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HBW Resources: Ollison Hydraulic Fracturing Report
Friday, May 31st, 2013 

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HBW Resources: Ollison Hydraulic Fracturing Report
 
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. 
 
States 
 
State Legislative Update: Please see linked spreadsheet for an updated listing of state legislation dealing with hydraulic fracturing.
 
California
The California Senate Appropriations committee voted 5-2 to approve SB 4, a bill that would require the state Division of Oil Gas and Geothermal Resources to create regulations prior to Jan. 1, 2015 to govern fracking explicitly. Sen. Fran Pavley (D, District 27), who introduced the bill, tweeted that the bill will head to the California Senate floor next week.
 
The Assembly Appropriations Committee also approved HB 1323 with a 12-5 vote. The bill, introduced by Assemblywoman Holly Mitchell (D, District 54), would ban fracking and require state regulators to determine by Jan. 1, 2019 whether and under what conditions fracking could be permitted. The bill would also ban the use of fresh water in fracking and would prohibit fracking near aquifers. The Appropriations Committee stripped out language that blocked hydraulic fracturing until a study is completed finding that it can be done “without a risk to the public health and welfare, environment, or the economy of the state.”
 
Farmers in California may be among the first to realize measurable savings from the oil boom developing around fracking. The shale fracturing process releases natural gas as well as oil, and most farmers can relate readily to the importance of natural gas to crop production. Properly treated, natural gas yields significant amounts of nitrogen, and nitrogen is the major ingredient in most fertilizers. A serious increase in the supply of natural gas is expected to result in lower costs of fertilizers across the board.
 
This week saw the launch of a new organization, Californians Against Fracking, a statewide coalition seeking a wholesale ban on fracking in the state. The group includes more than 60 labor groups, farmers, public health professionals, environmental and environmental justice organizations and local residents. They plan to deliver 100,000 petitions to Gov. Jerry Brown via the state buildings in San Francisco and Los Angeles calling on him to ban fracking, or at the very least, put a moratorium on it.

 
Colorado
Residents of Broomfield have asked the City Council to enact a moratorium on hydraulic fracturing in order to examine the potential health and environmental impacts. Broomfield will soon consider a request for four natural gas wells in the North Park neighborhood, which some residents are protesting because of the wells’ proximity to homes and charter school Prospect Ridge Academy. The proposed wells are within state and local guidelines, but Broomfield delayed its meeting with the operator, Sovereign, to talk with residents who opposed the plan. Broomfield is scheduled to take up Sovereign’s request June 25.
 
The Loveland City Council members agreed to allow residents to be the ones to advance a proposed two-year moratorium on fracking within the city limits which would allow the city to bring facts and science to bear on the issue. If proponents get enough signatures to place the ordinance on the November ballot and voters approve it, the city would use the two-year pause to study the safety and potential health impacts of fracking. The City attorney said he thinks it likely that a moratorium would be challenged in court by the Colorado Oil and Gas Association, an oil and gas operator or a mineral rights holder.
 
Illinois
State records indicate that high-volume oil drilling already has begun in Illinois, where lawmakers and others are scrambling to pass a bill to establish regulations for a practice that has generated intense national debate as energy companies push into new territory. Carmi, Ill.-based Campbell Energy LLC submitted a well-completion report last year to the Department of Natural Resources voluntarily disclosing that it used 640,000 gallons of water during hydraulic fracturing, or “fracking,” of a well in White County. A regulatory bill awaiting a vote by state lawmakers — but not yet written at the time the well was drilled — defines “high-volume” as the use of 300,000 gallons or more of fluid during all stages of fracking.
Louisiana
Louisiana Oil and Gas Association President, Don Briggs drafted a column, “The Future of Natural Gas in Louisiana.” Briggs states, “Several positive factors exists regarding Louisiana’s natural resource market: The Haynesville Shale, the Cheniere Energy natural gas exporting facility, the manufacturing renaissance due to the vast amount of natural gas in Louisiana, and a pipeline infrastructure second to none.”
 
Maryland 
Gov. O’Malley signed SB 854, introduced by Sen. George Edwards (R, District 1), requiring oil and gas drillers to provide financial assurance of at least $50,000 per well and an additional $1 million in environmental pollution liability insurance when using hydraulic fracturing to develop wells in Maryland. The bill also requires landmen—employees of oil and gas companies that negotiate with mineral rights owners—to be licensed by the Department of Labor, Licensing, and Regulation. Maryland currently has a moratorium on hydraulic fracturing pending a study scheduled for completion in 2014.
 
