Recently in OIl and Gas News Category

April 14, 2014

Earthquakes in Ohio Linked to Hydraulic Fracturing Activity

The Ohio Department of Natural Resources has imposed rules on exploration companies requiring seismic monitoring around new well sites near fault lines and quake epicenters in the Utica Shale.  According to the Columbus Dispatch, the rules require monitors at new drill sites located within 3 miles of known fault lines or areas that have experienced an earthquake greater than magnitude 2.0. Monitors cost about $20,000 each, and as many as five are needed at each well. "ODNR officials said if monitors at drilling sites detect even a magnitude 1.0 quake, fracking will immediately stop and an investigation will start. If fracking is blamed, a moratorium would be instituted 3 miles around the epicenter," according to the article. Earlier earthquake activity near Youngstown, Ohio was attributed to an injection well, which was shut down by Ohio DNR.

Earthquakes in Oklahoma and North Texas in the Barnett Shale, and more recently in the Eagle Ford in South Texas, have been linked to injection wells, but not to hydraulic fracturing. The Texas Railroad Commission has hired a seismologist to study the matter but has not imposed any new regulations on injection wells.

March 19, 2014

Good News Source for Eagle Ford Shale

The San Antonio Business Journal has a good website aggregating news about the Eagle Ford Shale:  http://www.bizjournals.com/sanantonio/blog/eagle-ford-shale-insight/ 
February 24, 2014

Environmental Effects of the Oil Boom

As drilling activity in the onshore US continues to grow, more and more attention is being paid to the environmental effects of exploration and production.  Media stories abound about groundwater contamination, the demand for fresh water from hydraulic fracturing, increased air emissions from exploration and production, controversy over pipeline condemnation and construction, earthquakes linked to wastewater injection, increased traffic and accidents, and effects on endangered species. Recent examples:

Air Emissions

This week The Center for Public Integrity, InsideClimate News and The Weather Channel released a report, Big Oil, Bad Air, on the effects of drilling in the Eagle Ford Shale on air quality in South Texas.  The report is highly critical of the lack of regulation by the Texas Commission of Environmental Quality (TCEQ) of emissions from oil and gas exploration and production operations in that region. Criticism of the report has already hit the media. Here is an industry response to the report from Energy in Depth, a website sponsored by industry. The TCEQ says it plans to conduct video surveillance of air quality over the region this summer

Last month, the TCEQ and the US Environmental Protection Agency settled their dispute over EPA's requirements for reducing emissions from industry in Texas. EPA had revoked TCEQ's air permitting authority for failing to follow EPA requirements. As a result, permitting was greatly delayed for new projects, causing industry to pressure TCEQ and the State to settle the dispute so that permitting authority could be restored to TCEQ. Texas has been in a continuing series of battles with the EPA, and has sued the agency 18 times in the last 10 years. Gubernatorial candidate Greg Abbott has touted his battles with the EPA in his campaign. ("As Texas has proven in other lawsuits against the EPA, this is a runaway federal agency that must be reined in.")

Debate continues over whether increased production and use of natural gas reduces greenhouse gas emissions. A large part of that debate is centered around how much methane is leaked in the process of producing and transporting it to end users.

Water Use

With the ongoing drought, the exploration industry's water use in fracing has come under increased scrutiny. The EPA is engaged in a long-term study of the effect of industry activity on groundwater resources.

In Pennsylvania, drillers must submit a water-use plan disclosing how much water will be used, where it comes from, and what effect it will have on local sources; and the plan must include water recycling. In Texas, the exploration industry's use of groundwater is largely exempt from regulation by local groundwater districts and is placing a strain on groundwater resources in South and West Texas. There is no effort yet in Texas to require companies to recycle. The first sustained use of water recycling on a big scale has been implemented by Apache in the Permian Basin, where Apache has installed a central water recycling system. To date, water recycling is still more expensive than using groundwater in most plays. But in the Permian, where groundwater is scarce, landowners have been selling their water for as much as a dollar a barrell, making recycling more competitive.

Seismic Activity

Earthquakes linked to oil and gas activity continue to make the news. In Texas, the town of Azle has made news protesting before the Texas Railroad Commission about quakes in the Barnett Shale they say are caused by injection wells. RRC candidates have expressed skepticism about any link between the quakes and oil and gas activity.  The RRC has hired a seismologist and is studying the matter, but so far has not shut down any injection wells in the area. Increased seismic activity in Oklahoma has been linked to industry injection wells there. In Arkansas, companies have shut down two injection wells believed to be linked to more than 1,000 unexplained earthquakes in the region.

