Expansion of Fracking in the US & Internationally Fundamentally Altering Oil & Gas Markets, Energy Geopolitics

HBW Resources: Ollison Hydraulic Fracturing Report

 

Below is a summary prepared by Bo Ollison, HBW Resources’ Senior Director of Policy, of publicly available activities currently underway at the federal, state and international levels that could impact the use of hydraulic fracturing for oil and gas development.  HBW Resources is monitoring these activities to ensure that responsible and feasible policies based on sound science are advanced.

Highlights

  • Niles, OH may have a vote on hydraulic fracturing if the “Committee to Keep Niles Safe” can gather the necessary signatures by January 6, 2014.
  • The average U.S. household is estimated to be saving between $425 to $725 each year in energy costs due to a sharp drop in domestic natural gas prices since 2005.
  • North Dakota’s Board of University and School Lands allotted nearly $10 million to boost public schools and colleges in the Bakken Shale
  • Development in the Utica shale play is driving up sales tax revenue for counties in eastern Ohio
  • Marcellus shale gas production boosted Pennsylvania from the seventh-largest to third-largest marketed U.S. natural gas producing state from 2011 to 2012
  • A new study estimates that the oil and gas industry had a $14.5 billion impact last year on the Cline Shale region
  • A new study, Drought and the Water-energy Nexus in Texas, finds that in Texas, the transition from coal to natural gas for electricity generation is saving water and making the state less vulnerable to drought
  • Marathon Oil Corp. plans to spend $2.3 billion in the Eagle Ford Shale in 2014
  • Governors from 12 energy states signed an open letter to energy regulators and policymakers in D.C., urging them to “leave regulation in the capable hands of the states.”
  • The market for shale gas drilling may reach roughly $15.5 billion in 2018
  • EU governments endorsed an outline deal on new rules to assess the impact on the environment of projects such as oil and gas exploration, after removing references to shale gas that had blocked agreement
  • U.S. light oil production from shale and tight rock formations may impact Saudi Arabia in the medium-term by forcing it to sell its lighter grades at lower prices
  • The Spanish government amended its environmental rules to address the development of shale resources and to limit the environmental review process to six months
States 

State Legislative Update: Please see the linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.

Colorado
The Colorado Oil and Gas Conservation Commission (COGCC), after months of proposals and public hearings, approved a new rule designed to improve state response to oil and gas spills by shortening the time operators have to report them. The new rule, which was unanimously approved by the nine-member commission, requires oil and gas operations that spill or release the equivalent of 5 or more barrels of exploration and production waste or produced fluids to report to the COGCC director “verbally or in writing as soon as practicable,” but no later than 24 hours after the spill or release is discovered. In addition, any spill or release of 1 or more barrels that occurs outside secondary containment areas, which the COGCC describes as metal or earthen berms, must be reported to the state within 24 hours, according to the new rule.

The group Protect Our Colorado is attempting to place a measure on a 2014 ballot that would ask voters whether or not hydraulic fracturing, colloquially known as fracking, should be banned in the state. Fracking is the process of injecting fluid – mostly water and sand but with additional chemicals – into the ground at a high pressure in order to fracture shale rocks, releasing natural gas inside. This practice is controversial, as many of the chemicals used are alleged by opponents to be toxic or carcinogenic. Activists who are against the method argue that it releases methane and harmful chemicals into nearby ground water. For more information, please contact us.

The Loveland City Council, at its last meeting of the year, there was an attempt to move forward with a measure to put a fracking moratorium on a special election ballot. Councilor Phil Farley’s motion to direct the city attorney to bring back a resolution containing ballot language for a moratorium came after public comment from three advocates of the proposed initiative, which was submitted to the city by the group Protect Our Loveland and is now tied up in court. Legal representatives from the city of Loveland, Protect Our Loveland and city resident Larry Sarner are scheduled to appear in 8th Judicial District Court on Wednesday morning to argue for and against the sufficiency of the petitions for the proposed initiative. Judy Freeman, a Protect Our Loveland organizer, noted in public comments that one of the outcomes of the case could be appeals to higher courts that could further delay a vote. Protect Our Loveland intended for the measure to appear on the Nov. 5 election ballot, but a split council voted in September to delay placement on the ballot until the conclusion of the lawsuit filed by Sarner. The proposed initiative would ask voters whether or not to implement a two-year moratorium on hydraulic fracturing while effects on human health and property values are studied.

Illinois
The Illinois Department of Natural Resources is seeking public feedback on the state’s regulations for high-volume oil and gas drilling. The DNR published proposed regulations for hydraulic fracturing, which begins a public comment period that will last until Jan. 3. For more information, please contact HBW Resources.

Maine
The South Portland City Council approved a six-month moratorium on exporting oil sand crude, also known as tar sands, through the city’s port facilities. The council voted 6-1 to approve the moratorium, which is retroactive and is now considered to have been in place since Nov. 6. City Councilor Michael Pock was the sole opposing vote, arguing that the moratorium is unfair to the oil industry, according to The Forecaster. The moratorium, which will be in place until May 5, will give a council-appointed, three-member committee time to draft an ordinance that permanently bans the Portland Pipe Line Corp. from bringing tar sands from Montreal into South Portland along its 236-mile pipeline. The city is expected to vote on the ordinance in early May.