Nevada
SB 390, introduced by Sen. Tick Segerblom (D, District 3), which would require  a person who wishes to engage in hydraulic fracturing to obtain a permit from the Division of Environmental Protection of the State Department of Conservation and Natural Resources; requires the Division to post certain information on its Internet website concerning hydraulic fracturing; authorizes the Division to charge a fee for issuing a permit and to adopt regulations, passed the Senate 21-0 and was referred to the House Committee on Natural Resources, Agriculture and Mining.
 
North Dakota
With plans to double the number of wells in the Bakken Shale, North Dakota has entered the water supply business. Independent Water Providers, a group of farmers, small businesses, and ranchers, have long supplied water from aquifers and the Missouri River to well sites in the Bakken Shale. The state legislature, authorized the Western Area Water Supply Project to compete with Independent Water Providers, and to provide water in areas where high salt levels make groundwater non-potable, but now the Project sells 20% of its water to oil and gas companies. Independent Water Providers has responded by announcing plans for a new pipeline to bring water from the Missouri River. Industry analyst Wood Mackenzie estimated that the competition between the two could decrease water costs by about 10%, saving companies approximately $170,000 per well.
 
Ohio
Since August, drilling companies have filed 11 so-called “unitization” requests with the Ohio Department of Natural Resources. Each request sought access to Utica shale oil and gas buried beneath the unwilling property owners’ land. The new requests, three of which have been approved, involve 38 landowners, businesses and public agencies that did not sign mineral-rights leases with drilling companies. The law allows companies to add unwilling properties to large drilling units to maximize access to oil and gas as long as at least 65 percent of the acres in a unit have been leased. In July 2012, the state had approved one such request.
 
The Ohio Department of Natural Resources issued three new permits to Chesapeake Energy Corp. to drill horizontal wells that target the Utica shale formation in Columbiana County. Seventy-two permits for horizontal wells have been issued for sites in Columbiana County since June 2011 when interest in the Utica shale started to climb. Of the 72 permitted sites in Columbiana County, 37 wells have been drilled and six are listed as producing, according to ODNR records.
 
Williams Cos. and Boardwalk Pipeline Partners LP announced that they have executed a joint venture agreement that would continue development of Bluegrass Pipeline, a project intended to transport natural gas and natural-gas liquids from the Utica and Marcellus shale plays to the Gulf Coast. The Bluegrass Pipeline would be constructed from gas-producing areas of the Utica shale in eastern Ohio and the Marcellus shale regions of Pennsylvania and West Virginia. The pipeline would then connect in Hardinsburg, Ky., with Boardwalk’s Texas Gas Transmission LLC’s system. The pipeline route has not been announced. The pipeline would serve the expanding petrochemical and natural-gas export market on the Gulf while also stimulating the petrochemical business in the Northeast. The first phase of the proposed pipeline would provide producers with 200,000 barrels per day of mixed NGLs (natural gas liquids) take-away capacity from Ohio, West Virginia and Pennsylvania. The second phase would expand to 400,000 barrels a day to meet market demand, primarily by adding liquids pumping capacity.
 
Pennsylvania
The Pittsburgh Presbytery has ended a yearlong moratorium on shale gas leasing and development on church property, which could clear the way for construction of a gas pipeline across its Crestfield Camp & Conference Center near Slippery Rock. The decision not to renew the year-old ban on shale gas development was made by approximately 230 voting members of the Presbytery at its May 9 meeting after a spirited discussion, and did not follow the recommendation of a special Presbytery shale gas task force that proposed extending the ban for another year.
 
new study was released following the testing of 1701 water wells in northeastern Pennsylvania. The study shows that methane is ubiquitous in groundwater in the area, with higher concentrations observed in valleys vs. upland areas indicating that methane concentrations are best correlated to topographic and hydrogeologic features, rather than shale-gas extraction. The study also show that isotopic and molecular analyses of hydrocarbon gases in the Dimock Township suggest that gases present in local water wells are most consistent with Middle and Upper Devonian gases sampled in the annular spaces of local gas wells, as opposed to Marcellus Production gas.
 
Pennsylvania State Rep. Jesse White (D, District 46) has come under fire for attacking constituents that support natural gas development in Pennsylvania by using fictitious identities. According to KDKA-TV press reports, Rep. White first posted the identity of a supporter of pro-gas development and called her an, “industry troll,” and “undereducated yonder,” “dumber than a box of rocks,” and “an embarrassment to her community.”  The IP address of those calling out the supporter of natural gas development came up as the same computer as Rep. White’s state e-mail address. The anti-drilling website, GasRootsPA.Com domain name was registered in Rep. White’s name.  
 
