Month: March 2009

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    Europe Invests Heavily in American Natural Gas Drilling in the Marcellus, Details of Chesapeake/StatoilHydro Deal

    The Fort Worth Business Press reports European companies are making major investments in American shale plays, including the Marcellus. The article reports the following details about Chesapeake Energy’s new partner Norwegian-based StatoilHydro:

    Norwegian state-controlled energy company StatoilHydro would pay $3.375 billion for a 32.5-percent stake in [Chesapeake’s] 1.8 million net acres of Marcellus Shale assets, according to a November 2008 agreement. StatoilHydro paid $1.25 billion in cash at closing, and the remaining $2.125 billion over the next three years “by funding 75 percent of Chesapeake’s 67.5 percent share of drilling and completion expenditures until the $2.125 billion obligation has been funded,” according to the Nov. 11 statement.

    “This deal adds a major building block to the gas value chain position we have established in the U.S., the world’s largest and most liquid gas market,” said StatoilHydro President and CEO Helge Lund in a statement. “This is a significant step in strengthening our U.S. gas position, building on our existing capacity rights for the Cove Point LNG terminal, our gas trading and marketing organization and the gas producing assets in the Gulf of Mexico.”

    Read the full article: Europeans see benefits in U.S. shale

  • Is Shale Drilling in Trouble at Current Market Prices?

    As part of an opinion article published on OilOnline, several data points of interest are quoted about how much it costs to produce natural gas from shale plays like the Marcellus. The article paints a rather grim picture in the near future for shale drilling if prices for natural gas do not climb again. Among the comments made:

    Wells in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale well may not be able to sustain production at prices below breakeven for long. Community tax bases will suffer. Resources and personnel could be forced to move on to other locations, domestic and international. Royalty owners will lose income. Exploration, drilling and production will quickly dry up. Production costs in most of these plays exceed the current $4/MMBtu market price. Most operators require at least $5-$6/MMBtu as a minimum to maintain profitable production.

    OilOnline’s proposed solution to this crisis? The government:

    A $7-$10/MMBtu price should be a policy objective that keeps the domestic industry healthy and contributes to further exploration and US energy independence. The US economy and security may depend on bringing these clean burning gas discoveries in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale to market profitably. With price a function of supply and demand, we are seeing a greater supply than demand. That has to change.

    Excuse me, but this is AMERICA. We are capitalists. We value freedom as our most prized and cherished possession, handed down to us by the Founders of our country. Freedom includes a free marketplace with prices set by competition and supply and demand. Every time the government interferes in the free markets (as can be seen in the current financial markets crisis), government makes matters worse. Natural gas, and indeed all forms of energy supply, must openly compete on the free market. If it costs too much to drill for natural gas, then the drilling should stop until such time it becomes profitable. That is the American way.

    In fairness to OilOnline, they do make a strong case in the article for developing local markets for natural gas–a good idea. But inviting the government to micromanage the energy market is a prescription for disaster. Let natural gas stand on its own merits!

    Read the full article: Natural gas needs to build local markets

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    Gastar Exploration’s 42,000 Acres in the Marcellus – No Development Until a Partner is Found

    Energy company Gastar Exploration reports the following about their Marcellus commitment in a recent quarterly financial filing:

    In the Marcellus Shale we hold approximately 42,000 net acres in northern West Virginia and southwestern Pennsylvania. To date, we have drilled 10 shallow wells, which will allow us to hold the related leases with production. Currently, we are seeking a joint venture partner to help us further develop this play. We do not expect to drill additional shallow wells until we secure a joint venture partner or until natural gas prices improve. We will continue to maintain our leases through renewals, extensions and renegotiations of drilling commitments.

    Read the press release: Gastar Exploration Reports Fourth Quarter and Full Year 2008 Financial and Operational Results

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    Range Resources Looks for Gas Deposits in Beaver County, PA

    The Beaver County & Allegheny Times Online news site reports Range Resources has hired Conquest Seismic Services to vibrate the ground around Hopewell and Independence Townships, located in Beaver County, Pennsylvania (near Pittsburgh).

    For now, Range is looking along Route 151, according to Dave Schieck, a geophysicist for Range Resources. But don’t look for production wells for quite a few years:

    “We’re looking here, and we’ll be looking in the northern part of Beaver County later on,” Schieck said of a stretch between Zelienople and the Beaver River. “It may be as much as a decade before any extraction takes place here, but I’d bet we’ll see some once the area is ready.”

