Seeking Alpha

Mike847

Mike847
Send Message
View as an RSS Feed
View Mike847's Comments BY TICKER:
Latest  |  Highest rated
  • Natural Gas Storage: End Of Season Storage Projections, Spring And Summer Injection Season Analysis And The Impact On Natural Gas Prices [View article]
    While the common wisdom about the current US natural gas picture claims that the low price of gas is caused by the new shale drilling technology, I think that the explanation is simple - a huge surge of hot money in 2009 - 2012 financed an explosion in dry gas drilling.

    After the collapse in natural gas prices in 2012, the oil and gas producers rapidly have shifted their drilling budgets from gas to oil. However there has been a backlog of previously drilled and capped wells especially in the Marcellus. The questions now is the number of these capped wells still remaining.

    Considering the high depletion rates of shale wells, increased production from new wells is needed to counter depletion. After the backlog of capped wells is exhausted, then where is the surge of investment in new drilling to compensate for depletion?

    The answer from the oil and gas producers to their investors in their quarterly reports are that investment will continue into oil in 2014 unless there are sustained gas prices above $6 mmBTU.

    It seems that the analysts discount the oil and gas producers quarterly report statements in making their predictions for natural gas production in 2014.

    There will be no new investment surge in dry gas production so natural gas prices need to equalize closer to their historic 10 to 1 relationship with oil rather than the 20 to 1 relationship now.
    Mar 12 01:23 PM | 3 Likes Like |Link to Comment
  • Natural Gas Supplies Fall To Critical Level: How Bulls And Bears See The Market [View article]
    Ultra Petroleum (UPL) reported today and discussed their move towards oil from gas and less drilling for dry gas in the Marcellus.

    The CEO even raised the option of selling the Marcellus dry gas properties since the return on investment in the Marcellus is not as great as the Wyoming oil and gas properties.

    UPL is one of the lowest cost natural gas producers so this discussion is a signal that the economics of natural gas are poor and the idea that there will be a flood of natural gas production in 2014 will not happen.

    Actually I can see more reductions in natural gas drilling in 2014 as the producers finally get their chance to bust the natural gas market and get prices to the profitable level of $6+.
    Feb 20 11:51 PM | 3 Likes Like |Link to Comment
  • Natural Gas: Will Low Inventory And Low Rig Counts Balance The Market? [View article]
    If you really want to complete your analysis of the natural gas markets, I suggest that you look at the depletion rates in each of these shale fields.

    Shale wells deplete about 50% in the first year so all these new wells coming online in the Marcellus are in their maximum depletion in 2014.

    Maybe you can do a new article on shale gas depletion rates for 2014 in each gas field.
    Feb 6 11:41 AM | 2 Likes Like |Link to Comment
  • James River Coal: High Risk For Bankruptcy Within 2 Quarters [View article]
    On January 9, 2014 James River Coal Company (the “Company”) entered into a First Amendment to Second Amended and Restated Revolving Credit Agreement (the “First Amendment”) by and among the Company, certain of its subsidiaries, the lenders party thereto (the “Lenders”) and General Electric Capital Corporation as administrative agent for the Lenders and as collateral agent for the Lenders, pursuant to which, among other things, the definition of “Trigger Event Period” was modified. Under the prior definition a “Trigger Event Period” commenced when the sum of the Company’s Unrestricted Cash (as defined in the Amended and Restated Credit Agreement) and Availability (as defined in the Amended and Restated Credit Agreement) was less than $35,000,000 and ended when the sum of Unrestricted Cash and Availability for a period of ninety (90) consecutive days equaled or exceeded $35,000,000. The First Amendment deleted from the “Trigger Event Period” definition in each instance “$35,000,000” and inserted in each instance “$23,000,000.”
    Jan 26 12:08 PM | Likes Like |Link to Comment
  • Marcellus Shale Sees Large Increase In Legacy Production Decline [View article]
    I think that this Marcellus backlog is the key issue in making a prediction of 2014 production.

    1. What percentage of the 2013 production related to the backlog of previously drilled and capped wells brought into production in 2013?
    2. What is the current backlog of wells in the Marcellus awaiting pipelines?
    3. When will this backlog disappear in 2014?

