Oil and Gas Lawyer Blog

A study written by J. David Hughes and published in February by the Post Carbon Institute claims that shale gas reserves are vastly overstated. "Drill Baby Drill - Can Unconventional Fuels Usher In a New Era of Energy Abundance?"  A companion article by Deborah Rogers claims that the shale "frenzy" is a Wall-Street-created bubble, that "U.S. shale gas and shale oil reserves have been overestimated by a minimum of 100% and by as much as 400-500% by operators according to actual well production data filed in various states," and that "shale oil wells are following the same steep decline rates and poor recovery efficiency observed in shale gas wells." "Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?" Both are published on a website called shalebubble.org.  These nay-sayers are continuing a tradition that has followed the oil and gas industry for decades - the debate between the peak-oil advocates and those who believe we will never run out of fossil fuels.

David Hughes' study is worth reading. He studied more than 60,000 shale wells in the US and their rates of decline, costs and reserves. Hughes concludes that more than 1,542 wells will have to be drilled each year in the Bakken and Eagle Ford plays just to maintain current production, at a cost of $14 billion per year. He estimates that it will take $42 billion and more than 7,000 wells per year to maintain current levels of production of shale gas, whereas the value of the gas produced in 2012 was only $32.5 billion. Some examples from Hughes' study:

On overly optimistic predictions by the Energy Information Administration:

Hughes' decline curve for Eagle Ford wells:

Hughes' prediction of future production from the Eagle Ford and Bakken plays:

And on the world's insatiable appetite for fossil fuels:

 Hughes' study is mentioned in "What If We Never Run Out of Oil," by Charles C. Mann, in the May edition of The Atlantic magazine. Mann gives a broad historical perspective to the debate over the ubiquity of fossil fuels. Mann begins by recounting his visit to the Kern River oil field in California many years ago.  One of the first and biggest oil fields discovered in the US, Kern River was discovered in 1899. In 1949, after 50 years of production, analysts estimated that 47 million barrels of recoverable reserves remained. In the next 40 years, the field produced 945 million barrels, and in 1989 analysts estimated the field's remaining reserves at 697 million barrels. By 2009, the field had produced more than 1.3 billion barrels and remaining reserves were estimated to be almost 600 million barrels.

Mann then tells the story of M. King Hubbert, a prominent geophysicist at Shell oil in the 1950's. In 1956, Hubbert predicted that crude oil production in the US would peak between 1965 and 1970. In 1964 Hubbert went to work for the US Geological Survey. The head of the USGS at the time, Vincent E. McKelvey, was an optimist about US oil and gas reserves, and his agency issued optimistic assessments of US oil industry's future.  McKelvey denigrated Hubbert's pessimistic projections and eventually forced Hubbert to resign from USGS.  Although McKelvey derided Hubbert's theories, they proved to be correct, and the decline in US production led to the oil embargo and gas lines of the 1970's. Jimmy Carter adopted Hubbert's views in declaring that the planet's proven oil reserves could be consumed by the end of the next decade. The Carter administration imposed energy-efficiency measures including gas-mileage regulation, home-appliance energy standards, conservation tax credits and subsidies for weatherization.

Mann says that the debate continues today between pessimists and optimists, Hubbertians and McKelveyans, "hammering at each other like Montagues and Capulets." The difference between the Hubbertians and the McKelveyans is in their conception of what is a "reserve." The Hubbertians think of reserves as a physical entity - oil in the ground. The McKelveyans think of reserves as an economic judgment: how much petroleum can be harvested from a given area at an affordable price. In fact, reserve estimates are a mixture of the two - at least if you are wanting to know "recoverable" reserves. What is "recoverable" depends on the price of the commodity and the cost of extracting it. As prices rise, recoverable reserves increase. As technology improves and costs drop, recoverable reserves increase. And vice versa.  Because there will always be some oil in the ground that is too expensive to recover at any point in time, McKeleyans say that the world's supply of oil will never be exhausted. Thus the idea behind Mann's article: "Will we ever run out of oil?"

And now the shale boom, and predictions that the US will soon be energy-independent. If the past is any judge, any prediction is sure to be wrong.

Mann's article goes well beyond the peak oil debate. He explores the possibility of commercial production of methane hydrate as the next breakthrough in unconventional hydrocarbon resources. Methane hydrate is gas trapped in frozen water crystals beneath the sea bed.

