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Thursday, February 26, 2015

Ohio Supreme Court Ruling Doesn't Slam Door Shut on Local Regulation of Drilling

As we covered in the blog, Beck Energy won its case against the community of Munroe Falls over the city's ordinances that conflicted with state law, which says that the Ohio Department of Natural Resources has full authority over permitting for oil and gas drilling.  While the ruling by the Ohio Supreme Court was anxiously awaited in hopes that it would offer the final word on home rule in the state of Ohio, the win for the industry in this case is not being viewed as a slam dunk that other efforts by Ohio communities to ban fracking on a local level will similarly be struck down by the courts.

From Business Journal Daily:
The Ohio Oil and Gas Association applauded the ruling in a statement issued Tuesday. 
“We commend Ohio’s Supreme Court for its decision in Morrison V. Beck Energy today, which upholds state law concerning local government control over oil and gas activities,” Shawn Bennett, executive vice president of OOGA, said. “The court’s ruling affirmed that municipalities are prohibited from instituting rules and regulations that would discriminate against, unfairly impede or obstruct oil and gas activities that the state has permitted.” 
“We strongly believe that oil and gas development is a matter of statewide interest and should be managed by professionals with the expertise to adequately regulate and oversee the industry,” Bennett said. 
Nevertheless, Wenger points out to language in four of the seven opinions that is sympathetic to local zoning ordinances relative to drilling. 
At issue, he says, were the five ordinances that required a new zoning certificate, filing fees and the $2,000 bond. 
“Essentially, the ruling is that a municipality can’t act as a mini ODNR,” Wenger says. The last paragraph of the majority opinion states that Home Rule amendments do not allow for the “kind of double licensing at issue here. We make no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme. Rather, our holding is limited to the five municipal ordinances at issue in this case.”
Read more by clicking here.

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8 Utica and Marcellus Drillers Included on "Oil Company Death List"




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With Home Rule Case Won, Beck Energy May Pass on Drilling Well at Center of Dispute

From Columbus Business First:
Now that the case is over, the company at the center of a widely watched dispute over state versus local drilling regulation might not even go ahead with the well in question. 
In 2011, Beck Energy Corp. was prepared to drill a natural gas well on leased residential land in Munroe Falls. The city near Akron sued, saying the well violated local zoning ordinances, leading to court fights that went up to the Ohio Supreme Court. So, victory in hand, the Ravenna-based company can start drilling, right? 
"It needs to first of all determine if it makes economic sense to drill those wells," said John Keller, the Vorys Sater Seymour and Pease LLP attorney who argued Beck's case in front of the court. "Prices have gone down since they first proposed this."
Click here to read more.

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Chesapeake Energy Takes Legal Action Against Aubrey McClendon for Stealing Trade Secrets

