Energy Companies

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    Marcellus Driller Funds Water Monitoring Program in Susquehanna River Basin

    As Marcellus Drilling News previously noted, the Susquehanna River Basin Commission is in the process of placing 30 monitoring devices to track the effects of Marcellus drilling wastewater that enters area waterways. We now learn the program is being funded by the drilling industry itself:

    The commission used a $750,000 grant from natural gas company East Resources Inc. to start the monitoring system. The monitoring stations provide data on factors such as temperature, pH level, depth and clarity. That information is available immediately on the commission’s Web site, and the state Department of Environmental Protection is notified if any problems are found.*

    Kudos to East Resources for contributing a significant sum of money to help alleviate concerns that drilling is harming our waterways.

    *State College Centre Daily Times, via WaterWorld (Mar 19) – System monitors water quality

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    Encana Holds Leases for 25K Acres in Luzerne County, Claims Every Well Drilled Creates 120 Jobs

    An article in the Wilkes-Barre Times Leader reveals this interesting information about Encana’s activity in Pennsylvania:

    Encana Oil and Gas Inc. – has leased 25,000 acres of property in Luzerne County. The land is mainly on the north side of Route 118 in Fairmount, Ross, Lake and Lehman townships.

    Encana so far has obtained permits for drilling one well in Lake Township and another in Fairmount Township and is seeking a permit for one in Lehman Township, said company spokesman Doug Hock. Hydrogeological studies are now under way, and officials hope to begin constructing wells by May.

    “For every well drilled, that creates about 120 jobs, either directly or indirectly…  The bulk of these jobs as we begin operations are done by subcontractors,” Hock said.*

    *Wilkes-Barre Times Leader (Mar 21) – Law, engineering firms will be the first for jobs

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    Chesapeake Drilled 94 Wells in PA in 2009, Plans to Drill 200 Wells in PA in 2010

    An article in the Wilkes-Barre Times Leader reveals this interesting information about Chesapeake Energy’s activity in Pennsylvania:

    Chesapeake Energy has invested significantly in not only leasing land in Pennsylvania, but in doing business with private companies.

    With 94 wells drilled in the state in 2009 and more than 200 additional wells planned for this year, the company has paid subcontractors and vendors in Pennsylvania $269 million since January 2009, company spokesman Rory Sweeney said in an e-mail.*

    *Wilkes-Barre Times Leader (Mar 21) – Law, engineering firms will be the first for jobs

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    A Novel Approach to Signing New Landowners by Chesapeake Energy in Bradford County, PA

    Forget the landmen, Chesapeake Energy wants to talk directly to landowners and is throwing a “signing party” hoping to convince landowners in Bradford County to show up and sign up at the Wysox Fire Hall on March 20th.

    Chesapeake sent letters to unsigned landowners in Towanda, North Towanda, Wysox, Standing Stone, Monroeton, Asylum, Wyalusing and Herrick, inviting them to the event.

    Chesapeake tells landowners in the letter:

    “Our records indicate that you own certain oil and gas rights that Chesapeake is interested in leasing,” the copy of the letter states. “We will have personnel on hand to discuss with you an offer to lease [the oil and gas rights on] your property that will potentially allow you to share in the royalty pool to be established for wells to be drilled in your area.”*

    The letter offers unsigned landowners a 10-year lease for $5,000 per acre and 20% royalties. By comparison, just last September Chesapeake signed a deal with the Wyoming County Landowners group for $5,750 per acre and 20% royalties. Chesapeake has made an offer to Wysox Township to lease town land for the same terms ($5,750 per acre, 20% royalties). However, in January 2010, Northern Tier Career Center in North Towanda approved a five-year lease with Chesapeake for $6,500 per acre and 20% royalties on the school’s 73 acres.

    MDN has not seen a copy of the full letter, but a commenter on The Daily Review website states the Chesapeake letter was sent to landowners with less than 3 acres of land. Landowners with small parcels do not have as much negotiating clout as larger landowners or groups. Even so, MDN cautions landowners about just showing up and signing up. While it may be a good deal, the devil is in the details of a contract. There is no substitute for having a contract reviewed by legal counsel before signing. Landowner groups (who retain legal counsel) are often the best way to ensure your interests as a landowner are protected. If you cannot find a landowner group to join, make sure you retain a good lawyer with experience in mineral rights leases.

