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Chesapeake Energy’s Marcellus Shale Strategy Changes – 20% of Their Leases Now For Sale

Seems there’s been a strategy change at Chesapeake Energy with respect to Marcellus Shale drilling. Chesapeake is the largest player in the Marcellus with some 1.5 million net acres under lease. As recently as last week (see this MDN story) they boasted of having 24 drilling rigs (expanding this year to 31) in operation, and plans to drill 170 Marcellus shale gas wells in 2010. But that was last week. This week they’re looking to sell off 20 percent of their Marcellus leases to help raise $5 billion to pay down debt and invest in other ventures. No, they certainly aren’t abandoning the Marcellus—not by a long shot. But it is quite a strategy shift from upper management. From their recent press release:

Chesapeake Energy Corporation today announced a strategic and financial plan designed to increase shareholder value, reduce debt and ultimately achieve an investment grade rating for the company’s debt securities. Through a series of transactions over the next 24 months, including the preferred stock placement announced today, the company is planning to raise up to $5.0 billion in order to repay up to $3.5 billion of senior indebtedness and increase its investment in liquids-rich plays by up to $1.5 billion. Chesapeake is in various stages of implementing its strategic and financial plan, several steps of which are outlined below.

The company is planning to sell up to a 20% equity interest in its subsidiary, Chesapeake Appalachia, L.L.C., which includes its Marcellus Shale operations, to private and/or public investors within the next 3-12 months. Chesapeake is one of the largest producers, the largest leasehold owner with 1.5 million net acres and the most active driller with 24 operated rigs in the Marcellus Shale play.*

*Chesapeake Press Release (May 10) – Chesapeake Energy Corporation Announces Strategic and Financial Plan to Increase Shareholder Value and Reduce Debt

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Mesa Energy is Using Hydraulic Fracturing on Two Wells in Western New York – Right Now

From the “continues to be interesting” department: Mesa Energy, new owner of the Java Field in Western New York State, has started hydraulic fracturing of two Marcellus Shale wells in the Java Field. Yes, you read that right. Fracking is happening NOW. In New York State. The catch? They’re both vertical wells. Since fracking horizontally drilled wells is still on hold in New York, Mesa can’t drill horizontally. But they have received permission from the New York Department of Environmental Conservation to frack vertically on two of their wells—and they are doing it.

Mesa press release issued today:

DALLAS—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, provides an update on its re-completion of the Reisdorf Unit #1 well in its Java Field prospect located in Wyoming County, New York.

The Reisdorf Unit #1 in the northern portion of the Java Field has been successfully re-completed and fracked in the Marcellus Shale. The well was perforated at a depth of 1,368’ to 1,389’ and fracked with 74,000 gallons of slick water and 105,000 lbs. of proppant (sand) combined with Nitrogen assist. Flow-back of the frac water is continuing according to plan. Although there is not yet sufficient data to accurately quantify the gas flow, there is clear indication of strong gas presence in the Marcellus zone. Planning for the re-completion and fracking of the Ludwig #1 is underway.

“We are very encouraged by the early data and believe that the performance of the well to date clearly supports our ongoing efforts in the Marcellus Shale,” said Randy M. Griffin, CEO of Mesa Energy Holdings, Inc. “We will continue to provide updates as new information warrants.”*

*Mesa Press Release/Business Wire (May 12) – Mesa Energy Holdings, Inc. Provides Reisdorf Unit #1 Update

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Will PA Landowners Pay Higher Property Taxes When Drilling Begins? Maybe

Landowners in Pennsylvania have gotten property tax relief in recent years from a PA law known as “Clean and Green.” If landowners keep their property use as agricultural, open space or forest-land, they are taxed at a lower rate (for those uses) rather than the higher fair market value the land might bring for other uses. But there’s a catch—if a landowner starts using the land for another non-agricultural use, they not only start paying higher taxes on it now, they also have to pay the difference in the tax rate between Clean and Green and fair market value going back up to seven years—as a penalty.

The intent of the program, which is administered through county government, is to encourage property owners to retain their land in agricultural, open-space or forest-land use by providing real estate tax relief.

Property owners benefit through lower taxes as long as their land isn’t used for housing developments or other uses inconsistent with agricultural production, open-space or forest-land use.

