_

The development of unconventional natural gas resources in the lower 48 states supported 1 million jobs in 2010, and that total will grow to 1.5 million by 2015 and to more than 2.4 million by 2035 according to new research from IHS Inc. commissioned for America’s Natural Gas Alliance (ANGA), an association of 30 of North America’s largest independent natural gas producers. ANGA’s members include Chesapeake Ene

rgy Corp. (NYSE: CHK), EOG Resources Inc. (NYSE: EOG), Anadarko Petroleum Corp. (NYSE: APC), Devon Energy Corp. (NYSE: DVN), Apache Corp. (NYSE: APA), and Range Resources Corp. (NYSE: RRC).

Unconventional natural gas production in the US will account for two-thirds of all natural gas production by 2015 and nearly 80% of all production by 2035. But the increase won’t come cheaply — the industry is expected to invest $3.2 trillion by 2035 to develop unconventional resources. The report defines “unconventional natural gas” as shale gas, tight sands gas, and coal-bed methane.

The report identifies 20 states that produce unconventional gas, and these states account for 826,000 of the 1 million jobs counted for 2010. Non-producing states (including the District of Columbia) account for about 18% of the created jobs that the report calls “suppliers in unconventional gas expansion.”

The top ten states for jobs in unconventional gas production in 2010 were:

Texas — 288, 222 jobs

Louisiana — 81,022 jobs

Colorado — 77,466 jobs

Pennsylvania — 56,884 jobs

Arkansas — 36,698 jobs

Wyoming — 34,787 jobs

Ohio — 312,462 jobs

Utah — 30,561 jobs

Oklahoma — 28,315 jobs

Michigan — 28,063 jobs

The top ten states account for nearly 75% of the jobs in producing states and almost 70% of the 1 million job total. Those percentages remain fairly constant through 2035.

The report estimates that unconventional gas production will contribute $174 billion to US GDP in 2015 and $41 billion to federal revenue in the same year. The way the revenue is spread around will change, though, according to the report:

[T]raditional oil and gas states like Texas and Louisiana will lead the way in terms of the economic benefits they will receive from unconventional gas activity. However, by 2015, many of these economic benefits—including employment (268,000), value added to GDP ($22 billion), and tax revenue ($8 billion)—will be realized in states that do not have any unconventional gas production activity (“non-producing” states), but instead will benefit from the purchases of supplies and services from businesses across the United States.

The question, of course, is whether or not the jobs and the revenue are sufficient to offset the costs that the rest of us pick up to support the drilling and fracking that unconventional gas production needs.

A recent report on the benefits of fracking conducted by a new research group at the State University of New York at Buffalo, the Shale Resources and Society Institute, has received criticism for having an industry bias. The university claims that funds for the study came from institutional funds, but admits that the new institute is seeking natural gas industry sponsors.

The IHS/ANGA report will only stoke up the fires of contention between producers and their critics. But with millions of jobs at stake, the industry has firmly put its thumb on the scale.

original article

_

“Energy independence,” long an empty promise gladly served up by crafty politicians eager to curry favor with unwitting voters, might be a lot closer than even the most starry-eyed dreamer could have imagined only a short time ago.

The country is in the grip of what has rightly been called the “shale energy revolution.” It is a revolution because it overthrows the existing order and casts aside long-standing assumptions about America’s energy future. It’s all about shale — fine-grained sedentary rock composed of mud, clay and silt — and our newfound ability to convert it to affordable energy.

In the space of a few short years, the United States has become the world’s largest producer of natural gas. In 2000, shale accounted for just 1 percent of U.S. natural-gas supply. By 2011, it was 25 percent, and by 2030 it could easily be 50 percent or more. Once burdened with some of the highest natural-gas prices in the world, the United States is now a low-cost producer of a fuel that provides Americans with roughly 25 percent of their electricity.

Hydrocarbons exist in plentiful amounts in the extremely low-permeability — or tight — shale beds that underlie much of the United States, but these resources were not economically recoverable. What has changed is our ability to get at them and extract them in a commercially viable and environmentally responsible fashion. Two companion technologies — multi-staged hydraulic fracturing and horizontal drilling — have made this possible.

Hydraulic fracturing, commonly known as “fracking,” was first employed in the late 1940s and has undergone significant refinements over the decades. It involves injecting water, usually mixed with high-viscosity additives, at high pressures into either oil or gas wells. This result is a fracturing of the rock in the wells, unlocking the gas and oil resources contained in the shale.

