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The Ollison Hydraulic Fracturing Report
Friday, June 14th, 2013 


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
More than 70% of voters favor banning or heavily regulating chemical injections into the ground to tap oil and natural gas, a USC Dornsife/L.A. Times poll finds. More than half of voters — 58% — say they favor a moratorium on the process of injecting chemicals deep into the ground to tap oil and natural gas deposits embedded in rock until an independent commission has studied its environmental effects. But when told of potential economic advantages, 56 percent of Californians surveyed said fracturing should be legal in the Golden State if the additional oil and gas produced from the operations was used to reduce energy and gasoline prices, the poll said.
 
Wall Street Journal editorial examined the recent losses for opponents of hydraulic fracturing in California. “Democratic leaders brought their fracking moratorium bill to the Assembly floor last week, and their rank and file revolted. The bill lost 37-24, with 12 Democrats joining 25 Republicans to defeat it. Another 18 Democrats abstained, and it’s a good bet they were “no” votes who didn’t want to publicly cross their leadership.”
 
The board of the Ventura County Air Pollution Control District split 4-4 over whether to direct managers to develop a rule on hydraulic fracturing.

Colorado
Two of Boulder County’s commissioners have put off action on a proposed plan for phasing in new oil and gas development, delaying the decision until the third member of the county board can participate. Commissioners Elise Jones and Cindy Domenico voted to postpone further consideration until June 18, when Commissioner Deb Gardner can be present. The postponement also made it necessary to extend a moratorium on accepting and processing new oil and gas exploration applications, a timeout that’s been in place since February 2012 while the county crafted new land-use regulations. The moratorium was set to expire June 10.
 
The anti-fracking group, East Boulder County United is hoping to gather the necessary 950 signatures from registered Lafayette voters by July 3 to get a measure placed on the November ballot that would prohibit any new oil and gas extraction within the city limits.
 
A District Court judge has granted a motion dismissing a claim in the Colorado Oil and Gas Association’s lawsuit against the city of Longmont over its ban on hydraulic fracturing. The claim that both sides agreed to have dismissed deals with “takings,” or whether the city’s ban impermissibly takes private property (oil and gas resources) from a property owner (the owner of the mineral rights). The association’s claim challenging the legality of the ban remains active.
 
Louisiana
In recent months, the Haynesville Shale has been drawing operators back into the game. Natural gas prices have been inching upward, so companies are returning rigs to the area — and have plans for more to come. The most recent Baker Hughes Rig Count showed there were 38 rigs standing this past week in the Haynesville — including 19 in Northeast Texas. Abundant and less volatile-priced natural gas supplies are leading to a renaissance of manufacturing announcements and industrial activity throughout the country. That is increasing demand and starting to elevate prices. This is particularly true in Louisiana, where more than $62.3 billion in a variety of new capital investments has been announced during the past 12 months. Playing a factor in the projects is the proximity to the Haynesville, which remains one of the nation’s largest sources of supply, said David Dismukes, professor and associate executive director for the LSU Center for Energy Studies.
 
New Mexico
In late April, Mora County, adopted what proponents tout as the nation’s first countywide prohibition on fracking. At a county commission meeting, the commissioners upped the ante, unanimously voting to expand the ban to individuals as well as corporations. Commission Chairman John Olivas said the moratorium on drilling by individuals was needed because the ordinance applies only to companies. The ordinance, approved in a 2-1 vote on April 29, was based on a template crafted by the Community Environmental Legal Defense Fund, which has helped establish 150 “community rights” ordinances around the country; 35 of those bar oil and gas development.
 
New York
A ban on the use of waste products from the natural gas drilling could become local law with the stroke of the pen from Rockland County Executive Scott Vanderhoef. The Rockland County Legislature unanimously passed the ban on Tuesday, June 4. The Keep Rockland County Safe from Hydro-Fracking By-Products Law prohibits the sale of all gas drilling waste, its processing at all wastewater treatment plants, and its application on all roads including applications for de-icing and dust control purposes within Rockland County.
 
