Foreign Ownership in Marcellus Shale
August 7, 2011
Gas Drilling Awareness for Cortland County
August 7, 2011
August 7, 2011
The Oil Drum | U.S. Shale Gas: Less Abundance, Higher Cost.
Posted by aeberman on August 5, 2011 – 10:15am
Topic: Geology/Exploration
Tags: demand, economics, shale gas, supply [list all tags]
Arthur E. Berman and Lynn F. Pittinger
Lynn Pittinger is a consultant in petroleum engineering with 30 years of industry experience. He managed economic and engineering evaluations for Unocal and Occidental Oil & Gas, and has been an independent consultant since 2008. He has collaborated with Berman on all shale play evaluation projects since 2009.
Introduction
Shale gas has become an important and permanent feature of U.S. energy supply. Daily production has increased from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011.
There are, however, two major concerns at the center of the shale gas revolution:
• Despite impressive production growth, it is not yet clear that these plays are commercial at current prices because of the high capital costs of land and drilling and completion.
• Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.
These are not purely technical topics for debate among petroleum professionals. The marketing of the shale gas phenomenon has been so effective that important policy and strategic decisions are being made based on as yet unproven assumptions about the abundance and low cost of these plays. The “Pickens Plan” seeks to get congressional approval for natural gas subsidies that might eventually lead to conversion of large parts of our vehicle fleet to run on natural gas. This might commit the U.S. to decades of natural gas exports at fixed prices in the face of scarcity and increasing prices in the domestic market. Similarly, companies have gotten permits from the government to transform liquefied natural gas import terminals into export facilities that would commit the U.S. to decades of large, fixed export volumes. If reserves are less and cost is more than many assume, these could be disastrous decisions.
Executive Summary
Our analysis indicates that industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied.
The Barnett and Fayetteville shale plays have the most complete history of production and thus provide the best available analogues for shale gas plays with less complete histories. We recognize that all shale plays are different but, until more production history is available, the best assumption is that newer plays will develop along similar lines to these older plays. There is now far too much data in Barnett and Fayetteville to continue use of strong hyperbolic flattening decline models with b coefficients greater than 1.0.
Type curves that are commonly used to support strong hyperbolic flattening are misleading because they incorporate survivorship bias and rate increases from re-stimulations that require additional capital investment. Comparison of individual and group decline-curve analysis indicates that group or type-curve methods substantially over-estimate recoverable reserves.
Results to date in the Haynesville Shale play are disappointing, and will substantially underperform industry claims. In fact, it is difficult to understand how companies justify 125 rigs drilling in a play that has not yet demonstrated commercial viability at present reserve projections until gas prices exceed $8.68 per mmBu.
CONTENTS
Production Volume and Reserve Growth vs. Profitability
Entry of Major Oil Companies Into Shale Plays
Evaluation of Shale Gas Well Performance
Well Performance Evaluation Methodology
Barnett Well Performance
Fayetteville Well Performance
Haynesville Well Performance
Comparison to Operator Claims
Matching Aggregate Production Profiles for Shale Gas Plays
Economics
Summary and Conclusions
Appendix
August 6, 2011
bluestoneGathering.pdf (application/pdf Object).
This is some information on the Blue Stone Gatherning Line. Remember
the area it wants to go through is worth more as blue stone than as a
right of way for a gas line. Even the blue stone is worth more than
the gas under it.
They want to be in service by the end of June 2012. BJ
August 6, 2011
DEC, major gas company locked in land battle | The Ithaca Journal | theithacajournal.com.
ALBANY — One of the country’s largest natural gas
producers and the state of New York appear headed for a battle over a soon-to-be-expiring contract for the natural gas rights on state forestland.
Chesapeake Energy is contending that the company’s gas leases on 15,472 acres of state-owned land in central New York
and the Southern Tier should be extended as the state decides how to regulate hydraulic fracturing to extract natural gas.
The leases, which were signed in 2006, are set to expire Nov. 15.
In a letter obtained by Gannett’s Albany Bureau, Chesapeake wrote to the state Department of Environmental Conservation in February that the leases should be extended until the state starts issuing certain drilling permits.
Because the state has yet to allow high-volume hydraulic fracturing — a newer technique used with natural gas drilling — the company believes it has legal ground to prolong the lease, wrote Henry Hood, the company’s senior vice president.
“Chesapeake regrets these circumstances, including the need for this communication,” Hood wrote. “Chesapeake looks forward to the time when it can move forward with the safe and responsible development of the shale resources in New York State
.”