    Read the full article: Company vibrating ground in search of natural gas

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    Drilling in the Monongahela National Forest Put on Hold

    Recently the U.S. Bureau of Land Management stopped a proposed auction for new oil and gas leases in the Monongahela National Forest (W. Va.) after protests from the Friends of Blackwater Canyon and The Wilderness Society. However, just because the auction is canceled for now, it doesn’t mean there won’t be an auction in the future, according to Bureau spokesman Terry Lewis. An article in The Charleston Gazette reports:

    There are an estimated 280 billion cubic feet of federally owned natural gas beneath the forest. When combined with privately held resources, there could be as much as 860 billion cubic feet, according to the forest’s latest land and resource management plan.

    Forest officials say there are 17 production wells on forest property, 16 of them tapping federally owned gas deposits.

    For the past 50 years, drilling has focused on the Oriskany and other formations. It’s unknown how much gas is held in the Marcellus shale, which stretches from New York to West Virginia and is thought to hold trillions of cubic feet of natural gas. There are no Marcellus wells in the forest.

    Read the full article: Monongahela drilling debate continues

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    Capital City Energy Group’s Hotwell Services Subsidiary Ramps up Activity in Marcellus Shale

    From a press release issued by Capital City Energy Group:

    COLUMBUS, Ohio–(March 10, 2009)–Capital City Energy Group (OTCBB: CETG) announced today that Hotwell Services, its wholly owned subsidiary and a provider of oil filed services in the Appalachian Basin, has significantly increased its cased hole service activity in the Marcellus Shale, one of the most active areas for natural gas exploration and production in the continental United States. More than 800 wells are expected to be drilled in the prolific Marcellus Shale in 2009, a projected increase of 400% from 2008. In this environment, the Company anticipates the opportunity to rapidly grow its business by increasing its presence in the basin and expanding its market share. Hotwell’s clients include many of the major independent producer’s active in the Marcellus Shale play.

    “Despite the significant decline in the price of natural gas, we continue to see strong activity in the Marcellus Shale. The reason for this increase may be from hedging and budgets that have already been approved and the overall project economics of the Marcellus Shale play. Hedged production ensures a strong pricing environment throughout 2009,” said Joseph Sites, President of Hotwell Services, Inc. “Through our extensive experience in servicing the major independents; we are well positioned to capitalize on the strong activity in the area. Clients have found that our equipment, personnel, service, quality, and safety processes provide a very high value and reliable wireline service”

    About Capital City Energy Group Inc.

    Based in Columbus, Ohio, Capital City is a diversified oil and natural gas company with three separate divisions. Capital City has evolved from being an innovative leader in the design, management and sponsorship of retail and institutional direct participation energy programs to become one of the few vertically integrated independent oil and natural gas companies, which is publicly-traded. Its strategy is to continue to grow a portfolio of core areas which provide growth opportunities through drilling, operating, oil field service companies, acquisitions and fund management.

  • Will the U.S. Become Addicted to Imported Natural Gas Like We Have Imported Oil?

    An interesting article recently ran in the Fort Worth Weekly (Texas), discussing the looming competition that is about to arrive from imported liquefied natural gas (LNG). The context of the article is mostly about how an increase in imports will affect energy companies and workers in the Barnett Shale play in Texas. However, the coming competition will affect all natural gas plays in the U.S., including the Marcellus.

    The United States has imported natural gas for decades — it’s already the fourth largest importer of natural gas in the world, buying mostly from Canada and Mexico. This country has also been importing LNG for about 20 years, primarily from Algeria and the Caribbean nation of Trinidad and Tobago.

    In the last few years, however, several factors have combined to make LNG importing much easier. The three new LNG terminals and 15 more in the planning or construction stages — on the East, West, and Gulf coasts — will triple the United States’ capacity for handling such imports. The prices of building LNG carrier ships has dropped sharply in the last decade, and the newest ships use much less fuel to get across the ocean than the older generation of such tankers, leading to a tripling of the worldwide LNG fleet. For those reasons and others, bigger players have entered the game: Egypt, Nigeria, and Qatar — home to the world’s largest natural gas field — have also begun selling to the United States. And they are delivering LNG at rates competitive with what it costs to produce the gas domestically.

    The author of the article concludes this situation is good for consumers (lower prices), but potentially bad for those in the industry. But is continued dependency on foreign sources for our domestic energy needs really good for consumers–indeed all Americans? The beauty of horizontal drilling and plays like the Marcellus are to get us away from our energy dependence on potentially hostile foreign countries. In this author’s opinion, it would be a tragedy to repeat the same mistakes with natural gas that we have with oil.