The Marcellus Shale Coalition has created a database of water quality before any drilling occurs for Pennsylvania’s thousands of water wells. Compiled over the past two years, the database will provide an electronic storage system for pre-drill water quality tests for the state’s private water wells – 40 percent of which failed safe drinking water standards before drilling occurred, according to a 2011 Penn State study. The database will be available to members of the Marcellus Shale Coalition, as well as officials from Indiana University of Pennsylvania and the Department of Environmental Protection.
 
Texas
Texas should be the model for other states as officials seek to reduce the need to burn, or flare off, methane coming from oil and gas wells drilled by hydraulic fracturing, a top Senate Democrat said. Senator Ron Wyden, chairman of the Energy and Natural Resources Committee, praised Texas for a flaring rate of 0.5 percent of the gas it produces.
 
The Texas Senate has approved $450 million in funding to repair, maintain and improve state roadways in areas impacted by energy exploration and development including the Eagle Ford Shale. HB 1025, introduced by Rep. Jim Pitts (R, District 10) does not restrict the funding to counties actually located within the Eagle Ford Shale or other shale formations and the bill gives TxDOT discretion on where to use the funding.
 
The Texas Railroad Commission adopted changes to its rules for the construction of oil and gas wells, saying its actions showed the value of allowing the state to regulate the industry. The new rules:
·         Add new requirements for well control and blowout preventers
·         Clarify standards for drilling, casing and cementing of wells
·         Requires cement across and above all zones permitted for injection
·         Requires pressure testing of surface casing and casing strings with advance notice to the Texas Railroad Commission office.
·         Adds new well category for minimum separation wells requiring special review and consideration for drilling, cementing and completions.
·         Clarifies requirements for wells with completions that include hydraulic fracturing treatments.
The new rules take effect Jan. 1.
 
Oil production in the Eagle Ford shale fields of South Texas is soaring and will soon pass that of the rich Bakken formation in North Dakota and Montana, according to a new report. March shale oil production in Eagle Ford rose 77% from a year earlier, to 529,900 barrels per day.
 
Wisconsin
Canada’s largest rail transporter Canadian National Railway (CN) on Wednesday announced this week it would accelerate the $33-million upgrade of its Whitehall subdivision, in Wisconsin, to increase car-loading capacity and train velocity for the growing hydraulic fracturing sand supply chains of Badger Mining, Preferred Sands of Wisconsin, Atlas Resin Proppants, and Taylor Frac. he improvement program would allow for heavier loaded frac sand freight cars weighing up to 129,727 kg to use the line, which would result in increased volumes per car generating increased productivity for customer car fleets, and increasing train speeds for CN. CN will improve the 120 km section of the Whitehall subdivision between Wisconsin Rapids and Blair, in three years rather than four to achieve quicker customer gains. Work began in 2012 and the full program should be completed by December 2014.
 
National
On May 11, 2012, BLM published in the Federal Register a proposed rule entitled Oil and Gas; Well Stimulation, Including Hydraulic Fracturing, on Federal and Indian Lands. The BLM is now seeking additional comment on the revised proposed rule. Key issues in this updated draft include: the use of an expanded set of cement evaluation tools to help ensure that usable water zones have been isolated and protected from contamination; and more detailed guidance on how trade secrets claims will be handled. The revised proposed rule would also provide opportunities for the BLM to coordinate standards and processes with individual States and tribes to reduce administrative costs and to improve efficiency. Comments are due by June 24, 2013 and can be emailed to oira_submission@omb.eop.gov.
 
The American Chemistry Council (ACC) released the third in a series of reports studying the potential economic benefits of shale gas, “Shale Gas, Competitiveness and New U.S. Chemical Industry Investment: An Analysis Based on Announced Projects” which analyzed the plans of 97 U.S. chemical plant projects that have been announced or are currently ongoing. The total investment price tag for all 97 projects is $71.7 billion to be spent between 2010 and 2020. On the job creation side, between 2010 and 2020 more than 485,000 direct jobs will be created, more than 258,000 indirect jobs will be created, and more than 442,000 jobs will be induced in communities around the investment areas. As for taxes, the ACC expects the investments to create $20 billion in federal, state and local tax collections.
 
