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NEWSChaparral Seeking Chapter 11 Protection, while Lilis Looking to Unload Permian Assets

Anadarko Basin-focused Chaparral Energy Inc. said Monday a voluntary bankruptcy protection plan is in the offing to reduce debt and continue operating.

The Oklahoma City-based independent, which filed Chapter 11 petitions in U.S. Bankruptcy Court for the Dis-trict of Delaware, has a restructuring support agreement

(RSA) with funded debt holders to equitize $300 million of existing obligations and receive $175 million to bolster liquidity. Chaparral also filed for bankruptcy in 2016.

With creditor support, the restructuring should be “completed relatively quickly,” management said. Chapar-ral in May signaled it was facing restructuring as

OUTLOOKOil, Natural Gas Supply from Major U.S. Plays to Continue Falling in September, EIA Says

Oil and natural gas production from seven key U.S. onshore plays is set to decline in September, continuing a downtrend that began earlier this year, according to the latest Drilling Productivity Report (DPR) published Monday by the Energy Information Administration (EIA).

EIA expects oil production from the Anadarko, Ap-palachian, Denver Julesburg-Niobrara and Permian basins, as well as from the Bakken, Eagle Ford and Haynesville shales, to decline by a combined 19,000 b/d from August to September. Total output is expected to remain at just over 7.5 million b/d.

BAKKEN SHALENorth Dakota Bakken Oil Production Seen Rising as Shut-ins Come Back Online

North Dakota’s oil production remains depressed, but output is expected to exceed 1 million b/d in the coming months, according to the Department of Mineral Resources (DMR).

During a webinar to discuss the latest statistics, DMR Director Lynn Helms said he expects rising oil prices should lead to more shut-in wells being brought online in the coming months.

“We’re pretty confident production will increase 150,000-200,000 b/d in July and another 200,000-300,000 b/d will be added in August,” he said. “Those months’ numbers should look a lot better than May and June.”

Nearly all of the curtailed U.S. onshore oil

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Tuesday, August 18, 2020 - Vol. 10, No. 219

California Push for Oil, Gas Setbacks Stalls . . . . . . . . . . . . . . . . . . . . . . 2

Trade Date: Aug 17; Flow Date(s): Aug 18Basin/Region Range Avg Chg Vol Deals

Gulf CoastBarnett 2.170-2.230 2.200 -0.025 51 17Eagle Ford 2.150-2.320 2.245 -0.005 427 60Haynesville - E. TX 2.065-2.260 2.165 0.015 832 133Haynesville - N. LA 2.165-2.210 2.190 -0.010 66 16Permian1 0.200-2.000 0.720 -0.785 553 115Tuscaloosa Marine Shale 2.220-2.310 2.265 0.050 503 97

MidcontinentArkoma - Woodford 2.150-2.200 2.185 0.060 93 24Cana - Woodford 2.125-2.180 2.145 0.060 187 31Fayetteville 2.110-2.230 2.175 0.050 84 18Granite Wash* 2.000-2.150 2.120 0.085 609 132

NortheastMarcellus - NE PA2 1.160-1.450 1.295 0.185 388 99Marcellus - NE PA: Other3 1.200-1.450 1.355 0.210 207 57Marcellus - NE PA: Tenn4 1.160-1.280 1.220 0.155 182 42Marcellus - SW PA/WV 1.200-1.750 1.500 0.260 2,830 436Utica5 1.310-1.600 1.480 0.165 410 92

Rocky Mountains / WestBakken 2.080-2.080 2.080 -- 12 1Green River Basin* 2.400-2.760 2.585 0.170 1,669 307Niobrara-DJ6 2.030-2.130 2.100 0.050 273 34Piceance Basin* 2.080-2.190 2.145 0.080 394 58Uinta Basin* 2.100-2.185 2.135 0.040 195 24San Juan Basin* 2.120-2.400 2.280 0.160 527 101

Notes: Table represents fixed-price delivered-to pipeline transactions in USD/MMBtu. These data are comprised of deals that NGI believe represent trading activity in the respective resource plays and may contain gas that was produced from conventional formations. * Denotes a tight sands formation. Volumes may not total due to rounding. For more information, please see NGI’s Shale Price Methodology.

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Natural gas production from these seven regions is set to fall by 421 MMcf/d month/month, hovering at just over 79.2 Bcf/d, according to the agency.

While the majority of plays are expected to show declines, the Bakken and Permian are projected to grow output from August to September, according to EIA. The

agency expects Bakken oil production to increase by 7,000 b/d, with gas production rising by 15 MMcf/d; Permian oil output is expected to also grow 7,000 b/d, with gas output set to rise 25 MMcf/d.

Oil declines will come from the Anadarko (down 13,000 b/d), Appalachia (down 1,000 b/d), the Eagle Ford (down 14,000 b/d) and the Denver Julesburg-Niobrara (down 5,000 b/d).

