Filloon's Update On Emerald Oil, June 30, 2015

Active rigs:

	6/30/2015	06/30/2014	06/30/2013	06/30/2012	06/30/2011
Active Rigs	75	191	189	215	173

RBN Energy: update on condensate by pipeline from the Utica to Canada.

Production of lease condensate at the wellhead and plant condensate from processing natural gas liquids (NGLs) has increased rapidly in the Ohio Utica over the past two years. Timely investment by local refiner Marathon and infrastructure developments to ship condensate to Gulf Coast refiners have proved the primary market for Utica condensate so far. The proximity of the region to diluent pipelines to Canada has also prompted infrastructure projects. Today we describe projects to deliver condensate to Alberta.

This blog continues analysis we initiated back in May looking at growing production of lease condensate in the liquids window of the Utica in Ohio. Utica condensate production is projected by the Energy Information Administration (EIA) Drilling Productivity Report to reach 66 Mb/d by July 2015. Production of plant condensate (aka, natural gasoline or pentane-plus) from natural gas processing plants in the northeast (many in the liquids rich Ohio Utica) is expected to be close to 50 Mb/d by the end of 2015. Midstream companies are investing in new infrastructure to transport these condensate range materials to market.

Our earlier analysis covered plans by the area’s largest refiner, Marathon Petroleum Company, to increase their consumption of condensate and light crude by bringing two new condensate splitters online and increasing light crude processing capacity at their Robinson, IL, refinery. Marathon’s logistics subsidiary, MPLX is building the 180 Mb/d Cornerstone pipeline – due online by the end of 2016 that will carry lease and plant condensate to several Midwest refineries. Another popular route to market is by barge on the Ohio River. MPLX is shipping condensate down the Ohio River to their Catlettsburg refinery in Kentucky. Refineries in the Louisiana Gulf Coast region are also receiving Utica condensate by barge via the Ohio and Mississippi Rivers. At least 4 barge terminals in Ohio and West Virginia are delivering these supplies. This time we look at plans to ship Utica condensate to Canada for use as diluent.

I can't possibly follow all this natural gas activity and the US shale oil revolution but look at all the jobs the industry is providing and the incredible energy advantage the US will have (and already has over) Europe and the rest of the world.

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Mike Filloon On Emerald Oil

Over at Seeking Alpha (archived)

• Emerald completed what might be its first coiled tubing frac, producing much better than other nearby completions.
• Much of Emerald's acreage is marginal which provides a cloudy economic picture going forward.
• Although its initial Pirate well was excellent, results have decreased significantly since.
• Billings, Burke, Divide, Stark, western McKenzie and Williams may all need $80/bbl oil to be economic. Operators in these areas could see headwinds going forward.
• We think there should be a focus on operators with core acreage near the Nesson Anticline. 

Location of leaseholds has become ever more important. When oil prices were around $100/bbl, marginal acreage still produced well. This has changed with price as very good acreage has become marginal. Some marginal areas have become uneconomic. The trick is identifying each. Oil prices have been hanging around the $60/bbl level. Although prices could hit $65 in the short term, we think a $50/bbl to $60/bbl range is likely. Looking at the US Oil Fund, it continues to trade around $20/share. It may be a short-term level of resistance. This is different from the $100/bbl realized prices many were expecting. This makes commodities an interesting investment. It isn't for the faint of heart, as huge swings can be seen over short periods of time. Many variables affect these prices. Currency fluctuations and changes in supply and demand are common occurrences. In truth, only a small few saw this coming. 2015 was supposed to be a great year for oil. Now we find many operators struggling to meet debt payments. Others may find this to be a great opportunity.