Senate Energy and Natural Resources Chairman Ron Wyden (D, OR) said FracFocus.org could be helpful as lawmakers and federal agencies consider ways to regulate hydraulic fracturing. FracFocus could be a “constructive” tool for federal regulators as they consider requiring public disclosure of chemicals used in hydraulic fracturing operations. The site offers a host of information on fracking chemicals used by more than 400 companies in about 45,000 wells across the country. The site is used as regulatory tool by a dozen states, with eight more considering whether to require drillers to use it. Wyden said he hopes to devise federal legislation that sets a minimum standard for fracking while giving “appropriate deference” to states.
 
One of America’s corporate giants is investing billions of dollars in the new boom of oil and gas drilling, or fracking. General Electric Co. is opening a new laboratory in Oklahoma, buying up related companies, and placing a big bet that cutting-edge science will improve profits for clients and reduce the environmental and health effects of the boom. For additional information on GE’s decision to open a new lab in Oklahoma, please see the April 5, Ollison Fracking Report.
 
International
A new analysis details the effects of shale gas on the European energy market. The conclusion is that Europe really does need to be drilling for shale gas and quickly. The reason for this though is that the US has already decided to do so: and it’s the effects of the US shale revolution that mean that Europe’s got to follow. The ripples of the North American shale boom continue to spread, as a growing number of European utilities are forced to mothball modern gas-fired power plants that can’t compete with growing imports of cheap coal dislodged from the US.
 
The European Union hosted a meeting and focused on two main subject areas: taxation and energy. Within the energy discussion, the leaders emphasized that supply of affordable and sustainable energy is crucial to support competitiveness, jobs and growth. They agreed on a series of priorities:
·         The internal energy market should be completed by 2014 and interconnections developed in order for all member states to be connected to European gas and electricity networks by 2015
·         Significant investments in new and intelligent energy infrastructure are necessary to secure the uninterrupted supply of energy at affordable prices to households and companies
·         The EU must intensify the diversification of its energy supply and develop local energy resources in order to ensure security of supply and reduce its external energy dependency
·         Work on the impact of high energy prices and costs must be taken forward. This includes work on energy efficiency and innovative financing methods.
British Prime Minister David Cameron, whose government is advancing plans for its shale gas deposits, said that Europe could not afford to be left behind as the United States gains a competitive advantage.
 
The emergence of the United States as a global energy superpower has a profound strategic impact that is raising expectations and concerns among America’s allies. Representatives of NATO expressed concern that America’s shift toward self-sufficiency in energy will weaken its strategic interest in the Middle East, North Africa and the Persian Gulf, while Europe remains dependent on oil and gas supplies from the region. The shale bonanza is also already having an impact for the Middle East by diminishing the risk of disruption on world markets after the imposition of sanctions on Iran’s oil and gas industry by the United States and Europe last year. European officials are concerned about the economic impact of America’s shale revolution. While U.S. companies have seen energy prices tumble in a decade of shale production, their European competitors are paying up to five times more for gas.
 
Australia
Addressing a luncheon function at APPEA’s conference, Department of Mines and Petroleum executive director Bill Tinapple said it was frustrating that some activist groups were choosing to spread factually incorrect information, in particular exaggerated figures on the number of onshore shale wells likely to be drilled, as well as spreading misinformation about hydraulic fracking and frac fluids. The well-respected Mr. Tinapple said false claims included that fluid used in fracking was a “toxic chemical cocktail kept hidden from the public”, and that 130,000 wells would be drilled in WA.
 
Northern Petroleum Plc has won 100 percent interest in Petroleum Exploration License (PEL) 629 in the Otway Basin, South Australia. The award is for five years and the company’s first planned program will include geochemical analysis and seismic re-processing. This onshore play spans an area of 1.4 million acres and holds shale oil prospectivity in an area that has been lightly explored. However, a producing portion of the basin houses five gas fields that contain significant amounts of condensate. The Government of South Australia reported that only five stratigraphically deep exploration wells were drilled within the license and some 2,776 miles of 2D seismic data has been recorded, which Northern plans to study and record additional data.
 
Austria
Voestalpine AG is betting that the U.S. shale gas revolution will play an important role in lowering its steelmaking costs. The Austrian specialty steelmaker is building a new U.S. steel plant that will take advantage of lower energy prices in North America to compete with rivals. European steelmakers are seeking to cut costs given anaemic steel demand and structural excess production capacity in Europe. While Voestalpine is protected by the fact that it sells high quality specialty steel products that are in great demand, but it still has to compete with steelmakers from abroad which can produce cheaper steel due to more abundant energy supplies and less stringent environmental costs. Voestalpine announced earlier this year a plan to build a $708.42 million plant in Texas capable of producing 2 million tons of hot briquetted iron annually.
 
