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Linn Energy, LLC Message Board

  • rlp2451 rlp2451 Oct 21, 2012 8:44 AM Flag

    Why Linn Should Have Stayed in Marcellus and OUT of Bakken

    October 21, 2012 (multiple sources):
    Two independent financial firms say the Marcellus isn't just the biggest natural gas field in the country — it's the cheapest place for energy companies to drill.

    One of the reports adds that the Marcellus reserves that lie below parts of Pennsylvania, West Virginia, Ohio and New York are far larger than recent government estimates, while another said the powerful combination of resource, cost and location is altering natural gas prices and market trends across the nation.

    The Marcellus could contain "almost half of the current proven natural gas reserves in the U.S," a report from Standard & Poor's issued this week said.

    Another recent report from ITG Investment Research, a worldwide financial firm based in New York, found that a detailed analysis of Marcellus well production data suggested that federal government estimates of its reserves "are grossly understated," according

    The new information increases the likelihood that natural gas will be used for more and more energy needs, such as city buses, industrial use, and electric power generation, according to Manuj Nikhanj, the head of Energy Research at ITG. And though low wholesale prices have squeezed drilling companies' revenue, the S&P report says the Marcellus has the lowest production cost of any natural gas field in the nation, adding to the likelihood of a continued boom.

    "The amount of resource that's available at relatively low cost is fairly enormous," Nikhanj said.

    The Marcellus is a gas-rich formation thousands of feet below much of the four states, but current production is centered in Pennsylvania and West Virginia.

    Earlier this year, the federal Energy Information Administration sharply lowered its estimates of Marcellus reserves, from 410 trillion cubic feet down to 141 trillion cubic feet. That adjustment was widely reported, including by The Associated Press.

    But that lowered estimate doesn't correspond with actual well production, said Nikhanj. He said their analysis shows that the Marcellus contains about 330 trillion cubic feet of gas, more than double the size of the next largest field in the nation, the Eagle Ford in south Texas.

    Some financial firms and critics of gas drilling had suggested that the EIA estimates supported theories that Marcellus production might decline more rapidly than expected, and thus be far less profitable for energy companies. But Nikhanj said a review of actual Marcellus well data shows that on average they're producing more gas than expected, not less.

    Jonathan Cogan, a spokesman for the EIA, pointed out that its reports have always noted that Marcellus estimates "are likely to continue evolving as drilling continues and more information becomes publicly available." Serious drilling in the Marcellus began only a few years ago, and many areas still have few or no wells, which makes the task of estimating reserves more difficult.

    The S&P report said the growing output from the Marcellus is putting pressure on energy companies in Canada and the Rocky Mountains, which have traditionally exported large amounts of gas to the lucrative Northeast market. But it appears that in the near future, the Northeast will get most or all of its gas from the Marcellus.

    The S&P report also said Marcellus production also means there will likely be more and more pipeline construction in the Northeast.

    "As people get more comfortable with the total amount of resource that has now been discovered, as that starts to sink in, I think natural gas will continue to be a fuel of choice," Nikhanj said.

    Even critics of gas drilling should accept that it isn't going away, said the head of one leading Pennsylvania environmental group.

    "We should realize by now this is not going to be a short play. It's going to be here, probably for generations, because it's so productive," said George Jugovic Jr., president of PennFuture.

    That's a mixed blessing for environmental groups, Jugovic said.

    "It lengthens the horizon. It means that we have time to get it right because they're not going to be in here and out," Jugovic said of drilling companies, yet "at same time that it raises the imperative of getting our regulations in order."

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    • Current production volume from the Marcellus shale is a mere drop in the bucket compared with its potential reserves, but it's growing rapidly. For example, the Pennsylvania Department of Environmental Production (DEP) says natural gas production from the state's portion of the Marcellus shale increased to 4.4 billion cubic feet per day (bcf/d) in the first half of 2012 from less than 0.5 bcf/d in 2009. This dramatic growth has boosted total production in the Northeast to 7.8 bcf/d in July, compared with about 7.0 bcf/d in the first half of 2012. Startlingly, the average stood at just over 2.0 bcf/d in 2009.