 

 

January 17, 2014

News of Interest

Recent news relating to oil and gas exploration and development in Texas:

Dune Sagebrush Lizard -- Good article on efforts of industry and State regulators to avoid problems raised by possible listing of the Dune Sagebrush Lizard under the Endangered Species Act. Here is a map of the lizard's habitat - right in the middle of the Permian Basin.

Earthquakes in the Oil Patch -- Earthquakes in and around Azle, in the Barnett Shale, have caused quite a stir.  Here's a good article from the San Antonio News. Everyone seems to agree that the quakes are caused by injection wells, except the Texas Railroad Commission, which until recently called the connection "hypothetical". After one of the Commissioners, David Porter, faced angry homeowners at a town hall meeting in Azle, he called for the RRC to hire its own seismologist. Azle residents are planning a bus trip to Austin to attend the next RRC conference in protest.

Open Position on Railroad Commission Draws Seven Candidates -- They are Ray Keller, Stefani Carter, Becky Berger, Malachi Boyuls, Wayne Christian, Ryan Sitton, and Joe Pool Jr. Few landowners realize how important the Commissioners are to their interests, and landowners should pay attention to the race. The Commission is often a springboard to running for higher office. Barry Smitherman, currently a commissioner, is running for Texas Attorney General. The race is mostly funded by the oil and gas industry and its lobbyists.

What Do Texans Think About Global Warming?  A recent report by the Yale Project on Climate Change Communication reveals the results of a poll taken of Texans in 2013:

  • Most Texans (70%) believe global warming is happening. Relatively few (14%) believe it is not.
  • Fewer than half of Texans (44%) believe that if global warming is happening, it is caused mostly by human activities. By contrast, 31% believe it is caused mostly by natural changes in the environment, while 11% believe it is a combination of the two causes.
  • Texans think global warming is important and are worried about it. About three in four (73%) say the issue of global warming is at least somewhat important to them personally. About half (54%) are at least somewhat worried about it.
  • Though virtually all climate scientists agree human-caused global warming is happening, many Texans, like most Americans, are unaware of this fact. Nearly half (47%) believe that "there is a lot of disagreement among scientists" about whether or not global warming is happening. Fewer(43%) believe most scientists think that global warming is happening.
  • Among those who believe global warming is happening, solid majorities believe it is currently having a large or moderate influence on the severity of heat waves (84%), drought (80%), and wildfires (72%) in Texas.
  • Among Texans who believe global warming is happening, large majorities expect to see a myriad of negative effects over the next 50 years. Nearly all anticipate more heat waves (95%) and increased drought and water shortages (92%) in Texas due to global warming. More than eight in ten believe Texas will experience worse storms, hurricanes, or tornadoes (87%), declining numbers of fish and native wildlife (86%), and increased allergies, asthma, infectious diseases, or other health problems (85%) due to global warming.
  • More than half of Texans say that more should be done about global warming at all levels of government--from Congress (62%) and President Obama (57%), to Governor Perry (59%) and Texas's state legislature (56%), to local government officials (60%). However, even larger numbers of Texans believe that citizens themselves (69%) and corporations and industry (68%) should be doing more to address climate change.
  • Over half of Texans (55%) say the United States should reduce greenhouse gas emissions regardless of whether or not other countries do the same.
  • Many Texans believe that individual action, and especially collective action, can be effective in addressing global warming. Among those who believe global warming is happening, most (89%) say their own actions would reduce their personal contribution to global warming at least a little.
  • Virtually all Texans who believe global warming is happening say that if the same actions were taken by most people in the U.S. (96%) or around the world (96%), it would reduce global warming a little, some, or a lot. A majority of Texans (58%) say that President Obama is very or somewhat believable when speaking about energy- and climate-related issues. Half (50%) say Governor Rick Perry is very or somewhat believable regarding the same issues and four in ten (43%) say he is not very or not at all believable. Fewer than half of Texans say that either Senator Ted Cruz (46%) or Senator JohnCornyn (44%) is believable regarding energy and climate issues. 

