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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

  • Cumberland County Commissioners agreed to devote half of the county’s anticipated share of Marcellus Shale Legacy funds to the farmland preservation program. The $100,000 sum will bump the county’s total 2014 investment up to $247,285
  • CONSOL Energy announced plans to invest $1.1 billion in drilling operations, much of it targeting natural gas liquids in the Marcellus and Utica Shale
  • Revenue received by the Monroe County Recorder’s Office has increased from $123,069 in 2010 to more than $1.4 million in 2013, much of the money is linked to oil and gas exploration in the county
  • FIG Tree Capital Ventures will commit $10m in private funding for the acquisition of oil and gas leases and development to specifically target the Bakken/Three Forks Shale formations of North Dakota
  • A bitter cold snap has furnaces working overtime and heating bills climbing, but Western Pennsylvania residents will pay less than they would have five or 10 years ago as Marcellus Shale production has fortified natural gas supplies
  • Had it not been for the current fracking boom, Ohioans might have been looking at 65 to 129 percent higher heating bills this January
  • New study finds that shale gas wells are producing about three times less wastewater per unit of gas recovered than conventional wells
  • Hess Corporation announced a 2014 Exploration and Production capital and exploratory budget of $5.8 billion. Of this, $2.85 billion (49 percent) is dedicated to unconventional shale resources, with $1.475 billion (25 percent) for production, $925 million (16 percent) for developments and $550 million (10 percent) for exploration
  • PEDEVCO (Pacific Energy Development) has announced its entry into a definitive agreement to purchase an interest in 40 wells and approximately 28,727 net acres in the DJ Basin, Colorado for approximately $30 million
  • Minnesota’s Pollution Control Agency and Department of Natural Resources formed a 15-member advisory panel to aid them in developing new silica mining regulations
  • Koch Pipeline Co. called off plans to build a 250,000-barrel-a-day crude line to Illinois from North Dakota’s Bakken formation
  • Members of Marietta City Council’s lands, buildings and parks committee heard a presentation on the horizontal hydraulic fracturing process that would be used to extract natural gas from Utica shale beds more than a mile below the surface in the Marietta area. Protege Energy III offered to pay $4,750 an acre, plus a 17.5 percent royalty based on any product it would retrieve from the drilling operation
  • Had it not been for the current fracking boom, Ohioans might have been looking at 65 to 129 percent higher heating bills this January
  • Enserco Midstream LLC has purchased a majority stake in Frac Resources LLC, a supplier of hydraulic fracturing sand with loading depots in San Antonio and Laredo
  • American Midstream Partners LP is buying a 120-mile natural gas gathering system in the Eagle Ford Shale from Penn Virginia Corp. for $100 million
  • President Obama’s post-State Of The Union tour includes a stop at GE’s gas engines facility in Waukesha, WI, the facility makes engines used in natural gas production.

States 

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

California
Republicans in Congress are worried that a new federal study of oil and gas drilling on public lands in California could lead to regulatory barriers or even a ban on hydraulic fracturing. So a group of them are warning the council doing the study about “advocacy papers masquerading about science” and urging researchers to talk with experts from oil and gas companies. House Majority Whip Kevin McCarthy (R, CA 23) and 13 other Republicans sent a letter laying out their concerns to the California Council on Science and Technology, which is conducting the science review for the Bureau of Land Management. The signers of the letter include most of California’s Republican members, House Oversight and Government Reform Chairman Darrell Issa (R, CA 49) and two chairmen of House Natural Resources subcommittees. “This assessment could ultimately lead to additional barriers to production, heavy regulatory requirements, or, in the worst case, a de facto ban on hydraulic fracturing and other well stimulation techniques,” the letter said, “making development of our state’s vast resources, such as the Monterey shale, physically or economically impossible.” The letter states that the lawmakers “strongly support protecting underground drinking water supplies.” But they note that the Natural Resources Committee was told last year that there have been “no cases” of contamination of underground sources of drinking water from hydraulic fracturing. For more information, please contact HBW Resources.

Colorado
PEDEVCO (Pacific Energy Development) has announced its entry into a definitive agreement to purchase an interest in 40 wells and approximately 28,727 net acres in the DJ Basin, Colorado from an independent U.S. oil and gas company, including approximately 2,200 net acres in the prolific Wattenberg Area. The acreage, in the Niobrara Shale Formation, includes approximately 28,241 net acres located in Weld County and approximately 486 net acres located in Morgan County. The Company will pay approximately $30 million in cash, subject to customary adjustments.

Democrats turned back a Republican attempt to withhold natural-gas and oil taxes from cities that ban hydraulic fracturing. Voters in five Front Range cities have placed moratoriums on the drilling technique, effectively banning gas and oil drilling because nearly every well is hydraulically fractured. Rep. Jerry Sonnenberg (R, District 65) said those towns should lose a share of their severance tax money, a portion of which is set aside to help communities cope with the industrial impacts of drilling, like damaged roads. Sonnenberg’s, HB 1064, would have banned cash payments and grants funded by severance taxes to any town or county that doesn’t allow drilling. “It’s about doing the right thing with those severance tax dollars and sending them to communities to help mitigate the costs of energy production,” Sonnenberg said. Democrats disagreed, saying cities should not be punished for something their citizens decided through the democratic process. The bill died 7-6 on a party-line vote in the House Local Government Committee.

Kansas
Geologists told a Kansas House committee that more seismic monitoring in the state could help determine if hydraulic fracturing is connected to earthquakes. Rex Buchanan, interim director of the Kansas Geological Survey, testified before the House Energy and Environment Committee that no evidence exists that the fracturing of rocks deep beneath the earth’s surface was producing earthquakes that can be felt. “It is always difficult to know what is a natural and what is a man-made event,” Buchanan said. Kansas has seen an increase in oil and gas exploration in southern counties as new technology allows extraction in difficult geological formations. Hydraulic fracturing involves high-pressure injections of liquid into underground rock to release trapped fossil fuels. Fracking has been suspected as a cause of increased seismic activity in parts of the U.S. that typically aren’t prone to earthquakes. Legislators heard the testimony for information purposes. There is no pending legislation that would further regulate fracking. A working group of officials with the Kansas Corporation Commission, KGS and the Kansas Department of Health and Environment is developing a draft plan of response to possible causes of increased seismic activity.

