The natural gas industry has yet another environmental concern to face. Buffeted by concerns over water, from the impact of hydraulic fracturing, to the amount of water consumed to the treatment of wastewater, the industry now has to address air quality.
The small town of DISH, TX (the town formerly known as Clark, but which sold its name to DISH TV several years ago) last night passed a moratorium on new natural gas activities for 90 days in response to air quality tests that showed high levels of benzene from two of 94 test sites around the town (more detail on ordinance).
DISH is in the heart of the Barnett Shale and is home to a fair amount of natural gas infrastructure, including a number of compressor stations and pipeline intersections. The mayor of DISH has been outspoken on this issue for a while and will attract lots of attention with this ordinance.
Given the speed at which information turned into misinformation about the supposed impacts to groundwater in the Marcellus Shale, the industry needs to be very careful and responsive. Environmentalists would love nothing more than another juicy issue to devour.
Air quality issues from drilling and processing equipment can be addressed much more easily than water issues, but it is yet another distraction requiring action for the industry. Again, how the industry responds will be important to the future development of natural gas in the U.S. If the industry buries its head in the sand and puts more money into PR than real solutions, it is going to get its a** kicked. That won't be good for anybody.
Tuesday, February 9, 2010
Monday, February 8, 2010
International Shale Prospects
I read some interesting comments about prospects for international shale gas made by Chesapeake Energy CEO Aubrey McClendon at an investor conference last week. When speaking about the prospects for major oil companies successfully exploiting shale gas assets in other countries, he said, "they will have a hard time over there at the end of the day." Chesapeake has been involved in international scouting with its Marcellus Shale partner Statoil ASA, and he said that most international prospects lack the basic fundamentals for production and the quality of the shale formations is below what he has seen in the U.S.
Though the article noted above doesn't get into many specifics, success depends on having exploration and production infrastructure, from tools and equipment to skilled personnel to gathering and processing infrastructure. Also important is a strong demand for the use of natural gas in a target country as well as a supportive business and political climate.
Many of these are chicken-and-egg problems, but they are reflective of why the U.S. is a worldwide leader in natural gas production and the development of new technology. Success here came not from major oil companies sinking billions of dollars into huge projects but from small businesses patiently developing resources, infrastructure and demand.
Outside of the political and business climates, most of the concerns McClendon cites can be solved with patient investment and a long-term time horizon, but that's not how multinational oil companies operate. Of course, nothing can overcome poor geologic circumstances, but I doubt much of that raw data will become public any time soon, so we'll just have to depend on hearsay for now.
One thing is clear: major oil companies mostly missed the boat on U.S. shale gas. McClendon has the right for a little "nanny-nanny-boo-boo" action. If the majors want to be part of the shale gas boom, and I think they do, it will either come from international development or by buying a large domestic independent (like Exxon's purchase of XTO). It was interesting to see that during the past year when gas prices cratered there were no "distressed" sales of major consequence. It will be interesting to see if there are any big acquisitions on the upswing (if the market indeed swings upward).
Though the article noted above doesn't get into many specifics, success depends on having exploration and production infrastructure, from tools and equipment to skilled personnel to gathering and processing infrastructure. Also important is a strong demand for the use of natural gas in a target country as well as a supportive business and political climate.
Many of these are chicken-and-egg problems, but they are reflective of why the U.S. is a worldwide leader in natural gas production and the development of new technology. Success here came not from major oil companies sinking billions of dollars into huge projects but from small businesses patiently developing resources, infrastructure and demand.
Outside of the political and business climates, most of the concerns McClendon cites can be solved with patient investment and a long-term time horizon, but that's not how multinational oil companies operate. Of course, nothing can overcome poor geologic circumstances, but I doubt much of that raw data will become public any time soon, so we'll just have to depend on hearsay for now.
One thing is clear: major oil companies mostly missed the boat on U.S. shale gas. McClendon has the right for a little "nanny-nanny-boo-boo" action. If the majors want to be part of the shale gas boom, and I think they do, it will either come from international development or by buying a large domestic independent (like Exxon's purchase of XTO). It was interesting to see that during the past year when gas prices cratered there were no "distressed" sales of major consequence. It will be interesting to see if there are any big acquisitions on the upswing (if the market indeed swings upward).
Texas Developmental Activity
I noted the following developmental activity in Texas this weekend:
- B. Furrh GU #2H, Samson Contour; North Carthage Field (Bossier Shale), Harrison Co.
- Markey Gas Unit #1H, Devon Energy; North Carthage Field (Bossier Shale), Panola Co.
- Lawless Unit #25H, XTO Energy; North Carthage Field (Bossier Shale), Panola Co.
- McRae Hay #5H, Goodrich Petroleum; Beckville Field, Rusk Co.
- Morrison #1H Common Resources; Bossierville Field, Shelby Co.
Saturday, February 6, 2010
Texas Rig Counts
I have posted my estimate of the Texas working rigs based on information from Baker Hughes and the Texas RR Commission. Some wells are classified as Wildcat, but I suspect that some are Haynesville/Bossier Shale wells. I've broken them out on the spreadsheet but consolidated them on the summary below. In total, I see 33 Texas Haynesville rigs working (six Wildcat), up two from lasat week. Last week I erred by double counting a rig. I've updated the summary below but have not changed it for past weeks.
Friday, February 5, 2010
New Louisiana Completions
- Willis 25 H #1, Petrohawk Operating: 21,361 MMcf/day initial production on 20/64" choke at 8,441 psi; Elm Grove Field, Bossier Parish, Sec 36/Township 16/Range 11; Haynesville reservoir A, serial #240009
- Wright ETAL 17 H #1, Exco Production: 8,840 MMcf/day IP on 20/64" choke at 4,202 psi; Bethany Longstreet Field, Caddo Parish, S17/T15/R16; res. A, serial # 239840
- Graves 24 H #1, Chesapeake Operating: 13,704 MMcf/day IP on 22/64" choke at 5,848 psi; Greenwood-Waskom Field, Caddo Parish, S24/T16/R16; res. A, serial #239581
- Phillips Foundation 3H #1, Chesapeake Operating: 13,507 MMcf/day IP on 22/64" choke at 5700 psi; Greenwood-Waskom Field, Caddo Parish, S3T/16R/6; res. A, serial #239793
- Woolley 17-16-15 H #1, Chesapeake Operating: 14,728 MMcf/day IP on 22/64" choke at 6,571 psi; Johnson Branch Field, Caddo Parish, S17/T16/R15; res. A, serial # 240105
- BSMC LA 9 HZ #1, Comstock Oil & Gas : 9,587 MMcf/day IP on 26/64" choke at 5,154 psi; Benson Field, DeSoto Parish, S16/T10/R14; res. A, serial #239384
- Matthews Trust 7 #1, Petrohawk Operating: 20,111 MMcf/day IP on 22/64" choke at 8,988 psi; Red River-Bull Bayou Field, DeSoto Parish, S7/T13/R11; non-unitized, serial #239425
- Black Stone Minerals LP 26H #1, Forest Oil Corp.: 5,432 MMcf/day IP on 10/64" choke at 7,635 psi; Converse Field, Sabine Parish, S26/T8/R14; res. A, serial #239521 (this completion occurred in March, 2009 but had been shut-in wating for pipeline)
- Kendrick 18 #1, Brammer Engineering: 925 MMcf/day IP on 18/64" choke at 1,200 psi; Summerfield Field, Claiborne Parish, S18/T22/R4; res. A serial #240118
Rig Counts Up Again
The weekly Baker Hughes rig count showed an 18 rig increase across the U.S. Seventeen of the 18 net rig additions were gas rigs. Of the new rigs, 12 were horizontal, four directional and two vertical.
In the Haynesville region, inclusive of other formations, the total rig count increased by three to 203, with a three rig increase in east Texas. The north Louisiana count stayed at 133.
I've looked at the Louisiana Haynesville rigs. It appears that the count has dropped by one to 121. The only real difference is that one Chesapeake rig is missing, likely on the road between wells. Below is the update by producer and parish. The detailed rig list is published under the button on the upper right of the page.
Texas should be ready this weekend, so check back if you're interested.
In the Haynesville region, inclusive of other formations, the total rig count increased by three to 203, with a three rig increase in east Texas. The north Louisiana count stayed at 133.
I've looked at the Louisiana Haynesville rigs. It appears that the count has dropped by one to 121. The only real difference is that one Chesapeake rig is missing, likely on the road between wells. Below is the update by producer and parish. The detailed rig list is published under the button on the upper right of the page.
Texas should be ready this weekend, so check back if you're interested.
Thursday, February 4, 2010
NEW FEATURE: Texas Completions
I have finally gotten around to compiling a list of Texas Haynesville/Bossier Shale completions. It can be found by clicking the box in the upper right hand corner like this one:
Texas and Louisiana have vastly different information resources and different ways of classifying the Haynesville Shale wells. The list I have compiled is based on Texas production data from the various fields that host Haynesville/Bossier Shale wells. Unfortunately, when digging deeper I find that many of the older wells on the list are classified as Cotton Valley and others are classified as Wildcat. The problem exists to a lesser degree In Louisiana, as some early Haynesville wells were also classified as Cotton Valley and others are still called Jurassic. Basically, I've had to go through well by well and make a judgment call. I've got a short list of other wells that didn't make the cut in Texas that I will review again shortly, and there are some wells that did make the cut that I probably need to purge.
Because Texas doesn't use the Section/Township/Range geographical organization method, it is harder to sort the wells by geography, so I've just sorted them by total production. Out of curiosity, the table below looks at the Texas wells by sustained flow rates (MMcf/day). This is obviously biased towards the more recent completions, but it was interesting to see that many of the top ten daily producers are actually high on the list of total producers. Many of the recent completions have very high initial production rates, so it will be interesting to see how the list changes over the next quarter.
Texas and Louisiana have vastly different information resources and different ways of classifying the Haynesville Shale wells. The list I have compiled is based on Texas production data from the various fields that host Haynesville/Bossier Shale wells. Unfortunately, when digging deeper I find that many of the older wells on the list are classified as Cotton Valley and others are classified as Wildcat. The problem exists to a lesser degree In Louisiana, as some early Haynesville wells were also classified as Cotton Valley and others are still called Jurassic. Basically, I've had to go through well by well and make a judgment call. I've got a short list of other wells that didn't make the cut in Texas that I will review again shortly, and there are some wells that did make the cut that I probably need to purge.
Because Texas doesn't use the Section/Township/Range geographical organization method, it is harder to sort the wells by geography, so I've just sorted them by total production. Out of curiosity, the table below looks at the Texas wells by sustained flow rates (MMcf/day). This is obviously biased towards the more recent completions, but it was interesting to see that many of the top ten daily producers are actually high on the list of total producers. Many of the recent completions have very high initial production rates, so it will be interesting to see how the list changes over the next quarter.
