BLM to study hydraulic fracturing on public lands in California. The Bureau of Land Management (“BLM”) announced it will prepare an environmental impact statement (“EIS”) to study the potential impacts of hydraulic fracturing in central California’s Monterey Shale formation. Based on the findings, BLM could amend the area’s resource management plan for oil and gas development on federal lands. With the state, BLM will concurrently review scientific literature regarding potential seismic impacts from drilling. The seismicity study will be led by the California Council on Science and Technology and will undergo peer review before publication and incorporation into the EIS. The studies were announced in response to a court ruling finding BLM violated the National Environmental Policy Act (“NEPA”) by issuing leases for hydraulic fracturing without adequately considering its potential environmental impacts.
BLM plan to allow oil and gas exploration in Montana struck down. The Ninth Circuit remanded a 2008 U.S. BLM plan to allow oil and gas exploration in an area of Montana designated as a national monument in 2001. The Montana Wilderness Association argued BLM’s plan violated the Federal Land Policy and Management Act, NEPA, and the National Historic Preservation Act (“NHPA”) when it allowed for exploration activities in the Upper Missouri River Breaks National Monument. The court found BLM violated the NHPA when it failed to consider the effect of increased traffic on historic areas, such as survey stations established by explorer Meriwether Lewis.
House Committee votes to block BLM hydraulic fracturing rules. The House Natural Resources Committee voted to advance a bill that would block BLM from finalizing its proposed regulation of hydraulic fracturing on federal land. Instead, state regulations would govern drilling activities. The bill’s proponents criticized the proposed BLM rule as duplicative and unnecessary. Although the bill may pass the House, it is not expected to pass the Senate.
Senators seek clarification on DOE power to revoke LNG export permits. Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-Or.) and ranking member Lisa Murkowski (R-Alaska) wrote U.S. Department of Energy (“DOE”) Secretary Ernest Moniz asking whether DOE was empowered to revoke previously approved permits to export liquefied natural gas (“LNG”) to non-free trade countries. Sen. Wyden has asserted that exports could be restricted if domestic gas prices reach levels that weaken U.S. manufacturing and power sectors. DOE likewise has stated it could revoke or modify permits under “appropriate circumstances,” but the Senators are asking DOE to define the “appropriate circumstances” standard as well as whether DOE would consider the cumulative impact of natural gas exports and whether LNG exporters would receive a hearing before their permits were cancelled or modified.
House members seek answers on EPA water investigations. Members of the U.S. House of Representatives wrote EPA Administrator Gina McCarthy asking why the agency began investigations into claims of drinking water impacts from hydraulic fracturing in Pennsylvania, Texas, and Wyoming. After several years of investigation, EPA declined to take action in each case, engendering criticism from both hydraulic fracturing proponents and environmental groups. The representatives asked how often EPA has used its emergency powers under the Safe Drinking Water Act to investigate such claims and how it determines that “appropriate State and local authorities have not acted.”
States
Halek Operating ND fined $1.5 million. The North Dakota Industrial Commission fined Halek Operating ND LLC $1.5 million, the maximum possible, for the illegal disposal of wastewater in underground injection wells. The Commission is also pursuing criminal charges against Nathan Garber, the president of Executive Drilling, which bought the wastewater disposal site from Halek and allegedly continued the illegal disposal practices. According to the Commission, Garber instructed workers to mislead state inspectors regarding the company’s disposal practices. The wastewater was from hydraulic fracturing operations in the Bakken shale play.
Pennsylvania to monitor air quality in Marcellus Shale play. The Pennsylvania Department of Environmental Protection (“PDEP”) will be monitoring air quality at wells and compressor stations in southwestern Pennsylvania. Although PDEP recently imposed more stringent air emission standards for compressors, and prior PDEP studies showed that the area met federal ambient air quality standards, residents and activists have raised concerned about potential health impacts to residents living near gas well sites. A report on the findings will be issued in early 2014.
Colorado County blocks natural gas liquids pipeline. The Adams County Colorado Commission rejected a proposed route for the Front Range pipeline, a 435 mile pipeline that would carry natural gas liquids from Northern Colorado to Texas. The project is a joint venture of Anadarko Petroleum, Enterprise Products Partners, and DCP Midstream Partners. The Commission stated the pipeline would interfere with the county’s economic development plans. A project spokesman stated that it would continue to work with the county on a more acceptable route but that it was also considering its legal options.
Business
Platts creates new oil pricing index. Platts, the commodities pricing company, has created a new Light Houston Sweet daily assessment price. Previously, “the price of crude oil” has always referenced the West Texas Intermediate (“WTI”) index price at the New York Mercantile Exchange. For WTI, the benchmark price settlement point is in Cushing, Oklahoma, where terminals collect crude oil from Midwest production wells and imported oil from Houston before shipping to coastal refineries. Hydraulic fracturing, however, has led to pipelines and railway lines that allow crude oil to bypass Cushing and to go directly to refineries. The Light Houston Sweet price will be based on spot prices at three Houston crude oil terminals which Platts hopes will make for pricing that is more relevant for regional traders.
Pioneer Resources bets big on Spraberry/Wolfcamp field. Independent exploration and production company Pioneer Natural Resources Company is planning to spend $1.6 billion, half of its capital budget, on developing the Spraberry/Wolfcamp field. Many companies have been deterred from developing the field due to difficult geology, but Pioneer believes the field holds 50 billion barrels of recoverable oil and gas, second only to Saudi Arabia’s Ghawar oil field. Their research shows that shale strata in the field are several thousand feet thick, as opposed to a few hundred feet thick in most other plays. Pioneer plans on using a “stacked lateral” drilling method where horizontal wells are drilled below each other. This would allow the company to drill 30 to 40 wells from a single well pad.
Reinsurance industry seeking more data on risks. It has been reported that the reinsurance industry wants more information on the potential hazards of hydraulic fracturing in U.S. shale plays before determining whether to provide insurance policies and at what cost. Among other things, reinsurers are seeking a clearer set of best operating practices from oil and gas companies and are struggling with conflicting claims about risks from hydraulic fracturing. Among these best practices could be criteria for pre-drilling evaluations that identify abandoned wells, potential seismicity, shallow gas zones, and risks to aquifers; baseline sampling of nearby water wells; the disclosure of hydraulic fracturing fluid chemicals; and the use of a “closed loop” system for wastewater. Companies now largely cover shale play development with self insurance and surety bonds. Satisfying reinsurers, however, may become more important.
