This week the SubseaIQ team added 1 new projects and updated 15 projects. You can see all the updates made over any time period via the Project Update History search. The latest offshore field develoment news and activities are listed below for your convenience.
Africa – West
Ophir Subsidiary to Participate in Starfish
Dec 13, 2012 – A subsidiary of Ophir Energy has assumed operatorship of the Offshore Accra Contract Area through a farmout agreement with Tap Oil. Under the agreement, the Accra Contractor Group consists of: Ophir Energy (20%), Afex Oil (20%), Vitol Upstream (30%), Rialto Energy (12.5%), Tap Oil (17.5%). The farmout and transfer of operatorship have been approved by Ghana National Petroleum Corporation and the Ministry of Energy. Contract terms dictate that an exploration well must be drilled before September 23, 2013 and the Group has identified the Starfish prospect as the target of that well. Starfish is a deepwater prospect that is structurally similar to the Jubilee field. It is estimated to hold P50 reserves on the order of 431 Mmbbls.
Hess Hits Pay in Pecan-1
Dec 12, 2012 – A notice of discovery was filed with the Ghana National Petroleum Corporation on behalf of Hess Corporation for the Pecan-1 exploration well. Drilled in the Deepwater Tano / Cape Three Points license, a total depth of 15,420 feet was reached and 245 net feet of oil pay was discovered in two separate intervals. An extensive logging program was carried out and the well was sidetracked to obtain additional reservoir cores. Drilling was carried out by the Stena DrillMAX (UDW drillship) in 8,245 feet of water. The rig is now in the process of suspending the well before sailing to the Cob prospect 15 miles away.
Dec 12, 2012 – Production has commenced from Jubilee Phase 1A offshore Ghana. The first production well is onstream and has helped bring total field production to over 90,000 bopd. Phase 1A consists of five production wells, three injection wells and general expansion of the existing subsea infrastructure and should take 18 months to complete. A second Phase 1A well is expected to be brought into production before the end of the year but the Sedco Energy (DW semisub) must first perform remedial work on some of the Phase 1 wells.
Project Details: Jubilee
Asia – SouthEast
Pathum-1 Exploration Spuds Off Thailand
Dec 13, 2012 – Tap Oil announced the spud of its Pathum-1 exploration well in the G3/48 concession offshore Thailand. The well is being drilled by the Ensco 85 (300′ ILC) to a proposed total depth of 8,667 feet. Pathum is thought to hold perspective resources in the range of 5 million barrels. Barring any issues, the well should reach TD in a maximum of 11 days.
Dec 13, 2012 – Difficulties have plagued MEO Australia at its 100% owned Gurame prospect in the Seruway PSC off Northern Sumatra. After loosing over 100 feet of BHA in the Gurame SE-1X appraisal, the decision was made to plug back and sidetrack the well. More progress was made in Gurame SE-1XST but significant mud losses caused MEO to plug back into the liner at 9,599 feet. A 187 foot section of the Baong sands was perforated at 8,858 feet MDRT. No flow was observed and attempts to stimulate the well with nitrogen were made with no effect. The Ensco 85 (200′ ILC) will plug and abandon the well and will be released soon after.
Project Details: Gurame
Dec 12, 2012 – A steel cutting ceremony held at Keppel Subic Shipyard marked the start of construction of a Depletion Compression Platform (DCP) to be deployed at the Malampaya gas field near Palawan Island in the Philippines. Installation of the DCP represents Phase 3 of the Malampaya Gas-to-Power project which is led by the Philippine Department of Energy. Once complete the DCP will be stationed next to the existing Malampaya production platform. Supporting the project are Shell, as operator, and joint venture partners Chevron and Philippine National Oil Company. Keppel is responsible for building the base and topsides as well as a bridge connecting the new facility to the production platform. The DCP is expected to be installed by 2015.
Project Details: Malampaya
Dec 12, 2012 – Coastal Energy recently tested a three stage pilot hydraulic fracturing program in the Bua Ban South A-1 well. The fracked zones flowed back oil at a combined rate of 800 Bopd under natural conditions during well cleanup. Plans call for the well to be re-completed with an electric submersible pump for long term production testing. Next, the company will focus its efforts on the Bua Ban South A-3 sidetrack well in an effort to improve recovery rates. If successful, Coastal will continue the fracking program in order to unlock the full potential of the Songkhla Basin which is characterized by sands with lower porosity and permeability.