    Basically the issue is that the backlog of wells drilled in 2012 and earlier supported the production surge in 2013. Without a backlog will new drilling allow for Marcellus 2014 production to compensate for the 50% annual depletion in the first year of production?

    Just extrapolating 2013 production increases into 2014 on a trend line will not be accurate unless this backlog issue is examined.
    Jan 24 02:32 PM | 1 Like Like |Link to Comment
  • Marcellus Shale Sees Large Increase In Legacy Production Decline [View article]
    The backlog of previously drilled and capped Marcellus wells coming into service as pipelines are completed should be considered when looking at trends in production.

    This issue has bee mentioned many times by the producers themselves in their quarterly conference call discussions.

    Have you considered the impact on production about a possible drop off when this backlog is depleted?
    Jan 24 12:26 PM | 1 Like Like |Link to Comment
  • Marcellus Shale Sees Large Increase In Legacy Production Decline [View article]
    Perhaps you could give us additional information on Marcellus depletion rates:

    1. What is the average percentage depletion rate for Marcellus wells in year 1 and year 2 of production?
    2. What percentage of the Marcellus wells now are in year 1 and year 2 of production?
    3. How many new Marcellus wells will be brought into production in 2014?
    4. Will the production from the new wells compensate for the production lost to depletion?

    The answers to these questions will help to determine if Marcellus production could go into decline in 2014.
    Jan 23 08:24 PM | 1 Like Like |Link to Comment
  • In Appalachia, coal struggles to compete with cheap natural gas [View news story]
    The decline of US coal has been primarily caused by the collapse of US natural gas prices since 2012.

    However current natural gas prices are not profitable for most oil and gas producers. Take a look at the recent Ultra Petroleum (UPL) quarterly conference call transcript for a discussion about the economics of natural gas drilling including the Marcellus.

    Basically higher natural gas prices are needed to maintain the current levels of US natural gas production considering the depletion rates of shale wells.

    In the Marcellus, the 2013 production boom results from the drilling surge of the past several years with a backlog of previously drilled and capped wells being brought into service as pipelines reach the wells. Until prices go higher, the producers are not planning to drill many new wells so depletion can reduce total Marcellus output beginning in 2014.

    Once natural gas prices rise about $5 mmBTU sometime in the near future, then the economics of coal versus natural gas for electricity production will shift in favor of coal (even CAPP).

    Exports of natural gas to Mexico via pipeline and LNG worldwide can increase natural gas prices even more in 2015 and beyond.

    Commodity markets are cyclical and the current low prices for natural gas and coal are correcting now as investment in both resources are being slashed by the producers.
    Dec 1 06:57 PM | 1 Like Like |Link to Comment
  • Natural Gas Bounces Off Support, Buy Ahead Of Potential Move To $4 [View article]
    The Weather Centre blog site just released the winter 2013 - 2014 forecast.

    Winter is predicted to be snowy and cold for the Midwest and East.

    Thursday, October 24, 2013

    Final 2013-2014 Winter Forecast

    "Slow start to winter should deliver harsh January, February for Central US..."
    - See more at: http://bit.ly/1amhJHs
    Oct 24 06:43 PM | Likes Like |Link to Comment
  • Natural Gas Producers Could Soon Be Victims Of Their Own Success [View article]
    An important issue which you neglect to mention is depletion of dry gas wells which is very high - 80% on average in the first 3 years.

    This means that wells brought into production in the last 18 months are depleting quickly.

    While Marcellus gas coming online with new pipelines has kept production flat in 2013, let's see what happens in 2014 with the impact of depletion and reduced dry gas drilling budgets for all dry gas fields including the Marcellus.
    Sep 24 07:06 PM | 4 Likes Like |Link to Comment
  • Chinese demand for coal is cooling [View news story]
    In a presentation to the Barclays CEO energy-power conference in New York last week, Peabody CEO Greg Boyce said annual global coal demand would grow from 7.7 billion tonnes in 2012 to almost 8.9 billion tonnes in 2017.

