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Wednesday, February 26, 2014

An Agreement to Accept an Oil & Gas Lease is An Enforceable Contract in Ohio

From Oil & Gas Law Report:
An agreement to enter into an oil and gas lease is an enforceable contract in Ohio
Landowner enters into an agreement to sign an oil and gas lease, finds outs there may be a better deal elsewhere and tries to get out of the first deal. A federal court in Ohio says, “No, a deal is a deal.” Bruzzese v. Chesapeake Exploration, LLC, U.S. District Court for the Southern District of Ohio, Eastern Division (Feb. 13, 2014).
Background
A group of landowners in eastern Ohio had engaged attorneys to negotiate oil and gas leases on their collective behalves. They signed an Agreement to Accept Lease Offer from Chesapeake Exploration, LLC. About 75 members of the group later sued Chesapeake Exploration, LLC, claiming that the agreement was unenforceable. Chesapeake settled with all the landowners except Stephen and Elizabeth Albery.
The Alberys had printed out the agreement, filled in blanks, signed it and emailed it to the group attorneys on July 16, 2011. Immediately thereafter, Mrs. Albery’s sister told them that she had heard that other energy companies were making better offers to landowners. Under the apparent understanding that they could back out of the agreement because they believed they could still opt out of the landowners group, the Alberys sent a letter to counsel on July 24, 2011, stating that they wished to terminate the agreement.
You can read more by clicking here.

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Pennsylvania Supreme Court Won't Review Controversial Act 13 Ruling

From the Press & Sun-Bulletin:
Pennsylvania’s highest court said Friday it would not revisit its decision striking down a state law that took zoning decisions about natural gas drilling out of the hands of local governments. 
The state Supreme Court denied a request by Gov. Tom Corbett’s administration to vacate its decision and send it back to a lower court for a new round of briefs and fact-finding process. 
Instead, five justices left in place the Dec. 19 ruling that new industry-friendly rules violated the state constitution. The sixth, Justice Thomas Saylor, said he would have granted the request for reconsideration made by the Department of Environmental Protection and the Public Utility Commission.
Read the whole article here.

This decision leaves the possibility open that much more of Act 13 could be shelved, including impact fees that were benefiting communities and stiffened environmental protections that were included as part of the plan.

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Carroll Soil and Water Promotes Water Stewardship


CARROLLTON, OHIO: Linda Yeager, District Administrator of the Carroll Soil and Water Conservation District will be sharing information about the 4R Tomorrow program at the Carroll Concerned Citizens meeting on Thursday March 6. This program promotes nutrient stewardship, water management and backyard conservation to protect water quality in local communities and across Ohio.

Watershed Specialist, Josh Britton hired by Carroll and Harrison Soil and Water Conservation District will be introduced and talk about the upcoming plans for the Atwood, Leesville, Tappen and Clendening watersheds.

The meeting is being held at the Church of Christ 353 Moody Ave. Carrollton, OH beginning at 7pm and is free and open to the public.


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Utica Shale Nearing 400 Producing Wells

The latest weekly permitting update from the Ohio Department of Natural Resources shows the Utica shale is close to reaching a couple more milestone numbers.

There were 14 new permits issued last week.  Harrison County was the focal point, with 7 of the permits for wells there.  Of the rest, 2 were Carroll County, 2 for Columbiana County, and 1 each in Belmont, Guernsey, and Monroe counties.

With this latest activity, there have now been 1099 permits issued for Utica shale drilling.  747 wells have been drilled, and the number of wells producing climbed to 384.  The Utica rig count is still 40.

View the report here.

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Monday, February 24, 2014

Utica Shale Activity to Increase in 2014, With Future Hopes of Tapping Into Crude Oil Still Held Out

From the Akron Beacon Journal:
Ohio’s Utica shale is likely to get a “dramatic ramp-up” in 2014 and may get an even-bigger boost if technologies can be developed to tap its crude oil in the future, said the head of the Ohio Oil and Gas Association. 
The Utica shale in eight eastern Ohio counties is an “attractive play” for natural gas and liquids, although efforts to find its crude oil have not been successful, said Tom Stewart, chief executive officer and executive vice president of the statewide trade group. 
The Ohio Department of Natural Resources is estimating that 1,180 Utica shale wells will be drilled in Ohio in 2014, he said Thursday at Crain’s Cleveland Business Shale Summit 2014. 
At present, Ohio has approved 1,093 Utica shale wells, of which 737 have been drilled and 367 are in production as of Feb. 15. 
The number of drilling rigs in Ohio is likely to jump from 40 at present to 60 early next year, based on surveys he has conducted, said David Hill, incoming president of Stewart’s group and a panelist at the daylong conference that attracted about 200 people.
Read the rest of this article here.