Gas drillers could claim a 10-year tax holiday for hydraulic fracturing in dozens of State University of New York campuses under Gov. Andrew Cuomo’s new business plan, Tax-Free New York, according to an opponent of the tax proposal. New York’s moratorium on fracking would have to be lifted first and that natural gas would also need to be discovered on university grounds. Then there’s the fact that Cuomo’s plan has not yet been enacted.
 
North Carolina
SB 76, introduced by Sen. Buck Newton (R, District 11), Sen. Bob Rucho (R, District 39) and Sen. Andrew Brock (R, District 34) which passed the House Commerce and Job Development Committee and also passed the House Environment Committee. It passed the House with a 70-33 vote and will return to the Senate, which has to approve changes approved by the House. The version that passed the House removes many provisions in a Senate measure that would set a date for regulators to begin issuing permits to energy companies drilling for gas through hydraulic fracturing.
 
North Dakota
Propelled by a massive energy boom, North Dakota once again captured the title of the nation’s hottest economy, with a growth rate five times the national average. North Dakota’s economy posted a 13.4% growth rate in 2012, according to a report by the Bureau of Economic Analysis. That’s nearly three times as fast as the number two state, Texas, and trounces the national average of 2.5%.
 
Ohio
Vallourec Star dedicated its new $650 million seamless pipe mill, one of the most heralded economic development projects in the Mahoning Valley’s history. The mill, first announced in February 2010, was built to manufacture small-diameter oil country tubular goods, pipe and connections for the oil and gas market. Other products manufactured at the mill include line pipe, green pipe for drill pipe and coupling stock. The plant’s initial annual production capacity is 350,000 tons. At full capacity, the mill is expected to employ 350 workers.
 
Ohio Gov. John Kasich is revisiting the idea of increasing taxes on the oil and gas industry, this time promising an increased cut of the tax revenue to the Appalachian area that generates much of Ohio’s oil and gas business. The new proposal would increase the severance tax on Ohio’s growing oil and gas industry to 4.5 percent and promises to send 25 percent of the revenue back to Ohio’s Appalachian counties through their development agencies.
 
Pennsylvania
The Allegheny Institute for Public Policy estimates that Pennsylvania royalty income from Marcellus Shale natural gas development amounted to $731 million last year, a 6,600 percent increase in five years from $10.9 million. Royalties to mineral-rights owners are a percentage of the market price of natural gas, and the increase is even more remarkable because the average price of natural gas in 2012 was $2.83 per thousand cubic feet, or less than a third the 2008 price of $8.90. Pennsylvania wells produced 2.065 trillion cubic feet of natural gas last year.
 
Pennsylvania House of Representatives gave unanimous consent to HB 1414, which would amend Pennsylvania’s law regarding oil and gas royalties, commonly-known as the Guaranteed Minimum Royalty Act. The amendment won’t change the net-back method of royalty calculation or change the minimum royalty amount. But, it would require producers to provide a detailed check stub or other document detailing the following information:
(1) A name, number or combination of name and number that identifies the lease, property, unit or well or wells for which payment is being made and the county in which the lease, property or well is located.
(2) Month and year of gas production.
(3) Total barrels of crude oil or number of Mcf of gas or volume of natural gas liquids sold.
(4) Price received per barrel, Mcf or gallon.
(5) Total amount of severance and other production taxes and other deductions permitted under the division order, lease, servitude or other agreement with the exception of windfall profit tax.
(6) Net value of total sales from the property less taxes and deductions from paragraph (5).
(7) Interest owner’s interest, expressed as a decimal or fraction, in production from paragraph (1).
(8) Interest owner’s share of the total value of sales prior to deduction of taxes and deductions from paragraph (5).
(9) Interest owner’s share of the sales value less the interest owner’s share of taxes and deductions from paragraph (5).
(10) Contact information, including an address and telephone number.
The bill adds an Apportionment section which allows an operator to develop contiguous leases by horizontal drilling, unless expressly prohibited from doing so in the particular leases. In such a situation, royalties would be determined, unless agreed otherwise by all affected royalty owners, by allocation “in such proportion as the operator reasonably determines to be attributable to each lease.” Moreover, the bill allows for accumulation of royalties annually if the royalties total less than $100. There are certain exceptions to this allowance and the proposed law imposes certain escrow account requirements.

