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INFRASTRUCTUREEarly 2021 Start Still Eyed for Permian Highway Natural Gas System
The 2 Bcf/d Permian Highway Project (PHP), de-signed to move West Texas supply to the Texas coast, remains on schedule for completion in early 2021, ac-cording to Kinder Morgan Inc.
In an opinion piece published last week in the Hous-ton Chronicle, CEO Steven Kean said management had
determined the “best option” for the 42-inch diameter, 430-mile system would be a two-mile reroute around the Blanco River.
In July, management indicated a reroute was under-way. At that time, the system was about 80% mechani-cally complete, with mainline compression 97%
PERMIAN BASINNatural Gas Services Sees Permian Horsepower Climbing, ‘Improving’ Opportunities in Lower 48
Lower 48 shut-ins are coming back online, bringing a renewed call for more horsepower as operators complete wells, with “stable to modestly improving” activity to the end of the year, the chief of Natural Gas Services Group Inc. (NGSG) said Tuesday.
CEO Stephen Taylor discussed the second quarter results during a conference call. The Midland, TX-based operator sells and leases natural gas compression equip-ment to complete wells across the Lower 48.
Customers are slowly coming around, with a big order underway for the Permian Basin, Taylor
REGULATORYNew Mexico Court Upholds BLM Oil, Gas Auctions, but Urges Public Participation in Future Sales
A New Mexico district court on Tuesday said recent oil and gas auctions held by federal authorities were prop-erly conducted, but it said the public must be allowed to participate in future sales.
The U.S. District Court for the District of New Mexico overall ruled against WildEarth Guardians, which challenged approval by the Department of Interior’s Bu-reau of Land Management (BLM) for three oil and gas lease sales across more than 68,200 acres of federal land (No. 1:19-cv-00505-RB-SCY).
The environmental advocacy group had filed the law-suit against Interior Secretary David Bernhardt,
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Thursday, August 20, 2020 - Vol. 10, No. 221
Enbridge Begins Work on Contested Line 5 Crude Project Tunnel. . . . . 2
Trade Date: Aug 19; Flow Date(s): Aug 20Basin/Region Range Avg Chg Vol Deals
Gulf CoastBarnett 2.240-2.280 2.275 -0.015 37 12Eagle Ford 2.280-2.430 2.340 0.015 351 62Haynesville - E. TX 2.120-2.280 2.245 0.025 836 137Haynesville - N. LA 2.240-2.325 2.285 0.020 71 18Permian1 1.500-2.050 1.680 0.075 741 158Tuscaloosa Marine Shale 2.310-2.355 2.335 -0.010 326 60
MidcontinentArkoma - Woodford 2.090-2.200 2.105 -0.125 128 28Cana - Woodford 2.100-2.165 2.130 -0.100 117 14Fayetteville 2.100-2.240 2.190 -0.030 66 26Granite Wash* 2.070-2.185 2.110 -0.050 436 86
NortheastMarcellus - NE PA2 1.000-1.230 1.145 -0.110 446 91Marcellus - NE PA: Other3 1.000-1.230 1.160 -0.115 381 77Marcellus - NE PA: Tenn4 1.050-1.090 1.065 -0.120 65 14Marcellus - SW PA/WV 1.010-1.450 1.145 -0.275 2,176 421Utica5 1.100-1.850 1.625 0.175 307 57
Rocky Mountains / WestBakken 2.090-2.090 2.090 -0.005 12 1Green River Basin* 2.270-2.460 2.365 -0.025 958 164Niobrara-DJ6 2.130-2.170 2.155 0.000 500 65Piceance Basin* 2.220-2.320 2.280 0.020 330 58Uinta Basin* 2.240-2.310 2.270 0.010 162 19San Juan Basin* 2.280-2.450 2.350 0.020 620 119
Notes: Table represents fixed-price delivered-to pipeline transactions in USD/MMBtu. These data are comprised of deals that NGI believe represent trading activity in the respective resource plays and may contain gas that was produced from conventional formations. * Denotes a tight sands formation. Volumes may not total due to rounding. For more information, please see NGI’s Shale Price Methodology.