Mann says that "Estimates of the global supply of methane hydrate range from the equivalent of 100 times more than  America's current annual energy consumption to 3 million times more." A core sample of methane hydrate was found to contain 99.4% methane. The ice crystals in which the methane is trapped can be lit afire - burning ice.

Japan has spent $700 million on methane hydrate research over the past decade. Its ship, the Chikyu, is the world's most sophisticated research vessel. It recently tested a method of recovery of methane from methane hydrate that produced about 4 million cubic feet of gas.

Mann speculates on the global geopolitical consequences of a shift to unconventional hydrocarbon resources like shales and methane hydrate. Although it would be a relief not to rely on Middle East reserves for US energy supply, such a shift could have destabilizing results in the economies and politics of nations who even now are in the middle of unsettling developments. Mann quotes Daron Acemoglu, an MIT economist and co-author of Why Nations Fail: "Think of Saudi Arabia.  How will the royal family contain both the mullahs and the unemployed youth without a slush fund?"

The US is unique among the 62 petroleum-producing nations in allowing private entities to control most oil and gas resources. In most nations, these assets are owned or controlled by the government. Michael Ross, a UCLA political scientist and author of The Oil Curse: How Petroleum Wealth Shapes the Development of Nations (2012), says that this naturally leads to corruption. Such oil-based economies become unstable when shortfalls in oil revenues eliminate the sole, unsteady support of the ruling elite.

The world has become totally dependent on fossil fuels for its economy and well-being. As Mann says:

[E]conomic growth and energy use have marched in lockstep for generations. Between 1900 and 2000, global energy consumption rose roughly 17-fold, ... while economic output rose 16-fold - as close a link as one may find in the unruly realm of economic affairs.

We depend on hydrocarbons for everything from lighting our homes to providing energy to build our computers to running our cars. Modern life would be impossible without hydrocarbons. Humankind's appetite for energy is insatiable, and is sure to grow as developing countries continue to increase their standard of living. We need to understand and be aware of the consequences. Mann's article is a good place to start.

A recent editorial in the Houston Chronicle makes a good point: we should no longer think of "oil and gas" together. Their paths have diverged, at least in the US.

The prices of oil and gas used to be roughly equivalent, based on their energy value - their Btu content. But since the shale revolution in the US, this is no longer the case. Today, gas is much cheaper than oil on an energy-equivalent basis. Today, most exploration companies have moved from gas shale plays to oil shale plays, chasing the higher oil price. But gas prices have recently risen, and wells are still being drilled profitably in the Marcellus. If gas returns to $5-6/mcf, shale gas plays will return, and gas will still be much cheaper than oil.

Second, gas is a clean-buring fuel, unlike oil or coal. US emissions of greenhouse gases have declined substantially since utilities have gradually switched from coal to gas. Vehicles powered by gas have much lower emissions than those fueled by gasoline. Gas is touted as a "bridge fuel" in the transition from hydrocarbon to renewable sources of energy, because of its lighter environmental footprint.

So why are we still using so much oil? Principally because of the transportation sector. It is expensive to convert vehicles to burn natural gas, and there is a dearth of refueling stations in the US for natural gas. If the price of natural gas remains cheap, more and more vehicles will burn it instead of gasoline.

As the public begins to better understand the differences between oil and natural gas, and as the market's confidence grows in the US supply of gas, the stability of its relatively low price, and its more benign environmental impact, gas should make inroads into the transportation industry.

Information below passed on to me by a client, from a friend of a friend:

Following are charts and photos of a tour of Cline Shale exploration and operations yesterday afternoon. I remember the boom in the 50s and the late 70s. Those are minimal compared to the massive and very expensive boom taking place right now. I never imagined anything like this.

For instance, there are no small operators involved. Everyone leasing, building, drilling and operating has to be a major with very deep pockets. The road you will see in the first photo cost over $1 million to build. The wells are hitting 9,000 feet in this area and much deeper in other places. Each hydraulic fracturing operation (fracking) uses more than 5 million gallons of water. In just this area, railroad sidings have been built in Miles, San Angelo and Barnhart to unload sand and load oil. The railroad trains in San Angelo used to consist of a few dozen cars a week and now consist of 500 cars a day. And, really, this is just getting started.