The most recent wells that have been announced but are too new to have production data are at the end of the list (page 5). I'm actively updating this part of the list (the production data won't be updated that often). As always, this is a work in process, so let me know if you see something that is out of line.
Gas in Storage: Losing Traction
The weekly EIA working gas in storage figure showed a 115 Bcf drop to 2.406 Tcf. This withdrawal is lower than the weekly withdrawal last year (-194 Bcf) and the five year average for this week (-178 Bcf). As a result, the gas in storage figure is 9% higher than last year's level and 6.6% higher than the five year average. A couple of weeks ago, these numbers had evened out, but warm and seasonal weather over much of the U.S. for the previous two weeks created slack in the use of gas for heating. Now the red line has changed trajectory and is in danger of poking back out of the top of the five year band.
The weekly drawdown in the East and Western Regions averaged around 6% of the gas supply, but the Producing Region only withdrew 1.4% of supply. The bulk of the excess supply compared to the five year average is in the West Region (19.3% over five year average) and Producing Region (+10.6%), while supplies in the East Region are only 1.2% above the five year average. The temperature map below tells the story.
With the bitterly cold weather across much of the country this week, the storage figure should show a decrease next week, but until then we will have to endure more stories about the oversupply of natural gas.
The weekly drawdown in the East and Western Regions averaged around 6% of the gas supply, but the Producing Region only withdrew 1.4% of supply. The bulk of the excess supply compared to the five year average is in the West Region (19.3% over five year average) and Producing Region (+10.6%), while supplies in the East Region are only 1.2% above the five year average. The temperature map below tells the story.
With the bitterly cold weather across much of the country this week, the storage figure should show a decrease next week, but until then we will have to endure more stories about the oversupply of natural gas.
Wednesday, February 3, 2010
Regency Haynesville Extension Pipeline Officially in Service
The Haynesville Expansion and the Red River Lateral extensions to the Regency Intrastate Gas System (RIGS) are now officially in service. The projects add 2.1 Bcf/day capacity to RIGS and provide service to the area around the Terryville and Woodardville fields in north Louisiana. Regency Energy Partners completed the project in partnership with funders Alinda Capital Partners and GE Energy Financial Services.
Callon Petroleum Joins Haynesville Party
Callon Petroleum, a Natchez, MS-based producer, announced this week that the company has acquired acreage in the Haynesville Shale as part of its efforts to diversify its holdings from 100% offshore Gulf of Mexico production. The company acquired a 70% working interest in 577 acres in Bossier Parish, LA for $3 million, or about $7,400/acre (when WI grossed up). The company expects to spud its first well in mid-2010 and has dedicated $14.5 million of its 2010 capital budget to Haynesville drilling costs.
Callon is yet another company investing in the Haynesville Shale to diversify away from higher risk offshore drilling. Offshore plays are longer lived, but they require significant amounts of upfront capital and bear greater risk, as witnessed with the damage and shut-ins caused by hurricanes of the second half of the last decade. Shale plays, by contrast, require a fair bit of upfront capital but have a faster payback and lower risk. It makes sense to have both in your portfolio.
Callon is yet another company investing in the Haynesville Shale to diversify away from higher risk offshore drilling. Offshore plays are longer lived, but they require significant amounts of upfront capital and bear greater risk, as witnessed with the damage and shut-ins caused by hurricanes of the second half of the last decade. Shale plays, by contrast, require a fair bit of upfront capital but have a faster payback and lower risk. It makes sense to have both in your portfolio.
Tuesday, February 2, 2010
Wastewater Treatment in the Marcellus Shale
There have been lots of headlines lately about the fears of fracking in the Appalachian Basin as drilling in the Marcellus Shale heats up. Today's Washington Post featured an article about concerns over how frac wastewater is treated. This is a real issue, compared to the overblown perception that gas drilling ruins groundwater, and it is being actively addressed.
The issue revolves around frac water that comes back out of the well during the completion process. In Louisiana, Texas and Oklahoma, that waste water is usually trucked to an injection well and deposited deep in the earth (likely a problem for another day, but...). In Appalachia, the geography and geology does not allow for these wells, so the water is usually trucked to a municipal treatment plant, where it is treated and discharged into a river. Unfortunately, because frac wastewater is very salty, the treated wastewater still has some salt and impurities after treatment, and the release into waterways has in some places impacted salinity levels and led to other concerns.
The gas producers are working on this issue very actively. There are solutions from frac tanks to recycling being used, while at the same time municipalities are reducing the amounts of frac water they will take. This is not a new issue for the region, as coal mines often have to pump out millions of gallons of tainted water that seeps into mines.
Water, both going in and going out, will continue to be one of the biggest issues related to shale gas and an appropriate response by the gas producers will go a long way in keeping the golden goose alive and well.
The issue revolves around frac water that comes back out of the well during the completion process. In Louisiana, Texas and Oklahoma, that waste water is usually trucked to an injection well and deposited deep in the earth (likely a problem for another day, but...). In Appalachia, the geography and geology does not allow for these wells, so the water is usually trucked to a municipal treatment plant, where it is treated and discharged into a river. Unfortunately, because frac wastewater is very salty, the treated wastewater still has some salt and impurities after treatment, and the release into waterways has in some places impacted salinity levels and led to other concerns.
The gas producers are working on this issue very actively. There are solutions from frac tanks to recycling being used, while at the same time municipalities are reducing the amounts of frac water they will take. This is not a new issue for the region, as coal mines often have to pump out millions of gallons of tainted water that seeps into mines.
Water, both going in and going out, will continue to be one of the biggest issues related to shale gas and an appropriate response by the gas producers will go a long way in keeping the golden goose alive and well.
Ellora Sells Kansas Interests
Ellora Energy has officially closed the $247 million sale of its Kansas interests and is now setting its sights southward to, as the CEO said, "maximize the value of our remaining assets in the Haynesville and Bossier Shale gas plays in East Texas as we continue to explore our strategic options." That means they are looking to sell.
As reported back in December, Ellora is looking to exit its positions in the Hugoton Field in Kansas and the Haynesville Shale. Given the promising acreage in the Haynesville Play, I'm sure the company is looking for a big number. The Kansas sale allowed the company to pay off its debt and put $100 million in the bank, so it has the luxury of being able to wait for the right offer for its Haynesville interests.
As reported back in December, Ellora is looking to exit its positions in the Hugoton Field in Kansas and the Haynesville Shale. Given the promising acreage in the Haynesville Play, I'm sure the company is looking for a big number. The Kansas sale allowed the company to pay off its debt and put $100 million in the bank, so it has the luxury of being able to wait for the right offer for its Haynesville interests.
CNG Taxis in Chicago
Venerable taxi company Yellow Cab has partnered with Clean Energy Fuels Corp. in the deployment of compressed natural gas taxicabs in the city of Chicago. Clean Energy Fuels will build and operate two new fueling stations and Yellow Cab will deploy 100 new CNG vehicles. Clean Energy and Yellow Group, parent of Yellow Cabs, partnered to win a $1.5 million grant from the city of Chicago and the U.S. Department of Energy to help fund the effort.
CNG taxis are being rolled out in other cities, including the Dallas/Ft. Worth area, where the DFW airport has been in the news lately because of its controversial policy to allow CNG fueled taxis to cut to the front of the passenger pickup line. The policy, which was urged by Dallas resident T. Boone Pickens, was contested in court and is not being enforced right now, but it shows some of the inroads CNG is making in commercial vehicles.
CNG taxis are being rolled out in other cities, including the Dallas/Ft. Worth area, where the DFW airport has been in the news lately because of its controversial policy to allow CNG fueled taxis to cut to the front of the passenger pickup line. The policy, which was urged by Dallas resident T. Boone Pickens, was contested in court and is not being enforced right now, but it shows some of the inroads CNG is making in commercial vehicles.
Monday, February 1, 2010
Rig Counts: All Operators
I was fooling around with the rig count data this morning - like I don't have anything better to do - and decided to combine the Texas and Louisiana rig count by operator. Note that this list includes the five Texas "Wildcat" wells that I think are Haynesville/Bossier wells. Also, I combined the two Samson companies (Lone Star and Contour) since they are affiliated. Because most rigs are in Louisiana, it doesn't change all that much, but it does bump XTO Energy higher on the list.
Petrohawk Operational Update
Petrohawk released its annual operations update this morning (presentation). There wasn't a whole lot of new information, but the company did give some greater explanation of its type curve and production techniques.
By way of background, Petrohawk operates 17 rigs over 360,000 net acres in the Haynesville Play and has expanded its property holdings by 60,000 acres, some of it in Shelby and Nacogdoches Counties, TX and Webster Parish, LA. (I'm guessing we will see a few more drilling rigs in Webster Parish in 2010). Of the company's acreage, approximately 122,000 acres are prospective for the Middle Bossier Shale (HK calls it "Lower Bossier" but for consistency sake I call it "Middle Bossier"). The company should be reporting results from a couple of Mid-Bossier wells in the first half of 2010.
As with other companies, Petrohawk has worked diligently to reduce the drilling time and costs while simultaneously improving completion techniques to maximize production. An interesting metric used by Petrohawk is cost per foot drilled, which decreased from $357 in Q1 2009 to $271 in Q4 2009. I assume the above metric includes the length of the laterals and not just the vertical feet drilled.
Petrohawk also offered some more detail behind its 7.5 Bcfe expected ultimate recovery (EUR) figure. The company's curve (shown below) is based on 16 MMcfe/day production for the first month, an 82% decline rate for the first year and a hyperbolic factor ("B factor") of 1.1. Based on this curve, 33% of production (2.0 Bcfe) should occur in the first year and 80% (6.0 Bcfe) in the first ten years.
The type curve above is for wells drilled at a 24/64" choke, which has been typical for the company, but Petrohawk is experimenting with a new technique where it chokes back the well to create higher flowing pressures and reduced production rates in the early phase of production. The company hopes "additional reserves can be produced from each well by greatly reducing the rate of drawdown in bottom hole flowing pressure, thereby reducing the possibility of permeability loss as a result of the rapid drawdown of pressure." Most importantly, Petrohawk expects to see higher EURs for wells. The company's Chairman said he would have some curve data from this new reservoir optimization technique posted on the web site, so I'm excited to see some preliminary results.
Production companies are not known for showing restraint, but the ultimate goal is to show higher reserves, which makes the company more valuable. The good news: it's a win-win for producer and land owner.
By way of background, Petrohawk operates 17 rigs over 360,000 net acres in the Haynesville Play and has expanded its property holdings by 60,000 acres, some of it in Shelby and Nacogdoches Counties, TX and Webster Parish, LA. (I'm guessing we will see a few more drilling rigs in Webster Parish in 2010). Of the company's acreage, approximately 122,000 acres are prospective for the Middle Bossier Shale (HK calls it "Lower Bossier" but for consistency sake I call it "Middle Bossier"). The company should be reporting results from a couple of Mid-Bossier wells in the first half of 2010.