UT Concludes that Fracing Reduces Water Use.  Researchers at the University of Texas have concluded that hydraulic fracturing actually reduces the amount of water used, by making it easier for generators to switch from coal plants to gas-fired plants, which use less water. "The bottom line is that hydraulic fracturing, by boosting natural gas production and moving the state from water-intensive coal technologies, makes our electric power system more drought resilient," said Bridget Scanlon, senior research scientist at the University of Texas's Bureau of Economic Geology and the lead author on the study. Meanwhile, a report from the San Antonio Express News says that water use for fracing in the Eagle Ford Shale has greatly exceeded expectations;  between 2011 and 2013, operators at 3,500 Eagle Ford wells reported using nearly 44,000 acre-feet of water -- more than 153,000 San Antonio residents would use on one year.

Micro-Windmills May One Day Power Your Smart Phone.  This from Forbes. Here's a photo:

microwindmill-penny_web.jpg

 

December 9, 2013

"Induced Seismicity" Caused By Wastewater Injection in Barnett Shale

StateImpact Texas has published a series of good articles about the growing evidence that the huge quantities of wastewater being injected in the Barnett Shale field are causing earthquakes -- some of sufficient intensity to cause significant damages. Lawsuits have been filed in Johnson County to recover for the damage.  StateImpact's most recent article can be found here. Links to all of StateImpact's articles on earthquakes caused by oil and gas activity are here.
November 18, 2013

Twenty Biggest Oil Companies

WoodMackenzie has recently come out with its 2013 ranking of the world's twenty largest oil companies, and their change in production over the last ten years:

Twenty Biggest Oil Companies3.JPG

(BOE is barrels of oil equivalent.)  As you can see, most are state-owned companies. Russia re-acquired its privately-owned companies. Saudi Arabia has increased its production 28% in the last 10 years.  Iran, despite the embargo, has increased its production by 24%, in part because of increased export of natural gas. Venezuela's production has suffered from politicization of its national oil company. Shell's efforts to increase production by acquiring a position in U.S. shale plays has not been successful. BP has sold off a substantial part of its production. China has invested big-time to fuel its economy. And the world economy has managed to survive $100 oil.  For comparison, the total world production in 2010 was about 137 BOE/day. These top twenty companies together produced about 60% of that total.

For a good article on these numbers, see Forbes' article, The World's Biggest Oil Companies - 2013, here.

October 9, 2013

Daniel Yergin Speaks

Last week I attended the State Bar Annual Advanced Oil, Gas and Energy Law Conference in Houston. This year is the 75th anniversary of the Oil, Gas and Energy Section of the Texas Bar (older than the State Bar itself), and there was a special dinner to honor the occasion, at which Daniel Yergin spoke.  He is the author of the Pulitzer-prize-winning book The Prize, a history of the global prusuit of oil, money and power -- a great read. More recently Yergin published his follow-up, The Quest: Energy, Security, and the Remaking of the Modern World, updating the history of global energy production and demand from the first Gulf War to the present.

Some tidbits from Yergin's talk:  politically, the biggest risk to the industry is the opposition to hydraulic fracturing -- not a big issue in Texas, but a huge issue in eastern states and California -- and the pressure for increased federal regulation of drilling.  The biggest practical challenges to the industry in the US are dealing safely with wastewater from oil and gas operations, and, in some parts of the US, the industry demand for fresh water for fracing. Once again, peak-oil predictors have been proven wrong, by the triumph of technology.  Texas has long been a leader in the industry not only because of its abundance of natural resources but also because of private ownership of oil and gas and the development of the legal theories and framework for the industry by the Texas bar and courts in the 20th century. 

To see Yergin's "world energy timeline, click here.

I highly recommend Yergin's books - hugely informative and very readable.

April 8, 2013

News in the Oil Patch

Range Resources

Range Resources' battle with the Lipskys and Alisa Rich continues, now in a confusing appeal of the trial court's order denying the Lipskys' and Rich's motion to throw out Range's counterclaim under the Texas law prohibiting so-called Strategic Lawsuits Against Public Participation, or SLAPPs.  http://www.star-telegram.com/2013/04/02/4745433/appeals-judges-return-range-suit.html

Earthquakes and Disposal Wells

Earthquakes caused by disposal wells continue to make the news.

http://www.fool.com/investing/general/2013/04/02/1-big-risk-that-has-energy-companies-quaking.aspx 

http://news.yahoo.com/oil-addiction-not-fracking-caused-2011-oklahoma-earthquakes-172400184.html 

http://www.bloomberg.com/news/2013-03-26/oklahoma-earthquake-in-2011-tied-to-wastewater-wells-in-fracking.html 

