HBW Resources: Ollison Hydraulic Fracturing Report
The US Shale Gas Boom & Manufacturing Renaissance Continue as a direct result of technological innovation, directional drilling, and hydraulic fracturing.
Below is a summary of publicly available activities currently underway at the federal, state and international levels that could impact the use of hydraulic fracturing for oil and gas extraction. With numerous state legislatures now in session, HBW Resources is monitoring these activities to ensure that responsible and feasible policies based on sound science are advanced.
State Legislative Update: Please see linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.
Just months after California voters passed Proposition 30 to stave off education cuts, a push is under way to ensure that the next stream of higher education funding flows out of the ground. The idea of an oil severance tax has been bubbling for years, but proponents have been unable to surmount intense lobbying from the energy industry. Senate Bill 241, introduced by Sen. Noreen Evans (D, District 2), would impose a tax on harvesting oil and gas. Evans hopes to replicate the winning strategy adopted by Proposition 30 backers, framing her bill in terms of its impact on students.
Boulder County’s moratorium on processing new applications for oil and gas drilling in unincorporated areas will end, as scheduled, on June 10, 2013. The Board of County Commissioners also decided, however, to try to limit the numbers and locations of new well sites that will be allowed under the county’s land-use regulations over the next year or two — and to inspect and monitor those wells closely to ensure they’re complying with Boulder County’s new Land Use Code regulations governing such oil and gas development.
U.S. Representative Cory Gardner (R, CO 4) wrote an op-ed, Hold on to rights, Colorado, in the Denver Post focused on the importance of continuing to have states regulate themselves and the positive economic benefits of hydraulic fracturing and horizontal drilling. Rep. Gardner stated, “Western states have long regulated fracking activities on both private and public land, and President Barack Obama’s own EPA concedes the effectiveness of these state regulations.”
The Fort Collins City Council voted 4-3 to overturn a hydraulic fracking ban, Ordinance No. 057, 2013 that had initially passed on February 19, 2013. The mayor pro tem cited an impending threat of a lawsuit from the lone driller, Prospect Energy that is operating in Fort Collins for why he changed his vote. In addition to allowing Prospect Energy to resume fracking its current well pads, Fort Collins will soon open up two new square miles of land for fracking around the Anheuser-Busch brewery along Interstate 25.
HB 2615, introduced by Rep. John E. Bradley (D, District 117) was approved in the House Executive Committee, 11-0. The “Hydraulic Fracturing Regulatory Act” prohibits high volume horizontal hydraulic fracturing operations performed without a permit; also regulates where high volume horizontal hydraulic fracturing operations are proposed, planned or occurring may be located; provides requirements for permit applications, modification, suspension and revocation of permits, insurance well construction and drilling, disclosures, water monitoring, investigation and enforcement, violations and penalties, and administrative review; authorizes Department of Natural Resources to adopt rules as may be necessary to accomplish the purposes of the Act; created the Mines and Minerals Regulatory Fund.
A report by the LSU Center for Energy Studies indicates that recent natural gas studies in northwest Louisiana could inject approximately $62.3 billion in capital investment across the state. The report determined that there was a “symbiotic relationship between natural gas prices and Louisiana’s energy-intensive manufacturing base. Dozens of new plants and plant expansions are in the pipeline in the southern Louisiana because of the availability and low price of natural gas. The natural gas discoveries in north Louisiana and the new manufacturing facilities in the state are expected to generate more than 214,000 new jobs over the next nine years.
The Cannon Township Board voted unanimously to impose a six-month moratorium on oil and gas operations while they explore regulations that may not be covered by the Michigan Supervisor of Wells, who has exclusive jurisdiction of oil and gas wells. The board voted on this in spite of a memorandum provided by the Township’s attorney that stated the moratorium would be unenforceable.
State officials are getting the answer they wanted when they extended a lucrative tax break to energy production companies prepared to drill horizontal wells more than 10,000 feet below ground to reach the Tuscaloosa Marine Shale (TMS). The expectation is to extract oil and liquid natural gas that drillers have known about but only in recent years have perfected a cost-effective hydraulic fracturing technique that frees the oil and gas from the shale deposits.