Five of the seven plays are expected to post natu-ral gas production declines in September, with EIA’s projections showing the Anadarko down 126 MMcf/d, Appalachia down 203 MMcf/d, the Eagle Ford down 56 MMcf/d, the Haynesville down 62 MMcf/d and the Denver Julesburg-Niobrara down 14 MMcf/d.

EIA’s DPR uses recent data on the total number of operating drilling rigs, estimates of drilling productivity and estimated changes in production from existing wells to project changes in oil and gas production for the seven key regions.

The Covid-19 pandemic helped to derail …cont' pg. 3

REGULATORYCalifornia Push for Oil, Gas Setbacks Stalls

Efforts to buffer California resi-dents from oil and natural gas wells hit a logjam earlier this month in the legis-lature, leaving the issue to Gov. Gavin Newsom, who last year promised to fix what some view as a problem.

Assembly Bill 345 failed passage in the state Senate to establish minimum distances between wells and homes, playgrounds and schools. Originally proposed last year, the bill was criti-cized by among others the state’s largest producer, California Resources Corp., which earlier this summer sought vol-untary bankruptcy protection.

Groups have pressured Newsom to declare a mora-torium on new drilling and impose other restrictions to move more quickly to phase out fossil fuels.

The California Geologic Energy Management Divi-sion has an ongoing regulatory process to set rules for health and safety surrounding oil and gas extraction sites. Spokesperson Don Drysdale said another round of public

meetings is planned, with draft regulatory language ex-pected in late fall.

Aside from the public health-related regulations, environmental groups also have complained about hy-draulic fracturing. Drysdale said 48 permits have been approved for well stimulation, but only five jobs have been completed.

Oil, Natural Gas Supply from Major U.S. Plays to Continue Falling in September, EIA SaysContinued from Page 1

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volumes shut-in as Covid-19 hampered demand are set to return by the end of the third quarter amid stronger oil prices and a generally brighter market outlook, according

to a recent analysis by Rystad Energy.Still, prices need to improve above the current price

of around $42/bbl-plus, he said. Completion …cont' pg. 4

North Dakota Bakken Oil Production Seen Rising as Shut-ins Come Back OnlineContinued from Page 1

what had been more than three years of continuous produc-tion growth from the basins tracked in the DPR report. The falling output tracked in EIA’s DPR dataset has coincided with a precipitous drop in U.S. drilling rigs driven by the economic impacts of coronavirus mitigation efforts.

Primarily driven by the Permian, total drilled un-completed (DUC) wells in the seven regions increased from June to July, up to 7,685 from 7,655, EIA said. The

Permian added 40 DUCs to its total to reach 3,520 in July. The Bakken added six DUCs, rising to 902, while the Haynesville and Denver Julesburg-Niobrara each added one DUC month/month.

The Anadarko, Appalachia and Eagle Ford regions each depleted six DUCs from their respective backlogs month/month, EIA data show.

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crews also need to “go after” the state’s 900 drilled but uncompleted wells, aka DUCs. Otherwise, the potential improvement in output “will only be temporary, and it won’t be sustainable.”

June, the most recent month with complete statistics, showed oil production up by about 31,000 b/d month/

month at 26.7 million bbl (890,109 b/d) from 26.6 million bbl (859,362 b/d).

Natural gas production in June was 59.1 Bcf (1.97 Bcf/d), versus 59.7 Bcf (1.92 Bcf/d) in May.

North Dakota’s statewide gas capture rate was flat month/month in June at 89%. Bakken gas capture in-

creased to 90%, while Fort Berthold Bakken averaged 85% during the month.

The statewide gas flared volume from May to June decreased 1,400 Mcf/d to 215,282 Mcf/d, while the percent flared decreased to 11%, according to DMR.

The increased oil production during June occurred on Fort Berthold, up about 120% from May. Operators are restricting drilling to the “core of the core,” Helms said. Eleven rigs were operating in the Bakken, down from 17 in May.

Citing layoffs in the oilpatch of up to 10,700, Helms said the state is putting a number of idle oilfield workers to work plug-ging and reclaiming abandoned

Source: Tallgrass Energy LP, NGI calculations. For more info and daily 10am ET updates of this chart, go to natgasintel.com/rextracker.

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…cont' pg. 6

wells under the Bakken Restart program recently created.Fourteen workover rigs were placed in service last

week, with another seven expected to be up and running this month.

“That’s 400 people that we put back to work,” with

up to 600 or more expected to be back at work by Friday (Aug. 21), Helms said.

“We went from zero rigs plugging wells to 14 virtu-ally overnight,” said Helms.

Chaparral Seeking Chapter 11 Protection, while Lilis Looking to Unload Permian AssetsContinued from Page 1it released rigs contracted to drill wells and halted comple-tion activities following the historic plunge in demand in the wake of the coronavirus pandemic.

“While we have taken carefully measured and deci-sive action to address the challenges of 2020, the overall impact to the energy industry, including Chaparral, has been severe,” CEO Chuck Duginski said. “Therefore, after thorough analysis of our strategic options, we determined that a voluntary Chapter 11 filing with broad creditor support provides the best course for Chaparral and its stakeholders.