Horizontal, or directional, drilling is a substantial improvement over traditional vertical wells, because it enables one rig to extend its drilling activity in several directions simultaneously. When the global price of oil quadrupled is less than a decade’s time, the previously expensive practice of horizontal drilling suddenly made economic sense in shale reservoirs. The more holes that were drilled horizontally, the cheaper and more reliable the process became. More sophisticated steering equipment was developed, better drill bits were fabricated and state-of-the art drilling rigs were built to handle the more challenging conditions of operating within a 20,000-foot-deep hole.

More than a million wells have been “fracked” since the technology was introduced more than six decades ago. Fracking takes place a mile or more below drinking-water aquifers and is separated from them by thick layers of impermeable rock. While concerns have been raised about the water that flows back to the surface after fracking has taken place, here, too, experience and innovation are leading the way in dealing with “flow back.” Additives containing the BTEX-family of chemicals have been eliminated from the product lines used in fracking. BTEX — benzene, toluene, ethylbenzene and xylenes — are the volatile organic compounds found in petroleum. And diesel, once a staple in fracking, has been replaced by much more environmentally friendly mineral oil. Technology doesn’t stand still. Today’s innovations, which are making fracking cleaner and safer, will be superseded by tomorrow’s breakthroughs.

States with energy-rich shale formations are now developing regulations to guide the extraction of oil and gas. In Ohio, for example, Gov. John Kasich, the state legislature and the state’s Department of Natural Resources are working on a regulatory structure that will enable the state to take advantage of the abundant oil and gas contained in the Utica Shale. States have taken the lead in regulating fracking and related energy-extraction practices — and rightly so. The geology and hydrology of shale formations not only differ from state to state, they vary widely within the states. As noted by the Pennsylvania Department of Environmental Protection, which has years of experience overseeing fracking in the Marcellus Shale, the exact “blend” and proportion of additives used in hydraulic fracturing “will vary on the site-specific depth, thickness, and other characteristics of the target formation.” This is not a practice that lends itself to a national, one-size-fits-all regulatory approach administered by the federal Environmental Protection Agency.

Innovation and intelligent state regulation of fracking are already starting to put some glitter back into the Rust Belt. Youngstown, Ohio — all but written off a few years ago — is on the rebound thanks to the Utica Shale. Human ingenuity, and the prosperity it brings, might yet lead the United States to energy independence.

original article

_

The reversal of fortune in America’s energy supplies in recent years holds the promise of abundant and cheaper fuel, and it could have profound effects on what people drive, domestic manufacturing and America’s foreign policy.

Cheaper fuel produced domestically could reduce the cost of shipping and manufacturing, trim heating and cooling bills, improve the auto market and provide tens of thousands of new jobs.

It might also pose new environmental challenges, both predictable and unforeseen, by damping enthusiasm for clean forms of energy and derailing efforts to wean the nation from its wasteful energy habits.

But for Americans battered by rising gasoline prices, frustrated by the dependence on foreign oil, skeptical of the benefits or practicality of renewable fuels and afraid of nuclear power, the appeal of plentiful domestic oil and gas could far outweigh the costs.

Just a few years ago, the dominant theme in discussions about energy was of declining production and the fear of running out of oil. Even today, political tensions in the Middle East, particularly in the Persian Gulf, have fanned fears of supply disruptions that are keeping prices high.

But a new boom in energy production in recent years has upended these expectations in record time. High energy prices led to a wave of successful oil and gas exploration in North America, including in fields that were deemed uneconomical only a few years ago. Using techniques like horizontal drilling and hydraulic fracturing, oil companies are tapping into deeply buried reserves in shale rocks and in the ocean’s depths.

The surge in energy prices, along with a recession and new government rules that tightened fuel-economy standards, led to a sharp cutback in gasoline consumption. This decline in demand in the last five years reversed decades of almost uninterrupted growth that made the United States the world’s top energy consumer, accounting for one in every four barrels of oil burned around the globe.

The North American energy revival is primarily the result of so-called unconventional sources of energy — like shale oil and shale gas across the United States, oil sands in Canada and deepwater production in the Gulf of Mexico. In the last five years, the United States and Canada combined have become the fastest-growing sources of new oil supplies around the world, overtaking producers like Russia and Saudi Arabia.

“The transformation unfolding in North America represents a potentially decisive shift in the history of energy,” Rex Tillerson, the chairman and chief executive of Exxon Mobil, who is not usually given to hyperbole, said in a speech in Houston last month.

Ed Morse, head of global commodity research at Citigroup and a longtime energy analyst, says North America has the potential to become a “new Middle East.”

