Hey, it’s not every day you get prominently mentioned in a Huffington Post article, so we thought we would bring it to your attention: A ‘War on Shale Gas’?
MDN editor Jim Willis has long admired the HuffPo and its founder Arianna Huffington. Certainly not for her (or its) political positions! But because Arianna had the moxie to pioneer a new form of media at a time when it was not easy to do so. We love free speech, we love a plucky attitude, and we love that the HuffPo has kicked the venerable New York Times’ derriere. The HuffPo passed the NYT in both traffic and revenue (for their web properties) a long time ago.
So when a contributor to the HuffPo takes a shot at MDN, you may find it weird or unusual that MDN would respond with accolades for the HuffPo. You shouldn’t. We just keep it honest and if you read this blog for any amount of time you already know that.
Bombshell: Halcon Resources Corp. is paying NCL Appalachian Partners $194 million (over $6,000 per acre) to take over land leases for drilling on 31,000 acres mostly in Trumbull County, OH (and about 3,000 acres in Mahoning County, OH). This is not money going to landowners but to the leaseholder, NCL. And it’s for old leases dating back to the 1960s.
By comparison, mass transfer of lease deals done by Chesapeake and others have been in the $1,000-$2,000 per acre range. But there is a difference: the lower-priced deals include a one or two percent royalty on anything produced going to the original leaseholder. Again, this is not landowner royalties, but leaseholder. It’s hard to follow the bouncing ball on this story.
The leases purchased by Halcon are not without potential problems (for Halcon) and opportunities (for landowners):
Southwestern Energy released its second quarter earnings and operations update yesterday. The company lost $488 million dollars largely because of the low cost of natural gas. Interestingly, they report that their “all-in cash operating costs” for drilling shale gas wells averages $1.20 per 1,000 cubic feet equivalent (or Mcfe). One Mcfe is equivalent to one MMBtu, or “one million Btus”—the unit of measurement used to sell natural gas. The going price for natural gas on the NYMEX as of this morning is $2.90 MMBtu (or $2.90 Mcfe). Theoretically, Southwestern produces the gas for $1.20 per unit, and can sell it for $2.90 per unit (leaving hedging out of the equation). A bit simplistic, but useful nonetheless.
We learn from the update that so far Southwestern has drilled 120 wells in the Marcellus, 41 of which are currently producing. The holdup on many of the ones not producing? Lack of gathering pipelines—a recurring theme in a number of company quarterly updates for 2Q12.
Natural Gas Intelligence (NGI) reports the price of natural gas in the U.S. made impressive gains last month—all except for the price of Marcellus Shale natural gas, that is. According to a press release announcing the results of “bidweek,” the once a month pricing the industry uses to set prices that many buyers and sellers of natural use for the coming month, infrastructure constraints (lack of pipelines) in the Marcellus are pushing prices lower as gas supplies bottleneck in the region. More supply sitting around, lower prices. Simple economics.
Below is the press release from NGI talking about the latest price news. Near the bottom is a link to a video where you’ll find the voice of a certain MDN blogger interviewing price expert Pat Rau. Give it a watch/listen.
Ohio Gov. John Kasich has stated that an energy company executive told him (in 2010) that they would eventually recover $1 trillion worth of oil and gas from Ohio’s Utica Shale. Kasich has repeated that remark many times since then—using it as a justification for his plan to increase severance taxes in the state to spread some of that wealth around to all Ohioans.
The Associated Press takes aim at the $1 trillion claim (and at Kasich) with a new story saying Kasich and the unnamed energy exec are way off base:
Over a year ago, MDN pointed out a unique spirit of cooperation and partnership between Monroe County, WV and driller Gordy Oil (see this MDN story). It is the story of a driller being responsive to local concerns about a special underground geologic formation called a karst, a system of underground system of caves and streams. Local residents were concerned drilling may foul the water table in the area, and Gordy spent time listening and making adjustments to their plans.
Unfortunately, the opposition has continued, and Gordy Oil is now nowhere to be found in Monroe County. Is it because of the low price of oil? Or because of the drumbeat of opposition?
The Ohio River Valley Water Sanitation Commission (ORSANCO), established in 1948 to control and abate pollution in the Ohio River Basin, has elected a pro-drilling attorney as their new chairman. Kenneth Komoroski from Pittsburgh, PA assumed his new position on July 1, although the press release was not issued until August 1. Komorski was appointed to the Commission in 2003 by then President George W. Bush.
ORSANCO is an interstate commission representing eight states and the federal government. Member states include: Illinois, Indiana, Kentucky, New York, Ohio, Pennsylvania, Virginia, and West Virginia. While ORSANCO does not have the same broad powers as the Susquehanna River Basin Commission or Delaware River Basin Commission to issue permits and control shale gas drilling, some of their regulatory power does impact the drilling industry, especially on matters of drilling wastewater disposal.
Pennsylvania Gov. Tom Corbett went to Monaca in Beaver County, PA yesterday to talk about a planned ethane cracker plant that Shell says it wants to build there. He was joined by a number of officials—bipartisan in makeup. Corbett’s message? “We’re not there yet.” He said that although a great deal has been done, more will need to be done before Shell pulls the trigger and builds the plant.
The press release from the governor’s office talking about his trip to Monaca:
Alcoa (once upon a time known as the Aluminum Company of America), the world’s third largest producer of aluminum, is getting into the shale drilling industry by producing special pipe for gas drilling in the Marcellus Shale. Yesterday Alcoa announced a contract to provide driller Pennsylvania General Energy (PGE) with aluminum alloy drill pipe.