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Look At The Future Of American And Appalachian Gas Production

At Hart Energy's recent DUG East/Marcellus-Utica Midstream Conference, Rystad's analysts raised the possibility that Appalachia's natural gas production can actually be maintained or even increased without the significant investment in wells of the past.

As per Rystad's projection, natural gas prices will stay around $3-$4 per MMBtu all the way to 2030, which is a good point for economic feasibility at the asset level. The U.S. will also be able to stay a key player in energy supplies in the long run because of this.

It is inevitable: gas will replace coal in the power generation fuel mix because of the energy transition to electrification and lower emissions goals. At the moment, the coal industry dominates the power generation mix in Asia, including Australia, where coal produces 45% of electricity. This creates opportunities for natural gas, which won't be covered fully by local resources, leaving a possibility for import.

Despite the energy struggles of 2021, the importance of gas in the energy system has been reinforced. There is a potential for more energy crises to arise in the future, depending on when and how quickly the energy transition happens. Thus, to meet power demand and avoid emissions of greenhouse gasses, regions such as Europe and Asia need greater amounts of LNG. There will be intense competition between U.S. and Russian producers in those markets, but the U.S. maintains a supply advantage, while Russia will see its share of the market decline notably from the mid-2030s to 2050.

By the early 2040s, LNG demand will likely peak at 718 metric tons. But in the short term, the LNG market is relatively tight and unable to fulfill such needs, because U.S. export terminals have not yet been built. LNG export terminal projects must be completed promptly if the supply target of 700+ metric tonnes is to be reached by 2040.

It becomes quite important to consider the production capabilities of Appalachian producers in that context. Historically, productivity has ranged between 1 and 2 Bcf/d from 2014-to 2016, plateaued at around 2 Bcf/d in 2019, and then increased to 2 to 2.4 Bcf/d in 2020 and then started rising again in 2021. And the curves appear to be sustainable.

And it isn't only because operators are drilling better acreage that productivity gains have been stable. During 2016-2017, Tier 1 and Tier 2 locations produced lower output, implying that this learning curve continues to be steep and that the operators are actually realizing these capital efficiency gains.

The takeaway and regulatory constraints of the Northeast region are not to be ignored, but even if those obstacles impede Appalachia's growth at the same rate as the Permian or Haynesville, it does not detract from the value of the Marcellus and Utica basins.

The Appalachians will still be the top producers at a very competitive pace as long as commercial inventory exists. After all, as long as there is commercial inventory, somebody will have to drill.

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$7 Billion Merger of Colgate and Centennial, the 2 Largest Permian Operators

Despite the circulating rumors concerning Colgate’s attempt to launch an IPO, on May 19 the company decided to combine with Centennial Resource Development Inc. This merger of equals is estimated at $7 billion and will found the biggest pure-play E&P company in the Delaware Basin of the Permian. The transformative combination essentially enlarges companies’ potential and hastens the growth across all financial and operating metrics. According to Centennial CEO Sean Smith, the combined company is anticipated to furnish shareholders with quickened capital return program due to a fixed dividend coupled with a share repurchase plan. Due to a recent report, the merger would increase production 7%, to 145,000 boe/d by the fourth quarter would further ratchet up next year. By third-quarter 2023, the company predicted 160,000 boe/d based on a drilling program of 140 wells per year. Colgate Energy was reported to be getting an IPO last December that sources said would value the company at approximately $4 billion. The combined company will have over 15-years of drilling inventory, assuming its current drilling pace, the companies will produce over $1 billion of free cash flow in 2023 at current strip prices.

Colgate Energy is planning to float its shale oil producer in the Permian's Delaware Basin on the stock market. If successful, this IPO would be the first major U.S. oil producer offering since Jagged Peak Energy's IPO in January 2017. Looks like investors’ confidence in the sector is returning as U.S. crude prices hit their highest in seven years late last year S&P energy index delivered roughly twice the return of the S&P 500 in 2021.

In order to sell its part of the sprawling Eagle Ford Shale acreage, Chesapeake Energy Corp. on January 18 concluded an agreement to trade its Brazos Valley region assets to WildFire Energy I LLC for $1.425 billion.

On January 6, Phillips 66 announced that it plans to acquire more than 43% of DCP Midstream LP for $3.8 billion, expanding the business in the oil & gas business.

On January 5 Northern Oil & Gas (NOG) concluded a deal to acquire working interests in Midland-Petro D.C. Partners LLC (MPDC)'s Mascot Project in the Midland Basin, according to a January 9 press release. Firstly estimated at $330 million in cash, the deal was signed with an additional 3.25% working interest added to the 36.7% agreed upon when the transaction was announced on October 19. NOG paid $29 million more for the additional interests, which now totalled 39.958%. Finally, the deal closed for $320 million in cash and $43 million in debt at signing in October with the finance of Minnetonka, Minn.-based NOG with cash on hand, operating free cash flow, and assistance from its revolving credit facility.

2023 blog posts