Minnesota
Minnesota’s Pollution Control Agency and Department of Natural Resources formed a 15-member advisory panel to aid them in developing new silica mining regulations. The panel includes individual citizens, as well as representatives from local governments and the mining industry. Legislation passed last year directs the agencies to develop the new regulations. The committee will have its first meeting Jan. 29 and continue meeting monthly until new rules or rule revisions are proposed. For more information, please contact us.

New York
New York City Mayor de Blasio is jumping forcefully into the debate over fracking on upstate lands — calling it a danger to the city’s water supply. Asked for his view of the drilling practice, also known as hydraulic fracturing, de Blasio first noted that “my purview is the five boroughs” before sounding off on the hot-button environmental issue. “The one thing I am firm about is that I don’t see any place for fracking,” he told reporters. “The science simply isn’t reliable enough. The technology isn’t reliable enough. And, there’s too much danger to our water supply, to our environment in general.” De Blasio said there should be a statewide moratorium on fracking “until the day comes that we can actually prove it’s safe and I don’t think that day is coming any time soon.”

Hurley Town Board members announced that there would be no further effort to develop a moratorium against hydraulic fracturing for natural gas until consultants recommended that the time was right. Discussions about proposed laws came after recommendations from the town planner and an attorney were read by Supervisor Gary Bellows. “The town planner, he feels that we’re premature in going with a moratorium,” he said. “His feeling is that New York state and New York state (Department of Environmental Conservation) have a moratorium in place and the New York state Department of Health is also reviewing, and that no action by anyone will take place until after the report from the health department comes out and then the governor decides what he’s going to do after that.”

North Dakota
Koch Pipeline Co. called off plans to build a 250,000-barrel-a-day crude line to Illinois from North Dakota’s Bakken formation, where a shale boom has helped lift domestic production to the highest in a quarter-century. The indirect subsidiary of Koch Industries Inc., one of the largest private companies in the U.S., is no longer developing the so-called Dakota Express pipeline, Jake Reint, a Koch spokesman, said by e-mail. He didn’t provide a reason for the decision. The Wichita, Kansas-based company was scheduled to begin a 45-day open season to gauge interest from potential shippers on the line in July. “The non-binding open season for the Dakota Express pipeline is no longer being pursued,” Reint, based in Wichita, said in the e-mail. Hydraulic fracturing and horizontal drilling have helped producers reach shale deposits of oil across the middle of the U.S. from North Dakota to Texas, sending domestic output to the highest level since 1988. Koch proposed the Dakota Express line to help get the growing glut of oil to refiners in the U.S. Midwest. It was considering an extension to the Gulf Coast. For more information, please contact us.

An overwhelming majority of North Dakotans continue to support oil and gas development in the state, although that support is slightly lower than in previous years, according to a new study paid for by the North Dakota Petroleum Council. Conducted Nov. 21-25 by telephone and released this week, the survey polled 794 North Dakota residents who have previously voted in a state election. Of those, 83 percent said they support continued oil development in the state and 73 percent said the benefits of oil development outweigh the risks. The approval numbers represent a decline from the last two annual surveys by the Petroleum Council, which showed at least 88 percent of respondents supporting oil development. For more information, please contact HBW Resources.

A BNSF Railway Co. train that derailed and blocked tracks in North Dakota may delay crude deliveries by as many as two days from the second-largest onshore oil producing state in the U.S. Eleven cars carrying corn derailed while switching tracks at Ross, ND, said Steven Forsberg, a spokesman for BNSF. Customers may see delays of 36 to 48 hours, the company said. “They’re dealing with extremely cold weather there, so we have to go to winter safety protocols,” Forsberg said. “There’s a limit on how long you can have people out there in severe wind chill. They end up working in shorter shifts.” North Dakota relies on railways to transport its crude, and the type of oil pumped from shale formations in the state may be more flammable and therefore more dangerous to ship by train than crudes from other areas. Last month, a BNSF train caught fire after a collision, leading to explosions and prompting evacuations near Casselton, ND. The potential delays due to yesterday’s derailment “apply to all trains that would use that route” and not just those carrying oil, Forsberg said. Most of the trains affected don’t originate in ND and are moving between the U.S. Pacific Northwest and Midwest, he said. BNSF customers load an average of nine crude-oil trains daily across the company’s network of railways in production basins stretching from North Dakota to Colorado to Texas, according to Forsberg.

FIG Tree Capital Ventures will commit $10m in private funding for the acquisition of oil and gas leases and development to specifically target the Bakken/Three Forks Shale formations of North Dakota. FIG Tree has changed its focus to the Williston Basin following its previous success in the Woodbine Formation of South East Texas as a non-operated working interest owner alongside PetroMax Operating (PMO) out of Garland Texas. To date McKenzie County is the top producing Bakken Shale County in all of North Dakota with over 1,300 producing wells and as a result it has been the primary area of interest for FIG. Despite the prolific production from the area to date, we believe the Williston Basin in terms of how it is developed, stimulated, and produced, is still in its infancy, according to Ryan Wright, the company COO. “The data suggests that better understanding of the formations, and improvements in fracture stimulation, have led to higher IP rates and EURs (estimated ultimate recovery) from the average well completions. In addition, more frequent pad drilling has resulted in lower average development costs. This means better economics for FIG and its partners. We intend to remain focused on the area in order to solidify a stronger foothold in the play for our company and its partners.”