Oil company sues well field service companies for price fixing. Citing a U.S. Department of Justice investigation into the possibility of anticompetitive practices, Cherry Canyon Resources LP filed a class action suit in federal court alleging that Halliburton, Schlumberger, and Baker Hughes conspired to raise prices and squeeze out smaller competitors. According to the suit, the hydraulic fracturing boom attracted many new well service companies, leading the defendants to restrict the price of services in order to increase prices and the companies’ market share. Halliburton, Schlumberger, and Baker Hughes are the three largest publicly traded well service companies in the country, accounting for about 60% of U.S. marketshare. The suit asserts that it is filed on behalf of all companies that contracted with the defendants for well field services since May 29, 2011 and is seeking treble damages.
Encana moves into Michigan. Encana Corporation is planning to drill up to 500 wells in the Antrim and Collingwood shale plays, situated in the northern tier of Michigan’s Lower Peninsula. The company believes that both plays are rich in natural gas. Opposition groups are forming to block the project, claiming shale development will contaminate drinking water and cause earthquakes. Encana has been exploring the Antrim and Collingwood plays since 2009. Governor Rick Snyder is encouraging shale production, stating that it will bring jobs to Michigan.
Hess sells off energy marketing division. London-based Centrica PLC purchased Hess Corporation’s natural gas and electricity delivery unit for $1.03 billion. The unit, based in Woodbridge, New Jersey, provides gas and electricity to 23,000 area customers and will be run by Centrica’s U.S. subsidiary Direct Energy Business. The sale is part of Hess’ strategy to divest its downstream assets to focus on exploration and production. Hess has already sold off $4.5 billion in assets this year. Centrica, however, is looking to dramatically increase its North American presence within the next five years. The company is reportedly interested in acquiring pipeline and storage capacity from other U.S. companies.
M&A activity in energy sector down. Deloitte issued a report finding that mergers and acquisitions in the energy sector have fallen over last year. In the last half of 2012, there were 109 U.S. mergers and acquisitions worth $84.4 billion. The first half of 2013 saw 76 deals worth $34.5 billion. The report suggested several possibilities for the decline, including low natural gas and natural gas liquids prices, slowing economic growth in Asia, the potential for changes to energy tax policies, and a general industry transition from acquiring new assets to developing those assets. Further, “distress sales” of assets by companies struggling with debt have largely leveled off but may pick up in the future if independent exploration and production companies cannot weather a prolonged period of significant debts and low gas prices. The report did note that investment in master limited partnerships in the pipeline and midstream asset sector was doing very well, up to $25.1 billion in the first half of 2013 versus $18.7 billion in the second half of 2012.
Chemical tankers booming as chemical exports to Asia surge. The influx of low cost natural gas from hydraulic fracturing is leading to record U.S. chemical exports, especially to Asia where China is the largest importer of chemicals. The specialized tankers used to ship the chemicals are also setting records. Freight rates are at a five-year high and set for a 12% increase next year, according Norwegian investment bank RS Platou Markets AS. Norwegian tanker owner Stolt-Nielson is one of the biggest beneficiaries with Platou estimating shares to rise 24% over the next year with fleet use expected to approach 90%. Utilization may increase further in 2015 when several new U.S. chemical plants and unit expansions are expected to come on-line. Utilization on a ton-mile basis is further increased because shipping chemicals from the U.S. to Asia is a much longer trip than shipping from the Persian Gulf. Shippers are ordering new tankers, although they may not arrive in time to prevent shortages and higher shipping rates.
Research
Study of wells near Barnett Shale. A new study by a University of Texas-Arlington researcher, published in Environmental Science & Technology, found that wells closer to Barnett Shale drilling operations were more likely to have elevated levels of arsenic, strontium, and barium, although the study could not conclude that drilling caused contamination as other wells near the drilling did not have elevated contaminant levels and the researcher acknowledged there are other potential causes. The study examined 91 drinking water wells within 3 miles of a natural gas well and compared those to other wells, both within and outside the Barnett Shale, where there was no drilling. Nearly all of the wells contained some level of strontium and barium; 29 had arsenic concentrations above regulatory levels and two had selenium concentrations above regulatory levels. Comparisons to baseline data taken between 1989 and 1999 showed that water quality in many of the wells has declined.
Study of North Dakota flaring. Activist investor group Ceres issued a report finding that Bakken Shale oil drillers doubled the amount of natural gas flared since 2011. Ceres estimated that 266 million cubic feet of gas per day, with a current market value of nearly $1 billion, was burned off instead of being captured and sold. With the price of crude oil nearly 30 times higher than natural gas, there is little economic incentive to construct natural gas pipelines to the area and hence the infrastructure to sell the gas does not currently exist. Ceres urged that new regulations be adopted, while a spokesman from the North Dakota Department of Mineral Resources stated that new tax incentives to build pipelines should reduce flaring in the future.
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XTO settles alleged Clean Water Act violations. XTO, Exxon Mobil’s shale development subsidiary, settled the Environmental Protection Agency (“EPA”) claims of Clean Water Act violations related to discharges of wastewater into a tributary of the Susquehanna River in Pennsylvania. Under the consent decree, XTO will pay a $100,000 civil penalty and spend approximately $20 million on wastewater management improvements at its operations in Pennsylvania and West Virginia such as increased wastewater recycling, storage tank alarms, secondary containment, and other new equipment and operating practices.
Study: BLM underestimated costs of proposed rulemaking. A study prepared by John Dunham & Associates for the Western Energy Alliance estimates that the U.S. Bureau of Land Management’s (“BLM”) revised proposed regulations governing the use of hydraulic fracturing to develop federal oil and gas resources would impose $346 million per year in additional costs on about 3,400 wells. This is more than 15 times higher than BLM’s own estimate of the proposed rule’s cost, although less than the cost of BLM’s May 2012 original proposal. Even as revised, industry members have continued to express concerns about the proposal, including that BLM lacks the budget and staff to implement the proposed requirements, and has urged that regulation of onshore oil and gas development should remain state matters. The proposed rule states that BLM would defer to states that have regulations at least as stringent as these proposed federal rules, but includes no mechanism for making that determination. Bills have been introduced in the House of Representatives that would block the proposed rule from becoming law and shift regulatory responsibility to the state where the federal land or subsurface rights are located.