If a property owner decided to use the land for a purpose inconsistent with the program, the landowner would have to pay “rollback taxes” – the difference between fair market value and use value of the land – for as many years as the property had been designated Clean and Green, up to a maximum of seven years.*

So the million dollar question: If landowners allow drilling on their land, is that land disqualified from the Clean and Green lower tax rate? Right now, as things stand, each county will interpret the law the way they see fit. There is a bill that has passed the PA Senate and is now before for the House for consideration that would allow gas drilling on Clean and Green land without penalty.

Landowners who have signed leases where drilling will soon begin (or has already begun) need to monitor this situation. Landowners in PA who have not yet signed a lease would do well to be sure there is a clause requiring the driller to pay the difference in taxes should the bill not get signed into law.

*Wilkes-Barre Times Leader (May 11) – Drilling’s effect on ‘Clean and Green’ land uncertain

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Susquehanna River Basin Commission Establishes Marcellus Shale Field Office in Northeast PA

To it’s credit, the Susquehanna River Basin Commission (SRBC) has established a field office in Northeastern PA specifically to monitor compliance with Marcellus drillers in the Susquehanna River watershed. Too bad the Delaware River Basin Commission is not as industrious and sensitive to landowners’ rights as the SRBC (no drilling allowed in the Delaware River watershed for the foreseeable future).

From the SRBC press release:

HARRISBURG, Pa. – Susquehanna River Basin Commission (SRBC) today announced the start-up of its first-ever field office aimed exclusively at enhancing compliance through increased on-site inspections, particularly of natural gas well development projects in the Marcellus and Utica shale regions. The field office is located on 1760 Elmira Street, Sayre, Bradford County, Pennsylvania.

This location strategically places SRBC’s compliance staff in and around the most active drilling areas in the upper basin region. It also allows staff to follow up more quickly on problems and concerns reported by basin citizens in Pennsylvania and New York.

Prior to the Sayre field office, staff drove from SRBC’s headquarters in Harrisburg to inspect natural gas well development sites and to meet with citizens and industry officials.

“Having our compliance staff closer to project areas to conduct inspections and to the citizens affected by the boom in natural gas drilling is intended to enhance our effectiveness and day-today efficiency,” said SRBC Executive Director Paul Swartz.

“For each and every water withdrawal or water use project the Commission approves, there are many subsequent and ongoing compliance requirements we impose on project sponsors such as monitoring and reporting. Because we take very seriously our obligations to verifying compliance, the Commission took the extraordinary and historic step of establishing the Sayre field office.”

Read More “Susquehanna River Basin Commission Establishes Marcellus Shale Field Office in Northeast PA”

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The Two (Drilling) Faces of PA Gov. Ed Rendell

Is Pennsylvania Gov. Ed Rendell pro- or anti-drilling? Darned if I can tell. In some ways he has encouraged and allowed drilling to flourish in PA under his watch, something PA landowners should be thankful for. But it seems he has to keep some in his own party appeased, so he often talks down drilling. In typical politician fashion, he talks out of both sides of his mouth. The latest example is today. One headline trumpets that Rendell has signed a deal with Anadarko for $120 million (Anadarko to pay Pennsylvania $120 mln for drilling – Reuters) to allow drilling on an additional 33K acres. But another headline says Rendell backs a stop to further leasing of PA public lands (Rendell backs halt to gas leasing in public lands – CBS/Channel 21), as if he’s champion of the anti-drillers. What gives?

Well, it’s the same Ed Rendell on the same day walking a tightrope. He did indeed sign a deal with Anadarko to lease land that is supposedly surrounded by other public land already leased for drilling and so, as the thinking goes, the newly leased land won’t be “disturbed” all that much since most of the drilling operations will be from adjacent land. But now that he’s got his fist-full of $120 million, he immediately announces he’s now on board with no further leasing (after today, of course). Methinks he’s not going to make either side happy—but then he’s not running for re-election. What a strange character, that Gov. Rendell.

Press release from Gov. Rendell’s office putting the master spin on today’s high-wire act:

Harrisburg – Governor Edward G. Rendell announced today that the Department of Conservation and Natural Resources has finalized a responsible natural gas lease agreement by which Pennsylvania will meet its need for revenue from drilling next year, while also fulfilling its obligation to protect Pennsylvania’s natural resources.