As with other companies, Petrohawk has worked diligently to reduce the drilling time and costs while simultaneously improving completion techniques to maximize production. An interesting metric used by Petrohawk is cost per foot drilled, which decreased from $357 in Q1 2009 to $271 in Q4 2009. I assume the above metric includes the length of the laterals and not just the vertical feet drilled.
Petrohawk also offered some more detail behind its 7.5 Bcfe expected ultimate recovery (EUR) figure. The company's curve (shown below) is based on 16 MMcfe/day production for the first month, an 82% decline rate for the first year and a hyperbolic factor ("B factor") of 1.1. Based on this curve, 33% of production (2.0 Bcfe) should occur in the first year and 80% (6.0 Bcfe) in the first ten years.
The type curve above is for wells drilled at a 24/64" choke, which has been typical for the company, but Petrohawk is experimenting with a new technique where it chokes back the well to create higher flowing pressures and reduced production rates in the early phase of production. The company hopes "additional reserves can be produced from each well by greatly reducing the rate of drawdown in bottom hole flowing pressure, thereby reducing the possibility of permeability loss as a result of the rapid drawdown of pressure." Most importantly, Petrohawk expects to see higher EURs for wells. The company's Chairman said he would have some curve data from this new reservoir optimization technique posted on the web site, so I'm excited to see some preliminary results.
Production companies are not known for showing restraint, but the ultimate goal is to show higher reserves, which makes the company more valuable. The good news: it's a win-win for producer and land owner.
Sunday, January 31, 2010
Recent Louisiana Completions
- Gamble Jr. 35-13-16 H #1, Chesapeake Operating: 13,920 MMcf/day IP on 22/64" choke; Bethany Longstreet Field, DeSoto Parish, Sec. 13/Township 13/Range 16; Haynesville reservoir B, serial #240037
- John Persley 22 H #1, EnCana Oil & Gas: 13,836 MMcf/day IP on 21/64" choke; Caspiana Field, DeSoto Parish, S22/T15/R14; reservoir A, serial #239853
- Jimmy Gay 16 H #1, EnCana Oil & Gas: 13.144 MMcf/day IP on 24/64" choke; Woodardville Field, Red River Parish, S16/T14/R10; reservoir A, serial #239853
- Madden 18 H #1, Forest Oil Corporation: 14.829 MMcf/day IP on 30/64" choke; Woodardville Field, Red River Parish, S18/T14/R9; reservoir A, serial #240050
- Matthews ETAL 21 H #1, Petrohawk Operating: 19.24 MMcf/day IP on 24/64" choke; Red River-Bull Bayou Field, Red River Parish, S16/T13/R11; reservoir B, serial #239266
New Texas Completions
All completions listed below are classified as Bossier Shale, except the last one, as noted. Check out the 18 MMcf IP rate well in San Augustine Co. below:
New developmental wells:
- Red River 257 #1, Common Resources: 18.095 MMcf/day IP on 28/64" choke; Bossierville Field, San Augustine Co.
- Verhalen "C" #1H, GMX Resources: 5.476 MMcf/day IP on 16/64" choke; North Carthage Field, Harrison Co.
- Verhalen "D" #1H, GMX Resources: 7.285 MMcf/day IP on 24/64" choke; North Carthage Field, Harrison Co.
- Ellington-Ellora #1H, EOG Resources: 7.327 MMcf/day IP on 20/64" choke; North Carthage Field, Shelby Co.
- T.W. George "A" Gas Unit #9H, BP Americas: 8.295 MMcf/day IP on adjustable choke; Wildcat Field, Rusk Co. (This was not listed as a Bossier Shale well, but I think it is - I might be wrong, though.)
New developmental wells:
- Blocker Heirs #14H, GMX Resources: North Carthage Field, Harrison Co.
- James & Robert Tiller Gas Unit #1H, Penn Virginia Corp.; North Carthage Field, Harrison Co.
- Hendry Gas Unit #1H, Penn Virginia Corp.; North Carthage Field, Harrison Co.
- T.W. George "A" Gas Unit #10H, BP Americas; North Carthage Field, Harrison Co.
- Briggs-Moreland #14H, XTO Energy; North Carthage Field, Panola Co.
- J. Sublett GU #1H, Devon Energy; North Carthage Field, San Augustine Co.
- Cougars DU, XTO Energy; North Carthage Field, Shelby Co.
- Rebels DU, XTO Energy; North Carthage Field, Shelby Co.
Saturday, January 30, 2010
The Big Picture
The Financial Times published a great big picture article on the Haynesville Shale this weekend. It hits on the local issues and addresses the big picture concerns and opportunities. While it is not new news to people who have been following the Haynesville Shale closely, it does a great job of boiling it down to a single piece.
Also this weekend, I read a good article in the Wall Street Journal about the plight of the proposed pipelines to ship gas from Alaska to the Lower 48 and how those plans are threatened by the newly recognized shale gas reserves. Both the TransCanada AGIA and the Denali pipeline are going to have open seasons this winter/spring, and it is likely that neither will be successful. I've been talking about this for a while, but with decreasing oil revenue, it seems as though the folks in Alaska have a much greater stake in seeing more widespread adoption of natural gas in North America.
Also this weekend, I read a good article in the Wall Street Journal about the plight of the proposed pipelines to ship gas from Alaska to the Lower 48 and how those plans are threatened by the newly recognized shale gas reserves. Both the TransCanada AGIA and the Denali pipeline are going to have open seasons this winter/spring, and it is likely that neither will be successful. I've been talking about this for a while, but with decreasing oil revenue, it seems as though the folks in Alaska have a much greater stake in seeing more widespread adoption of natural gas in North America.
Friday, January 29, 2010
Rig Count Up Again
he weekly Baker Hughes rig count showed another increase in working rigs, rising 35 to 1,317, the highest level since February 13, 2009. The biggest increase was in gas rigs (+28), followed by oil rigs (+7). In terms of trajectory, more horizontal rigs (+20) were added than directional (+8) or vertical (+7) rigs.
In the Haynesville region, inclusive of other formations, the rig count jumped by eight to 200, with three new rigs in north Louisiana (133 total) and five new rigs in east Texas (67 total).
It took me a while, but I finally started compiling a detailed list of Texas rigs. There is a little confusion about how some of the wells are classified, because some that seem very Haynesville/Bossier-like are classified as "wildcat" wells. As a result, I don't count them, but I do list the ones I think are most applicable. If anybody has any intel on any of the wildcat rigs, I'm all ears.
Here is the link to the new Texas rig count page.
This week, I counted 122 Louisiana Haynesville rigs, up from 121, and 26 Texas Haynesville/Bossier rigs, up from 25. In Texas, there were six wells that look like H/B wells but are classified as "Wildcat." I included those wells in the summaries below but broke them out on the larger list. There was one oddity in the LA list: two rigs were listed for the same well. That means my count might be one rig light, but I didn't have enough information to get to an answer. The tables below break down the numbers by state for operators and parish/counties.
In the Haynesville region, inclusive of other formations, the rig count jumped by eight to 200, with three new rigs in north Louisiana (133 total) and five new rigs in east Texas (67 total).
It took me a while, but I finally started compiling a detailed list of Texas rigs. There is a little confusion about how some of the wells are classified, because some that seem very Haynesville/Bossier-like are classified as "wildcat" wells. As a result, I don't count them, but I do list the ones I think are most applicable. If anybody has any intel on any of the wildcat rigs, I'm all ears.
Here is the link to the new Texas rig count page.
This week, I counted 122 Louisiana Haynesville rigs, up from 121, and 26 Texas Haynesville/Bossier rigs, up from 25. In Texas, there were six wells that look like H/B wells but are classified as "Wildcat." I included those wells in the summaries below but broke them out on the larger list. There was one oddity in the LA list: two rigs were listed for the same well. That means my count might be one rig light, but I didn't have enough information to get to an answer. The tables below break down the numbers by state for operators and parish/counties.
Thursday, January 28, 2010
The State of the Union
I really hate watching the State of the Union Address each year, no matter who is delivering the remarks. I despise the pandering and the constant applause. Now with the Republican response mimicking the style of the main address, it is doubly painful. I mostly tuned out the address last night and read the transcript this morning. It’s funny – I accidentally fiist pulled up President Bush’s 2008 speech, and the section on energy was very close to President Obama’s.
I was disappointed, but not surprised, to see no mention of natural gas in the speech. There was the predictable emphasis on clean energy and pandering (and misguided) nods to biofuels and “clean coal” but no mention of the energy riches below our feet. Truthfully, the president didn’t need to talk about it because it is neither part of his legislative agenda nor his long-term vision. But development of these resources is happening as we speak.
But for all the discussion of investing in clean energy (which I support), we shouldn’t overlook one of the great technological innovations in the energy industry in our generation: the combination of horizontal drilling and hydraulic fracturing to retrieve natural gas from source rocks. We often overlook the magnitude of this innovation. Until recently, we could only retrieve oil and gas from reservoir rocks, formations that collect the minerals that slowly seep out of source rocks over millions of years. With this new technology, now we can extract resources directly from the source formations. It’s the difference between someone pouring you a small glass of water when you’re thirsty and being able to take the entire pitcher yourself. It’s not an unlimited source, but now we don’t need to wait millions of years for the gas to seep into the reservoir. This is huge.
This is a technological revolution that was developed in the United States and is one that we can readily export around the world. (Chesapeake Energy is already doing this through partnerships with international E&P companies.) It is also one of the few areas of technology that we can actually manufacture in the U.S. While we can become experts in solar and wind technology, ultimately it will be too expensive to mass manufacture solar cells and wind turbines in the U.S. because of our high standard of living. In our lifetimes, it will always be cheaper to manufacture mass produced goods in other countries. But most of the devices associated with shale gas extraction are made cost-effectively in our backyards and can be exported all over the world.
As a nation, we have long aspired to export our democratic form of government to other countries to make them independent and self-sustaining. Outside of “nation building;” however, this is not a realistic task. One of the things holding back many countries is their dependence on other nations for energy supplies. But it is becoming clear is that gas-bearing shale formations exist all over the world. By providing the tools and expertise to tap these resources can help start other nations on a path towards greater energy independence. You start to remove the shackles and watch what happens. I’m not naïve enough to suggest that shale gas is the silver bullet, but it has the chance to lead to significant improvements around the world.
In his address last night, President Obama also talked about doubling U.S. exports over the next five years. The U.S. is already a leader in oil and gas technology, and helping develop unconventional resources around the world would be a huge boon for U.S. businesses. Our companies will develop and export technology, help build infrastructure across the world and participate in the production of gas in other countries. We’re talking about big business and lots of U.S. jobs. Plus, it also works like traditional exports: we generate money from other nations through the sale of our expertise.
It is unreasonable to believe that we can flip a switch and have a zero carbon, clean energy world overnight (or within decades). We need to march down parallel paths to make the fossil fuel world, on which we will depend for years to come, more efficient and environmentally sound, while simultaneously developing technologies to unlock the next generations of energy. While the government needs to economically support the development of the next generations of energy supply, Washington needs to understand and support the reality of and opportunities for natural gas in tomorrow’s energy supply.