The Town of Canandaigua approved a local law to extend a moratorium on high-volume hydraulic fracturing by nine months. The extra time will be used to work on a potential permanent ban of the controversial gas drilling method known as hydrofracking. The moratorium is not just for fracking, but any large scale natural resource extraction. The Town Board passed the original 18-month fracking moratorium in December 2011. It was set to expire June 22, 2013. The extended moratorium will now run until March 22, 2014. The new extension is similar to the one that was passed in 2011.
Ohio Department of Natural Resources Director James Zehringer said during a press conference announcing the, “State of Play” that during 2012 within the Utica Shale, the 87 wells listed produced more than 630,000 barrels of oil and more than 12 billion cubic feet of natural gas. Although the 87 wells make up just .02% of the total number of wells in the state, they produced last year 12% of the oil and 16% of the natural gas in Ohio. The department expects more than 360 wells to be producing in the Utica this year and 1,000 in 2015. The numbers show oil production in the ballyhooed shale play increased 93 percent since 2011 and natural gas production was up 80 percent. That’s not all that surprising since the number of producing wells grew from just two in 2011 to 87 by the end of last year. Wells in the shale play produced 12 percent of the state’s oil and 16 percent of its gas. The Department of Natural Resources is projecting that will jump to 73 percent and 82 percent respectively by 2015.
The Columbiana County Port Authority brokered a deal that will result in the Buckeye Water District supplying water for oil and natural gas drilling operations in Carroll County. The agreement approved at this week’s meeting of the port board clears the way for the BWD to sell a minimum of 30 million gallons of water per year to R.E. Gas Development LLC, a subsidiary of Rex Energy, which has 15,400 acres under lease for drilling in Carroll County’s Utica shale formation. work out a three-year deal in which R.E. Gas will purchase a minimum of 30 million gallons of water annually for $6.60 per 1,000 gallons, with the port authority receiving 60 cents of that for its role in brokering the deal. The BWD has already been paid in advance for the first 30 million gallons by R.E. Gas, which came to $200,000, according to BWD Director Al DeAngelis. The BWD in turn will pay the port authority $18,000, of which $5,400 goes to Aqua Terra for its fee.
Municipalities are beginning to benefit from the state’s impact fee on natural gas drillers. Enacted for the first time last year — at a rate of $50,000 for each horizontal well drilled before 2012 and $10,000 for each vertical well into an unconventional formation (such as Marcellus and Utica) — the impact fee generated more than $204 million statewide. According to the revenue distribution formula included in the law authorizing the fee, the state took $23 million off the top for distribution to county conservation districts, the state Fish and Boat Commission, the Public Utilities Commission (charged with administering the law), the state Department of Environmental Protection (which enforces the act), PennDOT, the state Emergency Management Agency, the office of the state Fire Commissioner and the Marcellus Legacy Fund/Natural Gas Energy Development Program.
Of the nearly $181 million remaining, 40 percent (or about $73 million) went to the Marcellus Legacy Fund, which will be used for environmental projects, bridge improvement, water and sewage projects, recreation and refining or processing facilities and hazardous site cleanup.
The remaining 60 percent, or nearly $109 million, went to local governments for the wells within their borders, with 36 percent going to counties with producing wells to remediate the impact of the Marcellus shale industry and 37 percent going to the municipalities hosting the wells.
Of the final 27 percent, the host municipalities and others close to the well got half, and the other half went to all county municipalities, based on their population and miles of roads.
The communities may use the funds in 13 spending categories and must report how they spent it to the Public Utilities Commission and also post the information on their websites.
The Tennessee General Assembly’s joint committee on government operations signed off on new fracking rules (rule description starts on page 254) after more than two hours of testimony from state regulators, environmental groups and gas industry officials. The regulations will take effect June 18 and last until June 30, 2014. The Tennessee Department of Environment and Conservation worked on the regulations for more than a year. The state Oil and Gas Board approved the rules in September on the last day before disbanding and merging with the Tennessee Water Quality Control Board. The attorney general’s office signed off earlier this year. The state’s new rules contain pages of technical requirements on how gas wells must be drilled and monitored. The rules regulate everything from the type of casing used to the distance between wells. They set minimum property size for gas wells and require some public disclosure about fracking activities in the state.