New Jersey
Middlesex County has become the first in New Jersey to ban hydraulic fracturing, a method of drilling for natural gas. The county’s freeholder board unanimously adopted the ban.

New York
New York City Comptroller-elect Scott Stringer filed an amicus brief in an upstate court battle over a community’s right to enact a fracking ban within its borders. Stringer’s brief argues on behalf of Dryden, an upstate town which enacted a municipal ban on fracking in 2011, a strategy that was subsequently repeated by dozens of communities across the state. The ban is being challenged in the state’s highest court by a Norwegian energy company that argues municipalities don’t have the right to restrict drilling under state law. Stringer, who currently serves as Manhattan’s borough president, said his support of the case goes beyond environmental reasons. He said the friend of the court brief was also his “last act” in enabling local communities to achieve greater control, an issue that has been important to him throughout his political career. “The amicus brief is really about using the law as a bully pulpit to show people around the state that local communities, in working through their governments, that they should have the ability to work on issues like this,” he said.

The salty fluids from hydrofracking will be banned from roads and treatment plants in Onondaga County starting Jan. 1. With no discussion, the county Legislature unanimously approved a law that forbids the treatment of hydrofracking fluids in any wastewater treatment plant and the spreading of it on roads to reduce ice. “The toxins and radioactive materials found in hydraulic fracturing (“hydrofracking”) waste are detrimental to the public health and should be kept out of the county water supply and off county roadways,” the law reads. For more information, please contact us.

North Dakota
The North Dakota Industrial Commission has approved the first significant pilot test of recycling water for hydraulic fracturing in the Bakken, which could lead to conserving millions of gallons of freshwater and reducing truck traffic. Statoil received the OK to proceed with a test that will use produced water – wastewater that is a byproduct of oil production – for fracking operations at a well site north of Williston. Reusing the wastewater will save about 6.5 million gallons of freshwater for the two oil wells at the test site, said Russell Rankin, regional manager for Statoil. Statoil did a small-scale test in 2012 to determine if produced water from the Bakken, which has a very high salinity content, could be used for fracking. The test used Halliburton’s technology known as CleanWave to treat the water. The next hurdle Statoil had to clear was to develop a plan to safely store about 3 million gallons of produced water in tanks on location to complete a full frac job. That’s where the Industrial Commission is proceeding cautiously because a tank failure involving produced water could be catastrophic, said Lynn Helms, director of the Department of Mineral Resources.

North Dakota’s Board of University and School Lands allotted nearly $10 million to boost public schools and colleges in the Bakken Shale. The funds, which come from a two-year, $25 million pool set aside by the Land Board for education initiatives, will go toward building expansions, housing projects and increased security, according to a release from North Dakota Gov. Jack Dalrymple (R). “These grants are an important part of a larger state commitment to help meet the many challenges that are created by rapid growth in the state’s oil and gas region,” Dalrymple said in a statement. The Land Board granted $5.6 million to 24 K-12 schools in western North Dakota and $4 million to the region’s higher education institutions. Half the university dollars will go to Williston State College (WSC) for a new building dedicated to workforce training programs and for a campus housing project. Located in the hub of Bakken drilling activity, WSC serves as the lead institution in northwestern North Dakota’s TrainND initiative, which helps participants gain skills relevant not only to the region’s high-demand shale industry, but also in fields like computer literacy, personal finance and creative writing. The school will use $1.75 million of its awarded funds to build a new home for those programs. In all, North Dakota has contributed $2.6 billion over the past two years to support the state’s oil and gas region, according to a calculation by the governor’s office. For more information, please contact HBW Resources.

Kodiak Oil & Gas anticipates spending $940 million in the Williston Basin in 2014. That’s about $60 million less than it spent in 2013. But the company sees these funds fueling a 45% increase in its production for the year. While that’s below the 182% compound annual growth rate the company had enjoyed since 2010, that rate couldn’t go on forever as it was off a very low base. Kodiak expects to drill about 100 net wells in 2014, which is about the same number it drilled in 2013. The company can achieve that as its well costs will average about $8.9 million per well next year. That’s very good progress for a company that had spent an average of $12 million per well in August 2012.

Ohio
Development in the Utica shale play is driving up sales tax revenue for counties in eastern Ohio, helping lift local economies that have struggled for decades according to a new analysis by Energy in Depth Ohio, an oil and gas education and advocacy group. The report examined data on the Ohio Department of Taxation’s sales tax distribution website. What it found were some eye-popping increases for five counties in the heart of the Utica shale play. For example, Harrison County has seen its sales tax apportionment rise from just under $1 million in 2011 to $3.1 million through October of this year. The rural county, whose population stood at 15,830 in 2012, is the site for major natural gas processing projects by MarkWest Energy Partners LP and Utica East Ohio and is second in the state for drilling permits for Utica wells. The analysis also shows hefty sales tax gains for Carroll, Noble, Guernsey and Belmont counties.