    He said growth in global steel production would require an additional 150 million tonnes of metallurgical coal in 2017, while new coal-fuelled generation of 425 gigawatts around the world would need an extra 1 billion-plus tonnes a year. More than 80 per cent of this projected growth would come from China and India.
    Sep 23 05:50 PM | 1 Like Like |Link to Comment
  • Peabody Energy: A Chinese Ban On Coal-Fired Plants Could Impact Australian Operations [View article]
    The real Chinese government conundrum is that the Chinese public wants improved air quality but the Chinese economy depends on coal for cheap power.

    The Chinese central government is making many pronouncements about fighting pollution, but then turns over the implementation to the provinces where politics and money rule. So far in 2013, there is almost no indication that China is turning away from coal in reality.

    Concerning imports of coal, the main target of environmentalists has been Indonesia which is China's largest source of imported coal. The Indonesian coal is lignite which is very low quality, cheap, and high polluting. While in May 2013 there were China regulations published which would ban imports of low quality coal, this effort has be quietly dropped and replaced with a 3% import tariff.

    The easiest method for China to improve pollution standards for coal fired plants would be to burn higher quality coal. This can easily be implemented if provincial authorities in coastal cities are willing to pay higher electricity rates for the more expensive coal.

    Any move to higher quality coal will be of great benefit to Peabody since Australia and the US are the major import sources for high quality thermal coal.
    Sep 18 12:28 PM | Likes Like |Link to Comment
  • A Dim Future For The Coal Industry And Exports [View article]
    The Chinese pollution control policies should have a positive impact on US exports of coal since the primary way that China will improve air quality is to use higher quality coal.

    There are draft standards for China coal imports proposed in May 2013 which would not allow low quality coal to be imported with a major impact on Indonesia (the number one source of China coal).

    Once these new coal standards are implemented then Australia and US high quality coal China imports will increase.

    The moves by the Asian countries to improve air quality should give a big boost to US exports of high quality coal. It should be noted that the high quality coals sells at a higher price per ton as well.
    Sep 16 11:56 AM | 5 Likes Like |Link to Comment
  • U.S. coal exports face waning Chinese demand: NY Times [View news story]
    The Chinese anti-pollution policies are extremely positive for exports of US coal with higher world coal prices soon.

    1. In May 2013 China announced new higher quality coal import standards. These new standards were protested by the Chinese utilities because of cost. While these new standards are being negotiated now, when implemented Indonesian coal will be almost eliminated with Australian and US high quality coal increasing.
    2. In 2013, there have been mass closings of small Chinese mines mainly because money has dried up to finance their operations. The Chinese government approves of this trend since these mines are dangerous, produce low quality coal, and are not economical. The announced policy is that larger mines are the future. These mine closings will increase China coal prices.
    3. Another important policy statement is that the transportation of coal needs to be rationalized. Coal should be burned closer to the mines in the interior west while the eastern coastal cities should import more coal.

    Basically, the Chinese are going to spend money to buy higher quality imported coal to reduce pollution. The primary sources of this coal will be Australia and the US.
    Sep 15 11:40 AM | 2 Likes Like |Link to Comment
  • Natural Gas Production Flatlines For 2 Years, $5 Price Needed To Grow Output [View article]
    Currently shale production of natural gas is about 90% from dry gas wells and 10% from oil and liquids wells. While associated gas is increasing, associated gas is not the reason for the current low natural gas prices.

    There is still the backlog of previously drilled wells from 2012 being brought into service especially in the Marcellus. Once this backlog of wells is gone, then the current drilling rates and investment are not sufficient to maintain production considering the high depletion rates of shale wells.

    While the lowest cost producers such as UPL and XCO have an all in cost of production around $3 mmBTU, the average cost of shale dry gas wells is over $6 mmBTU.

    The author is right that when production starts to decline, it will take $5 natural gas to incent producers to invest in dry gas wells especially with the alternative of investing in shale oil and liquids wells with oil at over $100 a barrel.

    If you read the oil and gas producer quarterly earnings transcripts you will find a common theme that they are not hedging much of their future gas production expecting gas prices to go higher soon.
    Sep 9 07:38 PM | 6 Likes Like |Link to Comment
COMMENTS STATS
64 Comments
107 Likes