Energy Prospectus

Working gas in storage was 3,499 Bcf as of Friday, September 9, 2016, according to EIA estimates. This represents a net increase of 62 Bcf from the previous week. Stocks were 184 Bcf higher than last year at this time and 299 Bcf above the five-year average of 3,200 Bcf. At 3,499 Bcf, total working gas is above the five-year historical range.

This is the 19th week in a row that the net increase in storage has been below the 5-year average. If that is not a trend, then I do not know what a trend is.

During the last 19 weeks the gap between the storage level and the 5-year average has declined by 539 Bcf or 28.36 Bcf per week. Last week's increase was only 6 Bcf below the 5-year average, but we had a rather mild week of weather, so demand for power generation was probably down.

There are nine weeks left in the storage refill season before heating season draws begin (mid-November). Storage will probably be at or slightly above the 5-year average when the heating season begins. Keep in mind that demand for gas is much higher than it was five years ago and we now export over 4 Bcf per day.

Conclusion: A normal winter will push gas prices a lot higher. With El Nino gone, a normal to colder than normal winter is expected in the eastern half of the U.S.

This tells me that Total (a very sharp company) thinks U.S. natural gas prices are going higher.

Total exercises its preemption rights for 100% ownership of Barnett Shale assets

French oil-major Total (ticker: TOT) announced that it will exercise its preemption right to acquire the remaining 75% interest in its jointly held Barnett Shale operations in North Texas from Chesapeake Energy (ticker: CHK).

Total E&P USA, the company’s U.S. branch, has held 25% interest in the assets since December 2009. Total purchased its original 35% share of the assets for $800 million in cash, plus $1.45 billion toward the field’s development over six years.

The properties include approximately 215,000 net developed and undeveloped acres, wells, leases, minerals, buildings and properties, Total said in its press release. Production associated with the assets was 65 MBOEPD in 2016, a high percentage of which is natural gas.

Under the terms of the agreement, Chesapeake will pay $334 million to Williams (ticker: WMB), which gathers and processes 80% of the gas from the assets, to terminate its gathering agreement. Total will then pay $420 million to Williams for a fully restructured gas gathering agreement, according to the company’s statement, adding that TOT will pay an additional $138 million to be released from three other midstream contracts. Total’s new agreement will have a Henry Hub-based gathering rate instead of a fixed per-Mcf fee.

The French company has been cutting back on its shale production following the fall in oil prices, but the company feels the unique situation created by Chesapeake’s exit makes exercising their preemption rights the correct move.

“Over the six years that we have been involved in the Barnett, we have gained an in-depth understanding of the play and the technology,” said Total E&P USA President and CEO Jose Ignacio Sanz. “With the new conditions created by the exit of Chesapeake and the associated restructuring of the midstream contracts, we believe that we can extract significant value from the assets.”

Total also holds a 25% interest in the Chesapeake-operated Utica shale joint venture in Ohio. In the Gulf of Mexico, Total holds a 17% interest in the Tahiti field and a 33.3% interest in the Chinook field. Additionally, Total and Cobalt International Energy are partnering to explore for oil in the deep offshore Gulf of Mexico.