Industrywide Issues

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    Sen. Gillibrand Trying to Slow Down Drilling in New York

    Binghamton Press & Sun-Bulletin (Oct 15):
    Gillibrand urges N.Y. extend comment period on gas drill rules

    More delay tactics from the Democrats. Enough already! From the article:

    U.S. Sen. Kirsten Gillibrand, a member of the Senate Environment and Public Works Committee, on Thursday urged New York to extend the public comment period on proposed regulations governing development of the gas-rich Marcellus Shale.

    New York state released its environmental impact statement Sept. 30 and scheduled a series of public meetings, beginning on Oct. 28 . The state provided a 60-day period for public comment; Gillibrand, D-N.Y., recommended a 90-day public comment period, to Dec. 30.

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    Pennsylvania Budget Almost There – With No Drilling Tax

    Philadelphia Inquirer (Oct 9):
    Pa. budget pieces start to fall into place

    With a state budget still not adopted, and now over 100 days late, Pennsylvania is finally about there. The good news for drillers…no severance tax this year:

    Also not in the package is a tax that some lawmakers had wanted to impose on natural-gas drilling in the vast formation known as the Marcellus Shale.

    Republicans in the Senate – and later Rendell – opposed starting such a tax this year, arguing that it would stunt drillers in an industry still in its infancy in the state.

    Kudos to the Republican Senate for protecting landowners’ money.

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    Pro-drilling Editorial from Corning Leader

    Corning Leader (Oct 7):
    Gas drilling an important opportunity

    Well, what do you know? A positive editorial from a news outlet (for a change). This one from the Corning Leader says in part:

    [S]ometime next spring or summer we’ll see the beginning of what could be a drilling bonanza in the Southern Tier. Hundreds of wells have already been tapped in Pennsylvania and the same level of activity could happen here.

    Potentially, that could generate billions in new revenue for a sustained period of time. Gas companies, support companies, engineering firms and so on are expected to follow others that have already located in the Southern Tier to tap into the northern tip of the Marcellus Shale. Those companies will create jobs, pay taxes and have a beneficial ripple effect through other sectors that could revive one of the poorest areas of the country.

    Thank you for talking about the positive side of drilling!

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    More Work Ahead in New York Before Drilling Begins

    Binghamton Press & Sun-Bulletin (Oct 7):
    Much more work ahead

    An editorial in the Binghamton Press & Sun-Bulletin, no doubt written in part by Tom Wilbur, anti-drilling shill for the eco-nut groups. It acknowledges what MDN has already noted: The New York DEC is interested in pushing forward with responsible drilling in New York, eco-nut groups are not. The battle is only beginning. Landowners need to write and call and make their voices heard on the proposed drilling regulations.

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    Top Rendell aide quits to join gas driller

    Philadelphia Inquirer (Oct 7):
    Top Rendell aide quits to join gas driller

    An interesting bit of news: A top aide to Gov. Ed Rendell is stepping down to take a job in the drilling industry:

    K. Scott Roy is stepping down as the $146,000-a-year executive deputy chief of staff to Rendell to become vice president for government relations and regulatory affairs for Range Resources Corp., a Texas-based company with a major drilling stake in Pennsylvania.

    And another bit of interesting news found in this article is that Gov. Rendell wants to forego an extraction tax–for now (although the Democrats in the legislature are still trying to get a tax passed for this year):

    [Rendell’s call for an extraction tax] changed Aug. 31. In a move that took even some of his top aides by surprise, Rendell said at a news briefing that he was giving up his push for the tax this year.

    He said he changed his mind after meeting with industry executives who convinced him that imposing the tax now would stunt the growth of drilling in the state.

    “We felt we should let the industry get off to a good start, and that surpasses our need for money,” Rendell said Aug. 31. He said he favored starting such a tax next year.

    The article is mostly quoting eco-nut groups moaning about a potential conflict of interest by Mr. Roy’s “sellout” to the drilling industry.

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    Natural gas quest: Technical report carving deep divisions between gas companies and industry critics

    Binghamton Press & Sun-Bulletin (Oct 4):
    Natural gas quest: Technical report carving deep divisions between gas companies and industry critics

    The eco-nuts are in a snit over the Department of Enviromental Conservation’s proposed new Supplemental Generic Environmental Impact Statement for drilling in the Marcellus Shale in New York State. As previously posted on Marcellus Drilling News, in a cursory glance at the proposed new rules for New York, I believe the rules are somewhat over-restrictive, but not as bad as they could be. It appears the eco-nuts read it the same way and this article, authored by eco-nut stenographer Tom Wilbur (who dutifully “reports” the anti-drilling side in every article he writes), chronicles the apoplexy going on inside the eco-nut movement. I am encouraged. Let’s hope the New York DEC quickly adopts the SGEIC so drilling can finally begin.

