Anadarko And EOG Could Be Close To Deal For New York Marcellus Shale

Includes: APC, EOG
by: Daniel Jennings


New York State’s Attorney General has expressed a willingness to work out a deal with Anadarko and EOG Resources.

The deal does not seem to affect Governor Andrew Cuomo’s moratorium on fracking in the Empire State.

Both Anadarko and EOG have fracking operations right across the state line from New York in Northern Pennsylvania.

Fracking still faces substantial legal obstacles in New York, including a court ruling that lets local governments ban the practice.

Both EOG Resources and Anadarko have displayed impressive revenue growth without New York State gas.

Anadarko Petroleum Corp (NYSE:APC) and EOG Resources (NYSE:EOG) might be one step closer to tapping New York State's Marcellus Shale. Bloomberg reported that the two companies have reached a deal to disclose information about fracking to the public with New York State Attorney General Eric Schneiderman.

The deal will not lift New York State's fracking ban, but it will require EOG and Anadarko to disclose data about fracking risks in SEC filings. The data released will include analyses of the effects of fracking on well water and potential risks from fracking. The agreement will end a probe that Schneiderman's office was conducting into oil and gas drillers.

It is not clear whether the deal will hasten Democratic Governor Andrew Cuomo's decision on a six-year moratorium on fracking in the Empire State that has been in place since 2008. The Attorney General's office refused to say whether it was working on similar deals with other oil and gas drillers.

Bloomberg did not say if Anadarko or EOG is planning to start drilling in New York. Anadarko has options on Marcellus Shale natural gas in the Delaware River Basin near the New York State/Pennsylvania line. A map on Anadarko's website shows its Marcellus Shale Play extending north of the New York State Line. Like Anadarko, EOG has an area of operation that extends right to the New York State line.

Strong Revenue Growth at Marcellus Producers

The interesting thing is that Anadarko and EOG may not need New York State. Both companies have reported substantial revenue growth without the Empire State's Marcellus Shale.

Anadarko reported a TTM revenue of $14.13 billion in June 2013; that grew to $17.47 billion in June 2014, making for an increase of $3.34 billion in just one year. EOG Resources reported a TTM revenue of $13.16 billion in June 2013 that grew to $15.56 billion by June 2014. That makes for a revenue increase of $2.4 billion.

EOG's largest operations are not in the Marcellus but in Texas' Eagle Ford formation. Seeking Alpha contributor Zoltan Ban noted that EOG is the largest producer in the Eagle Ford, where it produced 142,000 barrels a day in 2013. The San Antonio Business Journal reported that Eagle Ford production is supposed to increase by 35,000 barrels a day in November. EOG appears to be poised for growth based on its Eagle Ford operations alone.

Anadarko is also heavily invested in the Eagle Ford; in June 2014 it was running 10 drilling rigs in South Texas and planning to drill 400 wells there. The Economic Times reported that Anadarko is so happy with its Eagle Ford play that it has decided not to drill in Mexico, which has just opened up for oil exploration.

Getting permission to drill for natural gas in New York State could be very difficult even if Governor Cuomo lifts the fracking ban. In June the state's highest court ruled that cities and towns have the right to use zoning regulations to keep oil and gas operations out. The Wall Street Journal reported that 170 communities in the state have already outlawed fracking.

Marcellus Shale's producers' revenues are already growing without access to New York natural gas. They are already having success tapping other shale regions, such as the Eagle Ford. Drilling in New York State would simply be the icing on Anadarko and EOG's cake, not a major source of new revenue.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.