Under the agreement, Anadarko Petroleum Corp. has paid the commonwealth $120 million to access 32,896 acres that are surrounded by tracts of land for which drilling companies already hold lease agreements. Because these newly leased tracts can largely be accessed by gas operations on the adjacent tracts, the amount of new state forest surface area that must be disturbed is minimized.

Other than the agreement, the commonwealth will not have to make any additional state forest land available to reach its revenue goals for natural gas drilling in the 2010-11 fiscal year.

Read More “The Two (Drilling) Faces of PA Gov. Ed Rendell”

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Members of Landowner Group in Broome County, NY Receive First Payment for Lease Deal

Stop the press: There’s actually been some GOOD news from New York State on the drilling front. Inflection Energy has just issued payments to some 130 residents in the Town of Maine (Broome County, NY) to secure drilling rights to their land, when/if drilling ever begins in New York State.

The deal, announced in February, calls for $6,000 per acre over eight years. About 130 residents with more than 3,000 acres have begun receiving checks for the first year’s payment of $1,000 per acre, said Robert Wedlake, a lawyer with Hinman, Howard & Kattell representing the group, called the South Maine Millennium Coalition.

The Inflection deal calls for 20 percent royalties “subject to certain deductions,” according to a press release from Wedlake and Inflection.*

*Binghamton Press & Sun-Bulletin (May 9) – Town of Maine residents getting $3 million for gas rights

Wall Street Journal Predicts Shale Gas Will Rock the World

Today’s Wall Street Journal includes a special section on energy, and the lead story, taking up the entire front page and continuing inside, is titled, “How Shale Gas is Going to Rock the World.” The article is written by Amy Myers Jaffe, a Fellow in Energy Studies at Rice University. Ms. Jaffe writes a stellar article that shows how shale gas, if not derailed by environmental extremists, will be THE energy story of the next several decades. MDN highly recommends you read this article (generally requires a subscription, but this special supplement is free and open for now—read it while you can).

Here’s a couple of paragraphs from the article to give you a taste:

We’ve always known the potential of shale; we just didn’t have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.

I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.*

And no, slowing the adoption of renewable energy is not a negative—it’s a positive—because it will give renewable technologies time to develop without having to be heavily subsidized with our tax dollars and forced on us by a nanny state government. That is, natural gas is a bridge that will allow the free market (in renewable energy) to take its course naturally. Gotta love capitalism! Capitalism is superior to any other economic system in the world—and Ms. Jaffe shows us why.

*Wall Street Journal (May 10) – Shale Gas Will Rock the World

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PA College of Technology to Offer Marcellus Gas Drilling Courses to High Schoolers in Northern and Central PA

The Pennsylvania College of Technology (part of the Penn State University system) continues to innovate by offering training for those interested in jobs and careers in the gas drilling industry. This time, they’re offering courses to high schoolers:

The National Science Foundation has awarded a $294,689 grant to the Pennsylvania College of Technology to educate and train high school and college students for careers in the Marcellus Shale natural gas industry, according to officials from the college and a press release issued this week by U.S. Rep. Chris Carney’s office.

The college will use much of the money to develop and implement college-level courses that will be offered at high schools in Bradford, Sullivan and other counties to provide training that will be useful in jobs in the natural gas extraction industry, said Jenette Carter, Pennsylvania College of Technology’s director of outreach for K-12.

The high school courses will benefit students from 23 school districts in central and northern Pennsylvania…The high school courses for which college credit will be granted are technical or vo-tech courses in areas such as welding, electronics, diesel technology, heavy equipment operation and repair, forestry, and information technology (networking).*

*Towanda Daily Review (May 6) – High school courses that will lead to careers in gas industry being implemented locally

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Delaware River Basin Commission to Landowners and Drillers: We’re Taking Our Time

As MDN has previously reported, the Delaware River Basin Commission (DRBC) continues to block drilling in the Marcellus Shale anywhere within the DRBC’s jurisdiction. The delays in drilling will continue at least until sometime in 2011 (MDN’s estimate) due to an extended public comment period on new regulations they are drafting, and from their previous statements about waiting for a federal grant “later this year” to study drilling. If you own land in the Delaware River Basin, or you’re a drilling company in that area, good luck. All signs point to an anti-drilling group of Commission members who are intentionally dragging their feet.

