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News Around the Oil Patch

Items of interest recently in the news:

On March 25, the Texas Railroad Commission adopted its examiners’ recommended decision finding that Range Resources was not responsible for water-well contamination in Parker County, Texas.  (For my previous posts on this controversy, go here and here.)  The U.S. Environmental Protection Agency, which had previously entered a cease-and-desist order against Range based on its investigation of the water well contamination, issued a statement standing by its findings:  “The decision by the Texas Railroad Commission is not supported by EPA’s independent, scientific investigation, which concluded that Range Rsources Corporation and Range Production Company have contributed to the contamination of homeowners’ drinking water wells.”  EPA has posted the full record of its investigation of Range on its website.  EPA has filed a federal suit against Range to enforce its order. “EPA stands by the order issued to Range Resources and seeks to secure Range’s full compliance,” said EPA’s statement.  Range has filed a motion in that suit to dismiss the case, based on the Railroad Commission’s findings. Railroad Commissioner Michael Williams said that “I see this as sort of a cavalier attempt by the federal government to reach its arms into our state’s jurisdictions.” Commissioner Elizabeth Jones said after the RRC hearing that Range’s operations “have not contaminated and will not contaminate” the water wells in question. Steven Lipsky, one of the water well owners who believes that Range is responsible for the contamination, said: “It’s a corrupt system. It’s kind of sad.”

Chesapeake Energy has entered into two more agreements to shed part of its acreage positions, one in Texas and one in Arkansas.  Chesapeake agreed to sell all of its Fayetteville Shale leases in Arkansas to mining giant BHP Billiton for $4.75 billion cash. Chesapeake entered into an agreement with Clayton Williams Energy to transfer 75% of its 75,000 acres of leases in the Wolfbone play in Reeves County to Williams, in exchange for Williams’ agreement to drill at least 20 wells in the first year, with an option to drill 20 more earning wells every year over the next four years.

Investment firm Harrington Investments, Inc., a firm specializing in socially responsible investing, announced that it is divesting its entire holding in Chesapeake Energy because of (1) 109 citations against Chesapeake by the Pennsylvanie Environmenta Protection Department for “environmental health and safety” violations, and (2) The poor record of Chesapeake in executive compensation.  In 2008, Chesapeake CEO Aubrey McClendon was paid a $77 million bonus in a year when the stock price fell 60 percent. Harrington also noted that “McClendon funneled $450,000 to [Pennsylvania] gubernatorial candidate Tom Corbett via the State Republican Leadership Committee. Since Corbett’s victory, Chesapeake has obtained 839 Marcellus Shale drilling permits in Pennsylvania, more than any other company, and has drilled at 126 sites, making it the second-biggest operator in the region.”

A report issued by the Bipartisan Policy Center and the American Clean Skies Foundation has recommended that electric utilities enter into more long-term contracts for the purchase of natural gas.  Prior to natural gas shortages in the 1980’s, utilities traditionally entered into long-term gas purchase contracts with producers with fixed prices, or prices that were adjusted periodically. Because of gas price volatility, state regulators of electric utilities discouraged the utilities from entering into such long-term contracts and encouraged purchases on month-to-month contracts based on market or spot prices. Today, most gas is sold on mont-to-month contracts. The report, from a task force including executives from Dow Chemical, The Willliams Companies, Spectra Energy, the American Gas Association, the Natural Resources Defense Council, Southern Company, ConocoPhillips, and Pacific Gas & Electric Company, concludes that because of a near 50% increase in gas reserves and and an increase of nearly 700 billion cubic feet of new gas storage capacity in the past decade, utilities are shifting their emphasis to gas-fired generation instead of building new coal-fired generation or retrofitting coal plants to cut emissions.  The reports says that utilities should include long-term gas contracts in their portfolio of energy supplies, and it encourages state utility regulators to emplement policies that encourage such long-term contracts. “Realizing and maximizing these benefits [of greater gas supply], however, will require that investors have confidence in the mid- to long-term stability of natural gas prices,” says the report.  The complete report can be found here.

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