The Rise of New Local Independent Unconventional Gas and NGL Producers
in the Appalachian Basin
Of the new operating companies coming onto the scene over
the last several years, most are funded by private equity commitments from
providers who have specialized in unconventionals. Most have assembled
experienced and capable teams of oil & gas professionals, sometimes consisting of executives from companies that were bought out by larger companies wanting to get into the shale plays. Two, Rice Energy
and Eclipse Resources, have transitioned to public companies through IPOs. Both
of these companies have significant core acreage and high volume wells. Eclipse
just completed a possible U.S. record 18,500+ ft lateral in Guernsey County,
Ohio, in the Utica. Well costs have dropped significantly. Thus, there are
still technological and economic improvements occurring.
Besides requiring experienced and capable teams equity
providers require good acreage positions in or near the core areas of the
various plays and sub-plays by drill-bit hydrocarbon (gas, NGLs, oil) - thus
demonstrable economics. Another issue of great importance in the Appalachian
areas at present is access to pipelines and processing facilities, especially
as pipelines and processing facilities currently have limited access and tap
fees are quite high. As drilling typically precedes gathering and
infrastructure build-out there can also be significant delays getting product
to market in today’s environment. Interstate pipelines are incrementally coming
online to transport more gas out of the basin. Other factors than core acreage
and midstream infrastructure can also influence economic viability. For
example, Seneca Resources owns land and minerals (fee acreage) across contiguous
swathes of their acreage so they require smaller gas rates to be economic in
those areas. Operational capacities and efficiencies can also lower per well
costs through things like water management pipeline and facilities projects,
multi-well pads, multi-formation pads, and simultaneous and zipper fracking.
Pipeline agreements and commodities hedging agreements vary considerably by
company conferring various economic advantages and disadvantages.
Timing for these companies for getting into the market has
been a very big issue. Timing has been a factor in acreage costs, non-viability
of drilling in current low-price environments, and thus the delaying in
starting or continuing of new drilling and producing projects.
Some of the new companies such as American Petroleum
Partners, Travis Peak Resources, and LOLA Energy have yet to drill due partly
to the prolonged low-gas-price downturn and some such as Apex Energy are just
doing a few tests currently. Companies that just started drilling a few years
ago such as PennEnergy Resources and Edgemarc Energy are drilling occasionally
and planning future programs. Most companies are completing backlogged wells if
they have them as the “fracklog” depletes faster with the slightly better
Appalachian and Index prices.
Most of these companies are focused on small numbers of
areas. They are focused on developing economic areas rather than exploring.
They are predominantly development companies that are always high-grading their
holdings. Some have both dry gas and NGL areas so completion and production
focus can be weighted by commodities prices and shifted accordingly.
Several larger companies have announced a return to drilling
or to add additional rigs in 2H 2016. These include Southwestern, Chesapeake,
Range, EQT, Consol, Gulfport, and others. Range recently made an acquisition in
Southern Louisiana which suggested to some that they are seeking gas to fill possible
future short-term gas shortages in the south due to Appalachian bottlenecks.
The new Appalachian drilling could extend the gas glut as delayed pipelines
have extended the Appalachian bottleneck situations. Robust summer demand has
thus far lowered the excess gas in storage closer to normal levels but still
above. Any such delays will only be temporary as new takeaway capacity and LNG
exports come on line, particularly in 2017 and beyond.
Some of the newer local companies are touting their
localness as a desirable quality – employees live in or close to the areas in
which they drill and work so they have an inherent interest in safeguarding their
communities from environmental problems. They are also producing a local
product, supporting the local economy, hiring local people, and paying local
taxes. The LOLA in LOLA Energy stands for “locally owned, locally accountable.”
Perhaps anti-corporatist localists like Bill McKibben should take note! As
these producers predominantly produce natural gas and natural gas liquids, they
can also tout their contribution to lowering carbon emissions. Reigning in
fugitive methane and VOC emissions might also be a trend among these local companies
who seek to be accepted by the public. Some are involved in community service and
philanthropy. Planning for wells and facilities in populated areas has required
significant cooperation between company and county/township officials. While
there is still significant opposition to oil and gas development, there is also
much support and expectations of safe, competent, and environmentally-friendly
operations. These are perhaps possible examples of current and future corporate
and community cooperation which would be a welcome change from protests, law
suits, and other organized opposition. Natural gas is recognized as a very important
factor in decarbonization and is also currently the most affordable energy
source.
Some of these companies may want to grow and sell to bigger
companies. Others may choose to go public. Others yet may decide to continue as
they are and if they can be successful and develop reputations for operating
responsibly then they may go far.