RRC figures show that wastewater pumped into disposal wells in Texas increased from 46 mllion barrels in 2005 to nearly 3.5 billion barrels in 2011.

http://www.bizjournals.com/dallas/news/2013/03/27/company-that-recycles-fracking-water.html?ana=twt

Oil Spill Trial

The huge trial to determine liability for the 2010 Gulf of Mexico oil spill continues. The judge threw out all claims against Cameron, the maker of the blowout preventer on the well, finding no evidence to support any claim against it. http://fuelfix.com/blog/2013/04/03/gulf-oil-spill-judge-throws-out-remaining-claims-against-cameron/

Keystone Pipeline

Here is a good article from the Washington Post explaining the facts and politics of the Keystone Pipeline.  http://www.washingtonpost.com/blogs/the-fix/wp/2013/04/03/the-keystone-xl-pipeline-and-its-politics-explained/

CSSD Performance Standards

A coalition of exploration companies and environmental organizations has created a new orgainzation and published performance standards for drilling and fracturing horizontal wells in the Marcellus. The new organization, the Center for Sustainable Shale Development, includs as partners the Environmental Defense Fund, Chevron, the Clean Air Task Force, Consol Energy, Shell, the Pennsylvania Environmental Council, and others. The Center's website is http://037186e.netsolhost.com/site/.  Its new performance standards are here:  http://037186e.netsolhost.com/site/wp-content/uploads/2013/03/CSSD-Performance-Standards-3-27-GPX.pdf  They include best practices for protecting water resources and eliminating use of fresh groundwater and surface waters in hydraulic fracturing; recycling of flowback and produced water; use of closed-loop systems for drilling fluids; best practices for casing and cementing of wells; reduction of venting or flaring of gases in the drilling process; emissions standards for pumps and motors used in drilling. Other companies are being encouraged to sign onto the goals of the standards.  See http://www.forbes.com/sites/raphaelbostic/2013/04/04/the-marcellus-agreement-please-frack-responsibly/ 

In West Texas, companies are increasingly using brackish water for fracing.

http://www.texastribune.org/2013/03/28/brackish-water-fracking-rising-amid-challenges/?utm_source=texastribune.org&utm_medium=alerts&utm_campaign=News%20Alert:%20Subscriptions 

There are increasing complaints about air quality in the Eagle Ford.

http://sacurrent.com/news/the-sour-side-of-life-in-south-texas-39-eagle-ford-shale-1.1463271?pgno=5 

And confusion reigns among Texas groundwater districts about if and how to regulate groundwater pumping for frac water. 

http://www.texastribune.org/2013/03/13/fracking-groundwater-rules-reflect-legal-ambiguiti/

Meanwhile the Obama administration has issued new proposed rules for hydraulic fracturing on public lands:

http://www.nytimes.com/2012/05/05/us/new-fracking-rule-is-issued-by-obama-administration.html?_r=0 

http://www.forbes.com/sites/christopherhelman/2012/05/04/new-federal-fracking-rules-look-reasonable-enviros-not-satisfied/

The Top Five Facts Everyone Should Know About Oil Exploration

Another good article from Forbes:  http://www.forbes.com/sites/quora/2013/04/03/what-are-the-top-five-facts-everyone-should-know-about-oil-exploration/  Did you know that about 40% of all seaborne cargo is oil? Also see http://www.instituteforenergyresearch.org/2010/02/16/a-primer-on-energy-and-the-economy-energys-large-share-of-the-economy-requires-caution-in-determining-policies-that-affect-it/

Exxon Oil Spill in Arkansas

A reminder that oil pipelines sometimes break: 

http://www.pennenergy.com/articles/pennenergy/2013/04/pipeline-rupture-spills-crude-oil-into-arkansas-neighborhood.html?cmpid=EnlDailyPetroApril22013

ExxonMobil%20pipeline%20spill.jpg

 

Basses Sue Chesapeake for Unpaid Royalties

Chesapeake seems to be trying to get out of its debt problem by refusing to pay royalty owners what they are owed. 

http://www.star-telegram.com/2013/03/14/4703401/ed-bass-other-plaintiffs-sue-chesapeake.html?storylink=addthis#.UUNicT-hTqs.twitter;

http://media.star-telegram.com/smedia/2013/03/14/16/22/epxLU.So.58.pdf

Texas Railroad Commission

Commissioners at the Texas Railroad Commission seem to have problems getting along with each other. http://stateimpact.npr.org/texas/2013/03/26/bickering-erupts-among-texas-oil-regulators/ But they did pass new rules intended to make it easier for companies to recycle frac water. http://www.bizjournals.com/dallas/news/2013/03/27/company-that-recycles-fracking-water.html?ana=twt 

