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Ohio shale permit activity in November shows rush toward NGLs

Half of the permits issued in November for Ohio shale wells were in wet gas counties that yield significant amounts of NGLs — ethane, propane and butane — as producers try to capitalize on the better prices for liquids over range-bound dry natural gas.

Overall, Ohio shale drillers reduced their permitting activity 26% compared to November 2017, collecting or "pulling" 26 permits. That number was a slight increase over the 22 permits issued in October, according to the Ohio Department of Natural Resources.

The drop-off comes from the absence of Ohio activity by EQT Corp., the nation's top gas producer. Last November, while EQT was buying shale neighbor Rice Energy Inc., Rice pulled permits for nine wells. Since the merger, EQT has concentrated on drilling longer horizontal laterals for new wells in southwest Pennsylvania.

In anticipation of more pipeline capacity to move the liquids out of Ohio, the state's leading gas producer, Ascent Resources, pulled six of its 11 November permits in Guernsey and Harrison counties in the east central part of the state, away from the dry gas counties along the Ohio River.

Ohio's Department of Natural Resources also reported issuing seven permits to Chesapeake Energy Corp. in November, all in Harrison County, permits that will be assumed by the new operator of Chesapeake's Utica wells, Encino Energy LLC. Encino closed its purchase of Chesapeake's Utica assets at the end of October.

Chesapeake pioneered the Utica Shale, and its fingerprints are all over the play it has since departed. In addition to former Chesapeake personnel now working for new owner Encino, Ascent Resources is headed by the same team of executive and engineers who originally cracked the Utica while working for Chesapeake a decade ago.

If Energy Transfer LP-affiliate Sunoco Pipeline LP gets its problem-plagued Mariner East 2 pipeline opened by the end of the year or early 2019, NGL capacity out of Appalachia to higher-priced global markets will quintuple to more than 400,000 barrels per day compared to the 70,000-bbl/d Mariner East 1 line in operation. The parallel Mariner East 1 and 2 are designed to move NGLs from the Utica and western Marcellus shales to a port outside Philadelphia for export to Europe.

Energy Transfer commenced a binding open season for capacity on the 345,000-bbl/d Mariner East 2 line, timed to the line's promised completion before year's end. A Pennsylvania Public Utility Commission judge has pledged to rule on Dec. 11 on an emergency petition to shut both pipelines down for lack of adequate emergency planning. The same judge halted construction and operation of the Mariner lines in the spring, saying the evidence showed Sunoco was sacrificing safety in its haste to operate both pipelines.

If Energy Transfer cannot open Mariner East 2 on time, analysts warn of a coming crack-up between surging liquids production and a lack of capacity to fractionate, or separate the gas into distinct liquids much like oil is refined, and move production to market.

"Logistics are getting tighter in the Northeast due to E&Ps shifting their operations to more liquids-rich assets to take advantage of higher prices," energy research firm Drillinginfo Inc.'s senior financial analyst, Tyler Hoge, said Dec. 5. "We expect Mariner East 2 to turn online in the first quarter of 2019 and relieve these constraints by taking LPGs [liquid petroleum gas, composed primarily of propane and butane] to Marcus Hook for export."

"Production out of the region will likely remain flat until that time because of the combination of lower prices and these constraints," Hoge said. "The commissioning of the pipeline will result in higher netbacks throughout the region and country, with shippers on the pipeline potentially receiving a premium to Mont Belvieu [Texas] pricing."

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