From Forbes:
Today Chesapeake Energy CHK -1.06% sued American Energy Partners, the new company created by its embattled former CEO Aubrey McClendon. The complaint, filed in Oklahoma County District Court, alleges that in his waning days as CEO of Chesapeake, McClendon squirreled away massive amounts of data, containing “highly sensitive trade secrets.” After his departure from Chesapeake, in April 2013, McClendon set up his new company, American Energy Partners, and leveraged that data to make a series of deals to snap up more than 100,000 acres across the Utica shale play. According to Chesapeake’s complaint, “these purchases involved the same acreage evaluated in the data stolen by McClendon.” 
According to the complaint: 
“McClendon committed this theft by requiring his assistant to print highly sensitive maps and prospect data, which he took with him as he left Chesapeake. He also included a blind carbon copy to his own private e-mail account on e-mails which contained the same highly sensitive and valuable information.” 
Chesapeake alleges that even before McClendon was gone from the company — pushed out after extensive revelations of self-dealing, conflicts of interest and even what prosecutors say was collusion with the head of a rival firm — he was using his possession of confidential information to lure in investors for his new venture. Chesapeake is seeking the return of all confidential data as well as payment of compensatory and punitive damages.
American Energy Partners responded with this press release:
Aubrey K. McClendon and American Energy Partners, LP (AELP) today announced their intention to respond vigorously to a baseless legal action commenced by Chesapeake Energy Corporation (NYSE:CHK). When Mr. McClendon agreed to leave Chesapeake in January 2013, the company made a deal with him: first, the company promised he would be paid his compensation benefits as provided for in his employment agreement and second, the company promised he would be provided with an extensive array of information about the more than 16,000 wells, and the related leasehold acreage and future wells, he jointly owns with Chesapeake. That information includes land, well, title, accounting, geological, engineering, reservoir, operating, marketing, and performance data. The deal further gave Mr. McClendon the right to own and use this information for his own purposes, including sharing it with his employees, contractors, advisors, consultants and affiliated entities. 
The agreement to share this information was well-documented and very clear - and it was a critical part of a detailed and extensively negotiated set of documents that were approved by Chesapeake, its attorneys, and its Board and filed with the SEC in April 2013. Now it appears that Chesapeake wishes it had not agreed to the deal it made with Mr. McClendon and has sued to break those promises. However, a deal is a deal and Mr. McClendon and AELP will be vindicated in this dispute, and Mr. McClendon’s contractual rights to keep and use the information he received in the deal will be affirmed. 
The allegations in the Chesapeake lawsuit are meritless given the following:
  • Mr. McClendon was entitled to own and use the information in his possession by contractual right;
  • Mr. McClendon’s agreement with the company clearly gives him broad and deep information rights consistent with past practices;
  • Chesapeake has given Mr. McClendon almost 20 terabytes of information in accordance with the terms of the Separation Agreement; and
  • Mr. McClendon has paid Chesapeake nearly $2.5 billion in connection with the jointly owned properties and is still a working interest owner in more than 16,000 Chesapeake wells, making him the company’s single largest partner.
The information in Mr. McClendon’s possession is rightfully his under the terms of the agreements Chesapeake made with him in early 2013. Indeed, under those agreements, he is entitled to much more information from the company, but the information is not yet in his possession because of Chesapeake’s refusal to provide it. Further, Chesapeake has refused to provide over 1,000 assignments of leases to Mr. McClendon for interests in wells for which he has been billed and for which he has paid more than $100 million on a net basis to Chesapeake. It has also converted to its own use revenue due him that has been paid to Chesapeake by third parties on at least 63 other wells. Mr. McClendon will enforce his rights under the agreements. 
Mr. McClendon stated, “It is beyond belief that the company that I co-founded 25 years ago and where I worked tirelessly to build it into one of America’s largest and most successful oil and gas producers has now decided to add insult to injury almost two years to the day after my resignation by wrongly accusing me of misappropriating information. Under my agreements with Chesapeake, I am entitled to possess and use the 20 terabytes of information I own. It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake.” 
Mr. McClendon and AELP are represented by Matthew A. Taylor with Philadelphia-based Duane Morris, LLP and Emmet T. Flood with Washington, DC-based Williams & Connolly, LLP. 
Mr. Taylor, said, “Our filings will show that any information in Mr. McClendon’s possession is rightfully his pursuant to the terms of the agreements entered into between the parties. In fact, the separation agreement between the parties makes explicit and repeated reference to the data and services owed to Mr. McClendon, recognizing that the sharing of information is ‘essential’ and in fact ‘beneficial to the Company’. We are 100% confident that Mr. McClendon and AELP will prevail in this dispute.” 
Mr. McClendon and AELP have established a website (www.AELPvCHKLitigation.com) on which copies of all relevant documents concerning this dispute may be located. 
MEDIA CONTACT: Ryan Colaianni, Edelman, ryan.colaianni@edelman.com, 202-777-3845 
### 
KEY PROVISIONS OF MCCLENDON’S SEPARATION AGREEMENTS

Rice Energy Provides Fourth Quarter and Full Year 2014 Operational Update and Reports 117% Increase in Proved Reserves to 1.3 Tcfe