House hearing focuses on EPA hydraulic fracturing study. EPA’s hydraulic fracturing study was the focus of a Capital Hill hearing. Several members of the House Science, Space, and Technology Committee urged that EPA’s study focus on probable impacts, not “possible impacts,” fearing that the agency will rely on largely hypothetical scenarios to justify federal regulation. The EPA study was ordered by Congress in 2010 and will be the product of 18 separate agency research projects, including examinations on injection fluid chemicals, well construction standards, and impacts on water quality. EPA’s witness, Fred Hauchman, the director of the Office of Science Policy, stated that the study will not include a quantitative risk assessment but would still be valuable given the lack of research on potential impacts on sources of drinking water. He assured that industry, state regulators, and NGOs would all be able to provide input on the peer-reviewed study and he was confident that the study would produce “a useful report.”
EPA: injection wells should stop operating if they induce seismic activity. According to an EPA draft report, the agency could force waste disposal injection wells to shut down if they are found to cause seismic activity. The draft includes a “decision model” that also outlines a handful of less drastic options that operators could implement, such as reducing the injection volume. Some have attributed small seimic activity to injection wells located in Ohio, Oklahoma, and Arkansas, three states which are now doing substantial business in disposing of hydraulic fracturing wastewater. Although regulation of these wells is typically delegated to states, and the draft was characterized as guidance for state agencies, EPA’s draft report states that it still has the authority to step in and shut down the wells if they are believed to be responsible for inducing seismic events. State agencies in Arkansas, Ohio, and Texas have already shut down wells on these grounds. Development of the draft, however, stalled. Originally intended for peer-review before being released, EPA appears to have abandoned the project without explanation.
GAO to examine impact of shale development on transportation infrastructure. Senator Jay Rockefeller (D-WV), Chair of the Senate Commerce Committee, requested the Government Accountability Office (“GAO”) to review the potential impacts of shale development on the country’s transportation infrastructure. Citing recent railroad accidents involving tanker cars of crude oil, Sen. Rockefeller asked GAO to examine safety concerns along key transportation routes as well as the impacts of shale gas development in rural areas of West Virginia. High volumes of heavy truck traffic carrying equipment and supplies in connection with shale development have been a source of concern in some areas. The report is to provide recommendations regarding federal rail, pipeline, and highway transportation policies.
U.S. Dep’t of Justice investigating well service companies. Attorneys from the U.S. Department of Justice’s antitrust division issued a civil investigative demand to well service companies Halliburton and Baker Hughes. Representatives from the Department of Justice and the companies declined to provide details other than to say that the government requested two years’ worth of documents and information regarding allegedly anticompetitive practices related to oil and gas wellfield services.
States
North Carolina shale development bill fails. Backers of hydraulic fracturing in the North Carolina legislature failed to push through a bill allowing the practice within the state. This was the third failed attempt in 2013; however, Governor Pat McCrory and Senate leaders expressed optimism that the bill will either be raised again in a special session or in next year’s short session, beginning in May 2014. The bill would have lifted the existing moratorium, allowing the state to start issuing permits for hydraulic fracturing by mid-2015. The bill was supported by the North Carolina Department of Environment and Natural Resources, which would issue those permits. The regulatory package also would have established a severance tax on oil and gas production and several other provisions, such as the protection of proprietary information used in hydraulic fracturing fluids. By a narrow margin, however, the House rejected the package, with opponents asserting environmental concerns and claiming it was too late in the session to consider the bill.
Kansas proposes chemical disclosure rules. The Kansas Corporation Commission’s Oil and Gas Conservation Division proposed new rules that would require oil and natural gas companies to disclose the identity of non-proprietary chemicals used in hydraulic fracturing fluids. The Kansas Corporation Commission has permitted hydraulic fracturing since 1947 but does not have specific regulations governing the practice. The Commission will hold a hearing on the proposed rules on August 10, 2013.
Loveland, Colorado gets hydraulic fracturing moratorium on ballot. An environmental group succeeded in gathering enough signatures to put the question of whether the town of Loveland, Colorado should temporarily block hydraulic fracturing on a ballot. Petitions for the referendum, proposing a two-year moratorium, garnered 3,700 signatures. The initative was coordinated by a local environmental group called Protect Our Loveland.
North Dakota studying radioactive materials in drilling wastes. The North Dakota Department of Health is reviewing data on radioactive materials in wastewater from hydraulically fractured oil wells in the state’s Bakken Shale play. Naturally occurring radioactive materials can flow back up with wastewater. The state currently prohibits the disposal of materials registering at more than 5 picocuries. This requires drillers to ship wastes out of state, sometimes as far away as Texas. Depending on the results of the study, which may be completed by the end of the year, North Dakota may permit in-state disposal with additional regulatory safeguards.
International
British tax changes for shale gas takes shape. The U.K. previously announced that it would be reducing its taxes on natural gas exploration in order to encourage shale development. The substance of the tax changes began to take shape after the U.K. Treasury issued a consultation report. On-shore gas producers are currently subject to at least two taxes: the Ring Fence Corporation Tax and a Supplementary Charge, adding 32% to the company’s adjusted ring-fence profits. Wells that received development consent before March 1993 are subject to an additional Petroleum Revenue Tax. Together, they currently impose a 62% marginal tax rate on new wells and an 81% rate on the profits from older wells. The U.K. Treasury recommended that these rates be reduced through a “pad allowance” that exempts a portion of production from the Supplementary Charge based on the capital expenditures incurred for each well pad, with the first year allowing a 100% capital cost exemption. The recommendation also included other various offsets and allowance carryovers. According to the recommendation, this would off-set the high costs of developing the U.K.’s geologically challenging shale formation.
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XTO settles alleged Clean Water Act violations. XTO, Exxon Mobil’s shale development subsidiary, settled the Environmental Protection Agency (“EPA”) claims of Clean Water Act violations related to discharges of wastewater into a tributary of the Susquehanna River in Pennsylvania. Under the consent decree, XTO will pay a $100,000 civil penalty and spend approximately $20 million on wastewater management improvements at its operations in Pennsylvania and West Virginia such as increased wastewater recycling, storage tank alarms, secondary containment, and other new equipment and operating practices.
U.S. Fish & Wildlife postpones sage grouse decision. The U.S. Fish & Wildlife Service (“FWS”) has delayed until March 2014 its decision whether to list the Gunnison sage grouse as an endangered species. Listing the bird as endangered would restrict businesses, ranching, and residential development in Colorado and Utah. In a proposed rulemaking, FWS has stated that residential and infrastructure development is destroying the bird’s habitat and outlined plans to designate 1.7 million acres as critical sage grouse habitat. Environmental groups blame shale development for degrading the bird’s habitat. In delaying its decision, FWS cited “substantial disagreement” regarding population data, residential growth projections, the success of existing conservation measures, and other relevant considerations.