’s SHALE DAILY TMThursday, August 20, 2020
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said. While conditions to the end of 2020 look challeng-ing, “we do not believe it can be worse than what we experienced in the first half of the year...There are some modestly encouraging signs on the horizon...With a stable to modestly improving operating environment, we believe
there will be opportunities in the balance of the year and even more as we turn the page into 2021.”
Commodity prices “have improved from the trough,” but “they remain significantly below levels that will spur significant oilfield activity,” he said. “While …cont' pg. 3
INFRASTRUCTUREEnbridge Begins Work on Contested Line 5 Crude Project Tunnel
While most of the $500 million safety project still requires state approvals, Cal-gary-based Enbridge Inc. has started work on tunnels for water crossings of its contested 540,000 b/d Line 5.
Deliveries have begun through a $20 million tunnel that replaced a 66-year-old riverbed trench. The tunnel consists of new pipe in a tube 2,814 feet long and 30 feet beneath the St. Clair River between Port Huron in Michigan and Sarnia in Ontario.
Line 5 also has faced legal hurdles in Wisconsin. Enbridge has secured landowner agreements to a right-of-way that steers a 40-mile detour around the reservation of the Bad River Band of Lake Superior Chippewa. The tribe had filed a lawsuit that demanded Line 5 be removed and damages of $45 million. The new right-of-way deals avoided a court fight and a regulatory battle over construc-tion on property outside the native territory.
Strife continues in Michigan over Line 5, which carries natural gas liquids and oil to the U.S. Midwest and Central Canada. Michigan Gov. Gretchen Whitmer and At-torney General Dana Nessel won office in late 2018 on a platform that called for shutting down Line 5.
A verdict has yet to be issued by Michigan’s Ingham County Court in Lansing on a lawsuit that seeks to cancel a 1953 state easement allowing construction of a four-mile leg of Line 5 between Lake Michigan and Lake Huron.
Whitmer and Nessel accepted a defeat in the Michi-gan Court of Appeals, which rejected their claim that an agreement with the former administration to put the straits crossing in a tunnel was unconstitutional. A deadline for further appeal passed without action.
The battle of Line 5 moves next to the Michigan
Public Service Commission. Whitmer appointed Chair Dan Scripps and commissioner Tremaine Phillips. Com-missioner Sally Talberg, who was appointed by the former Republican governor, is set to step down in 2021. A public hearing on the Line 5 tunnel is set for Monday (Aug. 24).
“Enbridge’s Line 5 Project,” said the commission, “involves significant factual and policy questions and complex legal determinations that can only be resolved with the benefit of discovery, comprehensive testimony and evidence, and a well-developed record in a contested case proceeding.”
Natural Gas Services Sees Permian Horsepower Climbing, ‘Improving’ Opportunities in Lower 48Continued from Page 1
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business has improved, the pace has been slow and inconsistent, a trend we expect to continue, but gradually improve, to the balance of the year.”
There was a “modest increase” in unit and horsepower utilization in June, and levels remained stable in July as oil prices stabilized and more shut-in production was restored. A recent rental order in the Permian that is expected to cost more than $6 million has allowed NGSG to set capital expen-ditures for the last half of 2020 at $8-10 million.
The Permian continues to be the “center of the world” for work, Taylor told analysts. About 60% of the new compression is classified as “large horsepower,” he said.
’s SHALE DAILY TMThursday, August 20, 2020
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The sales backlog at the end of June was $1.3 mil-lion, down from $1.4 million at the end of March. Another $400,000 was added to the backlog in August, Taylor noted.
“Our customers’ capital budgets continue to be con-strained, and we expect sales revenues to remain soft in the coming months as companies favor short-term rental commitments over more permanent capital spending,” Taylor said.
NGSG at the end of June had 2,335 compressor pack-ages in its fleet, down from 2,572 units in mid-2019. Since last year, 327 units have been retired, representing 40,000 hp, mostly smaller units. However, by adding more large equipment since a year ago, the total fleet has risen by 8% to almost 447,000 hp, versus 414,000 hp in June 2019.
“This reflects the addition of 58 high hp compres-sors, representing 68,500 hp to the fleet over the past 12 months,” Taylor said. About 40% is classified as large equipment.