    Read the full article: Cool Competition: A new wave of imports could undercut Barnett Shale drillers

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    Westmoreland County, PA Supervisors Vote to Approve Drilling on County Land

    On Thursday, March 12, the board of supervisors for Westmoreland County (Pennsylvania) voted to let drilling commence on an area of county-owned land. According to the Valley News Dispatch:

    The board approved five natural gas wells to be drilled on Municipal Authority of Westmoreland County property near the Beaver Run Reservoir.

    James McKinstry of Dominion Exploration detailed plans for the wells to be drilled into the Marcellus Shale in an area bordered by Fox Road, Walker Road and Route 286.

    Resident John Doyle asked if drinking water in the reservoir will be protected, particularly from material such as disposable brine. McKinstry said waste, such as brine, will be trucked away. There is a site in Indiana County that accepts brine.

    McKinstry added that the state Department of Environmental Protection regulations must be followed.

    Supervisors unanimously granted the request, attaching conditions such as submitting a plot plan, posting 24-hour emergency numbers and keeping roads passable at all times.

    Dominion feels the wells can be built in about seven or eight months once approval is granted.

    Full article: Washington Township hopes for state sewerage dollars

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    Times Leader Update on Dimock, PA Water Well Contamination

    The Wilkes-Barre Times Leader is following the story of the natural gas-contaminated water wells in Dimock, PA. Overall the article is pretty even-handed in its treatment of the issue and worth a read. In covering “both sides” of the issue, they reveal some of the facts in the case:

    The company [Cabot Oil & Gas] and DEP [PA Department of Environmental Protection] agree that the gas isn’t from Marcellus Shale, a pipeline leak or naturally occurring sources above ground. They also concur that the gas is likely from a gas-laden upper layer of underground Devonian shale, of which the Marcellus Shale is a component but thousands of feet deeper, [DEP spokesman Mark] Carmon said. Marcellus Shale is generally at least 5,000 feet underground, while DEP determined the gas contaminating the water wells came from a shale layer roughly between 1,500 feet and 2,000 feet deep, Carmon said.

    The company has cemented the upper Devonian shale layers of several wells, effectively extending the cement seals from the bottom of the water-bearing region, where the seals usually stop, to the bottom of the upper shale layers. The department has been trying to isolate the exact source of gas, seeing whether the extended seals produce a drop in water-contamination levels, Carmon said.

    Because the method of contamination hasn’t been determined, Carmon said it’s too early to tell if Cabot knowingly violated regulations. “I’m not aware of anything blatant or anything like that, but, again, we want to know how did it happen,” he said.

    Other news outlets would do well to follow the Times Leader’s example and get their facts straight before running stories about the Dimock situation.

    Read the full article: Consequences of gas drilling still unknown

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    Drilling Begins in Somerset County, PA

    The Somerset County Daily American newspaper reports drilling by Samson Investment Co. has commenced in the county:

    Paul Menhorn is among the very first area landowners to get an in-person look at natural gas drilling operations. A drilling rig is now boring a gas well on his 157-acre dairy farm, which is located a few miles from Berlin.

    It was last August when a representative from the Tulsa, Okla.-based firm told Menhorn that they would in fact begin to explore his property. By November, trucks were on the land, moving dirt and preparing the drilling site.

    Equipment was shuttled onto his land March 2. A drilling rig now towers over a telephone pole near one of his barns.

    According to Menhorn, it’s been life as usual, despite the sudden additions to his farm.

    As for noise:

    “When they’re drilling you can hear a little chattering, but it’s not bad,” Menhorn said, adding that his sleep has been unaffected by the sounds.

    The newspaper article also reports:

    The rig on Menhorn’s property could be the first of many. According Samson’s Web site, the company has doubled its work force over the past five years – a sign of growth and production.

    The article gives an honest and frank view of what life has been like for the Menhorns since drilling started, along with a talk about the Menhorns’ concern about their water supply and how they approached ensuring there would be no problems with water contamination. The article is well written and worth your time to read all of it.

    Read the full article: Drilling company taps Marcellus shale

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    $25K Per Acre for Lease Deals? Not in the Marcellus — Yet

    An interesting tidbit from a story about energy giant ConocoPhillips. The article, published on the Houston Chronicle’s website, was about recent efforts by ConocoPhillips to “debunk Wall Street’s view that the Houston-based oil major grows by acquisition rather than finding its own oil and gas.” Buried far down the story is a statement (not a direct quote but a summary statement) from Larry Archibald, company vice president of exploration and production. The statement, as summarized by the reporter, was this:

    He [Archibald] said ConocoPhillips shied away from “feeding frenzies” at high-profile shale plays where some companies rushed in and spent $25,000 or more per acre amid the pre-recession boom in gas production. Those plays included the Haynesville in East Texas and northern Louisiana, and the Marcellus in Pennsylvania, New York, Ohio and West Virginia.