 

January 21, 2013

Energy in the News

News items of interest:

The University of Pennsylvania's Center of Excllence in Environmental Toxicology has organized a group of researchers from UPa, Columbia, Johns Hopkins and the University of North Carolina to study whether the drilling in the Marcellus Shale play is hazardous to human health.

http://green.blogs.nytimes.com/2013/01/21/taking-a-harder-look-at-fracking-and-health/ 

Here is a recent presentation by one of UPa's professors, Trevor M. Penning, on public health issues of hydraulic fracturing:

http://www.med.upenn.edu/ceet/documents_user/MarcellusShale_Penning3.pdf

A report by the New York Health Department, leaked to the New York Times, says that hydraulic fracturing can be conducted safely.

http://www.nytimes.com/2013/01/03/nyregion/hydrofracking-safe-says-ny-health-dept-analysis.html?hp&_r=1&

Here is a report by StateImpact Texas on recent earthquakes in the Barnett Shale, possibly caused by injection wells:

http://stateimpact.npr.org/texas/2013/01/18/oil-and-gas-related-earthquakes-texas-regulators-speak-no-evil/ 

The City of Fort Worth has now banned new disposal wells within its city limits.

New "sand plant" in San Antonio - U.S. Silica Holdings and BNSF announced construction of a plant near San Antonio that can store and deliver 15,000 tons of sand to the Eagle Ford. The sand will come from U.S. Silica's mine in Ottawa, Illinois.

http://stateimpact.npr.org/texas/2013/01/18/oil-and-gas-related-earthquakes-texas-regulators-speak-no-evil/

Colorado recently adopted rules requiring operators to test groundwater before and after drilling. The rules require operators to test up to four water wells within one-half mile of a well prior to drilling, one year after drilling, and again six years after drilling.

 http://cogcc.state.co.us/RR_HF2012/Groundwater/COGCC_APPROVES_PIONEERING_NEW_GROUNDWATER_PROTECTIONS.pdf

The State of Alaska also recently issued proposed new rules regulating hydraulic fracturing:

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6970099

The Federal Advisory Committee established by the U.S. Department of Commerce in December 2010, has issued a new draft report warning of the consequences of global warming. The report says that strong scientific evidence has been produced sthat human activities, especially the burning of fossil fuels, are primarily responsible for climate change, and that climate change, if not dealt with, will increase health problems, wildfires, exreme weather conditions, and human welfare in general.

http://green.blogs.nytimes.com/2013/01/14/an-alarm-in-the-offing-on-climate-change/

Congress renewed the wind energy industry's tax credit for another year. Notably, the extension applies to any project commenced during 2013, instead of projects completed by year-end. Wind energy was the largest source of new capacity for electric generation in the U.S. last year.  at 3:11 pm on Christmas day, wind power supplied nearly 26% of electricity demand in the area served by the Electric Reliability Council of Texas.

http://www.star-telegram.com/2013/01/02/4520113/tax-credit-may-breathe-life-into.html

A good article about drilling in an urban environment, in the unincorporated community of Gardendale, Texas, near Midland:

http://www.guardian.co.uk/environment/2012/dec/31/fracking-in-towns-texas-oil

A good article about air monitoring equipment installed in the Barnett Shale by the Texas Commission on Environmental Quality:

http://www.star-telegram.com/2012/12/21/4502934/in-barnett-shale-monitors-make.html

Reuters calls Chesapeake's future "murky":

http://business.financialpost.com/2012/12/27/chesapeake-endures-rocky-year/?__lsa=8071-a840

 

December 7, 2012

University of Texas Withdraws Study on Hydraulic Fracturing

The University of Texas withdrew a study published earlier this year by UT Austin's Energy Institute, "Fact-Based Regulation for Environmental Protection in Shale Gas Development," after review by an independent commission appointed by the University. That review was prompted by a report of the Public Accountability Initiative, a non-profit watchdog group, which revealed that Dr. Charles Groat, professor at the Jackson School of Geosciences at UT and director of the study, sits on the board of Plains Exploration and Production Company and received cash and stock compensation from Plains of more than $1.5 million since 2007, but did not reveal that relationship in connection with the report. Dr. Groat has since retired, and the Head of the Energy Institute, Dr. Raymond Orbach, has resigned as head of the institute.