I was disappointed, but not surprised, to see no mention of natural gas in the speech. There was the predictable emphasis on clean energy and pandering (and misguided) nods to biofuels and “clean coal” but no mention of the energy riches below our feet. Truthfully, the president didn’t need to talk about it because it is neither part of his legislative agenda nor his long-term vision. But development of these resources is happening as we speak.
But for all the discussion of investing in clean energy (which I support), we shouldn’t overlook one of the great technological innovations in the energy industry in our generation: the combination of horizontal drilling and hydraulic fracturing to retrieve natural gas from source rocks. We often overlook the magnitude of this innovation. Until recently, we could only retrieve oil and gas from reservoir rocks, formations that collect the minerals that slowly seep out of source rocks over millions of years. With this new technology, now we can extract resources directly from the source formations. It’s the difference between someone pouring you a small glass of water when you’re thirsty and being able to take the entire pitcher yourself. It’s not an unlimited source, but now we don’t need to wait millions of years for the gas to seep into the reservoir. This is huge.
This is a technological revolution that was developed in the United States and is one that we can readily export around the world. (Chesapeake Energy is already doing this through partnerships with international E&P companies.) It is also one of the few areas of technology that we can actually manufacture in the U.S. While we can become experts in solar and wind technology, ultimately it will be too expensive to mass manufacture solar cells and wind turbines in the U.S. because of our high standard of living. In our lifetimes, it will always be cheaper to manufacture mass produced goods in other countries. But most of the devices associated with shale gas extraction are made cost-effectively in our backyards and can be exported all over the world.
As a nation, we have long aspired to export our democratic form of government to other countries to make them independent and self-sustaining. Outside of “nation building;” however, this is not a realistic task. One of the things holding back many countries is their dependence on other nations for energy supplies. But it is becoming clear is that gas-bearing shale formations exist all over the world. By providing the tools and expertise to tap these resources can help start other nations on a path towards greater energy independence. You start to remove the shackles and watch what happens. I’m not naïve enough to suggest that shale gas is the silver bullet, but it has the chance to lead to significant improvements around the world.
In his address last night, President Obama also talked about doubling U.S. exports over the next five years. The U.S. is already a leader in oil and gas technology, and helping develop unconventional resources around the world would be a huge boon for U.S. businesses. Our companies will develop and export technology, help build infrastructure across the world and participate in the production of gas in other countries. We’re talking about big business and lots of U.S. jobs. Plus, it also works like traditional exports: we generate money from other nations through the sale of our expertise.
It is unreasonable to believe that we can flip a switch and have a zero carbon, clean energy world overnight (or within decades). We need to march down parallel paths to make the fossil fuel world, on which we will depend for years to come, more efficient and environmentally sound, while simultaneously developing technologies to unlock the next generations of energy. While the government needs to economically support the development of the next generations of energy supply, Washington needs to understand and support the reality of and opportunities for natural gas in tomorrow’s energy supply.
Storage Levels Down 86 Bcf but Fall Behind Historical Levels
The weekly EIA natural gas in storage report showed a decrease of 86 Bcf to 2.521 Tcf. The 86 Bcf withdrawal was well below last year's withdrawal for this week of 184 Bcf and the five year average of 179 Bcf. As a result, current storage levels are 5% higher than last year and 3.6% higher than the five year average.
While the weather is cold throughout the Midwest this week, it is expected to be seasonal for the following weeks. This should put downward pressure on gas prices and reinvigorate the conversation about natural gas oversupply. Oh, joy!
The temperature maps for last week show that warm weather dominated, leading to the lower than normal withdrawal.
While the weather is cold throughout the Midwest this week, it is expected to be seasonal for the following weeks. This should put downward pressure on gas prices and reinvigorate the conversation about natural gas oversupply. Oh, joy!
The temperature maps for last week show that warm weather dominated, leading to the lower than normal withdrawal.
Wednesday, January 27, 2010
Exxon and the Big Picture
There is an interesting article on the New York Times website about how the Exxon/XTO transaction will cause Congress to look more carefully at natural gas. Not to beat the dead horse, but Exxon has suddenly inserted itself into the conversation on hot button issues like climate change and hydraulic fracturing. The company, though often vilified, brings tremendous political and operational clout and should elevate the cause of natural gas, especially in Washington D.C.
The article offers a big picture view of Exxon in relation to the above topics and hints that just because Exxon is on board it won't be a smooth ride for natural gas. Exhibit A: at the Congressional hearing last week to discuss the Exxon/XTO deal, Exxon CEO Rex Tillerson stated that using natural gas in power generation is a better and more efficient use of gas than converting vehicles to CNG. Exxon has a high degree of interest in natural gas, but it doesn't want to cannibalize its #1 product, gasoline. Suddenly, the new best friend of gas fans is at odds with old standby T. Boone Pickens, who is advocating the use of natural gas for transportation. Nothing comes easily.
The article offers a big picture view of Exxon in relation to the above topics and hints that just because Exxon is on board it won't be a smooth ride for natural gas. Exhibit A: at the Congressional hearing last week to discuss the Exxon/XTO deal, Exxon CEO Rex Tillerson stated that using natural gas in power generation is a better and more efficient use of gas than converting vehicles to CNG. Exxon has a high degree of interest in natural gas, but it doesn't want to cannibalize its #1 product, gasoline. Suddenly, the new best friend of gas fans is at odds with old standby T. Boone Pickens, who is advocating the use of natural gas for transportation. Nothing comes easily.
Crimson Exploration Refocuses on Haynesville
Crimson Exploration is sharpening its focus on Texas after selling some producing properties in southwest Louisiana. The company has contracted another drilling rig for delivery in March 2010 and expects to drill seven gross (three net) wells this year in the Haynesville/Bossier Shale on a capital budget of $36 million, which represents 64% of the company’s total capital budget. (article)
Crimson’s acreage is located at the southwestern edge of the play, in Sabine and San Augustine counties, TX. It has 30,000 gross acres (12,000 net) and is responsible for perhaps the most famous well in the play, the Kardell #1, which had an initial production rate of 30.7 MMcf/day (Devon was the company’s partner in the well). The map below shows Crimson’s acreage (light yellow shading, red outline) and its 2010 expected drilling sites.
I thought the map below was interesting for more than the mod 70’s look. It shows why the southern part of the Haynesville Play has suddenly become so exciting. The map shows where the highest initial production rates are found in the Haynesville Shale, and the bright red spot at the bottom is the area around the Kardell well. Unfortunately, it cuts off at the southwestern part of the play, just above the Crimson leases, likely because of a lack of completions data. I’m sure Crimson would love to see those bright colors covering its acreage.
In terms of well economics, Crimson estimates well costs at $10 million per well and estimates a 6.5 Bcfe estimated ultimate recovery (EUR) per well. In addition to the Haynesville Shale and the Mid-Bossier Shale, Crimson also intends to drill for the James Lime, which is a shallower formation above the Cotton Valley, Travis Peak and Pettet formations.
Crimson’s acreage is located at the southwestern edge of the play, in Sabine and San Augustine counties, TX. It has 30,000 gross acres (12,000 net) and is responsible for perhaps the most famous well in the play, the Kardell #1, which had an initial production rate of 30.7 MMcf/day (Devon was the company’s partner in the well). The map below shows Crimson’s acreage (light yellow shading, red outline) and its 2010 expected drilling sites.
I thought the map below was interesting for more than the mod 70’s look. It shows why the southern part of the Haynesville Play has suddenly become so exciting. The map shows where the highest initial production rates are found in the Haynesville Shale, and the bright red spot at the bottom is the area around the Kardell well. Unfortunately, it cuts off at the southwestern part of the play, just above the Crimson leases, likely because of a lack of completions data. I’m sure Crimson would love to see those bright colors covering its acreage.
In terms of well economics, Crimson estimates well costs at $10 million per well and estimates a 6.5 Bcfe estimated ultimate recovery (EUR) per well. In addition to the Haynesville Shale and the Mid-Bossier Shale, Crimson also intends to drill for the James Lime, which is a shallower formation above the Cotton Valley, Travis Peak and Pettet formations.
Tuesday, January 26, 2010
Business and Carbon Legislation
Many political pundits are saying that the election of Scott Brown of Massachusetts to the U.S. Senate will derail any climate/carbon/energy legislation this year. I certainly can't prognosticate on that, but I don't think the conversation is dead. Sheila McNulty of the Financial Times pointed out a letter sent by 83 CEOs of U.S. businesses to President Obama urging the president to move quickly in pushing climate change legislation.
It might sound strange for business leaders to encourage the government to enact carbon restrictions, but their point is that it represents an opportunity for business to innovate and invest in new lines of business. It's already happening in other countries.
One of the first things I learned about the stock market is that the only thing the market hates more than bad news is uncertainty. If there is not a clear direction - good, bad or otherwise - investors hold off in making decisions. That paralysis is far worse than bad news, which the market just "prices in" and moves on about its merry way (a bizarre conceit, but that's another story).
Many in the business world believe that there will be some legislative action on climate change and carbon regulation eventually, and it's better to know it now than put off the pain (or opportunity) until later. In a fragile economy like ours today, well-crafted carbon reducing legislation with a reasonable implementation schedule could be a catalyst for job creation. Carbon mitigation would just be another new industry for business to pursue.
Given the bludgeoning that Congress took in its efforts to improve the health care delivery system and the fact that 2010 is an election year, I doubt it will be lead much of anything but play defense. The president lost a fair amount of his mojo over the past year, so he'll also be guarding the goal. It will be interesting to see if business actually does take the lead in this matter.
It might sound strange for business leaders to encourage the government to enact carbon restrictions, but their point is that it represents an opportunity for business to innovate and invest in new lines of business. It's already happening in other countries.
One of the first things I learned about the stock market is that the only thing the market hates more than bad news is uncertainty. If there is not a clear direction - good, bad or otherwise - investors hold off in making decisions. That paralysis is far worse than bad news, which the market just "prices in" and moves on about its merry way (a bizarre conceit, but that's another story).
Many in the business world believe that there will be some legislative action on climate change and carbon regulation eventually, and it's better to know it now than put off the pain (or opportunity) until later. In a fragile economy like ours today, well-crafted carbon reducing legislation with a reasonable implementation schedule could be a catalyst for job creation. Carbon mitigation would just be another new industry for business to pursue.
Given the bludgeoning that Congress took in its efforts to improve the health care delivery system and the fact that 2010 is an election year, I doubt it will be lead much of anything but play defense. The president lost a fair amount of his mojo over the past year, so he'll also be guarding the goal. It will be interesting to see if business actually does take the lead in this matter.
Waste Management Buys CNG Trucks
Garbage hauling giant Waste Management announced that it will buy twelve new CNG powered trucks to serve routes in Orange County, CA. The company received a $384 million grant from Mobile Source Air Pollution Reduction Review Committee, an organization whose sole mission is the reduction of air pollution in Southern California.