“A swift restructuring will right-size our balance sheet, improve our cost structure and best position Chaparral for the future. Importantly, we intend to maintain normal operations and meet all of our trade com-mitments timely and under their existing terms.”

As of last Friday (Aug. 14), Chaparral had about $32 million of cash on hand, considered sufficient to maintain “normal operations and meet its other financial commitments through-out the Chapter 11 restructuring period.”

The company plans to con-tinue to pay wages and benefits, make royalty/interest payments and pay suppliers/vendors. Ad-ditionally, Chaparral has termi-nated all outstanding derivative contracts, with proceeds from

the early termination totaling $28.2 million. The company used $24 million to pay down debt to $188.5 million.

Davis, Polk & Wardwell LLP is acting as legal coun-sel, while Rothschild & Co and Intrepid Partners LLC are acting as investment bankers; Opportune LLP

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is financial adviser. Sidley Austin LLP is acting as legal counsel to the board.

Meanwhile, Permian Basin pure-play Lilis Energy, which filed for protection in June with an RSA in hand, said entities affiliated with potential sponsor Värde Part-ners have declined to sponsor the reorganization.

The Fort Worth, TX-based independent said it plans to pursue buyers for most of the Permian assets, including in the Delaware sub-basin. The proposed bidding proce-dures were filed with the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. A hearing on selling the assets is set for Friday (Aug. 21).

“While the company is disappointed that the Värde Funds declined to pursue the new money investment contemplated by the RSA, we are confident there will be significant interest in the company’s highly contiguous block of approximately 16,000 net acres located in the deep and over-pressured portion of the Delaware Basin, including Winkler and Loving counties in Texas and Lea County in New Mexico,” CEO Joseph C. Daches said.

Vinson & Elkins LLP is serving as legal adviser, Barclays Capital is investment banker, and Opportune LLP is serving as restructuring adviser.

Shale Daily is published daily, each business day by Intelligence Press, Inc. (703) 318-8848.For breaking natural gas and shale news and more detailed pricing data, please visit us at: naturalgasintel.comFor a listing of all our premium newsletters and data services, please visit: naturalgasintel.com/premiumservicesExecutive Publisher: Dexter Steis (dexter.steis@natgasintel.com). Editor-In-Chief: Alex Steis (alex.steis@natgasintel.com). Managing Editor: Carolyn L. Davis (carolyn.davis@natgasintel.com). Analysts/ Price Editors: Patrick Rau, CFA (pat.rau@natgasintel.com), Nathan Harrison (nathan.harrison@natgasintel.com), Josiah Clinedinst (josiah.clinedinst@natgasintel.com). Markets Contributor: Jeremiah Shelor (jeremiah.shelor@natgasintel.com). Senior Editor – Markets: Leticia Gonzales (leticia.gonzales@natgasintel.com). Senior Editor – LNG: Jamison Cocklin (jamison.cocklin@natgasintel.com). Senior Editor – Mexico and Latin America: Christopher Lenton (christopher.lenton@natgasintel.com). Associate Editor – Markets: Kevin Dobbs (kevin.dobbs@natgasintel.com). Associate Editor: Andrew Baker (andrew.baker@natgasintel.com). Correspondents: Richard Nemec (rich.nemec@natgasintel.com), Gordon Jaremko (gordon.jaremko@natgasintel.com), Ronald Buchanan (ronald.buchanan@natgasintel.com), Eduardo Prud'homme (eduardo.prudhomme@natgasintel.com), Adam Williams (adam.williams@natgasintel.com), Ron Nissimov (ron.nissimov@natgasintel.com). Contact us: EDITORIAL: editorial@natgasintel.com; PRICING: prices@natgasintel.com; SUPPORT/SALES: info@natgasintel.com; ADVERTISE: adv@natgasintel.com.Intelligence Press, Inc. © Copyright 2020. Contents may not be reproduced, stored in a retrieval system, accessed by computer, or transmitted by any means without a site license or prior written permission of the publisher. DISCLAIMERS, LIMITATION OF WARRANTY AND LIABILITY: The Information contained in this newsletter (our Content) is intended as a professional reference tool. You are responsible for using professional judgment and for confirming and interpreting the data reported in our Content before using or relying on such information. OUR CONTENT IS PROVIDED "AS IS" AND WE DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR YOUR PARTICULAR PURPOSE. Although we believe our Content to be complete and accurate as described therein, we make no representations regarding completeness or accuracy. We will not be liable for any damage or loss of any kind arising out of or resulting from access or lack of access to or use of our Content, including but not limited to your reliance on it, errors in the data it contains, and data loss or corruption, regardless of whether such liability is based in tort, contract or otherwise. NGI’s full Subscriber Agreement is available here: naturalgasintel.com/TOS.

NGI's Shale Daily™

Tuesday, August 18, 2020Vol. 10, No. 219

ISSN 2158-8023 (print)