The independent review commission found that Dr. Groat's failure to disclose his ties with Plains was "very poor judgment," and that UT's conflict of interest policy should be strengthened (UT has done so). The commission also found several other faults with the report:

  • The report was presented as having scientific findings, but most of it was based on "literature surveys, incident reports and conjecture," and was not in fact "fact-based".
  • The summary of the report issued in a UT press release was misleading and "seemed to suggest that public concerns were without scientific basis and largely resulted from media bias."
  • The study was "not subject to serious peer review and therefore [was] not ready to be considered for public release as fact-based work." The commission recommended that the study be withdrawn (which UT has done):

Because of the inadequacies herein cited, publications resulting from the Energy Institute's project on shale gas fracturing currently displayed on the Energy Institute's website should be withdrawn and the document "Separating Fact from Fiction in Shale Gas Development," given its basis in the above, should not be further distributed at this time. Authors of the white papers should be allowed sufficient time and opportunity to finish their work, preparing their papers for submission for independent review by a broad panel of independent scientists and policy experts. Even if not published in a professional journal this approach is deemed appropriate when dealing with highly contentious issues. The summary paper should be redrafted to accurately reflect these revised white papers, with strong involvement from the Senior Contributors.

 UT's press release yesterday can be found here.

The report of the independent review commission can be found here.

Public Accountability Initiative's critique of the study can be found here.

State Impact Texas' report on the controversy is here, and the New York Times' article on the controversy is here.

Clearly a black eye for UT.

 

November 3, 2012

Keystone Construction, Shale Jobs and the Election, Wind Energy Credits, Shale Technology, and Range Resources' Battles

Recent news of interest:

Keystone Pipeline in East Texas - Fuelfix has published a series of articles on construction of the Keystone Pipeline in East Texas, providing some great photos, including this one:

20121026_keystoneturmoil_cjd_13.jpg

Not a small operation. And this one, of protesters who camped in trees, causing the company to re-route a segment of the line:

keystone-turmoil-6.jpg

TransCanada has 4,000 workers installing this 36-inch line through 500 miles of Texas and connecting to Cushing, Oklahoma. It will be capable of moving 700,000 barrels of Canadian tar sand crude to the Texas Gulf Coast.

Shale Jobs Could Affect Voting in Swing States - Forbes says that development of the Utica Shale in Ohio is leading a job recovery there, with estimates of 200,000 jobs by 2015, $12 billion in new wages and $22 billion in increased economic output. Five of the states that stand to gain the most from the shale boom are political swing states. "Or measured another way: the number of new workers that will come from hydrocarbon expansion equals one-fifth to three-fourths of all those people counted as unemployed or underemployed in at least 20 states, including those in Wisconsin, Colorado, Iowa, Ohio and Pennsylvania."

Wind Energy Tax Credits - Also on the political front, a little-mentioned issue in the presidential campaign is the tax credit for wind energy, which expires at the end of this year. Obama wants it extended, Romney does not. Some swing states are among the nation's leaders in new wind power projects. Navigant Consulting produced a study saying that loss of the tax credit could cost 37,000 jobs. Texas Governor Rick Perry opposes extending the credit, although Texas leads the nation in wind energy, and companies are now spending huge sums erecting transmission lines into North and West Texas to distribute electricity from wind projects already constructed or on the drawing board. But Sam Brownback, Republican governor of Kansas, and the two Kansas senators, want it extended. The Kansas City Star has a good article on the issue.

Improving Technology Could Extend Shale Boom - Here is a good article from Reuters on the potential for improved shale technology to further extend the shale boom.  According to reporter Robert Campbell,

The prospect for technological advances in shale oil and gas extraction is one of the major reasons why some opponents of peak oil theories, like Nansen Saleri, a former Saudi Aramco executive who now heads upstream technology consultancy Quantum Reservoir Impact, are optimistic about the prospect for liquid fuels production. 'In a few years the techniques used today for fracking will be viewed as primitive,' Saleri said in an interview this summer.

Range Resources Continues its Cutting-Edge Battles - David Poole, General Counsel for Range Resources, was honored by the Dallas-Fort Worth Chapter of the Association of Corporate Counsel and D CEO magazine for his work in leading the legal fight against the EPA's allegations that Range had contaminated groundwater in Parker County, Texas. Partly as a result of Range's success in that case, Al Amendariz, then regional EPA adminstrator, resigned, after EPA dropped its suit. Meanwhile, Range battles a separate suit in Washington County, Pennsylvania alleging that its frac'ing operations there have contaminated groundwater.