The vehicles were purchased with the intention of reducing greenhouse gas nitrogen dioxide as well as particulate emissions. As I’ve noted several times recently, gas fans say the fuel is “clean burning,” but the first thing people think about these days is that suddenly controversial element carbon. The story of gas is even better when talking about nitrogen, sulfur and airborne particles.
The vehicles were purchased with the intention of reducing greenhouse gas nitrogen dioxide as well as particulate emissions. As I’ve noted several times recently, gas fans say the fuel is “clean burning,” but the first thing people think about these days is that suddenly controversial element carbon. The story of gas is even better when talking about nitrogen, sulfur and airborne particles.
Delhi, India to Drop Coal, Switch to Natural Gas
In a move to improve its air quality, the city of Delhi, India will convert its coal-fired power plants to natural gas. The quickly growing 12 million population city has some of the worst air pollution in the world and the switch from coal to gas is expected to greatly reduce smog because gas would release a fraction of the nitrogen dioxide, sulfur dioxide and particulate emissions of coal.
The timetable is four years, but it is likely to take longer because of the difficulties in building pipeline infrastructure and political friction from coal producing Indian states. The conversion likely will lead to higher utility costs, but government officials believe the higher economic cost is a price worth paying to improve air quality.
While the conversion is an ambitious goal, it emphasizes that natural gas is a superior fuel for more than just its lower carbon levels.
The timetable is four years, but it is likely to take longer because of the difficulties in building pipeline infrastructure and political friction from coal producing Indian states. The conversion likely will lead to higher utility costs, but government officials believe the higher economic cost is a price worth paying to improve air quality.
While the conversion is an ambitious goal, it emphasizes that natural gas is a superior fuel for more than just its lower carbon levels.
Monday, January 25, 2010
Some Clear Thinking on Pollution
One of the things that annoys me about The Great Climate Debate is the focus on carbon dioxide. You can debate the concept of global warming all day long, but it is clear that man’s activities have an impact on the quality of the atmosphere and the condition of the atmosphere affects on life on the surface of the planet.
But carbon isn’t the only offender. There are many other pollutants out there causing direct and measurable harm to the environment and human life. Carbon just seems to have the brightest spotlight these days.
Unfortunately, it doesn’t appear that directly taking on carbon is the best strategy to address the problem. Instead, why not address more immediate concerns that might just lower carbon levels as an ancillary benefit? It’s the passive aggressive approach. I read an interesting post on the Financial Times website (“The Death of US Coal”) that is based on a piece written by an analyst at Bernstein Research. The article suggests that the EPA is likely to tighten restrictions on sulfur dioxide and mercury emissions, which are released in great abundance through the burning of coal. While there are scrubbers that can reduce the level of these pollutants, they can be expensive to install and don’t make economic sense for older, inefficient coal-fired plants. This might lead to the retirement of a large percentage of older coal-fired generation fleet. A big beneficiary of this move might be natural gas-fired plants, which would lead to a decline in demand for coal.
While this method might not put an economic cost on carbon, as many want, it does create an indirect economic disincentive to use plants that release large quantities of CO2. Placing reasonable restrictions on a known evil is an indirect way of achieving other more noble ends. After all, wasn’t Al Capone ultimately convicted and locked up on tax evasion charges rather than racketeering?
I for one am concerned that one of the main causes of global warming has become the hot air emitted in the debate on the topic. If the passive aggressive approach outlined above can successfully, albeit indirectly, lower carbon levels, it might have a dual purpose of improving the atmosphere and quieting the row on the subject.
But carbon isn’t the only offender. There are many other pollutants out there causing direct and measurable harm to the environment and human life. Carbon just seems to have the brightest spotlight these days.
Unfortunately, it doesn’t appear that directly taking on carbon is the best strategy to address the problem. Instead, why not address more immediate concerns that might just lower carbon levels as an ancillary benefit? It’s the passive aggressive approach. I read an interesting post on the Financial Times website (“The Death of US Coal”) that is based on a piece written by an analyst at Bernstein Research. The article suggests that the EPA is likely to tighten restrictions on sulfur dioxide and mercury emissions, which are released in great abundance through the burning of coal. While there are scrubbers that can reduce the level of these pollutants, they can be expensive to install and don’t make economic sense for older, inefficient coal-fired plants. This might lead to the retirement of a large percentage of older coal-fired generation fleet. A big beneficiary of this move might be natural gas-fired plants, which would lead to a decline in demand for coal.
While this method might not put an economic cost on carbon, as many want, it does create an indirect economic disincentive to use plants that release large quantities of CO2. Placing reasonable restrictions on a known evil is an indirect way of achieving other more noble ends. After all, wasn’t Al Capone ultimately convicted and locked up on tax evasion charges rather than racketeering?
I for one am concerned that one of the main causes of global warming has become the hot air emitted in the debate on the topic. If the passive aggressive approach outlined above can successfully, albeit indirectly, lower carbon levels, it might have a dual purpose of improving the atmosphere and quieting the row on the subject.
Recent Louisiana Completions
- Brown HZ #1, Comstock Oil & Gas: 12.633 MMcf/day IP on 23/63” choke at 6,338 psi; Bethany Longstreet Field, DeSoto Parish, Sec. 33/Township 14/Range 16; Haynesville reservoir A, serial #239954
- Caraway Estate 29 HZ #1, Comstock Oil & Gas: 16.156 MMcf/day IP on 24/64” choke at 5,204 psi; Logansport Field, DeSoto Parish, S20/T12/R16; non-unitized, serial #240132
- Laffitte 32 #1, SWEPI, LP (Shell): 6,700 MMcf/day IP on 15/64” choke at 897 psi; Red River-Bull Bayou Field, DeSoto Parish, S32/T13/R12; Jurassic res. B, serial #238826 (this well was completed late spring/early summer and only recently connected to a pipeline)
- EFGBCI 17H #1, EnCana Oil & Gas: 19.413 MMcf/day IP on 26/64”choke; Bracky Branch Field, Red River Parish, S17/T13/R9; Jurassic res. B, serial 239902 (this was originally classified as non-unitized upper Smackover)
Saturday, January 23, 2010
Texas Completions
I noted the following recent completions in Texas:
- Mobley Gas Unit #13, Valence Operating: 1.997 MMcf/day initial production on 24/64" choke; North Carthage Field, Harrison Co. (Bossier Shale)
- Patzakis #1, Valence Operating: 1.788 MMcf/day IP on 48/64" choke, North Carthage Field, Nacogdoches Co. (Bossier Shale)
- Wallace #3, Valence Operating: 1.022 MMcf/day IP on 18/64" choke, North Carthage Field, Rusk Co. (Bossier Shale)
- Griffith #1, Unit Petroleum Co.: 0.411 MMcf/day IP on 16/64" choke, Center Field, Shelby Co. (Haynesville Formation - I'm not entirely sure this well is applicable)
- Carolyn Bell Deep GU #2H, NFR Energy North Carthage Field, Harrison Co.
- Blocker Weir #8H, GMX Resources North Carthage Field, Harrison Co.
- Verhalen "B" #4H, GMX Resources North Carthage Field, Harrison Co.
- Letourneau Gas Unit 7 #52HH, Anadarko E&P Co. North Carthage Field, Harrison Co.
- New Horizons #E 2H, XTO Energy North Carthage Field, Panola Co.
- Womack #9H, XTO Energy North Carthage Field, Panola Co.
- Ducks #1H, XTO Energy North Carthage Field, Shelby Co.
- Michael Baldwin #1H, Noble Energy; North Carthage Field, Shelby Co.
- Silver Hammer #1H, Samson Lone Star; North Carthage Field, Nacogdoches Co.
- Jillian Key GU #3, Samson Lone Star: North Carthage Field, Nacogdoches Co.
- Hassell Gas Unit #5H, EOG Resources; North Carthage Field, Nacogdoches Co.
Friday, January 22, 2010
Rig Count Generally Up
The national Baker Hughes rig count showed a weekly increase of 34 rigs to 1,282. Of the past 32 weeks, 28 have shown an increase in U.S. rig count. Of this week's increase, 22 of the rigs are drilling for gas and 12 for oil. Sixteen of the new rigs are horizontal, 14 are directional and four are vertical.
In the Haynesville Shale area of N. Louisiana and E. TX (inclusive of other formations), the rig count stayed steady at 192, with one new rig in LA and one less in TX.
I have posted a detailed list of Louisiana rigs (link in blue box at upper right of page). My count is 121 Haynesville rigs drilling in north LA this week, up from 119 last week (last week's count was mistakenly reported as 118 because I mistakenly deleted a working rig). The table below summarizes the Louisiana rigs by operators and parish for the past three weeks.
In the Haynesville Shale area of N. Louisiana and E. TX (inclusive of other formations), the rig count stayed steady at 192, with one new rig in LA and one less in TX.
I have posted a detailed list of Louisiana rigs (link in blue box at upper right of page). My count is 121 Haynesville rigs drilling in north LA this week, up from 119 last week (last week's count was mistakenly reported as 118 because I mistakenly deleted a working rig). The table below summarizes the Louisiana rigs by operators and parish for the past three weeks.
Oh the Weather Outside is Frightful...
...At least it will be in the upper Midwest next week. Meteorologists expect an Arctic blast across the Midwest by about Wednesday. That should increase gas consumption since 72% of homes in the Midwest use gas for heating.
It's pretty remarkable when you think about the amount of gas used over the past six weeks. At the end of November, gas in storage stood at 3.837 Tcf. Last week, the storage figure was 2.607 Tcf, a drop of 1.23 Tcf. Average weekly withdrawals for the past six weeks have averaged 194 Bcf. Six weeks ago, the gas in storage figure was 14.5% higher than the five year average. Today, the storage figure is a shade lower than the five year average and is only 140 Bcf higher than the five year minimum.
Given this huge swing, one would expect the price of gas to rise more than it has. I'm certainly no expert, but I think the long-term questions of oversupply/overproduction continue to weigh down prices. There is the feeling that producers can just turn a knob somewhere and ratchet up production to meet any demand increase. In any case, it's nice not to see weekly headlines about record gas in storage.
It's pretty remarkable when you think about the amount of gas used over the past six weeks. At the end of November, gas in storage stood at 3.837 Tcf. Last week, the storage figure was 2.607 Tcf, a drop of 1.23 Tcf. Average weekly withdrawals for the past six weeks have averaged 194 Bcf. Six weeks ago, the gas in storage figure was 14.5% higher than the five year average. Today, the storage figure is a shade lower than the five year average and is only 140 Bcf higher than the five year minimum.
Given this huge swing, one would expect the price of gas to rise more than it has. I'm certainly no expert, but I think the long-term questions of oversupply/overproduction continue to weigh down prices. There is the feeling that producers can just turn a knob somewhere and ratchet up production to meet any demand increase. In any case, it's nice not to see weekly headlines about record gas in storage.