The Cline Shale is about 140 miles long, 70 miles wide, and 200-550 feet thick stretching through the Permian Basin and southward. Test wells are exceeding expectations and indicate the shale could contain 3.6 million barrels of recoverable oil per square mile or as much as 30 billion barrels in total. The Cline is the newest shale to emerge as a major site of activity. Even apart from the sheer magnitude of the recoverable reserves, the mix of oil, dry gas, and liquids is particularly favorable given the high oil price environment.
The Lubbock Board of Health approved a resolution on best practices in hydraulic fracturing. The board examined the pros and cons of “fracking”, and the public health concerns that come with it. Board member Anne Epstein said the resolution hopes to put safeguards in place to protect the citizens, tackling various concerns like the risk of water contamination and the potential for water depletion. The board will now present the resolution to the city council.
Fort Worth-based BNSF Railway Co. and Frederick, Md.-based U.S. Silica Holdings Inc. opened a Von Ormy facility that will store and distribute sand used in the hydraulic fracturing process in the South Texas energy fields. BNSF invested $40 million for the land and a rail loop of almost two miles at the 280-acre site off Fischer Road in the Freeport Business Centre near Interstate 35 and Loop 410 in Southwest Bexar County. BNSF will bring in 100-car trains carrying 10,000 tons of sand every two days for unloading at the site.
The National Science Foundation funded a new review article, “Impact of Shale Gas Development on Regional Water Quality” on what hydraulic fracturing might do to the water supply. The report’s author, Radislav Vidic of the University of Pittsburgh, stated, “There is no irrefutable impact of this industry on surface or groundwater quality in Pennsylvania.”
In response to last week’s release of the BLM proposed rule related to hydraulic fracturing on public and Indian lands, House Natural Resources Chairman Doc Hastings (R, WA 4) released the following statement, “The Obama Administration is once again choosing costly red tape at the expense of American jobs and American energy production. It is charging forward with new regulations on hydraulic fracturing on federal and tribal lands that are burdensome, restrictive, unnecessary, and directly duplicate what states have been doing efficiently and effectively for over sixty years. States are able to carefully craft regulations to meet the specific needs of their states. Yet the Department seems committed to imposing a new ‘one-size-fits-all’ set of rules for hydraulic fracturing. This is nothing more than another roadblock by the Obama Administration in the way of job creation, lower energy prices, and American energy security. At a time when the Interior Department is currently canceling lease sales because they say they do not have the necessary funds, they should not be wasting federal dollars and resources implementing duplicative and unnecessary regulations.
“Furthermore, it is unacceptable that the Administration is only offering a mere 30-day public comment period on this proposed regulation that will have significant job, economic, and energy production impacts throughout the country. The public comment period should be no less than 120 days.”
The Federal Lands Jobs and Energy Security Act (H.R. 1965), introduced by Rep. Doug Lamborn (R, CO 5), would streamline government hurdles that block and delay development of onshore oil and natural gas and renewable energy resources. The bill would reform the leasing process for onshore oil and natural gas projects on federal lands to eliminate unnecessary delays; reform the process for energy permitting, once a lease is in hand, to encourage the timely development of our federal resources; ensure funds are available for efficient wind and solar permitting; and set clear rules for the development of U.S. oil shale resources.
The National Petroleum Reserve Alaska Access Act (H.R. 1964), introduced by Rep. Doc Hastings (R, WA 4) and Rep. Don Young (R, AK) would cut through bureaucratic red tape to unlock the full potential of energy resources in the NPR-A by ensuring that oil and natural gas are developed and transported in a timely and efficient manner. The NPR-A was specifically set aside for energy production and according to the U.S. Geological Survey could contain over 2.7 billion barrels of oil and 114.36 trillion cubic feet of natural gas.
DOE conditionally authorized Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (Freeport) to export domestically produced liquefied natural gas (LNG) to countries that do not have a Free Trade Agreement (FTA) with the United States from the Freeport LNG Terminal on Quintana Island, Texas. The approval ahead of this week’s Senate forum on natural gas exports is the first approval of a group of long-stalled projects the DOE is considering. Energy companies are seeking federal permits for more than 20 export projects that could handle as much as 29 billion cubic feet of LNG a day.
Researchers at Rice University have developed nanoparticles that will flow with the fluid used to hydraulically fracture oil and gas wells, slip through rocks and travel wherever the water ends up – in a holding pond at the surface, a tanker on the highway or, in a worst-case scenario, a nearby drinking water well. The particles, which can bear unique magnetic signatures tailored to each fracking company that uses them, have the potential to clarify the debate over whether and how oil and gas extraction impact water supplies.