“The reduced vulnerability of North America — and the world market — to oil price spikes also has deep consequences geopolitically, including the reduced strategic importance to the U.S. of changes in oil- and natural gas-producing countries worldwide,” Morse said in a recent 92-page report called Energy 2020. “Pressures toward isolationism in the U.S. will likely grow, with consequences for global stability that can only just begin to become understood.”

“The only thing that could stop this is politics — environmentalists getting the upper hand over supply in the U.S., for instance,” the report said.

The new supplies ensure that the United States will remain well entrenched in oil, but the continuing reliance on fossil fuels also carries significant environmental concerns — whether from the risk of offshore drilling, or the hazards, many still unknown, of hydraulic fracturing. It also means that greenhouse gas emissions will most likely increase, at least until carbon emissions are capped or new technology to store carbon dioxide underground is developed.

Supply and demand

The glut of natural gas supplies cuts two ways on emissions. It has effectively put an end in the United States to any new investment in coal plants, which produce much more emissions. But it also makes the economics of alternative, noncarbon energy sources like wind power or solar power difficult to justify without public support and subsidies.

Regardless of the environmental impact, there is no guarantee that new supplies will inevitably lead to lower gasoline prices, as proponents of unfettered domestic drilling argue. Oil is a global commodity with a price set on the global market. With rising demand around the world, particularly in emerging economies, and instability in many oil-producing countries, many analysts predict global oil prices will remain volatile — and high — for many years to come.

And with gasoline prices above $4 a gallon, the nation’s energy resources remain a polarizing topic, pitting Republicans against Democrats, environmentalists against oil companies, and conservationists against advocates of unfettered drilling.

“It is remarkable how quickly perceptions have changed,” says Guy Caruso, the administrator of the U.S. Energy Information Administration from 2002 to 2008, who is now at the Center for Strategic and International Studies. “We may be in the early stage of this transformation, and clearly things could still go wrong.”

Energy production is an inherently risky business, but recent history suggests that when resources are available they end up being developed.

After the explosion of BP’s deepwater well two years ago in the Gulf of Mexico, leading to the biggest oil spill in American history, the Obama administration imposed a moratorium on offshore drilling. But it took only about a year for exploration and production to resume offshore.

Cheaper energy costs — particularly for natural gas — would benefit a variety of domestic industries, like chemicals, pharmaceuticals and fertilizers. The rise in natural gas production has already led many utility companies to shift their electrical production away from coal; it also calls into question talk of a nuclear revival in the United States.

Economists say that ample gas supplies might also provide the basis for a resurgence of U.S. manufacturing, which has been battered by high energy costs for much of the last decade.

Natural gas prices have fluctuated wildly in recent years, rising to $14 for a thousand cubic feet from $2 within a few years. The current glut, however, has driven prices back down again, to near $2 for a thousand cubic feet.

With America becoming one of the top natural gas producers, some domestic companies might rethink moving parts of their business to countries with cheaper energy costs. (At current consumption rates, U.S. gas reserves would last at least 75 years, an estimate some experts say is conservative.)

Lower natural gas costs would also have cascading benefits to other commercial sectors, like retailing. Shipping costs may be lower, particularly if transportation companies shift their fleets to natural gas-powered or electric vehicles. FedEx, for instance, has already been adding clean energy trucks to its fleet, including hybrid and all-electric delivery trucks in cities like Chicago.

Economic growth

Citigroup estimates that as many as 3.6 million new jobs might be created by 2020 thanks to the energy boom. The current trade deficit might fall by 60 percent by the end of the decade from today’s level, according to the bank’s estimates, and the dollar could appreciate by as much as 5.4 percent as imports shrink.

“In a world of high energy prices, the potential economic activity generated by this wave of new hydrocarbon production is extraordinary and should strongly boost national output, increase incomes, create wealth, stimulate consumption and create jobs,” according to Citigroup.

Given how swiftly expectations have shifted to describe America’s energy prospects, however, some caution may be warranted.

Opposition from environmental groups and concerns about climate change — which is caused by increased carbon emissions from fossil fuels — could lead to tighter regulation of petroleum products or derail infrastructure projects like pipelines.

That is what has happened to the extension of the Keystone XL Pipeline, which its supporters say is needed to increase the import of oil from Canada’s oil sands into the United States. That project has faced stiff opposition from environmental groups because oil sands are more energy-intensive and emit more carbon dioxide into the atmosphere than traditional oil sources.