The Cline Shale is nearly 150 miles from north to south and nearly 60 miles from east to west. Reservoir engineers still think it will be the largest oil field ever discovered in the USA. The impact on cities and towns is profound. Colorado City has 4,200 residents and there are four hotels and two supermarkets under construction. At all times of the day and night, the traffic in Snyder seems like rush hour in Dallas. Motel rooms in many towns are being rented for 12 hour shifts. Nobody knows where people will live, how water will be available to drink or how to maintain roads that are being torn up by the heavy truck traffic. For now, everyone's attitude is to sack the money while you can and kick the can down the road to solve problems some day.

In San Angelo, one of the most important events is the rodeo. This year there were no hotel rooms for the rodeo cowboys and tourists because the rooms were full of oil field workers. That used to be the biggest tourist draw in town. I guess the cowboys slept in their horse trailers with their horses since some have very nice sleeping places. The Chamber of Commerce and the hotel owners never said a word of apology. There is a brand new apartment complex west of San Angelo with hundreds of apartments and the whole thing has been leased indefinitely to Halliburton. In Midland, restaurants are closing early because they do not have the workers to stay open and are running out of food. In Big Lake, convenience stores are closing early in the day because they are out of food and fuel. I stopped at the Dairy Queen in Big Lake and the typical order being called in was for 36 hamburger baskets to go. And there is order after order like that. Every day, people with food trailers leave San Angelo and drive to Barnhart and Big Lake to feed people. I talked to a banker in Big Lake who said the best food in town is now a food trailer. I have heard that there is such a demand for truck drivers that they are receiving $10,000 signing bonuses and making $80,000 a year.

Chart of Oil Bearing Formations and Approximate Depth in Irion and Reagan Counties. The depths will vary from one part of the Permian Basin to another.
 

The Million Dollar Caliche Road - must be 10-15 miles long - the blue pipes are transporting water for miles from to and from holding ponds for the wells.
 

Entire hills of limestone are excavated, crushed and screened for rock to make roads and drilling pads. Look at the man standing beside the portable rock crusher. As soon as this hill is gone, then another will be crushed. The landscape is changing. On the other side of the crushed rock pile were several loaders and dump trucks which were hauling the material off almost as fast as it could be produced.
 

Long view, about 2 miles, showing 5 pads in a row. Each pad will contain 3-4 wells. Pads are huge (several acres) to accommodate the multiple wells and the fracking operations.
 

Three active drilling rigs. A few days ago there were five lined up. Notice the old pump jack on left. This ranch already had hundreds, if not thousands, of old wells. By old, I mean 30 years old. Notice red pumps and red pipes piping water to fracking operations. In some cases, the recovered frack fluids are being cleaned up and used for water flooding the old wells to stimulate secondary production.
 

A fracking operation in progress. The crane holds a manifold over the drilled well. There were several heavy-walled pipes connected to the manifold, through which pass the fracking fluids, gels and propants. Each operation requires about 5,000,000 gallons of water. That's a problem in a part of the world with very little water to start with. It's hard to imagine the value of all the trailers, trucks, storage facilities, pumps and other equipment at each site. The cheapest thing in the photo are the porta-potties.
 

Several wells are drilled on each pad. These are two wellheads only a few feet apart. Once the rig completes one hole, a couple of bulldozers are used to skid the rig over about 30' where it starts another well. We saw as many as four wells per pad. Each well probably has multiple horizontal legs 9,000 feet down in the Cline Shale. Most of the horizontal legs are 1.5 miles in horizontal length. In this particular location, all the horizontal legs are north-south because the production is better than any other orientation. This type of information is determined by drilling and testing "Science Wells" which usually cost over $2,000,000 each. These "science wells" are never meant to be produced. How can you kiss off $2 million? That's what I mean when I say that only the big boys are playing this game.
 

Looking at a large storage tank. There are dozens of these tanks. They are so big that you can see them with Google Earth. At each tank, the water surface is roughly 5 acres and the depth is approximately 15 feet. Each tank  contains about 26,000,000 gallons or 624,000 barrels of water. The reason much much is stored is because the water must be readily available (guaranteed) to begin and maintain hydraulic fracturing operation.

I recently read this astounding report from the Texas Tribune:

"In 2011, Texas used a greater number of barrels of water for oil and natural gas fracking (about 632 million) than the number of barrels of oil it produced (about 441 million), according to figures from the Texas Water Development Board and the Railroad Commission of Texas, the state's oil and gas regulator."