From a press release issued by the DRBC today:

(WEST TRENTON, N.J.)—The Delaware River Basin Commission (DRBC) at its May 5, 2010 public business meeting directed commission staff to draft regulations for natural gas well pad projects in shale formations in the Delaware River Basin. The commissioners will consider specific natural gas well pad applications after the new regulations are in place.

“The drafting process is already underway, so it made logical sense for the development of new regulations to move forward in advance of any individual project decisions,” DRBC Executive Director Carol R. Collier said in describing the action taken yesterday by the commissioners representing Delaware, New Jersey, New York, Pennsylvania, and the federal government. The rulemaking process will include public notice and a full opportunity for public comment before the commissioners adopt the regulations.

The DRBC has already conducted a public hearing and received over 2,000 written comments regarding a proposal previously submitted by Stone Energy Corporation for the Matoushek #1 well located in Clinton Township, Wayne County, Pa. The commissioners’ decision to rule upon this and other pending and future specific natural gas well pad project applications after the new regulations are adopted is consistent with many of the public comments submitted.

Commission review of pending or future proposed water withdrawals to be used to supply water to natural gas extraction projects, including Stone Energy’s proposed water withdrawal from the West Branch Lackawaxen River in Mount Pleasant Township, Wayne County, Pa., will proceed in accordance with existing DRBC regulations. The written comments that the DRBC received during the comment period that closed on April 12 pertained to both Stone Energy’s proposed water withdrawal project and its proposed natural gas well drilling project. The earliest that the commission could vote on the Stone Energy proposed water withdrawal project would be its next public business meeting scheduled for July 14, 2010.

*Delaware River Basin Commission Press Release (May 6) – DRBC Will Review Natural Gas Well Pad Projects After Adoption of New Regulations

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CONSOL Energy Building Coal Mine Acid Water Treatment Plants to Produce Water for Marcellus Shale Drilling

CONSOL Energy is a long-time coal producing company and now the third largest player (by acreage) in the Marcellus Shale after buying Dominion Resource’s gas exploration and production division (for $3.5 billion). So what’s next for CONSOL? Water!

CONSOL already traps and treats millions of gallons of water from the coal mining operations they have. They now plan to reuse that water for their Marcellus Shale drilling operations, and perhaps even sell it to their drilling competitors.

“We already have access to all this water that we already own and already treat,” running from underground mines such as the Bailey-Emerald complex in Greene and Washington counties, [Consol CEO J. Brett] Harvey said.

“We are actually going into the water business, I would say,” he said. Natural gas “was a byproduct of coal, and we built a gas company. Now it looks like water is a byproduct of all this (coal production), and we’ll probably develop great water resources for the state.”

Each [coal] mine treats and discharges millions of gallons each year. Consol will spend $200 million to $300 million over the next five years to build four or five new water treatment plants in Marcellus areas, he said, adding, “I’d love to be in the position where I am selling water to all our competitors” who now buy water from municipalities and other sources.

The idea is gaining momentum elsewhere.

“The reusing of acid mine drainage for fracking is a viable alternative to using surface and ground water,” Radisav Vidic, chairman of the civil and environmental engineering department at the University of Pittsburgh, told an audience at a Marcellus Shale conference yesterday at Duquesne University.*

*Pittsburgh Tribune-Review (May 5) – Consol pegs water as next business move

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Northeastern PA Experiencing a Boom for Local Businesses from Marcellus Shale Drilling

A recent meeting of the Wyoming County (PA) Chamber of Commerce saw over 400 members, mostly from area small businesses, networking and listening to presenters who have already reaped financial rewards from Marcellus drilling activity in the area. Two examples:

Early on as the industry developed in Susquehanna County about 18 months ahead of Wyoming County, [Bill Kelley of Taylor Rental] noted an occasional need for drillers to borrow rental equipment when something broke down. Not only did Kelley enhance his inventory, but in the intervening months he saw a need and created a new spinoff business known as BX3 Oilfield Supply. He enlarged his workforce to handle the clients.