Texas
Renewable energy and natural gas should work together as sources of electricity generation, rather than as competitors on the Texas grid, according to a new report produced for the Texas Clean Energy Coalition. Partnering Natural Gas and Renewables in ERCOT, looks at the relationship between natural gas and renewable resources on the grid run by the Electric Reliability Council of Texas, which covers 85 percent of the state. The report is the first of a two part study, the second portion will examine the impacts of renewable policies under a variety of future scenarios.
 
A string of new power lines will connect booming west Texas shale regions to the Dallas-Fort Worth area before the end of the year. The $7 billion Competitive Renewable Energy Zone project aims to build 2,200 additional miles of transmission lines across Texas, as the state’s oil renaissance has overloaded capacity in remote areas such as the Permian Basin and Cline shale plays. The Electric Reliability Council of Texas recently predicted that utilities such as Oncor Electric Delivery will need to invest $8.9 billion in upgrades over the next four years to meet rising demand.
 
West Virginia
West Virginia, and particularly Wood County, is being considered for a multibillion-dollar ethane cracker plant, which would represent a more-than-$3 billion investment. A cracker plant converts ethane, a byproduct from Marcellus Shale and Utica Shale natural gas, into the widely used ethylene, a key component for the plastics industry. According to a number of analysis, West Virginia has been ranked as one of the best places for oil and gas development in the world.
 
Wyoming
Wyoming is proposing a new rule that would require the oil and natural gas industry to conduct baseline groundwater samples both before drilling new wells and at various times after and during the operational life of the wells. The four-page draft rule was released for public comment and review during a hearing of the Wyoming Oil and Gas Conservation Commission (WOGCC). If approved, Wyoming would join Colorado as one of the only two states that require the industry to conduct groundwater sampling and monitoring both before and after wells are drilled.
 
National
 
U.S. crude-oil production grew by more than one million barrels a day last year, the largest increase in the world and the largest in U.S. history. In the latest sign of the shale revolution remaking world energy markets, crude production in the U.S. jumped 14% last year to 8.9 million barrels a day, according to the newly released Statistical Review of World Energy, an annual compilation of industry trends published by BP PLC. Most of this new production is coming from dense shale-rock formations, such as the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas. In recent years, the oil industry has developed techniques to hydraulically fracture these shales, freeing up previously trapped oils.
 
Environmental groups conceded in comments sent to Congress that there’s little or no proof that hydraulic fracturing, defined as one step in the broader process of producing shale oil and gas, has contaminated drinking water. “Research on this topic is new and ongoing; absence of further evidence or data does not demonstrate that HF is safe,” the Sierra Club and Natural Resources Defense Council wrote in joint comments. “It merely demonstrates that more research is imperative.”
 
Speaking before the Economic Club of Pittsburgh, J. Winston Porter, a former Assistant Administrator of the Environmental Protection Agency, explained that the wealth of shale oil and gas resources throughout the United States could play a significant role in not only the country’s distribution of energy sources but also in the economy.  Still, he maintained that state governments must carefully regulate drilling to ensure companies account for environmental and other concerns — but he recommended that the federal government not be too heavy-handed in dictating regulation because state governments could most effectively respond to unique local issues.
 
