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Corpus Christi, TX: Newly Built US Flag Vessel Makes First Call to Port Corpus Christi

Eagle Ford Shale continues to positively impact Port Corpus Christi and the U.S. economy. Yesterday, Wednesday, September 26, 2012, the M/V Pennsylvania, a newly built U.S. Flag vessel destined to move products related to Eagle Ford Shale in the region, made its first port of call to Port Corpus Christi. The tanker docked at Oil Dock 1.

The M/V Pennsylvania is one of two tankers purchased by Crowley Maritime Corporation’s petroleum and chemical transportation group as part of the Jones Act, from Aker Philadelphia Shipyard ASA (Oslo: AKPS). The Pennsylvania was delivered early this month marking Crowley’s re-entry into the Jones Act tanker market after its last tanker was retired in 2011. The tankers, capable of carrying nearly 330,000 barrels of a wide variety of petroleum products and chemicals, are destined to operate in U.S. coastal trade.

“Eagle Ford Shale has made a great impact on the port’s operations. We are glad to see more U.S. Flag vessels sailing around our coasts and we are honored to welcome the M/V Pennsylvania to the port.” Said Mike Carrell, Chairman Port of Corpus Christi.

The U.S.-flagged vessel is the 13th in the Veteran Class built at Aker. This proven design provides Crowley customers with ABS-classed vessels that have been thoroughly tested and refined for performance and reliability. With a length of 183.2 m, a breadth of 32.2 m, and a depth of 18.8 m, the tankers come in at 45,800 deadweight tons with a draft of 12.2 m. Powered by the first Tier II large-bore engines, MAN-B&W 6S50MCs, the speed of the Pennsylvania and the Florida is expected to average 14.5+ knots. In addition to being double hulled with segregated ballast systems, safety features also include water and CO2 firefighting systems, as well as a foam water spray system.

Crowley has a long history of transporting petroleum products and chemicals by tanker and articulated tug barge (ATB). Until 2011, Crowley owned and operated Jones Act product tankers that safely carried petroleum products and chemicals. Crowley has also proven itself an innovator and leader in the industry through the development of an unrivaled ATB fleet, which includes some of the newest and most sophisticated ATBs in the market. As of 2013, Crowley will own and operate 17 ATBs, which include 155,000-barrel, 185,000-barrel and 330,000-barrel capacity tank vessels. Crowley has safely and reliably operated all of these Jones Act tankers and ATBs on the U.S. Gulf, East, and West coasts under voyage and time charters with leading companies in the petroleum and chemical industries.

World Maritime News – Newly Built US Flag Vessel Makes First Call to Port Corpus Christi.

USA: EQT Starts Pilot Program of Converting Drilling Rigs to LNG

EQT Corporation today announced the launch of a pilot program to begin converting drilling rigs to liquefied natural gas (LNG), displacing the diesel used to power equipment at the well site. This program marks the first LNG rig conversion in the Marcellus Shale and will provide a cleaner burning alternative fuel for the region’s drilling operations.

“We want to be a leader in reducing the environmental impacts related to drilling and we are proud to be the first operator in the Marcellus to launch such a program,” states Steve Schlotterbeck, President Exploration and Production for EQT. “Along with safety, protection of the environment is top-of-mind for our employees, contractors, and of course communities. We continually look for opportunities to improve our operations and displacing diesel, by introducing the use of alternatives such as LNG and field gas, is one way of doing so,” Schlotterbeck continued.

LNG is natural gas in its liquid form and from a physical property standpoint is as safe as, or safer than, using traditional fuels, such as propane or diesel. LNG, if exposed, evaporates quickly and leaves no residue on water or soil. Compared to diesel, natural gas emits between 20% and 30% less carbon dioxide and has a fraction of the emissions of nitrogen oxides, sulfur oxides, and particulates.