Ohio
Members of Marietta City Council’s lands, buildings and parks committee heard a presentation on the horizontal hydraulic fracturing process that would be used to extract natural gas from Utica shale beds more than a mile below the surface in the Marietta area. The city administration requested the presentation from Matt Lupardus, vice president with the Southeastern Ohio Oil and Gas Association (SOOGA); Bob Chase, chairman of Marietta College’s Petroleum Engineering Department, and Shawn Bennett with Energy In Depth, an oil and gas research, education and public outreach group. Earlier this month the council members were approached by a local broker on behalf of Protege Energy III, a Tulsa, Okla.-based oil and gas company, about 35 acres of city property as part of a 6,000-acre block of surrounding lands that Protege wants to lease for a natural gas horizontal hydraulic drilling operation. The company has offered to pay $4,750 an acre, plus a 17.5 percent royalty based on any product it would retrieve from the drilling operation.

Rep. John Carney (D, District 22) and Rep. Jack Cera (D, District 96) introduced HB 400, which would revise & expand provisions governing the reporting of information to a holder of a royalty interest in a well by the owner first applying the provisions to owners of and holders of royalty interests in both oil and gas wells; requires an owner to provide specified information to the holder of a royalty interest in any oil or gas well when payment is made rather than authorizing the holder of a royalty interest in a natural gas well to request only certain information from the owner; authorizes the holder of a royalty interest to bring civil action against the owner to enforce the bill’s reporting requirements. Energy companies would be required to disclose annual sales figures and other information to landowners for oil and gas produced from their properties. The bill requires royalty payments to disclose the total amount and value of oil and gas produced, severance and other taxes paid and other details of the producer’s business. The bill was assigned to the Agriculture and Natural Resources Committee. For more information, please contact us.

Revenue received from document recording fees, document copy fees and extended access hour fees by the Monroe County Recorder’s Office has zoomed from $123,069 in 2010 to more than $1.4 million in 2013. Noting that much of the money is linked to oil and gas exploration in the county, Recorder Ann Block went on to point out that county residents are receiving funds from leasing and are buying new places as well as paying off mortgages. “All of that of that creates documents processed in the recorder’s office,” she said. Block added many of the documents are deeds for properties, and there are a lot of affidavits. While talking about the increased revenue for the county, the recorder said, “I think it’s going to keep going on for a while. I don’t know how long. I’m hoping it will keep going. I don’t see it waning at all.” The 2013 total received was $1,401,650.61 of which $815,331.04 went to the county’s general fund and $586,319.57 to the Ohio State Housing Trust Fund. For more information, please contact HBW Resources.

Ohio Supreme Court Justice Judith French predicts energy-related cases will dominate the court’s docket in years to come. Lower courts are already seeing large numbers of filings regarding property ownership and mineral rights, and French said the majority of these cases will proceed through appellate courts to the Ohio Supreme Court. “I think just energy in general will dominate the court docket once those cases get started,” she said. “In this part of the state, it’s about oil and gas. But in the western part of the state, it’s about wind. … The environmental issues could also come our way.”

Blue Racer Midstream has entered into long-term agreements with many of the Utica Shale’s leading natural gas producers. Blue Racer will provide comprehensive, integrated midstream services for production from liquids-rich Utica shale acreage in Monroe, Noble, Guernsey, Belmont, Harrison and Carroll counties in Ohio. Producers that have made recent dedications to Blue Racer include Eclipse Resources, Hess Corporation, CONSOL Energy and PDC Energy. These dedications build on previous commitments to Blue Racer from other prominent producers, including Chesapeake Energy, TOTAL Gas & Power North America, Rex Energy Corporation and EnerVest. All have made long-term dedications to Blue Racer for services including natural gas gathering, compression, treating, processing and transportation; condensate handling; and the fractionation, storage, transportation and marketing of natural gas liquids. It’s a very exciting time in the evolution of the Utica Shale. The Utica is a complex play with tremendous potential. Utica producers face a number of challenges, and we continue to build out a very large supersystem in the Utica to assist them. Blue Racer’s integrated supersystem of midstream assets is the largest system in the Utica. We have created a footprint that provides our producer customers with maximum flexibility, said Blue Racer’s CEO, Jack Lafield. Our system and ongoing expansion programs are specifically designed to provide gathering, processing and fractionation services across the basin, along with interconnectivity to major residue markets and optionality for our producer’s natural gas liquids. Our assets are positioned exactly where our producers need them so that ultimately they achieve the best possible price realizations.”  For more information, please contact HBW Resources.

Had it not been for the current fracking boom, Ohioans might have been looking at 65 to 129 percent higher heating bills this January. Columbia Gas of Ohio said this January’s average residential heating bill will be $142.19 to $146.19 for the 1.4 million households it serves, many of them in northwest Ohio. That’s $6 to $10 more than what the utility projected at the beginning of the month, when it estimated this year’s January bills would average $136.19 per household. Utility spokesman Chris Kozak said the additional $6 to $10 in charges are “pretty insignificant” considering the brutal cold snaps brought on by two unusual shifts of the Arctic Circle’s polar vortex over North America, the first bringing wind chills approaching -50 degrees and this weekend’s, which brought wind chills of more than -20 degrees. But what if the modern era of hydraulic fracturing to drill for natural gas as we know it hadn’t occurred? “They’d be paying more, and that’s obvious,” said Tom Stewart, executive vice president of the Ohio Oil and Gas Association.

The oil drilling technique known as hydraulic fracturing has been blamed – rightly or wrongly – for various hazards ranging from earthquakes to water pollution. While the technique has generated a lot of media attention, so far there has not been much in the way of resolution of insurance litigation resulting from claims stemming from fracking practices. One case being closely watched by insurance companies was filed in the U.S. Court for the Southern District of Ohio in 2012. Many believe the decisions made in Warren Drilling Co., Inc. v. ACE American Ins. Co. have the potential for guiding the outcomes of future litigation generated by the use of hydraulic fracturing in the oil and gas production industry. The court’s language and the elements it focuses on will be important for future cases, said Michael Salem an attorney with the California-based firm of Nelson, Thompson, Pegue & Thornton, A.P.C. “Once a well has been drilled, a mix of water and chemicals called proponents, or fracking fluid, is injected under high pressure, fracturing the reservoir rock. … When the fracking fluids are removed, the proponents keep the cracks open left by the fracturing, letting oil and natural gas flow back to the surface,” Salem said during an A.M. Best law podcast on fracking insurance issues. In the Warren Drilling case, “in 2008 a homeowner living close to drilling operations became aware that his water well had been contaminated by the hazardous fracking fluid,” Salem said. The homeowner sued Warren Drilling and the driller eventually settled with the homeowner. Warren Drilling then sued ACE for coverage under the insured’s energy pollution liability extension endorsement (EPLE) after the insurer refused to defend the case brought by the homeowner and indemnify the driller for its losses. “One of the major issues the court will have to decide is whether the incident was unexpected and unintended, and commenced abruptly and instantaneously,” Salem said.