Of course wells use all of the water in the fracing process, at the beginning of the well's life, and continue to produce oil for many years, so oil production will eventually catch up with water use. But this is nevertheless a remarkable statistic.

The Tribune article reports that a study by the UT Bureau of Economic Geology published in January "found that the amount of water used statewide for fracking more than doubled between 2008 and 2011. The amount is expected to increase before leveling off in the 2020s. The study's lead author, Jean-Philippe Nicot of the University of Texas, has calculated that in 2011, nearly a quarter of the water used in Dimmit County went toward fracking. He projects that the figure will rise to about a third in a few years."

The Tribune has also published a good article on the uneven responses of Texas groundwater districts to operators' use of groundwater, that you can read here.

Fracing continues to make news elsewhere:

The California Department of OIl Gas and Geothermal Resources is considering regulations covering fracing that are being criticized by the industry and environmentalists:

http://www.conservation.ca.gov/Index/Pages/Index.aspx

http://www.huffingtonpost.com/2013/03/12/california-fracking_n_2864147.html

http://www.huffingtonpost.com/2012/12/19/california-fracking_n_2327165.html

In New York, which has had a moratorium on fracing since 2008, the governor is still considering whether to lift the ban. The state's health commissioner is preparing to issue his recommendation, which the governor said will be key to his decision. The New York State Assembly recently voted to extend the moratorium through 2015.

http://newyork.cbslocal.com/2013/03/11/n-y-state-health-commissioner-wont-wait-for-studies-on-fracking/

A group of artists and actors led by Yoko Ono and Sean Lennon have started up their own campaign to ban fracing in New York, called Artists Against Fracking. Several of them have produced a music video of Sean Lennon's song "Don't Frack My Mother:"  "Don't frack my mother, cos I ain't got no other. You can do anything that you want to do, but please don't frack my mother." Yoko Ono then pitches in: "Don't frack me, don't frack me."

Only in America.

UT's Bureau of Economic Geology has issued a comprehensive report on the estimated reserves in the Barnett Shale Field. The study, funded by the Alfred P. Sloan Foundation, looked at 16,000 wells in the field. It has been submitted for peer review before publication, but a summary of the report can be found on the BEG website.

The BEG created a model with data from 15,000 wells drilled through 2010. Assuming a $4 constant gas price, the model predicts another 13,000 wells through 2030. It predicts total field production of 44 Tcf of gas through 2050. Here are two images showing results of the study:

The BEG plans to complete similar studies of the Marcellus, Haynesville and Fayetteville Shales by the end of 2013.

The E&P industry is continuing to face public criticism of its use of fresh groundwater in fracing wells and its failure to disclose the chemicals added to frac water.

On February 5, the Investor Environmental Health Network (IEHN) issued a press release announcing that shareholders have filed resolutions with Cabot O&G, Chevron, Exxon Mobil, EOG Resources, ONEOK, Pioneer Natural Resources, Spectra Energy, Range Resources and Ulta Petroleum challenging the companies "to quantifiably measure and reduce environmental and societal impacts" of their exploration activities. The resolutions focus on water issues, asking the companies to disclose the amount and sources of water used, how they track and measure naturally occurring radioactive materials (NORM) in frac water, whether and to what extent the companies use closed-loop systems in handling frac water, and what efforts are being made to reduce the amount of fresh water used. Shareholder proposals were filed by Calver Investments, Green Century Capital Management, the New York City Office of the Comptroller, the New York State Common Retirement Fund, the Sisters of St. Francis of Philadelphia, and Trillium Asset Management. IEHN and the Interfaith Center on Corporate Responsibility published a report in 2011, "Extracting the Facts: an investor guide to disclosing risks from hydraulic fracturing," intended to list and encourage best risk management practices by E&P companies, including reducing and disclosing all toxic chemicals, minimizing fresh water use by substituting non-potable sources, and using closed-loop systems to store waste waters.

Last week, New York Comptroller Thomas DiNapoly announced that the state's pension fund had reached an agreement with Cabot O&G to disclose its practices for minimizing the use of toxic chemicals in frac fluids. DiNapoli withdrew his shareholder proposal submitted for Cabot's upcoming proxy statement. DeNapoli has negotiated similar agreements with Hess, Range Resources and SM Energy.