    He said ConocoPhillips will keep spending in more established plays, such as the Barnett shale near Fort Worth, and the lesser-known Eagle Ford in South Texas, where the company has a leading acreage position.

    Everyone drools to see energy companies spending $25K per acre for leasing rights. But don’t get your hopes up too high. Marcellus Drilling News has not (so far) found any instances of leasing deals that approach anything near $25K per arce. It’s been more like $5K per acre on the high side in the Southern Tier of New York. If you know of high paying deals in the Marcellus, please let us know!

    The other interesting point about the statement is this: It looks like ConocoPhillips will not be a major player in the Marcellus anytime soon, which is unfortunate.

    Read the full article: ConocoPhillips flaunts its exploration finds

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    West Virginia Professor Touts Benefits of Shale Gas

    A positive opinion article by Donald W. Lyons, professor of engineering at West Virginia University, recently ran in the Huntington, W.Va. Herald-Dispatch. Among the points he makes are these:

    The United States needs to greatly reduce the amount of imported oil. To achieve this, we need more energy conservation, more wind, solar and nuclear energy and more bio-fuels. But even as we work to increase all of these, we also need more domestically produced natural gas. The failure to diversify our energy policy will lead to further consumer pain and a continued dismantling of key portions of our economy.

    The economy of West Virginia can benefit by the production of Marcellus shale natural gas. West Virginia is fortunate that the state will continue to be a major contributor to the “fuels of the future” and the good jobs associated with energy production.

    Read the full article: Shale gas could move U.S. toward energy independence

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    Water Technology Magazine Gets it Wrong on Dimock Water Situation

    Marcellus Drilling News pointed out the problems in yesterday’s Reuters news story coverage of the contaminated water wells near a drilling site in Dimock, PA (see Reuters News Service Runs Hit Piece on Drilling in Dimock, PA and Cabot Oil & Gas). Exhibit A in how the slanted mainstream media perpetuates lies is Water Technology Online, the website of Water Technology Magazine (owned by EBSCO Industries). An editor at Water Technology saw the Reuters story and unquestioningly, and without research, dashed off a quick article with the headline, “PA residents blame ‘fracking’ for illness,” citing the Reuters piece as its source. The opening two paragraphs say this:

    DIMOCK, PA — Families in this northern Pennsylvania rural community and elsewhere are reporting that the gas drilling method known as hydrofracking is tainting their well water and making them and their animals sick, Reuters reported on March 13.

    Energy companies are using hydrofracking, also known as “fracking,” to tap the Marcellus Shale formation. During fracking, water mixed with chemicals is pumped into deep wells under pressure to crack rock formation and release trapped natural gas, a process that also contaminates the water. There also is concern about the chemicals used in hydrofracking water, as WaterTech Online® reported.

    Without explicitly saying so, and leading readers to the wrong conclusion, the article implies the water wells in Dimock are contaminated with chemicals used in the fracking process, which is not true. The wells have been contaminated with natural gas itself, not with chemicals from fracking. But the Water Technology article makes no mention of that little fact.

    Such is how media works. Again, my advice: Read the mainstream media’s coverage of this issue with a critical and questioning eye.

    Read the full article: PA residents blame ‘fracking’ for illnesses

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    Reuters News Service Runs Hit Piece on Drilling in Dimock, PA and Cabot Oil & Gas

    Marcellus Drilling News (MDN) has been following the story of Cabot Oil & Gas and the contamination of a few water wells with natural gas in the Dimock, PA area. The mainstream media, when it looks for stories about gas drilling and the environment, latches on to this particular story because of it’s potential to play at people’s fears about drilling. Reuters is the latest to do so. They just released an article titled, “U.S. energy future hits snag in rural Pennsylvania.” The subhead for one section of the story says: “Water tastes bad, animals lose fur.”

    It’s a very slanted story. However, I mention it here because there are several interviews of local residents affected by contamination of their well water by natural gas. We do not look away from potential problems cause by drilling. Here are a few excerpts from the story:

    When her children started missing school because of persistent diarrhea and vomiting, Pat Farnelli began to wonder if she and her family were suffering from more than just a classroom bug.

    After trying several remedies, she stopped using the water drawn from her well in this rural corner of northeastern Pennsylvania, the forefront of a drilling boom in what may be the biggest U.S. reserve of natural gas.

    “I was getting excruciating stomach cramps after drinking the water,” Farnelli said in an interview at her farmhouse, cluttered as a home with eight children would be, while her husband, a night cook at a truck stop, slept on the couch.