Thursday, January 21, 2010
More on International Shale
I wanted to note two interesting articles about shale in other countries. The first comes by way of an anonymous commenter from an article last month on the Economist website. (Why does everyone comment anonymously? What happened to cute screen names at least?) The second is a very short piece from earlier this week noting a couple of joint ventures between major integrated oil companies and Chinese companies seeking out gas in China.
The deals for BP/Sinopec and Shell/PetroChina to explore for unconventional gas in China are very interesting. China gets lots of grief in the international community for the speed at which it churns out new coal-fired electric plants. Finding and securing long-term supplies of natural gas might make China a model for lower carbon and polluting emissions through the use of gas rather than coal.
The deals for BP/Sinopec and Shell/PetroChina to explore for unconventional gas in China are very interesting. China gets lots of grief in the international community for the speed at which it churns out new coal-fired electric plants. Finding and securing long-term supplies of natural gas might make China a model for lower carbon and polluting emissions through the use of gas rather than coal.
UPS Adds to CNG Fleet
UPS, which has one of the largest fleets of alternative fuel vehicles, has added 245 new CNG delivery vehicles to its fleet. The new trucks increase the company's CNG fleet to 1,145 vehicles and will be deployed in Colorado and California.
UPS has a long history of experimenting with new transportation fuel technologies, which makes sense given the vehicle-intensity of the business. More information on the company's use of alternative fuels is available on its website, but UPS tests a variety of fuel sources, from CNG and LNG to hybrids, fuel cells and plug-in electric vehicles.
The company has been testing CNG since 1989 and has seen positive results. From its website: "particulate emissions are 95 percent lower than with diesel engines; carbon monoxide emissions are 75 percent lower; and emissions of nitrogen oxides are 49 percent lower."
UPS has a long history of experimenting with new transportation fuel technologies, which makes sense given the vehicle-intensity of the business. More information on the company's use of alternative fuels is available on its website, but UPS tests a variety of fuel sources, from CNG and LNG to hybrids, fuel cells and plug-in electric vehicles.
The company has been testing CNG since 1989 and has seen positive results. From its website: "particulate emissions are 95 percent lower than with diesel engines; carbon monoxide emissions are 75 percent lower; and emissions of nitrogen oxides are 49 percent lower."
Gas in Storage Down 245 Bcf
The gas in storage numbers took another big dive last week, dropping 8.6%, or 245 Bcf, to 2.607 Tcf. Over the past two weeks, the storage number has dropped 511 Bcf (half a Tcf). This most recent withdrawal brings the current storage levels in line with last year and the five year average. After spending the past six months with the current storage levels riding "above the band" of the five year range, the current storage level is nestled tightly within band and almost looks poised to pierce the bottom of the range.
Of course looks can be deceiving, and with the relatively seasonal weather in the U.S. I doubt you will see storage drop another quarter Tcf next week.
Among the storage regions, the biggest percentage drop was in the Producing Region, which decreased 10.6%. Stocks there are at the five year average. The 8.6% drop in the East Region left stocks 4% below the five year average. The West Region saw the smallest decrease, 4.3%, and still has a gas storage surplus of 16% over the five year average.
Those regional withdrawal figures make sense when looking at the temperature map from last week:
Of course looks can be deceiving, and with the relatively seasonal weather in the U.S. I doubt you will see storage drop another quarter Tcf next week.
Among the storage regions, the biggest percentage drop was in the Producing Region, which decreased 10.6%. Stocks there are at the five year average. The 8.6% drop in the East Region left stocks 4% below the five year average. The West Region saw the smallest decrease, 4.3%, and still has a gas storage surplus of 16% over the five year average.
Those regional withdrawal figures make sense when looking at the temperature map from last week:
Front Page Fracking News
I awoke this morning to a front page article in the Wall Street Journal about the debate over hydraulic fracturing. The article results from the ExxonMobil/XTO hearing on Capitol Hill yesterday, but it gives a pretty balanced description of the fracking process and the pros and cons. It also gets into some of the outrage from environmentalists.
One quote in the article struck me wrong:
For some, the battle against fracking is a fight against the ghost of the Dark Lord, Dick Cheney. It was in the infamously secretive creation of energy policy in 2005 when hydraulic fracturing's exemption from coverage by the Safe Water Drinking Act was renewed. Having Exxon as a target has brought even more attention to the cause.
The gas producers protecting fracking need to separate the concepts of the surface processes from the underground processes and submit to some more oversight of the surface activities. Few argue that the act of fracturing deep underground causes groundwater problems. The risk points are the handling of surface chemicals, the management of the water that returns to the surface and the treatment/recycling of that water. Regulations already exist (mostly at the state level) to manage these processes. I'm surprised the individual states are not more involved in the conversation. I would have expected this to be a state/federal government turf war. I guess the states are too busy licking their budgetary wounds to pick the fight.
It is interesting to see how the battle is playing out in the environmental community. I've noted in the past that the Sierra Club national organization is taking a bigger picture view of natural gas as a friendlier alternative to other fuels, especially coal. But the local Sierra Club groups in the Northeast are fighting gas drilling. The difference is seeing the forest for the trees.
Ultimately, this will be a battle won by economics. Fracking will not be the "spotted owl" that prevents development of shale gas. I think there will be some tighter regulation of the surface processes (hopefully at the state level) but the opportunity that natural gas presents for a better environment, more jobs and greater energy independence will rule the day.
One quote in the article struck me wrong:
"Whether it is the act of fracturing itself or the risk of contamination from related activities is somewhat beside the point, says Amy Mall, a senior policy analyst for the Natural Resources Defense Council, an environmental group that has raised concerns about fracturing. 'Ultimately it's semantics. Somebody's water got contaminated,' she says."Wrong. It is not semantics. Ms. Mall is referring to a leak from a poorly sealed well that allowed gas to seep into a water well in Dimock, PA, ultimately causing it to explode. Yes, somebody's water got contaminated, but hydraulic fracturing did not cause that incident. In this case, blaming it on "semantics" is a weak rhetorical tool when your argument is not supported by facts.
For some, the battle against fracking is a fight against the ghost of the Dark Lord, Dick Cheney. It was in the infamously secretive creation of energy policy in 2005 when hydraulic fracturing's exemption from coverage by the Safe Water Drinking Act was renewed. Having Exxon as a target has brought even more attention to the cause.
The gas producers protecting fracking need to separate the concepts of the surface processes from the underground processes and submit to some more oversight of the surface activities. Few argue that the act of fracturing deep underground causes groundwater problems. The risk points are the handling of surface chemicals, the management of the water that returns to the surface and the treatment/recycling of that water. Regulations already exist (mostly at the state level) to manage these processes. I'm surprised the individual states are not more involved in the conversation. I would have expected this to be a state/federal government turf war. I guess the states are too busy licking their budgetary wounds to pick the fight.
It is interesting to see how the battle is playing out in the environmental community. I've noted in the past that the Sierra Club national organization is taking a bigger picture view of natural gas as a friendlier alternative to other fuels, especially coal. But the local Sierra Club groups in the Northeast are fighting gas drilling. The difference is seeing the forest for the trees.
Ultimately, this will be a battle won by economics. Fracking will not be the "spotted owl" that prevents development of shale gas. I think there will be some tighter regulation of the surface processes (hopefully at the state level) but the opportunity that natural gas presents for a better environment, more jobs and greater energy independence will rule the day.
Wednesday, January 20, 2010
Having Rex on Your Side
ExxonMobil CEO Rex Tillerson testified in front of the House Committee on Energy and Commerce Subcommittee on Energy and the Environment today alongside XTO Energy CEO Bob Simpson. (Link to testimony and transcript.) The two executives went to Washington to defend the acquisition of XTO by Exxon and the practice of hydraulic fracturing.
Much has been made of the environmental fears from fracking, but Bob Simpson noted that the practice has been used for sixty years. Tillerson also said that he supports greater disclosure of the contents of the fracking fluid (makes sense because it's not his trade secret).
The premise behind the hearing was the impact of such a large merger on the regulatory and competitive landscape of domestic natural gas...I guess. Not that I feel sorry for Exxon, but the company has been vilified as a symbol of Big Business at a time when the general public is either scared or jealous of big companies. Now that Exxon is getting involved in shale gas - which is being portrayed in Washington as an energy savior - many heads are turning suspiciously.
I can't say that I blame elected officials for wanting to show their concern, but it generally is the reaction of people who don't truly understand the domestic gas business (not that I'm an expert). While it's nice to have the political power of Exxon on your side in Washington, it's not going to do too much to sway folks in, say, Mansfield, LA. The landscape of the gas business is going to change over the next decade as the shale finds are produced with vigor and the Big Boys get involved, but the day-to-day mechanics likely won't change much, except in scale.
The big test is to see if Congress meddles with the fracking process and changes the economics of drilling. I don't think they will kill a potential jobs creation engine, especially now that the momentum in Washington quickly is swinging away from the majority. I think the voices of the strident environmentalists are going to be drowned out by the need to rehabilitate the economy through job creation and by the natural gas lobby in Washington, which has growing influence among many politicians.
Much has been made of the environmental fears from fracking, but Bob Simpson noted that the practice has been used for sixty years. Tillerson also said that he supports greater disclosure of the contents of the fracking fluid (makes sense because it's not his trade secret).
The premise behind the hearing was the impact of such a large merger on the regulatory and competitive landscape of domestic natural gas...I guess. Not that I feel sorry for Exxon, but the company has been vilified as a symbol of Big Business at a time when the general public is either scared or jealous of big companies. Now that Exxon is getting involved in shale gas - which is being portrayed in Washington as an energy savior - many heads are turning suspiciously.
I can't say that I blame elected officials for wanting to show their concern, but it generally is the reaction of people who don't truly understand the domestic gas business (not that I'm an expert). While it's nice to have the political power of Exxon on your side in Washington, it's not going to do too much to sway folks in, say, Mansfield, LA. The landscape of the gas business is going to change over the next decade as the shale finds are produced with vigor and the Big Boys get involved, but the day-to-day mechanics likely won't change much, except in scale.
The big test is to see if Congress meddles with the fracking process and changes the economics of drilling. I don't think they will kill a potential jobs creation engine, especially now that the momentum in Washington quickly is swinging away from the majority. I think the voices of the strident environmentalists are going to be drowned out by the need to rehabilitate the economy through job creation and by the natural gas lobby in Washington, which has growing influence among many politicians.
Chesapeake's Hedging Activity
I saw an interesting piece on seekingalpha.com about Chesapeake Energy's hedging activities. I tend not to follow the hedging of gas producers too closely because it is largely irrelevant to the commodity value on which mineral owners are paid, but these activities do signal a company's belief about the trajectory of gas prices. The article notes that Chesapeake has hedged 43% of its 2010 production at $7.49/Mcf (summary shown on slide below). Several months ago, the company only had hedged 14% of its production, but at a price of $9.53 (likely based on trades made in 2008).