Pennsylvania
While natural gas production in the Marcellus Shale has increased the volumes of wastewater produced in the region nearly sixfold, shale wells in the play produce about one-third the wastewater per unit of gas recovered than do conventional wells, a new study has found. “Despite producing less wastewater per unit of gas, developing the Marcellus shale has increased the total wastewater generated in the region by [about] 570% since 2004, overwhelming current wastewater disposal infrastructure capacity,” the study released by researchers at Kent State and Duke Universities said. The study, which its authors said is the first comprehensive characterization of wastewater volumes generated by Marcellus wells, analyzed data from 2,189 active Marcellus wells in Pennsylvania and compared gas production and wastewater volumes with conventional wells. What did surprise us is when we actually looked at the amount of wastewater that’s being produced relative to the amount of gas that’s being produced we found that shale gas wells are actually producing about three times less wastewater per unit of gas recovered than conventional wells,” Brian Lutz, Kent State professor and an author of the study, said in an interview. He added this finding goes against the common public perception that shale gas development is inordinately more water intensive than conventional gas production. “It seems to be exactly opposite reality,” he said. The study estimated that the average Marcellus well generated 5.211 million liters (about 1.38 million gallons) of total wastewater and [about 1 Bcf] of gas over the first four years of operation. In addition, the study found that most of the wastewater generated by Marcellus gas wells was not associated with hydraulic fracturing, but was instead water produced from the natural formation. For more information, please contact us.

Cumberland County Commissioners agreed to devote half of the county’s anticipated share of Marcellus Shale Legacy funds to the farmland preservation program. The $100,000 sum will bump the county’s total 2014 investment up to $247,285 — with only $40,000 of that coming from taxpayer wallets. In 2012, state legislators passed Act 13, authorizing the distribution of $204 million in revenue collected from drilling companies operating wells in the Marcellus Shale region to each of Pennsylvania’s 67 counties. This money can be used to fund land preservation and conservation activities, with commissioners earmarking $50,000 of the county’s $400,000 allocations for 2011 and 2012 for farmland preservation. 36 property owners applied for preservation this year for a total of 3,600 acres. He estimated that it would cost between $11 million and $12 million to preserve every farm on the list. For more information, please contact HBW Resources.

CONSOL Energy announced plans to invest $1.1 billion in drilling operations, much of it targeting natural gas liquids in the Marcellus and Utica shales. The Pittsburgh-based company said it plans to spend $105 million to drill 32 Utica wells with a joint-venture partner. The wells will be in Harrison, Belmont, Guernsey and Noble counties, areas rich in natural gas liquids. CONSOL also plans to spend $24 million in Monroe County to drill a well in a liquids-rich part of the Marcellus and a dry-gas Utica well from the same pad. That project is outside the joint venture. The company is investing $825 million on 162 gross wells, plus $60 million on a Marcellus gathering system.

The fate of Marcellus shale drilling under Murrysville Community Park will be in the voters’ hands this fall. The Murrysville Council discussed a proposed lease for the oil and gas rights at the park. However, officials plan to ask residents to ultimately make the decision. Council will ask residents to petition for a referendum to be placed on the November ballot that would have voters decide if the municipality should sell the gas rights to the highest bidder. Officials from Huntley and Huntley, a Monroeville-based drilling company, have approached municipal leaders about leasing the gas rights under the 262-acre park but have not made a formal offer, said Mike Hillebrand, vice president and chief operating officer at Huntley. “We’ve been in discussions for several years to determine interest,” Hillebrand said. “We’ve thrown some concepts around, for economics, to see if it’s even advancable.” Huntley has proposed paying Murrysville $585,000 for the gas rights, Morrison said. The municipality would receive 12.5 percent of any profit made on gas extracted from under the park.

CGG announced that it has extended its data library of shale acreage in the United States by completing a vast three-year multi-client 3D land seismic program targeting the Marcellus Shale Fairway. CGG conducted the 1,566-square-mile program in six phases in Lycoming, Tioga, Clinton, Centre and Clearfield Counties in Central Pennsylvania. It is believed to be the largest combined onshore seismic survey ever acquired in the continental United States. As the terrain in Central Pennsylvania gradually became more rugged and mountainous, CGG switched from deploying the Sercel 428XL cable acquisition system to using the Sercel UNITE(R) wireless acquisition system to acquire the complex seismic program. By the end of 2014 all six phases will be merged together to offer a seamless data set processed with state-of-the-art interpolation and migration techniques over the entire program. Currently this data set is available over the Lycoming II and Brookside portions of the survey.