According to an EnergyWire review, more than one-fifth of the reports to FracFocus.org in two states, Colorado and Pennsylvania, were filed late. Neither Colorado nor Pennsylvania has penalized companies for missing the deadlines, though they mandated disclosure of fracturing fluid chemicals more than a year ago. The only state known to have penalized a company for failure to file is North Dakota, which fined Slawson Exploration Co. $300,000. After a December blowout near the banks of Lake Sakakawea, officials at the state’s Department of Mineral Resources found the company hadn’t filed with FracFocus and demanded $12,500 for each day it was delinquent.
 
Hydraulic fracturing presents a puzzling scenario for environmentalists who want to curb carbon dioxide emissions, Natural Resources Defense Council (NRDC) President Frances Beinecke said. Beinecke said natural gas played a significant role in dropping United States greenhouse gas emissions to mid-1990s levels last year, as electric utilities burned more natural gas than coal. Fracking made that switch possible by driving up natural gas production, causing prices to plummet relative to coal. The drilling technology has led to a U.S. energy boom.
 
Pennsylvania Democrat Bob Casey has reintroduced legislation in the Senate, S 1135, to require oil and gas companies to disclose chemicals used during hydraulic fracturing. The “Fracturing Responsibility and Awareness of Chemicals Act,” or FRAC Act, has become a regular installment in Congress, introduced each session since 2008 and championed in the House by Rep. Diana DeGette (D-Colo.). The bill would reverse a 2005 measure that exempts fracking operators from rules under the Safe Drinking Water Act. In closing the “Halliburton loophole,” it would require drillers to reveal the ingredients of the mixture blasted underground to loosen up oil and gas trapped in shale formations.
 
The Bureau of Land Management will continue its outreach to Tribal communities with two meetings next week. On June 18, there will be a meeting in Dickinson, ND and on June 20 there will be a meeting in Farmington, NM. The meetings will discuss how the Bureau’s proposed hydraulic fracturing rule would strengthen oil and gas operations on Indian trust lands.
 
International

The U.S. Energy Information Administration (EIA) has published a report titled “Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States” according to which there is technically recoverable resources of 345 billion barrels of world shale oil resources and 7,299 trillion cubic feet of world shale gas resources. The new global shale gas resource estimate is 10 percent higher than the estimate in the 2011 report. According to the report, the top three countries for shale oil resources are: Russia, U.S. and China, while the top three countries for shale gas are China, Argentina and Algeria.
 
Algeria
Algeria’s newly re-elected parliament is currently reviewing changes to the country’s 2005 National Hydrocarbons Code to encourage shale exploration and extraction. Officials from Algeria’s state-owned energy company, Sonatrach estimate that shale gas reserves could be as high as 2trn cu metres based on tests conducted on 180,000 sq km in three provinces, while the U.S. Energy Information Agency puts the country’s conventional natural gas reserves at 4.5trn cu metres. Proposed incentives include tax breaks, a greater share of cost and risks to be assumed by Sonatrach, opportunities for foreign companies to contribute expertise and technology as well as a framework for investors.
 
Australia
Richard Sellers, Director General of the Western Australia (WA) Department of Mines and Petroleum, has said that he is optimistic about the prospects of shale gas in Western Australia, particularly in the 530,000 square km Canning Basin, which is estimated to have 288 trillion cubic feet and which energy companies like Mitsubishi and ConocoPhillips are interested in exploring. Overall, according to the U.S. Department of Energy, Australia has an estimated 437 trillion cubic feet of recoverable shale gas reserves. This estimate is 10 times the existing identified natural gas reserves in Australia of 43 trillion cubic feet of gas.
 
Western Australia is inviting bids for six petroleum exploration leases, including onshore blocks, as interest grows in the state’s potential tight and shale gas resources. The new acreage release includes areas covering more than 21,000 square kilometers across the Mid West, Pilbara and Eucla regions of the state. Western Australia is estimated to contain 300 trillion cubic feet of potential shale and tight gas, according to the state government. Of this, 71 trillion cubic feet has been estimated for the northern Perth Basin, but the bulk of potential lies further north in the Canning Basin, which may host 229 trillion cubic feet.
 