      Energy market analytics company Bentek Energy LLC expects this rapid pace to continue and has projected that Northeast volumes will increase to more than 10 bcf/d in 2013 and climb to 17 bcf/d in 2017. Bentek's forecast notes that the Marcellus (and Utica) formations will account for 9.5 bcf/d of this production in 2013 and 16 bcf/d in 2017. In contrast, the EIA projects that total U.S. natural gas production will grow by about 1% per year through 2017. Rates of return in the Marcellus are significantly higher than for other key gas shale plays, including the Haynesville, Fayetteville, Barnett, Woodford, and Eagle Ford gas, due primarily to the lower finding, development and production costs associated with the Marcellus.

      Groups that stand to lose from the development of the Marcellus if they don't modify their strategies to offset a potential increase in business risk or reduce debt to limit the impact from potential cash flow declines on their financial risk profiles:
      •Long-haul pipeline companies that transport gas to the Northeast that are unlikely or unable to take backhaul volumes; and
      •E&P companies producing natural gas in the Rockies and/or Canada that are currently transporting gas to the Northeast.

      • 1 Reply to rlp2451
      • Flaring is the most uneconomcal part of gas drilling, and the EPA wants to end it by 2015.

        Towering drill rigs, rumbling tanker trucks, humming compressor engines and flares that can light up a night sky have created the sights and sounds of theMarcellus region's natural gas drilling boom.

        The rigs, trucks and compressors likely will roar on as drilling continues to expand, but the gas flares that have often marked a new well in a community may become more difficult for locals to find.

        "We don't like to flare," said J. Brett Harvey, CEO of Consol Energy Inc., which produces natural gas as well as coal. "We like to hook it up and sell it to your home." Consol is among the top ten producers in the Marcellus gas in Pennsylvania.

        Now, armed with new technology, drillers can do that, and under new pressure from environmental regulators, they'll be forced to by 2015. Flaring has been used as a safety mechanism and been a telltale sign of the industry's presence for most of its existence. It's a waste of gas and a waste of money, pumping pollution into the environment when at least some of it could be pumped out for sales and profits.

        The methane and volatile organic compounds released from drilling sites can exacerbate global warming and ozone problems. New shale drilling all over the country has led to a global four-year high in the amount of gas burned off as waste, according to World Bank data the news agency Reuters reported last week. That produces as much carbon pollution as the entire nation of France produces in one year, burning $100 billion worth of gas for no return, according to the report.

        "Some air quality problems and some climate problems are difficult and expensive to solve," said David McCabe, an atmospheric scientist and chemist at Clean Air Task Force, a Boston-based environmental group. "This is a problem that's feasible and cheap to solve."

        Flaring is used for many reasons, and not just by drillers, but by almost any industry that may have extra gas or fuel to burn off. That includes landfills, sewage treatment, chemical, refineries, coke and steel plants. Excess fuel needs to be released to prevent explosions and other accidents, and belching it out through a flare can burn off anywhere from 60 to 99 percent of the fuel's pollutants, experts said.

        Drillers use a flare when they don't have a pipeline ready -- during exploration or expedited drilling -- or when they haven't paid for equipment to separate gas from the large amounts of water that rise along with a well's initial gush. Drillers often need to test an area's resources before investing in pipelines, or don't want to plug a well to wait for the pipeline because of the risk that water could ruin the well, said Andrew Paterson, a technical expert at the industry group Marcellus Shale Coalition.

        Drillers do now have the technology to separate water from gas at the well site and other equipment to capture stray gas from tanks and valves there. That led environmental advocates to push for mandates.

        The Environmental Protection Agency will continue to allow flaring at exploratory wells -- where the expense of a pipeline connection may not be justified -- but drillers will have to capture what is now flared or allowed to vent from tanks by 2015.

