Wednesday, April 23, 2014

Closer Look at Latest Gas Drilling Methane Study Raises Questions

From the New York Times:
The study, “Toward a better understanding and quantification of methane emissions from shale gas development,” was published in the Proceedings of the National Academy of Sciences and undertaken by Dana R. Caulton and Paul B. Shepson of Purdue and a host of co-authors, including Anthony Ingraffea and Robert Howarth, Cornell scientists who are prominent foes of fracking, along with Renee Santoro of the anti-fracking group Physicians Scientists & Engineers for Healthy Energy (Ingraffea is affiliated with the group, as well).
Much of the news coverage and commentary was greatly oversimplified, implying that airplane measurements taken on two days in 2012 and showing high methane levels over a handful of wells (and nothing unusual over almost all the other wells in the region) pointed to an extraordinary new pollution and climate change risk. A case in point was this Climate Central post: “Huge Methane Leaks Add Doubt on Gas as ‘Bridge’ Fuel.”
In fact, the study is consistent with other recent work covered here that shows there are specific and tractable issues that can be addressed, making gas production far less leaky and thus a legitimate successor to coal mining.
This section from the paper says as much (I added the paper links to the citation numbers): 
[T]hese regional scale findings and a recent national study (23) indicate that overall sites leak rates can be higher than current inventory estimates. Additionally, a recent comprehensive study of measured natural gas emission rates versus “official” inventory estimates found that the inventories consistently underestimated measured emissions and hypothesized that one explanation for this discrepancy could be a small number of high-emitting wells or components (33) . These high leak rates illustrate the urgent need to identify and mitigate these leaks as shale gas production continues to increase nationally (10).
There is one aspect of the new study that’s worth a deeper dive. The authors noted the presence of sources of coalbed methane — a common peril in coal mines throughout the history of coal mining — near the methane hot spots they found (the supplementary information is here).
Click here to check out this entire article, which contains some very interesting insights.

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Family Awarded $3 Million by Jury in Lawsuit Over Impacts of Nearby Gas Drilling

From ThinkProgress:
A family claiming they were sickened because of pollution from hydraulic fracturing operations near their home should be awarded $2.95 million for their troubles, a jury ruled on Tuesday. 
The Parr family had sued Aruba Petroleum Inc. in 2011, alleging the oil and gas producer exposed them to hazardous gases, chemicals and industrial waste that seeped into the air from 22 wells drilled near the family’s 40-acre plot of land, which sits atop the Barnett Shale. 
The jury returned a 5-1 verdict saying Aruba “intentionally created a private nuisance,” awarding $275,000 for losses on property value, $2 million for past physical pain and suffering, $250,000 for future physical pain and suffering, and $400,000 for mental anguish. 
“They’re vindicated,” David Matthews, one of the Parr’s attorneys, wrote on his firm’s blog Tuesday. “I’m really proud of the family that went through what they went through … It’s not easy to go through a lawsuit and have your personal life uncovered and exposed to the extent this family went through.”
Click here to read more about this trial.

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Tuesday, April 22, 2014

Links for 4/22/14: Process Cleans Dirty Fracking Water, New Books About Shale, and Much More

Business Journal Daily:  Company Gets Permit to Handle Radioactive Waste   -   "Activists in Ohio are concerned that a local company may soon be handling waste from the oil and gas industry that they say is just too hot to handle. But a principal of the operation says that the objective of his company is to protect..."

ENR:  Fracking Foes Cringe as Unions Back Drilling Boom   -   "After early complaints that out-of-state firms got the most jobs, some local construction trade workers and union members in Pennsylvania , Ohio and West Virginia say they're now benefiting in a big way from the Marcellus and Utica Shale oil..."

Energy in Depth:  Shale Development Boosting U.S. Retail Sector   -   "The model for a successful business has always famously been: “location, location, location.” And according to a recent Wall Street Journal article, “location” is now synonymous with drilling permits.  Thanks to advancements in..."

The Atlantic:  America's Coming Manufacturing Revolution   -   "Hardly a day goes by without an article predicting, lamenting, or celebrating America's decline. The turmoil in Crimea and Syria, the polarized and frequently gridlocked U.S. political system, the deepening income and wealth inequalities in the United States, and..."

WTAE News:  3 tanker trucks crash in Canton Township, spilling fracking water, diesel fuel   -   "Two fracking water tankers and a third, larger tanker truck were all involved in a crash Monday morning in Washington County, causing a hazmat situation that closed Henderson Avenue. Canton Township Fire Chief Dave Gump estimated between 1,200 and 1,300 gallons of diesel fuel may have spilled..."

Kansas City Star:  Study: Fuels From Corn Waste Not Better Than Gas   -   "Biofuels made from the leftovers of harvested corn plants are worse than gasoline for global warming in the short term, a study shows, challenging the Obama administration's conclusions that they are a much cleaner oil alternative and will..."

