Marcellus & Utica Shale Story Links: Tue, Feb 4, 2014

The “best of the rest” – stories that caught MDN’s eye that you may be interested in reading:


Fracking legal action update
Youngstown Vindicator
An update on lawmaker action and other activities at the Ohio Statehouse related to horizontal hydraulic fracturing: Mixed signals: Republicans in the Ohio House began deliberations on a proposal to revamp tax rates on oil and gas produced via horizontal hydraulic fracturing. House Bill 375 calls for lower taxes on conventional wells and increasing rates on those drilled horizontally, with excess proceeds devoted to plugging abandoned wells and potentially cutting income-tax rates. Gov. John Kasich isn’t backing the legislation as-is, however, saying a higher rate is needed. “I want to make sure as they deplete our resources that they pay for it, mostly out-of-state people, and that we use those resources to benefit every Ohioan by reducing the tax burden [for] every Ohioan,” he said. “I think it’s important we get that done.” But industry groups support the House Republicans’ approach.

Carrizo is pleased with first Utica shale well, company says
Akron Beacon Journal
Carrizo Oil & Gas, Inc.’s senior management is hosting an analyst conference to provide an update on the company’s current operations and future plans. The presentation includes the following key highlights: In the Utica Shale, Carrizo’s first well, the Rector 1H in Guernsey County, has been flowing consistently since January 5, 2014. After progressively increasing the choke from 16/64 in. to 24/64 in., Carrizo reduced the choke to 14/64 in. for a long-term stabilized test. The well has recently been flowing at a stabilized rate of approximately 500 Bbl/d of condensate and 2.0 MMcf/d of rich natural gas with very strong pressure on the reduced choke. Carrizo is very encouraged by the early results from the Rector 1H well, as the condensate production is comparing favorably to the Company’s type curve, which assumed an average initial 30-day condensate rate of approximately 500 Bbl/d.

PDC Energy Reports Record Year-End 2013 Proved Reserves
PDC Energy Press Release
The Company’s proved reserve additions included further Wattenberg downspacing and an increase in per well reserves in the horizontal Niobrara and Codell formations, as well as initial proved reserve bookings in the Utica Shale play. Total proved undeveloped (“PUD”) horizontal locations in the Wattenberg Field increased to 623, including 543 in the Niobrara play and 80 in the Codell play. James Trimble, Chief Executive Officer and President, stated, “Our 2013 year-end reserve estimates set several records for the Company, including total proven and 3P reserves, reserve additions, percent liquids, and before tax PV-10 value. Additionally, we booked initial reserves from our Utica Shale play and are seeing strong production growth from this emerging liquid-rich area. We also experienced solid production for the full-year 2013 of approximately 7.3 MMBoe. Our plan is to ramp up the pace of development by adding a fifth drilling rig in Wattenberg in the second quarter of 2014 and a second drilling rig in the Utica in the second half of 2014.”


ECA partners with Chinese company in Marcellus drilling
Shale Reporter
Work has begun on some of the Marcellus shale natural gas wells being drilled in Greene County, Pa. in a joint venture between Energy Corporation of America (ECA) and a Chinese coal company. Work started less than a month after ECA and China Shenhua Energy Co. entered into a 50-50 joint venture in late December to drill 25 wells in 18 months in Greene County. “We’ve actually already begun,” said Kyle Mork, chief operating officer of ECA, which is based in Denver, Colo., but runs its Marcellus operations out of its Charleston, W.Va., office.

PVR Midstream Selects Flow-Cal System to Manage Midstream Assets
Chemical Processing Magazine
PVR Partners has selected Flow-Cal Inc. to provide an advanced gas measurement software solution for their midstream assets. Dallas-based PVR Partner’s midstream business operates in the Marcellus Shale region in Pennsylvania and West Virginia as well as the Midcontinent segment in Texas and Oklahoma. PVR purchased the Flow-Cal Enterprise gas application with the field calibration software, TESTit, completely integrated. Flow-Cal Enterprise is the company’s flagship product designed to optimize measurement operations while enhancing the integrity of data. Flow-Cal’s Enterprise system links larger, more complex operations to one central system, providing a common user interface to consolidate, review, validate, edit, store and report measurement data. Flow-Cal’s advanced data validation and editing features automate field data processing. TESTit integration into Flow-Cal Enterprise offers an automated means of meeting the needs of both office and field personnel.