The Ohio House began hearings on legislation to give tax breaks to consumers and businesses for purchasing new vehicles of converting existing ones to run on natural gasHB 336 also would provide incentives for the purchase of electric vehicles and phase-in motor fuel tax collections for compressed natural gas. The bipartisan legislation has more than 60 co-sponsors, including its two primary carriers, Reps. Dave Hall (R, District 70) and Sean O’Brien (D, District 63). It’s aimed at taking advantage of increased oil and natural gas production in eastern Ohio’s emerging shale oilfields. For more information, please contact HBW Resources.

The Ohio Department of Natural Resources are working this year to draft regulations to oversee hydraulic fracturing wastewater recycling operations. A draft copy shows that the agency would require minimum distances between waste-recycling operations and streams, and plants won’t be allowed in flood-prone areas. The draft rules also would require plastic liners and monitors for waste lagoons to shield groundwater from leaks. Storage tanks would have to be surrounded by ledges to contain spills. The rules are the state’s first attempt to regulate an industry born from Ohio’s boom in Utica shale drilling and fracking. “We think they are strong rules and they are a great start,” said Mark Bruce, a Natural Resources spokesman. For more information, please contact us.

The Ohio House began deliberations to revamp taxes charged on oil and gas produced through fracking. HB 375, introduced by Rep. Matt Huffman (R, District 4) and Speaker William Batchelder (R, District 69), calls for lower taxes on existing conventional wells and increasing rates on those drilled horizontally, with excess proceeds devoted to plugging abandoned wells and potentially cutting income tax rates. The legislation is a departure from a plan pursued by Gov. John Kasich, who sought a bigger increase in severance tax rates on oil and gas produced through fracking and use the proceeds for a tax cut.

Niles resident and local community activist John Williams vows he is not stopping his fight against the oil and gas industry. Arrested for trespassing during a Nov. 24 protest at a new injection well being drilled in Weathersfield Township, Williams now is focusing on the May election. With the help of the Committee to Keep Niles Safe, Williams hopes to get the 620 signatures needed for a “community bill of rights” initiative included on the Niles ballot. “We don’t have all the signatures yet, but we’re confident that we’ll get there,” Williams said. The proposal, which appeared on the Youngstown ballot in November, would ban hydraulic fracturing inside Niles city limits. The group has until Jan. 6 to acquire the needed signatures.

Oklahoma
Peregrine Petroleum has completed a significant acquisition of operated and non-operated assets in Oklahoma’s Anadarko Basin, one of North America’s most abundant oil and natural gas regions. The Anadarko Basin deal between privately held Peregrine and Oklahoma-based Primary Natural Resources III LLC was closed Dec. 19, 2013. Peregrine is acquiring more than 10,000 net acres in Ellis and Roger Mills Counties in western Oklahoma with production from the Cleveland, Tonkawa and Atoka formations. At closing, Peregrine assumed operatorship in 35 wells and non-operated interests in 31 wells. Currently, four operated and two non-operated wells are awaiting completion. Current net production (93 percent operated) is estimated to exceed 2,650 barrels of oil equivalent daily (boepd), with oil and natural gas liquids representing more than 70 percent of production. Peregrine currently operates one horizontal rig and plans to drill more than 48 operated locations in the Lower Cleveland and Tonkawa formations. An additional 59 locations exist in the non-operated acreage. While these assets are largely held by production (HBP), Peregrine plans to drill 18 new wells in the Anadarko Basin in 2014 and accelerate drilling in 2015, primarily in the Lower Cleveland formation.

Many Bakken pioneers are turning their attention to a new field, the Southern Central Oklahoma Oil Province, or SCOOP. According to Continental Resources, SCOOP is a “world-class resource.” The field straddles the Woodford Shale and the Anadarko Basin and covers an area about 3,300 square miles in size. And at its thickest, the pay-zone is 400 feet deep, twice as thick as the Bakken. Continental believes the 330,000 net acres it operates in the area will produce 1.8 billion barrels. To put that into perspective, that’s equal to more than half of the oil recovered in 100 years of conventional drilling in Oklahoma. And the company estimates that those wells will generate returns on investment of between 40% and 55% based on $3.50 gas and $90 oil. In total, the company estimates SCOOP could hold 70 billion barrels of oil in place. For more information, please contact HBW Resources.

Pennsylvania
Marcellus shale gas production boosted Pennsylvania from the seventh-largest to third-largest marketed U.S. natural gas producing state from 2011 to 2012, and may lift the state to the rank of second-largest natural gas producer this year, according to a Dec. 17 report by the U.S. Energy Information Administration (EIA). The state’s marketed natural gas production, which includes natural gas plant liquids, rose by 72 percent from 2011 to 2012, according to the EIA report Natural Gas Annual 2012. Earlier this month, EIA said that the Marcellus shale gas area in the eastern United States may account for 18 percent of total U.S. gas production, United Press International reported Dec. 10.