According to the 11th annual Energy Industry Outlook Survey conducted by the KPMG Global Energy Institute, 62 percent of energy executives believe the U.S. can attain energy independence by 2030, eliminating dependency on foreign oil. The survey polled more than 100 senior energy executives in the U.S. and found that this is a 10 percent increase from last year’s survey. Of this number, 23 percent believe the country can attain energy independence as soon as 2020. In addition, 17 percent of respondents believe that U.S. energy independence will never happen, a drop of 10 percent.
The U.S. Energy Information Administration released a new update showing that not only did Texas and North Dakota but five additional states made a notable contribution to the growth in U.S. oil production since 2010. Onshore oil production, including crude oil and lease condensate, grew by over 2 million barrels of oil per day (bpd), or 64 percent, in the U.S. Lower 48 from February 2010 to February 2013. Production in the Williston Basin in North Dakota and Texas’ Eagle Ford play and Permian Basin outpaced other regions. However, gains in other Lower 48 states added up to approximately 320,000 bpd of production from February 2010 to February 2013, including the 290,000 bpd in Oklahoma, New Mexico, Wyoming, Colorado and Utah. Production in each state rose between 23 percent and 64 percent.
The House Western Caucus is circulating a letter to Secretary Jewell requesting that t he BLM Hydraulic Fracturing Rule comment period be extended. Rep. Bill Flores (R, TX 17) and Rep. Rob Bishop (R, UT 1) are leading the effort to extend the comment period to 120 days in order to allow for maximum input by the public, tribes, states and affected stakeholders. It is anticipated that the letter will be sent on Friday, May 26, 2013.
The Bipartisan Policy Center released a new report: New Dynamics of the U.S. Natural Gas Market. The report finds that LNG exports would have minimal impact on the domestic prices of natural gas and that long-term natural gas prices are expected to stay low and stable due to vast shale resources in the United States and increasingly efficient extraction techniques.
A coalition of 67 grassroots groups criticized the Environmental Defense Fund for its ties to natural gas drillers in setting voluntary standards for hydraulic fracturing, a process opposed by many green advocates. The concern from environmentalists focuses on EDF’s participation in the Center for Sustainable Shale Development, which was formed in March, and will provide independent evaluations of gas producers that join the effort. The center’s standards will limit flaring, encourage maximum water recycling and reduce the toxicity of the fracking fluid.
EPA’s Senior Policy Advisor Bob Sussman at the Interstate Oil and Gas Compact Commission meeting in Point Clear, AL stated that he believed that EPA could add value to the fracking discussion. He focused on three aspects:
· Request of Congress to improve understanding of potential impact of hydraulic fracturing on drinking water – draft report likely to be finished in late 2014
· Reduction of air emissions under the Clean Air Act – final standards are cost effective
· Underground injection program – expect to finalize guidance later this year
The United States’ newfound energy prosperity unleashed by shale discoveries should be used for energy security rather than energy independence, according to a report released by Deloitte. The relatively new abundance of shale-sourced energy has left many believing that it could set the United States on a course to energy independence. As oil production from domestic shale plays has surged, imports have dropped from 60 percent of the nation’s oil supply in 2005 to less than 40 percent today. The report cautioned that nation’s shale resources are finite and should be used in part to finance longer-term investment in renewable energy.
The Interstate Oil and Gas Compact Commission and the Ground Water Protection Council announced that on June 1, 2013 they would be releasing FracFocus 2.0 which will include customize disclosures to fit state disclosures. FracFocus 2.0 users will now be able to more efficiently search for well site chemical information due to the site’s conversion to an XML database platform. In addition to using GIS mapping technology to identify chemicals used in individual wells, users will also have the option to search and pull reports by date ranges, chemical names or Chemical Abstract Service (CAS) numbers. States, as regulators of hydraulic fracturing, will also benefit from the upgrades to FracFocus. Twelve state regulatory agencies now require company chemical disclosure through FracFocus. The site allows for a centralized reporting database with the flexibility to tailor compliance needs by an individual state, saving valuable tax dollars.