The company made the claim under “force majeure,” a legal clause inserted in many contracts that allows either party to extend the length of the deal if unforeseen circumstances prevent it from being carried out. For the state’s leases with Chesapeake, the clause includes “acts of God, work stoppages due to labor disputes or strikes, fires, explosions, epidemics, riots, war rebellion, sabotage or the like.”
In a statement, the DEC didn’t rule out legal action to end the leases in November.
“We are in the process of determining our next steps,” spokeswoman Emily DeSantis said.
Similar attempts to extend gas leases have ended up in the courtroom.
Chesapeake is battling two lawsuits in federal court by Southern Tier landowners who received force majeure letters about their leases in recent years. The original expiration dates on those leases, which date back a decade, have already passed. The landowners want to end them permanently — in large part because the land would be more valuable under a new deal.
The company’s force majeure claims are significant because the acreage sits above the massive, gas-rich Marcellus and Utica shale formations. The state leases are on gas rights below state forests in Broome, Tioga, Chemung, Cortland, Schuyler and Steuben counties.
In 2006, the DEC took bids on about 19,000 acres of gas rights below state-owned forestland. Chesapeake and Fortuna Energy (now Talisman Energy) were the winning bidders, paying a combined $9 million up front to the state with a promise of 12.5 percent royalties on any gas produced.
Since then, technological advancements to the hydrofracking process — which injects water, sand and chemicals deep underground to break up shale formations — have made the Marcellus accessible to gas companies.
The value of the gas rights on the land above the formation, such as the state forestland in dispute, has skyrocketed.
In July 2008, then-Gov. David Paterson announced that the state couldn’t issue permits for high-volume hydrofracking until the DEC completed an environmental review and set up permitting guidelines. Last year, he called for the DEC to put out a second draft of its review for public comment, which is set to kick off later this summer.
The DEC is expected to complete its review at some point next year, but put out a preliminary report last month. Chesapeake says the length of the lease has essentially been on pause since July 2008 and will restart when permits are issued.
A Chesapeake official said the company is trying to protect its investment, and the state’s decision to hold off on hydrofracking prevents the company from “fulfilling its obligation for natural-gas production on these properties.”
“Chesapeake has taken reasonable and legal measures to extend the terms of many of our leases in New York State,” Paul Hartman, the company’s director of state government relations in New York, said in a statement. “These measures are based upon the original lease agreements, which can allow for extensions of the original lease term for various reasons.”
Talisman has not filed an extension claim on any of the 3,754 acres of state gas rights it has leased until November. A spokeswoman for the company did not return a call for comment.
Talisman has faced criticism for trying to enforce its expired leases. In 2009, the company agreed to a $192,500 settlement after then-Attorney General Andrew Cuomo found it was misleading customers with its force majeure claims.
Attorneys for private landowners have argued in lawsuits that the state’s permitting freeze doesn’t prohibit Chesapeake from upholding their end of the contract. They have contended that other gas-producing formations — such as the Trenton Black River and the Herkimer sandstone formation — are still accessible and can be drilled without high-volume hydrofracking.
Because the leases date back a decade, the gas-rich Marcellus and Utica formations weren’t on the company’s radar screen at the time, the lawsuits argue.
But while the private landowners’ lawsuits against Chesapeake seek to have the force majeure claims thrown out and allow their below-market-value leases to expire, the situation with the state-owned land could be more complicated.
A draft of the DEC’s proposed regulations for high-volume hydrofracking proposes a ban of surface drilling on state land, despite the existing Talisman and Chesapeake leases. About 32,500 acres of other state-owned gas rights — mostly in the southwest corner of the state — are also under lease to energy companies so long as existing wells on those properties continue to produce natural gas.
The new technology, however, allows companies to drill on a private piece of land before turning the drill bit horizontal and burrowing under neighboring properties. So if the company holds the rights to a private parcel near the state land, it could obtain gas from that state land by drilling horizontally — despite the surface-drilling ban.
But the DEC holds a significant trump card.
Since the department decides whether or not to grant permits, it could simply decide to reject any applications from Chesapeake that includes any drilling on the forestland in question.
Chesapeake declined to discuss specifics, but Hartman said the company would prefer drilling for gas rather than debating over contract language.
“Chesapeake would much rather be drilling wells and creating value for New Yorkers, especially in the Southern Tier where economic development is much needed and for the whole state where clean energy is much needed,” Hartman said.
Once the Chesapeake and Talisman leases do expire, the DEC could choose to put them out for bid again to generate revenue for the state, with a provision banning drilling on the surface of the state’s properties.
The department spokeswoman, however, said it’s not currently in the cards.
“While this would be possible under the revised draft (regulations), we have no plans to do so at this time,” DeSantis said.
Campbell is a staff writer for the Gannett Albany Bureau.