    Go enjoy the free coffee and donuts, but be careful about signing anything on the spot.

    *Towanda The Daily Review (Mar 17) – Chesapeake to hold lease-signing event for Towanda-area landholders

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    Kane Borough Sewer Authority Making Money from Selling Effluent to Marcellus Shale Driller

    Kane Borough Sewer Authority in McKean County, Pennsylvania is planning to sell (sell!) sewer effluent to Seneca Resources for drilling gas wells. Seneca is the oil and gas drilling division of National Fuel Gas Company. Effluent is the treated water discharged from sewage treatment plants.

    According to a report given by Phil Lingenfelter, the foreman for the [Kane Borough] sewage treatment plants, more than 700,000 gallons of effluent is discharged daily from the two plants in “dry weather.”

    Jim Salvamoser, chairman of the five-member authority, endorses the plan to sell the effluent to Seneca Resources.

    “I think it’s a good idea,” Salvamoser said Monday. “It may give us a good source of revenue.”

    Lingenfelter said he still is talking with Seneca about the proposal. He said a price for the effluent has not been set. He said the state Department of Environmental Protection (DEP) has been made aware of the proposal and has not ruled against the effluent sale.

    “DEP thinks it’s a great idea,” he told the authority.*

    Seneca has already drilled one gas well in the area and is now drilling another, with plans to drill more wells in the near future.

    There are many municipal sewage treatment facilities located throughout the northeast and mid-Atlantic in the Marcellus Shale. Perhaps some other enterprising managers can tap this new revenue source for their cities and towns.

    *Kane Republican (Mar 16) – Kane plans to sell sewer effluent for well drilling

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    Atlas Energy Talking to Reliance Industries About Marcellus Shale Partnership – Billion Dollar Deal in the Making?

    As MDN reported on Feb. 24, Atlas Energy is looking for a partner to help fund its operations in the Marcellus Shale. They may have found one, Indian energy giant Reliance Industries:

    Reliance Industries Ltd., the owner of the world’s largest fuel-making complex, is in talks with Atlas Energy Inc. to invest in the U.S. natural-gas producer’s shale assets, a person familiar with the negotiations said.

    The talks between Reliance, controlled by Indian billionaire Mukesh Ambani, and Moon Township, Pennsylvania-based Atlas are in preliminary stages, the person said yesterday, asking not to be identified because the discussions are private.*

    The deal is likely to be worth several billion dollars, if recent deals are any indicator: CONSOL’s impending purchase of Dominion’s Marcellus Shale operations for $3.475 billion; Mitsui’s investment of $1.4 billion in Anadarko earlier this year; and Statoil’s investment of $3.4 billion in Chesapeake last year. If the Reliance/Atlas deal pans out and fetches the same rate of $14,000 per acre investment that the Mitsui/Anadarko deal did, it would be a $3.7 billion deal—the largest Marcellus deal yet.

    *Bloomberg (Mar 16) – Reliance Said to Be in Talks With Atlas to Buy Shale Gas Assets

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    Talisman Energy Will Invest $1 Billion in PA Marcellus Shale, Opening Regional Office near Pittsburgh

    Talisman Energy (headquartered in Calgary, Canada) says it will invest $1 billion in Pennsylvania’s Marcellus Shale.

    Part of that investment is the creating of a regional office in Cranberry Township, in Butler County, PA. The new office will employ 125 people by the end of 2010. And Talisman is looking to hire:

    The company is in the process of recruiting and hiring geologists, landsmen, regulatory and legal experts, among others. It will relocate 35 from its New York office and 15 from the Calgary headquarters, and hire the rest.*

    Although Talisman’s 214,000 net acres in the Marcellus Shale are in northeastern Pennsylvania, the company decided to locate its regional office near Pittsburgh.

    *Pittsburgh Business Times (Mar 12) – Talisman Energy opening office north of Pittsburgh

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    Former NY Gov. George Pataki Joins Advisory Board of Mesa Energy

    Former New York Gov. George Pataki has joined the advisory board of Mesa Energy Holdings (headquartered in Dallas). Mesa holds leases and has active gas drilling operations in Wyoming County in Western New York State. Gov. Pataki, since leaving office, joined a law firm and started a consulting practice with a focus on environmental and energy issues.

