The Weekly USA Oil & Gas Update: 29th September 2014

Rig Counts - select states with key plays

Oil & Gas Prices - Bloomberg/EIA

General News

Henry Hub losing ground to Marcellus as leading trading hub

Traditionally, the Henry Hub in southern Louisiana has been the heart of US trading and natural gas pricing, with one fifth of US natural gas production coming from the nearby Gulf of Mexico. Today, the Gulf only produces about 4% of US natural gas, while the prolific-and-growing Marcellus Shale produces about one fifth of US natural gas. The hub for the Marcellus is the Dominion South hub, which flowed about 400,000 mmBtu/d this year so far, while the Henry Hub only flowed 240,000 mmBtu/d. "Physically, we are buying a lot more supply indexed to the Marcellus pricing points than we did historically," said Kate Trischitta, director of trading at ConEdison Energy, a unit of energy holding company Consolidated Edison Inc. Dominion South gas is also cheaper, with an average price last summer discounted $1.50 per mcf to the Henry Hub spot average. Experts believe the price spread will narrow as more pipelines are built that can flow Marcellus gas to additional markets, but Northeast price spreads are likely to "remain challenged" into 2015, Domenic Dell'Osso, CFO at Chesapeake Energy Corp, a major U.S. gas producer, said during the company's August earnings call. What does this all mean for the future of natural gas pricing in the US? "Henry could still be king ... but (gas pricing) is going to be based on location, more than anything else," said Aaron Calder, analyst at Gelber & Associates in Houston. Article here

Where our domestically-produced oil & gas comes from - US map

The link below takes you to a short article on the rise of oil & gas production in the US over the last couple few years, along with a county-by-county map showing production volume, one for crude oil and the other for natural gas. Great visual representation of where our domestic oil & gas comes from. Article here

Unconventional Oil & Gas News

Pipeline/processing company ONEOK to invest up to $680 million into North Dakota and Wyoming oilfields

The Tulsa-based midstream company recently reported it plans to build a gas processing plant in North Dakota at a cost of $265 to $375 million, along with second plant in Wyoming's Powder River Basin at an estimated cost of $215 million to $305 million. The North Dakota plant will increase ONEOK's Bakken bas processing capacity to 1.2 bcfd when it is completed in the third quarter of 2016. In addition to the processing plants, ONEOK will also add compression. Article here

Magellan announces open season on pipeline to transport crude from Niobrara to Cushing

The open season is a process where promoters of proposed pipelines seek customer commitments in able to evaluate commercial viability before investment. Magellan wants to build a 600-mile, 20 inch pipeline from Platteville, CO to its Cushing, OK storage facilities, transporting up to 400,000 barrels per day of crude. Magellan is talking with two major producers who have expressed interest and plans to close the open season offering on October 22nd. Article here

Magnum Hunter hits monster natural gas well in West Virginia

The Stewart Winland 1300U reached production of 46.5 mmcf/d last week, making it the biggest-producing well ever drilled in the Utica, and one of the biggest ever onshore. The well was drilled to a depth of 10,825 feet with a 5,289-foot lateral. The well is producing nearly 98 percent natural gas with few liquids. Article here

Environment and Safety News

US GAO issues report recommending changes in oil and gas transportation

Recent accidents in transporting crude oil by rail have prompted the US Government Accountability Office to take a closer look at the regulatory structure around oil and gas transportation in the US. The result is a report issued by the GAO to the Department of Transportation where the GAO is urging the DOT to make rule changes, including requiring stabilization of Bakken crude before rail transportation. Adding stabilization, a process where lighter hydrocarbons are removed from the crude, creates its own challenges. First, it is expensive and would add a tremendous capital cost to producing and transporting crude oil from the Bakken, and second, once the lighter and less stable natural gas liquids are removed, they still need to be shipped as well, probably by rail. The GAO also raised the issue of the proliferation of gathering lines, which are locally regulated rather than DOT regulated, saying that some gathering pipelines in rural areas "fall outside the current safety framework, despite operating at the size and pressure (and therefore similar risk) as federally regulated transmission lines." Article here

Mergers and Acquisitions News

SM Energy buys 61,000 Bakken acres from Baytex

The $330 million cash purchase brings SM Energy's total Bakken holdings to 97,000 acres. SM Energy feels confident making the acquisition as it has increased its rate of return on wells in the area by 25% as it refines its completions process. "We don't think we've reached the limit on operational improvements," said COO Jay Ottoson. "Given these results, it is easy to see why we are excited about the acquisition. We think there is significant opportunity in the Bakken where we are drilling." Article here

Cabot purchases 30,000 more Eagle Ford acres

The $210 million acquisition adds about a third to the company's overall position in the play, giving them 83,000 acres. Existing wells on the acquired acreage currently pump 1,600 boed, 92% of that oil. Article here