Geologists have long known that shale basins across the country, like the Bakken field in North Dakota, Eagle Ford and Barnett in Texas, and the Marcellus in the Northeast, held tremendous oil and gas reserves. But energy companies had no economic way to collect them until new technology recently changed that.

The results have been impressive. Production from the Bakken region alone has gone from negligible quantities to 500,000 barrels of oil a day in just a few years. Production at Eagle Ford produced just 787 barrels in 2004. Last year, its production reached 30.5 million barrels, according to state regulators, and it is still growing. Natural gas production there went from nothing to 243 billion cubic feet in just three years. The National Petroleum Council, an industry-led group that provides advice to the secretary of energy, recently outlined its view of how the nation’s larger-than-expected resource might be developed.

In a major study released last year, the group forecast that North American oil production might exceed 20 million barrels a day by 2035 under a “high potential” situation of unfettered access.

However, under a “limited” situation where production was constrained for a variety of environmental or political reasons, domestic supplies might fall to less than 10 million barrels a day.

Some experts are more bullish. Morse of Citigroup forecast that North American oil production could reach an astounding 27 million barrels a day by 2020, almost twice the rate of production of 15 million barrels a day at the end of 2011. Production from the United States could grow to 15.6 million barrels a day by 2020, up from 9 million barrels a day in 2011.

If that trend continues, the growth in oil and natural gas supplies in the next decades could turn the United States into a top energy exporter, rivaling some members of the Organization of the Petroleum Exporting Countries. Natural gas could be sold to Mexico and Canada (because exploiting oil sands is so energy-intensive, Canada might have to import natural gas to produce its oil). Refined petroleum products, and even crude oil, could find customers in Europe and Latin America. Coal could be exported to China.

With less gasoline demand, the nation’s surplus refining capacity means the United States is already exporting petroleum products — like gasoline and diesel. The United States is now the top exporter of refined products, just ahead of Russia.

Energy independence

Assessing falling American dependence on foreign oil, analysts with the financial firm Raymond James said imports fell from 65 percent of demand, or 13.5 million barrels a day, their peak in 2005, to 9.8 million barrels a day in 2011, or 52 percent of demand. They predicted that imports would keep falling, reaching 4.5 million barrels a day — or just a quarter of domestic oil demand — by 2015. By 2020, they forecast, the United States would not need to import foreign oil anymore.

“The resulting savings from the standpoint of the trade deficit are highly meaningful,” the analysts said, “especially when the benefits of cheaper energy for domestic manufacturing are taken into account. Maybe the real question is, When will Washington apply to join OPEC?”

While the question is provocative, the change in outlook for domestic supplies, along with the changed role of the United States in global energy markets, carries important economic and geopolitical lessons.

James Brick, an energy analyst with Wood Mackenzie, a research firm, said in a recent report that by 2030 the United States could end up exporting 500 million tons of coal a year, 3.2 billion cubic feet a day of natural gas and 2.5 million barrels a day of oil products.

“The United States will be playing a very different role on the energy markets, a much more international role and a much more complicated and sophisticated one,” said Brick. “As with any forecast there are uncertainties but no matter how you cut it, the United States has the resources in the ground.”

original article

_

The US Geological Survey (USGS) says that the US holds more than 50% of the world’s known oil shale reserves with the largest known deposits being within a 16,000 square mile area in the Green River formation in Colorado, Utah and Wyoming. Putting the potential resource into perspective, the US shale oil resource is six times that of Saudi Arabia at around 1.5tnbl of oil, which is enough to supply the US’s oil needs for 200 years.

A good deal of the shale oil and oil sands resource lies underneath federal government-controlled land. Nevertheless, oil shale in the US has and continues to be somewhat of a political football. At the back end of the Bush administration it made around 2m acres available for oil shale development and a little over 430,000 acres for oil sands development. However, a change of administration and conservation groups filing a lawsuit in 2009 complaining that the government did not fully review the possible environmental impacts led to the Obama administration taking a new look. Now, ironically with the possibility of the administration switching back to the Republicans in 2012, a recent statement from the US Bureau of Land Management (BLM) seems mindful towards a compromise.

The Preferred Alternative

The BLM has what it calls “The Preferred Alternative” which is open for public review and comment for 90 days. Basically, the BLM suggests that nearly 462,000 acres would be made available for research and development of oil shale of which approximately 35,000 acres would be in Colorado, around 252,000 acres in Utah and a little over 174,000 acres in Wyoming. In addition, around 91,000 acres in eastern Utah would be earmarked for oil sands activities. In essence, BLM is proposing something like a 75% reduction in the amount of land that would be available for oil shale and oil sands. “The preferred alternative continues our commitment to encouraging research, development, and demonstration projects so that companies can develop technologies that can lead to economic and commercial viability,” said BLM’s director Bob Abbey in a statement. “Because there are still many unanswered questions about the technology, water use and impacts of potential commercial-scale oil shale development, we are proposing a prudent and orderly approach that could facilitate significant improvements to technology needed for commercial-scale activity. If oil shale is to be viable on a commercial scale, we must take a common-sense approach that encourages research and development first.”