Art Carpenter who oversees the Skidder Shop just out Rt. 92 south of Tunkhannock said his business has become a franchise dealer for water tankers and frankly can’t keep the rigs that run around $170,000 on the lot long enough.*

It’s not only landowners and energy companies who benefit from drilling—the entire community benefits.

*The Susquehanna Independent Weekender (May 5) – Gas boom creating opportunity

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Talisman Energy Selling Conventional Gas Properties, Investing in Marcellus Shale Instead

Talisman Energy is selling off its conventional gas properties and shifting investment to shale gas properties:

Talisman Energy Inc, Canada’s No.4 independent oil and gas explorer, said on Wednesday it is boosting its U.S. shale gas holdings, as it reported an operating profit that trumped expectations.

Shale gas regions have emerged as the leading source of new natural gas supplies over the past few years, pushing up production of the fuel as new drilling techniques lower the cost of exploiting the massive reserves locked in the shale.

Talisman is selling off much of its conventional gas properties to concentrate on its shale holdings, with the bulk of its spending on the Marcellus shale region around Pennsylvania and the Montney region of northeastern British Columbia.*

*MSN/Reuters (May 5) – Talisman says shale strategy at turning point

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‘Energy in Depth’ Sets the Record Straight on Hydraulic Fracturing

Below is an “Issue Alert” published by Energy in Depth (EID) on May 4th—reprinted here with permission. EID is an online educational website sponsored by oil and gas producing associations from across the U.S. It’s mission is to respond to half-truths and outright falsehoods with science and facts. They do an excellent job. The piece below is an important read to help set the record straight about hydraulic fracturing. In recent months, “fracking” has been made out to be dangerous and unsafe and the hue and cry is to outlaw it as a method of harvesting natural gas. EID does a great job in responding to the charges being leveled against this important and safe (and 60-year-old) technology.

Energy in Depth (May 4 Issue Alert) – Evidence is Not the Plural of Anecdote

EID responds to NRDC’s running list of conjectures and distortions targeting safety, performance of hydraulic fracturing

Last month, our friends over at the Natural Resources Defense Council (NRDC) started up a running tally on their blog identifying “incidents where drinking water has been contaminated and hydraulic fracturing is a suspected cause.”

Of course, in a country with more than 470,000 active natural gas wells in operation, providing American consumers with more than 20 trillion cubic feet of natural gas each year, the unfortunate (and inevitable) reality of the situation is that the occasional incident will occur. And since a good number of these wells depend on fracturing to be viable, it’s also inevitable that those who oppose the use of hydraulic fracturing on ideological grounds (as opposed to scientific ones) will continue to blame the heavily regulated, 60-year-old technology for just about everything that may go wrong under the sun.

In a lot of ways, hydraulic fracturing has become the victim of its own success. Almost universally regarded as the sine-qua-non of energy production in America today, hydraulic fracturing—coupled with horizontal drilling technology—allows operators today to produce more than 10 times the amount of energy by drilling fewer than 1/10th the number of wells.

That this is great news for the environment is so self-evident as to require no further explanation. But smaller footprints aside, it also allows us to tap an abundance of resources that simply could not be accessed without it. And that’s the thing: NRDC would prefer these resources be kept in the ground—and at least has the courage to say so. But it knows the way to do that isn’t to attack the jobs, revenue or people associated with bringing this extraordinary resource to the surface. It knows it can’t attack the carpenter. So it’s decided to attack his tools instead.

Read More “‘Energy in Depth’ Sets the Record Straight on Hydraulic Fracturing”

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Rex Energy has Already Drilled 4 Wells in Butler County, PA in 2010, On Track to Complete 6 More by Year’s End

The following operational updates about Rex Energy Corporation’s Marcellus drilling activity thus far in 2010, from a company press release:

Butler County, Pennsylvania Marcellus Project Area

Drilling and completion activity in Rex Energy’s Marcellus Shale project area in Butler County, Pennsylvania is continuing to progress on schedule. The two ‘Magill’ horizontal wells completed by the company earlier this year have been flow-testing for approximately 20 days. The combined peak 24 hour rate of the two Magill wells to date has been 5.9 MMcfe per day. The company expects these rates to continue to rise as additional water is returned to the surface. The company’s refrigeration processing plant, and therefore its gas sales in Butler County, Pennsylvania, is currently shut-in for pipeline maintenance. The company expects the plant and sales to resume during May 2010 and to connect the Magill wells to the plant at that time.