Read more here:

Cornell Chronicle:  Book offers simplified guide to shale gas extraction   -   "The new book, “Science Beneath the Surface: A Very Short Guide to the Marcellus Shale,” attempts to offer a reader-friendly, unbiased, scientific guide needed to make well-informed decisions regarding..."

Fosters:  New Book on Fracking Illuminates Pros, Cons   -   "The once-obscure oil and gas drilling process known as fracking has generated hundreds of billions of dollars and considerable dissent, as communities and experts argue over how to balance the vast amounts of money at stake with environmental and health..."

The Boston Globe:  Seven things you should know about Jim Matheson   -   "Flagship Ventures partner Jim Matheson is also chief executive of Oasys Water of Boston. The five-year-old firm’s desalination technology is used to clean and recycle some of the world’s dirtiest waters, including the effluent produced by the controversial drilling technique known as fracking, which..."

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Washington County Commissioner Speaks Out Against Proposed Ohio Severance Tax

The debate over the proposed severance tax for Ohio oil and natural gas production seems to have been going on forever now, and it isn't letting up.  There have been many voices on both sides of the issue, and now Washington County commissioner Ron Feathers has added his to the throng with a letter to the Parkersburg News and Sentinel:
We are told that oil and gas producers are not paying their fair share, however the taxes paid by the oil and gas industry and landowners are many; income tax, property tax, motor vehicle gas tax, ad valorem tax, commercial activity tax, and sales tax. 
I am opposed to any additional increase in the Severance Tax. I believe our local landowners and private business know best how to manage their profits. If the industry is not strapped with the burden of more taxes, local and regional revenues will increase substantially by the advance of business development and employment. 
I refuse to accept the falsehoods that government can pick winners and losers and that government confiscation/redistribution of wealth is somehow fair. 
The citizens of Southern and Eastern Ohio stand at the edge of an unparalleled economic legacy not realized since the late 19th century. This tax will undoubtedly thwart any recompense if not extinguish.
Click here to read the entire letter.

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Do You Practice Quality of Life Investing? Michael Berry Does

Source: JT Long of The Energy Report (4/17/14)

Energy and food will be hot commodities as emerging middle classes start buying cars and beef. That is why, in this interview with The Energy Report, Discovery Investing Founder Michael Berry explains the importance of quality of life investing. Oil and gas, uranium and fertilizer stocks are on sale now, but might not be in the years to come.

The Energy Report: When we last interviewed your son, Chris Berry, he advised to invest based on the reality of a growing, emerging market in China. That included both energy and agriculture sectors. Are you also bullish on quality of life-based (QOL) investing?

Michael Berry: I am bullish; I developed the QOL concept a few years ago. What I'm seeing is quite a few big institutions—life insurance companies, family offices and money management companies—opening quality of life funds, although often with different names. They are beginning to recognize that as people move from the country to the cities in the emerging markets, and a new middle class develops, they will want more animal-based protein—chicken, fish, pork, beef and eggs. By 2030, once the credit cycle is corrected, I'm very bullish that quality of life funds are going to push forward. I think both the energy and the agriculture sectors are going to be interesting investment areas.

Chris and I have been spending a fair amount of time lecturing and presenting our QOL thesis and talking to investors and companies that have big stakes in this area. When you have 2 billion (2B) new consumers who want to live longer, healthier and easier, and who want better food, education and transportation, energy and nutrition will be key sectors.

TER: Does that mean that you are not worried about reports of slowing economic growth in China?

MB: I'm not worried about the long term because growth in China must slow. As economies expand, growth, by definition, slows. I'm not saying we won't have serious economic headwinds in the next few years. We have talked before about the impact of possible deflation in the metals sector. But ultimately, that will be overcome because members of the new and much larger middle class want to live better and they want to consume.

China and India are changing their models from export-driven economies to consumer-based economies. That might take a decade or more, but the Chinese government is transforming it now. China has its own credit problems that it must solve. Same goes for the United States. Regardless of the timeframe, energy and food are still keys to a higher quality of life. We are prepared to watch as this secular tsunami develops, and then take investment positions.

TER: A big part of that energy play is oil and gas. When we last interviewed Matt Badiali, he was very excited about shale plays because, "these are real companies producing real profits" compared to gold explorers. What's your approach to the controversial shale oil sector?

MB: Shale oil is a great diversification play for all of your readers in either the metals sector or the energy sector. You want to spend some time and understand the Bakken and also the Eagle Ford Shale. I'm very bullish on the Eagle Ford. It is clear fracking technology works. The biggest oil producers are involved, including Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE).

Specifically, I like the royalty play in the Eagle Ford Shale Trend. The U.S. is a great country because if you own the land, you own all of the mineral rights beneath the land. We are the only country in the world where private citizens can own the minerals. The first 25% of oil that comes out of the land comes to the property owner, with no working interest risks and no environmental risks. The royalty owner pays only his share of the taxes; other than the cost of purchasing the royalty, he has no capital costs associated with drilling and completing the wells, or monthly lease operating expenses.