Drilling under public land creates benefits, controversy
AP/Youngstown Vindicator
Even as some cities around the nation have voted to ban fracking for natural gas, other rural areas are quietly embracing the boom by allowing drilling under public parks and land and reaping millions in royalties. In Washington County, just outside Pittsburgh, officials say the unexpected revenue stream is letting them make improvements that otherwise might not have been possible. “Having that funding source has been a tremendous boom to us,” said Lisa Cessna, the executive director of the local planning commission. The county has received about $10 million directly from drilling companies since 2007, and royalty payments are still coming in. That’s helped build fishing piers, playgrounds and walking trails. Cessna said there have been complaints. Some of the drilling leases are for wells that start on adjacent private land and go under parks, but in other cases, the drilling sites have been on county land. That’s led to questions about whether any kind of industrial activity should be allowed on recreational land. “You can make it work. There’s going to be bumps in the road,” Cessna said. “You’re going to upset some people. But the end result is going to outweigh the negatives.”

Clearing The Fog On The PA Supreme Court’s Marcellus Shale Decision
There’s been a good bit of confusion in the early reactions to the Pennsylvania Supreme Court’s decision in Robinson Township et al v. Commonwealth of Pennsylvania, et al., declaring that key aspects of the Act 13 revisions to Pennsylvania’s Oil and Gas Law are unconstitutional. The following is a review of the main points to help clear the fog. Cutting right to the chase, the main results of the Supreme Court’s 4-2 judgment are as follows: Act 13’s limitations on local zoning authority, which were intended to promote statewide uniformity and certainty, are void and so are the sections of the law that enforce those limitations; The law’s setback waiver provision is also void, and the majority further enjoined the entirety of the setback regime set forth in Act 13 from taking effect on the grounds that the remaining setback provisions were not severable from the waiver provision; The delegation of certain roles under the Act to the Public Utilities Commission for review of local ordinances and proposed local ordinances was upheld; Other aspects of the petitioners’ claims are headed back to the Commonwealth Court for further proceedings consistent with the Supreme Court’s opinion, most notably a challenge to Act 13’s healthcare confidentiality provisions, a challenge to Section 3241 of the law on grounds that it would allow the unconstitutional taking of property for private purposes, and the issue of severability of the remaining valid provisions of Act 13 from those the Supreme Court declared invalid.

West Virginia

Storage Tank Regulation Bill Passes State Senate, Faces Triple Reference In House
West Virginia Natural Gas Blog
The West Virginia Senate has approved its version of a bill, SB 373, that relates to water resources protection and the regulation of above-ground storage tanks. This bill is in response to the tank leak/chemical spill that happened earlier this month in Charleston. Much work has been put into this bill, and senators worked carefully to eliminate duplicative regulations before sending it to the House of Delegates. The bill was referred to three committees in the W.Va. House of Delegates, which is an unprecedented action for a bill that is an active part of the governor’s agenda and which the governor wanted as a quick priority in the House. House Judiciary Chairman Tim Manchin has indicated he does not believe SB 373 “goes far enough” and is expected to split it into two separate bills and remove many of the provisions that seek to prevent excess and inefficient regulation.


Natural Gas: A Meltdown Behind The Revival
Seeking Alpha/Richard Zeits
Natural gas bulls have finally gotten what they bargained for since 2012, and then some: Henry Hub futures have spiked above the $5.50/MMBtu mark. Natural gas storage is at a level of depletion not seen for several years, and no signs of acceleration in gas drilling activity have been seen yet. While the Nymex natural gas price performance has been stellar, even more impressive are recent spikes in citygate prices. Some recent physical settlements bring up the memories of the U.S. electricity crisis of circa 2000 and more recent gas shortages of 2006-2008. To quote just one example, during a recent snow storm in New York City at the end of January, natural gas delivered on Transco pipeline to the New York Citygate surged as high as $135/MMBtu.

Polar Vortices Result in February Northeast Bidweek Records
NGI’s Bidweek Survey
Prodded by January’s arctic blasts and promises of more cold to come, February bidweek prices soared, with the usual eastern suspects notching prices above $25 and $35 dollars, helping boost NGI’s National Spot Gas Bidweek average up $2.04 from January to $6.58. The Northeast region averaged $8.83, with the Midwest not far behind at $7.78. One marketer called the price response to the unprecedented polar blasts that swept the continent, reaching at times to South Texas and Florida, as a winter hurricane “Katrina effect.”