Bipartisan legislation to create a 4.9 percent drilling tax on Marcellus Shale in the state was unveiled. The bill, proposed by Rep. Gene DiGirolamo (R, District 18) imposes a tax which would be levied on the actual value of the natural gas produced, replacing the impact-fee model currently placed on wells, which declines over time for the first 15 years of operation. “For years, we have been hearing about the large natural gas deposits throughout much of the Commonwealth, and how Pennsylvania’s natural assets have the potential to help fund some of the most critical needs for our residents,” DiGirolamo said. “Although an impact fee was adopted a couple of years ago to help communities impacted by the development caused by drilling, there is still so much more potential.” The proposal is intended to be a bipartisan alternative to Act 13, which instituted the original impact fee model. Forty percent of the revenue from this tax would fund impact fees paid to municipalities and the other 60% goes to the following line items:
– Education – Basic Education or Accountability Block Grants 40%
· Environmental Stewardship Fund (Growing Greener) 10%
· Investment in Public Lands – State Forests and State Parks 10%
· Alternative Fuels Incentive Grant Program (AFIG) 4%
· Drug and Alcohol Programs 8%
· Adults with Special Needs 8%
· Behavioral Health 5%
· Human Services Development Fund 5%
· HEMAP 3%
· Rape and Domestic Violence Programs 2%
· Veterans Homes 2%
· Industry Partnerships 3%

The Pennsylvania Supreme Court has issued a key decision, striking down portions of Act 13, the 2012 law that imposed an impact fee on gas drillers. The law also placed restrictions on local municipalities’ abilities to zone oil and gas activities– the Court found this part of the law unconstitutional. In the majority opinion, the justices cited the Article 1 Section 27 of the Pennsylvania State Constitution, which guarantees the “right to clean air, pure water, and to the preservation of the natural, scenic, historic and esthetic values of the environment.” “When government acts, the actions must on balance reasonably account for the environment of the affected locale,” they write in the majority opinion. Court calls the state’s arguments in favor or Act 13 a “blindness to the reality” of Pennsylvania’s history of resource extraction. From majority Act 13 opinion: by any “responsible account” Marcellus development will produce a detrimental effect, perhaps rivaling coal. Gov. Corbett statement: “I am disappointed that the Supreme Court has invalidated some key provisions of Act 13.” For more information, please contact us.

Chief Oil & Gas and working interest partners Enerplus and Tug Hill have acquired MKR Holdings LLC from Chesapeake Appalachia LLC for approximately $500 million. The acquired assets include current month production of approximately 130,000 MCFD and approximately 40 operated wells waiting on completion or pipeline as well as undeveloped acreage. The acquisition includes leasehold in Bradford, Lycoming, Sullivan, Susquehanna and Wyoming counties in Pennsylvania. For more information, please contact HBW Resources.

Texas
A new study estimates that the oil and gas industry had a $14.5 billion impact last year on the Cline Shale region, east of the traditionally busier drilling area of the Permian Basin. The University of Texas at San Antonio’s Institute for Economic Development looked at a 10-county area and found the industry last year supported 21,450 jobs, with $1 billion in salaries and benefits to workers. “We expect to see that continue,” said Thomas Tunstall, research director with the Institute for Economic Development. “The ultimate question has to do with how quickly it accelerates. There’s nothing to indicate that it will see the same kind of exponential rise as the Eagle Ford or Bakken (Shale).” The core counties for the study were Fisher, Glasscock, Howard, Irion, Martin, Mitchell, Nolan, Reagan, Scurry and Sterling, where around 854 vertical wells and 57 horizontal or directional wells were completed in 2012. The study forecasts that by 2022 — depending on a variety of factors that include oil prices and well productivity — the annual economic output could be as low as $7.6 billion or as high as $34.3 billion.

A new study, Drought and the Water-energy Nexus in Texas, finds that in Texas, the transition from coal to natural gas for electricity generation is saving water and making the state less vulnerable to drought. Even though exploration for natural gas through hydraulic fracturing requires significant water consumption in Texas, the new consumption is easily offset by the overall water efficiencies of shifting electricity generation from coal to natural gas. The researchers estimate that water saved by shifting a power plant from coal to natural gas is 25 to 50 times as great as the amount of water used in hydraulic fracturing to extract the natural gas. Natural gas also enhances drought resilience by providing so-called peaking plants to complement increasing wind generation, which doesn’t consume water. The results of The University of Texas at Austin study are published in the journal Environmental Research Letters. The researchers estimate that in 2011 alone, Texas would have consumed an additional 32 billion gallons of water — enough to supply 870,000 average residents — if all its natural gas-fired power plants were instead coal-fired plants, even after factoring in the additional consumption of water for hydraulic fracturing to extract the natural gas. “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,” says Bridget Scanlon, senior research scientist at the university’s Bureau of Economic Geology, who led the study. For more information, please contact HBW Resources.