Rice Energy Inc. (NYSE: RICE) ("Rice Energy") today provided a 2014 operational update and announced year-end 2014 proved reserves. Highlights include:
  • Averaged 398 MMcfe/d of net production for the fourth quarter of 2014, a 61% increase from third quarter 2014
  • Averaged 274 MMcfe/d for full-year 2014 pro forma(1) net production, a 118% increase over pro forma 2013 daily production
  • Adjusted realized natural gas price of $3.46 per Mcf in the fourth quarter of 2014
  • Increased core acreage position to approximately 141,000 net acres as of year end 2014, consisting of 86,000 acres in southwestern Pennsylvania and 55,000 net acres in Belmont County, Ohio
  • Proved reserves increased to 1.3 Tcfe at December 31, 2014, a 117% increase from year-end 2013 pro forma figures
  • Proved developed reserves increased to 644 Bcfe at December 31, 2014, a 159% increase from year-end 2013 pro forma figures
  • Increased proved PV-10(2) value to $1.8 billion, a 146% increase from year-end 2013 pro forma figures
  • Increased proved developed PV-10 value to $1.1 billion, a 173% increase from year-end 2013 pro forma figures
(1)
References to pro forma throughout this release relate to our acquisition of the remaining 50% interest in our Marcellus joint venture from Alpha Natural Resources, Inc. on January 29, 2014.
(2)
Please see "Supplemental Non-GAAP Financial Measure" for a description of PV-10.
Operations Update
Fourth Quarter 2014
Net production for the quarter averaged 398 MMcfe/d, a 61% increase over third quarter 2014 average daily production and a 158% increase over pro forma fourth quarter 2013 production of 154 MMcfe/d. During the quarter, we successfully completed and turned to sales 22 gross (19 net) horizontal Marcellus wells with an average lateral length of 7,000 feet, including 5 gross (4 net) wells that were completed and turned to sales in mid-December, approximately six weeks ahead of schedule. Production from our horizontal Marcellus wells accounted for approximately 85% of our total fourth quarter 2014 production. Net production for the quarter was comprised of 36.1 Bcf of natural gas and 90.8 MBbls of oil and NGLs. Our fourth quarter 2014 realized natural gas price, before the effect of hedges, was$3.00 per Mcf. After giving effect to hedges, our average natural gas price was $3.06 per Mcf. Our average adjusted realized price, including our firm transportation sales and the impact of hedging, was $3.46 per Mcf. Our average realized oil and NGL price was $45.18per Bbl.
Full Year 2014
Pro forma net production for 2014 averaged 274 MMcfe/d, a 118% increase over pro forma 2013 daily production. During the year, we initiated production from 36 net Marcellus wells and 7 net Utica wells. Total pro forma net production for the year was comprised of 99.6 Bcf of natural gas and 94.2 MBbls of oil and NGLs. Our 2014 realized natural gas price, before the effect of hedges, was $3.65 per Mcf. After giving effect to hedges, our average natural gas price was $3.46 per Mcf. Our average adjusted realized price, including our firm transportation sales and the impact of hedging, was $3.73 per Mcf. Our average realized oil and NGL price was $46.07 per Bbl.

Wednesday, February 25, 2015

Water Alert Reporting Network Introduced to Carroll County

Carrollton Ohio: Carroll Concerned Citizens (CCC) will host Elissa Yoder, Ohio Sierra Club Conservation Coordinator, at its March 5th meeting to introduce citizens to the Water Alert Reporting Network (WARN). The program and network are designed to empower volunteers to communicate ways to protect our waterways and stand as watchdogs against environmental harm.

WARN helps Ohioans record and report suspected incidents of pollution or misconduct that could potentially harm our natural environment. The program’s goal is to ensure that state regulators are aware of incidents of concern and that they address the incidents in a timely and appropriate manner.

Elissa Yoder, explains the need for public participation in the Water Alert Reporting Network. "Unfortunately, the Ohio EPA and the Ohio Department of Natural Resources do not have the capacity to monitor all of Ohio’s 199,000 miles of rivers and streams. Luckily, there are many folks willing to keep a watchful eye over our waterways."

The meeting will be held at the Church of Christ – Christian Disciples 353 Moody Ave. Carrollton beginning at 7pm and is free and open to the public.
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Is Carroll County Still Leading the Way in the Utica Shale?