    • Two quick points:

      If you check the gas price when Linn sold the Marcellus (spring 2008) you will notice that gas was selling between $9 & $11and when Linn was buying some large gas properties from BP the price of gas was only around $2.50.

      You might want check on the value(s) and the timing for the gas prices when Linn sold Marcellus property to XTO ....when gas was around 4 times higher than when Linn bought gas properties from BP.

      Oh, just forget to mention that?


      On your comment about the bakken:

      You continue to post partly incorrect information.

      You had posted that the rig count fell (which was correct) but you did not mention that the PRODUCTION in the Williston basin keeps INCREASING....and,

      to NEW RECORD LEVLES month after month.... See below....(NEW all-time high).

      You failed to explain how that could happen and implied that if the rig count went down that production would go down which is opposite to what actually happened.........

      SO,......please tell us why.

      Here is the actual production data posted from the North Dakota state website.....from AFTER the record number of 218 rigs were working in ND, and then fell to 186 and then went up slightly into the 190s.

      Lynn Helms
      NDIC Department of Mineral Resources

      Jul Oil 20,963,713 barrels = 676,249 barrels/day
      Aug Oil 21,735,166 barrels = 701,134 barrels/day (preliminary)(NEW all-time high)

      Jul Gas 22,295,369 MCF = 719,205 MCF/day
      Aug Gas 23,616,598 MCF = 761,826 MCF/day (preliminary)(NEW all-time high)

      Jul Producing Wells = 7,467
      Aug Producing Wells = 7,701 (preliminary)(NEW all-time high)

      Jul Permitting: 183 drilling and 0 seismic
      Aug Permitting: 261 drilling and 1 seismic
      Sep Permitting: 273 drilling and 0 seismic (NEW all-time high)

      Sentiment: Strong Buy

    • Still only a cut and paste job without the whole story?

      It seems that you might be a bit confused between 2008 & 2012?

      After 2008, Linn later went on to become the record holder in the Granite was for gas production which they still are.
      CHK has since moved into that area and holds the record breaking Hogshooter well.

      No Marcellus well production comes even close to either one.

      AND, Linn now produces from many layers/zones there including the Hogshooter OIL zone.....

      Hogshooter is above the gas layers in that area and less costly to drill.

      Marcellus and Utica are also very good areas but strategically, it was a very smart move for Linn.

      This below is part of the press release from 2008 (not 2012) when Linn sold the Marcellus.....and please notice who bought it from Linn.

      "April 15, 2008

      Linn Energy to Sell All of Its Interests in the Appalachian Basin, Including Its Marcellus Shale Acreage, to XTO Energy for $600 Million

      Linn Energy to Sell All of Its Interests in the Appalachian Basin, Including Its Marcellus Shale Acreage, to XTO Energy for $600 Million

      HOUSTON, April 15, 2008 (PRIME NEWSWIRE) -- Linn Energy, LLC (Nasdaq:LINE) announced today that it has agreed to sell all of its interests in oil and gas properties in the Appalachian Basin, including its Marcellus Shale acreage, to XTO Energy Inc. (NYSE:XTO) for cash consideration of $600 million, subject to closing adjustments. The Company will use proceeds to reduce indebtedness under its credit facility and anticipates closing on July 1, 2008. The properties include proved reserves, as estimated by a third-party engineering firm at December 31, 2007, of approximately 197 billion cubic feet of natural gas equivalent (99% natural gas) and currently produce 25 million cubic feet of natural gas equivalent per day.

      "Linn Energy's core strategy is to focus on low risk development opportunities, and recent enthusiasm regarding the prospective Marcellus Shale play provided the incentive for us to evaluate our holdings in Appalachia and determine their fit within our strategy and MLP structure," said Michael C. Linn, Chairman and Chief Executive Officer of Linn Energy. "A delineation of opportunities in the Marcellus will take time and successful exploration and development will require significant capital investment. We believe that monetizing our Appalachian assets has created significant value for our unitholders and that the sale represents full value for our Marcellus acreage and Appalachian proved reserves." "

      Sentiment: Strong Buy

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