[Rex Energy President & CEO Benjamin] Hulburt remarked, “When we compare the initial flow rates of the Magill wells to our P. Knauff #1H well, our first horizontal Marcellus Shale well completed in Butler County, Pennsylvania during 2009, we are very encouraged by the results. The P. Knauff #1H well took approximately 90 days to achieve its peak rate, and thereafter, the rate remained relatively flat for the next 180 days. Although the results of the Magill wells are still preliminary, we are encouraged by what appears to be a similar profile.”

Read More “Rex Energy has Already Drilled 4 Wells in Butler County, PA in 2010, On Track to Complete 6 More by Year’s End”

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NY Congressman Michael Arcuri Talks Out Both Sides of His Mouth on Drilling in the Marcellus

Upstate New York Congressman Michael Arcuri says the BP oil disaster in the Gulf of Mexico means we should slow down (or perhaps not even start) drilling in the Marcellus Shale. Yes folks, we don’t make this stuff up! An oil drilling accident off-shore now equates with hydraulic fracturing of shale for natural gas. Go figure.

Mr. Arcuri’s press release below, taken verbatim from his website, is a classic example of a politician talking out of both sides of his mouth:

WASHINGTON, DC – U.S. Rep. Michael A. Arcuri (NY-24) issued the following statement renewing his call for a cautious approach to natural gas drilling in Upstate New York in light of the BP oil spill in the Gulf of Mexico:

“The BP oil spill in the Gulf of Mexico demonstrates how vital it is for us to proceed with the utmost caution when considering natural gas drilling in Upstate New York.  While I support measures to open up energy reserves here at home and create new job opportunities for Upstate families, I also believe that we must carefully examine the potential outcome that natural gas drilling may have on the health of surrounding homes and communities.  Natural gas is a tremendous natural resource with great economic potential, but we must move forward in a way that protects an even more precious natural resource – our abundant supply of clean drinking water.

“New York’s natural gas reserves are not declining in value as they wait to be developed, and methods become safer and more efficient as companies adapt techniques. But, as we have seen in the Gulf of Mexico, we cannot assume a spill will not happen or become careless in protecting the environment because one mistake could be devastating.

“With so many residents who live in rural areas relying completely on well water, we cannot afford to sacrifice the purity of our water by rushing to drill.

“It is my hope that this disaster serves as a reminder to us all just how high the stakes are and that we must take every precaution possible to ensure that a rush to drill the Marcellus Shale does not irreparably contaminate our water.”

*Press Release (May 4) – Arcuri Renews Call for Cautious Approach to Natural Gas Drilling in Upstate New York in Light of Gulf of Mexico Oil Spill

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Anti-Driller Lets the Truth Slip Out: “It’s not about the science”

Don’t look now, but somehow a little bit of truth seeped into the reporting about hydraulic fracturing. And it happened in the Syracuse Post-Standard:

At a public forum in DeWitt, Syracuse University hydrology professor Don Siegel thought he had presented enough unbiased, scientific information to prove that drilling for natural gas in New York would benefit the state far more than it might hurt.

Then someone in the audience of more than 75 stood up.

“With all due respect, Dr. Siegel,” she said, “it’s not about the science.”

Two months later, Siegel still stews over those words.

The debate should be about the science, he contends, as do two retired SU professors, Bryce Hand and Joe Robinson — who have defended high-volume hydraulic fracturing as a safe method to capture a huge supply of underground natural gas in the Marcellus Shale formation.

But opponents of hydrofracking have “dispensed with science and rely on fear” to turn the public against drilling, Siegel said.*

The article quotes one scientist (a Cornell professor) who is opposed to drilling, but at least the pro-drilling (and scientific) side of the debate is fully explored in this article, and is well worth the read. Kudos to the Post-Standard for some honest reporting.

*Syracuse Post-Standard (May 2) – Some scientists say hydrofracking benefits outweigh risks