Oil and Gas Lawyer BlogA new report on the risks and advantages of hydraulic fracturing by Ann Davis Vaughan and David Pursell, “Frac Attack: Risks, Hype, and Financial Reality of Hydraulic Fracturing in the Shale Plays,” provides a much-needed objective summary and analysis of the recent debate over the safety of hydraulic fracturing. Ann Davis Vaughan founded Reservoir Research Partners and is a former investigative journalist for the Wall Street Journal. David Pursell is an analyst with Tudor Pickering Holt & Co., an investment banking firm in Houston specializing in the energy industry.
Articles Posted in Unconventional Resources
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EOG Withdraws Application for Temporary Field Rules in Eagle Ford Shale
At the hearing today before the Texas Railroad Commission for consideration of EOG Resources’ application for temporary field rules for a new field consolidating 27 existing fields in the Eagle Ford Shale in South Texas, the applicant EOG Resouces announced that it was withdrawing its application. (See my previous post on this application here.) EOG’s lawyer said that the application was filed at the suggestion of Railroad Commission staff in order to have uniform rules for all wells drilled in the Eagle Ford, but because of the number of parties who had appeared in the hearing in opposition to the application, EOG would withdraw the application. He said that EOG plans to file a new application for temporary field rules for the Eagle Ford in eight counties where EOG has acreage: Gonzales, Wilson, Karnes, Atascosa, McMullen, La Salle, DeWitt, and Frio Counties. He said that the rules EOG would propose would apply to oil wells only, as EOG’s acreage is in the oil window of the play. Other operators in the gas portion of the play are also expected to file additional applications for temporary field rules for gas wells.
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Three Documentaries About Drilling in Shale Plays
Remarkably, three full-length documentaries are in circulation about the perils and benefits of the new shale drilling boom in the US. The first, Gasland, relates stories of the horrors caused by drilling in locations across the country. It won an award at the 2010 Sundance Film Festival, and is now showing on HBO. Its official website is a call for environmental action. The second documentary, Haynesville: A Nation’s Hunt for Energy, has been shown at several film festivals and can be seen in Dallas, Houston and Forth Worth in July. The film critic for the Fort Worth Star Telegram calls Haynesville “fairer and smarter” than Gasland. Watch the trailer at its website. The newest film is Gas Odyssey, which advocates development of the Marcellus shale in New York State. Its maker Aaron Price says that the issue of hydraulic fracturing “stopped being about science and facts a long time ago It has become a political monster, and my hope is that this film will transcend politics and restore basic rights to New Yorkers – to develop their land through a tried and true, safe technology.” Watch all three and make your own conclusions.
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EOG Resources Proposes Temporary Consolidated Field Rules for Eagle Ford Shale
EOG Resources has filed an application with the Texas Railroad Commission proposing the adoption of temporary field rules for wells drilled in the Eagle Ford Shale in South Texas that could have a significant impact on thousands of oil and gas leases in the field. The application proposes to consolidate 27 designated fields that produce from the Eagle Ford Shale formation, and the proposed rules will replace any field rules previously adopted for those fields. The consolidated rules would apply to Eagle Ford Shale wells drilled in Railroad Commission of Texas Districts 1, 2 and 4. A copy of the notice of the Railroad Commission hearing for the adoption of the proposed rules may be found here:
eagle ford field rules.pdf. The hearing is scheduled for June 25, 2010, at 9 am in the William B. Travis Sate Office Building, 1701 Congress Avenue, Austin. Persons wishing to participate in the hearing must file a notice of intent to appear at least five working days in advance of the hearing date and serve a copy of the notice on the applicant and any other parties of record. More information can be obtained by calling the Office of General Counsel of the Railroad Commission at 512-463-6848.
Field rules are adopted by the Railroad Commission to govern the spacing of wells in a field. They specify how far wells must be from each other, how far wells must be from the nearest lease line, and how much acreage must be assigned to a well in order to obtain a permit to drill a well. The acreage assigned to a proposed well is known as a “proration unit.” Well spacing and density rules were developed by the Commission after it was given jurisdiction over oil and gas operations in Texas in the early days of the oil industry, principally because of unregulated drilling in the East Texas Field. Because of unregulated drilling in that field, wells were being drilled that were not necessary for the efficient development of the field, and oil prices plummeted. The Commission was also given authority to “prorate” production from a field — that is, to limit production, and to allocate or “prorate” the specified limit of production from a field among the wells in a field. The stated purposes of spacing and density rules are to avoid waste and protect the correlative rights of producers in the field. Theoretically, field rules should designate a size for proration units that approximates the amount of acreage in the field that can be efficiently drained by a single well.
The field rules proposed by EOG would provide:
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Movie ‘Gasland’ Stirs More Controversy About Hydraulic Fracturing
Gasland is a film documentary about the dangers caused by hydraulic fracturing of gas wells being drilled in shale plays across the U.S. It won a Special Jury Prize at the Sundance Film Festival this year. It was filmed by Josh Fox, whose family owns land in Pennsylvania that is in the Marcellus Shale Play. Gasland is now being screened across the country.