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Exxon CEO Under Fire for Hypocritical Stance on Neighborhood Effects of Drilling

From Forbes:
Meet Rex Tillerson, the CEO of oil and gas superstar ExxonMobil Corporation—the largest natural gas producer in these United States of America—and a newly emerging giant in the world of exquisite hypocrisy.
A key and critical function of Mr. Tillerson’s day job is to do all he can to protect and nurture the process of hydraulic fracturing—aka ‘fracking’—so that his company can continue to rack in billions via the production and sale of natural gas. Indeed, so committed is Rex to the process of fracking that he has loudly lashed out at those who criticize and seek to regulate hydraulic fracturing, suggesting that such efforts are a very bad idea, indeed. 
According to Tillerson, “This type of dysfunctional regulation is holding back the American economic recovery, growth, and global competitiveness.”
Thus, according to Rex Tillerson, nobody should have much of a reason to be disturbed or concerned when ExxonMobil comes knocking on your door to deliver the news that fracking is about to become a part of your daily life…unless, or course, you happen to live in Mr. Tillerson’s neighborhood.
In that case, the rules are, apparently, very, very different.
You see, while Tillerson believes that the inevitable noise pollution that accompanies the fracking process—not to mention the potential for water contamination and other dangerous side-effects even when it is done safely (and some would strenuously argue that it is not possible to frack safely)— is of no real significance when it affects someone else’s neighborhood, he surely thinks it to be a pretty big deal when someone dares to get involved in fracking in Rex Tillerson’s neighborhood.
So much is this the case that Tillerson—ExxonMobil CEO and proud proponent of fracking as a key to both America’s and his company’s great energy future—has joined a lawsuit seeking to shut down a fracking project near Mr. and Mrs. Tillerson’s Texas ranch.
Read the entire article here.

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Friday, February 21, 2014

Links for 2/21/14: Pipelines, Liens, and Hypocrites - Oh My


Energy Tomorrow:  Embrace Opportunity, Stop Delaying Keystone XL  -  It’s hard to look at the delays that have kept the Keystone XL pipeline on the drawing board for more than five years and not think about the countless American workers – in construction, fabrication, supply, transport and other sectors – who would...

Columbus Business First:  Exxon CEO fighting water tower near his house out of fracking concerns  -  The CEO of Exxon Mobil Corp. is joining opponents of a proposed water tower who fear it could lead to fracking-related...

Greene County Messenger:  Liens could be obstacles for gas leaseholders  -  In October, Garry Miller tried to refinance his home. The only problem? There was a $500 million lien, or line of credit, showing up on his property deed.  “I went to remortgage my house to...

Akron Beacon Journal:  Stewart envisions major boost in Ohio's Utica shale in 2014  -  Ohio’s Utica shale is likely to get a "dramatic ramp-up" in 2014 and may get an even-bigger boost if technologies can be developed to tap its crude oil...

Marcellus Drilling News:  EPA OIG Begins Project to “Evaluate” Water Threats from Fracking (subscription required)  -  MDN has warned you for years that the federal Environmental Protection Agency (EPA) has an earnest desire to take over (illegally, in our opinion) the role of regulating oil and gas drilling in this country. Regulation of oil and gas falls...
Click here to view the EPA OIG memorandum

Marcellus Drilling News:  EPA Issues Final “Guidance” Defining Diesel Fuel re Frack Fluid (subscription required)  -  Ten days ago the federal Environmental Protection Agency (EPA) released a “guidance” to define what is and is not diesel fuel for the purposes...
Click here to view the EPA guidance


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Governor Kasich Says He Hasn't Supported Fracking in State Parks for Over a Year

From The Columbus Dispatch:
Less than three years after signing legislation opening up Ohio state parks and forests to fracking, Gov. John Kasich now opposes the controversial horizontal drilling for oil and gas on public lands.
“At this point, the governor doesn’t support fracking in state parks,” Kasich spokesman Rob Nichols told The Dispatch. “We reserve the right to revisit that, but it’s not what he wants to do right now, and that’s been his position for the past year and a half.”
Word of Kasich’s reversal came the same day Democratic lawmakers called for an investigation of a marketing plan to promote fracking on state lands that was put together a year and a half ago by the Ohio Department of Natural Resources, which regulates oil and gas drilling.
Read the entire article here. 

