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Pa. shale permits drop 49% in September, but private equity drillers load up

While the number of shale gas drilling permits in Pennsylvania dropped nearly in half in September year over year, the pattern of permitting showed active producers chasing natural gas liquids such as ethane and propane in wet gas in the southwest corner of the state.

The number of permits for shale wells dropped 49% in September compared with the year prior, with EQT Corp., the nation's largest gas producer by volume, being a big part of that decrease. EQT pulled 31 permits to drill in three counties around Pittsburgh, a 72% drop from the prior year.

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The state's other big producers similarly asked for fewer permits. Cabot Oil & Gas Corp. was issued no permits in September, after months of ramping up activity in preparation for the Oct. 6 opening of Williams Cos. Inc.'s 1.5-Bcf/d Atlantic Sunrise pipeline, which connects northeast Pennsylvania to Dominion Energy Inc.'s Cove Point LNG LP terminal and markets on the Transcontinental Gas Pipe Line Co. LLC system. Range Resources Corp. was issued only eight permits, a 78% drop from the year before, most in the wet gas of Washington County, Pa. Southwestern Energy Co., which has trumpeted plans for increased NGL production, was issued only four permits, all in dry gas Susquehanna County in the northeast of the state. Chesapeake Energy Corp. reversed itself and pulled seven permits in Wyoming County in the northeast part of the state after being issued none in the same month last year.

Westmoreland and Butler counties to the east and north of Pittsburgh saw continued interest in their wet gas opportunities.

Private equity-backed PennEnergy Resources LLC pulled 11 permits in Beaver and Butler counties north of Pittsburgh, adding to the eight permits issued to Rex Energy Corp., which EnCap Investments LP-funded PennEnergy bought for $601 million in bankruptcy court. Last September neither company asked for a drilling permit.

Another private equity driller, Blackstone Group LP-backed Huntley & Huntley Energy Exploration LLC, pulled 16 permits to drill in Allegheny County, where Pittsburgh is located, and Westmoreland County directly east. Last year Huntley & Huntley was issued no permits.

Private equity drillers have continued to surge into the Marcellus Shale's wet gas region as oil-linked NGL prices continue to gain while the price of dry natural gas stays stuck just short of $3/Mcf.

"Backed by healthy returns, NGL production delivered by our coverage universe is projected to continue to grow at double-digit growth rates during 2018-2021 in Appalachia, from 360,000 bbl/d in 2018 to over 500,000 bbl/d in 2021," Stifel Nicolaus & Co. analyst Jane Trotsenko told her clients Oct. 4.

"All Appalachian NGL producers should benefit from improved NGL fundamentals regardless if they have [firm transportation] on [Sunoco Pipeline LP's] Mariner East 2 or if they market their production themselves or outsource NGL marketing to midstream companies," Trotsenko wrote.

Energy Transfer Partners LP's trouble-plagued Mariner East 2, a new 354,000 bbl/d line connecting western Pennsylvania wells to a terminal outside Philadelphia for export overseas, missed a third-quarter in-service date because it lacked new authorizations requested by state regulators after fluid spills and sinkholes. Mariner East 2 is expected to start service in the fourth quarter, developers have said.

"NGLs are projected to account for over 30% of revenue for [Range] and [Antero Resources Corp.] and for about 20% of revenue for [Southwestern] and [Eclipse Resources Corp.] in 2019," Stifel said. "We continue to believe that companies with higher liquids exposure should outperform dry gas producers on a relative basis."

The northern tier counties of Pennsylvania saw permitting surge as Spanish gas producer Repsol SA pulled 17 permits for drilling in Tioga County on the New York border. The geology in Tioga County features the Marcellus and the deeper Utica Shale stacked atop one another, allowing drillers to exploit both plays with wells from the same pad. With a similar situation in Cameron County to the southwest, National Fuel Gas Co. pulled six permits to drill. National Fuel holds leases in the stacked play and has existing gathering and processing services from its Clermont gathering system. While National Fuel has not been idle — it pulled 11 permits the previous year — Repsol's activity marked a sharp uptick in the region. It was due to the recent introduction of a second rig, according to a company presentation.