    Likewise, let’s hope Maurice Hinchey (Democrat Congressman from Upstate New York) is unsuccessful in passing a bill in Congress that would effectively bring control of all gas drilling under the jurisdiction of the rogue Environmental Protection Agency under the guise that the EPA is the only agency who can properly protect drinking water supplies. It is an attempt by the federal government to grab power away from the states. New York (and all states) must resist this legislation. Beat back the eco-nuts! Let the drilling begin.

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    New York State Releases Draft Rules for Drilling in the Marcellus Shale

    Originally run on RSSBinghamton.com on October 1st:

    The New York State Department of Environmental Conservation (DEC) has finally released its Supplemental Generic Environmental Impact Statement for drilling in the Marcellus Shale. Instead of making drilling companies do an environmental impact statement for each well they drill, the DEC decided to do one “generic” environmental impact statement that will apply to all drilling sites throughout the state. You can read the document for yourself here: //www.dec.ny.gov/energy/58440.html.

    I have not yet had a chance to fully digest the 500+ page document. I have reviewed some of it (a lot of it is technical). An article in the Press & Sun-Bulletin purports to cover some of the highlights. Read the P&SB article here: NY regulators propose pre-emptive checks of gas wells in Marcellus Shale. But let me warn you that Tom Wilber, the P&SB writer, shades all of his Marcellus drilling articles with anti-drilling sentiment. For example, he says:

    The DEC’s regulatory overhaul began after Southern Tier residents crowded into school auditoriums and town halls to attend public information sessions hosted by the agency in the summer of 2008. Those sessions often became heated, as regulators were unable to satisfactorily answer questions about water consumption, waste disposal, chemical handling and other aspects of large scale Marcellus drilling.

    Perhaps so Mr. Wilber. Maybe that’s why New York decided to do a complete review in the first place. But in the interests of being fair and balanced, why didn’t you also mention the rally held just recently (this past summer) in Afton, where thousands of landowners showed up to support drilling? There were more people in one location at one time to support drilling than there ever have been in any location who oppose it.

    He also asserts in the article:

    DEC officials have watched and learned from developments in Dimock Township, Pa., where Cabot Oil & Gas recently had to shut down some operations after repeated spills and environmental problems. Explosive levels of methane contaminated some drinking water supplies earlier this year. More recently, an 8,000 gallon spill of chemicals used to stimulate well production polluted a creek and wetland.

    Yes, Cabot has had problems and they are being appropriately spanked for it by the Pennsylvania Department of Environmental Protection (PA’s version of our DEC). The situation is being carefully monitored and handled. But again, the lingering sentiment from the paragraph seems to be that all drilling is unsafe and all drilling companies are out to screw the populace. What about the hundreds (thousands?) of other natural gas wells in PA that are doing just fine with their operations? No spills or contamination of anything. No mention of that.

    My very preliminary take on the new DEC proposed regulations: Likely overbearing and restrictive, but at least we’re moving again. After a public comment period until Nov. 30, the DEC will hopefully sew this thing up and drilling can finally begin in New York.

    Stay tuned as more will surely come out about the proposed new regulations as people have time to review them in detail.

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    CNX Gas Corp. chief: Slow down or stop gas drilling

    Pittsburgh Tribune-Review (Oct 3):
    CNX Gas Corp. chief: Slow down or stop gas drilling

    Gas prices are depressed right now. The question is, how long will it go on? While prices are low, CNX Gas CEO Nick DeIuliis says drillers have to remember to be good business people and slow down or stop drilling to reign in costs. What does that mean for landowners? Will drilling slow down or stop any time soon? Good questions to ponder. A good article to read to give you an update on gas prices on the commodities market and the overall drilling landscape.

