November 2010 Archives

November 27, 2010

Texas Sunset Commission Makes Recommendations on Review of Railroad Commission

Texas' Sunset Advisory Commission has issued its Staff Reports on review of three of the state's most important regulatory agencies: the Texas Railroad Commission (RRC), the Texas Commission on Environmental Quality (TCEQ), and the Public Utility Commission (PUC). These reports will frame the debate on legislation to renew the mandates of these regulatory bodies in the coming legislative session. Landowners should be aware of the Sunset Commission's recommendations and be prepared to weigh in on those issues that affect landowners' interests. Links to the full staff reports of the Sunset Commission can be found on the Commission's website at http://www.sunset.state.tx.us/ . Below is a summary of some key facts and recommendations on the RRC.

Continue reading "Texas Sunset Commission Makes Recommendations on Review of Railroad Commission" »

November 17, 2010

Oil Patch News

Recent news items of interest:

Barnett Shale Well Reaches 5 Bcf

The XTO Energy - TRWD #H2H Well in Tarrant County has produced more than 5 Bcf of gas, the first Barnett Shale well to reach that milestone.  The well was completed in June 2005 with a 3,500-foot lateral. The well was drilled under a reservoir operated by the Tarrant Regional Water District, Eagle Mountain Lake, in northwest Tarrant County.  It still produces more than 1 mmcf per day. The well highlights the difference between community acceptance of horizontal drilling and fracing technology in Texas compared to fears that the technology will cause water contamination in New York State, which so far has banned such wells. The newly elected Attorney General for New York, Eric Schneiderman, has recently said he opposes use of hydraulic fracturing until he is convinced that it is safe: "Neither the state nor the federal government has determined that hydrofracking is a safe practice, and I will sue to make sure that no drilling takes place until those determinations have been made."

TCEQ Air Monitor Installed in Decatur

The Texas Commission on Environmental Quality has installed a continuous air monitoring device in Decatur, Texas to continuously sample and report air quality and measure 46 volatile organic compounds. It is one of five such devices sited in the Barnett Shale area. Each monitor costs up to $250,000, plus $100,000 per year to operate.  The data can be viewed on the TCEQ website, here: 

http://www.tceq.state.tx.us/compliance/monitoring/air/monops/agc/agc_barnett.html 

A map showing the locations of TCEQ air quality sampling locations may be found here:

http://www.tceq.state.tx.us/implementation/barnettshale/bshale-viewer

Chevron Buys into Marcellus Shale

Chevron Corporation announced that it has agreed to acquire Atlas Energy, which controlls 486,000 net acres in the Marcellus and 623,000 net acres in the Utica Shale. Atlas had previously made a joint venture with Reliance Industries Limited of India to develop its Marcellus leases. Chevron thereby joins Exxon Mobil (XTO acquisition) in buying into the domestic shale plays.

Halliburton Subpoenaed for Contents of Frac Fluid

The Environmental Protection Agency has issued a subpoena to Halliburton to obtain information on the chemical additives it uses in hydraulic fracturing fluids after Halliburton refused to voluntarily disclose the data.  EPA has asked nine oilfield service firms to disclose data on frac fluid, and only Halliburton refused to respond.

http://www.star-telegram.com/2010/11/09/2617267/epa-issues-subpoena-to-halliburton.html

Natural Gas In Storage Reaches Record

The U.S. Energy Information Administration has reported that natural gas in underground storage has reached 3.84 trillion cubic feet, a new record.  The EIA forecasts that gas production in the U.S. will reach 61.49 Bcf per day in 2010, the highest level since 1973.

Texas Crude Oil Production on the Rise

Texas oil production in September rose to 32.7 million barrels, an increase of 1.1 percent over September 2009. Oil production in Texas peaked at 3.4 million barrels per day in 1973, and declined to 979,000 barrels per day in 2003, where it has leveled off in recent years. Because of higher oil prices in relation to natural gas, companies have been switching from drilling gas wells to oil wells. Rigs drilling oil wells now account for 43% of the 1683 active rigs in the U.S., up from 33% a year ago.