NGOs may challenge BLM oil and gas leases. Several environmental groups have filed a protest claiming the U.S. Bureau of Land Management (“BLM”) recent oil and gas lease sales in New Mexico’s Otero County were performed under a deficient resource management plan. BLM has acknowledged that the White Sands plan, prepared in 1986 before the common use of horizontal drilling with hydraulic fracturing, is “insufficient for the management of the resource.” A challenge to BLM’s previous attempt to update the plan was sustained by the Tenth Circuit; however BLM said that it carefully examined the parcels in this sale to make sure there would be no significant impacts to wildlife or drinking water resources.
States
Hess, Newfields cancel leases in Northeast Pennsylvania. A joint venture between Hess Corp. and Newfield Exploration Company cancelled leases on parcels within the jurisdiction of the Delaware River Basin Commission. The companies stated there were business reasons for the cancelation, although the Commission’s continuing moratorium on the use of hydraulic fracturing while it considers draft regulations governing development in the area presumably contributed to the action. The Northern Wayne Property Owners Alliance had negotiated a master lease on behalf of approximately 1,300 landowners who had received approximately $150 million in front payments. The cancelation cost the landowners approximately $187 million in anticipated future royalty payments.
Oregon moves to challenge FERC’s LNG terminal siting authority. The Oregon Department of Energy and other state agencies moved to intervene in proceedings regarding Oregon LNG’s application to build a $6.3 billion LNG export terminal on the Columbia River in Warrenton, Oregon. Oregon opposes FERC’s use of its conditional order authority to make siting determinations, arguing the orders are contrary to state law, as well as the Clean Air Act and Clean Water Act. Oregon previously petitioned for review of a 2009 FERC conditional order authorizing a different LNG terminal. The Ninth Circuit found the applicant’s bankruptcy mooted the challenge and declined to reach the merits.
NGOs prepare to sue Pennsylvania treatment company. Clean Water Action issued a notice of intent to sue Waste Treatment Corporation for alleged violations of the Clean Water Act, Endangered Species Act, and Pennsylvania’s Clean Streams. The group claims sampling of the Allegheny River by Pennsylvania DEP proves unlawful discharges of drilling wastewater, as shown by allegedly elevated levels of salts, metals, and naturally occurring radioactive materials. The company denied the allegations and stated it was operating in compliance with its permit.
Research
DOE study finds no evidence that fracturing fluid impacts aquifers. Researchers that recently concluded a year long study by the U.S. Department of Energy (“DOE”) have preliminarily determined that there is no evidence that chemicals in hydraulic fracturing fluid migrated into aquifers. Instead, the chemicals stayed trapped in the well bore 8,000 feet below ground. DOE researchers tagged fracturing fluid chemicals with a marker before injection at a western Pennsylvania drill site. After a year, the chemicals had not been detected at a monitoring zone 5,000 below ground, or about a mile beneath shallow aquifers used for drinking water supplies. The results will be officially published within a few months.
International
Chevron signs on to develop Argentina shale play. Chevron has agreed to a joint venture with Argentina’s state-owned oil company Yacimientos Petroliferos Fiscales (“YPF”) to develop the country’s Vaca Muerta shale formation. Under the agreement, Chevron will spend $1.24 billion to drill approximately 100 wells with each company receiving 50% of the proceeds. This is Argentina’s first deal with a foreign company since the government took over YPF from Spain’s Repsol S.A. last year. Repsol is suing Argentina for $10.5 billion and has promised to sue any companies that do business with YPF, including Chevron. The U.S. Energy Information Administration estimates that Argentina has the third largest shale gas reserves in the world.
U.K. considering incentives for shale development. To incentivize development, the U.K. government is considering reducing the tax on income from shale gas, as well as a plan to offer municipalities £100,000 per well site plus up to 1% of production revenues. Environmental groups criticized the plan, arguing that hydraulic fracturing carries environmental risks and should not be encouraged. The British Geological Survey has estimated the U.K. may have 1,300 trillion cubic feet of shale gas, with most of it concentrated in Lancashire’s Bowland Basin. Although some in industry have estimated that only 10% of the reserves are technically and economically recoverable, that would still boost energy security in a country that consumes approximately three trillion cubic feet of gas per year.
Hollande: no hydraulic fracturing in France. In a television interview, French President François Hollande declared that there will never be hydraulic fracturing in France so long as he is president and that debate over its future is over. France banned hydraulic fracturing in 2011, but there has been a recent industry push to allow for development bolstered by a parliamentary commission recommending a reassessment of the policy. The push had gained enough momentum that commentators speculated that former Environmental Minister Delphine Batho was fired for her criticisms of hydraulic fracturing. President Hollande denied the speculation, appointing Phillippe Martin as the new Environmental Minister who is equally as critical of hydraulic fracturing as his predecessor.
OECD begins examination of fracturing fluid chemicals. The Organization for Economic Cooperation and Development (“OECD”), an influential international economic organization, approved a study of data availability regarding potential hazards of chemicals commonly used in hydraulic fracturing fluids. OECD will also survey member countries, including the United States, to determine how they assess fracturing fluid chemicals. Future projects may include developing methodologies for estimating environmental exposure to the chemicals.
Business
Developers exploring Devonian shale. A number of companies—Consol Energy, Rex Energy, and Range Resources—are now exploring the Upper Devonian shale and sandstone layer lying a few hundred feet above the Marcellus Shale play. Consol recently drilled a 12,490 foot exploration well into the Upper Devonian in Western Pennsylvania, an area where the Marcellus shale, Utica Shale, and Upper Devonian are stacked on top of each other. Although the exploratory well produced about a third of the gas found in a typical Marcellus well, the companies stated that the Upper Devonian is seen as a potential long-term shale play.
Natural gas liquids supply pushing down prices. Natural gas liquids (“NGLs”), such as propane, butane, and ethane, have become as abundant as methane, but customer demand has not yet absorbed the new supply. Wells Fargo Securities estimates NGL production will jump to 950 million barrels per day, compared to 210 million barrels per day in 2012. NGLs are used to manufacture plastics and specialty chemicals and companies are building plants or export terminals to take advantage of the supply. These new demand sources, however, will not begin operating until at least 2016. Until then, abundant supply has pushed down ethane prices from $15.88 per MMBtu in 2011 to $9.50 per MMBtu in March 2013.