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    PA House budget unlikely to advance

    Pittsburgh Post-Gazette (Oct 3):
    House budget unlikely to advance

    Pennsylvania still has not adopted a budget for the new fiscal year. Part of the wrangling is how to raise taxes to meet the ever growing demand of government to transfer wealth from the producers of society to the non-producers. In PA, the Democrats want to tax natural gas drilling, which of course will take money out of the landowner’s pocket…make no mistake, any tax on drilling will be passed on as an “expense” by the energy companies, reducing royalties to landowners. The Republicans in the PA statehouse are trying to stop it. Make your voice heard if you’re in PA!

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    Drilling Activity is Linked to the Price of Natural Gas

    I suppose the headline of this post may have you saying, “It doesn’t take a genius to figure that out.” But how, exactly, does the spot price for natural gas relate to drilling activity? Can we quantify it? Let’s try.

    In a recent article on an investment blog called Energy & Capital, author Keith Kohl offers some excellent insights into the natural gas marketplace from the perspective of those interested in investing in it. And along the way, he makes some observations well worth reading for landowners in the Marcellus. I encourage you to read the entire article.

    Here are just a few insights from his article:

    [N]atural gas has been treading water. After deteriorating more than 70% since July records, prices have fallen below $4/Mcf this week. That’s a level many people thought they’d never see. And to make matters worse, I’ve been hearing more and more people calling for natural gas to plummet below $2/Mcf and stay in that range for several months.

    …

    Developing…shale sources will be extremely difficult (or even nonexistent) if natural gas prices fall below $2/Mcf for a sustained period. The depreciation of natural gas prices since July has already caused companies across the board to slash exploration and production spending.

    Much like the oil industry, not a week passes that I don’t see another project being delayed or canceled. Furthermore, the number of active drilling rigs has been in serious decline. The latest numbers from Baker Hughes Inc. reported that the number of exploration rigs has dropped nearly 45%. And if prices continue to remain this low, you can bet we’ll see even more rigs going silent.

    That means production is headed one way—much lower.

    But his longer term prediction is not gloomy. He believes prices and production will start to improve in 2010 when an improving economy, more demand and less supply kick in. In the article he also offers his opinion on liquefied natural gas (LNG) imports, and his thoughts on which companies to invest in (EOG Resources is one of them). Read the whole article! It’s well worth it.

    Based on Mr. Kohl’s views and other sources, this is Marcellus Drilling News’ take: If natural gas prices stay at or above $4/Mcf ($4 per thousand cubic feet), drilling will continue and slowly expand. That price level is just above break even for energy companies. If the price goes higher at $5-$6/Mcf, happy days are here again. If the price drops to $2/Mcf and stays there, production all but stops because energy companies will lose money.

    Read the full article: The Inevitable Crunch in Natural Gas Supply… and How to Prepare Your Portfolio

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    Lackawanna College Predicts 90,000 New Jobs from Marcellus Drilling, Offers New Degree in Oil & Gas Production Technology

    It seems drilling in the Marcellus is not only good for landowners and energy companies, but also for education and jobs. From an article published on iStockAnalyst (reprinted from The Daily Review, Towanda, PA):

    Lackawanna College will begin offering an associate’s degree this fall in natural gas technology to prepare students to work in the growing local natural gas industry, and many of the required courses for the degree will be offered at the college’s Towanda Center.

    In addition, Lackawanna College will soon start giving accounting students at the college’s Towanda Center the option of customizing their degree to prepare them to work in the accounting side of the natural gas industry, said Larry D. Milliken, director of energy programs at the college.

    And the college is in the process of contracting with Sage Technical Services of Vestal, N.Y., so that its Towanda Center can again offer training to students who wish to obtain a commercial driver’s license, as there will be a large number of trucks required when drilling for gas, he said.

    And this on the number of new jobs that will be created from Marcellus drilling activities:

    “Development of the Marcellus Shale gas is expected to generate over 90,000 jobs over the next 20 years,” states a press release from Lackawanna College, which this week announced the launching of the natural gas technology program. “This kind of job growth and economic stimulus to northeastern Pennsylvania will be transforming to our region and to the lives of those people who get the technical education and training needed to take advantage of the best job opportunities as they arise.”

    The new applied science degree in Oil and Gas Production Technology will be available at the college’s main campus in Scranton, and some of the other satellite locations, in addition to Towanda.

    For more information about the new program, read the article Lackawanna College to Offer Natural Gas Technology Degree, read Lackawanna College’s news release, or contact Lackawanna College’s Department of Continuing Education at (570) 961-7883.

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    Is Drilling in the Marcellus Forcing Land Prices Higher?