    According to the press release:

    Headquartered in Dallas, TX, Mesa Energy Holdings, Inc. is a growth-oriented, exploration stage oil and gas exploration and production (E&P) company with a definitive focus on growing reserves and net asset value per share, primarily through the development of highly diversified, multi-well developmental and defined-risk exploratory drilling opportunities and the acquisition of solid, long-term existing production with enhancement potential. Although the Company is constantly evaluating opportunities in the nation’s most productive basins, the Company’s primary focus is currently on the Devonian Black (Marcellus) shale in the northern Appalachian Basin in western New York.*

    Never mind the press release gobbledygook. What it means is this: Right now Mesa owns pipelines and active vertical wells in Western NY, but they’re betting big-time that horizontal drilling and hydro fracturing is coming to New York in the not-too-distant future, and they want an ace in the hole when it does. Welcome George.

    *Business Wire (Mar 15) – Mesa Energy Holdings, Inc. Names Former New York Governor George E. Pataki to the Advisory Board

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    Major Transaction: CONSOL Energy Buys Dominion Resources Appalachian Business, Including Marcellus Gas Operations, for $3.475 Billion

    CONSOL Energy of Pittsburgh today announced it is buying the Appalachian exploration and production operation of Dominion Resources. Dominion’s Marcellus Shale drilling operations are part of the transaction. CONSOL is paying $3.475 billion in cash.

    Dominion currently has leases on approximately 500,000 acres in the Marcellus Shale. Added to CONSOL’s existing 250,000 acres (which belong to CNX Gas, another CONSOL company), the new total acreage controlled by CONSOL will be 750,000. Dominion’s large Marcellus acreage was one of the key attractions for CONSOL.

    The total acreage CONSOL is buying from Dominion for both oil and gas totals 1.46 million acres, along with 9,000 active oil and gas wells. Dominion’s operation was once part of John D. Rockefeller’s Standard Oil company.

    CONSOL will add 193 employees from Dominion’s Appalachian operation to its own payroll when the deal closes, which is expected to happen at the end of April.

    For more details, see the press release:
    CONSOL Energy to Acquire Dominion’s Appalachian E&P Business for $3.475 Billion In Cash

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    Chief Oil & Gas Drilling Wells in Dauphin and Somerset Counties, PA

    Chief Oil & Gas (based in Dallas), is in the process of drilling wells in Jefferson Township in Dauphin County, and Addison Township in Somerset County, both in Pennsylvania. According to a Chief spokesman, if those wells do well, it “could lead to large-scale development in the region.” Chief owns the rights to 580,000 acres across the entire Marcellus Shale area.

    For more details on Chief and a recent meeting they held for area residents, see:
    Somerset Daily American (Mar 11) – Gas reps seek community support

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    Nytis Exploration Sells Lease for 11,657 Acres in the PA Marcellus to Northeast Natural Energy

    From a press release* dated March 11:

    Northeast Natural Energy LLC (“NNE”) announced today that it has closed the acquisition of 11,657 net acres in the core of the Marcellus Shale and associated shallow conventional oil and gas wells from Nytis Exploration Company LLC and from Nytis Exploration of Pennsylvania LLC (“Nytis”), both private exploration and production companies. Financial terms were not disclosed.

    “We are very pleased to establish a significant acreage position in the core of the Marcellus Shale,” said Mike John, NNE’s President. “The acreage, which is very high in quality, is located in some of the most attractive areas in the Marcellus including Armstrong, Clearfield and Westmoreland Counties, Pennsylvania. This transaction provides a platform for future bolt-on positions in the region and establishes NNE’s position as a key participant in the development of the Marcellus Shale. We look forward to drilling this acreage as we continue to evaluate many other substantial opportunities in the Marcellus.”

    *Business Wire (Mar 11) – Northeast Natural Energy Acquires 11,657 Net Acres in the Marcellus Shale from Nytis Exploration Company

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    New Drilling to Begin in Luzerne County, PA in May or June

    According to an article in the Wilkes-Barre Times Leader, drilling company Encana Energy Corp (from Canada) will begin drilling a Marcellus gas well in Lake Township, PA (Luzerne County) starting in May or June. At a recent town meeting, some residents expressed concerns about trucking activity on local roadways. More meetings are planned to answer local residents’ concerns.

    For more information, see: Times Leader (Mar 11) – Lake Twp. antsy about gas drilling

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    Landowners Beware of Post-Production Expenses Deducted from Your Royalty Checks

    An informative article with a lot of background on the issue of gas royalty payments and the practice of deducting post-production expenses from those payments is published in today’s The State Journal. The article covers in detail the case of Tawney v. Columbia Natural Resources that was settled by the West Virginia Supreme Court in 2006. That decision said, in essence:

    [G]as producers cannot deduct “post-production” expenses — those incurred between the wellhead and market, such as dehydration, compression and transportation — from royalty payments unless explicitly spelled out in the lease.*

    West Virginia is in the minority of states that have ruled against post-production expenses. Other states disallowing post-production expenses (unless specifically spelled out in the lease) include Arkansas, Colorado, Kansas and Oklahoma.

    However, because gas “at the wellhead” is not in “marketable condition,” a number of other states do allow deduction of post-production expenses from royalty payments in cases where it’s not specifically enumerated in the lease. Those states include Louisiana, Mississippi, Texas, California, Montana, New Mexico and some others.

    Kentucky and Pennsylvania have not yet ruled on the matter, although the Pennsylvania Supreme Court is due to rule soon in Kilmer v. Elexco Land Services Inc.

    The lesson for landowners: Make sure the language in your lease is spelled out in detail about what kinds of post-production expenses can and cannot be deducted from your royalty checks. And if you have a contract that is not specific, get legal advice and be sure you’re receiving the money you’re owed.

    *The State Journal (Mar 11) – State Courts Continue to Evaluate Gas Royalties

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    PA DEP Staffs Up with More Gas Well Inspectors

    The Pennsylvania Department of Environmental Protection is hiring more inspectors for gas and oil wells. Right now there are 125 inspectors statewide. By the summer, an additional 68 will be on board bringing the total to 193 inspectors. Which is a good thing according to the York (PA) Dispatch, which notes:

    In the last year, to cite two examples, inspectors noted that a brine pipeline operated by Range Resources Corp. was spilling production fluids into the ground at Cross Creek Park near Avella, resulting in a $23,500 penalty for the Texas-based company; and Atlas Resources was fined for violations at 13 of its wells in Washington, Fayette and Greene counties.*

    MDN agrees. More inspectors are a good thing. It keeps everyone honest, and reassures the general public that drilling can be done safely.

    *York Dispatch (Mar 10) – Marcellus Shale: Drilling inspectors welcome

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    New Pipelines Coming to Lycoming, Tioga and Bradford Counties in Pennsylvania

    PVR Midstream, a division of Penn Virginia Resource Partners, has signed an agreement with Range Resources to construct and operate pipelines and compression facilities for Range’s drilling in the Marcellus shale in PA.

    According to the press release:

    PVR Midstream and Range have agreed to an area of mutual interest (AMI) that covers parts of Lycoming, Tioga and Bradford Counties in north central Pennsylvania, in which Range currently holds a substantial acreage position. Within this AMI, PVR Midstream will construct approximately 16 miles of 24- and 30-inch gathering trunklines, smaller-diameter field gathering lines and compression facilities required to gather Range’s production from the AMI. The gathering system will have over 700 million cubic feet per day (MMcf per day) of throughput capacity, and the initial phase is expected to become operational in the fourth quarter of 2010. The agreement provides Range significant firm gathering capacity in the system, and PVR Midstream will be compensated for the gathering and compression services provided to Range through a combination of volumetric fees, with no direct commodity exposure. Excess capacity on the system and the location within a core area of Marcellus Shale development should allow PVR Midstream to develop additional revenue by providing gathering and compression services to area producers.

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    William Zagorski, “Father of the Marcellus Shale”

    William Zagorski, geologist and musician, is credited as being the “Father of the Marcellus Shale.” It’s an interesting story how he convinced Range Resources to try drilling in the Marcellus using hydraulic fracturing. Mr. Zagorski even has a music CD! Read the story of the beginning of drilling in the Marcellus Shale and about the man who pioneered it:

    PA Observer-Reporter (Mar 7) – Riding high on the range, the ‘Father of the Marcellus Shale’ leading a busy life these days