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This Week in Hydraulic Fracturing
Volume 2, No. 31
Federal
BLM to study hydraulic fracturing on public lands in California. The Bureau of Land Management (“BLM”) announced it will prepare an environmental impact statement (“EIS”) to study the potential impacts of hydraulic fracturing in central California’s Monterey Shale formation. Based on the findings, BLM could amend the area’s resource management plan for oil and gas development on federal lands. With the state, BLM will concurrently review scientific literature regarding potential seismic impacts from drilling. The seismicity study will be led by the California Council on Science and Technology and will undergo peer review before publication and incorporation into the EIS. The studies were announced in response to a court ruling finding BLM violated the National Environmental Policy Act (“NEPA”) by issuing leases for hydraulic fracturing without adequately considering its potential environmental impacts.
BLM plan to allow oil and gas exploration in Montana struck down. The Ninth Circuit remanded a 2008 U.S. BLM plan to allow oil and gas exploration in an area of Montana designated as a national monument in 2001. The Montana Wilderness Association argued BLM’s plan violated the Federal Land Policy and Management Act, NEPA, and the National Historic Preservation Act (“NHPA”) when it allowed for exploration activities in the Upper Missouri River Breaks National Monument. The court found BLM violated the NHPA when it failed to consider the effect of increased traffic on historic areas, such as survey stations established by explorer Meriwether Lewis.
House Committee votes to block BLM hydraulic fracturing rules. The House Natural Resources Committee voted to advance a bill that would block BLM from finalizing its proposed regulation of hydraulic fracturing on federal land. Instead, state regulations would govern drilling activities. The bill’s proponents criticized the proposed BLM rule as duplicative and unnecessary. Although the bill may pass the House, it is not expected to pass the Senate.
Senators seek clarification on DOE power to revoke LNG export permits. Senate Energy and Natural Resources Committee Chairman Ron Wyden (D-Or.) and ranking member Lisa Murkowski (R-Alaska) wrote U.S. Department of Energy (“DOE”) Secretary Ernest Moniz asking whether DOE was empowered to revoke previously approved permits to export liquefied natural gas (“LNG”) to non-free trade countries. Sen. Wyden has asserted that exports could be restricted if domestic gas prices reach levels that weaken U.S. manufacturing and power sectors. DOE likewise has stated it could revoke or modify permits under “appropriate circumstances,” but the Senators are asking DOE to define the “appropriate circumstances” standard as well as whether DOE would consider the cumulative impact of natural gas exports and whether LNG exporters would receive a hearing before their permits were cancelled or modified.
House members seek answers on EPA water investigations. Members of the U.S. House of Representatives wrote EPA Administrator Gina McCarthy asking why the agency began investigations into claims of drinking water impacts from hydraulic fracturing in Pennsylvania, Texas, and Wyoming. After several years of investigation, EPA declined to take action in each case, engendering criticism from both hydraulic fracturing proponents and environmental groups. The representatives asked how often EPA has used its emergency powers under the Safe Drinking Water Act to investigate such claims and how it determines that “appropriate State and local authorities have not acted.”
States
Halek Operating ND fined $1.5 million. The North Dakota Industrial Commission fined Halek Operating ND LLC $1.5 million, the maximum possible, for the illegal disposal of wastewater in underground injection wells. The Commission is also pursuing criminal charges against Nathan Garber, the president of Executive Drilling, which bought the wastewater disposal site from Halek and allegedly continued the illegal disposal practices. According to the Commission, Garber instructed workers to mislead state inspectors regarding the company’s disposal practices. The wastewater was from hydraulic fracturing operations in the Bakken shale play.
Pennsylvania to monitor air quality in Marcellus Shale play. The Pennsylvania Department of Environmental Protection (“PDEP”) will be monitoring air quality at wells and compressor stations in southwestern Pennsylvania. Although PDEP recently imposed more stringent air emission standards for compressors, and prior PDEP studies showed that the area met federal ambient air quality standards, residents and activists have raised concerned about potential health impacts to residents living near gas well sites. A report on the findings will be issued in early 2014.
Colorado County blocks natural gas liquids pipeline. The Adams County Colorado Commission rejected a proposed route for the Front Range pipeline, a 435 mile pipeline that would carry natural gas liquids from Northern Colorado to Texas. The project is a joint venture of Anadarko Petroleum, Enterprise Products Partners, and DCP Midstream Partners. The Commission stated the pipeline would interfere with the county’s economic development plans. A project spokesman stated that it would continue to work with the county on a more acceptable route but that it was also considering its legal options.
Business
Platts creates new oil pricing index. Platts, the commodities pricing company, has created a new Light Houston Sweet daily assessment price. Previously, “the price of crude oil” has always referenced the West Texas Intermediate (“WTI”) index price at the New York Mercantile Exchange. For WTI, the benchmark price settlement point is in Cushing, Oklahoma, where terminals collect crude oil from Midwest production wells and imported oil from Houston before shipping to coastal refineries. Hydraulic fracturing, however, has led to pipelines and railway lines that allow crude oil to bypass Cushing and to go directly to refineries. The Light Houston Sweet price will be based on spot prices at three Houston crude oil terminals which Platts hopes will make for pricing that is more relevant for regional traders.
Pioneer Resources bets big on Spraberry/Wolfcamp field. Independent exploration and production company Pioneer Natural Resources Company is planning to spend $1.6 billion, half of its capital budget, on developing the Spraberry/Wolfcamp field. Many companies have been deterred from developing the field due to difficult geology, but Pioneer believes the field holds 50 billion barrels of recoverable oil and gas, second only to Saudi Arabia’s Ghawar oil field. Their research shows that shale strata in the field are several thousand feet thick, as opposed to a few hundred feet thick in most other plays. Pioneer plans on using a “stacked lateral” drilling method where horizontal wells are drilled below each other. This would allow the company to drill 30 to 40 wells from a single well pad.
Reinsurance industry seeking more data on risks. It has been reported that the reinsurance industry wants more information on the potential hazards of hydraulic fracturing in U.S. shale plays before determining whether to provide insurance policies and at what cost. Among other things, reinsurers are seeking a clearer set of best operating practices from oil and gas companies and are struggling with conflicting claims about risks from hydraulic fracturing. Among these best practices could be criteria for pre-drilling evaluations that identify abandoned wells, potential seismicity, shallow gas zones, and risks to aquifers; baseline sampling of nearby water wells; the disclosure of hydraulic fracturing fluid chemicals; and the use of a “closed loop” system for wastewater. Companies now largely cover shale play development with self insurance and surety bonds. Satisfying reinsurers, however, may become more important.