Plains All American Pipeline has announced $120 million in capital projects for the Eagle Ford Shale region, including a new natural gas liquids fractionator. The fractionator, expected to be operational in the second quarter of 2015, will be able to process up to 15,000 barrels per day of natural gas liquids, the Houston-based company announced. Plains plans to build the fractionator near rail and truck loading and unloading facilities in Gardendale, Texas in La Salle County. It also plans to expand a nearby condensate stabilization facility, adding a third train with incremental capacity of about 40,000 barrels per day. The additional train will bring the facility’s total capacity to about 120,000 barrels per day.

Direct Energy is selling three gas-fired power plants in Texas to the private equity firm Blackstone for $685 million in cash. Direct Energy, a nationwide generation and energy services company, announced Wednesday that it would sell plants it bought from 2004 to 2006 in Bastrop, Mission and Paris. They have a total generation capacity of 1,295 megawatts. The deal includes a three-year call option, an arrangement that allows Direct Energy to buy an equivalent amount of capacity from Blackstone at predetermined prices. The company said the option, which it only will exercise if wholesale electricity prices at the time make the power purchase attractive, helps ensure Direct Energy a reliable supply of electricity at stable prices. For more information, please contact us.

Marathon Oil Corp. plans to spend $2.3 billion in the Eagle Ford Shale in 2014. The company will drill between 250 and 260 wells net to Marathon, after industry partners and royalty owners are paid. (In all, Marathon will be operating between 340 and 355 new wells in South Texas). The $2.3 billion in spending includes $225 million for pipeline construction and central batteries. The Eagle Ford spending is about 64 percent of what Marathon plans to spend on its North American shale fields. Marathon will accelerate rig activity in the Eagle Ford and the Bakken Shale in North Dakota by 20 percent, and by 100 percent in the Oklahoma Woodford. Among the plans for 2014: testing 30-acre well spacing in some parts of the Eagle Ford. It expects that completing Eagle Ford wells will cost $6.5 to $7.5 million next year. And it’s looking at co-developing the Eagle Ford and the overlying Austin Chalk.

Rosetta Resources Inc. will spend $735 million next year — about 67 percent of its capital budget — on development in the liquids-rich window of the Eagle Ford Shale. It also will spend $265 million on West Texas’ Delaware Basin and another $100 million on other capital items, officials said in a statement to shareholders. “The 2014 capital plan is structured to deliver between 20 and 30 percent combined production growth from our Eagle Ford and Delaware Basin assets,” CEO and President Jim Craddock said in a written statement. “The program reflects increasing activity as we initiate broader scale horizontal development in Reeves County and further expand development in new areas of our current Eagle Ford position.” Rosetta plans to drill and complete 90 to 95 wells next year in the Eagle Ford, using four or five rigs. Half the completions will be in the Gates Ranch area and the remainder in other parts of the South Texas play rich in oil and natural gas liquids.

Abraxas Petroleum Corp. has closed the sale of its WyCross assets in the Eagle Ford Shale for $71.4 million. The company will use the proceeds to repay borrowings on its bank line and to fund new investments in the Bakken and Eagle Ford shales, officials say. Abraxas’ board also has approved the company’s 2014 capital budget of $105 million. The budget includes $10 million for additional leases in the Bakken and Eagle Ford, officials say.

Utah
Utah oil shale development company Red Leaf Resources has cleared a major regulatory hurdle and will soon launch the first commercial-scale oil shale production in North America in decades. The Utah Division of Water Quality issued a Groundwater Discharge Permit to Red Leaf Resources, which the company sought despite not producing any discharge water. In 2012, Red Leaf received a Large Mining Operation permit from the Utah Division of Oil, Gas & Mining, contingent upon issuance of the discharge permit. “We are pleased to finally have the major permits required to move forward with construction of our commercial demonstration project, which will produce more than 300,000 barrels of oil and prove our clean oil shale technology works on a large scale,” said Red Leaf CEO Adolph Lechtenberger. In 2009, Red Leaf successfully completed a pilot project on its lease holdings in Eastern Utah, from which it successfully produced more than 300 barrels of oil. Red Leaf estimates it has up to 600 million barrels of recoverable oil under leases on school trust lands in Utah, which will be developed under a joint venture with the French energy conglomerate TOTAL SA. Red Leaf has another estimated 750 million barrels on land leased in Wyoming, which will be developed under a joint venture with the Canadian firm Questerre Energy. For more information, please contact HBW Resources.

West Virginia
The U.S. Environmental Protection Agency and the Department of Justice announced that Chesapeake Appalachia, LLC, will pay a $3.2 million civil penalty and spend an EPA-estimated $6.5 million to restore 27 sites damaged by discharges of fill material into streams and wetlands and to implement a Clean Water Act (CWA) 404 compliance plan at the company’s natural gas extraction sites in West Virginia. Of the 27 sites, four are freshwater impoundments, one is a compressor station, six involve operations related to vertical wells, and the remaining 16 sites involve operations related to horizontal drilling. In addition to a civil penalty of $3.2 million, the Consent Order requires restoration where feasible, mitigation, employee training for five years in West Virginia, Virginia, Maryland, and Pennsylvania, and integration of a CWA Section 404 compliance protocol into its operating procedures in West Virginia.