A bitter cold snap has furnaces working overtime and heating bills climbing, but Western Pennsylvania residents will pay less than they would have five or 10 years ago as Marcellus Shale production has fortified natural gas supplies. Regional natural gas prices, though projected to climb slightly as a result of the recent cold weather, are still less expensive than they were in 2004 and ’09 in inflation-adjusted dollars. “And, of course, we all know why,” said Addison Armstrong, a Pittsburgh native and senior director of market research at Tradition Energy, an energy consulting firm based in Stamford, Conn. “Ten years ago, Pittsburgh was a delivery point along a series of points that brought gas from Gulf Coast to the Northeast.” Now, the region sits on one of the highest-yielding natural gas fields in the world, the Marcellus Shale, and that supply has shielded customers from drastic price fluctuations that might come with a recent increase in demand. “The supply of gas in Western Pennsylvania, eastern Ohio and West Virginia is more than is needed to satisfy the demand of residential and commercial heating,” Mr. Armstrong said. Peoples Natural Gas, a Pittsburgh-based utility, projects the average gas bill for January will climb to $198, up from the $173 customers pay in an average January, company spokesman Barry Kukovich said. The company projects customers will use an average of 20.1 Mcf (thousand cubic feet) of natural gas this month, up from 17.4 Mcf in a typical January. “What’s happening is that they’re just using more gas,” Mr. Kukovich said. Most of the natural gas used today was purchased and stored over the summer months, and the price consumers pay is set on a quarterly basis, before this arctic chill was even a gleam in a meteorologist’s eye. Pennsylvania state law prohibits utilities from marking up the cost of natural gas, which accounts for about 50 percent of a consumer’s heating bill. For more information, please contact us.

The eight democratic candidates for Governor gathered at Carnegie Mellon University to address a range of issues, including statewide fracking. Candidates in attendance included John Hanger, former secretary of the Pennsylvania Department of Environmental Protection; Jo Ellen Litz, Lebanon County commissioner; Rob McCord, Pennsylvania treasurer; Katie McGinty, former secretary of environmental protection; Max Myers, businessman and minister; Ed Pawlowski, Allentown mayor; Allyson Schwartz, United States representative from Pennsylvania’s 13th congressional district; and Tom Wolf, businessman and former secretary of the Pennsylvania Department of Revenue. Paul Klein, a business professor at Duquesne University, and Krysia Kubiak Vila-Roger, assistant general counsel at Duquesne Light, moderated the forum that was sponsored by local democratic organizations. The moderators raised a number of topics that applied to the Western Pennsylvania region, placing an added emphasis on natural gas and the process by which it’s extracted. A majority of the candidates supported development of the Marcellus Shale — a formation of sedimentary rock containing a number of pockets of natural gas that extends throughout the Appalachian region — and the use of some form of hydraulic fracturing — or the extraction of oil from the ground to using a mixture of high pressure water, chemicals and sand — within the state. But a majority also supported a moratorium, or temporary suspension, of fracking to research the potential damage it could inflict on the environment. For more information, please contact HBW Resources.

Texas
After warning this month that crude oil from a booming shale field in North Dakota may be particularly flammable, federal regulators are testing oil from the Eagle Ford Shale in South Texas. A series of high-profile derailments and explosive fires of train cars carrying oil out of North Dakota’s Bakken Shale has drawn scrutiny to transporting crude by rail — a practice that has skyrocketed with the boom in domestic oil production. Although the focus has been on Bakken crude, wells in both the Bakken and the Eagle Ford produce light, sweet crude along with liquid gases such as propane and butane. The U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration recently took samples of Eagle Ford crude. Regulators took samples of Eagle Ford crude in Tomball, Hope and LaGrange and a sample of crude oil from Calgary, Canada was taken in Port Arthur. Texas is far less reliant than North Dakota on trains for moving crude to refineries. The state has hundreds of thousands of miles of pipelines, with more under construction.

Crude oil logistics firm Enserco Midstream LLC has purchased a majority stake in Frac Resources LLC, a supplier of hydraulic fracturing sand with loading depots in San Antonio and Laredo. Frac Resources is one of the largest frac-sand logistics and distribution companies in the Eagle Ford Shale, company officials say. It trans-loaded 750 million pounds of the commodity last year. The Houston-based company has more than 20,000 tons of warehouse storage at Mission Rail Park in San Antonio and at its Laredo facility. It is also in the developing a West Texas depot near Big Spring. With the acquisition, Enserco — owned by Houston-based commodities firm Twin Eagle Resource Management LLC — now has terminal locations in Texas, North Dakota, Montana and Wyoming.

American Midstream Partners LP is buying a 120-mile natural gas gathering system in the Eagle Ford Shale from Penn Virginia Corp. for $100 million. After the deal closes, Denver-based American Midstream also will enter into a fee-based gathering agreement under which Penn Virginia will dedicate for 25 years all current and future natural gas production from areas served by the system. The system is located in the shale’s oil-rich Gonzales and Lavaca counties, close to a well-stream gathering system American Midstream’s general partner is now developing. American Midstream says the acquired system will generate roughly $8 million in earnings before interest, taxes, depreciation and amortization this year. For more information, please contact HBW Resources.

Washington
Northwest Innovation Works wants to build a pair of $1 billion refineries in the Pacific Northwest that would process natural gas into methanol. The proposed refineries would ship the processed methanol across the Pacific Ocean to Chinese refineries that would convert it into olefins, which are used as a key ingredient in rubber and plastic goods. In the first phase of operation, each U.S. refinery would produce 5,000 metric tons of methanol each day, according to a firm representing the venture. Northwest Innovation Works is a new joint venture between the Chinese Academy of Sciences, a government agency, and BP. Involved parties are billing the natural gas that would be used in the methanol process as a cleaner alternative to the coal and petroleum typically used. The natural gas would be shipped to the plants by pipeline, investors said. Each factory would employ about 120 to distill methanol from natural gas. About 1,000 union construction workers would build each of the plants, which could start production early in 2018.

Wisconsin
President Obama’s post-State Of The Union tour includes a stop Thursday at GE’s gas engines facility in Waukesha, Wis., where he will ‘deliver remarks on the economy,” according to the White House. The facility makes engines used in natural gas production. For more information, please contact us.