In a 97-0 vote, the Senate confirmed Ernest Moniz as the new Secretary of Energy. Secretary Moniz was sworn in as the 13th Secretary of Energy on May 21, 2013. Moniz served as an Under Secretary in the Department from 2007-2011 and previously held a faculty position at the Massachusetts Institute of Technology. While at MIT, Moniz was part of a research institute that found LNG exports to be largely beneficial for the country.
Senator John Hoeven (R, ND) called for a states-first approach to the regulation of hydraulic fracturing and energy production. Hoeven plans to reintroduce the “Empower States Act” in the coming weeks. Hoeven made the statements during a roundtable of the U.S. Senate Committee on Energy and Natural Resources comprised of representatives from the energy industry and environmental groups. He also called on Congress, industry and various interest groups to work together to address the nation’s energy needs using all of the nation’s energy resources.
The European Union will review hydraulic fracturing and the environmental concerns surrounding the practice this year, EU Energy Commissioner Guenther Oettinger said in a recent interview. EU countries, particularly Germany “also recognize the potential that shale gas has and create a framework to allow demonstration projects and practical tests,” Mr. Oettinger says. “If we permit test drilling we’ll be all the wiser in a few years and better informed regarding costs.”
The U.S. Energy Department’s Energy Information Administration reports that Algerian natural gas production has been in decline since 2005 because of field maturation. There have been several new projects discussed but few have gone on stream. Algeria has the 10th largest gas deposits in the world and is the third-largest supplier to Europe. Its exports have been in decline, however, because of lagging foreign investments.
Black Spruce Exploration wants to use hydraulic fracturing, the process of extracting natural gas from shale rock layers deep within the earth, to find oil and gas in Sally’s Cove and other areas, which lie just a few hundred meters from the boundaries of Gros Morne National Park, located in Newfoundland’s west coast. UNESCO has indicated a potential threat to remove the park’s status as a world heritage site should the plans go forward. UNESCO’s chief for North America’s heritage sites has recommended that the world heritage committee monitor the situation when it holds its annual meeting in Cambodia in June.
The Energy Resources Conservation Board (ERCB) issued Directive 083: Hydraulic Fracturing – Subsurface Integrity (Directive 083), following a two-month stakeholder consultation period. Directive 083 represents a notable enhancement to existing regulatory oversight and monitoring as resources development continues and technology adapts. Some of these modifications include:
· Additional requirements for wellbore integrity, design and testing, including the option for single- and dual-barrier design.
· Conduct comprehensive risk assessments related to interwellbore communication and nonsaline* aquifers prior to the start of hydraulic fracturing operations.
· Conduct modeling prior to hydraulic fracturing operations to reduce the likelihood of interwellbore communication and prevent nonsaline aquifers from being adversely affected.
State-owned Coal India will not allow the government to auction shale gas blocks in its command area, its chairman S Narsing Rao said. This takes away substantial portion of shale gas reserves in Damodar basin, Bengal basin and in the Assam-Arakan basin that the petroleum ministry is planning to auction later this year.
The Indonesian government offered 21 oil, gas and shale gas blocks to investors through direct and regular tenders in a bid to boost oil and gas output. The blocks are expected to increase Indonesia’s reserves by 3.1 billion barrels of oil and 57.6 Tcf of gas.
Poland will not collect taxes on the production of shale gas until 2020 to make its extraction more financially attractive after several foreign players quit the Polish market in the past few months, Jacek Rostowski the finance minister said. Poland’s government is determined to make a success of shale gas to cut its dependence on natural gas imported from Russia, but attracting investors grew harder after the country drastically scaled back estimates for reserves.
Gazprom Neft has conducted what it says is the first hydraulic fracturing ever on Russia’s Yamal Pensinsula at geologically complex Novoport oil and gas condensate field. A subsidiary performed five frac jobs in Jurassic reservoirs in four wells—single fracs in vertical wells and a multistage frac in a horizontal well.
British Energy Minister Michael Fallon, speaking in the House of Commons before a newly formed parliamentary group on unconventional oil and gas, said the government has been busily promoting shale development since a moratorium on “fracking” was removed in December. Britain has issued more than 300 licenses for onshore oil and natural gas exploration since a ban on shale gas hydraulic fracturing was lifted.
For additional information, please contact Bo Ollison with HBW Resources. His contact information is below.
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Houston, TX 77098
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