Our representative in the Marcellus Shale attended last week’s AADE Appalacian Basin Chapter luncheon.
He spoke to some folks about the impact of low oil prices on the Marcellus and Utica shale regions and got some great insight from those with boots on the ground.
Here’s what he found:
Marcellus Producers Remain Upbeat
Definitely no panic here – there were about 150 at AADE lunch, the mood was quite upbeat.
Present winter weather increases demand for gas for residential, commercial, industrial customers.
The move from coal to gas for power generation continues, with more coal mines being shut down every month.
Crude oil prices are half what they were, gas prices haven’t fallen nearly that much.
There aren’t many refineries here so low gasoline prices are thought to be good for the region.
Some areas like noise abatement fencing are booming as drillers move closer to populated areas.
Many producers were previously being very aggressive with 25-50% growth per year, so keeping 2015 at 2014 levels is a major cut without much pain.
Long – Term Contracts Ease Pain and Volatility
Most business here is done on long term contracts (year to year commitments), that slows the rate of cutbacks.
Most equipment is on long term lease, if you have to pay for it anyway, you might as well use it.
Contractors Sharing Pain with Producers
Contractors are offering 20-30% discounts vs. year ago, sharing the pain with producers.
Slowdown will weed out contractors that are undercapitalized or have quality / safety problems – that’s good for the industry long-term.
Midstream, Time to Catch Up!
Much of production is being held back by lack of midstream infrastructure – gathering and transmission line capacity.
A pause to catch our breath could be a good thing, lets pipeline folks catch up.
Wet gas production is still being held back mostly by lack of separation plant capacity.
These comments on midstream are consistent with news we highlighted in last week’s oil news summary.
PA switched from Republican to Democratic governor and new Sec of DEP – Most expect permitting restrictions and delay times for wells, pipelines and compressor stations will ease.
New PA governor proposed replacing the per well impact fee with a traditional severance tax, trying to cover $2B gap is state budget for 2015-16 – don’t know what will happen or what tax rate would be.
Quality, Not Quantity
In general, focus will be more on well quality and reserves, not just on number of wells drilled per year or amount of land under lease.
Slowdown will help the manpower shortage problems at well sites, technical folks, managers.
Slowdown in Marcellus / Utica is not as severe as elsewhere so our producers might do better when competing with other regions for capital allocations from HQ.
We hope this has been insightful, and look forward to your comments below!
Related Article: Upstream vs. Downstream
Read more about the difference between upstream and downstream segments of the oil and gas industry.