National

microbe capable of digesting methane could save countless tons of greenhouse gas from reaching the atmosphere during the hydraulic fracturing process. Hydraulic fracturing, also known as fracking, uses pressurized water to fracture rock to release natural gas. It’s been a boon to local economies and a source of inexpensive fuels—but if nothing is done to capture the byproduct methane, which is typically flared in the air, it can also contribute heftily to greenhouse gases in the atmosphere. Scientists and engineers at the Energy Department’s National Renewable Energy Laboratory (NREL) are working with colleagues at the University of Washington (UW), LanzaTech, and Johnson Matthey to develop microbes that convert the methane found in natural gas into liquid diesel fuel. If successful, the Biological Gas to Liquids (BioGTL) process could also lower our dependence on foreign oil. The amount of natural gas simply flared or vented from oil wells globally is enormous—six trillion cubic feet, equal to one-third of the amount of petroleum used in the United States each year, which adds up to $12 billion in lost potential revenue annually. This adds greatly to global greenhouse gas emissions because every molecule of methane vented to the atmosphere in the fracking process has the global-warming capacity of 20 molecules of carbon dioxide.

A recent report by the American Chemistry Council (ACC) projects that exports of U.S. chemicals will increase by more than 45% over the next five years. Increased production of shale gas and liquids is cited as a primary reason for the resurgence in the U.S. chemical industry. After being a net importer as recently as 2011, ACC projects that net exports will rise to $30 billion by 2088.

Environmental concerns surrounding domestic natural gas production are surmountable, Energy Secretary Ernest Moniz said. As U.S. production of the fossil fuel has climbed, so have concerns about the environmental footprint of drilling operations and systems that transport natural gas across the country. Conservationists worry about water contamination from natural gas escaping from poorly secured wells and the chemicals used in its extraction. Environmentalists also are concerned about methane leaks at the well pad and in the transmission systems undermining the potential climate benefits of power plants switching from coal to cleaner-burning natural gas. “Issues around environmental footprint have to be resolved,” Moniz told the U.S. Conference of Mayors gathering in Washington. “Although there are a lot of data that still need to be collected, if you look at the challenges that are out there, each one of them looks challenging but manageable.” Moniz acknowledged problems in the past. “Best practices have not always been applied all the time,” he said bluntly. The Obama administration has pledged to combat methane emissions associated with natural gas production. One major challenge is the paucity of pipelines that can carry natural gas away from wells in North Dakota, where the fossil fuel is effectively a byproduct extracted along with the more valuable crude. Moniz later declined to give reporters a specific timetable for the government’s interagency review of ways to curb methane emissions — a project launched as part of Obama’s climate action plan last June. “We’re working on it,” he said. For more information, please contact HBW Resources.

Hess Corporation announced a 2014 Exploration and Production capital and exploratory budget of $5.8 billion. Of this, $2.85 billion (49 percent) is dedicated to unconventional shale resources, with $1.475 billion (25 percent) for production, $925 million (16 percent) for developments and $550 million (10 percent) for exploration. Greg Hill, President and COO, stated, “Our expenditures in the Bakken are planned to be $2.2 billion in 2014, flat with 2013. However, as a result of lower well costs and decreased investments in infrastructure projects we plan to operate 17 rigs versus 14 last year and to bring 225 new operated wells online in 2014 compared to 168 in 2013. In addition, we plan to increase our expenditures in the emerging Utica shale play to $550 million from $455 million last year, as we focus our activities on the appraisal and development of the wet gas window.”

Chevron Corp. is seeking to sell pipeline and storage operations in Texas and Louisiana that together may fetch more than $1 billion, people familiar with the matter said. Chevron is working with Jefferies Group LLC to find buyers for at least four natural gas and crude oil pipeline operations, said two of the people, who asked not to be named because the process is private. The San Ramon, California-based company began sending out offering materials this week, the people said.

Oasys Water Inc. is a startup specializing in water-treatment and desalination solutions that clean so-called produced water. Companies have been challenged trying to cleanse a substance saltier than seawater and often laced with radioactive materials that returns to the surface with fossil fuels extracted in fracking. Oasys hopes to tap into an estimated $36 billion hydraulic fracturing market that transformed the U.S. energy industry by blasting water, sand and a chemical mix into rocks to free trapped gas. The Boston-based company has won U.S. and China contracts at a time that water supply crises, including a drought emergency in California, threaten energy production as power demand rises and the Earth’s population surpasses 7 billion. Within two decades, global energy consumption will climb 35 percent, increasing water consumption by 85 percent, the International Energy Agency says. Oasys plans to play into that by deploying its systems that use a process called forward-osmosis in Texas and Pennsylvania after signing a sales accord with National Oilwell Varco Inc., the biggest U.S. maker of oil-field equipment. Oasys is looking to the U.K. as Britain’s government establishes a shale industry. Oasys can treat produced water, which includes that found naturally in shale that’s returned through the well during extraction, for $3 to $4 a barrel. That’s usually less than the cost of trucking water away for pumping underground typically used by producers. It’s also less energy-intensive than techniques such as evaporation or reverse-osmosis, which aren’t effective for these kinds of waters that contain higher levels of chemicals such as magnesium and calcium. Oasys’s technology works using membranes and the natural pressures of liquid to separate impurities from industrial waters. Oasys systems for oil- and gas-produced water can treat 4,000 barrels a day, or six to 12 fracking wells’ worth. The treated water can be returned to the water cycle or used for agriculture. While it’s potable, it may take time before many are willing to drink it. For more information, please contact us.

The New England States Committee on Electricity, a group of the six governors’ top electricity regulators, sent a letter to electric grid operator ISO New England on behalf of the states’ governors. In that letter, the regulators ask ISO New England to approve a tariff on electricity that would help pay for increased natural gas pipeline capacity into New England by the end of 2017. The letter also asked ISO New England for similar assistance to develop new transmission lines to import clean electricity from outside New England (most likely in the form of hydropower in Canada). But it’s the request for help to bring more of that cheap shale gas from Pennsylvania that’s particularly unusual. ISO New England is in the electricity business, not the gas business. But the letter underscores just how hard it is to separate the two — more than half of New England’s electricity generation capacity comes from natural gas-fired power plants. The states involved are: Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island and Vermont. For more information, please contact HBW Resources.