    “It felt like an appendicitis attack.”

    The family, which is poor enough to qualify for government food stamps, began buying bottled water for drinking and cooking. Their illnesses finally ended, and Farnelli found something to blame: natural gas drilling in the township of 1,400 people.

    And this:

    Ron and Jean Carter suspected there was a leak when the water supply to their trailer home started to taste and smell bad after Cabot started drilling 200 yards (meters) away.

    Not wanting to risk the health of a new grandchild living with them, the 70-year-old retirees scraped together $6,500 for a water purification system.

    “It was kind of funny that the water was good in July but after they drilled, it wasn’t,” said Ron Carter.

    And if people in trouble is not enough to convince you how bad drilling is, bring on the animal stories:

    Tim and Debbie Maye, a truck driver and post office worker who have three teenage children, have been cooking and drinking only bottled water since their well water turned brown in November after Cabot started drilling.

    But she can’t afford bottled water for her animals. Her cats have been losing fur and projectile vomiting because they lick drips from the spigot that carries water from their well. Her three horses — one of which is losing its hair — drink as much as 50 gallons a day.

    “I tell my husband, ‘I’m going out to poison the horses,'” she said.

    I feel for these people and would not want to be in their shoes, that’s for sure. As stated before on this site, Cabot and the PA Department of Environmental Protection still have not figured out how Cabot may have caused the contamination. But let’s be clear: The contamination is natural gas, it is not contamination with chemicals that Cabot uses to fracture the hole. That’s why stories like this one from Reuters are nothing short of journalistic malpractice. Immediately following the story of hair falling off the horses, we get this paragraph:

    Chemical Brew

    Environmental groups fear energy companies are contaminating water supplies by using a toxic mix of chemicals that are forced deep into the rock along with water and sand to release the natural gas. The process is called hydrofracturing, or “fracking” in industry jargon.

    This is not only misleading, but a lie to combine one issue (natural gas contamination of water) with another (chemical contamination of water). The people whose stories are featured are not suffering from chemical poisoning, their water supply has been contaminated with naturally occurring natural gas, likely (but not yet proven) to have crept in due to Cabot’s drilling activities in the area.

    Such is the misleading mainstream media. Cast a careful and critical eye on the stories you read and listen to!

    Read the full article: U.S. energy future hits snag in rural Pennsylvania

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    Texas Billionaire George Mitchell is Betting on the Marcellus in PA

    According to the Forth Worth, TX Star-Telegram:

    George P. Mitchell, the billionaire who pioneered development of shale gas in the Barnett formation of North Texas, is betting that the Marcellus Shale of Pennsylvania will be similarly prolific.

    The 89-year-old oilman…said he expects Marcellus to be a “big boom” to Pennsylvania, birthplace of the U.S. oil industry. The natural gas prospect may stretch across about half the state, he said.

    “Pennsylvania looks like a hell of a play, and I can’t understand how in 150 years we found it just now,” Mitchell said Wednesday in an interview at his office in downtown Houston. “Pennsylvania is a tough play right now, but I think in my geological opinion, it has tremendous potential.”

    The article also says that Mitchell is providing backing for Alta Resources to drill in the Marcellus. Alta is right now investing in 45,000 acres in the Marcellus region.

    Read the full article: Barnett Shale pioneer now betting on Pennsylvania shale

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    Is New York State Understaffed to Handle Marcellus Drilling Activity?

    The Ithaca Journal and Assemblywoman Donna Lupardo (Democrat, Endwell, NY), say that while Pennsylvania has staffed up to handle permits and oversight of drilling activities, New York remains woefully understaffed:

    In Pennsylvania, the Department of Environmental Protection is creating 37 new positions – despite a statewide hiring freeze – to oversee Marcellus production. The positions will be added to Pennsylvania’s Office of Mineral Resources Management, which oversees nearly 600 employees who handle many issues in addition to natural gas production.

    Officials in New York, however, have few answers as to how 19 employees in the Bureau of Oil & Gas Regulation – part of the state’s Department of Environmental Conservation – will be able to handle a rush of permits and intensive drilling activity on this side of the border.

    “Clearly, we are not staffed to do the job,” said Assemblywoman Donna A. Lupardo, D-Endwell.

    Of course the obvious truth is this: New York is not granting any permits to drill right now. So there’s no reason to staff up to high levels just yet. Marcellus Drilling News thinks when New York finally stops dithering over what regulations they’ll impose and get around to granting permits, the state DEC will add more positions. Why pay people to sit on their rear-ends? Oh that’s right, it IS the NY government!

    Read the full article: New York understaffed to handle gas rush