“This is one of the advantages of moving into large horsepower offerings…
“Compared to small and medium horsepower, larger
machines tend to fare better in a downturn. This portion of our rental fleet provides a measure of stability when encountering periods of depressed activity. And I think the advantage this quarter is apparent improvement.”
Horsepower utilization in 2Q2020 was 64%, versus 60% a year ago and 68% in 1Q2020. Unit base utilization was 55% in 2Q2020, compared with 53% in 2Q2019 and 60% in 1Q2020.
Total gross margins fell by 12.6% year/year to $2.7 million. Increased rental revenue and higher rental mar-gins offset some of the sales loss, with sequential margins improving by 30.6%. NGSG also saw improved labor efficiencies in the fabrication facilities, while the rental margins climbed while maintenance and repair expenses fell. Still, sales revenue declined 65.5% year/year because of reduced compressor sales, offset by an 11.5% improve-ment in rental revenue.
More quarterly earnings coverage by NGI can be found here.
“To demonstrate the volatility we’ve seen in the sec-ond quarter, our churn, which is a dimensionless metric that is calculated by dividing the number of
Source: Tallgrass Energy LP, NGI calculations. For more info and daily 10am ET updates of this chart, go to natgasintel.com/rextracker.
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’s SHALE DAILY TMThursday, August 20, 2020
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rental units set by the number of rental units returned in the given period, was 0.1 in April, 0.6 in May and 1.9 in June,” Taylor said.
“Any number greater than 1.0 indicates unit growth, so we’ve seen quite a variation in activity in only three
months, from equipment being shut-in and returned...to a total turn of events a couple of months later. As of the end of June, we have had a bit more than half of the rental units that were shut-in return to service, and we anticipate the balance to come back online over the course of this year.”
The “ferocity and speed” of the downturn “was atypical of what we normally experi-ence when moving into times of depressed activity,” Taylor said. “Usually, loan discount is the name of the game. Crude drops over time, various discounts are negotiated over many months, and there’s generally time to ad-just to a declining market.
“There was no time to ad-just with this.” Instead of the usual negotiated rate reductions, “some revenue just vaporized overnight.”
The industry trough may be in the rear-view mirror, but “we think it will take the balance of the year to get back close to what we lost. The speed at which the business directed down and then back up demonstrates the resil-ience of our field organization and our ability to quickly adjust to unanticipated conditions.”
Net income was $165,000 (1 cent/share) in 2Q2020, versus year-ago profits of $327,000 (2 cents). Revenue fell to $17.4 million from $19.9 million.
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New Mexico Court Upholds BLM Oil, Gas Auctions, but Urges Public Participation in Future SalesContinued from Page 1in his capacity as head of BLM. The American Petro-leum Institute and the Western Energy Alliance joined as intervenor-defendants.
WildEarth had requested BLM’s authority to is-sue leases be vacated for recent auctions, claiming the
leases contravened the National Environmental Policy Act (NEPA), the Federal Land Policy and Management Act (FLPMA) and the Administrative Procedure Act (APA). Generally, WildEarth claimed that BLM failed to adequately assess the environmental impact
’s SHALE DAILY TMThursday, August 20, 2020
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of cumulative oil and gas development.The plaintiff contended that BLM failed to perform
adequate analyses before the sales were approved in 2017 and 2018. Authorities “did not account for the cumula-tive environmental effects of existing development in the region and failed to frame the auctions within the broader global climate crisis,” the court filing noted.
However, the court deferred to BLM’s decision making, citing the APA. In addition, the NEPA “does not require that BLM perform specific tests to measure environmental impact,” said the justices.
“After considering the parties’ briefs and the ex-tensive administrative record, the court recalls the final chapter of Rachel Carson’s seminal Silent Spring, where she warns that we stand at a fork in the road. One path leads toward environmental intervention; the other toward the status quo…
“However dire this fork might seem, only policymak-ers are empowered to choose which of these two paths to take. The court’s role is simply to ensure that once that decision is made, the parties stay within the guardrails of the chosen path.”