Clearly not preferred by some

A response from Utah’s Republican governor Gary Herbert to the BLM Preferred Alternative was sharp and robust, “I see absolutely no benefit,” said Herbert in a statement. “This nonsensical, bass-ackwards, peek-a-boo policy is nothing more than political posturing by over-reaching federal bureaucrats. How about they seek our input, we comment on it first and THEN they make a decision? With no science and no data, and with a wave of their federal bureaucratic magic wand, they just take the bulk of the acreage off the market, stifle innovation, and demonstrate, yet again, that this administration is patently hostile toward even the possible development of much needed energy resources.”

Understandably, the state and people of Utah have much to gain and the shale oil debate will likely continue throughout the presidential election period of 2012 and possibly beyond. Whether there is a Republican or Democratic president in the White House by the end of 2012 could make a huge difference to short- to medium-term shale oil and oil sands development in the US. And, for the oil and gas industry in the US – much of which would be quite happy, given the low price for natural gas in the US right now and for the foreseeable future, to switch to more profitable oil operations – the U-word looms large again. U is for uncertainty and uncertainty means that, while the desire is there to switch, the ability to do so, on government land anyway, is off limits for now.

The industry viewpoint to the BLM’s proposals has been swift in coming. The American Petroleum Institute (API) says that it represents 490 oil and natural gas companies employing over 9m workers and that those companies have invested over US$2tn in capital projects since 2000. “Within a week of encouraging an ‘all of the above’ energy strategy the administration has put on hold development of one of the nation’s most energy-rich areas,” said API’s president and CEO Jack Gerard in a statement. “There will be no opportunity to invest for years. The administration is sending negative signals to industry and capital markets at exactly the wrong time. Consistent and stable regulations are needed to promote the commercial development of oil shale, an important and strategic national resource. Reliable governance from the BLM in the management of this resource is essential to attract the significant investment capital needed to both advance needed technologies and begin development.”

Finding a balance

The oil is in the US and one way or the other, however long it may take, that resource will be exploited. It is just a matter of how and when. Any administration cannot ignore the kind of asset that oil shale and oil sands represents. However, one would hope that lessons have been learned from the shale gas gold rush and that sometimes being first out of the blocks does not mean winning the race. There is merit in what BLM director Abbey says in that development should be prudent and orderly and the frustrations of Utah Governor Herbert and API CEO, Gerard are also understandable. Furthermore, there are also the concerns of the people that are living on and around the potential boom sites. Many of them will be happy to see the oil shale resource developed and be part of the opportunity but not at breakneck speed when urban and rural infrastructure could be stretched to their limits as local inflation soars and shortages abound. It will all be about finding the essence of one word – “balance.”

original article

Chinese, French, and Japanese companies were among recent investors making long-term financial commitments to US unconventional oil and gas plays in a trend that is expected to continue despite economic uncertainty.

State-run Oil India Ltd. (OIL) has indicated an interest in acquiring shale assets in the US and Australia. Oil India Finance Director T.K. Ananth Kumar told reporters Oil India hopes to buy shale assets worth up to $200 million. Reliance Industries Ltd. and Gas Authority of India Ltd. already have US shale gas acreage.

Kumar said Oil India prefers a joint venture partnership rather than fully owning the asset. “This is our strategy for acquisition of shale gas,” he said.

Rick Roberge, PwC US principal for energy mergers and acquisitions, said international investment in US shale is well under way and likely to continue.

IHS Herold Inc. statistics showed international transactions involving US shale plays accounted for 40 deals totaling $60 billion during 2008-11 of which 33 transactions were announced within the last 2 years.

Roberge said 22 transactions involved drill-and-carry arrangements, and Chesapeake Energy Corp. was the most active player, participating in 8 deals.

“Every major global oil company is looking at US shale,” Roberge said. “They desperately want a position and will pay up for it.”

Roberge noted Russian investors are the lone exception, adding that Russia has a large conventional oil and gas reserve base.

Meanwhile, Asian companies have been very prominent investors in the US shale market. Roberge said Asian companies invest in US shale to acquire both financial reward and technical knowledge about unconventional oil and natural gas development.

