January in New York can be highly variable, but the outlook from the 11th annual BMO Capital Markets Unconventional Resource Conference was clear and cold-eyed. Exploration and production independents are planning modest drilling programs and have newfound appreciation for their midstream operations as 2014 gets going. The BMO event regularly gets a good cross-section of oil and gas companies in size, structure and midstream integration, so it is a reliable early indicator of how at least the first part of any new year is likely to play out.
Sangfroid would characterize the upstream outlook.
There was no sign of the giddiness that marked the recent break-out years of the shale bonanza. Executives were quick to detail how they were limiting drilling to in-fill or step-outs, and were willing to rationalize their portfolios.
James Trimble, president and chief executive of PDC Energy, said his firm was laying down its last rig in the Marcellus, but was still focused on big Niobrara processing plans. Robert Turnham, president and chief operating officer of Goodrich Petroleum noted, “If our Tuscaloosa Marine shale plays out the way we expect, that would be our oil leg, making selling Eagle Ford acreage somewhat more likely.”
There was also abounding love for the midstream. Those producers with their own processing and pipes were clear they were happy to have them and would not consider divestitures. Those producers dependent on midstream operators went to great lengths to laud their partners.
When asked about selling midstream assets to raise development capital, Steven Mueller, president and chief executive of Southwestern Energy, said, “it could be a source if we really needed big and quick capital, but we have a very clean balance sheet so that would not be the first option. We like our midstream exactly where it is, and there is no impetus to change. Just as we are integrated upstream to sand and rigs, we are integrated with our midstream and we view that as an advantage. It avoids big cost swings for us down the road.”
Tom Stabley, chief executive of Rex Energy, praised processing and pipeline efforts to get Marcellus molecules to market.
“We are proud of our midstream partners and what they have enabled us to do. We had 90 MMcf per day processing capacity in Butler County, Pennsylvania, at the end of last year and that will expand in the second quarter to 190 MMcf per day. In takeaway, we had 85 MMcf per day firm transport, and we have been in the market to marry up that with our processing capacity. We will put out an update on that with our 2014 guidance in a few weeks.”
In particular, Stabley was cheered by the recovery in propane prices, from 70 to 80 cents per gallon a year ago to $1.12 per gallon currently.
“Some of that is because of the cold weather, but also has a lot to do with the export facilities in the Gulf Coast and coming in the Northeast,” he said.
Luncheon keynote speaker Rusty Braziel, president of consultancy RBN Energy, concurred that there was a bright story for propane, but cautioned both upstream and midstream not to get carried away in liquids.
“We went from 100,000 bbl. per day of liquefied petroleum gas (LPG) exports historically to 400,000 bbl. per day at the end of last year, mostly from Enterprise and Targa. That was very good for propane. But now there is about 1.5 million bbl. per day of export capacity planned through 2018, which is more than the entire domestic production.”
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