Chesapeake's hedging activity is in stark contrast to a recent announcement from Devon Energy that it has hedged 42% of its 2010 production at $6.10.
While Chesapeake has been very vocal in its belief that gas prices will rise, it seems to have made a good business decision to lock down pricing on half of its production. The company hedged 43% of 2010 production through swaps, which represent a specific price for the commodity, and 8% through collars, which gives you downside protection for a certain quantity of gas in exchange for some potential upside, thereby creating a pricing band, or collar.
While Chesapeake may be a believer in higher prices, the company is smart enough to lock in some pretty good projected prices. Hedging commodity prices for producers is all about risk management, but figuring out when and how to formulate the trades is a difficult game with significant financial implications.
Tuesday, January 19, 2010
Petrohawk Adjusts its Mid-Bossier Shale Estimated Boundary
I was interested to see a recent Petrohawk investor presentation that showed yet another estimate of the boundaries of the Mid-Bossier Shale, the shale formation above the Haynesville Shale. The top picture below comes from the January 2010 presentation, while the lower image comes from a November 2009 presentation. You can gauge the changes yourself, but it seems as though the Texas side seems most different.
New estimate:
The presentation had a couple of other interesting nuggets:
New estimate:
Old estimate:
The presentation had a couple of other interesting nuggets:
- Total production from its 64 operating wells is greater than 500 Mcf/day.
- The company estimates its Haynesville Shale wells will have an estimated ultimate recovery (EUR) of 7.5 Bcf.
- 2010 well costs for both Haynesville and Mid-Bossier wells will be $8-$9 million per well.
- The company will drill its first Mid-Bossier well in Q1 2010.
- Estimated EUR for Bossier Shale is 5.5 Bcf, but this estimate has little actual data behind it.
- The company is actively involved in acquiring 3D seismic data, both through its own efforts and by purchasing data from third parties. The areas on the map below shaded in green are the company's 2010 targets:
Monday, January 18, 2010
Shale Exploration in Poland
I'm still going through old articles, and I was particularly interested in an article in the Houston Chronicle about two companies, Marathon Oil and ConocoPhillips, and their pursuit of shale gas in Poland.
I get pretty excited about shale gas in the U.S. for lots of reasons, both personal and as an American, but can you imagine how excited people in Poland must be about the prospect of becoming not only natural gas self-sufficient but a net gas exporter? Poland imports 72% of its gas, the majority of which comes from Russia. After a price dispute between Russian gas company Gazprom and Ukrainian gas company Naftohaz last January cut off gas supplies to a large part of Europe for more than a week, the idea of energy independence (at least natural gas independence) is even more acute in Eastern Europe.
Unfortunately, Poland's monopoly gas distributor is finalizing a contract with Gazprom of Russia to supply almost three-fourths of its gas until 2037. If shale exploration is successful, there could at least be a legitimate spot market for gas in the country and a pretty good backup plan if there is another row between Russia and Ukraine, not to mention a boost to the economy through gas exports.
One big difference between drilling in the U.S. and other nations is land ownership. In the U.S., while there are large swaths of publicly owned land, much of the land prospective for the new shale plays like the Haynesville and Marcellus are privately owned. It is an expensive headache for producers to piece the land together for exploration, but it is a significant wealth creator for individual land owners. The pain-in-the-ass factor is a benefit to independent producers who are scrappy and agile. In Europe and Asia, there is significantly less private land ownership. This allows big companies like Marathon or Exxon to work with the government or other large land owning concerns to get big leases. This might enable production to start up faster, but it can be expensive to get these concessions and little economic benefit trickles down to the general population.
There are no guarantees of success. The shale in Poland is far different in quality than that with which we are familiar, but the prospect for success is there.
I get pretty excited about shale gas in the U.S. for lots of reasons, both personal and as an American, but can you imagine how excited people in Poland must be about the prospect of becoming not only natural gas self-sufficient but a net gas exporter? Poland imports 72% of its gas, the majority of which comes from Russia. After a price dispute between Russian gas company Gazprom and Ukrainian gas company Naftohaz last January cut off gas supplies to a large part of Europe for more than a week, the idea of energy independence (at least natural gas independence) is even more acute in Eastern Europe.
Unfortunately, Poland's monopoly gas distributor is finalizing a contract with Gazprom of Russia to supply almost three-fourths of its gas until 2037. If shale exploration is successful, there could at least be a legitimate spot market for gas in the country and a pretty good backup plan if there is another row between Russia and Ukraine, not to mention a boost to the economy through gas exports.
One big difference between drilling in the U.S. and other nations is land ownership. In the U.S., while there are large swaths of publicly owned land, much of the land prospective for the new shale plays like the Haynesville and Marcellus are privately owned. It is an expensive headache for producers to piece the land together for exploration, but it is a significant wealth creator for individual land owners. The pain-in-the-ass factor is a benefit to independent producers who are scrappy and agile. In Europe and Asia, there is significantly less private land ownership. This allows big companies like Marathon or Exxon to work with the government or other large land owning concerns to get big leases. This might enable production to start up faster, but it can be expensive to get these concessions and little economic benefit trickles down to the general population.
There are no guarantees of success. The shale in Poland is far different in quality than that with which we are familiar, but the prospect for success is there.
LaCrosse Pipeline Info Sessions Set
It seems as though Enbridge is unfazed by the unsuccessful open season for its LaCrosse Pipeline and will hold public information sessions for the proposed pipeline in Logansport on Tuesday and Natchitoches on Wednesday. The LaCrosse Pipeline is expected to run from Carthage, TX through the Haynesville Shale, southward to Washington Parish in southeast Louisiana, where it will interconnect with the Southern natural gas pipeline.
Last month, Enbridge acknowledged that the LaCrosse project did not garner enough upfront support from producers in the open season process, but it did not abandon the project. The open season process is part of a delicate dance between the pipeline developer and potential E&P customers that is an important part of financing the project. But an unsuccessful open season is not the death of a project. The financiers need to see adequate commitments to make the pipeline viable, but those commitments can be secured outside of the open season process. Unfortunately for Enbridge, the company had its open season during the autumn of natural gas's discontent, which may have negatively impacted the process.
I will be interested to see future announcements from Enbridge on this project. Pipelines are vital for the future of the Haynesville Shale, but the Haynesville Play is one of many potentially huge North American shale plays out there. Each of these shale plays will be "winners" in their own right, but the takeaway capacity will be an important determinant of future success, especially near term success.
Last month, Enbridge acknowledged that the LaCrosse project did not garner enough upfront support from producers in the open season process, but it did not abandon the project. The open season process is part of a delicate dance between the pipeline developer and potential E&P customers that is an important part of financing the project. But an unsuccessful open season is not the death of a project. The financiers need to see adequate commitments to make the pipeline viable, but those commitments can be secured outside of the open season process. Unfortunately for Enbridge, the company had its open season during the autumn of natural gas's discontent, which may have negatively impacted the process.
I will be interested to see future announcements from Enbridge on this project. Pipelines are vital for the future of the Haynesville Shale, but the Haynesville Play is one of many potentially huge North American shale plays out there. Each of these shale plays will be "winners" in their own right, but the takeaway capacity will be an important determinant of future success, especially near term success.
Sunday, January 17, 2010
Texas Developmental Activity
I didn't see any specific Haynesville/Bossier Shale completions in Texas this weekend (although BP hit a pretty big well in Rusk County (T.W. George "A" Gas Unit #9H, Wildcat Field), but I did note the following developmental activity:
- Jobe Shale Unit #1, Exco Operating, North Carthage Field, Harrison Co.
- Barbo #1, Valence Operating, North Carthage Field, Nacogdoches Co.
- Crimson Tide DU #1H, XTO Energy, North Carthage Field, Shelby Co.
Friday, January 15, 2010
Rig Count Up
The Baker Hughes weekly rig count showed another increase in working rigs in the U.S., up 28 from last week to 1,248. This is the highest rig count since mid-February 2009 when rig counts were plummeting. Gas rigs showed a strong performance, up 30, while oil rigs were down two. Horizontal wells were up 28, directional wells up five and vertical wells down five. Seems to be a clear trend this week.
In the Haynesville Shale region, which includes other formations, the rig count was up six to 192, with both north Louisiana and east Texas adding three rigs.
I have posted the list of rigs (as I interpret it) for Louisiana. One of these days I'll do it for Texas, but it takes me too long to wrap my mind around it. I counted 118 Haynesville rigs, one more than last week. A couple of the new rigs were focused on the Cotton Valley.
Here is the summary of the 118 Louisiana rigs by operator:
In the Haynesville Shale region, which includes other formations, the rig count was up six to 192, with both north Louisiana and east Texas adding three rigs.
I have posted the list of rigs (as I interpret it) for Louisiana. One of these days I'll do it for Texas, but it takes me too long to wrap my mind around it. I counted 118 Haynesville rigs, one more than last week. A couple of the new rigs were focused on the Cotton Valley.
Here is the summary of the 118 Louisiana rigs by operator:
Three New Louisiana Completions
- JESTMA, LLC 22 #1, Petrohawk (KCS Resources): 20.777 MMcf/day IP on 24/64" choke at 7,441 psi; Elm Grove Field, Bossier Parish, Sec. 22/Township 16/Range 11; Haynesville reservoir A, serial #240445
- DeSoto Police Jury 35 #1, Petrohawk Operating: 15.918 MMcf/day IP on 22/64" choke at 7,619 psi; North Grand Cane Field, DeSoto Parish, S26/T13/R14; non-unitized, serial #239711
- Barlow 13H #1, Questar E&P: 8.97 MMcf/day IP on 40/64" choke at 1,700 psi; Thorn Lake Field, Red River Parish, S13/T14/R12; non-unitized, serial #239469 (this well shows up as a Cotton Valley well in one place and a non-unitized lower Haynesville stringer in another. TVD was 9,752'-9,763', so it is either an awesome, deep Cotton Valley well or a very shallow Haynesville well.)
Good Article on Chesapeake (But What About the Tech Transfer?)
RigZone had a good recent article on Chesapeake Energy, the "company that people love to hate." The occasion for the article is CHK's big deal with Total in the Barnett Shale, but the author takes the opportunity to review the past several years for the company.
The past couple of years have been a wild ride for Chesapeake and CEO Aubrey McClendon himself. The article focuses on the company's business plan of locking up lots of acreage in shale plays and then signing joint venture agreements with big international players to fund CHK's upfront costs and much of its future development costs. It's a really smart strategy that requires huge amounts of upfront risk and very aggressive behavior. It is also one that is difficult to replicate by others because there is only so much good land.
While the article looked at the deals and their economics, I would have liked to know more about the technology transfer angle. While it's not openly discussed, each deal has a "teaching component" - explicit or implicit - whereby Chesapeake shows its partner how to best identify, drill and produce these shale wells. StatoilHydro, Total, BP and the like aren't making sweetheart deals for Chesapeake for only 20-25% of the gas output. They are getting something else out of the deal: a game plan to replicate shale success elsewhere.