Josh Fox was recently interviewed about his film on the PBS program NOW. The film asserts that frac’ing of wells has caused underground aquifers to be charged with methane in Pennsylvania and Colorado and poses severe risks of contamination to the water supply. Josh Fox notes that hydraulic fracturing is exempt from federal regulation, and he advocates for passage of the FRAC Act now before Congress that would give the EPA jurisdiction over hydraulic fracturing.
The comments about the NOW story posted on its website evidence the growing controversy over frac’ing.
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News of “Super Extended Laterals” in Woodford Shale, and ConocoPhillips’ First Well in Eagle Ford Shale
Newfield Exploration has reported that it is drilling horizontal wells with “super extended laterals” in the Woodford Shale in Oklahoma — wells with laterals exceeding 5,000 feet. Newfield has so far drilled 14 super-extended lateral wells, with an average length of 9,000 feet. Those wells had an average gross initial production rate of approximately 9 MMcfe/day.
ConocoPhillips reported that it has completed the drilling of four horizontal wells in the Eagle Ford shale play, in its “liquids-rich” core. The first of these wells was put on production in March and flowed at an initial rate of 3.8 mmcf/day and 1,200 barrels/day of condensate.
All of the new shale gas production continues to put downward pressure on gas prices. Natural gas futures for June delivery fell 36.8 cents, or 8.5 percent on Thursday, April 29 on NYMEX. So far this year, natural gas futures have fallen 29 percent. The Energy Information Administration reported that the supply of gas in storage increased by 83 Bcf for the week ended April 30. Gas in storage is 315 Bcf above the 5-year average.
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ExxonMobil Proxy Statement Addresses Chemicals Used in Hydraulic Fracturing
The Park Foundation has submitted a resolution for consideration at ExxonMobil’s annual meeting urging ExxonMobil to prepare a report on the environmental impact of fracturing operations and what can be done to reduce or eliminate environmental hazards caused by hydraulic fracturing. The proposal, and ExxonMobil’s response, provide a good summary of the state of the debate in the U.S. over potential environmental impacts of hydraulic fracturing. I have reproduced the entire statement from Exxon’s proxy statement below.
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Devon Appeals Temporary Field Rules for Carthage (Haynesville Shale) Field
In a previous post I reported on the application of Devon Energy asking the Texas Railroad Commission to include in the new Field Rules for the Carthage (Haynesville Shale) Field a provision allowing it to drill horizontal wells across lease or pooled unit boundaries. These new rules apply to wells drilled in the Haynesville and Bossier formations in Harrison, Nacogdoches, Panola, Shelby and Rusk Counties in East Texas. Devon asked that the rules provide what it calls a “default allocation method” for horizontal wells drilled across unit boundaries.The rule proposed by Devon reads as follows:
“Operators shall be permitted to drill and complete horizontal wells that traverse one or more units and/or leases as long as that operator has a lease or other mineral ownership right to produce from each such unit or lease. If such a well is not already subject to an agreement regarding the allocation of production, the following allocation formula will be presumed to constitute a fair and reasonable allocation of production from a well in this field and shall be utilized by the Commission in assigning acreage attributable to the separate units/leases traversed by the horizontal drainhole: an allocation of acreage and production to each of the units and/or leases traversed by and completed in the horizontal well based on the percent of said horizontal well from first take point to last take point that lies under each unit or lease.”
The Commission concluded that it had no authority to adopt such a rule, because pooling is a contractual issue between private parties, and (except as provided in the Mineral Interest Pooling Act) the Commission has no right to impose allocations of production among different tracts penetrated by a horizontal well.
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Chesapeake Shale Plays
Chesapeake Energy Corporation summarized its activities in the country’s “Big 6” shale plays in its Operational Update issued on February 16. The report reveals the huge impact Chesapeake has had on shale plays from New York to South Texas.
Chesapeake is the eighth largest E&P company ranked by total assets according to the Oil & Gas Financial Journal, behind ExxonMobil, Chevron, ConocoPhillips, Anadarko, Marathon, Occidental and XTO Energy. It also ranks eighth in exploratory spending and market capitalization, and twelfth in total revenue. (Chesapeake’s market cap is 18% of ExxonMobil’s.) In 2009, Chesapeake drilled 1,148 gross operated wells, which it called “the industry’s most active drilling program,” spending $2.941 billion. Its leashold inventory at the end of 2009 was 13.7 million net acres.
Here are some highlights from Chesapeake’s report:
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Exxon Mobil’s Proposed Acquisition of XTO Energy Revives Questions about Hydraulic Fracturing
Exxon Mobil announced that it would acquire XTO Energy in an all-stock deal worth $41 billion. The acquisition is viewed as Exxon’s decision to enter the domestic onshore gas shale play, which to date has been developed almost exclusively by independent producers. But the deal includes an exit clause in the event Congress passes legislation that would make hydraulic fracturing illegal or “commercially impracticable.” Shale gas development would be impossible without hydraulic fracturing technology. Bills are pending in Congress (known as the FRAC Act) to subject fracturing to federal regulation under the Safe Drinking Water Act. The bills would require companies to publicly disclose the chemicals used in frac fluids. And U.S. Rep. Ed Markey, Dem. Massachusetts, said he would hold hearings in the House Energy and Commerce Committee to review the Exxon-XTO deal and to address environmental concerns about hydraulic fracturing.