Industrywide Issues

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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

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    West Virginia Professor Touts Benefits of Shale Gas

    A positive opinion article by Donald W. Lyons, professor of engineering at West Virginia University, recently ran in the Huntington, W.Va. Herald-Dispatch. Among the points he makes are these:

    The United States needs to greatly reduce the amount of imported oil. To achieve this, we need more energy conservation, more wind, solar and nuclear energy and more bio-fuels. But even as we work to increase all of these, we also need more domestically produced natural gas. The failure to diversify our energy policy will lead to further consumer pain and a continued dismantling of key portions of our economy.

    The economy of West Virginia can benefit by the production of Marcellus shale natural gas. West Virginia is fortunate that the state will continue to be a major contributor to the “fuels of the future” and the good jobs associated with energy production.

    Read the full article: Shale gas could move U.S. toward energy independence

  • Mainstream Media Finally Prints Balanced Article on Drilling in the Marcellus

    Don’t look now, but the Binghamton Press & Sun-Bulletin has actually printed a fair and balanced look at the issue of drilling in the Marcellus Shale deposit! The ‘guest viewpoint’ is written by Robert W. Watson, Ph.D., emeritus associate professor of petroleum and natural gas engineering and environment systems engineering at Pennsylvania State University. Whew! A mouthful.

    Dr. Watson’s article is an excellent and recommended read for landowners and for all sides of the drilling debate. Here are a few excerpts to encourage you to read the whole thing:

    Drilling a Marcellus well is a significant undertaking, but it is not a new undertaking. Some of the drilling technologies used in developing these wells have their roots in Pithole City, Pa. (circa 1865) and Gulf Oil Company’s laboratory research during the 1950s.

    Hydraulic fracturing, a technique to stimulate a well’s productivity, was first observed by South Penn Oil Company at its operations near Clarendon, Pa., during World War II, and was perfected and patented by Standard of Indiana during the late 1940s.

    And on the matter of groundwater contamination by hydraulic fracturing:

    [H]ydraulic fracturing has been misrepresented – even demonized – with many of the concerns having no basis in fact.

    Hydraulic fracturing, in its simplest form, it is the use of a water and sand mixture to create a highly conductive zone where natural gas can more readily flow from the natural gas bearing formation to the wellbore. The additives used are in very small quantities and equally low concentrations. This mixture is introduced to the subject formation via steel pipe grouted in place with cement. The subject formation is nearly a mile below the surface and is separated from the surface by an equal distance of rock. The simple reality is that stimulation using this technique does not impact ground-water bearing zones.

    Head on over to the Press & Sun-Bulletin site and read the article for free before it disappears into the paid archives section.

    Read the full article: Going for the gas – Make room for science and technology in Marcellus debate