China is very keen on acquiring shale expertise given its hope to tap into its own unconventional resources. Andy Brogan, Ernst & Young global oil and gas transactions leader, said China holds the largest estimated shale gas resources worldwide.

“If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come,” Brogan said.

The US Energy Information Administration estimates China has 1,275 tcf of technically recoverable shale gas compared with 862 tcf in the US. The estimate was part of an analysis of world shale gas that EIA released in April 2011.

Jim Dillavou, US leader of Deloitte’s energy M&A practice, said some Chinese companies have made multiple investments.

These partnerships provide US operators with capital to continue development while the drill-and-carry joint venture partners gain unconventional technical expertise.

Relationships continue evolving, he said. Recent low gas prices are unlikely to discourage international investors who already expect to wait several years for a financial return from their shale investments, he said, adding that unconventional liquids assets currently attract the keenest interest from buyers.

“Most development plans are 6-10 years at least,” Dillavou said. “We see a lot of big pockets coming into this space. We haven’t seen any signs of it slowing. We think it will continue for awhile.”

Trend continues

The M&A trend from investors abroad into US shale continued robustly going into 2012 with three transactions announced in early January.

Total E&P USA Inc. signed a joint venture agreement with Chesapeake Exploration LLC and affiliates of EnerVest Ltd. in which Total acquires a 25% stake in Chesapeake-EnerVest holdings in the Utica shale in Ohio (OGJ Online, Jan. 3, 2012). Total paid $700 million upfront and agreed to pay up to $1.63 billion during 7 years in the form of a 60% carry of Chesapeake-EnerVest’s future drilling and completion expenditures.

Devon Energy Corp. agreed to sell one third of its interest in five plays to China Petrochemical Corp. (Sinopec) for $2.2 billion (OGJ Online, Jan. 3, 2012).

Terms call for Sinopec International Petroleum Exploration & Production Corp. (SIPC) to reimburse Devon for drilling costs. Previously, Devon assembled 1.2 million net acres in the Tuscaloosa Marine shale, Niobrara, Mississippian, Ohio Utica shale, and the Michigan basin.

The Eagle Ford JV results in SIPC paying 80% of the overall development costs during the carry period, Devon said.

Marubeni Corp. subsidiary Marubeni Eagle Ford Ltd. agreed to buy a 35% stake in Hunt Oil Co.’s holdings in South Texas. Terms call for Marubeni to pay future drilling expenses (OGJ Online, Jan. 9, 2012).

The Japanese trading house said the JV with the Dallas-based Hunt plans to drill several hundred wells during 5-10 years across 52,000 acres. Marubeni and Hunt plan to jointly acquire additional Eagle Ford acreage.

Other Japanese companies also are investing in US shale plays. Corporate conglomerate Itochu Corp. was part of an investor group led by Kohlberg Kravis Roberts & Co. LP that acquired Samson Investment Co., Tulsa, Okla., one of the largest private US exploration and production companies, for $7.2 billion.

Samson has positions in oil and liquids-rich plays such as the Bakken, Powder River, Green River, Granite Wash, Cana Woodford, and Cotton Valley as well as in the Haynesville and Bossier gas shales.

Previously, Itochu became the first Japanese company to participate in a US shale oil project upon buying a 25% stake in the Niobrara shale oil play in Wyoming from MDU Resources Group.

Separately, a subsidiary of Mitsui & Co. Ltd. acquired 12.5% working interest in the nonoperated Eagle Ford shale position of SM Energy Co., Denver. Mitsui agreed to carry 90% of SM Energy’s drilling and completion costs on its nonoperated acreage until it has spent $680 million for the benefit of SM Energy (OGJ Online, June 29, 2011).

Norway’s Statoil ASA announced plans to acquire independent Brigham Exploration Co. for $4.4 billion in a transaction marking Statoil’s entry into the Bakken and Three Forks unconventional oil plays in the Williston basin in North Dakota and Montana (OGJ Online, Oct. 17, 2011).

SandRidge Energy Inc. of Oklahoma City struck a $1 billion deal with Spain’s Repsol YPF last year involving SandRidge’s Mississippian oil fields.

Repsol agreed to pay SandRidge $250 million and to finance $750 million in drilling expenses over 3 years for a nonoperated stake in two areas, one straddling the Oklahoma-Kansas line and another in southern Kansas. While not shale, the Mississippian formation requires horizontal drilling and multistage fracturing. In a separate joint venture, South Korean firm Atinum Partners Co. Ltd. acquired a nonoperated working interest in SandRidge’s Mississippian fields for $500 million. Atinum will pay $250 million in cash at closing. Atinum has also committed to a drilling carry obligation to pay 13.2% of SandRidge’s share of drilling and completion cost for wells up to a total amount of $250 million during a 3-year period.