Halliburton, which provides frac fluids for the industry, has developed a "green" frac fluid called CleanStim that uses only food-industry additives. Halliburton production manager Nicholas Gardiner said that Halliburton has developed a chemistry-scoring system for fracfluids, with lower scores being better. CleanStim has a zero score, he said, but is "relatively more expensive" than many traditional fracking fluids. Terry Engelder, a geologist at Penn State, said: "Eventually industry would like to end up with a mix of just water, sand, and food-grade additives. Companies are learning to deal with fewer and fewer additives."

The Texas House Energy Resources Committee held a hearing last week about fracing and water use. Industry spokesmen testified that they are using more brackish water and reusing flowback frac water; recycling water; and covering their retention ponds that store fresh water to limit evaporation. A spokesman for Fountain Quail Water Management said that 900 million gallons of flowback water have been recycled back to freswater in the Barnett Shale over the past nine years. He also announced formation of the Texas Water Recycling Association. A Devon Energy spokesman saidd that Devon had recycled about 700 million gallons of frac water since 2005. He said it costs 50 to 75% more than disposing of the water by injection. NBC News reported on a new water desalination technology that can clean up brackish water so that it can be used in fracing.

Meanwhile, Texas' law on disclosure of chemicals in frac fluds has come under criticism because of its trade-secret "loophole." A Bloomberg report said a sample of frac fluid disclosures from 370 wells reported in August 2012 showed that Baker Hughes averaged 9.1 non-disclosed ingredients per well, Halliburton averaged 9.3, and Superior Well Services averaged 32.5. Lon Burnam, the Democratic state legislator who co-authored the law, said that "this disclosure bill has a hole big enough to drive a truck through."

On another topic: a final good-bye to Aubrey McClendon, who has resigned from Chesapeake, the company he founded. He receives a nice parting gift of $45.2 million over the next four years and $33.5 million in restricted stock. He was previously removed as Chairman of the Board because of heavy criticism of alleged conflicts of interest and the company's poor market performance. It will be interesting to see how Chesapeake survives without him. While much of the criticism of his tenure is undoubtedly deserved, his huge contribution to the natural gas boom of the last ten years should not be forgotten.

FrackNation is a documentary by Phelim McAleer and Ann McElhinney, journalists from Ireland, in response to Josh Fox's Gasland. It recently premiered in several locations and now can be seen on Mark Cuban's cable channel AXS. I watched it this week, and it can be seen again on AXS February 2 at 2:30 pm Eastern time. It is worth watching and has received favorable reviews.

McAleer and McElhinney have previously done documentaries on global warming (Not Evil Just Wrong) and gold mining in Romania (Mine Your Own Business) that challenge conventional wisdom on environmental topics. McAleer got the idea for this new film when he confronted Josh Fox at a press conference in Chicago about scenes in Gasland showing tap water being lit on fire. McAleer pointed out that natural gas has been in well water long before the boom in hydraulic fracturing in Pennsylvania.

McAleer and McElhinney got their funding from Kickstarter, where 3,305 backers donated $212,000 to back the movie. (They're all listed in the movie credits.)

Kyle Smith of the New York Post writes that "McAleer, a whimsical Irish journalist with a pleasingly avuncular air, explains in a robustly entertaining and informative doc how Fox was wrong to imply fracking is unregulated and proves methane has been in some drinking water since long before fracking." Kevin Begos writes in USA Today that the film "discredits some of the most extreme anti-fracking rhetoric," but "it also sometimes goes too far in dismissing legitimate concerns."  The New York Times writes that the film is "no tossed-off, pro-business pamphlet", and that it is "methodically researched and assembled" and "provocative." Grover Norquist wrote on the Huffington Post that Fracknation "eviscerates Gasland's credibility and makes clear that its director knowingly lied again and again."

One of the most interesting segments of the film is a discussion about the role of popular media in the debate over the safety of oil and gas drilling and its effect on the environment. Mainstream media are justly criticized, in my opinion, for failing to adequately investigate claims made by radical groups on both sides of the debate before giving them credence by including their views in their publications. Josh Fox has made a business out of his movie and has become a media celebrity. His film was nominated for an academy award, and he has appeared with Hollywood celebrities. Fox is now working on a sequel for HBO, Gasland 2. In part as a result of this media frenzy, a moratorium was imposed on hydraulic fracturing in the State of New York. It is impossible for the general public to separate fact from fiction. Where is Walter Cronkite when we need him? The whole debate is in dire need of serious investigative journalism - but that costs money, and it doesn't sell adds.

