Fracking Comes to Kentucky – Encore Drills First Horizontal Oil Wells
Kentucky is an interesting state with respect to the oil and gas industry. Historically there has been a fair amount of conventional (vertical only) drilling for oil and gas in the state. Over the past few years there have been a number of gas and petrochemical projects in the state (see our Kentucky stories here). However, the state also has a liberal tilt, at least when it comes to fracking and pipelines. A few years ago Kentucky pretty much single-handedly axed the Bluegrass NGL (natural gas liquids) pipeline, a $1.5 billion project that would have stretched from the Utica/Marcellus all the way to Gulf Coast (see Kentucky House Votes to End Eminent Domain for Bluegrass Pipeline). As for fracking, in 2015 the Kentucky Oil and Gas Conservation Commission, a group that “rarely meets” (previous meeting was in 2006) held a meeting to consider granting Kentucky’s very first deep horizontal natural gas drilling permit (see Kentucky Fracking One Step Closer: Commission Considers 1st Permit). The permit under consideration was to drill in the Rogerville Shale, by an affiliate of EQT. So when we spotted a press release/article about Encore Energy currently drilling its first (of four) horizontal oil wells in the Berea in Kentucky, wells that will be fracked…that’s big news! No, it’s not the Marcellus/Utica, but it’s close to us, and it’s in the Appalachian region. And it’s fracking a horizontal well in a state that has not been overly friendly in approving such activities. Here’s the low down on Encore…
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Last week the Tennessee Valley Authority (TVA) held a dedication ceremony for the Paradise Combined Cycle Gas Plant in Drakesboro, Kentucky. The Paradise plant is a natural gas-fired plant that replaces two now-closed coal plants at the site. The new plant is capable of producing 1,100 megawatts of electricity (really big plant). The cool part, for us, is that Marcellus/Utica gas is either already feeding the plant, or soon will. The plant is fed by a 20-mile pipeline connecting to the Texas Eastern pipeline system (Tetco). We don’t know for sure whether Tetco is now carrying Marcellus/Utica gas south, but we do know that last December the Federal Energy Regulatory Commission (FERC) issued certificates for three Spectra Energy projects to expand Tetco to carry Marcellus/Utica gas to Ohio, Kentucky and Mississippi (see 
Gas-to-Liquids (GTL) plants convert natural gas, a hydrocarbon, into other hydrocarbons, like diesel fuel, gasoline, solvents and waxes. An abundance of cheap natural gas in the Marcellus/Utica is one of the prime motivators for establishing GTL plants in the region. Although we’ve heard plenty of talk about such plants, we’ve only seen a few prototypes get built. There’s lots of talk, lots of smoke–but so far, no fire. Will that soon change? We spotted a story about a GTL plant that may locate in Somerset (Pulaski County), Kentucky. Which we find interesting since Kentucky hates new gas pipelines, yet wants to build a plant that will use gas coming from pipelines (see 
Last week MDN brought you news about Kinder Morgan’s Broad Run Expansion Project will expand transportation capacity of natural gas on the existing Tennessee Gas Pipeline system. Antis tried to stop the project, but FERC rejected their pleas (see 
The Federal Energy Regulatory Commission (FERC) has just thrown a little cold water on two important pipeline upgrades to carry more Marcellus/Utica gas to southern markets. A final environmental impact statement (EIS) was due from FERC for both the Mountaineer XPress and Gulf XPress projects no later than April 28, 2017. FERC says that deadline is going to slip by three months due to reroutes and additional environment information requested. MDN has previously reported on Mountaineer XPress, which includes 165 miles of new pipeline with approximately 2.7 billion cubic feet (Bcf) per day of transportation capacity from existing and future points of receipt along or near the Columbia pipeline system–most of it located in West Virginia (see 
Kinder Morgan’s Broad Run Expansion Project will expand transportation capacity of natural gas on the existing Tennessee Gas Pipeline system. The project includes the construction of two new compressor stations in Kanawha County, WV, one new compressor station in Davidson County, TN, and one new compressor station in Madison County, KY. Tennessee Gas also expects to increase compression capacity by modifying two of its existing compressor stations in Powell and Boyd counties in KY by replacing existing capacity with new, higher-rated horsepower compression units. The project will provide an extra 200,000 dekatherms per day (Dth/d) of transportation capacity along the same capacity path as the Broad Run Flexibility project, which was placed in service on Nov. 1, 2015. All of the additional gas will come from Antero Resources and their Marcellus/Utica program. The Federal Energy Regulatory Commission (FERC) issued a Certificate to build the project in September. However, several anti-drillers filed an appeal, asking for a stay claiming a removal of 40 acres of forest for a compressor station would irreparably harm Mom Earth. FERC has just ruled against the stay and told the antis Mom Earth will be just fine. Fire up the backhoes!…
Chesapeake Energy, which continues to be strapped financially, embarked on a mission to lighten the debt load years ago–first under co-founder Aubrey McClendon, and then more aggressively under his successor, Doug “the ax” Lawler. Many pieces of the company have been sold off: the Oilfield Services division, all of its Haynesville Shale assets, all of its Barnett Shale assets…we could go on. Chessy loves to do land deals. In December 2014 Chesapeake sold off 413,000 Marcellus acres mostly in West Virginia (see 
In May MDN brought you the news that a researcher at West Virginia University believes an natural gas liquids (NGL) storage hub is what the Marcellus/Utica region really needs (see 
In March MDN reported that 47 dumpsters full of concentrated frack waste from OH, PA and WV was illegally dumped in a Kentucky landfill in Estill County, KY (see 
Seems to us like folks in Kentucky swing more to the liberal side of the isle when it comes to opposing natural gas drilling and pipelines. Just our observation over time. We think they overreact to anything related to fracking and gas drilling. However, in this case, we don’t think they’re overreacting. It appears that 47 dumpsters full of concentrated frack waste from OH, PA and WV was illegally dumped in a Kentucky landfill in Estill County, KY. They were buried between last July and November, near as anyone can tell. And the landfill sits across the road from a school. Normal frack waste has extremely low (usually no) kind of radioactivity. But when drill cuttings are further processed and concentrated, as was the case with this series of loads, the naturally occurring radiation present can become more concentrated. There’s no indication of a problem at the landfill…no indication that it’s leaking radioactivity into the water table, etc. Radiation levels are being monitored and do not show anything above normal background levels. But still, somebody somewhere should have known this was happening. Local residents have a right to be up in arms over not being told…
In June MDN updated you on Kinder Morgan’s plans to repurpose part of the existing Tennessee Gas Pipeline that currently runs south to north, reversing the flow to send natural gas liquids (NGLs) southward (see 
The Supreme Court of Kentucky has just ruled, in a pair of cases, that producers (i.e. drillers) CAN deduct post-production costs before calculating royalties to landowners. Once case involves landowners suing Magnum Hunter, the other involves landowners suing EQT, claiming (much like what has happened in Pennsylvania) that post-production costs mean they are getting less than one-eighth or 12.5% of the fair value of the gas as a royalty payment. The Supreme Court of Kentucky ruled the language in the leases is unambiguous as is the law–and that the lease allows for post-production expenses to be deducted. Here’s a summary from the legal beagles at Vorys…