Here’s Why The American Shale Gas Boom Hasn’t Saved Us From Surging Heating Costs
Business Insider
One of the most bullish long-term economic stories in the U.S. is the shale energy boom. Thanks to advanced drilling technology like hydraulic fracturing (aka fracking), American energy producers have been able to tap insane amounts of hard-to-reach fossil fuels in North Dakota, Pennsylvania, and Texas. That’s great. But if the U.S. is producing so much energy, then why are our winter heating costs exploding? Natural gas prices are at their highest levels since 2010. In one word: infrastructure. We just don’t have the pipelines (yet) to get energy from the new sources to the end users as the weather gets chilly.

Why Natural Gas Prices Are Still Low, Even After Spiking 50%
Seeking Alpha
Market expectations dictate how prices go. Natural gas demand has surged over the past several weeks, boosted by the coldest U.S. winter in decades. In turn, inventories have plummeted and prices have surged. But while prices have risen significantly-up close to 50 percent from the trough in November and 17 percent since the start of the year-these are far from “high” prices. Granted, “high” is relative. Compared with the low of $1.90/mmbtu in 2012, current prices near $5 are extraordinarily expensive. But the low from 2012 is far from ordinary, and one need only go back to the 2010-2011 time frame to see natural gas trading where it is now.

The moral of the natural gas/winter weather story
Canada Globe and Mail
If the ancient Greek storyteller Aesop were alive today, he might have written a fable about North American energy markets. Aesop’s sheet of papyrus may have ended with the moral: “If you wait long enough, gas prices will go up.” Last week, the ticker showed the highest continental natural gas prices in four years, momentarily bobbing above $5.50 (U.S.) per 1,000 cubic feet (Mcf) in the United States and $5 (Canadian) in Canada. We know Aesop could have easily penned another truism, “Cold weather drives higher prices,” but would he have offered the more complex wisdom: “Prices under $3.50 are not sustainable?” Are we to believe that the days of two or three dollars for a 1,000 cubic feet of the coveted heating fuel are gone? Since December, the shivering populace on the eastern side of the continental divide have dialled up their thermostats and brought vigour back to winter natural gas consumption. Scenes of snowy roads and frosty mustaches made it look like conditions were exceptionally frigid in the U.S. and Canada. They were (and still are). But averaged over the span of the continent, the numbers tell a different story; the spreadsheets show that what we have been experiencing is nothing more than a good old-fashioned winter. While thermometers have been showing cold in the east, readouts in western states like California have been indicating warm temperatures.

Natural Gas Fell a Third Day as Abating U.S. Cold May Cut Demand
Bloomberg/Washington Post
Natural gas fell for a third day in New York as forecasts for milder U.S. weather signaled reduced demand for the heating fuel. Gas slid 0.8 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted seasonal or higher temperatures for Feb. 13 to Feb. 17, replacing below-normal readings. Gas stockpiles have tumbled this heating season as waves of polar air boosted fuel use across the eastern U.S. “Certainly you see cold weather ahead in February, but not the sort of cold weather that would require the record pace of withdrawals that we witnessed in January,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “With only eight weeks of the season left, the market has less concern about meeting winter demand.” Natural gas for March delivery fell 3.8 cents to settle at $4.905 per million British thermal units on the New York Mercantile Exchange. Trading volume was 17 percent below the 100-day average at 2:35 p.m. Futures are up 16 percent this year. The premium of March gas to April narrowed 9.1 cents to 39.8 cents. April gas traded 5.7 cents above May versus 7.5 cents on Jan. 31.

Interest in Oil and Gas Mergers, Acquisitions to Continue in 2014
Interest in merger and acquisition (M&A) activity will likely continue in the oil and gas sector during 2014 as oil and gas companies keep focusing on sustained growth and maximizing shareholder value, PwC experts said in a recent analysis report. Accelerated M&A activity was seen in the U.S. oil and gas industry last year, PwC experts noted, and a strong uptick in the last three months of 2013 resulted in 182 total deals accounting for $115.9 billion in total deal value for 2013. Fifty-one oil and gas deals valued at more than $50 million were carried out in the last three months of 2013. These deals accounted for $41.7 billion in deal value, 154 percent higher than the deal value of 43 deals worth $16.4 billion in third quarter 2013. However, fourth quarter deal volume was down by 36 percent from fourth quarter 2012, while deal value fell 29 percent during the same time period. PwC analysts attributed the decline in value and volume in the recent quarter to the impact of pending U.S. tax law changes on fourth quarter 2012 deal activity. Overall deal volume for 2013 declined from 212 deals worth $152.8 billion in 2012.