 

October 16, 2012

Guar, XL Pipeline Protests, and Hart on the Eagleford

Three interesting stories:

Guar, a bean grown mostly in India, has become a hot commodity because of its use as an additive in frac fluid. See this CNBC Report. Indian farmers are getting rich, American farmers are looking into growing the bean, and Halliburton's income is down "due to increased costs, particularly for guar gum."

Protests are popping up all along the XL pipeline being built by Transcanada to transport heavy oil from Canada. Eight demonstrators were arrested in Wood County for chaining themselves to heavy equipment. Seven platforms have been built in trees and occupied by protestors within the pipeline right-of-way. Protestors appeared at the Texas Capitol. Actress Daryl Hannah has joined demonstrations along the pipeline route. See Austin Statesman article here.

Speakers at Hart Energy's third conference on Developing Unconventional Gas, at the convention center in San Antonio, called the Eagle Ford the top unconventional play in the world. See article here.

October 2, 2012

Reuters Pursues Chesapeake Again

Reuters published a new story on Chesapeake recently, continuing its series critical of the company and its CEO Aubrey McClendon. In this article Reuters reports on its research of Rule 37 cases filed by Chesapeake. Incredibly, Reuters researchers identified all Chesapeake Rule 37 requests back to January 2005 - all 1,628 of them, more than twice the number filed by the next most-frequent filer, XTO (now owned by Exxon). Reuters also got hold of "hundreds of internal Chesapeake emails and thousands of pages of documents" showing how Chesapeake deals with landmen and landowners in lease plays, and the article cites some of those documents relating in particular to Chesapeake's lease acquisitions in Michigan.

A "Rule 37" exception is a permit to drill a well that would otherwise violate the applicable spacing rules for the well because it is closer than those rules allow to an adjacent tract. In the last few years Chesapeake has made extensive use of Rule 37 exceptions, particularly in the urban portions of the Barnett Shale play in Tarrant County, where most lot owners own the minerals under their homes. Some lot owners refuse to lease on any terms. These unleased owners create "holes" in the pooled units Chesapeake puts together for drilling horizontal shale wells, and sometimes there are so many unleased tracts in the units that it is impossible to drill a horizontal well without coming too close to the unleased tracts. So, Chesapeake asks the Railroad Commission to let it put its well closer to those unleased tracts than Barnett Shale field rules would otherwise allow. Chesapeake is required to give the unleased homeowner notice of its application for the Rule 37 exception, but most homeowners don't have the resources to contest the application, and if no objections are filed the Commission typically grants the exception. As a result, the Chesapeake well, when completed, is likely to drain hydrocarbons from under the unleased tract, and the owner of the unleased tract receives no compensation. Reuters characterizes Chesapeake's tactic as "exploit[ing] little-known laws to force owners to hand over drilling rights and sometimes forfeit profits."

In April of this year, Reuters reported on Aubrey McClendon's loans of some $1.5 billion to finance his share of drilling costs on his 1% interest in Chesapeake wells, alleging a conflict of interest. In June, Reuters issued a story questioning whether Chesapeake and Encana had colluded to avoid competition in their rush to acquire oil and gas leases in Michigan, resulting in a Department of Justice investigation of possible anti-trust violations. At least partly as a result of Reuters' stories, McClendon resigned as chairman of the board, and a new set of directors was elected.

Chesapeake was also in the news last month when it settled a long-running claim brought by Dallas/Fort Worth International Airport for underpayment of royalties due on Chesapeake wells drilled under the airport. Chesapeake agreed to pay $5 million in back royalties and the DFW lease was amended to require royalties to be based on an index price for gas.

Reuters' story relates Chesapeake's tactics on leasing in Michigan in some detail. It quotes emails from an independent landman in Michigan hired by Chesapeake to acquire leases, who was subsequently told by Chesapeake to "put on hold" hundreds of leases after a Chesapeake test well had disappointing results. The leases had already been approved, signed, and submitted to Chesapeake. The landman was forced to tell the landowners that Chesapeake had changed its mind and would not pay for the leases, resulting in 150 breach-of-contract lawsuits against the landman's company. Earlier this year, two state court judges in Michigan held that Chesapeake had no legal obligation to pay for the leases and could reject them for any reason. (More recently, an appeals court upheld a $20 million judgment against Chesapeake in Louisiana for attempting to back out of a deal to buy oil and gas leases from another company. See my previous post on that case here.)