BHP Billiton Petroleum of Australia agreed to buy all of Chesapeake Energy Corp.’s interests in the Fayetteville shale in Arkansas for $4.75 billion (OGJ Online, Feb. 22, 2011).

J. Michael Yeager, BHP Billiton chief executive, said his company obtained an operated position in 487,000 net acres in the Fayetteville to “immediately make BHP Billiton a major North American shale gas producer. Longer term, the expertise we gain here will be usable elsewhere as we continue to grow our business.”

A few months later, BHP Billiton announced an agreement to acquire Petrohawk Energy Corp., Houston, for $12.1 billion, giving BHP operated positions in the Eagle Ford and Haynesville shale resource plays and the Permian basin (OGJ Online, July 25, 2011).

original article

In last week’s State of the Union address, President Obama called for an all-of-the-above approach to energy as a critical part of securing this country’s future – and we agree. The United States must pursue all of its energy options – including increased domestic oil and natural gas production, coal, nuclear, renewables and more.

That includes unconventional energy sources. Certainly, the United States is realizing almost unimaginable growth in the development of oil and natural gas from shale, which is powering an economic boom in North Dakota, Pennsylvania, Texas and others.

Just a few years ago, that hardly seemed likely. Yet, the latest data from the Energy Information Administration demonstrates how technological advances in hydraulic fracturing and horizontal drilling have dramatically increased America’s natural gas potential to the point that the EIA now says the U.S. is home to the second-largest natural gas reserves in the world, and that by 2035, 70 percent of the country’s gas supply will be produced by fracking from shale and tight rock formations.

Let’s talk about another unconventional energy source: oil shale, which will be discussed this week by the House Natural Resources Committee as it considers legislation to promote access to U.S. resources. By all accounts this resource base is enormous. The largest and highest quality oil shale deposits are in sparsely populated areas of Colorado, Utah and Wyoming, and the potentially recoverable oil from Western U.S. oil shale deposits is estimated at more than 800 billion barrels, or nearly three times the proven oil reserves of Saudi Arabia (267 billion). In its September 2011 report on North American resources, the National Petroleum Council notes that given the right technological advances, the potential of oil shale could be significant in terms of energy and jobs.

Easily confused with oil that is extracted by fracturing shale formations to released trapped oil, oil shale is a fine-grained sedimentary rock containing a solid material (kerogen) that converts to liquid oil when heated. Historically, oil shale has proven to be technically, environmentally and economically challenging to develop. However, through ongoing research efforts, new and innovative production oil shale technologies are emerging. Today several dozen technology and resource development companies are working on the next generation of oil shale technologies. Companies have shown they can extract oil shale with minimal surface disturbance, followed by programs to restore the environment to its natural state.

Several technologies have been developed around the world to make oil shale commercially viable in countries including Brazil, China and Estonia. With the United States holding nearly three times the proven oil reserves of Saudi Arabia in shale oil, we need the right policies to set the stage for commercial viability.

Some argue oil shale shouldn’t be pursued as a resource, claiming it will never be commercially viable – apparently unaware of its commercial success in other countries. If anything, the energy from shale revolution in this country as well as the continued development of alternative and renewable energy sources suggest no potential resource should be dismissed because of its current commercial viability.

The president is right: an all-of-the-above approach is the best path for securing America’s energy future. In oil shale, the United States has another vast energy resource that can’t be dismissed – one that would be best developed by industry and the marketplace, guided by clear policies and a stable regulatory regime.

original article

-

By Edward Klump and David Wethe

Dec. 2 (Bloomberg) — Chesapeake Energy Corp. said the oil and natural-gas industry isn’t likely to find another U.S. bonanza like the Eagle Ford and Utica shale formations.

Next year likely will bring a close to a period of big acreage purchases by Chesapeake and other companies, Chief Executive Officer Aubrey McClendon told reporters Nov. 30. He said more formations may be found under existing acreage.

McClendon’s comments at a Jefferies & Co. energy conference in Houston this week contrasted with views expressed by other executives at the gathering.

Chuck Meloy, a senior vice president for worldwide operations at Anadarko Petroleum Corp., told a Jefferies audience yesterday he expects surprises in the amount of oil and gas resources in coming years. He cited recent onshore discoveries and finds off the coast of Africa.