Ten key numbers in the Keystone XL pipeline report
Washington Post
On Friday, the State Department released it final environmental impact statement on the proposed Keystone XL pipeline, which would transport heavy crude oil extracted from bitumen deposits in Canada to the United States. Here are 10 key numbers from the analysis you need to know: 1,950. That’s how many construction workers would be employed for two years in Kansas, Montana, Nebraska and South Dakota to build the Keystone pipeline’s northern leg, according to the analysis. Several unions are lobbying for the project because it would create well-paying jobs. It would support 50 annual jobs once in operation, the report says…

What The Energy Industry Can Learn From Lady Gaga
Houston Chronicle Fuel Fix Blog
I present this post in all seriousness (with my poker face, if you will) – for the energy industry has a lot in common with – and some lessons to learn from – Lady Gaga. Forthwith we look at how Lady Gaga uses certain traits to her advantage…and how the energy industry tries to do the same. Through collaborating with other artists Lady Gaga has been able to further enhance her own status, while leveraging both the skills and reputation of her collaborators (think Beyonce, R. Kelly…and perhaps Britney Spears?). We see a similar situation play out in the energy world, as companies enter into joint ventures to acquire skills to replicate back home, or to be part of the next big thing, or to gain exposure to techniques which are banned on their home turf. But just as life imitates art, some collaborations are less successful than others. Just as some appear poorly matched (um, think Yoko Ono <—-this video is amazing / awkward / hilarious), some collaborations are destined not to work out, no matter how smart they seem (think: Chesapeake and natural gas transportation).

Natural-gas locomotives may be cheaper, cleaner
AP/Youngstown Vindicator
The diesel-burning locomotive, the workhorse of American railroads since World War II, soon will begin burning natural gas — a potentially historic shift that could cut fuel costs, reduce pollution and strengthen the advantage railroads have over trucks in long-haul shipping. Rail companies want to take advantage of booming natural-gas production that has cut the price of the fuel by as much as 50 percent. So they are preparing to experiment with redesigned engines capable of burning both diesel and liquefied natural gas. Natural gas “may revolutionize the industry much like the transition from steam to diesel,” said Jessica Taylor, a spokeswoman for General Electric’s locomotive division, one of several companies that will test new natural-gas equipment later this year. Any changes are sure to happen slowly. A full-scale shift to natural gas would require expensive new infrastructure across the nation’s 140,000-mile freight-rail system, including scores of fueling stations.

Teapots Boiling in Texas as Shale Spurs Refining Revival: Energy
Near the only four-way stoplight in Nixon, Texas, smoke rises off a pilot flare at the Blue Dolphin Energy Co. (BDCO) refinery that had sat cold for two decades. The employee parking lot is full, tanker trucks line up to unload crude and the silver distillation tower thrums. None of that was happening two years ago, when Blue Dolphin reopened the 10,000-barrel-a-day plant. Smaller refineries are known as “teapots” because of their size. The reason for the resurrection is illustrated across the street — the Screaming Eagle 1H Well. It’s one of thousands in South Texas, making the Eagle Ford shale formation among the world’s fastest-growing oil patches. Blue Dolphin, Valero Energy Corp. (VLO), Kinder Morgan (KMI) Inc. and others are trying to capitalize on the biggest boom in U.S. history by building new crude-processing equipment, reviving mothballed plants and opening new refineries. “We started this project in 2006, and I can’t tell you how many banks and other financing sources would ask us, ‘Where are you going to get your crude from?’” said Jonathan Carroll, Blue Dolphin’s chief executive officer. “We don’t get that question anymore.”


Sorry, Shale. Iraq Is The Real Oil Revolution
After pushing up domestic crude oil production by about three million barrels a day (mb/d) in the United States, shale oil has inspired speculation about radical shifts in the global oil market. Radical shifts are certainly on the horizon, but something other than shale is likely to be driving them. That something is Iraq. Iraq is ramping up oil-exports in 2014, according to the Economist Intelligence Unit. The draft budget anticipates average exports of 3.4 mb/d, marking a nearly 30% increase from 2013 export levels. Considering the political struggle between Baghdad and the semi-autonomous region of Kurdistan, the budget forecast seems bullish but not beyond the realm of possibility. New sources of production in the south are coming on-stream and infrastructure bottlenecks are easing. Iraq is currently the world’s third-largest oil exporter. and has the resources and plans to increase rapidly its oil and natural gas production as it recovers from three decades punctuated by conflict and instability.