National

The average U.S. household is estimated to be saving between $425 to $725 each year in energy costs due to a sharp drop in domestic natural gas prices since 2005. And those savings could potentially rise to as much as $1,200 a year by 2020—roughly equal to a boost in U.S. disposable income of nearly 10 percent. These are among the findings of new research released by The Boston Consulting Group (BCG). The research assesses the impact on household expenditures from rising U.S. production of natural gas recovered from the country’s vast underground shale deposits. Wholesale natural gas prices in the U.S. have fallen by around 50 percent since 2005, when production ramped up using hydraulic fracturing techniques, and are projected to remain low for decades. For more information, please contact us.

Signaling concern that sweeping federal regulations could cripple companies using hydraulic fracturing to extract oil and gas from shale in their states, governors from 12 energy states signed an open letter to energy regulators and policymakers in D.C., urging them to “leave regulation in the capable hands of the states.” The letter is the kick-off of a political initiative called States First. It’s a partnership of the Interstate Oil and Gas Compact, a multi-state government agency comprised of 39 states dedicated to the responsible development of oil and gas resources, and the Groundwater Protection Council, a national association of state groundwater protection officials. The governors say hydraulic fracturing has to be carefully regulated. But, they add, that is already being done, and has been for years—by their state regulators. “State regulatory programs have been at the forefront of oil and gas exploration since 1935,” they write. The governors say the states are doing a good job; a one-size-fits-all federal approach won’t work. For more information, please contact HBW Resources.

The U.S. Shale Gas Hydraulic Fracturing Industry 2013-2018: Trends, Profits and Forecast” foresees good growth there for the country over the next five years. The market for shale gas drilling may reach roughly $15.5 billion in 2018, the report said. The country’s abundant shales, lower natural gas prices, and improved hydraulic fracturing techniques drive this forecast, the report added.

A new policy study, “Hydraulic Fracturing: A Game-Changer for Energy and Economies,” explains the facts about hydraulic fracturing so legislators and regulators can make better-informed decisions on fracking issues. The study, authored by energy policy analyst Isaac Orr and published by The Heartland Institute, which also publishes Environment & Climate News, documents the economic benefits of hydraulic fracturing, environmental challenges, and public policy options. In his study, Orr documents how Fed Chairman Alan Greenspan and other prominent economists warned last decade that high natural gas prices threatened the nation’s economy. The Clinton administration had championed natural gas as an environmentally friendly conventional energy source, but the resulting increase in demand for natural caused a rapid price increase. The fracking revolution that began late last decade rescued the U.S. economy from potentially devastating consequences of natural gas’ growing energy market share and rapidly rising prices. “Thirty-five states now participate in what has been christened America’s Shale Revolution. This development has resulted in a 34 percent increase in U.S. natural gas production since 2005, which has made the United States the world’s largest producer of natural gas,” Orr explains. “The Shale Revolution also has brought U.S. oil production to a 20-year high and created thousands of energy sector jobs, in addition to thousands of jobs outside the energy sector,” Orr observes.” Last year, U.S. oil production increased by 14 percent over the previous year, the greatest increase among countries annually producing a million barrels or more. The year 2012 also marked the largest one-year increase in oil production in U.S. history. In the process, oil imports as a percent of U.S. consumption have fallen from 70 percent in 2009 to 37 percent in February of 2013, despite policies from Washington that have caused production of oil, natural gas liquids, natural gas, and coal on federal land to fall in quantity and as a percentage of total production. Furthermore, North America is projected to become energy-independent by 2020, a development that would have been impossible prior to the invention of smart drilling.” For more information, please contact us.
Capitol Hill Democrats are pressing the Interior Department to force energy companies to send more money to the government when they produce coal, oil, and natural gas on federal lands. The Bicameral Task Force on Climate Change, a group of liberal lawmakers, said in a report that Interior’s current policies “effectively subsidize fossil-fuel development on public land” with royalty rates that are too low and coal lease terms that are too generous. “These policies are counterproductive to the goals of the President’s Climate Action Plan because they subsidize a high-carbon energy source at the very time the U.S. needs to reduce its carbon pollution and because they fail to provide taxpayers with a proper return on these publicly owned mineral resources,” states the report issued Thursday. The call for higher royalties is part of the group’s wider set of recommendations to Interior for addressing climate change, such as focusing more of the U.S. Geological Survey’s research on climate science. Rep. Henry Waxman (D, CA) and Sen. Sheldon Whitehouse (D, RI) lead the bicameral group. For more information, please contact HBW Resources.
Senate Finance Committee Chairman Max Baucus (D, MT) is pitching an overhaul of energy tax policy that he’s calling a money-saving, climate-friendly way to simplify today’s “confusing and costly” maze of incentives. The Montana Democrat is making a big political bet with the sweeping proposal unveiled Wednesday that would create a wholly new system of incentives for producing low-carbon electricity and fuels. His plan would jettison incentives that have vocal political constituencies, such as oil companies and electric vehicle and efficiency advocates. But his office hopes to attract support because the proposal saves money compared to extending the current patchwork of energy incentives, and the plan is part of wider tax code overhaul efforts that would lower corporate rates. “Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale,” Baucus said in a statement Wednesday. “We need a system of energy incentives that is more predictable, rational, and technology neutral to increase our energy security and ensure a clean and healthy environment for future generations.” Sen. Baucus has requested feedback from stakeholders by January 17, 2014. Comments can be sent to Tax_Reform@Finance.Senate.Gov.