There are other LNG benefits, such as a reduction in fuel costs — with LNG being about 40% less expensive than diesel. The use of LNG also provides another means of reducing our dependence on foreign oil imports — with sourcing coming from various U.S. shale plays. The LNG being used for EQT’s pilot program is produced locally from Marcellus natural gas reserves.

EQT’s initial rig conversion is now operating in Northern West Virginia; and pending evaluation of the pilot program, the Company hopes to convert additional rigs in West Virginia and Pennsylvania.

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Shale Gas Boom: Hydraulic Fracturing and Potential Legal Claims

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
companies’ websites.

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.

Conclusion

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.

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Pennsylvania County’s Dreams of Wealth Didn’t Work Out

By Roben Farzad on June 07, 2012

Four years ago, as the economy was entering a devastating recession, swaths of rural Pennsylvania were booming.

Energy companies were using hydraulic fracturing, better known as fracking, to tap the vast natural gas reserves of the Marcellus Shale underlying much of the Keystone State. In Wayne County, these corporations offered struggling farmers lucrative leases for mineral rights.

“Land here became a whole different asset class,” says Tim Meagher, a real-estate broker whose family settled in the area in the 1840s.

Today there is no drilling in Wayne County, Bloomberg Businessweek reports in its June 11 issue. The Delaware River Basin Commission, a regional regulatory agency, has declared a moratorium while it studies the environmental impact. Gas companies have invoked force majeure clauses to put their contracts with property owners on hold.

Investors who bought farmland are stuck, and farmers who expected to retire on gas royalties are back to eking out a living from agriculture.

Meanwhile, fracking opponents are brandishing the example of Wayne County as they fight shale energy exploration across the country.

The number of drilling permits issued in Pennsylvania soared from 122 in 2007 to 3,337 in 2011, according to the Marcellus Center for Outreach and Research at Penn State University. Much of the activity was concentrated in the western and central parts of the state, which have a history of energy exploration and geology conducive to gas production.

Fresh Land

As the price of gas climbed, drillers looking for fresh land started eyeing the verdant, rolling pastures of Wayne County in (26452MF) the northeastern part of the state.

Companies such as Hess, Chesapeake Energy (CHK) (CHK), and Cabot Oil & Gas (COG) (COG) dispatched “land men” to go door to door to persuade homeowners to sign mineral leases. Farmers were getting $250 to more than $3,000 an acre to allow drilling on their property, says Meagher. Land that sold for $2,000 to $3,000 an acre in 2004 was going for as much as $10,000 an acre by 2009. Meagher says he often got calls from prospective investors in Manhattan, Boston, and beyond. To encourage more, he put property ads in the New York Post, New York Times, and the Wall Street Journal.

“I wanted to get my clients here the highest possible bid,” he says.

By the summer of 2009, a joint venture of Hess and Newfield Exploration (NFX) (NFX) had secured leases for 80,000 acres with the Northern Wayne Property Owners Alliance, a group of 1,500 landowners formed to negotiate with the gas companies.

’People Here Struggle’

“It’s the biggest thing ever happened around here, in my lifetime at least,” says Alliance member Bob Rutledge, a dairy and beef farmer whose family has been in Wayne for 170 years. “People here struggle. The economy here sucks when it’s good. The farms are dying.” Spokesmen for Hess, Chesapeake, Cabot, and Newfield declined to comment.

Honesdale, the county seat, last saw a boom like this in the 1820s, when it was the starting point for the new Delaware & Hudson Canal. In March 2009, Leonard Schwartz, recently retired as chief executive officer of chemical company Aceto, reopened Honesdale’s 182-year-old Hotel Wayne. He gutted and redecorated its rooms and upgraded its restaurant and bar to accommodate out-of-town speculators and energy company officials with expense accounts.

“The gas companies were giving out money,” says Schwartz. “People were buying tractors, eating out. You felt it.”