From FracTracker Alliance:
Oil Production 
Carroll falls short of the ROS on a total and per-day basis of oil production, although the 442-barrel difference in total oil production is likely not significant. Carroll wells are producing 74 barrels of oil per day (OPD) (±73 OPD) compared to 96 OPD (±122 OPD) for the rest of the state; however, well-to-well variability is so large as to make this type of comparison quite difficult at this juncture. Fifty-seven percent of OH’s 11,361,332 barrels of Utica oil has been produced outside of Carroll County to date. This level of production is equivalent to 16,231 rail tanker cars and roughly 00.18% of US oil production between 2011 and 2013.

THIS NUMBER OF RAIL TANKER CARS IS EQUIVALENT TO 6% OF THE US DOT-111 FLEET, OR 184 MILES WORTH OF TRAINS – ENOUGH TO STRETCH FROM COLUMBUS TO PITTSBURGH. 

Natural Gas 
The natural gas story is mixed, with Carroll’s 312 wells having produced 13,430 MCF more than the ROS wells. On a per-well basis, however, the latter are producing 3,327 MCF per day (MCFPD) (±3,477 MCFPD) relative to the 2,155 MCFPD (±1,264 MCFPD) average for Carroll’s wells. Yet again, well-to-well variability – especially in the case of the 409 ROS wells – is high enough that such simple comparisons would require further statistical analysis to determine whether differences are significant or not.
The natural gas produced here in OH currently amounts to roughly 00.51% of U.S. Natural Gas Marketed Production, according to the latest data from the EIA. 
Waste – Brine 
From a waste generation point of view, the ROS laterals have produced 41 more barrels of brine per day (BPD) than the Carroll laterals and 1,465 BPD since production began in 2011. On a per-day basis, the ROS laterals are producing more oil than waste at a rate of 1.92 barrels of oil per barrel of brine waste. Conversely, since production began these respective sums result in Carroll County laterals having produced 1.56 barrels of oil for every barrel of brine vs. the 1.40 oil-to-brine ratio for the ROS. Finally, it is worth noting that the 7,775,130 barrels of brine produced here in OH amounts to 13% of all fracking waste processed by the state’s 235+ Class II Injection wells. 
What do these figures mean? 
As we begin to compare OH’s Utica Shale expectations vs. reality we see that the “sweet spot” of the play is truly a moving target. The train seems to have already left – or is in the process of leaving – the station in Carroll County (Figures 3 and 4). It seems two of the most important questions to ask now are: 
How will this rapidly shifting flow of capital, labor, and resources affect future counties deemed the next best thing? and 
What will be left in the wake of such hot money flows? 
Answers to these questions will be integral to the preparation for the inevitable sudden or slow-and-steady decline in shale gas activity. These dropouts are just the most recent in a long line of boom-bust cycles to have been foisted on Southeast OH and Appalachia. 
Effects will include questions regarding watershed resilience, local and regional resource utilization (Figures 5 and 6), social cohesion, tax-base uncertainty, roads, and a rapidly changing physical landscape. 
Whether Carroll County can maintain its perch on top of the OH shale mountain is far from certain, but whether it will have to begin to – or should have already – prepare for the downside of this cliff is fact based on the above analysis.
Read more and view several graphics comparing Carroll County to the rest of the state by clicking here.

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Number of Utica Shale Wells in Production Continues to Increase on Latest Report

The latest weekly permitting update from the Ohio Department of Natural Resources shows that permitting continues despite the oil prices being down, and it also reveals that more and more Utica shale wells are going into production with each week that passes.

16 new permits were issued last week.  Nine of those wells are in Noble County's Marion Township.  Five permits were issued to Antero Resources for drilling in Monroe County.  Rounding out the report were Belmont and Guernsey counties, which each saw one new well permitted.

The total number of permits issued for horizontal drilling in Ohio's Utica shale has now increased to 1,824.  The number of wells drilled increased by 14 to 1,370.  But perhaps most noteworthy about the latest report is the number of producing wells.  There was a big jump of 54 from last week's total of 762, with the total at the end of the week standing at 816.  The Utica rig count decreased by two, falling to 37.

View the report below (or click here to open it in a new window):


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