Representatives Peter DeFazio (D, OR 4) and Henry A. Waxman (D, CA 33), ranking members on the House Committee on Natural Resources and House Committee on Energy and Commerce, respectively, requested a joint hearing on the issue of seismic activity induced by the underground injection of wastewater from hydraulic fracturing activities. In a letter to Chairmen Doc Hastings and Fred Upton, the members cite the increased seismic activity in previously seismically inactive locations, the critical need for additional data, and the potential regulatory gaps in current law that put people and property at risk from man-made earthquakes. The letter states, “the tremendous boom in U.S. oil and natural gas production over the past several years has been the result of the expanded use of hydraulic fracturing and horizontal drilling, techniques that generate large quantities of wastewater, which is often disposed of through underground injection,” and reference a recent report by the National Research Council that linked seismic events to wastewater injection in Arkansas, New Mexico, Ohio, Texas, and other locations.

Cuadrilla Resources, Veolia Environnement and National Grid will work with a European consortium led by the Centre for Carbon Measurement at the National Physical Laboratory, to develop and test methane measurement instruments. Climate-KIC, Europe’s largest public-private innovation partnership working to address the challenge of climate change, has awarded EUR 1.266 million to FuME (Fugitive Methane Emissions), a new project that will help to identify fugitive methane emissions. For more information, please contact us.

EU governments endorsed an outline deal on new rules to assess the impact on the environment of projects such as oil and gas exploration, after removing references to shale gas that had blocked agreement. Some European nations are eager to develop shale gas as they view the United States’ shale gas revolution and cheap energy costs compared with Europe as a huge competitive advantage. But the geology in Europe is very different and public opposition is strong on environmental grounds. Many of those keenest on exploiting shale gas, such as Britain, say extra EU regulations on the energy form are unnecessary and would get in the way of its development. British Prime Minister David Cameron wrote to European Commission President Jose Manuel Barroso this month laying out his arguments against new rules for shale gas. EU ambassadors approved a revised draft law, updating legislation first agreed more than two decades ago and for the first time including an assessment of a new project’s impact on climate change, EU diplomats said. In a statement, Valentinas Mazuronis, environment minister of Lithuania, which holds the EU presidency until the end of the year, said the reforms would streamline the process and set minimum requirements across the European Union. The proposals, endorsed by ambassadors still need to be signed off by the European Parliament and by ministers to become law.

Australia
Santos has announced that the Moomba-194 vertical shale gas well in Australia’s Cooper Basin is flowing gas at an average rate of 3 million standard cubic feet per day (mmscf/d). Moomba-194 is a follow-up to the existing successful shale gas well Moomba-191 within Santos’ Cooper Basin unconventional resource exploration program. Moomba-194 was drilled to a depth of 3,368 meters to appraise the gas potential in various unconventional and shale plays.  Five standard fracture stimulation stages were placed within selected targets across the Permian section, including the Patchawarra deep coal, Patchawarra tight sand, Upper Patchawarra hybrid shale, Murteree shale and Epsilon hybrid shale zones.  Initial production logging indicates all five zones are contributing to gas flow. Following completion of the stimulation activities on 8 December, the well has been on production test for over one week and recorded a gas flow prior to production logging of 3.1 mmscf/d at 1,075 psi through a 28/64 inch choke, with an associated CO2 content consistent with that historically produced in the Moomba North area of the Cooper Basin. The Moomba-194 result:

  • demonstrates a potentially material extension to the Moomba North field;
  • proves flow from multiple shale gas targets located outside of structural closure; and
  • represents a further step towards commercialization of the greater Nappamerri Trough where Santos has an active exploration program underway, including its first horizontal shale well, Roswell-2.

Azerbaijan
A group of companies led by BP PLC has agreed to develop a sprawling offshore gas field in Azerbaijan, linking future production to Europe via new pipelines. The $45 billion deal to expand the Shah Deniz gas project in the Caspian Sea could help Europe shake its reliance on Russian natural gas when the Southern Gas Corridor pipeline network comes online by the end of the decade. For more information, please contact HBW Resources.

Canada
Talisman Energy has announced that it had reached an agreement to sell part of its Montney acreage in northeast British Columbia to Progress Energy Canada for a total cash consideration of CDN $1.5 billion. For more information, please contact us.

