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Offbeat Side effect of rising oil drilling: Indigestion for gas frackers

20:15  13 june  2018
20:15  13 june  2018 Source:   online.wsj.com

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5 hours Oil Rises As Reality Dawns Over Venezuela's Export Crisis. 7 hours Iran is Getting Cooked. Going to be a Hot Summer. Nick Cunningham is a freelance writer on oil and gas , renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

Abtech's Smart Sponge helps frackers keep their water clean. Every well that gets drilled into shale formations or other tight reservoirs requires hydraulic fracturing before the oil and gas will flow.

Higher oil prices are helping many American shale drillers. But they are hurting companies that frack for natural gas.

As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas.

The average share price for the five top companies focused on the oil-rich Permian Basin in Texas and New Mexico are up more than 16% over the past year. Share prices for the top five producers focused on the Marcellus Shale in Appalachia, the country’s largest deposit of natural gas, are down more than 9%.

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The process of modern oil & gas extraction involves many steps - from directional drilling to well stimulation. The Marcellus is just one shale layer from which drillers are attempting to extract oil and natural gas .

These gas flares are a painful reminder of the consequences of oil drilling in Ecuador. Oil spills cannot completely avoided. Fish and other aquatic animals have increased levels of mercury which affect top predators and humans alike.

“It’s going to be tough for the Marcellus for a while,” said Brian Lidsky, managing director at oil-and-gas research firm PLS Inc. “There is just a tidal wave of gas coming out of the Permian.”

Like most shale drillers, those focused on natural gas in the Marcellus—a group that includes Cabot Oil & Gas Corp., EQT Corp., Range Resources Corp., Antero Resources Corp., and Southwestern Energy Co.—have been under investor pressure to live within their means, curtail excessive spending and improve returns. And they have come closer to doing that.

As a group, those companies spent about $106 million more than they made in the first quarter of 2018, according to a Wall Street Journal analysis of S&P Global Market Intelligence data. That is down from outspending cash flow by more than $274 million in the previous quarter and more than $735 million in first quarter of 2017.

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Employment in oil and gas extraction has risen 34% over the same time period. The other caveat is specific to the geology of fracking. Unlike traditional oil drilling , shale oil taps out very quickly. With the current price of oil , almost none of the frackers will be sinking new wells.

But the other side of fracking — what it might do to the food eaten by people living hundreds of miles from the nearest gas well In 2010, New York state imposed a moratorium on gas drilling , but if that were to be lifted, fracking would deal a triple whammy to Ken Jaffe’s farm, and thousands more like it.

Still, investors have been reluctant to put more money into gas drillers, and the reason is simple: Gas has been cheap for years and doesn’t look primed to go up soon.

Demand for natural gas is predicted to rise globally over the next decade as many countries switch from coal-fired power plants to gas-powered ones. However, that isn’t expected to solve gas drillers’ problems in the short term. U.S. gas production will outpace domestic consumption through 2019, according to the Energy Information Administration.

Natural-gas futures for July delivery closed at $2.939 a million British thermal units on Tuesday and have been below $4 since 2014. Prices passed $10 in 2008 and had stayed above the $4 mark before 2012. Many banks and analysts predict average prices will be below $3 for years. Meanwhile, U.S. oil prices have climbed to more than $65 a barrel for the first time since 2014.

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“We are not anti- oil and gas ,” Knife Chief said. What we are trying to push back against is the irresponsible production of oil and gas and the irresponsible disposal of waste water.” And we have warning sides and indications that our water ways are becoming more polluted.”

Worries mount after Pioneer reported its Permian wells are producing more gas than expected. The main issue for Wall Street is whether the Permian, where nearly half the rigs drilling for oil in the U.S. are located, will continue apace.

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“We are mostly a gas company, so it is fair that we are judged on the price of gas,” said William Way, the chief executive of Southwestern Energy, the third-largest gas producer in the contiguous U.S., after Exxon Mobil Corp. and Chesapeake Energy Corp.

Southwestern Energy’s strategy has been to cut costs and squeeze out efficiencies over the past two years while weathering the storm, according to Mr. Way. The road has been painful.

The company’s share price is about a 10th of what it was in 2010. The company was burdened with debt when Mr. Way became CEO in 2016—$4.6 billion in debt in December 2016—following an ill-timed acquisition of Marcellus acreage from Chesapeake in 2014 for nearly $5 billion, just before gas prices sank. That debt represented more than 83% of its total capital.

After he took the top role, Mr. Way quickly laid off 40% of the company’s staff and shut down all of its drilling rigs. “We had to reinvent ourselves as a $2.75 gas company instead of a $4.50 gas company,” he said.

Southwestern Energy is now seeking to sell all its assets in the Fayetteville shale in Arkansas, which analysts say could be worth more than $2 billion. The company will use a significant portion of that to pay down debt, now about $3.4 billion, and reinvest in the Marcellus, where it has begun drilling again, albeit with modest growth targets.

Some hold a measure of optimism.

Todd Heltman, a senior energy analyst at Neuberger Berman Group LLC, an asset-management firm that owns shares in shale producers, noted that prices for gas-focused shale companies have rebounded a bit since earlier this year, with investors having potentially seen a bottom for gas producers.

“They’re no longer growing for the sake of growing, and buying for the sake of buying,” Mr. Heltman said. “And I do think investors have gotten too bearish on natural gas.”

Higher oil prices are taking a toll on airline profits .
Airline profits are set to take a hit from the rise in oil prices and other increasing costs this year, according to the International Air Transport Association.The International Air Transport Association, a global industry group, has slashed its forecast for total profits for the global airline industry in 2018 by 12%.

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