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Shale Play Roundup

Bakken Shale — North Dakota/Montana Spurred by strong production results in the Bakken and Eagle Ford Shale regions, Marathon Oil reported a second-quarter 2018 profit of $96 million. This compares to a $145 million loss for the same period in 2017. Continental Resources, also led by strong Bakken results, reported a 26 percent increase year over year in its oil and gas production levels for the second quarter. The company also reported a quarterly profit of $243 million, a marked rise from the $63.6 million loss it reported for the second quarter of 2017.

Denver/Julesberg (DJ) Basin — Colorado Despite setting new production records in its Permian Basin operations, Noble Energy announced it would be shifting some drilling capital beginning in the third quarter from the Permian to its assets in the DJ Basin. The company attributed its shift in strategy to the looming pipeline takeaway capacity constraints in the Permian, along with its proven track record in extracting oil and gas from the Niobrara Shale formation. Williams Companies, Inc., one of the nation’s largest midstream companies, announced it was swapping its assets in the San Juan Basin of Northwest New Mexico to fund a new entry into the DJ Basin. Williams sold its San Juan assets to Houston-based Hilcorp for about $1.1 billion, and established a joint venture with private equity firm KKR & Co. to purchase Discovery Midstream from TPG Growth for about $1.2 billion.

Permian Basin — Texas/New Mexico Apache Corp. announced it is entering into a deal with investment firm Kayne Anderson to move its Permian Basin midstream assets into a newly-formed joint venture. Apache has invested heavily in its own pipeline and processing facilities to handle production from its major new oil and gas discovery at its Alpine High development and has been looking for partners to help shoulder the costs of the build out. Full field development of the Alpine High will take decades to complete. Midland producer Diamondback Energy announced a deal in early August to purchase the Permian Basin assets of Houston-based Ajax Resources for $1.2 billion. The Ajax acreage is located in Martin and Andrews counties, just north of the Midland/Odessa area. Barely a week after its deal with Ajax Resources, Diamondback announced the acquisition of Permian producer Energen for $9.2 billion. The combined $10.4 billion in new acquisitions leaves Diamondback ranking among the largest producers in the basin.

Eagle Ford Shale — Texas The acreage on which the first successful horizontal well was completed in the Eagle Ford Shale in October 2008 changed hands for the second time when BP announced it had acquired most of the U.S. shale assets owned by BHP Billiton for $10.5 billion. In addition to 236,000 highly productive acres of Eagle Ford leasehold, BP acquired large holdings in the Permian Basin and the Haynesville Shale region of Northwest Louisiana/East Texas. BHP, one of the world’s largest mining companies headquartered in Australia, had acquired Petrohawk in August 2011 for $12.1 billion as a part of its initial entry into the U.S. shale oil and gas market. While a relatively small part of its overall global business, the acquisition signals a new area of focus for BP, which is back on a growth path after seven years of working through the ramifications of the 2010 Macondo/Deepwater Horizon tragedy in the Gulf of Mexico.

Marcellus Shale — Pennsylvania/West Virginia/Ohio The Pennsylvania Department of Environmental Quality released a six-year study on air quality and found little impact or risk to residents from Marcellus Shale operations. More than 60 pollutants were analyzed from air samples in various parts of the state, and none were found to be at dangerous levels. The study found better air quality near the Marcellus sites than at a more urban comparison site in Washington County. It also found similar levels of hazardous air pollutants at a fruit orchard in Adams County, a comparison site outside the drilling area. This study is the fourth major air- and water-quality study issued in the Marcellus region since May — and dozens since Marcellus development began more than a decade ago — to find basically no public threat from oil and gas operations in the area. No word on how many more millions of dollars will be spent before academics and government agencies stop catering to unfounded concerns of anti-oil and gas activists.

Haynesville Shale — Louisiana/East Texas In its deal with BHP Billiton, BP also acquired 190,000 leasehold acres in the Haynesville region. Kallanish Energy quoted Wood Mackenzie’s senior analyst, Maxim Petrov, as saying he believes “the most valuable part of the package is BHP’s Eagle Ford position given its scale and attractive economics. But the Permian acreage offers the biggest longer-term upside, with some of the best breakevens in the play, well below $50/Bbl Brent.” “Similarly, the Haynesville assets have some of the most attractive shale gas economics outside the Marcellus, and nicely complement BP’s existing acreage in the play,” he added.

SCOOP/STACK Play — Oklahoma Continental Resources has formed a joint venture with Franco-Nevada Corp. to acquire and develop mineral interests in the SCOOP and STACK plays of central Oklahoma. Continental will form a new subsidiary as part of the deal, and Franco-Nevada will pay $220 million into it to offset its share of capital costs already allocated by Continental. On a go-forward basis, the two companies have committed to spend a combined $125 million per year over the next three years to acquire additional mineral interests. Blue Mountain Midstream, LLC, announced the startup of its Chisholm Trail III cryogenic gas plant and gathering system situated in the heart of the SCOOP/STACK region in mid-July. The plant is currently processing about 100 MMcf/d and has a full capacity of 250 MMcf/d.

About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at david@shalemag.com.

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