    The Centre Daily Times (State College, PA) implies that a recent auction of property in Centre County which had been seized for tax liens had higher than expected prices due to drilling in the Marcellus. The article begins thus:

    BELLEFONTE — Property at Wednesday’s Centre County auction started selling at $1,000, but it didn’t take long for bidding on the first piece of land to reach $82,000.

    Ditto for the next few parcels — all large pieces of Snow Shoe Township property in the Marcellus Shale natural gas region.

    “Do I hear $150,000?” asked Chuck Salvanish, who works in the county tax assessment office and doubled as an auctioneer at Wednesday morning’s lien-free property sale in the county Courthouse Annex.

    The winning bid on one 264-acre property quickly reached $300,000. Altogether, the sale brought in about $509,000, and drew upward of 100 people…

    “I’m amazed at how many people are here,” said Sue Crowley, of Howard Township.

    And this:

    [Bill] Shreffler bid on a 76-acre Carlin Inc. property in Snow Shoe Township, but stopped at $49,000. The winning bid was $50,000.

    Tarry Bratton, of York County, bid $20,000 for 163 acres of Carlin Inc. property in Snow Shoe Township that had at one time been a landfill.

    I don’t live anywhere near Centre County, so I don’t know if those prices are high or not. How about you? Have land prices climbed in your area because of the Marcellus and the prospect of drilling? If they have (or haven’t), leave a comment.

    Read the full article: County gets $509,000 in auction of property

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    Centre Daily Times Runs Anti-Marcellus Editorial

    The Centre Daily Times (State College, PA) recently ran an editorial with typical scare-tactic, kindergarten logic, while at the same time supporting the obscene taxation of drilling in the Marcellus in Pennsylvania.

    The editorial recounts how a number of so-called conservation groups have their greedy hands out and want a piece of the pie (my words, not theirs). So in the tortured logic of these groups, they want to tax tax tax the Marcellus. On one hand conservation groups and the Centre Daily Times decry drilling and paint a nightmarish picture of water and noise pollution, road damage, and general malaise. In the next breath they say, “Oh well, if it’s gonna happen, let’s at least grab a piece of the action for ourselves.” It’s thuggish thinking and thuggish behavior. A protection racket–pay to play. And newspapers like the Centre Daily Times fall right in line, along with their Democrat co-conspirators in Pennsylvania state government.

    Perhaps this is a teachable moment? The taxarati (the taxing class), will tell you energy companies will have to pay the tax, and that there’s more than enough money going around that “a little tax won’t hurt anyone,” with the justification that “39 other states do it too.” Wrong. Natural gas prices have come down dramatically in the past 12 months and new exploration is at best a break-even affair at this point.

    Point #1: Drilling will slow or stop. Making drilling more expensive by adding more tax may tip the scales and make it an unprofitable venture, and the drilling will stop. There are already indications that new drilling has slowed throughout the Marcellus.

    Point #2: Landowners will not escape the tax. Do you think energy companies alone will bear the tax? Wrong! Landowners will also be part of this tax. The energy companies will not bear the burden alone. More tax means less in landowners’ pockets.

    Point #3: Consumers will ultimately pay. Do you think corporations simply “live” with making smaller margins of profit? They do not. They pass along increases in higher prices. There truly is no such thing as a tax increase on business that is paid by anyone other than the consumer. It is always the case. You may think you’re “soaking the rich” by increasing taxes on businesses, but those taxes are treated as a cost of business and factored into the price consumers will pay. By taxing business, you have just taxed yourself. Doh!

    Wake up PA, and reject the notion of a severance tax on Marcellus drilling.

    Read the Centre Daily Times editorial: Tax the source of the mess

  • Is Shale Drilling in Trouble at Current Market Prices?

    As part of an opinion article published on OilOnline, several data points of interest are quoted about how much it costs to produce natural gas from shale plays like the Marcellus. The article paints a rather grim picture in the near future for shale drilling if prices for natural gas do not climb again. Among the comments made:

    Wells in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale well may not be able to sustain production at prices below breakeven for long. Community tax bases will suffer. Resources and personnel could be forced to move on to other locations, domestic and international. Royalty owners will lose income. Exploration, drilling and production will quickly dry up. Production costs in most of these plays exceed the current $4/MMBtu market price. Most operators require at least $5-$6/MMBtu as a minimum to maintain profitable production.