Project Details: Songkhla
Europe – North Sea
Dec 14, 2012 – Production testing has been completed on three initial development wells at the Breagh field in the UK North Sea. Results from the tests are in-line with reservoir stimulation models run by development partners RWE Dea and Sterling Resources. Once normalized to reflect expected the sales level of wellhead pressure, the current three well capacity is estimated at 88 Mmscfd. The newly drilled A3 well is the most prolific producer with a flow rate of 58 Mmscfd under initial production conditions. Performance of the development wells is being monitored so that future production can be optimized. Five wells are expected to be available by early May 2013 with an estimated total production capacity of 150 Mmscfd.
Project Details: Breagh
Dec 13, 2012 – Norwegian oil major Statoil announced Thursday that it plans to use seismic cables on the seabed to help produce 30 million additional barrels of oil from its Snorre and Grane fields. The company has signed contracts worth $160 million with U.S. firm Geospace Technologies to deliver the cables, which will be part of a permanent reservoir monitoring (PRM) program. Statoil believes the technology will allow it to better understand the reservoirs because they are stable and able to provide a more accurate picture of the subsurface than cables that are towed on the surface and which are subjected to wind, waves and currents. Statoil plans to lay more than 400 miles of seismic cables. Statoil currently recovers around 50 percent of the oil from its operated fields on the Norwegian continental shelf.
Project Details: Greater Snorre Area
Wintershall Spuds Rodriguez
Dec 11, 2012 – The Transocean Arctic (mid-water semisub) is drilling ahead at Wintershall’s Rodriguez prospect in the Halten Terrace area off Norway’s coast. Well 6407/1-6S is seeking oil in the Middle Jurassic Garn, Ile and Tilje formations. It should take roughly 75 days to reach the planned total depth of 13,254 feet. Rodriguez is located in PL475 near the Tyrihans field and Faroe’s 2010 Maria discovery. Wintershall maintains a 50 percent operating interest in the license with Faroe Petroleum and Centrica sharing 30 and 20 percent interest respectively.
Africa – Other
Dec 13, 2012 – A recent three well appraisal drilling program undertaken by BG Group and Ophir Energy on the Jodari field off Tanzania successfully achieved its objectives. The wells proved high quality reservoir across the field and reconfirmed the 3.4 Tcf mean recoverable resource estimate. In addition, the joint venture was able verify that high-angle drilling within Jodari may be a viable option to reduce development costs. Drilling was carried out by the Deepsea Metro I (UDW drillship) which is currently drilling the Mzia-2 appraisal well. Upon completion of the Mzia appraisal, the rig will return to Jodari to perform a drill stem test and then move on to continue exploratory drilling in Block 1.
Project Details: Jodari
Gas Discovery Off Romania
Dec 14, 2012 – Sterling Resources, operator of Block 13 Pelican in the Romanian Black Sea, announced a gas discovery at the Eugenia-1 exploration well. The well was drilled by the GSP Jupiter (300′ ILC) to a measured depth of 7,375 feet. Initial results indicate 72 feet of net gas pay in Late Cretaceous sandstones. Data is still being studied but open-hole logging confirmed the presence of moveable gas. The company is also interested in a 65 foot zone of Eocene limestone which presented gas shows. Attempts to collect pressure data were unsuccessful which is not uncommon in carbonates where matrix porosity is limited. The same Eocene interval turned out to be producible in an adjacent well.
Asia – South
Eni Expands Deepwater Footprint in Pakistan
Dec 13, 2012 – Through an agreement with Pakistani authorities and OGDCL, the state oil company, Eni acquired 25% and operatorship of Indus Block G in the offshore area of the Indus Basin. The block is situated in an under explored deepwater area and covers roughly 2,895 square miles. To start, Eni will initiate a multi-disciplinary study in order to establish a suitable exploration approach. Eni has maintained a presence in Pakistan since 2000 and this acquisition further strengthens its position in the country.
Kan Tan IV Secured for Offshore Taranaki Exploration
Dec 12, 2012 – OMV, operator of PEP 51906, secured the Kan Tan IV (mid-water semisub) for the third quarter of 2013 to drill the Matuku prospect offshore New Zealand. Matuku is estimated to hold 65 million barrels of mean recoverable resources. The company has undertaken several studies to de-risk the prospect. Results of the studies indicate the presence of suitable reservoir rock, and adequate seal and a mature source kitchen. Partners in the license include OMV with a 65%interest, Octanex with a 22.5% interest and NZOG who recently farmed-in for a 12.5% stake.
- The Philippines: Keppel O&M Subsidiaries Clinch S$160 Mln Contracts (worldmaritimenews.com)
- Keppel Subic Shipyard Starts Construction Works for Offshore Platform (maritime-executive.com)
- Tullow says Jubilee Phase 1 production begins in Ghana, as company’s share value reaches £11.4b (ghanabusinessnews.com)
By Alan Caruba
What if I told you that the government was blocking America’s prosperity in the form of enormous untapped energy reserves that represent wealth and jobs that would once again put America on the path to fiscal security and growth?