Oil company sues well field service companies for price fixing. Citing a U.S. Department of Justice investigation into the possibility of anticompetitive practices, Cherry Canyon Resources LP filed a class action suit in federal court alleging that Halliburton, Schlumberger, and Baker Hughes conspired to raise prices and squeeze out smaller competitors. According to the suit, the hydraulic fracturing boom attracted many new well service companies, leading the defendants to restrict the price of services in order to increase prices and the companies’ market share. Halliburton, Schlumberger, and Baker Hughes are the three largest publicly traded well service companies in the country, accounting for about 60% of U.S. marketshare. The suit asserts that it is filed on behalf of all companies that contracted with the defendants for well field services since May 29, 2011 and is seeking treble damages.
Encana moves into Michigan. Encana Corporation is planning to drill up to 500 wells in the Antrim and Collingwood shale plays, situated in the northern tier of Michigan’s Lower Peninsula. The company believes that both plays are rich in natural gas. Opposition groups are forming to block the project, claiming shale development will contaminate drinking water and cause earthquakes. Encana has been exploring the Antrim and Collingwood plays since 2009. Governor Rick Snyder is encouraging shale production, stating that it will bring jobs to Michigan.
Hess sells off energy marketing division. London-based Centrica PLC purchased Hess Corporation’s natural gas and electricity delivery unit for $1.03 billion. The unit, based in Woodbridge, New Jersey, provides gas and electricity to 23,000 area customers and will be run by Centrica’s U.S. subsidiary Direct Energy Business. The sale is part of Hess’ strategy to divest its downstream assets to focus on exploration and production. Hess has already sold off $4.5 billion in assets this year. Centrica, however, is looking to dramatically increase its North American presence within the next five years. The company is reportedly interested in acquiring pipeline and storage capacity from other U.S. companies.
M&A activity in energy sector down. Deloitte issued a report finding that mergers and acquisitions in the energy sector have fallen over last year. In the last half of 2012, there were 109 U.S. mergers and acquisitions worth $84.4 billion. The first half of 2013 saw 76 deals worth $34.5 billion. The report suggested several possibilities for the decline, including low natural gas and natural gas liquids prices, slowing economic growth in Asia, the potential for changes to energy tax policies, and a general industry transition from acquiring new assets to developing those assets. Further, “distress sales” of assets by companies struggling with debt have largely leveled off but may pick up in the future if independent exploration and production companies cannot weather a prolonged period of significant debts and low gas prices. The report did note that investment in master limited partnerships in the pipeline and midstream asset sector was doing very well, up to $25.1 billion in the first half of 2013 versus $18.7 billion in the second half of 2012.
Chemical tankers booming as chemical exports to Asia surge. The influx of low cost natural gas from hydraulic fracturing is leading to record U.S. chemical exports, especially to Asia where China is the largest importer of chemicals. The specialized tankers used to ship the chemicals are also setting records. Freight rates are at a five-year high and set for a 12% increase next year, according Norwegian investment bank RS Platou Markets AS. Norwegian tanker owner Stolt-Nielson is one of the biggest beneficiaries with Platou estimating shares to rise 24% over the next year with fleet use expected to approach 90%. Utilization may increase further in 2015 when several new U.S. chemical plants and unit expansions are expected to come on-line. Utilization on a ton-mile basis is further increased because shipping chemicals from the U.S. to Asia is a much longer trip than shipping from the Persian Gulf. Shippers are ordering new tankers, although they may not arrive in time to prevent shortages and higher shipping rates.
Research
Study of wells near Barnett Shale. A new study by a University of Texas-Arlington researcher, published in Environmental Science & Technology, found that wells closer to Barnett Shale drilling operations were more likely to have elevated levels of arsenic, strontium, and barium, although the study could not conclude that drilling caused contamination as other wells near the drilling did not have elevated contaminant levels and the researcher acknowledged there are other potential causes. The study examined 91 drinking water wells within 3 miles of a natural gas well and compared those to other wells, both within and outside the Barnett Shale, where there was no drilling. Nearly all of the wells contained some level of strontium and barium; 29 had arsenic concentrations above regulatory levels and two had selenium concentrations above regulatory levels. Comparisons to baseline data taken between 1989 and 1999 showed that water quality in many of the wells has declined.
Study of North Dakota flaring. Activist investor group Ceres issued a report finding that Bakken Shale oil drillers doubled the amount of natural gas flared since 2011. Ceres estimated that 266 million cubic feet of gas per day, with a current market value of nearly $1 billion, was burned off instead of being captured and sold. With the price of crude oil nearly 30 times higher than natural gas, there is little economic incentive to construct natural gas pipelines to the area and hence the infrastructure to sell the gas does not currently exist. Ceres urged that new regulations be adopted, while a spokesman from the North Dakota Department of Mineral Resources stated that new tax incentives to build pipelines should reduce flaring in the future.
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This Week in Hydraulic Fracturing
Volume 2, No. 30
Federal
XTO settles alleged Clean Water Act violations. XTO, Exxon Mobil’s shale development subsidiary, settled the Environmental Protection Agency (“EPA”) claims of Clean Water Act violations related to discharges of wastewater into a tributary of the Susquehanna River in Pennsylvania. Under the consent decree, XTO will pay a $100,000 civil penalty and spend approximately $20 million on wastewater management improvements at its operations in Pennsylvania and West Virginia such as increased wastewater recycling, storage tank alarms, secondary containment, and other new equipment and operating practices.
Study: BLM underestimated costs of proposed rulemaking. A study prepared by John Dunham & Associates for the Western Energy Alliance estimates that the U.S. Bureau of Land Management’s (“BLM”) revised proposed regulations governing the use of hydraulic fracturing to develop federal oil and gas resources would impose $346 million per year in additional costs on about 3,400 wells. This is more than 15 times higher than BLM’s own estimate of the proposed rule’s cost, although less than the cost of BLM’s May 2012 original proposal. Even as revised, industry members have continued to express concerns about the proposal, including that BLM lacks the budget and staff to implement the proposed requirements, and has urged that regulation of onshore oil and gas development should remain state matters. The proposed rule states that BLM would defer to states that have regulations at least as stringent as these proposed federal rules, but includes no mechanism for making that determination. Bills have been introduced in the House of Representatives that would block the proposed rule from becoming law and shift regulatory responsibility to the state where the federal land or subsurface rights are located.