While Chesapeake's rejection of leases may not be illegal, it certainly has given the industry a black eye and made it more difficult for other companies to do business with landowners. The landman who got the brunt of landowners' anger in Michigan clearly is not happy. I am personally familiar with Chesapeake's practice of "cold-drafting," a term used for the practice of sending a lease to a landowner with a draft for the bonus, in effect making an offer to lease, but with no present intent to honor the lease; evaluating whether to pay for the lease after the draft has been deposited and the lease signed and returned to the landman; and then picking and choosing which leases the company wants to take and which they want to reject. It allows the company to "lock up" the acreage by committing the landowner to the lease for the (usually 90) days that the draft is outstanding. I'm aware of one case in which Chesapeake even recorded the lease and then attempted to reject it. Landmen should, in my view, refuse to participate in such practices, and they should certainly be considered unethical.

July 2, 2012

Vacation in Carrizo Springs!

A new industry has sprung up in the metropolis of Carrizo Springs, Texas, in the heart of the Eagle Ford Shale Play: lodging for oil field workers -- and lodging in style. In an attempt to keep workers in the field, companies are putting up their workers in plush hotel-like "lodges." Amenities include three meals a day, laundry and dining facilities, media and recreation rooms, 24-hour business centers, free Wi-Fi, Blu-ray players and flat-screen TVs in all rooms, microwaves and movie rentals. Operators of these facilities rent out blocks of rooms to operators and their vendors, sometimes keeping different companies' employees together and away from their competition, to lessen the risk of raiding competitors. One facility has a 2,000-seat cafeteria, broken up into four separated dining areas with the kitchen in the middle, allowing one company to have a dining room all to itself, to keep out rival companies' employees. Check out these new examples of "remote workforce housing":

http://www.oasislodgetx.com/Accommodation.aspx 

http://www.remotelogisticsinternational.com/camps/carrizo-springs-lodge

http://south-texas-lodge-carrizo-springs.magnusonhotels.com/

http://www.cottoncompanies.com/TH-carrizo-springs.html 

Similar facilities are opening up all across South Texas. Maybe living in the South Texas desert away from friends and family for weeks on end has its compensations.

 

June 22, 2012

Goodbye to Aubrey McClendon?

The fall of Aubrey McClendon, CEO of Chesapeake Energy, has been meteoric. He was forced to step down as Chairman of its board, and yesterday he was replaced as board chair by Archie Dunham, the 73-year-old former CEO of Conoco. Aubrey's fall from grace started only a few months ago with articles in the business press about his deal with Chesapeake to own a small interest in every well Chesapeake drilled. Aubrey was borrowing heavily against his personal interests, to the tune of $1 billion, to keep his ship afloat. Then there were allegations about McClendon's personal trading in futures that "could have been" opposed to the company's interests, for which the he and the company are now under an SEC investigation. Chesapeake's shares started falling, and shareholders began complaining about him and his board. At the company's recent shareholder meeting four board members were forced out, and two who stood for election were soundly defeated. Carl Icahn smelled blood, bought 7.6% of the company, and installed one of his own as a board member. For now, McClendon remains CEO. Archie Dunham's job is to sell some $7.4 billion of Chesapeake's properties to get it out of its hole.

McClendon co-founded Chesapeake with Tom Ward in 1989, with $50,000 and 10 employees. He made the company into the nation's largest domestic gas producer by investing heavily in shale gas plays across the country. In my opinion, he is responsible for the huge resurgence in domestic exploration, and in the rapid increase in gas production -- and the precipitous decline in natural gas prices -- over the past few years. McClendon and Boone Pickens were the promoters of natural gas, touted as the fuel of the future and the solution to global warming. McClendon is hated by other independents for sweeping into new shale plays with his pocketbook open and offering $25,000 per acre for leases.  

I'm no financial expert. But it seems clear to me that Chesapeake's problems arise from the huge decline in oil and gas prices, and not from any sculduggery by McClendon. In all the press coverage, I have not read anything to indicate that McClendon actually did anything for his personal benefit and against the interests of his company. He may have had bad judgment in betting so big on natural gas, but that is his nature. He is a landman, a speculator, and a wildcatter.

It will be interesting to see if Chesapeake actually benefits from being handed over to a more traditional E&P executive, and can survive as a mature company.