Recently, Matt Vespa, on CNS.com reported that the International Energy Agency released a report that said the United States has the capacity to outpace Saudi Arabia as one of the world’s leading producers of oil. It projected that the U.S. could become a net oil exporter around 2020. It could become entirely self-sufficient.
Even so, the Obama administration just moved to cordon off 1.6 million acres estimated to represent one trillion barrels worth of oil in the name of conservation. At the same time, the Environmental Protection Agency is moving to so encumber hydraulic fracturing—fracking—with so many regulations it will thwart increased use of this extraction technology that has been safely in use for decades.
As Dan Kish, Senior Vice President for Policy at the Institute for Energy Research, warns, there is a major government effort “to federalize hydraulic fracturing regulation” which is already being done by states “in a very professional and knowledgeable way. Take fracking away, the oil and gas production drops.”
For years, through many administrations, the federal government has been doing everything in its power to restrict drilling domestically and off-shore where billions of barrels of oil remains untapped. In October, a Wall Street Journal editorial noted that “The latest example is the Interior Department’s little-noticed August decision to close off from drilling nearly half of the 23.5 million acre National Petroleum Reserve in Alaska.”
As far back as 1976, Congress designated the Reserve a strategic oil and gas stockpile to meet the “energy needs of the nation”, but oil and gas that is not extracted meets no needs. It keeps the nation dependent on imported oil and gas. In an August 22 letter to Interior Secretary Ken Salazar from the entire Alaska delegation in Congress called it “the largest wholesale land withdrawal and blocking of access to an energy resource by the federal government in decades.”
Noting that “Most of the other 11.5 million acres are almost indistinguishable from the acreage owned by the state that is being drilled safely nearby” the Journal pointed out that drilling on privately owned land has seen North Dakota pass Alaska as the second highest oil-producing state behind Texas.”
According to the Congressional Research Service, “The federal government owns roughly 635-640 million acres of the land in the United States. Four agencies administer 609 million acres of this land; the Forest Service in the Department of Agriculture, and the National Park Service, Bureau of Land Management, and Fish and Wildlife Service, all in the Department of the Interior.” The Bureau of Land Management manages 248 million acres and is responsible for 700 million acres of subsurface mineral resources.
Mostly by stealth, more and more privately owned land is being purchased by the federal government. In September 2011, Audrey Hudson, writing for Human Events, reported that “The Obama administration is spending $35 million to buy 30,000 acres of private property across the U.S. this year to make permanent homes for mice, fairy shrimp, mussels, prairie bushes and beetles. Those are just some of the 70 critters and plants to benefit from the land purchases in a dozen states as part of the government’s habitat conservation plans for endangered species.”
Quoting Rob Gordon of The Heritage Foundation, Hudson reported that “The federal government already owns more land than Germany, France, the United Kingdom, Spain, Italy, and Poland combined.” The Endangered Species Act is just an excuse to secure ownership of more land and, in particular, to restrict development of every description from housing to hospitals.
Instead of a future in which our oil and gas reserves could unleash all manner of economic growth and the generation of thousands of new jobs, Ben Wolfgang, reporting in the November 22 edition of The Washington Times, “The drilling process that has brought the U.S. energy independence within reach faces renewed scrutiny from the Obama administration and an uncertain future in many states.”
“Next month, the Environmental Protection Agency is expected to release a draft of its long-awaited report on suspected links between water pollution and fracking, which uses huge amounts of water, combined with sand and chemical mixtures, to crack underground rock and release trapped oil and gas.” Fracking, however, occurs well below underground water levels and has been shown to have no effect on it.
What we are witnessing is the deliberate effort by the Obama administration, in concert with earlier administrations, to deny the economic benefit of tapping the nation’s vast reserves of oil and gas domestically and off-shore. This was evident, as well, in the President’s decision about the XL Keystone pipeline on the grounds that it threatened aquifers if allowed to proceed. Thousands of jobs were lost in that single decision with no evidence of the truth of the assertion.
As the nation sinks further into economic decline and default, it is obvious that the nation’s energy sector is being thwarted at a time when it holds the promise of lifting it out of growing unemployment, higher energy costs, and the drumbeat of utterly false environmental claims about greenhouse gas emissions.
© Alan Caruba, 2012
Alan Caruba’s commentaries are posted daily at “Warning Signs” and shared on dozens of news and opinion websites. His blog recently passed more than 2 million page views. If you love to read, visit his monthly report on new books at Bookviews. For information on his professional skills, Caruba Editorial Services is the place to go! You can find Alan Caruba on both Facebook and Twitter as well.