The past couple of years have been a wild ride for Chesapeake and CEO Aubrey McClendon himself. The article focuses on the company's business plan of locking up lots of acreage in shale plays and then signing joint venture agreements with big international players to fund CHK's upfront costs and much of its future development costs. It's a really smart strategy that requires huge amounts of upfront risk and very aggressive behavior. It is also one that is difficult to replicate by others because there is only so much good land.
While the article looked at the deals and their economics, I would have liked to know more about the technology transfer angle. While it's not openly discussed, each deal has a "teaching component" - explicit or implicit - whereby Chesapeake shows its partner how to best identify, drill and produce these shale wells. StatoilHydro, Total, BP and the like aren't making sweetheart deals for Chesapeake for only 20-25% of the gas output. They are getting something else out of the deal: a game plan to replicate shale success elsewhere.
WSJ Closes Energy Capital Site
I was very disappointed to read that the Wall Street Journal shuttered its Energy Capital web site, one of the few balanced news sources that synthesized energy and environmental news. In a time where our energy future and the impact of energy use on the climate are being so hotly debated, it seems odd to shut down the conversation. Business and the market ultimately will drive the future of energy, why stop talking about it?
The paper will still have an environment page and an energy oil and gas page, but it likely won't be the same. Also, I think they are behind the paid subscription wall, which limits their availability.
This is a disappointment to me, not only because of the loss of quality articles and insight, but because it seems like a dismissal by the Journal of the relationship between energy (natural resources) and the environment. Just because you stop talking about it doesn't mean it isn't happening.
The paper will still have an environment page and an energy oil and gas page, but it likely won't be the same. Also, I think they are behind the paid subscription wall, which limits their availability.
This is a disappointment to me, not only because of the loss of quality articles and insight, but because it seems like a dismissal by the Journal of the relationship between energy (natural resources) and the environment. Just because you stop talking about it doesn't mean it isn't happening.
Thursday, January 14, 2010
LA Lease Sale Nets $9,251/Acre
The Louisiana Mineral Board held its monthly oil and gas lease auction yesterday. Of the 31 leases auctioned, five were in the Haynesville Shale region, and those leases netted $9,251/acre. All of the bids had 25% royalties. Here is the bid list (scroll down to 1/13/10 and hit "submit") and a summary below:
- Caddo Parish, 88.37 acres: $9,000/acre, Questar
- DeSoto Parish, 7.5 acres: $12,614/acre, Matador
- Desoto Parish, 5.0 acres: $12,614/acre, Matador
- Sabine Parish, 160 acres: $5,000/acre, Audubon Oil & Gas
- Bienville Parish, 24 acres: $7,029/acre, Classic Petroleum
Penn Virginia: Quick Update
Penn Virginia leases approximately 55,000 acres in east Texas, about half of which is prospective for the Haynesville Shale. Most of this land is in Harrison Co. In East Texas, the company is running three wells in 2010 (the third to be added this month) and the company plans to drill approximately 16 Haynesville wells, two Middle Bossier wells and six Cotton Valley wells.
The company expects its wells to see estimated ultimate recoveries (EUR) of 5-6 Bcf, with decline rates of 75% in the first year, as shown on the curve below.
Penn Virginia is running ten frac stages for its wells with total costs of approximately $8 million per well. The average daily 30 day flow rate for the company's past two wells has been 7.2 MMcf/day.
Regency Haynesville Expansion Almost Done
Regency Energy Partners announced that it has completed construction of its Haynesville Expansion Project to its Regency Intrastate Gas System (RIGS). Testing and commissioning are underway and gas should be flowing within two weeks.
The Haynesville Expansion Project is a 121 mile extension of 36"and 42" pipe with a 1.1 Bcf/day capacity.
The Haynesville Expansion Project is a 121 mile extension of 36"and 42" pipe with a 1.1 Bcf/day capacity.
Elephant in the Room
Environmental issues elbowed their way to the front of the line in the shale gas world in 2009 and it doesn't look like they are going away. Nor should they. I have followed the shale gas industry closely since early 2008 and I am a big supporter. I see a bright future for natural gas, but I am also a realist. Natural gas has always played second fiddle to other fuels in this country, but if it is going to be a big time player in the 21st century, it has to adopt a 21st century mindset. And that means RESPONSIBILITY at all levels.
An article in the Fort Worth Weekly, Greening the Gas Field?, got me thinking about how natural gas fits in with the energy future of this nation. I think it's a better fuel than oil or coal, but that's just the start. One has to think holistically about gas, from cradle to grave. I want to see it grow to be a big domestic industry that generates jobs and investment throughout the "value chain." With shale formations in many parts of the country, it is an industry that can have a widespread positive economic impact to the country. But before this can happen, the industry needs to address its impacts at every level.
One of the biggest impacts is environmental. The banner issue for environmentalists has been the battle over the use of hydraulic fracturing in gas drilling. Unfortunately, that argument has been beset with much hyperbole and hysteria that tends to muddy the base set of facts. But it is true is that there is much room for improvement in the handling of water and chemicals in the drilling process.
The gas industry has made some environmental strides. Horizontal drilling allows for multiple wells from a single pad, for instance, causing less land disruption. The article notes other advances, such as the use of closed loop water systems for fracking, the use of natural gas rather than diesel to power drilling rigs and the gradual substitution of less harmful chemicals in frac fluid. Many of the advances, such as piping out drilling fluids rather than trucking them, have economic as well as environmental benefits. The article, however, is full of other issues that show the gas industry still has a long way to go.
Unfortunately, Industry isn't going to adopt "green" procedures without a strong economic incentive or a forceful hand from government urging it in the right direction. But the gas industry has used technology and innovation to create the shale gas boom from nothing in just a few years. Applying just a portion of that same innovation and effort will allow the industry to make strides to truly lessen the environmental impact of natural gas drilling, production and transportation. Gas production companies have to recognize the tangible and intangible benefits of these advances.
Now that big time gas drilling has moved from the swamps of Louisiana, the scrub land of Texas and remote western mountains to pristine regions in view of major east coast metropolitan areas, the gas industry needs to clean up its image. As the gas industry tries to take center stage in Washington D.C., it needs to demonstrate responsibility and be able to tout truly "green" credentials.
PS - Ironically, as I hit the "publish" button an email pops up announcing a new magazine called the Greening of Oil.
An article in the Fort Worth Weekly, Greening the Gas Field?, got me thinking about how natural gas fits in with the energy future of this nation. I think it's a better fuel than oil or coal, but that's just the start. One has to think holistically about gas, from cradle to grave. I want to see it grow to be a big domestic industry that generates jobs and investment throughout the "value chain." With shale formations in many parts of the country, it is an industry that can have a widespread positive economic impact to the country. But before this can happen, the industry needs to address its impacts at every level.
One of the biggest impacts is environmental. The banner issue for environmentalists has been the battle over the use of hydraulic fracturing in gas drilling. Unfortunately, that argument has been beset with much hyperbole and hysteria that tends to muddy the base set of facts. But it is true is that there is much room for improvement in the handling of water and chemicals in the drilling process.
The gas industry has made some environmental strides. Horizontal drilling allows for multiple wells from a single pad, for instance, causing less land disruption. The article notes other advances, such as the use of closed loop water systems for fracking, the use of natural gas rather than diesel to power drilling rigs and the gradual substitution of less harmful chemicals in frac fluid. Many of the advances, such as piping out drilling fluids rather than trucking them, have economic as well as environmental benefits. The article, however, is full of other issues that show the gas industry still has a long way to go.
Unfortunately, Industry isn't going to adopt "green" procedures without a strong economic incentive or a forceful hand from government urging it in the right direction. But the gas industry has used technology and innovation to create the shale gas boom from nothing in just a few years. Applying just a portion of that same innovation and effort will allow the industry to make strides to truly lessen the environmental impact of natural gas drilling, production and transportation. Gas production companies have to recognize the tangible and intangible benefits of these advances.
Now that big time gas drilling has moved from the swamps of Louisiana, the scrub land of Texas and remote western mountains to pristine regions in view of major east coast metropolitan areas, the gas industry needs to clean up its image. As the gas industry tries to take center stage in Washington D.C., it needs to demonstrate responsibility and be able to tout truly "green" credentials.
PS - Ironically, as I hit the "publish" button an email pops up announcing a new magazine called the Greening of Oil.
T. Boone: Take Two
Oilman turned wind promoter and gas fan T. Boone Pickens is back on the media trail with a revised version of his Pickens Plan. As you will remember, the Pickens Plan advocated the creation of incentives to advance the development wind power (along with the associated transmission infrastructure) and the use of natural gas as a transportation fuel. Now that the rabble associated with the health care debate has quieted down a bit, Pickens is launching a new media campaign that refocuses both the goal of his plan and his media message.
Pickens made news this week when he put his massive proposed west Texas wind farm on the shelf, declaring that the utility transportation was insufficient and that large scale wind projects are not able to be financed in a market where natural gas is lower than $6/MMBtu. As a result, Pickens has refocused on the use of natural gas as a transportation fuel, urging the federal government to convert its auto fleet to natgas, among other goals.
The refocus on natural gas is an economic reality.
Pickens will release three new television commercials today. The ads will focus on national security and the economy, two concepts that are intertwined around our use of foreign oil. The message that often gets overlooked in the energy debate is that tens of millions of dollars leave this country forever every hour of every day in payment for fuel. Even if those funds went to nations who were our BFF, it still represents a huge wealth transfer. By purchasing domestic fuel, the loop is closed and that money stays in this country and is recirculated through jobs, investment, equipment purchases, taxes, etc.
The big buzz phrase lately is that we are going through a "jobless recovery" from last year's recession. Diverting fuel purchases from foreign oil to domestic natural gas offers a huge economic stimulus that would lead to much job creation.
Pickens made news this week when he put his massive proposed west Texas wind farm on the shelf, declaring that the utility transportation was insufficient and that large scale wind projects are not able to be financed in a market where natural gas is lower than $6/MMBtu. As a result, Pickens has refocused on the use of natural gas as a transportation fuel, urging the federal government to convert its auto fleet to natgas, among other goals.
The refocus on natural gas is an economic reality.
Pickens will release three new television commercials today. The ads will focus on national security and the economy, two concepts that are intertwined around our use of foreign oil. The message that often gets overlooked in the energy debate is that tens of millions of dollars leave this country forever every hour of every day in payment for fuel. Even if those funds went to nations who were our BFF, it still represents a huge wealth transfer. By purchasing domestic fuel, the loop is closed and that money stays in this country and is recirculated through jobs, investment, equipment purchases, taxes, etc.
The big buzz phrase lately is that we are going through a "jobless recovery" from last year's recession. Diverting fuel purchases from foreign oil to domestic natural gas offers a huge economic stimulus that would lead to much job creation.
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