House hearing focuses on EPA hydraulic fracturing study. EPA’s hydraulic fracturing study was the focus of a Capital Hill hearing. Several members of the House Science, Space, and Technology Committee urged that EPA’s study focus on probable impacts, not “possible impacts,” fearing that the agency will rely on largely hypothetical scenarios to justify federal regulation. The EPA study was ordered by Congress in 2010 and will be the product of 18 separate agency research projects, including examinations on injection fluid chemicals, well construction standards, and impacts on water quality. EPA’s witness, Fred Hauchman, the director of the Office of Science Policy, stated that the study will not include a quantitative risk assessment but would still be valuable given the lack of research on potential impacts on sources of drinking water. He assured that industry, state regulators, and NGOs would all be able to provide input on the peer-reviewed study and he was confident that the study would produce “a useful report.”
EPA: injection wells should stop operating if they induce seismic activity. According to an EPA draft report, the agency could force waste disposal injection wells to shut down if they are found to cause seismic activity. The draft includes a “decision model” that also outlines a handful of less drastic options that operators could implement, such as reducing the injection volume. Some have attributed small seimic activity to injection wells located in Ohio, Oklahoma, and Arkansas, three states which are now doing substantial business in disposing of hydraulic fracturing wastewater. Although regulation of these wells is typically delegated to states, and the draft was characterized as guidance for state agencies, EPA’s draft report states that it still has the authority to step in and shut down the wells if they are believed to be responsible for inducing seismic events. State agencies in Arkansas, Ohio, and Texas have already shut down wells on these grounds. Development of the draft, however, stalled. Originally intended for peer-review before being released, EPA appears to have abandoned the project without explanation.
GAO to examine impact of shale development on transportation infrastructure. Senator Jay Rockefeller (D-WV), Chair of the Senate Commerce Committee, requested the Government Accountability Office (“GAO”) to review the potential impacts of shale development on the country’s transportation infrastructure. Citing recent railroad accidents involving tanker cars of crude oil, Sen. Rockefeller asked GAO to examine safety concerns along key transportation routes as well as the impacts of shale gas development in rural areas of West Virginia. High volumes of heavy truck traffic carrying equipment and supplies in connection with shale development have been a source of concern in some areas. The report is to provide recommendations regarding federal rail, pipeline, and highway transportation policies.
U.S. Dep’t of Justice investigating well service companies. Attorneys from the U.S. Department of Justice’s antitrust division issued a civil investigative demand to well service companies Halliburton and Baker Hughes. Representatives from the Department of Justice and the companies declined to provide details other than to say that the government requested two years’ worth of documents and information regarding allegedly anticompetitive practices related to oil and gas wellfield services.
States
North Carolina shale development bill fails. Backers of hydraulic fracturing in the North Carolina legislature failed to push through a bill allowing the practice within the state. This was the third failed attempt in 2013; however, Governor Pat McCrory and Senate leaders expressed optimism that the bill will either be raised again in a special session or in next year’s short session, beginning in May 2014. The bill would have lifted the existing moratorium, allowing the state to start issuing permits for hydraulic fracturing by mid-2015. The bill was supported by the North Carolina Department of Environment and Natural Resources, which would issue those permits. The regulatory package also would have established a severance tax on oil and gas production and several other provisions, such as the protection of proprietary information used in hydraulic fracturing fluids. By a narrow margin, however, the House rejected the package, with opponents asserting environmental concerns and claiming it was too late in the session to consider the bill.
Kansas proposes chemical disclosure rules. The Kansas Corporation Commission’s Oil and Gas Conservation Division proposed new rules that would require oil and natural gas companies to disclose the identity of non-proprietary chemicals used in hydraulic fracturing fluids. The Kansas Corporation Commission has permitted hydraulic fracturing since 1947 but does not have specific regulations governing the practice. The Commission will hold a hearing on the proposed rules on August 10, 2013.
Loveland, Colorado gets hydraulic fracturing moratorium on ballot. An environmental group succeeded in gathering enough signatures to put the question of whether the town of Loveland, Colorado should temporarily block hydraulic fracturing on a ballot. Petitions for the referendum, proposing a two-year moratorium, garnered 3,700 signatures. The initative was coordinated by a local environmental group called Protect Our Loveland.
North Dakota studying radioactive materials in drilling wastes. The North Dakota Department of Health is reviewing data on radioactive materials in wastewater from hydraulically fractured oil wells in the state’s Bakken Shale play. Naturally occurring radioactive materials can flow back up with wastewater. The state currently prohibits the disposal of materials registering at more than 5 picocuries. This requires drillers to ship wastes out of state, sometimes as far away as Texas. Depending on the results of the study, which may be completed by the end of the year, North Dakota may permit in-state disposal with additional regulatory safeguards.
International
British tax changes for shale gas takes shape. The U.K. previously announced that it would be reducing its taxes on natural gas exploration in order to encourage shale development. The substance of the tax changes began to take shape after the U.K. Treasury issued a consultation report. On-shore gas producers are currently subject to at least two taxes: the Ring Fence Corporation Tax and a Supplementary Charge, adding 32% to the company’s adjusted ring-fence profits. Wells that received development consent before March 1993 are subject to an additional Petroleum Revenue Tax. Together, they currently impose a 62% marginal tax rate on new wells and an 81% rate on the profits from older wells. The U.K. Treasury recommended that these rates be reduced through a “pad allowance” that exempts a portion of production from the Supplementary Charge based on the capital expenditures incurred for each well pad, with the first year allowing a 100% capital cost exemption. The recommendation also included other various offsets and allowance carryovers. According to the recommendation, this would off-set the high costs of developing the U.K.’s geologically challenging shale formation.
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This Week in Hydraulic Fracturing
Volume 2, No. 29
Federal
XTO settles alleged Clean Water Act violations. XTO, Exxon Mobil’s shale development subsidiary, settled the Environmental Protection Agency (“EPA”) claims of Clean Water Act violations related to discharges of wastewater into a tributary of the Susquehanna River in Pennsylvania. Under the consent decree, XTO will pay a $100,000 civil penalty and spend approximately $20 million on wastewater management improvements at its operations in Pennsylvania and West Virginia such as increased wastewater recycling, storage tank alarms, secondary containment, and other new equipment and operating practices.
U.S. Fish & Wildlife postpones sage grouse decision. The U.S. Fish & Wildlife Service (“FWS”) has delayed until March 2014 its decision whether to list the Gunnison sage grouse as an endangered species. Listing the bird as endangered would restrict businesses, ranching, and residential development in Colorado and Utah. In a proposed rulemaking, FWS has stated that residential and infrastructure development is destroying the bird’s habitat and outlined plans to designate 1.7 million acres as critical sage grouse habitat. Environmental groups blame shale development for degrading the bird’s habitat. In delaying its decision, FWS cited “substantial disagreement” regarding population data, residential growth projections, the success of existing conservation measures, and other relevant considerations.