- Noble Energy Makes Oil Discovery at Big Bend Prospect in U.S. Gulf (mb50.wordpress.com)
- China planning ‘huge fracking industry’ (guardian.co.uk)
- The Poisonous Presidency (papundits.wordpress.com)
- Edwards: Drilling bills are expected this session (times-news.com)
Joshua W. Mermis Friday, June 22, 2012
A “gas rush” is revitalizing the domestic petroleum exploration industry, and the legal ramifications could be felt for decades. Through hydraulic fracturing (fracking), petroleum companies access once cost prohibitive shale gas formations by creating fractures in underground rock formations, thereby facilitating oil or gas production by providing pathways for oil or gas to flow to the well. These pathways are commonly referred to as the “fractures.” The legal consequences of fracking could impact more than half of the Lower 48 states.
Background of Hydraulic Fracturing
The basic technique of fracking is not new. In fact, fracking has been used in wells since the late 1940s. The first commercial fracking job took place in 1949 in Velma, Oklahoma, however, sequestered layers of shale gas were inaccessible until 1985, when pioneers such as Mitchell Energy and Development Corporation combined fracking with a newer technology called directional, or horizontal drilling in the Austin Chalk. Directional drilling gave producers access to the shale gas because it allowed them to turn a downward- plodding drill bit as much as 90 degrees and continue drilling within the layer for thousands of additional feet. The positive results were soon transferred to the Barnett Shale in North Texas. To date, more than one million wells have been fractured.
The “hottest” shale plays are as follows:
- Bakken (Montana, South Dakota and North Dakota)
- Barnett Shale (Texas)
- Eagle Ford (Texas)
- Haynesville (Arkansas, Louisiana, and Texas)
- Marcellus Shale (New York, Ohio, Pennsylvania, and West Virginia)
- Utica (Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, West Virginia and Virginia)
Confirmed and/or prospective shale plays are also found in Alabama, California, Colorado, Illinois, Indiana, Kansas, Michigan, Mississippi, Missouri, Nebraska, Utah and Wyoming. Shale plays have been confirmed in countries around the world, but the US is the leader in shale gas exploration.
More Money, More Problems
The new application of an old technology made it possible to profitably produce oil and gas from shale formations. Domestic and international companies quickly rushed to capitalize on the large reservoirs of shale gas. But unlike the preceding decades, where new oil and gas exploration had occurred offshore and in deepwater, oil and gas drilling started to occur in areas that were not accustomed to oil and gas activity. Overnight ranchers became millionaires as landmen leased large swaths of property to drill. The media started reporting about enormous domestic supplies of oil and gas that could be profitably produced from shale formations and politicians touted energy independence that could alleviate the country’s demand for foreign reserves. But with the increased attention came increased scrutiny.
Environmental groups have criticized the industry for fracking. The chief concern is that fracking will contamination of drinking water. Movies such as “Gasland” and “Gasland 2” fueled the public’s concerns that the drilling caused polluted water wells and flammable kitchen faucets. Additionally, the industry received criticism for the engineering process that involved high-rate, high-pressure injections of large volumes of water and some chemicals into a well to facilitate the fracking. The EPA and state regulatory bodies have become involved in the discussion and new regulations are likely to follow. In the meantime, some lawsuits have already been filed.
Pending Hydraulic Fracturing Litigation
Plaintiffs have filed approximately forty shale-related lawsuits across the country. These lawsuits include: (1) tort lawsuits; (2) environmental lawsuits; or (3) industry lawsuits. As the shale boom accelerates more suits are anticipated.
1. Tort Lawsuits
Tort lawsuits have been brought by individuals and as class actions. Typically the claimants assert claims for trespass, nuisance, negligence and strict liability. Their complaints involve excessive noise, increased seismic activity, environmental contamination (air, soil and groundwater), diminution in property value, death of livestock/animals, mental anguish and emotional distress. The plaintiffs seek actual damages and, in some instances, injunctive relief. A few parties have even sought the establishment of a medical monitoring fund. The majority of these lawsuits have been filed in Texas, Pennsylvania and Louisiana. The first wave of lawsuits has established new law in the respective jurisdictions as the appellate courts weigh in with published opinions on issues that range from oil and gas lease forfeiture, consequences of forged contracts and contract formation.