The good news is the Great American Shale Energy Boom continues to hurtle onward. The bad news is we may be running out of ways of getting it to consumers. In its latest Oil Market Report, the International Energy Agency (IEA) says that the U.S. is producing so much oil — November output surpassed 8 million barrels for the first time in 25 years — that at some point in the near future, existing ways of taking it to market could become inadequate. They call it the “crude wall” — the point at which oil production growth would end up getting squeezed by infrastructure and regulatory constraints, and subsequently slow. “With 2013 U.S. crude oil production exceeding even the boldest of expectations by a wide margin, that ‘wall’ now seems to be looming larger than ever, and the issue has become a matter of public debate,” the agency says. Specifically, debate has begun on lifting the ban on raw crude exports that’s been in place for nearly 40 years, when the first Oil Shock hit. While no legislation to do so has yet been introduced, Energy Secretary Ernest Moniz, at least one Senator, and multiple oil companies have called for the ban to be reexamined.

EPA hosted a conference call to provide a summary of the Dec. 9, 2013 technical roundtable on EPA’s Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water. The presentation was hosted by Jeanne Briskin, Coordinator of Hydraulic Fracturing Research, EPA Office of Research & Development
And Jeff Frithsen, EPA Office of Research & Development. For more information, please contact us.

International

The European Commission adopted a Recommendation aiming to ensure that proper environmental and climate safeguards are in place for “fracking” – the high-volume hydraulic fracturing technique used notably in shale gas operations. The Recommendation aimed at helping all Member States wishing to use this practice address health and environmental risks and improve transparency for citizens. It also lays the ground for a level playing field for industry and establishes a clearer framework for investors. EU Member States have been invited to apply the principles within six months and, from December 2014 onwards, inform the Commission each year about measures that they have put in place. The Commission will monitor the application of the Recommendation with a publicly available scoreboard that will compare the situation in different Member States. It will review the effectiveness of this approach in 18 months. For more information, please contact HBW Resources.

APATEQ, a recent Luxembourg startup in the water/wastewater industry, announced it will deliver its first oil-water separation product to “a large customer in Europe.” Housed in a 40-foot container, the mobile unit will treat produced water from oil production and hydraulic fracturing—”requiring virtually no chemicals for operation using a proprietary technology,” according to the company’s announcement. APATEQ also has shipped some mobile units for compact wastewater treatment. “We are thrilled about this contract, as oil-water separation is planned to be the major growth segment of APTEQ in the future. We already filed two patents for our oil-water separation technology, which is characterized by high separation efficiency, low energy consumption, [and] compactness with virtually no chemical aids,” said CEO Bogdan Serban. “As a young Luxembourgish company, being chosen by European market leaders to treat very difficult deposit water makes us particularly proud.”

The exploration of shale gas is a revolution, and is changing global energy picture, chief economist of the International Energy Agency Fatih Birol said in a recent interview with Xinhua. Birol said several major changes were seen in global energy landscape. Roles of actors in the energy sector were changing. “For many years, America had the role of being an energy importer. But now, its role changed and it is becoming an energy exporter,” he said, “America, because it produces a lot of shale gas and shale oil, does not need much Canadian oil and gas. So, Canada has to turn to Asia, especially to China, to export its energy.” Despite the fact many people were concerned about the environmental effects of shale gas, the new source of energy was coming in the energy picture and changing the game in the energy world, Birol said. “These concerns can be minimized or nullified if companies take necessary measures, if there are regulations,” he said. Birol attributed the global energy system changes to shale gas and shale oil revolution, plans of many countries including those in Europe and Japan to renounce nuclear power, as well as the fact that many countries now want to use energy more and more efficiently. These changes were also reshaping the global financial and economic system, he said adding future energy demands would come from three major sources: China, India and the Middle East. Facing increasing demand, though the share of renewable energies such as hydric power, wind, solar and biomass were increasing, it still cannot be concluded that “we can very soon totally rely on renewable energies,” Birol said.

Argentina
According to an Argentinian government official, Argentina’s petrochemical sector wants to invest in shale plays like Vaca Muerta which they hope will enable them to expand their production capacity and reduce gas imports. At least two companies have already begun investment plans, including Dow Chemicals. According to Industry Minister Debora Giorgi: “This sector is getting involved in the investment process of Vaca Muerta to secure the resources that they need as raw materials.” Dow and state-run YPF invested $188 million in September last year to drill 12 shale gas wells and expect production to surpass 3 million cubic meters/day. Dow wants to use the additional gas supplies to boost gas feedback supplies at its Bahia Blanca plants. YPF also partnered with Chevron on a $1.5 billion pilot production project, while other companies like ExxonMobil, Shell and Total are starting to drill for supplies. YPF has said shale development will help turn around a decade-long decline in oil and gas production. A decline in local oil and gas production, along with an increase in demand has caused shortages in the country which depends on oil and gas to meet approximately 90% of its energy needs. Giorgi also said that by 2020 shale gas production would be enough to replace imports of gas and some petrochemical products. For more information, please contact us.

Mexico
Petroleos Mexicanos (Pemex), Mexico’s state- owned oil company, expects to sign its first exploration and production agreements with international companies as early as year-end after Mexico ended its 75-year monopoly. Pemex will initially focus on mature and deep-water fields to establish the ventures, Chief Executive Officer Emilio Lozoya said. Possible associations in the refining, transportation and petrochemical businesses can be done once congress approves the so-called secondary legislation, which is expected in April, he said. “We expect that in exploration and production, by the end of 2014 or beginning of 2015 we achieve the first investments or associations,” Lozoya said today in an interview in Davos during the World Economic Forum. “The quickest way to monetize the investments that Pemex already did in exploration is through joint ventures. This means increasing output and oil income.” President Enrique Pena Nieto ended the seven-decade-plus production monopoly held by Pemex, allowing foreign companies to produce crude in the largest supplier to the U.S. after Canada and Saudi Arabia. The overhaul may bring an additional $20 billion in foreign direct investment as soon as 2015, according to Bank of America Corp. Pemex expects to start new wells in the next few months, helping the company boost its oil output to 2.6 million barrels a day, Lozoya also said. Output is presently 2.503 million barrels a day, according to preliminary data from the company. For more information, please contact HBW Resources.