The University of Texas' Burear of Economic Geology has issued a draft report updating an earlier report on water use by the oil and gas industry in Texas. Among its conclusions: Movement of shale plays into oil-rich areas of the Eagle Ford and West Texas's Permian Basin have resulted in increased use of brackish water for frac'ing, improvement in reuse technologies, and lower fresh water consumption, but also more demand on groundwater in regions of South and West Texas.

Some excerpts:

In the Eagle Ford, although the number of wells completed has increased rapidly, the intensity of water us (gallons per foot of completed interval) has decreased almost in half in four years. The report attributes this decreas in intensity to higher use of "gel" fracs that can carry proppant with much less water. Water use is significantly higher in the down-dip gas window of the play (as high as 1400 gal/ft) vs. the oil window (800 gal/ft). Here are graphs from the draft report about the Eagle Ford's water use:

Here are some other interesting statistics and projections from the draft report:

Estimated percentages of recycling / reused and brackish water use in principal areas in 2011:

Estimated groundwater / surface water split (does not include recycling / reuse):

Summary of projected water use by mining industry in Texas:

Historical water use in Texas - all categories -- 2001-2010:

Here's another amazing NASA photo, showing light from drilling activity in the Bakken Shale Play:

You can see more photos here, At NPR's Robert Krulwich blog.

Here are two good websites that provide interesting and balanced views about energy production and consumption:  The Rational Middle, and Think Progress. The Rational Middle is a series of films by the people that produced the movie Haynesville - A Nation's Hunt for an Energy Future. Its goal is to encourage rational thinking about our energy future and establishing achievable goals toward sustainable energy. The films about unconventional resources and the risks of hydraulic fracturing are worth looking at.

Think Progress's climate page introduces thought-provoking statistics about our nation's energy sources and uses. For example:

56.2% of the nation's energy is wasted each year - from the Lawrence Livermore National Laboratory:

 Check them out.

I recently heard an interview with George Mitchell, the independent operator who found the key for combining hydraulic fracturing technology and horizontal drilling to unlock vast reserves of gas in the Barnett Shale, the first shale play. And it only took him 17 years to figure it out. Now 93 years of age, Mr. Mitchell was interviewed by American Public Media's Marketplace radio program. You can view the interview here.

Mr. Mitchell has some unorthodox views for a wildcatter. First, his foundation, the Cynthia and George Mitchell Foundation, has given millions of dollars to support development of clean energy resources. And he supports a carbon tax on hydrocarbons.

Mr. Mitchell also supports tough regulation of independent operators. "I've had too much experience running independents," Mitchell says. "They're wild people. You just can't control them. And if it doesn't do it right, penalize the oil and gas people. Get tough with them." Earlier this year, Mr. Mitchell told Forbes magazine that he is in favor of federal regulation of hydraulic fracturing by the U.S. Department of Energy. 

Mr. Mitchell and NY Mayor Micheal Bloomberg recently teamed up to write an Op Ed piece in the New York Times supporting the development of natural gas reserves with the new fracing technology and pledging their foundations to support efforts to develop responsible regulations to assure that drilling can be done safely:

Several states, including Colorado, New York and Ohio, are taking the lead in this regard, recognizing the need to establish an appropriate framework for regulatory safeguards. It appears that Texas, as the pioneer of hydraulic fracturing in shale formations, is poised to step forward in developing promising state guidelines as well. More such leadership is needed.

To jump-start this effort, each of our foundations will support organizations that seek to work with states and industries to develop common-sense regulations that will protect the environment -- and ensure that the industry can thrive.

We will encourage better state regulation of fracking around five key principles:

     Disclosing all chemicals used in the hydraulic fracturing process;

     Optimizing rules for well construction and operation;

     Minimizing water consumption, protecting groundwater and ensuring proper disposal of wastewater;

     Improving air pollution controls, including capturing leaking methane, a potent greenhouse gas; and

     Reducing the impact on roads, ecosystems and communities.

The latest research, including peer-reviewed studies out of Carnegie Mellon University and Argonne National Laboratory, suggests that if properly extracted and distributed, the impact of natural gas on the climate is significantly less than that of coal. Safely fracking natural gas can mean healthier communities, a cleaner environment and a reliable domestic energy supply right now.