Norwegian oil and gas firm Statoil will acquire 80% of PetroFrontier Corp’s (PFC) working interest in the four exploration permits and two exploration permit applications in the Southern Georgina play in Northern Territory in Australia. The Southern Georgina Basin asset will be Statoil’s first shale operatorship outside the US. Statoil will assume operatorship from September 1, 2013, and will carry 100% of the initial exploration phase capped at $50 million.
 
Azerbaijan
At the Caspian Oil and Gas 2013 conference held in Baku, Azerbaijan, the first vice-president of Azerbaijan’s energy company SOCAR, Khoshbakht Yusifzade, said that many international companies are interested in the country’s shale oil reserves, including Exxon Mobil and Chevron. He said that he hopes modern technology will make it possible to develop these resources. According to a report by the country’s Azer News, Yusifzade said that “high oil prices, the rate of consumption growth and concentration of large hydrocarbon reserves in shale oil have led to increased interest in alternative sources of energy worldwide… He added that there are areas with sand saturated with oil and bituminous rocks.”
 
Canada
new study on shale gas in New Brunswick shows the industry could generate $13 million in development opportunity per well with 206 people required to develop each well.  Each well would also create about 21 full-time jobs.
 
China
China may hold a third round of shale gas auction by as early as the end of the year and plans to encourage more participation from small-and-medium enterprises, the Shanghai Securities News reported. China hopes to replicate the production boom seen in the United States but faces huge technological and environmental challenges due to more complex geology and scarcity of water.
 
Israel 
Israel has made the largest offshore gas discoveries in the world over the past decade off its Mediterranean coastline. It is expected to become an exporter by the end of the decade.
But Israeli leaders are struggling to find the balance between how much gas to keep and how much to export. Though Israel wants to ensure its own energy independence, without a significant export quota foreign companies have said they would not invest in further exploration because the Israeli market is too small. A government committee recommended last year that Israel keep enough gas to satisfy its own needs for 25 years, which comes out to a bit less than half of the country’s total reserves, currently estimated at 33.5 trillion cubic feet (tcf). “I think we are now in agreement on adopting the position that we have to increase the amount that must remain in Israel,” Energy Minister Silvan Shalom told Israel Radio after a meeting Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid.
 
Jordan
Enefit Jordan’s submission of an environmental impact report regarding construction of an oil shale fired power plant that took two years to complete has been endorsed by Jordan’s environmental regulators and they have issued the company a license. The 500-megawatt plant, which will use fluidized bed combustion technology, and air cooling systems to minimize water use, is set to begin operation in 2017 and is expected to meet 20% of Jordan’s energy needs.
 
Pakistan
According to a report by the Associated Press of Pakistan (APP), the country has shale gas reserves of 51 trillion cubic feet (tcf) as compared to conventional gas reserves estimated at 58 tcf, as estimated by the US Energy Information Administration (EIA) has estimated. APP quotes official sources as saying that an investment of about $1.5 billion will be required to drill around 500 exploration and development wells. In February, the Federal Cabinet approved a shale gas policy framework and this has been hailed as an important initiative of that is hoped to bring into production a major portion of the country’s reserves.
 
Poland
The final draft of a law on the extraction of hydrocarbons, including shale gas, has been sent to the Chancellery of the Prime Minister, Deputy Environment Minister Piotr Woźniak said. It will now have to be approved by the government and sent to parliament. Changes in the draft include simplifying licensing rules and a guarantee of extending rights from an exploration license to the extraction stage.
 
United Kingdom
Centrica PLC is the first large company to place a bet on U.K. shale gas. The energy utility confirmed that it had bought a 25% stake in a license, owned by private companies Cuadrilla and AJ Lucas, to explore onshore in the north of England. Cuadrilla has estimated its acreage could contain 200 trillion cubic feet of gas.
 
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
Twitter: @BoOllison
 
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
Twitter: @mzehrhbw
 

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