2. Environmental Lawsuits
Environmental organizations and some citizen groups are seeking to enforce environmental laws and regulations in an effort to protect the environment and the public from what the litigants perceive to be negative consequences of fracking. In some instances they are even seeking to restrict the use of hydraulic fracking until it is proven to be environmentally safe. A popular target among these litigants is federal and state regulatory bodies, such as the EPA, and federal statutes, such as the Clean Air Act.
3. Industry Lawsuits
The final category of lawsuits includes those brought by the industry against the government. Claimants have sought to challenge federal, state and local government actions that have impeded the industry’s ability to drill.
Fracking Lawsuits 2.0 – Transportation, Construction, Personal Injury and Beyond
The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.
- Transportation: The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.
- Commercial: Lessor involved in mineral disputes will lead to commercial claims. Many lessors will feel they were shorted, or want a better deal as those now positioned to lease their rights sign a more lucrative mineral-rights lease. Company-to-company disputes will also rise as the price of natural gas fluctuates.
- Construction: The contractors and design professionals building the midstream facilities, among others, will lead to construction-defect and delay claims. Many states have recently adopted anti-indemnity statutes that will impact claims that arise during construction of midstream facilities, pipelines and other infrastructure-related construction projects.
- Insurance: Coverage issues will arise as parties file first- and third-party claims for myriad reasons. Issues including comparative indemnity agreements, flow-through indemnity and additional insured endorsements, among others, will need to be analyzed.
- Personal Injury: Additional workers drilling and working the wells will lead to an increase in personal injury and work-place accident claims. Many of the shale plays are located in what have traditionally been considered “plaintiff friendly” venues. A claim in Pennsylvania will have a different value than one located in Webb County, Texas.
- Product Liability: The products and chemicals used to drill and extract the oil and gas will lead to product liability claims involving both personal and property damage. The BP Deep Water Horizon well-blowout in the Gulf of Mexico will not be lost on those involved in domestic oil and gas exploration.
How To Reduce Future Fracking Litigation Risk?
Parties can act now to discourage litigation or better position themselves in the event they are named in a suit.
1. Institute electronic records protocol
The proliferation of email and increased retention and archival capabilities means that emails never die. A potential defendant would be well served with a protocol in place that outlines to its employees what are acceptable electronic communications.
2. Strictly comply with fracking fluid disclosures
For those parties who could be exposed to claims regarding the fluids used during drilling, it is important that they minimize the public’s suspicion that they are withholding information about the fluids. The best way to neutralize that misconception is to strictly comply with the state-mandated disclosure rules where applicable. It may even behoove them to voluntarily disclose the fluids’ contents through the
3. Be prepared for a fire-drill
A party must be ready to quickly assert its position when a claim is brought. The best way to do so is to track current litigation. Following the cases will provide the company a preview as to what claims it may be subject to, and it also allows them to evaluate defenses. It may also enable the company to insulate itself from suit by avoiding certain actions. Along those same lines, knowing the facts, documents, emails, fact witnesses and expert witnesses will work to a party’s advantage. Some industry leaders have proactively retained experts even though they have not been sued.
4. Know your neighbors
Parties should view their neighbors as allies and potential jurors. To that end, it makes sense to open a dialogue about fracking with the regulators on a local, state and federal level. It would also benefit the parties to engage the community and publicize information about the benefits associated with fracking, e.g., jobs, lower energy prices, cleaner energy, energy independence, etc. Certain midstream players have rolled out a public education campaigns aimed at that very goal.
Articles on shale gas and fracking adorn the front pages of the Wall Street Journal and New York Times. 60 Minutes runs stories on shale-gas drilling and the faux pundit Stephen Colbert discusses fracking’s impact on his tongue-and-cheek news show. The promise of profits, domestic jobs and energy independence has the country talking about the gas shale plays that dot the landscape. Fracking and all that it encompasses will serve as the backdrop for a variety of legal issues during the foreseeable future.
Joshua W. Mermis is a partner at Johnson, Trent, West & Taylor in Houston, Texas, where he primarily practices in construction and energy litigation. He received his B.A. from the University of Kansas and J.D. from the University of Texas School of Law. This article previously appeared in the Spring/Summer 2012 issue of USLAW magazine.
The U.S. Energy Information Administration (EIA) said in a report that between 2009 and 2011, Pennsylvania’s natural gas production more than quadrupled due to expanded horizontal drilling combined with hydraulic fracturing.
Historically, natural gas exploration and development activity in Pennsylvania was relatively steady, with operators drilling a few thousand conventional (vertical) wells annually. Prior to 2009, these wells produced about 400 to 500 million cubic feet per day of natural gas. With the shift to and increase in horizontal wells, however, Pennsylvania’s natural gas production more than quadrupled since 2009, averaging nearly 3.5 billion cubic feet per day in 2011. Natural gas wells accounted for virtually all (99%) of the horizontal wells started over this period.