It is a great dividend-like diversifier for people who are looking for yield and a hedge against inflation. Just in the Eagle Ford Shale alone, there have been approximately 9,000 wells drilled since its discovery in 2008, with a 97% success rate. The current average estimated ultimate recovery (EUR) per well is 351,000 barrels of oil equivalent (351 Mboe). This recovery rate appears to be increasing over time as the technology improves. There will likely be an additional 200,000 wells drilled in the Eagle Ford over the next 50 years.

TER: So you're not worried about decline rates.

MB: Not at all, because the initial rate of production is about 1,000 barrels per day (1 Mbbl/d) or more. First-year declines are 76%, second-year declines are 35%, 20% for the third year and 6% or less thereafter. So 40% of the total estimated ultimate reserves are produced in the first five years, then it tapers off. But a company like EOG Resources Inc. (EOG:NYSE) is now drilling one well on 20 acres. There is lots of potential, even though the decline rates are steep and it's $10 million ($10M) to drill a well. When you're producing 11,500 bbl/d at $100/barrel ($100/bbl), the economics work. The risk is if oil were to fall to $40 or $50/bbl.

TER: What are some other companies that have been active in the shales?

MB: Penn Virginia Corp. (PVA:NYSE) and Carrizo Oil & Gas Inc. (CRZO:NASDAQ) are producers that know where the profitable properties are located.

TER: My understanding is that Penn Virginia is buying on the outskirts of the Eagle Ford, where the property is cheaper. Is that working?

MB: The Eagle Ford Shale in Texas is more than 450 miles long and 50 miles wide. Moving west to east across south Texas, it is about 300 feet thick, thinning to 50 feet thick around central south Texas, and thickening to 1,000 feet as you move east, to the Eaglebine. That is why the best properties may not be found in the heart of the Eagle Ford, but to the east, on the fringes. The whole oil window play is moving east across Texas now. In fact, the Eagle Ford probably goes all the way into Florida. Penn Virginia is doing a great job of buying properties before they are overpriced. Carrizo is another great operator in the Eagle Ford Shale. There is a lot of potential here, and I'm just talking about Texas. I'm not talking about North Dakota, the Bakken, Pennsylvania or any of the other ones that are there. The future energy scenario for the U.S. is very positive.

TER: You mentioned that you think we're about a year from uranium prices returning to higher levels. What would be the catalyst behind that?

Monday, April 21, 2014

Land Grab Strategy Not Paying Off in Shale Plays

From Columbus Business First:
When hydraulic fracturing and horizontal drilling led to a new wave of domestic natural gas and oil drilling last decade, the common tactic was to buy, buy and buy some more. But companies who have played the shale plays differently, focusing on quality and not quantity, are the victors so far, the Wall Street Journal reports. 
“The land-grab approach, pioneered by Chesapeake and copied by its rivals, left companies spending more than wells generated in revenue,” the paper reported, citing Oklahoma City-based Cheseapeake Energy (NYSE:CHK), Ohio’s most-active driller. 
Opposite of Chesapeake are two smaller drillers: Denver-based Antero Resources Corp. (NYSE:AR) and Canonsburg, Penn.-based Rice Energy Inc. (NYSE:RICE).
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Ohio Now Has 1,218 Permits, 829 Wells Drilled in Utica Shale

The latest round of permitting in Ohio resulted in 12 new permits for horizontal drilling.

5 permits each were issued for Belmont and Harrison counties.  All 5 in Belmont were issued to Gulfport Energy, while the 5 Harrison County permits went to Chesapeake Energy.  1 permit was issued to Chesapeake Energy for a Carroll County well, and 1 went to Aubrey McClendon's American Energy Utica for the Shugert Daddy Wls Gr 5H well in Guernsey County.

Last week's activity pushes the Utica shale in Ohio up to 1,218 total permits, with 829 wells drilled and 389 wells producing.  The Utica rig count is 36.

You can view the full report from the Ohio Department of Natural Resources by clicking here.

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Will Increased Ohio Regulations Discourage Drilling Activity?

From Crain's Cleveland Business:
The Ohio Department of Natural Resources' announcement of new, stronger permit conditions for horizontal drilling near faults or areas of past seismic activity will add extra costs for some drillers looking to set up wells, but those watching the shale play in the state don't expect the change to drive away operators or investors.

The new permit conditions, announced April 11, would require companies to use seismic monitors if the proposed drill pad is within three miles of a fault or the site of previous seismic activity of more than 2.0 magnitude.

If a “seismic event” — known as an earthquake to most of us — of more than 1.0 magnitude was detected, any activity at the site would have to halt while an investigation is conducted. And if that investigation showed the event likely was related to hydraulic fracturing, commonly known as “fracking,” drilling at that site would cease.

But the department wants to make it clear: The new permit conditions don't prohibit hydraulic fracturing or drilling, even near fault lines.
Click here to read more about this.

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