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Appalachian drillers to show 'repair' amid losses; propane prices weaken with crude

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Appalachian drillers to show 'repair' amid losses; propane prices weaken with crude

Appalachian drillers expected to show signs of 'repair' amid Q2 losses

MostAppalachian shale producers are expected to report losses when they release theirsecond-quarter earnings, but three drillers in particular are best positioned tocome out in the black, analysts said.

Analystswill be especially curious whether drillers in the Marcellus and Utica shales continueto hold production volumes flat while repairing balance sheets by spending lesscapital. They will also want to hear about increased hedging to take advantage ofstrip pricing that goes above $3/MMBtu in 2017 and alleviates ugly cash prices atMarcellus hubs.

The volume-weightedspot price index for Marcellus day-ahead gas averaged $1.32/MMBtu over the yearto July 18, compared to the Henry Hub's spot price of $2.35/MMBtu for the same period,according to SNL Energy data.

Propane prices weaken with crude oil despite small inventory build

The propanemarket fell close to a penny per gallon in the week ended July 22, as traders balancedpressure from lower crude oil prices against support from a smaller-than-expectedbuild in propane inventories.

LoneStar pipeline grade propane at Mont Belvieu fell 0.95 cent to trade at 48.55 centsper gallon in the week ended July 22, while non-LST propane lost 1.05 cents to tradeat 48.05 cents per gallon. Prices at the hub in Conway, Kan., dropped 1.20 cents,and traded at 43.40 cents per gallon.

The fracspread declined 0.51 cent to trade at 18.12 cents per gallon on July 21 and comparedto 18.63 cents per gallon on July 14, according to data from S&P Global MarketIntelligence. The average NGL barrel fell 1.7% between the two dates while naturalgas prices declined 1.3%.

Updates expected on growth projects, debt as midstream giants put Q2in rearview

Big growthprojects, leverage reductions and access to capital are on midstream energy analysts'radar for second-quarter earnings season as the hard-hit industry rebalances.

"Lookingacross the entire sector, we are most interested in indications of how our companiesare progressing on growth projects, current views on global ethane and LPG [liquefiedpetroleum gas] export market potential, and the potential headwind to long-termgrowth from overbuilt midstream capacity," Sanford C. Bernstein & Co. LLCanalysts Jean Ann Salisbury, Samuel Shrank and Jackson Kulas said in a July 20 notepreviewing earnings.

In aJuly 19 industry brief, Murphy and other Raymond James analysts noted a growingoptimism about a "positive shift in the fundamentals across the midstream/MLPgroup" since February lows. "In the near term, we see this trend continuingdue to improving North American energy fundamentals," they said in the brief,citing expectations of more thoughtful growth CapEx spending, more diverse capitalsourcing and a more confident pricing and production outlook for oil, gas and NGLs.

Pullback in energy output may be nearing end amid recovery in prices,rigs

The slowdownin natural gas production growth and the decline in oil output may be nearing anend, as the rise in prices since a bottom was formed earlier this year has led tosigns that some producers may be willing to ramp up output in the second half ofthe year.

The changesin production trends have been the result of a 77.0% decline in natural gas rigcounts through May and June following a peak in late 2014, and an 80.4% drop inthe number of rigs targeting crude oil in the same time frame. Production has alsofallen in reaction to sharp declines in prices in 2014 and 2015, which appear tohave finally reached a bottom earlier this year. Prices of crude oil formed a bottomduring the current cycle at $26.05/bbl on Feb. 11 and rose to more than $51.50/bblon June 9, but retrenched to below $44.00/bbl on July 20.

The EIAprojects an increase in natural gas output from 74.09 Bcf/d in June 2016 to 77.25Bcf/d by the end of 2017, while production of crude oil will fall from 8.63 MMbbl/dto 8.35 MMbbl/d over the same period. Output of propane from gas processing plantsis anticipated to follow a path similar to natural gas, with production rising from1.14 MMbbl/d in June to 1.24 MMbbl/d in December 2017. Natural gas liquids suppliesshould rise from 3.46 MMbbl/d to 3.94 MMbbl/d over the same period.

Kineticor to build 100-MW gas-fired power plant near Peace River

plans tobuild a 100-MW power plant near Peace River, Alberta, that will burn waste naturalgas from heavy oil projects in the region.

The plannedC$100 million facility will significantly reduce the flaring of methane in the area,the Calgary, Alberta-based company said in a July 20 statement. The project willbe connected to Alberta's power grid and will reduce emissions by more than 3.1million metric tons of CO2 equivalent over its lifetime, Kineticor said. The plantis expected to be in operation by the second half of 2017.

Alberta'sgovernment has committed to transitioning from the coal-fired generators that produceabout half of its power to lower-emitting sources by 2030. Growth in natural gas-firedpower has been stymied as companies strugglewith historically low electricity prices in the energy industry-dependent province,which has been hit by a prolonged slump in oil and gas prices. Using waste gas thatis normally burned or vented to the atmosphere as a fuel will help meet a pledgeby Canada's federal government to lower methane emissions by 40%, Kineticor said.

Enterprise to begin propylene exports at Houston Ship Channel

Respondingto increasing global demand, EnterpriseProducts Partners LP has added propylene exports to the service offeringsat its Houston Ship Channel terminal.

Enterprisehas loaded its first two vessels with polymer grade propylene, or PGP, for export,according to a July 19 news release. The facilities at the Enterprise HydrocarbonsTerminal can load 5,000 metric tons per day of refrigerated PGP, supplied by fractionatorsand storage wells at the partnership's Mont Belvieu, Texas, complex.

The partnershipanticipates a rise in PGP export cargoes due to growing demand. Previously, itspipeline and rail infrastructure were upgraded for easier delivery of refinery gradepropylene to its fractionation facilities, where the mixture of propane and propylenewill be separated into PGP.