News from the Oil Patch


April 3, 2012

EPA Dismisses Suit Against Range

The Environmental Protection Agency has thrown in the towel. It dismissed its suit against Range Resources that sought to enforce its emergency order claiming that Range was responsible for contamination of water wells in Parker County. See Bloomberg's article here.

I have previously written about this controversy. See my previous posts here and here and here and here and here. The EPA alleged that the water well belonging to the Lipskys had been contaminated with methane by Range's fracing of wells in the area. Range called a hearing at the Railroad Commission and invited the EPA and the Lipskys to attend, but they declined. The RRC found that Range's well was not the cause of the water well contamination; it concluded that the methane was naturally occurring and was caused when the water well was drilled too deep, into a shallow gas formation. Range fought the EPA's allegations vigorously. So far, the EPA has been unable to link any groundwater contamination to hydraulic fracturing.

The Lipskys also filed a civil suit against Range seeking damages -- a big mistake. Range got the Lipsky's case dismissed, on the ground that the RRC had already determined that Range was not at fault. Range filed a counterclaim against the Lipskys for defamation and to recover the costs of its litigation, and also filed a cross claim against the Lipskys' expert Alisha Rich, claiming that she conspired with the Lipskys to produce false evidence in the case. Those claims remain pending.

Horizontal Wells Now Have As Many As 20 Frac Stages

In 2003, the average number of frac stages for a horizontal well was four. (A "frac stage" is the process of using hydraulic fracturing in an isolated segment of a horizontal well, thus concentrating the pressure and energy in a limited portion of the formation.) Last year, the average number of frac stages was twenty. Lateral lengths have also increased dramatically. In 2003, the average lateral length in Tarrant County (the Barnett Shale) was 2,433 feet. In 2010, it was 3,599 feet. The standard length in the Eagle Ford is now a mile (5,280 feet), and some wells are being drilled to 8,000 feet or more.

GAO Says That Regulators Don't Have Sufficient Information to Ensure Safety of Gathering Lines

The US General Accounting Office has issued a report on the safety of gathering lines. Gathering lines are generally the pipelines that go from the well head to the transmission line. While transmission lines are heavily regulated by US and state regulators, gathering lines are for the most part unregulated. The GAO report says that:

state pipeline safety agencies cited construction quality, maintenance practices, unknown or uncertain locations, and limited or no information on pipeline integrity as among the highest risks for federally unregulated pipelines. Without data on these risk factors, pipeline safety officials are unable to assess and manage safety risks associated with these pipelines.

Coal Industry Struggles Because of Cheap Natural Gas

Bloomberg reports that Appalachian coal companies are in trouble because utilities are switching to cheaper natural gas:

For U.S. power utilities, who consumed 90 percent of the country's coal production in 2010, the prospect of relatively cheaper gas supplies now and in the foreseeable future has pushed them to switch some of their generation to gas-burning plants from units that use coal.

KNOC To Buy El Paso E&P Unit for $7.15 Billion

A consortium of companies including the Korea National Oil Company is buying El Paso Corp's exploration and production assets. Kinder Morgan previously acquired El Paso Corp. for $21 Billion and announced that it would sell its E&P business.

Valero and Chesapeake May Put CNG Pumps on Texas Highways

Valero and Chesapeake are negotiating to install natural gas fueling stations for vehicles on Texas roads. The Texas Commission on Environmental Quality has offered $4.5 million in grants to establish a triangle of CNG fuel stations between Houston, Dallas and San Antonio.

Eagleford Expands into Fayette County

Eagleford shale wells are being drilled in the southwestern part of Fayette County, expanding the north edge of the field. Nine wells have been drilled so far. Oil production from the Eagleford has climbed from 12,981 bbl of oil/condensate in 2006 to 55 million barrels in 2011. By comparison, oil production from the Bakken, Three Forks and Sanish shale plays in North Dakota, the other big oil shale area in the US, was 129 million barrels in 2011. EOG Resources' CEO Mark Papa predicted that oil shales could add another 1.5 million barrels/day of oil to US production by 2015.

Investor Groups Complain About Flaring of Gas

Thirty-six large institutional investors representing $500 billion in assets sent a letter to 21 E&P companies pushing them to disclose the amount of natural gas flared in connection with their oil shale production. Because of a lack of pipeline infrastructure and low gas prices, companies producing shale oil in North Dakota and Texas are flaring much of the gas produced from their wells. The investors claim that flared gas in North Dakota produced 2 million tons of carbon dioxide last year, the equivalent of 384,000 extra cars on the road. The investor group claims that, even with low natural gas prices, the state of North Dakota lost about $110 million in revenue last year from the flaring. Companies anxious to get oil flowing from their wells begin oil production before the necessary gas gathering and transmission lines are in place.

Petrochina Now Produces More Oil Than Exxon

The Associated Press reported last week that Petrochina, the Chinese national oil company, now produces more oil than Exxon and has become the world's largest oil producer. Petrochina announced that it pumped 2.4 million barrels a day last year, exceeding Exxon by 100,000 barrels. Exxon's output decreased 5.5% last year, while Petrochina's increased 3.3%.