Opposition Builds

As fracking fever spread, opposition to gas exploitation was building. In the spring of 2008, a gas company offered Josh Fox’s family almost $100,000 to drill on its Wayne County property, inspiring Fox, a filmmaker, to make the anti-fracking documentary “Gasland.”

The Oscar-nominated film, which shows water from a faucet catching fire, was shown on HBO and helped foment broader opposition to fracking. Fox and an alliance of conservation groups called on the Delaware River Basin Commission to ban the practice in Wayne County. They argued that the drilling technology, which involves injecting high-pressure jets of water and chemicals into underground rock formations, would pollute the river’s 14,000-square-mile basin, a source of drinking water for 15 million people.

Permits Ordered

In May 2009 the commission, which includes the governors of Pennsylvania, New Jersey, Delaware, and New York as well as a representative from the U.S. Army Corps of Engineers, declared that gas companies wanting to drill in Wayne County would need a permit from the DRBC as well as from the state of Pennsylvania.

Land men started pulling out of Wayne, according to local townspeople. A year later the commission announced that it would not issue permits and would study the impact of fracking.

The decision caught farmers and investors off guard.

“I had never even heard of this out-of-state commission,” says Jim Stracka, a contractor from Scranton, Pennsylvania, who joined with two New Jersey businessmen to form a company called Gasaholics to invest in Wayne County.

In 2008, Gasaholics paid $900,000 in cash for a 96-acre farm in northeastern Wayne. Stracka says he expected to lease his mineral rights for at least $3,000 an acre and hoped a producing well might generate as much as $50,000 a day in royalties.

“We went on that premise,” he says. “Then, the moratorium comes out of left field and the leases stop. Now we’re just sitting on it.”

The property remains vacant. A local farmer stops by on occasion to cut the land’s overgrowth for hay.

No Royalties

Rutledge fared better. Hess-Newbridge paid him $300,000 for the right to drill on his farm. Even so, he’s bitter at the prospect of not receiving royalties. He says his farm can’t compete with corporate operations, and that he’s been selling timber from his land, as well as portions of a century-old stone wall.

“The DRBC,” he says, “isn’t writing me a check. They’re just basically saying ‘screw you.’”

Drilling is not officially dead in Wayne County. In February 2011 the DRBC held 18 hours of public hearings at three locations to take testimony on draft regulations and received 69,000 submissions during a two-month public comment period, according to spokesmen Clarke Rupert and Kate O’Hara.

The commission scheduled a hearing for Nov. 21, 2011. Fox showed up with 2,000 protesters, but the meeting was canceled and has yet to be rescheduled.

‘Technical’ Meetings

A statement on the commission’s website says that as of May the commissioners are “convening meetings with their respective technical staff” as they consider rules for drilling.

As fracking continues in most of Pennsylvania, Wayne County residents are recognizing that public-works improvements tied to a gas boom aren’t going to happen.

“We expected better roads,” says Myron Uretsky, a retired New York University professor who owns a house in the town of Damascus, Pennsylvania. “We have no fire hydrants -— the gas companies were going to put them in.”

While many residents blame Fox for their troubles, he says they were naive to think drilling would ever be allowed in such an environmentally critical area. He faults the gas companies for dangling money in front of farmers without warning them of the potential problems.

“It was all sweetness and light,” he says. “‘You’ll make so much money.’ That’s exploitation, not prosperity. This was a bubble.”

To contact the reporter on this story: Roben Farzad in New York at rfarzad@bloomberg.net

To contact the editor responsible for this story: Josh Tyrangiel at jtyrangiel@bloomberg.net

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EIA: Horizontal Drilling Boosts Gas Production in Pennsylvania, USA

http://d1dep6bscgu00w.cloudfront.net/wp-content/uploads/2012/05/EIA-Horizontal-Drilling-Boosts-Gas-Production-in-Pennsylvania-USA.jpg

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.

This drilling activity, which is concentrated in shale formations that cover a broad swath of the state, mirrors trends seen in the Barnett shale formation in Texas.

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.

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