Drilling programs in Pennsylvania’s shale formations, like those in other, more established plays such as the Barnett and Eagle Ford in Texas, are migrating to more liquids-rich areas due to the price premium of crude oil and natural gas liquids. The effect of low natural gas prices is apparent in Pennsylvania’s 2012 well count for the first third of the year. From January through April, drilling began on 618 new natural gas wells; over 700 new natural gas wells were started over the same period in 2011. In contrast, 263 new oil and “combination” (oil and natural gas) wells were started in Pennsylvania from January through April 2012, well above the 164 new wells that began drilling during the corresponding period in 2011.
- Ohio considers rules that opponents say favor frackers (fuelfix.com)
- AP: Pa. gas drilling brought $3.5 billion in 2011 (news.yahoo.com)
(Reuters) – Collapsing natural gas prices have yielded an unexpected boon for North Dakota‘s shale oil bonanza, easing a shortage of fracking crews that had tempered the biggest U.S. oil boom in a generation.
Energy companies in the Bakken shale patch have boosted activity recently thanks to an exceptionally mild winter and an influx of oil workers trained in the specialized tasks required to prepare wells for production, principally the controversial technique of hydraulic fracturing.
State data released this month showed energy companies in January fracked more wells than they drilled for the first time in five months, suggesting oil output could grow even faster than last year’s 35 percent surge as a year-long shortage of workers and equipment finally begins to subside.
As output accelerates, North Dakota should overtake Alaska as the second-largest U.S. producer within months, extending an unexpected oil rush that has already upended the global crude market, clipped U.S. oil imports, and made the state’s economy the fastest-growing in the union.
Six new crews trained in “well completion” — fracking and other work that follows drilling — have moved into North Dakota in the past two months alone, according to the state regulator and industry sources. Back in December, the state was 10 crews short of the number needed to keep up with newly drilled wells.
“Three to four months ago, the operators were begging for fracking crews,” said Monte Besler, who consults companies on fracking jobs in North Dakota’s Bakken shale prospect. Now “companies are calling, asking if we have a well to frack.”
For the last three years, smaller oil companies with thin pockets were forced to wait for two to three months before they could book fracking crews and get oil out of their wells. As more and more wells were drilled, that backlog has grown.
Last year, an average 12 percent of all oil wells were idled in North Dakota. Even so, output in January hit 546,000 barrels per day, doubling in the last two years and pushing the state ahead of California as the country’s third-largest producer.
FEWER WELLS IDLE
Fracking, which unlocks trapped oil by injecting tight shale seams with a slurry of water, sand and chemicals, has drawn fierce protests in some parts of the country, but it has not generated heated opposition in North Dakota.
The number of idle wells waiting to be completed in the state reached a record 908 last June, the result of a new drilling rush and heavy spring floods. Only 733 wells were idle in August as crews caught up, but the figure crept steadily higher until the start of this year.
Now, the industry may be turning a corner in North Dakota, the fastest-growing oil frontier in the world.
“Both rig count and hydraulic fracturing crews are limiting factors. Should they continue to rise together, production will not only increase, it will accelerate,” said Lynn Helms, director of the state Industrial Commission’s Oil and Gas Division.
The tame winter likely played an important role in helping reduce the number of idle wells — those that have been drilled but not yet fracked and prepped for production. That number fell by 11 in January, as oil operations that would normally be slowed by blizzards were able to carry on, experts said.
Residents of the northern Midwest state — accustomed to temperatures as low as minus 40 degrees Fahrenheit (-40 Celsius) in winter and snow piles as high as 107 inches — this year enjoyed the fourth warmest since 1894, according to the National Weather Service.
The milder conditions also helped prevent the usual exodus of warm-weather workers that occurs when blizzards set in.
“Not everyone wants to work in North Dakota in the winter,” Besler said.
The backlog of unfinished wells has also begun to subside because the pace with which new wells are drilled has leveled off. The state hasn’t added new rigs since November.
The latest state data shows oil companies brought 37 new rigs to North Dakota’s in 2011 but have not added more since November. The rig count held steady at 200 in January 2012, although more than 200 new wells were drilled in that period.
SLUMPING NATGAS PRICE PROVIDES RELIEF
North Dakota has gotten a boost from the fall-off in natural gas drilling due to the collapse in prices to 10-year lows. Energy companies such as Chesapeake and Encana have shut existing natural gas wells and cut back on new ones. Last week, the number of rigs drilling for gas in the United States sank to the lowest level in 10 years as major producers slimmed down their gas business, according to data from Houston-based oil services firm Baker Hughes. [ID:nL2E8EG9OY] The fewer gas wells drilled, the less need for skilled fracking crews in the country’s shale gas outposts.
