In the wake of an M&A boom among oil & gas companies as the industry continues to grow, commodity exports must grow along with it, providing a relief valve to this mounting production.
This week alone we saw two Marcellus-Utica deals: the acquisition of Blue Ridge Mountain Resources (BRMR) by Eclipse Resources (ECR) , and the acquisition of Rex Energy (REXXQ) by private equity-backed PennEnergy Resources.
PennEnergy Resources, LLC, a Pittsburgh, PA-based private natural gas producer backed by EnCap Investments focused on the Marcellus Shale, acquired substantially all the assets of Rex Energy Corporation for a cash purchase price of $600.5 million. Rexx had filed for bankruptcy protection on May 18, 2018.
At the same time, another Encap portfolio company, Eclipse Resources (ECR) , a natural gas producer focused on the Utica and Marcellus Shales of southeast Ohio, acquired Irving, Texas-based Blue Ridge Mountain Resources (BRMR) for $908 million in an all-stock transaction.
As production from Utica shale in Ohio climbs 42% year-over-year, the key to higher natural gas prices is not only demand from the East Coast consuming region, but most importantly, the exports of Liquified Natural Gas (LNG) shipped from the Dominion Cove Point Terminal operated by Dominion Energy (D) located on the Chesapeake Bay in Lusby, Maryland.
The terminal has a storage capacity of 14.6 billion cubic feet and a daily send-out capacity of 1.8 Bcf, and it connects, via its own pipeline, to the major Mid-Atlantic gas transmission systems of Transcontinental Gas Pipeline, operated by Williams (WMB) , the Columbia Gas Transmission pipeline, operated by Canada's TransCanada (TRP) , and Dominion Energy Transmission.
However, with LNG demand expected to rise significantly over the next 18 months, the U.S.- China trade wars have caused concern about the construction of several facilities in the U.S. for LNG exports. If these trade wars are unresolved, they could imperil the construction of 20 of such projects which have been approved or proposed.
On the crude oil export side, the Energy Information Administration (EIA) recently announced that the port district of Houston-Galveston began exporting more crude oil than it imported for the first time, the port handles more than 50% of all U.S. crude exports. Exports in April surpassed imports by 15,000 barrels a day, and by May the difference had grown to 470,000 barrels a day.
In West Texas, more than $1.4 billion in completions of oil and gas wells in the Permian Basin could be delayed or reallocated to other shale plays through 2019 due to pipeline capacity constraints. The Department of Energy estimated that in July 2018 there were 3,470 drilled but uncompleted (DUC) wells in the Permian Basin, the largest number of any oil and gas shale play in the country, 79.6% higher than the same period last year.
We think that for the U.S., Mexico is today's best trade partner, where these commodities could be shipped via pipeline or truck and there is where we see the opportunity.