New Mexico’s Carlsbad and Permian Basin oil and gas resources make the state one of the largest develop-ments in the country, the court noted.
“As such, this growth will provoke strong reactions from those who see it as an economic boon to the area, and those who believe that the oil and gas industry is a threat to the environment. Amid these tensions, the court has a simple role: to apply the law as it stands, without comment on the underlying policies.”
Courts historically have deferred to a federal agency’s interpretation of statutes it is tasked with enforcing, the district court judges noted. “As long as the environ-mental impact is sufficiently considered and the record
demonstrates that the agencies in question followed the NEPA procedures...the court will not second-guess the wisdom of the ultimate decision.”
BLM, said the court, complied with NEPA “when it took a hard look at how its leasing authorizations would cumulatively affect the regional and global environment, air quality and water quality. BLM suffi-ciently accounted for the cumulative effect of oil and gas development in the region, and it was not required to use specific climate change methodologies to assess this impact.”
WildEarth’s lawsuit had suggested BLM should have applied the cost of carbon protocol to determine the “project’s contribution to costs associated with global climate change.” However, the court ruled that BLM was not required to apply a “social cost carbon protocol” in evaluating the lease sales.
The court, in a 47-page opinion by Senior Judge Robert C. Brack, also found that BLM had appropriately considered the impact on air quality as well as the water quantity/quality in approving the lease sales. BLM also had “reasonably determined” that no environmental im-pact statement was needed.
However, the court ruled that WildEarth had stand-ing to make the challenge. It also cited that among other things, BLM had altered language in the rules, which violated NEPA and the FLPMA.
“Because its members have offered evidence proving their enjoyment of the land, they are harmed when NEPA is not followed,” said the court. “Showing such a viola-tion could result in vacating certain leases, and an overall reduction in greenhouse gas emissions. That redress would increase members’ enjoyment of the land.”
The court also ruled in favor of WildEarth, which found BLM had altered language regarding public par-ticipation. Language in BLM’s Instruction Memorandum (IM) 2010-117 stated that “field offices will provide for public participation as of the review of parcels identified for potential leasing.” However, a IM 2018-034 altered the language to “may” from “will.”
That change was one in which the court took issue. A previous ruling “makes clear that alterations to existing regulations must undergo notice-and-comment rulemak-ing,” said the New Mexico court. In addition, the change made by the IM two years ago “violates several associated FLPMA and NEPA regulations.” …cont' pg. 7
’s SHALE DAILY TMThursday, August 20, 2020
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complete.Facing pushback from landowners and city/county
authorities in the iconic region better known as the Hill Country, measures have been taken to avoid impacting U.S. waterways and to reduce the number of crossings. Opposition grew in late March following an incident that caused a 36,000 gallon drilling fluid spill east of the town
Blanco.Blanco, about halfway between Austin and San An-
tonio, is a tourist mecca known for two swimming areas in the river, which were created by dams. The Blanco also is stocked with abundant rainbow trout provided by the Texas Parks and Wildlife Department.
After the drilling incident, Kinder management began “working to make it right with the affected com-munity immediately after it occurred,” Kean said. “Es-pecially in times like these, it is important to focus on facts and not fear…
“Those facts bear out what we all know: land-owners in Texas and across America have long lived in safe proximity to pipelines, enjoying the benefits of both affordable energy and a clean environment.”
After working on alter-natives with regional author-ities, the Railroad Commis-sion of Texas and the U.S. Army Corps of Engineers, management determined cir-cumventing the Blanco River would be the best option. The redesign would not require any deep drilling, according to Kean. …cont' pg. 8
However, “given the minor language alternation,” the court said “vacating the leases is a gross over-exaggeration and a mark of judicial overreach. Vacating these leases would result in shutting down 31 wells and New Mexico returning hundreds of millions of dollars.”
The IM 2018-034 “is by and large an expression of BLM’s internal policies and procedures. It does not pur-port to deviate from established laws and regulations, but rather to alter some of the agency’s internal policies and procedures to expedite the leasing of federal land for oil and gas development.”