France
France’s Parliament definitively adopted the Socialist government’s budget for 2014 which introduces in January a carbon tax on the use of gas, heating oil and coal, Parliamentary documents show. Key priorities in the budget are reducing the public deficit to 3.6% of GDP in 2014 and prioritizing the government’s planned “energy transition” to support renewable energy and energy efficiency projects while reducing the role of nuclear power. In a deciding vote in the lower house, L’Assemblee Nationale, the bill was agreed after support from Socialist, Green and other left-of-center parties. Members of the main centre-right opposition party, UMP, voted against. The bill introduces a carbon tax on household use of gas, heating oil and coal in 2014, according to carbon content. The tax is to be implemented for transport fuels such as gasoline and diesel from 2015 onwards. President Francois Hollande announced in September a target of reducing fossil fuel consumption by 30% by 2030, in a bid to reduce final energy consumption by 50% by 2050. The duty will be charged at a rate of Eur7/mt of carbon in 2014, rising to Eur14.50/mt in 2015 and Eur22/mt in 2016. As well as gas, heating oil is used commonly in French homes, and the government expects the scheme to generate Eur340 million in 2014, jumping to Eur2.5 billion in 2015 and Eur4 billion in 2016.

Russia
Gazprom Neft, the oil arm of Russia’s top gas producer Gazprom, said it would raise expenditure by 32 percent to 278 billion roubles ($8.5 billion) in 2014 to prop up oil output at ageing fields. The company is also due to start oil production at Novoportovskoye and Messoyakha in the northern part of the Yamalo-Nenets region in 2014-2016 as it seeks to replace falling production at mature fields with output from new deposits.

Saudi Arabia
U.S. light oil production from shale and tight rock formations may impact Saudi Arabia in the medium-term by forcing it to sell its lighter grades at lower prices, according to Jadwa Investment Co. The price difference between light and sweet grades of crude oil, which contain less sulfur and yield more transportation fuels, and heavier and sour grades will narrow as the U.S. adds more light crude from shale formations over the next five years, Fahd al-Turki, the chief economist at Riyadh-based Jadwa, said in a phone interview. Saudi Arabia, the world’s largest crude exporter, probably won’t be affected in the longer-term as new North American supplies of shale-derived light oil will only represent around 3 percent of global liquids output, al-Turki said. The narrowing in light-heavy crude price differentials will help improve margins of European refiners who process more light oil than U.S. processors, he said. For more information, please contact HBW Resources.

Spain
The Spanish government amended its environmental rules to address the development of shale resources and to limit the environmental review process to six months. Spain’s review process often took three, four or five years to complete a final environmental impact statement. With the shortening of the review process period to six months (four months for review, with the possibility for a two-month extension), Spain hopes to encourage energy companies to develop its resources. While not endorsing hydraulic fracturing, the central government sends a signal that it is willing to consider the process in an objective, timely, and efficient manner. A request for hydraulic fracturing must meet standard review demands, which is the same level of scrutiny given to nuclear power plants. The shale-rich region of Cantabria banned hydraulic fracturing in April 2013, stating concerns about earthquakes and water contamination. But, with the country’s severe economic downturn marked by high unemployment and the fact that Spain imports more than three-quarters of its energy needs, the central government wants to encourage shale gas development to boost its economy and to decrease its reliance on foreign sources of fuel. For more information, please contact us.

Ukraine
A deal for cheaper Russian gas agreed between Russia’s Gazprom and Ukraine’s Naftogaz will not affect agreements between Kiev and Western energy companies for shale gas exploration, Ukraine’s energy minister said. Russia and Ukraine reached agreement on a $15 billion aid package which includes lowering the price for Russian gas deliveries to Ukraine by about a third. Earlier this year, the Kiev government signed separate agreements with Royal Dutch Shell and U.S. energy major Chevron on exploring for shale gas in Ukraine as part of moves to secure greater energy independence from Russia.

United Kingdom
The UK Onshore Operators Group (UKOOG) welcomed a “helpful” regulatory roadmap for the onshore production of shale gas and oil, which was released by the UK government. The Strategic Environment Assessment (SEA) report (produced for the government by engineering consultant AMEC) sets out the potential economic and environmental effects of further oil and gas activity in Great Britain – including shale oil and gas production. The government said the assessment was carried out in preparation for the launch of the next round of licenses being made available for onshore oil and gas exploration and production. A consultation will now run until March to consider the findings of the SEA report and how this affects shale gas production in the UK. UKOOG Chief Executive Ken Cronin commented: “Having the regulatory process written in one place is extremely helpful and underlines the extensive nature of regulation of oil and gas exploration in this country, which is among the most comprehensive in the world. We welcome the opportunity to consult on the government’s future plans for shale gas and to detail how the UK’s potentially exciting resources of shale gas can be harnessed for the benefit of the country with the minimum of impact on the environment and local communities. “The Strategic Environmental Assessment gives a broad range of scenarios which show how shale gas can have a positive impact for UK economy through increased employment and direct benefits for the local communities as well as pointing out how shale gas can bring down greenhouse gas emissions. Many of the issues raised in the SEA relating to water usage and wastewater are being addressed through the onshore oil and gas industry’s work with bodies such as Water UK.” For more information, please contact HBW Resources.

Additional Information

For additional information, please contact Bo Ollison with HBW Resources.  His contact information is below.

Bo Ollison
HBW Resources
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Houston, TX 77098
Tel: 713-337-8810
E-mail: bollison@hbwresources.com
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Twitter: @BoOllison

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