Fracking in oil patches is similar to the process used in gas wells, except for the inherent power of the pumps employed. Crews inject high-pressure water, sand and chemicals to free hydrocarbons trapped in shale rock. So big service firms such as Halliburton, Baker Hughes and Schlumberger are reshuffling crews from shale gas fields to oil prospects in the badlands. “We have moved or are moving about eight crews. Some of those crews are moving as we speak,” Mark McCollum, Halliburton’s chief financial officer, said at an industry summit in February.
Halliburton declined to specify where the crews were moving.
Calgary-based Calfrac moved one crew into the Bakken in late 2011, according to an SEC filing. Privately owned FTS International no longer works in the gas-rich Barnett shale but has set up operations in the Utica, an emerging prospect in Ohio and western Pennsylvania, according to a company representative.
The reallocations come with some efficiency losses. Halliburton had to scale back its 24-hour operations and is still trying to solve logistical problems. “You actually take the crew from one basin and they have to go stay in motels, you have to pay them per diems for a while. And then you have to double up your personnel while you’re training new, locally based crew on the equipment once it is moved,” McCollum said.
At the same time, a shortage of key equipment such as pressure pumps is easing as companies start taking delivery of material ordered months or even years ago.
It takes about 15 such pumps to frack a gas well, and many more for oil wells. The total pressure-pumping capacity in the United States at the end of 2012 will be 19 million horsepower, two-and-a-half times more than in 2009, according to Dan Pickering, analyst with Tudor Holt and Pickering in Houston.
FRACKING AROUND THE NATION
Easing personnel constraints suggest recruiters may be meeting with success in nationwide campaigns to attract workers with specialized knowledge of complex pumps and hazmat trucks — and a willingness to brave harsh conditions.
Even with U.S. unemployment at 8.3 percent, such skilled labor remains in short supply despite salaries from $70,000 to $120,000 a year. In North Dakota, unemployment was just 3.2 percent in January, the lowest rate in the nation.
Fracking crews, much like roughnecks on drilling rigs, clock in 12-hour shifts for two straight weeks before getting a day off. They live in camps far from cities and towns. Jobs are transient — a few weeks at a single location. Most workers divide their time between the California desert, Texas ranchlands and the freezing badlands of the Midwest state.
Companies have scrambled to nab talent, with recruiters scouring far and wide. Military bases have gotten frequent visits, and some companies have hired truckers from Europe.
“There’s definitely a push to look all over for people who have good experience since it takes at least six months to train someone how to use a fracking pump,” said David Vaucher, analyst with IHS Cambridge Energy Research.
(Editing by David Gregorio)
- Pioneer Bets On West Texas Shale Oil To Rival Bakken (mb50.wordpress.com)
- Newfound Billions Of Barrels Of Shale Oil In Newfoundland (mb50.wordpress.com)
- To frack or not to frack: North Dakota’s dilemma (usatoday.com)
At this State of the Union address, President Obama proudly stated that “American oil production is the highest it’s been in eight years” and declared that his Administration would “open more than 75 percent of our potential offshore oil and gas resources.” While President Obama spoke favorably of the role that oil and gas development play in America, the President’s and his Administration’s actions don’t match with his words.
There are several areas where the President and his Administration are unreasonably hindering access to more oil and gas for Americans and threatening the industry with punitive measures:
- Keystone permit rejection. The Keystone XL pipeline would deliver oil from our Canadian ally, relieve some of the pain of high prices at the gas pump, and create jobs in America. Nevertheless, and despite a State Department environmental review concluding that the project poses no significant environmental risk, the President chose to reject TransCanada’s permit application to build the pipeline.
- Targeted tax hikes. The President continues to threaten the oil industry with targeted tax hikes. Under the rhetoric of eliminating subsidies for the industry, the President’s proposal would eliminate certain tax treatments for oil that are available to many industries, effectively singling out the oil industry for a tax hike.
- Slowdown of production on federal lands. While American oil production has been increasing, the vast majority of that production is taking place on private lands. Production on federal lands is actually 40 percent lower than it was 10 years ago. The House Natural Resources Committee also reports that under the Obama Administration, 2010 had the lowest number of onshore leases issued since 1984.
- Fracking regulation. Hydraulic fracturing (or “fracking”) is a proven oil and gas extraction process that should not be subject to overly burdensome regulations. The Environmental Protection Agency is currently considering federal regulation of the fracking process under the Safe Drinking Water Act. The problem is that the agency is following a procedure that even the Department of Energy criticized for its “selective focus” on “negative outcomes.”
