The U.S. oil and gas industry emerged from a rough 2016 to find support from the White House and promising developments in the areas of regulation, asset optimization and infrastructure, the Babst Calland law firm said June 20 in its annual report examining the Appalachian shale industry.
Efficiency measures, consolidation and new business drove the oil and gas rebound, the law firm said, pointing to Trump administration executive orders that encouraged pipeline development, reduced federal oversight and increased access to oil and natural gas reserves on federal lands.
The report also delved into new challenges that the industry faces, including:
- Uncertainty created by divergent federal and state policies;
- Increased opposition by special interest groups to policies favorable to the energy sector; and
- Commodity prices that remain stubbornly low.
For the Marcellus and Utica shales, swelling production of natural gas and NGL is bolstering the Appalachian economies and expanding opportunities in the downstream sector, with Shell’s plans to build a cracker in Beaver County, Pa., the most prominent.
But while the new U.S. president’s energy policies may encourage the industry, Babst Calland emphasizes in its report that they do not go unchallenged.
When the president issued his order that every new regulation by an administrative agency be met with the repeal of two others, environmental groups countered by filing suit in federal court.
When the president moved to reverse Obama administration policies on climate change, Gov. Tom Wolf of Pennsylvania promised to implement methane reduction strategies anyway, including more rigorous standards for unconventional gas wells.
Local land-use proceedings “have become battles of health and safety experts,” the report said, “as anti-industry advocates, citing one-sided peer-reviewed literature, have asserted that adverse health effects have been caused by air emissions from unconventional natural gas development, notwithstanding the absence of actual air monitoring data demonstrating exceedances of regulatory standards.”
But regulations are not the only dynamic influencing the tri-state (Pennsylvania, Ohio, West Virginia) energy sector. Recent M&A activity has consolidated the producer population in the region, including the recent deal that bound EQT Corp. and Rice Energy Inc., the repositioning of the CONSOL Energy Inc. and Noble Energy Inc. JV, and Anadarko Petroleum Corp.’s exit from the Marcellus with its asset sale to Alta Marcellus Development LLC.
Consolidation can bring about efficiencies of operation, Babst Calland said, with many producers seeking to focus their operations geographically. Accomplishing this could mean selling or trading parcel on the periphery of operations, or in areas not easily developed or in areas that are simply not that productive. Pursuing a joint venture can also achieve consolidation and lower costs.
Babst Calland expects little immediate change in the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) pipeline safety regulations, but it does identify a trend of what might be called nuisance claims moving through courts in the tri-state region. The suits involve claims of adverse health effects caused by unconventional natural gas development. Though air quality data demonstrate that shale operations are safe, the legal action continues to work its way through the system.
Local government legal challenges to wellsite development continue to increase throughout the region, the report said. Operators continued to push back against local regulations that impeded, or prohibit operations entirely.