net        acre leasehold in the Mississippian Lime in northern Oklahoma. The total        leasehold produced about 96,000 boe/d of liquids and 54 MMcf/d of natural        gas in 1Q2013.

• Exco Resources Inc. agreed to pay about $1 billion for about 55,000 acres in the Eagle Ford Shale of Texas and about 9,600 acres in the Haynesville Shale in North Louisiana.

Chesapeake has been free cash flow negative every year of the last 10 except for in 2011, when the company was basically breakeven. The oil and gas giant has increasingly relied on asset sales over the last few years to fund operations, although divestitures have also been part of the company's stated strategy of buying undeveloped acreage, proving it up, and selling it for a higher price.

When McClendon was forced out in April, Chesapeake's board was shaken and stirred, with former ConocoPhillips chief Archie Dunham brought in to calm the troops.

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U.S. rig count up 9 last week to 1,757

The number of rigs exploring for oil and natural gas in the U.S. increased by nine this week to 1,757, according to Houston-based oilfield services company Baker Hughes.

There were 1,395 rigs listed as searching for oil, up five; 355 for gas, up two; and seven as miscellaneous, up two. A year ago this week, there were 1,419 oil rigs, a difference of 25, and 542 gas rigs, a difference of 187.

The number of directional drilling rigs increased by 15 to 255. There was one more horizontal drilling rig for a total of 1,068. Vertical drilling declined by seven rigs to end the week at 434.

At this time last year there were 1,965 rigs in the U.S.

The number of rigs exploring for oil and natural gas in Texas increased by three this week for a total of 835. There were 927 rigs in Texas at this time last year.

Rounding out the top five states by rig count were North Dakota with 177, up two; Oklahoma with 174, up one; Louisiana with 103, unchanged; and New Mexico with 78, up two.

Among the other major oil- and gas-producing states, Colorado added three rigs, and California added one.

Pennslvania decreased by one rig. Alaska, Arkansas, West Virginia and Wyoming were unchanged.

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Texas rises on fracking tide

The gift of fracking has created vast new oil supplies, capable of making America energy independent in a few years, creating millions of jobs, powering economic growth, and crippling the power of OPEC and the Islamic oil producers. Such attention as has been paid to the fracking boom has focused on North Dakota, where an entire state has been transformed. But Texas, already our biggest energy producer, has been busy fracking its way to "an oil boom that's added the equivalent of the Bakken formation in North Dakota to the state's output in just the past 16 months," as IBD puts it.

But Texas isn't stopping with the Peace Garden State as it climbs up the ranks of the oil producers.

As of February, the most recent month for which international oil production data are available, Texas would be the 12th largest oil producer in the world if it were a separate country, only slightly behind Kuwait and Venezuela.

At the current pace of output gains, Texas' production will likely surpass 3 million bpd by year-end, pulling it ahead of Venezuela, Kuwait, Mexico and Iraq to become the equivalent of the ninth largest oil-production "nation" in the world.

By 2020, according to Yergin, shale gas alone is expected to support 4 million jobs, up from 1.7 million today. That's the year the U.S. (and Texas) will pass up Saudi Arabia as the world's leading oil exporter, according to the International Energy Agency.

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N.C. senate passes rule on fracking fluid

The North Carolina state senate has passed requirements for what gas companies must reveal about the chemical mix they pump into ground during hydraulic fracturing. The senate overrode another state government group’s more stringent rule.

Hydraulic fracturing is currently not allowed in North Carolina, but permitting is set to begin in 2015.

The question about what companies must disclose about the mix of chemicals has been one of the most contentious for states opening up to fracking. Joe Rossabi, a vice president at the soil and groundwater cleanup company Redox Tech, says that rule matters during a spill.

“If you’re looking at a potential contamination situation, which you hope won’t happen, you definitely need to understand what the original chemicals were,” Rossabi says.

The bill passed by the Senate says that companies do not have to disclose chemicals that are confidential or a trade secret.

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Shale-gas revolution unnerves Russian state capitalism

A spectre is haunting Russia: the spectre of shale gas. It is seeping into the salons of power, discomfiting Russia’s leaders and their bizniz cronies. Energy companies account for half of the value of the Russian stockmarket, and a single, state-backed firm, Gazprom, produces 10 percent of the country’s exports.

Russian politics are also built on conventional oil and gas: Vladimir Putin is in essence the CEO of Russian Energy Inc. The revolution in unconventional gas production from shale beds, which began in the United States and is now spreading around the world, is shaking Russian state capitalism to its foundations.

All the powers of Putin’s Russia have joined in a holy alliance to exorcise this spectre: president and prime minister, oligarchs and bureaucrats, trendy environmentalists and Kremlin police-spies. Putin has denounced shale for costing too much and ruining the environment. Alexey Miller, the boss of Gazprom, has described the revolution as a “myth” and a “bubble that will burst soon.”

“We are skeptical about shale gas,” he says. “We don’t see any risks [to us] at all.”

But more recently the ruling clan’s position has become more nuanced. Putin now admits that there might be a “real shale revolution” after all. He has declared that he is monitoring the revolution carefully, and urged Russia’s energy companies to “rise to the challenge” of shale.

The same ambivalence could be found at the annual St. Petersburg International Economic Forum, held on June 20-22. The forum projected its usual image of Russia as a country that has come in from the cold and joined the global business community. Almost 3,700 businesspeople and officials gathered to discuss the sort of things that such people discuss whenever they get together: reducing corruption, reigniting growth, freeing trade.

The forum had not a single public session on shale. But like Banquo’s ghost, it haunted the banqueting rooms. It kept arising in conversations in the Pepsi-Cola café and the Mercedes-Benz Star Bar, with phrases like “game changer” and “disruptive innovation” thrown about.

It was the subject of a closed-doors session chaired by Daniel Yergin, an American energy consultant, and including the bosses of a dozen of the world’s biggest energy companies. Alexander Novak, the energy minister, told the panel there would be tax reforms to promote unconventional oil and gas.

But Putin, reverting to anti-shale mode, said at the forum that it was uncompetitive, causes “blackness” in drinking water and sets off lots of “explosions.”

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