Amazing image. No better way to illustrate the activity in the Eagle Ford.
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NASA Night Photo of Eagle Ford Shale Play
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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”.
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Switch – Documentary on Energy
I recently had the opportunity to view a documentary, “Switch,” produced by Dr. Scott Tinker, Director of the Bureau of Economic Geology at the University of Texas and the State Geologist of Texas, and Harry Lynch, documentary filmmaker. Dr. Tinker uses as the premise for his film the question – When will the world ultimately switch from fossil fuels to cleaner, alternative energy sources? In the process, he examines the sources and uses of energy worldwide, their costs and benefits, in an engaging film that takes him from the huge open-pit coal mines in Wyoming to offshore oil rigs to a hydraulic energy plant in the Netherlands, from the top of a wind turban to solar energy farms, and from driving Tesla to installing more efficient heating and lighting systems in the home. In the process, he does what no film I have seen does — provide a balanced, informed view of the role of energy in our modern world and where we are heading.
In addition to the film, Dr. Tinker has created a website, http://www.switchenergyproject.com/ , that provides additional short videos and other resources to further explore questions surrounding energy, including carbon capture, global warming, hydraulic fracturing, and alternative energy technologies. He interviews many world experts on global energy issues. The five energy issues you need to know, according to Dr. Tinker:
1. Energy drives the modern world and underpins every other issue.
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Sunset Advisory Commission Issues Report on Texas Railroad Commission
Texas’ Sunset Advisory Commission has issued its recommendations for changes at the Texas Railroad Commission. The report can be found here.
The RRC was up for regular Sunset review in 2010, and the Sunset Commission issued a report recommending several changes then, including abolishing the three-member elected Commission and replacing it with a single appointed Commissioner. Largely due to debate over that recommendation, most of the Sunset Commission’s 2010 recommendations were not enacted, and the Legislature told the Sunset Commission to issue a new report for its 2012 legislative session.
In its current report the Sunset Commission no longer recommends replacing the three elected Commissioners. It recommends changing the Commission’s name to the Texas Energy Resources Commission; limiting the time when Commissioners can solicit campaign contributions and prohibiting a Commissioner from accepting contributions from any party with a contested case before the Commission; requiring a Commissioner running for another elected office to resign; and requiring the Commission to adopt a recusal policy rule.
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Herein of “Production Sharing Agreements” and “Allocation Wells”
I have recently become aware of recent changes in Texas Railroad Commission policies regarding “production sharing agreements” and “allocation wells” that deserve some comment. Some background is necessary to understand these recent developments.
Over the last couple of years I have been asked to review and explain proposed “production sharing agreements” sent to royalty owners. Operators in the Haynesville came up with the concept of production sharing agreements when they were faced with trying to drill wells in areas that were held by production from large pooled units producing from vertical Cotton Valley wells. The pooled units were not configured to allow for efficient drilling of Haynesville horizontal wells. Operators wanted to drill laterals crossing the boundaries of the pooled units, and apparently the pooled units covered the Haynesville depths as well as the Cotton Valley. So, they came up with the idea of production sharing agreements. The agreements provide that the royalty owners in the two existing units agree that production from the horizontal well will be “shared” between the two units based on the percentage of lateral length on each unit, and production allocated to each unit will be treated for lease and royalty payment purposes as if produced from the unit. Devon was a big proponent of these agreements. From the royalty owner’s point of view, the agreements have advantages and disadvantages. The advantage is that the royalty owner will get royalties on production from a new well that might not be drilled unless a production sharing agreement is signed to allow drilling across lease or unit boundaries. The disadvantage is that production from one well serves to keep all of the leases in both units in effect for as long as it produces.
A well drilled across lease or unit boundaries pursuant to a production sharing agreement is referred to at the RRC as a “PSA” well, because the permit is granted based on the operator’s assertion that it has production sharing agreements with royalty owners for allocation of production between or among tracts; or as an “allocation well,” because production from the well is allocated to two or more separate leases or units. When operators began applying for drilling permits for these wells, there was discussion at the RRC about how to handle them, because they did not fit the standard model of pooled units. Eventually, the RRC staff adopted an informal, unwritten policy that, if the operator would represent in its permit application that it had production sharing agreements from at least 65% of the royalty owners in both units, the RRC would grant the permit. The RRC has created a new form, the “PSA-12” form, to replace the Form P-12 that operators must file to represent that they have the right to create a pooled unit. If the operator submits the PSA-12 form, the RRC grants a PSA well permit, based on its informal 65% joinder policy.
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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:
Not a small operation. And this one, of protesters who camped in trees, causing the company to re-route a segment of the line:
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“Energy Independence”?
We’re in the crazy election season once again, and once again all candidates have promised “energy independence.” Newt Gingrich promised to lower gasoline prices. President Obama takes credit for low natural gas prices. Governor Romney says we can eliminate imports of crude oil. Presidential candidates have promised energy independence ever since the oil embargo in Jimmy Carter’s administration. The candidates know that, in fact, government policies have little to do with energy prices, and there is little they can do to influence those prices. It might be good to look at a little history.
First, natural gas prices are still essentially a domestic phenomenon. Although transportation of liquefied natural gas is beginning, it is still very expensive in comparison to domestic prices. And natural gas prices are still essentially a matter of domestic supply and demand. Consider these graphs:
Prices for natural gas spiked in the last decade; production increased; and prices declined. Supply and demand.
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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.
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More Studies of Barnett Shale Activities’ Impact on Air Quality
The debate about effects of Barnett Shale drilling and production on air quality in the Dallas-Fort Worth area continues. The debate started when Al Armendariz, then a professor at Southern Methodist University, published a study in 2009 concluding that increased drilling activity in the DFW area would greatly increase polllution and ozone levels. Armendariz postulated that in the nine counties included in the D-FW metroplex area, gas drilling produced about 112 tons per day of pollution, compared with 120 tons per day from vehicle traffic. His study was sponsored by the Environmental Defense Fund, and was heavily criticized by industry. Armendariz was later appointed head of the Dallas office of the EPA, and resigned earlier this year amid Congressional criticism of remarks he made about EPA enforcement policies.
As a result of Armendariz’s study, the Texas Commission on Environmental Quality installed automatic air monitors at locations within the Barnett Shale area. Eight automatic gas chromatographs now sample air twenty times each day for 46 volatile organic compounds. The monitors cost $250,000 each and cost $100,000/year to operate. Readings from the sample analyses are posted by the TCEQ and can be found here. According to an analysis by Powell Shale Digest, none of the 236,120 air samples taken by these devices have shown amounts of VOCs exceeding limits set by the Environmental Protection Agency.
There are also sixteen samplers in the DFW area that measure ozone. Powell’s analysis of that data shows that ozone levels in the Barnett Shale have been dropping even as drilling activity in the area increased:
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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.