. . .

We can frack safely if we frack sensibly. That may not make for a great bumper sticker. It does make for good environmental and economic policy.

The Texas Railroad Commission has recently published revised draft regulations specifically aimed at assuring that fracing and well completion operations are conducted safely and adequately protect groundwater resources.

I agree with Mr. Mitchell. Drilling technology is much more complex than it was ten or twenty years ago. Fracing involves managing very high pressures and toxic chemicals. Wells now cost $8 to $10 million. Texas needs to take the lead in assuring that these operations are conducted with the best available technology and safety practices, and the Railroad Commission needs to crack down on operators who don't follow those practices.

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:

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

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.

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.

I recently spoke at a Continuing Legal Education Program for Texas real estate attorneys about regulation of hydraulic fracturing. My job was to give a short overview of the development of fracing and horizontal drilling in the US and its impact on production and the economy. Here are some slides I used in the presentation.

Below is a photo of a well during the process of fracing. The trucks are big hydraulic pumps, all hooked up to a manifold that is hooked to the well. The earthen tank in the picture is filled with fresh water used in the fracing operation. The water is mixed with sand and chemicals and pumped into the well under high pressure to "frac" the formation. Note that these pad sites are larger than for conventionally drilled wells. One pad site may be used to drill three or six or more wells. The horizontal lateral of the well will be 5,000-8,000 feet.

Below is a schematic for a horizontal well, intended to show the distance horizontally between fresh water aquifers and the depth at which the well is completed, and the multiple layers of casing installed between the well and the aquifer to protect fresh water.  The distance between fresh water zones and the producing formations varies by field. For the Barnett Shale, fresh water is at about 1,200 feet, and the Barnett Shale is it about 6,500-8,000 feet. For the Haynesville Shale in Lousiana and East Texas, fresh water is at about 400 feet and the formation is at 10,500 to 13,500 feet. For the Marcellus Shale in Pennsylvanie, freshwater is at about 850 feet, and the formation is between 4,500 and 8,500 feet. Here is a video from Chesapeake showing how wells are drilled horizontally.

Horizontal wells are frac'ed in "stages." Segments of the horizontal leg of the well are isolated, holes are punctured or "shot" through the well casing, and frac water is pumped into that segment of we well, through the perforations in the casing, and into the formation, fracturing the rock to allow oil and gas to escape into the wellbore. The pressure is then released, the frac water flows back up the hole, and the process is repeated for a different segment. Wells may be shot in 12 or more stages. Here is a video showing how the process works, created by Chesapeake.

Below is a map showing the major shale plays in the US. Additional unconventional shale plays are being discovered and developed.

Below is a graph showing the number of gas wells producing in Texas over time. The number of wells increased significantly beginning in 2003, when shale drilling took off, and is approaching 100,000 wells.

The graph below shows the potential for gas production from major shale plays according to a study by MIT.

As gas production in the US increased, prices predictably declined. The result has been huge savings for US consumers, both residential and commercial. It has not been good news for the coal, nuclear and wind energy industries, which have to compete for natural gas as fuel for electric generation.

Another result of the gas glut is that exploration companies have moved to shale plays that produce oil and other liquid petroleum constituents, as shown by the graph below.

One of the largest oil shale plays is the Eagle Ford in South Texas, which has commenced development only in the last couple of years. There are now some 4,000 wells producing from the Eagle Ford formation. To date, those wells have produced 37 million barrels of oil and 311 billion cubic feet of gas. (Oil wells in the Eagle Ford also produce gas, thereby adding to the gas glut and holding gas prices down.) There are 250 rigs drilling in the Eagle Ford, and there are predictions that the field will be producing 900,000 bbls/day by the end of 2012, with reserve estimates of an average of 500,000 BOE per well.

Below is a map of the Eagle Ford. The formation dips (gets deeper) from northwest to southeast. The three colors on the map represent the "oil window" on the northwest flank of the field, the "gas window" on the southeast flank, and the "liquids window" in the middle. To date, the best wells are in the liquids window, and produce both oil and gas.

The graph below shows the increase in production from the Eagle Ford over the last 3 years, and the increased number of rigs in the field, over time.

Fracing of wells uses a lot of fresh water -- from 3 to 5 million gallons per well. But the industry points out that this water use is a small percentage of the total water used in the areas of the shale plays: