Energy Companies

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    Delaware River Basin Commission May Become Roadblock for Drilling in Wayne County, PA and Other Watershed Counties

    The City of Philadelphia is voicing their concerns to the Delaware River Basin Commission (DRBC) about Stone Energy’s request to hydraulically fracture two previously drilled wells in Wayne County, PA. Stone has also made a request to the Commission to withdraw up to 700,000 gallons of water from the West Branch of the Lackawaxen River in Mount Pleasant Township for drilling. Philly’s 17-member City Council voted unanimously to ask the DRBC to not approve the drilling permits until an environmental impact study can be done first.

    An environmental impact study, an intensive and time-consuming endeavor, would determine whether natural gas drilling poses a legitimate threat to the Delaware River watershed, a 13,539-square-mile area that encompasses nearly all of Wayne County and is known for its pristine water quality and world-class trout waters.

    Commission spokesman Clarke Rupert said Monday the regulator is considering conducting such a study. A decision on a $250,000 appropriation request by the commission is not expected until late 2010.*

    In addition to permission from the State Department of Environmental Protection, drillers in the Delaware River Basin watershed area also need permission from the DRBC before they can drill. If the DRBC is not going to make a decision about whether or not to spend $250K on a study “until late 2010,” and if that study is a “time-consuming endeavor,” that means Stone’s request to drill will not be approved until sometime in 2011 at the earliest.

    If you’re a landowner (or driller) in Wayne County, or in other counties located in the Delaware River Basin, you may be in for major delays before drilling begins. Let’s hope the DRBC speeds the process along.

    *Water World (Mar 30) – Philadelphia dives in to gas drilling issue in Wayne County

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    Mesa Energy Adds Another New York Heavyweight Politico to Advisory Board

    Mesa Energy, with drilling operations in Western NY, continues to add major firepower from New York’s political class to their advisory board. Previously it was former New York Gov. George Pataki (see this post). Today, Mesa has added former NY State Senator Nicholas Spano to the board. Mr. Spano knows the people, and the system in Albany, and he will no doubt help Mesa navigate the rough regulatory seas once horizontal drilling is approved in New York.

    From the press release on Mesa’s website:

    Dallas, TX – Mesa Energy Holdings, Inc. (the “Company”) (OTCBB: MSEH.OB), an exploration stage oil and gas exploration and production company with a focus on the Marcellus Shale in western New York, announced today that Nicholas A. Spano, former New York Senator, has been named to the Company’s Advisory Board. Senator Spano brings to the Company over 27 yeas of experience as a New York political leader and advocate for New York related matters.

    “We welcome Senator Spano to our Advisory Board," said CEO of Mesa Energy Holdings, Inc., Randy M. Griffin. "With his strong background as a former New York State Senator and Assemblyman, he is a recognized authority in political issues. His support and guidance will be invaluable."

    "I look forward to providing Randy with support and strategic guidance as he commences drilling activities in western New York," said Nicholas A. Spano. "With the Marcellus Shale in our backyard, there are great opportunities for the State to benefit from the Company’s activities. The Company intends to develop and produce natural gas in western New York which can potentially provide the local region with new jobs, tax dollars and a supply of natural gas."

    As New York State Assemblyman (between 1979 and 1986), Mr. Spano served as chief executive of the Office of General Services (OGS), a large State agency that provides a broad range of support services that facilitate the operations of State government and that assist local governments, public authorities, public and private agencies. He ensured OGS provided government and nonprofit agencies with innovative solutions, integrated service, and best value, enabling the State of New York to function optimally.

    In 1986, Mr. Spano was elected to New York State Senate as Senior Assistant Majority Leader. He also held various positions including Chairman of the Senate’s powerful Committee on Investigations and Government Operations; and Chairman of the Committees on Labor, Mental Health and Developmental Disabilities. Senator Spano represented District 35 in the New York State Senate until 2006.

    Since retiring from the New York State Senate in 2006, Senator Spano has maintained his vast network of relationships with New York political and business leaders. Today he serves as president of Empire Strategic Planning, an experienced lobbying and government relations firm specializing in state and local advocacy in New York. He is also an Executive Director of Rand Commercial Services, a full service real estate financial institution with expertise in commercial and investment real estate.

    Senator Spano is a member of the Richmond Children’s Center, Westchester Mental Health Association and Enrico Fermi Educational Foundation. He received a B.A. in Political Science at Iona College in New Rochelle, New York.

    Mesa Energy (Mar 26) – Mesa Energy Holdings, Inc. Names Nicholas A. Spano, Former New York Senator, to the Advisory Board

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    Statoil Takes Over Another 59,000 Acres from Chesapeake, Pays $4,325 Per Acre

    Norwegian energy giant Statoil, which has a deal with Chesapeake Energy to develop some of Chesapeake’s acreage in the Marcellus Shale, has just transferred 59,000 acres from Chesapeake’s lease holdings to their own.

    From a press statement issued by Statoil on Friday, March 26:

    Statoil has signed an agreement with Chesapeake which will add approximately 59,000 net acres to Statoil’s current 600,000 net acre positions in the Marcellus Shale.

    The cost to Statoil of the transaction is $253 million, with an average acreage cost of $4,325 per acre.

    As part of Statoil’s joint venture agreement with Chesapeake in 2008, Statoil has the right to periodically acquire its share of leasehold that Chesapeake continues to acquire in the Marcellus Shale. Statoil has now exercised such acquisition rights on a series of Chesapeake Marcellus Shale acquisitions.

    Statoil has seen very encouraging production performance since the entry into the Marcellus play in late 2008. This new acreage is expected to strengthen the position of Statoil and our cooperation with Chesapeake as the largest lease holders in one of the most prospective US shale gas plays.

    This acquisition will enable the partnership to optimize its development activity and secure additional developments in the play. Statoil expects to continue to grow its Marcellus position together with Chesapeake.

    Andy Winkle, VP for the Marcellus Asset, says “We were an early mover into the Marcellus and we will continue to build a long term position in what we expect will become a legacy asset and reach our goal of 50,000 boepd production by 2012.”

    *Statoil Website (Mar 26) – Statoil strengthens US shale gas position

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    Newfield Exploration Set to Drill 10 Wells in Wayne County, PA This Summer

    Drilling is coming to Wayne County, Pennsylvania this summer according to officials with Newfield Exploration. They are waiting for approvals from regulators to begin drilling up to 10 exploration wells. If those wells show promising results, they will likely be turned into full production wells.

    A Houston-based natural gas production company is laying the groundwork to fulfill its promise to drill up to 10 exploration wells in northern Wayne County this summer, with permits now trickling into the state Department of Environmental Protection.

    Newfield Exploration Co., which partnered with international oil and gas production firm Hess Corp. to develop a 140,000-acre leasehold in Wayne and Susquehanna counties, recently filed for its first four natural gas drilling permits in Damascus and Manchester Twps.

    The company has three pending drilling permits in Damascus Twp. [Wayne County] and one pending permit in Manchester Twp. [York County], according to state environmental regulator records. These permits, filed in late February and March, are on track to be approved by late April or May.*

    *The Scranton Times Tribune (Mar 24) – Gas driller seeks permits for Wayne County wells

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    Mesa Energy Fracking Two Wells in NY, Plans to Drill Additional 80 Vertical Marcellus Shale Wells in Java Field

    As MDN previously reported, Mesa Energy, which owns the Java Field in Wyoming County, NY, is planning to convert two of the 19 gas wells on the property from Medina sandstone wells to Marcellus Shale wells. These are already drilled, vertical wells. We now have more details about what Mesa plans to do with these two wells, and with the Java Field. They are moving aggressively with Marcellus Shale gas using vertical drilling, giving them a head start on other energy companies.

    From a press release by Mesa Energy issued today:

    Mesa Energy Holdings, Inc. (the “Company”), an exploration stage oil and gas exploration and production company with a focus on the Marcellus Shale in western New York has announced that it has begun initial testing in its Java Field natural gas development project in Wyoming County, New York.

    The Company has selected two of its nineteen existing Medina wells for testing of the Marcellus Shale. The two wells selected are approximately three miles apart. The testing process began in December 2009 with an initial round of location maintenance, logging and evaluation and the two wells will be re-completed once the required permits have been approved. The data obtained in December 2009 will be combined with additional data to design a frac program for both wells with these operations expected to be completed in the second quarter of 2010.

    The Company believes that there are multiple stacked pay zones present in the field, including the Medina and Marcellus Shale zones and, possibly, the Utica Shale zone, and that there is also significant potential to enhance the production and lifespan of the existing Medina wells using modern technology.

    The Company recently announced the results of an independent engineering review of its material assets in the Java Field. Based on this review, as modified by the Company to better reflect the actual acreage acquired, the potential gas in place in the Marcellus and associated shales is believed to be in a range from 106 billion cubic feet (BCF) at 50 feet of shale thickness to 425 BCF at 200 feet of shale thickness. Based on these numbers, potential recoverable gas reserves using a 25% recovery factor and 200 feet of shale thickness would be approximately 106 BCF. The Company projects total potential net revenue over the life of the project to be as much as $405 million gross before expenses, or $332 million net of expenses ($151 million at PV 10). These projections are based on a price of $5 per thousand cubic feet (MCF) of gas.