    OilOnline’s proposed solution to this crisis? The government:

    A $7-$10/MMBtu price should be a policy objective that keeps the domestic industry healthy and contributes to further exploration and US energy independence. The US economy and security may depend on bringing these clean burning gas discoveries in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale to market profitably. With price a function of supply and demand, we are seeing a greater supply than demand. That has to change.

    Excuse me, but this is AMERICA. We are capitalists. We value freedom as our most prized and cherished possession, handed down to us by the Founders of our country. Freedom includes a free marketplace with prices set by competition and supply and demand. Every time the government interferes in the free markets (as can be seen in the current financial markets crisis), government makes matters worse. Natural gas, and indeed all forms of energy supply, must openly compete on the free market. If it costs too much to drill for natural gas, then the drilling should stop until such time it becomes profitable. That is the American way.

    In fairness to OilOnline, they do make a strong case in the article for developing local markets for natural gas–a good idea. But inviting the government to micromanage the energy market is a prescription for disaster. Let natural gas stand on its own merits!

    Read the full article: Natural gas needs to build local markets

  • Will the U.S. Become Addicted to Imported Natural Gas Like We Have Imported Oil?

    An interesting article recently ran in the Fort Worth Weekly (Texas), discussing the looming competition that is about to arrive from imported liquefied natural gas (LNG). The context of the article is mostly about how an increase in imports will affect energy companies and workers in the Barnett Shale play in Texas. However, the coming competition will affect all natural gas plays in the U.S., including the Marcellus.

    The United States has imported natural gas for decades — it’s already the fourth largest importer of natural gas in the world, buying mostly from Canada and Mexico. This country has also been importing LNG for about 20 years, primarily from Algeria and the Caribbean nation of Trinidad and Tobago.

    In the last few years, however, several factors have combined to make LNG importing much easier. The three new LNG terminals and 15 more in the planning or construction stages — on the East, West, and Gulf coasts — will triple the United States’ capacity for handling such imports. The prices of building LNG carrier ships has dropped sharply in the last decade, and the newest ships use much less fuel to get across the ocean than the older generation of such tankers, leading to a tripling of the worldwide LNG fleet. For those reasons and others, bigger players have entered the game: Egypt, Nigeria, and Qatar — home to the world’s largest natural gas field — have also begun selling to the United States. And they are delivering LNG at rates competitive with what it costs to produce the gas domestically.

    The author of the article concludes this situation is good for consumers (lower prices), but potentially bad for those in the industry. But is continued dependency on foreign sources for our domestic energy needs really good for consumers–indeed all Americans? The beauty of horizontal drilling and plays like the Marcellus are to get us away from our energy dependence on potentially hostile foreign countries. In this author’s opinion, it would be a tragedy to repeat the same mistakes with natural gas that we have with oil.

    Read the full article: Cool Competition: A new wave of imports could undercut Barnett Shale drillers

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    $25K Per Acre for Lease Deals? Not in the Marcellus — Yet

    An interesting tidbit from a story about energy giant ConocoPhillips. The article, published on the Houston Chronicle’s website, was about recent efforts by ConocoPhillips to “debunk Wall Street’s view that the Houston-based oil major grows by acquisition rather than finding its own oil and gas.” Buried far down the story is a statement (not a direct quote but a summary statement) from Larry Archibald, company vice president of exploration and production. The statement, as summarized by the reporter, was this:

    He [Archibald] said ConocoPhillips shied away from “feeding frenzies” at high-profile shale plays where some companies rushed in and spent $25,000 or more per acre amid the pre-recession boom in gas production. Those plays included the Haynesville in East Texas and northern Louisiana, and the Marcellus in Pennsylvania, New York, Ohio and West Virginia.

    He said ConocoPhillips will keep spending in more established plays, such as the Barnett shale near Fort Worth, and the lesser-known Eagle Ford in South Texas, where the company has a leading acreage position.

    Everyone drools to see energy companies spending $25K per acre for leasing rights. But don’t get your hopes up too high. Marcellus Drilling News has not (so far) found any instances of leasing deals that approach anything near $25K per arce. It’s been more like $5K per acre on the high side in the Southern Tier of New York. If you know of high paying deals in the Marcellus, please let us know!

    The other interesting point about the statement is this: It looks like ConocoPhillips will not be a major player in the Marcellus anytime soon, which is unfortunate.

    Read the full article: ConocoPhillips flaunts its exploration finds