NGOs may challenge BLM oil and gas leases. Several environmental groups have filed a protest claiming the U.S. Bureau of Land Management (“BLM”) recent oil and gas lease sales in New Mexico’s Otero County were performed under a deficient resource management plan. BLM has acknowledged that the White Sands plan, prepared in 1986 before the common use of horizontal drilling with hydraulic fracturing, is “insufficient for the management of the resource.” A challenge to BLM’s previous attempt to update the plan was sustained by the Tenth Circuit; however BLM said that it carefully examined the parcels in this sale to make sure there would be no significant impacts to wildlife or drinking water resources.
States
Hess, Newfields cancel leases in Northeast Pennsylvania. A joint venture between Hess Corp. and Newfield Exploration Company cancelled leases on parcels within the jurisdiction of the Delaware River Basin Commission. The companies stated there were business reasons for the cancelation, although the Commission’s continuing moratorium on the use of hydraulic fracturing while it considers draft regulations governing development in the area presumably contributed to the action. The Northern Wayne Property Owners Alliance had negotiated a master lease on behalf of approximately 1,300 landowners who had received approximately $150 million in front payments. The cancelation cost the landowners approximately $187 million in anticipated future royalty payments.
Oregon moves to challenge FERC’s LNG terminal siting authority. The Oregon Department of Energy and other state agencies moved to intervene in proceedings regarding Oregon LNG’s application to build a $6.3 billion LNG export terminal on the Columbia River in Warrenton, Oregon. Oregon opposes FERC’s use of its conditional order authority to make siting determinations, arguing the orders are contrary to state law, as well as the Clean Air Act and Clean Water Act. Oregon previously petitioned for review of a 2009 FERC conditional order authorizing a different LNG terminal. The Ninth Circuit found the applicant’s bankruptcy mooted the challenge and declined to reach the merits.
NGOs prepare to sue Pennsylvania treatment company. Clean Water Action issued a notice of intent to sue Waste Treatment Corporation for alleged violations of the Clean Water Act, Endangered Species Act, and Pennsylvania’s Clean Streams. The group claims sampling of the Allegheny River by Pennsylvania DEP proves unlawful discharges of drilling wastewater, as shown by allegedly elevated levels of salts, metals, and naturally occurring radioactive materials. The company denied the allegations and stated it was operating in compliance with its permit.
Research
DOE study finds no evidence that fracturing fluid impacts aquifers. Researchers that recently concluded a year long study by the U.S. Department of Energy (“DOE”) have preliminarily determined that there is no evidence that chemicals in hydraulic fracturing fluid migrated into aquifers. Instead, the chemicals stayed trapped in the well bore 8,000 feet below ground. DOE researchers tagged fracturing fluid chemicals with a marker before injection at a western Pennsylvania drill site. After a year, the chemicals had not been detected at a monitoring zone 5,000 below ground, or about a mile beneath shallow aquifers used for drinking water supplies. The results will be officially published within a few months.
International
Chevron signs on to develop Argentina shale play. Chevron has agreed to a joint venture with Argentina’s state-owned oil company Yacimientos Petroliferos Fiscales (“YPF”) to develop the country’s Vaca Muerta shale formation. Under the agreement, Chevron will spend $1.24 billion to drill approximately 100 wells with each company receiving 50% of the proceeds. This is Argentina’s first deal with a foreign company since the government took over YPF from Spain’s Repsol S.A. last year. Repsol is suing Argentina for $10.5 billion and has promised to sue any companies that do business with YPF, including Chevron. The U.S. Energy Information Administration estimates that Argentina has the third largest shale gas reserves in the world.
U.K. considering incentives for shale development. To incentivize development, the U.K. government is considering reducing the tax on income from shale gas, as well as a plan to offer municipalities £100,000 per well site plus up to 1% of production revenues. Environmental groups criticized the plan, arguing that hydraulic fracturing carries environmental risks and should not be encouraged. The British Geological Survey has estimated the U.K. may have 1,300 trillion cubic feet of shale gas, with most of it concentrated in Lancashire’s Bowland Basin. Although some in industry have estimated that only 10% of the reserves are technically and economically recoverable, that would still boost energy security in a country that consumes approximately three trillion cubic feet of gas per year.
Hollande: no hydraulic fracturing in France. In a television interview, French President François Hollande declared that there will never be hydraulic fracturing in France so long as he is president and that debate over its future is over. France banned hydraulic fracturing in 2011, but there has been a recent industry push to allow for development bolstered by a parliamentary commission recommending a reassessment of the policy. The push had gained enough momentum that commentators speculated that former Environmental Minister Delphine Batho was fired for her criticisms of hydraulic fracturing. President Hollande denied the speculation, appointing Phillippe Martin as the new Environmental Minister who is equally as critical of hydraulic fracturing as his predecessor.
OECD begins examination of fracturing fluid chemicals. The Organization for Economic Cooperation and Development (“OECD”), an influential international economic organization, approved a study of data availability regarding potential hazards of chemicals commonly used in hydraulic fracturing fluids. OECD will also survey member countries, including the United States, to determine how they assess fracturing fluid chemicals. Future projects may include developing methodologies for estimating environmental exposure to the chemicals.
Business
Developers exploring Devonian shale. A number of companies—Consol Energy, Rex Energy, and Range Resources—are now exploring the Upper Devonian shale and sandstone layer lying a few hundred feet above the Marcellus Shale play. Consol recently drilled a 12,490 foot exploration well into the Upper Devonian in Western Pennsylvania, an area where the Marcellus shale, Utica Shale, and Upper Devonian are stacked on top of each other. Although the exploratory well produced about a third of the gas found in a typical Marcellus well, the companies stated that the Upper Devonian is seen as a potential long-term shale play.
Natural gas liquids supply pushing down prices. Natural gas liquids (“NGLs”), such as propane, butane, and ethane, have become as abundant as methane, but customer demand has not yet absorbed the new supply. Wells Fargo Securities estimates NGL production will jump to 950 million barrels per day, compared to 210 million barrels per day in 2012. NGLs are used to manufacture plastics and specialty chemicals and companies are building plants or export terminals to take advantage of the supply. These new demand sources, however, will not begin operating until at least 2016. Until then, abundant supply has pushed down ethane prices from $15.88 per MMBtu in 2011 to $9.50 per MMBtu in March 2013.
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