PA Game Commission Executive Director Reports on Problems with Marcellus Drilling on Public Lands

PR Newswire (Feb 16)
Game Commission Delivers Annual Report to Legislature

Pennsylvania Game Commission Executive Director Carl G. Roe presented the agency’s annual report to the General Assembly, and delivered testimony before the House Game and Fisheries Committee on February 16. Below is an excerpt of his testimony as it touched on the subject of drilling on Game Commission (publicly owned) lands:

I am sure there will be questions on Marcellus Shale, so I will quickly address the subject. During Fiscal Year 2008, the Game Commission approved three oil/gas leases within the Marcellus Shale development areas of the Commonwealth.  These leases totaled 2,693.43 acres and were worth an average upfront payment of $907.38 dollars per acre to the Commission constituting an additional 10 acres of State Game Lands acquisition as well as revenues to the game fund. The average royalty per acre for these leases was 23.08 percent. During Fiscal Year 2008, there were no Marcellus wells drilled on any of these leases but there were four wells planned for drilling in the Fiscal Year 2009. On all other currently active leases on State Game Lands, there were two Marcellus wells commenced and placed into production in Fiscal Year 2008. The Game Commission received a total of $113,336.26 royalty revenues during Fiscal Year 2008 from Marcellus gas production, with the average approximate well production being only 250 mcf/day, rather than the 2,000-3,000 mcf/day production some have assumed would occur. Unfortunately, there have also been two separate environmental degradation incidents which occurred during these wells development causing the need for increased Game Commission coordination, and oversight management scrutiny.

Tennessee Gas Pipeline to Invest $400 Million in New Pipeline from PA to NJ

El Paso Press Release (Feb 16)
El Paso Corporation Announces Northeast Upgrade Project

Part of the development required to tap the huge natural gas reserves in the Marcellus includes the infrastructure to get the gas from well to market. El Paso Corporation’s subsidiary Tennessee Gas Pipeline is helping provide the pipeline piece of the puzzle.

Below is the full text of a press release from El Paso, dated Feb. 16:

HOUSTON, TX, — El Paso Corporation (NYSE: EP) today announced that its wholly owned subsidiary, Tennessee Gas Pipeline Company (TGP), has executed binding, 20-year term agreements with Chesapeake Energy Marketing, Inc., a wholly owned subsidiary of Chesapeake Energy Corporation (NYSE: CHK), and StatOil Natural Gas LLC, a wholly owned subsidiary of Statoil (NYSE: STO), for 100 percent of the capacity for its Northeast Upgrade Project. The project will provide 636,000 dekatherms per day of incremental firm transportation capacity from TGP’s 300 Line in Pennsylvania to an interconnect in New Jersey to serve growing markets in the Northeast.

The Northeast Upgrade Project is a natural extension of TGP’s presence in the heart of the developing Marcellus Shale play. The project would cost approximately $400 million with a majority of the capital spending taking place during 2013.

"We are very pleased to add another major pipeline project that provides significant new firm transportation capacity for two prominent Marcellus Shale producers," said Doug Foshee, El Paso’s chairman, president, and chief executive officer. "With the previously announced 300 Line Project, we will be adding approximately 1 billion cubic feet per day of new firm capacity that will provide safe and reliable transportation of clean-burning, domestic natural gas supplies to key Northeast markets."

"We are pleased to enter into this agreement with El Paso," said Aubrey McClendon, Chesapeake’s chief executive officer. "It continues our practice of contracting for strategic pipeline capacity, which in this case provides access to premium northeast markets for our growing Marcellus production in Northeast Pennsylvania. We have a long history of transactions with the El Paso family of companies, and this transaction continues that tradition, creating substantial value to both firms."

A spring 2011 Federal Energy Regulatory Commission filing date is anticipated with a scheduled November 1, 2013 in-service date. An open season is expected to begin this month with final capacity awarded in March 2010.

El Paso Corporation provides natural gas and related energy products in a safe, efficient, and dependable manner. The company owns North America’s largest interstate natural gas pipeline system and one of North America’s largest independent natural gas producers. For more information, visit www.elpaso.com.

Chesapeake Energy Continues to Expand Production in the Marcellus Shale

Houston Star-Telegram (Feb 16)
Chesapeake reports 19 percent production increase

Chesapeake Energy, one of the largest gas drilling companies in the U.S., recently reported a 19% increase in its natural gas production across all of its shale plays. With respect to the Marcellus, we learn from a Houston Star-Telegram article that:

  • Chesapeake has a huge leasehold of 1.6 million net acres in the Marcellus
  • Current net Marcellus production equals 65 million cubic feet of gas per day
  • Chesapeake expects its Marcellus output will rise to 270 million cubic feet of gas per day by year-end 2010 (over 4x current levels)
  • Chesapeake expects its Marcellus output will rise to 450 million cubic feet of gas per day by year-end 2011 (nearly 7x current levels)
  • Three recent wells drilled in Susquehanna County (PA) had peak 24-hour rates of 8.7 million, 8.6 million and 8.4 million cubic feet of gas

Mitsui Investment in Anadarko Projected to Grow from $1.4 to $4 Billion in Next 10 Years

Philly.com – Philadelphia Inquirer (Feb 17)
Japanese firm to invest $1.4 billion in Marcellus operation

The Philadelphia Inquirer has posted a story about the huge investment from Mitsui in Anadarko. As Marcellus Drilling News reported yesterday, Mitsui has purchased a 32.5% stake in Anadarko for $1.4 billion. What was not in the original news release is this tidbit:

The Tokyo company expects to invest up to $4 billion over 10 years in the partnership, which would produce up to 460 million cubic feet of natural gas a day at its peak.

We also learn from the article that 768 Marcellus wells were drilled in Pennsylvania in 2009. Anadarko alone, with Mitsui’s new investment, projects drilling 4,500 wells in PA “in the coming years.”