Words alone will not make energy more abundant and affordable, nor will they create the energy-related jobs that would make the American economy stronger. If the President is truly concerned about increasing America’s energy access, he certainly has a funny way of showing it.
For policies in that direction, Heritage policy analyst Nick Loris explains in two papers how to make gas and electricity prices more affordable and how to create jobs and raise government revenue through energy exploration.
- Natural gas sector set up by Obama to be sabotaged? (mb50.wordpress.com)
- Obama loves oil – Not! (mb50.wordpress.com)
- No energy industry backing for the word ‘fracking’ (mb50.wordpress.com)
- Is President Barack Obama responsible for U.S. oil production rise? (mb50.wordpress.com)
Industry insiders fear rules, taxes
By Ben Wolfgang–
President Obama spoke of the role natural gas must play in America’s energy future during his State of the Union address last week, but industry insiders fear it’s merely lip service designed to distract from what they consider the administration’s behind-the-scenes plan to sabotage the sector.
“They’re trying to make it more difficult for the industry to survive while the president is standing in front of the country saying we’re going to create jobs through hydraulic fracturing,” said Ken von Schaumburg, former deputy counsel at the Environmental Protection Agency during the Bush administration.
At the same time the president boasts of the nation’s vast shale gas deposits, his EPA is poised to make extracting that fuel much more difficult. The agency will this year release a widely anticipated study on hydraulic fracturing, or “fracking,” the use of water, sand and chemical mixtures to crack underground rock and release huge quantities of gas. The practice is widely used in Pennsylvania, North Dakota and other states, and has helped revitalize small-town economies and led directly to the creation of thousands of jobs in recent years.
Many in the gas industry fear that the upcoming EPA study will call for harsh new regulations on the process, and many environmental groups – a key constituency for Mr. Obama during this year’s re-election bid – are publicly pushing the administration to outlaw fracking entirely.
The EPA has already dealt a severe blow to fracking with the release of a report last year alleging the process was responsible for water contamination in Pavillion, Wyo. That study was met with ridicule from across the natural gas business because it was put out before being subjected to an independent, third-party review. While the EPA has promised such an unbiased look will be conducted, the study has likely already had a negative impact on the public perception of fracking.
Possibly making matters worse, Mr. Obama has over the past week repeated his calls for increased federal investment in the renewable energy sector, a policy some view as an effort to stack the deck against natural gas.
“Job creators and American consumers should welcome the president’s latest energy promises with suspicion,” Thomas Pyle, president of the nonprofit Institute for Energy Research, said in a statement following Mr. Obama’s State of the Union speech, during which he called for an “all-of-the-above” approach toward energy independence that relies heavily on American oil and gas reserves.
“In the same breath that he extolled the virtues of natural gas development and called for higher energy taxes on the companies that produce it, President Obama continues to press for more taxpayer subsidies for Solyndra-style green energy companies,” Mr. Pyle said.
Mr. Obama’s positive rhetoric toward natural gas could also represent a desire to please both sides of the debate, though the move to the middle has, thus far, seemed to satisfy no one. After the speech, environmental groups blasted the administration for being too timid and called for an all-out war on fracking.
“We can’t wait much longer for the clean energy revolution. We need to clean up a fossil fuel industry run amok, by ensuring … natural gas safeguards that go much further than what the president suggested,” Sierra Club Executive Director Michael Brune said in a statement after the State of the Union address.
So far, however, the administration has stopped far short of what the Sierra Club and other liberal groups want to see. Mr. Obama did, however, call for legislation requiring any company drilling on public land to disclose all chemicals used during the fracking process. Several states, such as Texas and Colorado, have already passed disclosure bills, and many leading companies voluntarily post detailed breakdowns of their chemical mixtures to the website fracfocus.org, an online clearinghouse.
Potential state or federal regulations aren’t they only problems confronting the gas industry. The explosion of natural gas extraction in areas like the Marcellus Shale region has glutted the market, keeping prices low for consumers but leading to diminished returns for drilling companies.
Last week, Chesapeake Energy, one of the largest players in the game, announced plans to reduce daily gas production by 500 million cubic feet, an 8 percent drop. The firm said it’s considering slashing production even further and predicts “flat or lower total natural gas production in the U.S. in 2012” as supply outstrips demand.
- Obama loves oil – Not! (mb50.wordpress.com)
- Cabot Cites Obama Speech to Fault EPA’s Dimock Fracking Probe (junkscience.com)
- No energy industry backing for the word ‘fracking’ (junkscience.com)