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Drillers spending, but production could lag; Cenovus, Conoco strike C$17.7B deal


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Drillers spending, but production could lag; Cenovus, Conoco strike C$17.7B deal

Appalachian drillers return to spending, but production may not follow suit

Several major independent Appalachian shale gas drillers expect to return to prior spending levels in 2017 after the 2016 dive in oil and gas prices had producers reining in CapEx, according to an S&P Global Market Intelligence analysis of company guidance.

There is a geographical split between spenders and savers in the group. Drillers in the liquids-rich portion of the Marcellus and Utica shales are adding dollars to their capital spending bucket to capture rising gas liquids prices, while drillers focused on the dry gas northeastern portion of the Marcellus are keeping spending flat while they wait for more pipeline capacity to come online.

Adding to their confidence, most Appalachian drillers have the bulk of their production hedged above $3/Mcf, guaranteeing some measure of positive cash flows even if prices do not lift. In most cases, the added spending on drilling and completions means increased expectations for gas and liquids production in 2017, but there are exceptions, particularly at producers that bring lots of their history to the table.

Cenovus to buy Canadian assets from Conoco in 'transformational' C$17.7B deal

Cenovus Energy Inc. reached an agreement to acquire a suite of ConocoPhillips Co.'s Canadian assets in a deal valued at C$17.7 billion.

Cenovus said after market hours on March 29 that it agreed to acquire Conoco's 50% stake in the FCCL Partnership, a joint venture between the two companies in the Canadian oil sands operated by Cenovus. The company is also buying Conoco's Deep Basin conventional assets in Alberta and British Columbia.

Conoco CEO Ryan Lance said in a separate statement that the agreement will help both sides. "This is a significant, win-win opportunity for ConocoPhillips and Cenovus," he said. "ConocoPhillips Canada will now focus exclusively on our Surmont oil sands and the liquids-rich Blueberry-Montney unconventional asset. ... This is truly a transformational event for both companies."

Pair of IPOs signal friendlier capital market for driller-backed midstream MLPs

Initial public offerings by Hess Midstream Partners LP and Antero Midstream Partners LP's general partner indicate a further thaw of capital markets for midstream master limited partnerships sponsored by oil and gas drillers after the sustained industry downturn from 2014 to 2016.

With higher, more stable commodity prices and increased U.S. production, the IPO market is now more receptive to this corner of the midstream sector than in 2015 and the first half of 2016, KPMG's Tony Bohnert said in an interview.

"If you look at Noble Midstream Partners LP, which was the first IPO to get done in well over a year, and now Antero and Hess on the heels of that, there are some unique dynamics to them," said Bohnert, KPMG's deal advisory partner for energy, natural resources and chemicals. "The main one being ... you've got a very strong general partner, an upstream oil and gas company that can dedicate production volumes to those assets so the public equity holders are comfortable that there's a continuous stream of revenue out there. ... It's got to be a built-in vehicle for continued growth, so that's the common denominator."

Buckeye Partners to launch open season for 400,000-bbl/d Permian crude pipeline

Buckeye Partners LP plans to launch a binding open season for a new pipeline delivering crude oil from the Permian Basin to Corpus Christi, Texas.

The proposed South Texas Gateway is designed to carry up to 400,000 barrels per day of crude and condensate from points in Wink and Midland, Texas, to Buckeye Texas Partners LLC's refining and export facilities in Corpus Christi.

The distribution system, called Buckeye Texas Market Center, would deliver crude from the Eagle Ford Shale and the Permian Basin to refining and processing markets in Corpus Christi. Buckeye may also construct another long-haul pipeline system for NGL takeaway to Buckeye Texas Partners' export facilities in Corpus Christi.

Top shale gas drillers starting 2017 with stronger protection against low prices

The largest independent gas producers in the U.S. have much more of their 2017 production hedged against prices below $3/MMBtu, an S&P Global Market Intelligence analysis of company financial reports found.

Nine of the nation's 10 biggest independent drillers increased the proportion of expected production that is hedged relative to 2016, and both drillers that had little or no production volumes hedged in early 2016 decided to buy protection against 2017 gas prices for most of their expected production. Southwestern Energy Co., for example, had 4% of its expected 2016 sales hedged by year-end 2015. As of Feb. 21, Southwestern had layered on enough hedges to protect 69% of its expected 2017 production volumes at an average price of $3.02/Mcf.

Many major gas U.S. producers, predominately supermajors such as the top U.S. producer Exxon Mobil Corp., do not hedge at all, while others are loath to spend the money to hedge protection because it caps their ability to get higher prices when the commodities market spikes in winter and summer. Appalachian producers, which routinely see spot prices $1/MMBtu lower than the benchmark Henry Hub, have historically been ready to protect their revenue by hedging.

Williams Partners closes sale of Delaware Basin assets to Anadarko, ETP

Williams Partners LP completed sales of its interest in a gas processing plant in the Delaware Basin to Anadarko Petroleum Corp. and Energy Transfer Partners LP for a total of $45 million, furthering a push out of the basin and into the Marcellus Shale.

Anadarko and ETP each received half of Williams Partners' one-third interest in Ranch Westex, owner of the Bone Springs processing plant, for $22.5 million in cash.

Williams Partners now owns 67.5% of the Rome and Liberty systems. Rome and Liberty, which has a current throughput of about 1.6 Bcf/d, is included in Williams Partners' Bradford Supply Hub in its Northeast gathering and processing segment.

CPV closes $700M in debt financing for gas plant

Competitive Power Ventures announced March 27 that it has completed $700 million in senior debt financing for a planned 1,050-MW gas plant near Pittsburgh.

The CPV Fairview Energy Center in Cambria County, Pa., is a planned natural gas and ethane-fueled, two-by-one, combined-cycle electric generating station that is scheduled to begin commercial operation in early 2020, CPV said in a news release.

Fairview Energy Center will sell its capacity into the PJM Interconnection market. CPV will also facilitate the cleanup of a brownfield site in Jackson Township, Pa., to prepare for Fairview's construction, according to the release.