“There’s some very clever minds trying to unlock the keys and the bounty of this Earth to deliver those hydrocarbons,” he said. “I think we’ll still see positive surprises, particularly in the shales and particularly in deep water.”

“I would take a little bit different view than in perhaps what Aubrey articulated,” EOG Resources Inc. CEO Mark Papa said on a Jefferies panel. “I don’t believe all the plays, even in onshore North America — the horizontal resource plays — have been found.”

Still Exploring

The U.S. has many previously uneconomic, non-shale plays to which producers can apply technologies that have helped make shale finds productive, James Wicklund, portfolio manager at Carlson Capital, in Dallas, said yesterday in a telephone interview.

“Might those all be Haynesville or Barnett or Marcellus shales? Maybe not,” Wicklund said. “Would these be discoveries? Sure, I’d call them discoveries. We’re still doing exploration.”

U.S. oil and gas producers use horizontal drilling and hydraulic fracturing to tap so-called unconventional projects. Horizontal wells help producers reach more of a resource than a traditional vertical well.

Oil production in the Eagle Ford during the first eight months of this year has more than doubled to 8 million barrels of oil from 3.76 million barrels produced in all of 2010, according to the Railroad Commission of Texas. The Eagle Ford shale is about 50 miles (80 kilometers) wide and 400 miles long in south Texas, the commission said.

EOG, an early participant in the Eagle Ford, said it has potential reserves of 900 million barrels of oil equivalent from the project, with hopes of increasing that.

Chesapeake’s Focus

The Utica formation in Ohio is similar to the Eagle Ford and likely has superior economics, Chesapeake said in a November investor slide presentation. The company estimated it has 1.36 million net acres in the Utica.

The days of discovering million-acre plays are drawing to a close, McClendon said. That leaves Chesapeake to develop what it has and to seek the best returns for shareholders, he said.

“I just think the industry has already evaluated all the sedimentary basins in the U.S. and have pretty much been able to eliminate any possibility that another Utica is lurking out there,” McClendon said.

David Ginther, a senior vice president at Overland Park, Kansas-based asset manager Waddell & Reed Financial Inc., said there are many oil discoveries to uncover in the U.S.

“I don’t know if plenty is the right word,” Ginther said in an interview at the Jefferies conference yesterday. “There’s a lot of good opportunities out there. I don’t think the window’s closing.”

Original Article

-

Posted 06:36 PM ET

New Energy: The latest salvo in the administration’s war on energy may be new rules and permits to regulate a process to get oil and gas from porous rock, sacrificing jobs and economic growth while under review.

There are a few areas of the U.S. that are booming. Two of these are in North Dakota and Pennsylvania, states that sit atop two massive shale rock formations, the Bakken and the Marcellus.

Extraction of oil and natural gas from these formations have created jobs and economic growth in the midst of a stagnant and parched economy.

The oil and gas is extracted from this porous rock by a process called hydraulic fracturing, or “fracking.”

The process involves the injection under high pressure of fluids, mainly water with a few chemical additives, to fracture the porous shale rock and allow the release and extraction of the oil and gas trapped inside the porous rock. Environmentalists contend these chemical additives contaminate groundwater supplies.

The fluid used in the process is 99.5% sand and water. There are other chemicals ranging from the citric acid found in soda to benzene, which are used to reduce friction and fight microbes.

Shale formations in which fracking is used are thousands of feet deep. Drinking water aquifers are generally only a hundred feet deep. There’s solid rock between them.

Yet the Environmental Protection Agency, bowing to environmentalists’ pressure and faithful to the administration mantra that fossil fuels are harmful and obsolete, is preparing to nip this economic boom in the bud by regulating it to death.

In January, state regulators in places like North Dakota and Pennsylvania must write new rules for hydraulic fracturing and the fluids used in the process.

These rules are to be based on an EPA guidance document that is under review by the Office of Management and Budget. The document will tell states how to comply with and issue permits in compliance with the federal Safe Drinking Water Act.

Keep in mind that even EPA director Lisa Jackson could provide no evidence of groundwater contamination due to fracking. She recently recently told a House Oversight Committee hearing that, despite anecdotal evidence, “I’m not aware of any proven case where the fracking process itself has affected water.”

“This 60-year-old technique has been responsible for 7 billion barrels of oil and 600 trillion cubic feet of natural gas,” according to Sen. James Inhofe, ranking member of the Environment and Public Works Committee. “In hydraulic fracturing’s 60-year-history, there has not been a single documented case of contamination.”

Original Article