Poland
Gas explorer San Leon Energy announced a successful shale test in Poland, saying the project was the most commercially advanced in the country, improving prospects for Polish shale gas. San Leon said an initial test at a site near the northern city of Gdansk revealed a potential yield of up to 400,000 cubic feet per day (about 11,300 cubic meters) of gas and that the total would rise to millions of cubic feet per day after further exploration. “We’ve basically cracked the nut in terms of the recipe, in terms of how to frack,” Executive Chairman Oisin Fanning told Reuters, referring to the controversial process of pumping sand, water and chemicals at high pressure into shale formations deep underground. “Several million cubic feet of gas a day is what we’re expecting,” he said, adding that an announcement on flow rates, which are expected to be at a commercial level, would be made within 60 days. For more information, please contact us.

Romania
Since October 2013 a remote village in Romania has been the site of increasingly difficult protests against a Chevron hydraulic fracturing operation, originally believed to be the only so-called fracking site in all of Romania. According to a report posted on the Frack Off Romania blog, activists have located dozens of other fracking sites in Romania. The Romanian Government has quietly allowed fracking operations to get underway, most of which, currently, are exploratory wells. Romania had instituted a moratorium against hydraulic fracturing, but in May 2013 Chevron received a permit to begin exploratory work to determine hydraulic fracturing potential in Romania. While the moratorium has not been lifted, Environment and Climate Change Romanian Minister Rovana Plumb has said the exploratory work presents no environmental risk because it is not fracking, at this stage.

Russia
Russia could match the world’s top liquefied natural gas (LNG) producer Qatar within 10 years as state and private projects accelerate, which could also help divert some gas away from Europe, the head of a leading Russian gas company said. Leonid Mikhelson, chief executive and co-owner of Novatek, said the company’s gas output was set to grow by 7-8 percent this year and output of liquids would rise by 40-50 percent as it launches new fields. Novatek has seen a spectacular growth over the past decade – turning from a mid-sized producer into Russia’s second largest gas firm behind Gazprom. Its market capitalization has reached $40 billion and its gas output of over 60 billion cubic meters is enough to meet annual demand in a country the size of Italy. Novatek has Russian pipeline gas monopoly Gazprom, France’s Total and co-owner of trading company Gunvor, Gennady Timchenko, among its shareholders. Arctic Yamal LNG Novatek is developing a major Arctic LNG project, Yamal LNG, together with partners Total and China’s CNPC. It could sell 10 percent out of its 60 percent stake in the project to a new partner from countries such as Japan, South Korea, China or France before the new year, Mikhelson said. Despite being the world’s largest gas reserves holder and pipeline gas producer and exporter, Russia has only one functioning LNG project, belonging to a consortium of Gazprom and Royal Dutch Shell off the Pacific island of Sakhalin. Apart from Yamal LNG, other potential projects include LNG plants both on the Pacific and the Arctic. Mikhelson’s predictions of a steep rise in Russian LNG exports come as Australia, the United States and East Africa are all expected to flood the market with super-cooled gas in the next decade, possibly leading to a LNG price collapse. Mikhelson said he was not concerned about an LNG glut as demand was set to outpace supplies.

Saudi Arabia
Saudi Basic Industries (SABIC) is in talks with several US firms to invest in the US shale gas industry, and expects to enter the market this year, Chief Executive Mohamed Al-Mady said. “We’re currently in talks with a few big names in the US for investment in shale gas. We expect to enter the market sometime this year. This will be great for SABIC and will globalize our operations,” he said. For more information, please contact HBW Resources.

Spain
Spain’s central government will file a legal challenge in the country’s Constitutional Court to a fracking ban in the region of Cantabria, it said on Friday. The central government will argue it has jurisdiction in the matter and that Cantabria’s ban violates the national law on hydrocarbons, according to published resolutions from Prime Minister Mariano Rajoy’s weekly cabinet meeting. Spain’s parliament in November passed an environmental impact law that could open the door to hydraulic fracturing that has not been used up to now in the country. Spain imports almost all of its hydrocarbon needs and hopes to develop a potential shale gas field that stretches across the north of the country, from Galicia to the Basque Country, passing through the small region of Cantabria.

United Kingdom
Shale gas operators in Britain should be paying £6bn a year in taxes by the middle of the 2020s to compensate for the damage wreaked on the environment, according to a study from Cambridge University. The government has made clear drillers such as Cuadrilla Resources and IGas should provide sweeteners to local communities affected by their activities but it would also be right for shale gas producers to pay for contributing to global warming, argues Chris Hope, a parliamentary adviser and reader in policy modelling at the Judge Business School in Cambridge. “Shale gas will contribute to climate change in two ways, from carbon dioxide emissions when the gas is burned, and from the fugitive emissions of underground methane that leak into the atmosphere when the gas is extracted,” he says. “Under the Institute of Directors’ central production estimate and with a central methane leakage rate of 2%, the tax revenues for the UK will be about £6bn per year in current prices by the time shale really gets going in the latter half of the 2020s.” Hope says that even though there is uncertainty about various aspects of climate change, the social cost of carbon produced when oil and gas is burned has been well assessed and is calculated at $100 a ton of carbon dioxide. The social impact of methane has been less well studied, Hope says, but the best estimate for this much more powerful greenhouse gas is a little over $1,200 a ton. For more information, please contact us.

Additional Information

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

Bo Ollison
HBW Resources
2211 Norfolk Street, #410
Houston, TX 77098
Tel: 713-337-8810
E-mail: bollison@hbwresources.com
Web: http://www.hbwresources.com
Twitter: @BoOllison

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If you have any general questions, please contact us anytime. Previous versions of the HBW Ollison Hydraulic Fracturing Report and other reports can be viewed on the Intelligence Tab on the HBW Resources website at: https://hbwresources.com/intelligence/.  Hope you all have a great day.

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