China
There are more than a dozen wells ready for hydraulic fracturing campaigns in mainland China, a country manager for Far East Energy Corp. said. Far East Energy said it has started work on 23 conventional wells in China with the number of wells designated for fracking increased last week to 16. The company reported that there were more than 51 million cubic feet of proved natural gas reserves and more than 392 million cubic feet of probable reserves in its area of operations in China at the end of 2012.
Germany
The Association of German Breweries, which represents companies including Anheuser-Busch InBev NV (ABI) (ABI) and Bitburger Braugruppe GmbH, called on Chancellor Angela Merkel’s government to block the tapping of shale gas by means of hydraulic fracturing, citing concerns that fracking could taint the purity of the country’s beer. The group rejected the government’s planned legislation on fracking until groundwater contamination can be safely excluded. They said the current proposals are inadequate to protect drinking water and hence risk infringing the country’s 500-year-old law on beer purity.
 
India
India’s output of guar, a tiny seed with an outsize role in shale gas extraction, will rise this year as farmers boost planting acres in hopes of good rains, against a backdrop of attractive prices and resumption of futures trade, traders said. India, the world’s top producer and exporter of the seed, fills 80 percent of world demand for guar, which thickens the slurry of water, sand and chemicals pumped into wells during the hydraulic fracturing process used to tap oil and gas from unconventional shale plays.
 
Kuwait
Kuwait has announced it is conducting studies into the viability of extracting shale gas from recently identified reserves, although any commercial operation will likely be many years off. Despite its extensive natural gas reserves – estimated to be around 1.8trn cu meters – Kuwait is a net importer of the hydrocarbon. This is due in part to growing demand for electricity, which rises by about 6-8% each year, according to the Ministry of Electricity and Water. Planned industrial expansion, including in the gas-hungry downstream petrochemicals sector, will add to the draw upon resources. In March 2013, Sami Al Rushaid, chairman and managing director of the state-owned Kuwait Oil Company (KOC), announced that the firm had identified a commercially viable shale gas deposit.
 
Poland
Prime Minister Donald Tusk announced that the government would approve a draft hydrocarbon extraction law within a few weeks. He added that he would not accept any further extension of work on this set of regulations.
 
The European Bank for Reconstruction and Development (EBRD) plans to shift its focus in Poland from the financial sector to the funding of energy projects to help the country to reduce its reliance on coal. As well as providing loans to help utilities Enea and Energa to improve their distribution networks and support the so-called smart grids, the bank also has its eye on Poland’s shale gas ambitions. The EBRD will include financing for unconventional gas-related projects in its new strategy for the years 2014 to 2016.
 
Romania
Romania will soon launch tenders to expand shale gas exploration after Chevron took the lead this month as the government seeks to reduce dependence on costly imports, the energy minister said. The U.S. Energy Information Administration estimates that Romania and its neighbors Bulgaria and Hungary could between them have 538 billion cubic meters of gas, which would be enough to cover Romania’s consumption for almost 40 years. Earlier this month U.S. oil major Chevron said it planned to start exploration for shale gas in Romania. It will conduct a 2D geophysical study near the Black Sea and drill exploratory wells further north in Vaslui county.
 
Russia
TATNEFT Company has successfully implemented innovative technologies at its oil fields. For the first time in the Company’s history a cycle of operations for multi-interval hydraulic fracturing of the formation has been completed in one of the wells of Yaurkinskoye oil field. An interval multi-frac job in the horizontal wellbore was carried out in well 315 of Yaurkinskoye oil field at the end of May this year.
 
Ukraine
Nearly 40% of Ukrainians are ready to support projects for the development of shale gas fields, according to the results of a poll conducted by GfK Ukraine.
 
Additional Information
 
For additional information, please contact Bo Ollison with HBW Resources.  His contact information is below.
 
Bo Ollison
HBW Resources
2211 Norfolk Street, #410
Houston, TX 77098
Tel: 713-337-8810
E-mail: bollison@hbwresources.com
Web: http://www.hbwresources.com
 
Contact Information
 
If you have any general questions, please contact me anytime. Previous versions of the HBW Ollison Hydraulic Fracturing Report, the HBW Greenfield Offshore Energy Report, daily updates and new Member profiles can be viewed at:  http://www.mzehrhbw.wordpress.com. Hope you all have a great day!
 
Thanks,
 
Michael Zehr
HBW Resources
1666 K Street, NW, Suite 500
Washington, DC 20006
Direct: 202-429-6081
Cell: 202-277-3927
E-mail: mzehr@hbwresources.com
Web: http://www.hbwresources.com

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