Fort Worth City Council Increases Budget for Air Quality Study

Fort Worth will spend an additional $250,000, for a total of $900,000, on an air quality study to be conducted by Eastern Research Group, testing 75 percent of the wells in the city. ERG told the city council that 68 percent of the approximately 200 sites it has tested so far have shown detectable emissions that require further study.

http://www.star-telegram.com/2010/11/09/2619036/fort-worth-backs-extra-spending.html

Chesapeake Threatens Colleyville Council with Suit over Attempt to Regulate Pipelines

The Colleyville City Council has revised its drilling ordinance to give it authority over pipeline routes in the city limits. An attorney representing Texas Midstream Gas Services, a Chesapeake subsidiary, told the council that the ordinance conflicts with state and federal law governing pipeline safety issues. The issue of municipal regulation of oil and gas activity will be a topic for the upcoming Texas legislative session.

Dimock to Get Water Line

The village of Dimock in Pennsylvania has been much in the news since residents found their water wells charged with natural gas. Cabot Oil & Gas, which has been drilling wells in the area, has denied responsibility, but the Pennsylvania Department of Environmental Protection has concluded that Cabot's wells have charged the community's aquifer. Now Pennsylvania authorities have approved a project to construct a $12 million, six-mile municipal water line to supply drinking water to Dimock residents. The Pennsylvanid DEP has said it will sue Cabot if it refuses to pay for the water line.

 

November 3, 2010

Arthur Berman Does It Again

Arthur Berman, a geological consultant, has once again blasted the economics of gas shale plays -- this time the Marcellus.  At the annual conference sponsored by the Association for the Study of Peak Oil & Gas - USA, held on October 7-9 in Washington, D.C., Mr. Berman made a presentation: "Shale Gas--Abundance or Mirage? Why the Marcellus Shale Will Disappoint Expectations."  His power-point from that presentation may be found here:  Arthur Berman on Marcellus.pdf  Mr. Berman argues that only a small percentage of the areas now being touted as productive in shale plays -- the "core areas" are economic at any price; that even within the core areas, performance is not uniform and the geology is complex; that the wells are very expensive and the break-even gas price is as high as $8-$12/mcf; that reserves have been overstated by the companies in the plays; that the industry is not properly estimating estimated ultimate recoveries from the wells; that changes in reporting rules recently adopted by the Securities and Exchange Commission allow companies to "book" estimated reserves prematurely; and that the economies of the plays will ultimately be reflected in lower share prices of the companies participating in the plays. 

For the Marcellus in particular, Mr. Berman asserts that infrastructure limitations -- lack of pipeline and gas processing capacity -- will slow development, that environmental issues -- fears about groundwater contamination, proximity to urban areas, and regulatory restraints -- will not go away, and that economics for drilling in the Marcellus Shale are no better than in the Barnett Shale. Mr. Berman says that shale gas is the nation's next speculative bubble likely to burst.

Mr. Berman created a stir just a year ago when he published a similar gloomy analysis of the Barnett Shale, at the ASPO conference in October 2009.  At that time he was a contributor to a trade publication called World Oil, which is sent free to top oil & gas E&P executives. In early November 2009, World Oil was about to publish another article by Mr. Berman critical of shale plays, but the president of the publication ordered that it not be published. Mr. Berman resigned, and his editor Perry Fischer, who insisted that the article be published, was fired. All of this created a stir in the blogosphere. Fischer contended that World Oil executives were pressured by CEOs of two public E&P companies not to publish any more of Mr. Berman's critiques. Tudor Holt & Pickering, who analyze the oil and gas industry, published a critique of Mr. Berman's analysis, and two oil executives from Devon and Chesapeake wrote newspaper op ed pieces critical of his work. Chesapeake CEO Aubrey McClendon said at the time that he expected gas prices to continue to rise, which would lead to an increase in drilling and production in the shale plays. "We think all of the elements are in place for gas prices to be higher in 2010 than they are today," McClendon said.

McClendon's predictions have not held true. Gas prices have continued to slide, although drilling in the shale plays has continued. Particularly in the Haynesville, wells are being drilled that are surely not economic at current prices. The only explanation I know of for this continued drilling is that the companies who paid $10,000 to $25,000 per acre for leases in the play must drill the wells to prevent the leases from expiring. The result is that gas production and drilling remains high despite lower prices, resulting in a continued glut in supply, further reducing prices.  In the meantime Mr. McClendon, always quick on his feet, has moved to the Eagle Ford Shale play, a "liquids-rich" play, because oil prices, unlike gas, have not declined. Chesapeake acquired a large position in the "oil window" of the Eagle Ford and quickly made a deal with China's national oil company to sell them one-third of its acreage for $10,000 an acre. If indeed, as Mr. Berman believes, the shale plays are the next speculative bubble, maybe it will be national oil companies like China's who are left holding the bag.