However, the court said it would “strike the discretion-ary language and remind BLM that the law requires public participation in the process under NEPA, FLPMA and their companion regulations. Any desire to take the public out of the process must go through Congress as it pertains to NEPA and FLPMA or through notice-and-comment rulemaking with regard to their implementing regulations.”
The district court urged BLM to alter the language in the IM to ensure it was consistent with federal law. “A simple reversion to the language in IM 2010-117 would suffice.”
Early 2021 Start Still Eyed for Permian Highway Natural Gas SystemContinued from Page 1
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Shale Daily is published daily, each business day by Intelligence Press, Inc. (703) 318-8848.For breaking natural gas and shale news and more detailed pricing data, please visit us at: naturalgasintel.comFor a listing of all our premium newsletters and data services, please visit: naturalgasintel.com/premiumservicesExecutive Publisher: Dexter Steis ([email protected]). Editor-In-Chief: Alex Steis ([email protected]). Managing Editor: Carolyn L. Davis ([email protected]). Analysts/ Price Editors: Patrick Rau, CFA ([email protected]), Nathan Harrison ([email protected]), Josiah Clinedinst ([email protected]). Senior Editor – Markets: Leticia Gonzales ([email protected]). Senior Editor – LNG: Jamison Cocklin ([email protected]). Senior Editor – Mexico and Latin America: Christopher Lenton ([email protected]). Associate Editor – Markets: Kevin Dobbs ([email protected]). Associate Editor: Andrew Baker ([email protected]). Markets Contributor: Jeremiah Shelor ([email protected]). Correspondents: Richard Nemec ([email protected]), Gordon Jaremko ([email protected]), Ronald Buchanan ([email protected]), Eduardo Prud'homme ([email protected]), Adam Williams ([email protected]), Ron Nissimov ([email protected]). Contact us: EDITORIAL: [email protected]; PRICING: [email protected]; SUPPORT/SALES: [email protected]; ADVERTISE: [email protected] Press, Inc. © Copyright 2020. Contents may not be reproduced, stored in a retrieval system, accessed by computer, or transmitted by any means without a site license or prior written permission of the publisher. DISCLAIMERS, LIMITATION OF WARRANTY AND LIABILITY: The Information contained in this newsletter (our Content) is intended as a professional reference tool. You are responsible for using professional judgment and for confirming and interpreting the data reported in our Content before using or relying on such information. OUR CONTENT IS PROVIDED "AS IS" AND WE DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR YOUR PARTICULAR PURPOSE. Although we believe our Content to be complete and accurate as described therein, we make no representations regarding completeness or accuracy. We will not be liable for any damage or loss of any kind arising out of or resulting from access or lack of access to or use of our Content, including but not limited to your reliance on it, errors in the data it contains, and data loss or corruption, regardless of whether such liability is based in tort, contract or otherwise. NGI’s full Subscriber Agreement is available here: naturalgasintel.com/TOS.
NGI's Shale Daily™
Thursday, August 20, 2020Vol. 10, No. 221
ISSN 2158-8023 (print)
“The project is still expected to be placed in service in early 2021,” spokesperson Katherine Hill told NGI’s Shale Daily on Monday.
The Sierra Club said the reroute was not enough.“After multiple accidents and spills, Kinder Morgan is
picking up and trying to build along a new route, leaving an enormous amount of damage in its wake and putting a whole new group of landowners at risk,” said Sierra Club’s Roddy Hughes, senior campaign representative. “The only responsible path forward is for Kinder Morgan to shut down construction of this destructive pipeline once and for all.”
Meanwhile, the pipeline operator also is dealing with a natural gas pipeline incident in West Texas on the El Paso
Natural Gas Co. LLC system, EPNG. At 9:40 a.m. CT on Tuesday, natural gas was released and a fire was reported on an EPNG transmission line near Midland.
“The company isolated the impacted line segment, mobilized resources and is working with local emergency responders, including the Midland Fire Department,” spokesperson Lexey Long said. The fire was extinguished, and no injuries were reported.
Kinder plans to conduct a full investigation, and “there is positive information regarding the integrity of the pipeline based on recent tests,” according to Long. Consequently, one focus of the investigation will be on whether an outside force contributed to the incident, she said.