    CEO of Mesa Energy Holdings, Inc., Randy M. Griffin said, “The test results from the first two wells will be an integral part of our evaluation to determine the potential production capability of additional existing wells in the Marcellus Shale. We have already submitted permit applications and expect to receive approval shortly. We will update our shareholders on our progress.”

    The Company believes that, in addition to enhancing its existing 19 wells, it can potentially drill and complete up to 80 new vertical Marcellus Shale wells on the project acreage and that the shales in the Java Field and surrounding area could provide an excellent opportunity to achieve significant daily production rates.

    *Business Wire (Mar 25) – Mesa Energy Holdings, Inc. Announces Initial Testing in the Java Field

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    SRBC Fines Southwestern Energy $50K for Lack of Proper Approvals

    Although the details are somewhat slim in the newspaper account, the known facts are that Southwestern Energy started construction on a well conductor pipe at a site in Wyalusing Township (Bradford County, PA) in early January, before the Susquehanna River Basin Commission (SRBC) had given its approval for said construction—something required by law. So the SRBC slapped them with a fine:

    Under a settlement agreement between Southwestern and the commission, which was approved by both sides, Southwestern was required to make a $50,000 “payment in lieu of a penalty” to the commission.*

    MDN firmly believes drilling companies need to be responsible and follow the rules, especially since the issue of drilling has been so distorted by anti-drilling propaganda. On the other hand, was this just an oversight on Southwestern’s part? Did someone not get the paperwork filed properly? Who knows. It does seem to be a case of “Simon Says” or “Mother May I?” Since the SRBC didn’t give the go-ahead, Southwestern was fined. Now that the paperwork is filed, have they gone ahead with construction at the site? Did the SRBC find any problems with the application once it was reviewed?

    So, is SRBC’s action vigilant oversight of the public interest? Or a shakedown? You decide.

    *Towanda Daily Review (Mar 24) – Southwestern Energy fined $50,000 for violation in Wyalusing Township

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    Breaking News: PA Supreme Court Rules Against Landowner Seeking to Invalidate Lease

    Last year, Susquehanna County landowner Herbert Kilmer sued ElexCo Land Services Inc. and Southwestern Energy Production to invalidate his lease. The reason? He said that by deducting drilling costs from his royalty payments, his payments fell below Pennsylvania’s law that a minimum one-eighth share of royalties are guaranteed to the landowner. A Susquehanna County judge ruled against the landowner and in favor of the energy companies. Other people started filing lawsuits, so the energy companies asked the PA Supreme Court to take up the matter. The Supremes did, and today they also ruled in favor of the energy companies:

    Pennsylvania’s high court sided Wednesday with the natural gas industry in a dispute with landowners who had sought to invalidate the leases they signed before the Marcellus Shale rush intensified and drove up land values.

    In a 6-0 decision, the Supreme Court upheld a Susquehanna County judge’s ruling that validated lease agreements that subtract drilling costs from the calculation of landowners’ natural gas royalties.

    Justice Max Baer, who wrote the court’s decision, noted that the term “royalty” and the method of calculating a one-eighth share is not defined by the state’s Guaranteed Minimum Royalty Act. However, he cited various texts on the industry that say a royalty is paid from the net amount remaining after deduction of certain production and well development costs.*

    This case will now force similar pending cases to be settled or dismissed. Landowners beware: (1) There is no such thing as a “standard” contract, and (2) Always have an attorney review a lease agreement first.

    *BND.com (Mar 24) – Pa. justices side with gas industry over landowner

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    Mesa Energy Using Conventional Vertical Drilling for Two Marcellus Gas Wells in Western NY

    It seems hardly a day doesn’t go by that Marcellus Drilling News doesn’t observe a new press release, interview or other mention of Mesa Energy and their recent drive into gas drilling in Western New York State. The latest is a clever move by Mesa—they’re converting two of 19 gas wells they own in the Java Field from Medina sandstone to Marcellus Shale wells.

    For about 30 years, the 3,235-acre site called Java Field has been home to 19 natural-gas wells, all of them sunk into Medina sandstone. Mesa Energy Holdings recently took ownership of the site, and it has submitted applications to the state Department of Environmental Conservation to convert two of those wells into Marcellus Shale wells.

    The DEC hasn’t issued the permits yet, but has posted a notice saying it intends to.

    Because Mesa is proposing traditional wells, rather than a deep horizontal well that would use hydraulic fracturing, its project can move ahead.*

    What remains to be seen is if the vertical well transformation will yield production levels profitable enough to make it worthwhile.

    *Rochester City Newspaper (Mar 22) – Marcellus Shale’s northern promise

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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