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Utica Shale is Proving to Be Productive for Rex Energy, But Company Posts Loss for 2013

Rex Energy 2013 results
featured good & bad news
From the Canton Repository:
Rex Energy’s production volume increased 38 percent last year and the company grew its proven reserves by a similar rate, but the State College, Pa.-based drilller ended the year and the fourth quarter with negative cash flow.

The company’s fourth quarter production hit 110.4 million cubic feet of natural gas equivalent per day, an increase of 12 percent over the third quarter and up 49 percent year over year. 
The yearly production rate was 92.7 million cubic feet equivalent per day, with oil and natural gas liquids accounting for 31 percent of net production, a liquids increase of 59 percent over 2012.
Click here to read the rest of the article. 

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Analyst Warns That Utica Shale Boom is Still Not a Lock

From Cleveland.com:
Ohio's Utica Shale play is in its infancy, and its future, though promising, is uncertain, a nationally recognized oil and gas industry analyst told a crowd attending Crain's Shale Summit 2014 on Thursday. 
"The Utica is doing well. It has a lot of promise," Houston-based analyst G. Allen Brooks told several hundred attending the conference. 
"The biggest problem is that we don't have a lot of knowledge about this formation and how well it will be producing as we go forward," he said. 
His sobering assessment followed more optimistic remarks earlier in the day from Tom Stewart, executive vice president of the Ohio Oil and Gas Association. Predicting that nearly 1,200 wells will be drilled in 2014 -- adding to the 661 drilled last year -- Stewart said job growth in the eight eastern counties where development is occurring has jumped by 56 percent over the past year.
Read the entire article here. 

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Thursday, February 20, 2014

Links for 2/20/14: Chevron Offers Pizza to Those Disturbed by Well Fire, Youngstown Fracking Ban Headed for Ballot (Again), and More

The Marietta Times:  Fracking views  -  Marietta City Council members heard from folks on both sides of the oil and gas horizontal hydraulic fracturing (fracking) debate during a special public meeting of council's lands, buildings and parks committee...

The Chillicothe Gazette:  County hears details on proposed pipeline projectAn underground natural gas liquids pipeline is expected to run through a small portion of Ross County as part of a 1,100-mile project involving four other states...

Business Journal Daily:  Frackfree gathers enough signatures for 3rd vote - The Youngstown Community Bill of Rights Committee reports its members have surpassed their goal of collecting enough signatures on petitions to add a charter amendment to the May municipal ballot. The signatures will now go...

Observer-Reporter:  Chevron's solution: "Let them eat pizza"Legend has it Marie Antoinette, when told during one of France’s famines that peasants had no bread, replied, “Let them eat brioche,” or more popularly, cake. Actually, it’s unlikely...

Pittsburgh Post-Gazette:  Remains found at drilling site in Greene CountyAt a somber news conference Wednesday, state police and officials from two well companies acknowledged what the colleagues, friends and family of a missing contractor had feared for eight days: that he likely died during an explosion...

ThinkProgress:  Ohio Governor Reverses Course On Fracking In State Parks After Plan To Discredit Environmentalists LeakedAfter it was revealed that top advisers to Ohio Governor John Kasich (R) were aware of a plan crafted by the state’s Department of Natural Resources to discredit the “eco-left” over fracking in state parks, Kasich reversed course...

Herald Star:  County school officials move toward community academyThe Jefferson County Governing Board took several steps closer to the creation of the Utica Shale Academy of Ohio Tuesday by agreeing to lease a building...

Columbus Business First:  Aubrey McClendon's American Energy Partners securing another $1.25 billion to spend in Utica shaleAubrey McClendon keeps on heaving money into the Utica shale play.  The former Chesapeake Energy Corp.leader’s new venture is securing an additional $1.25 billion in financing to spend in the region. That would...

Energy Tomorrow:  Our bright unconventional energy pictureThe outlook for U.S. energy from shale and other tight-rock formations just keeps improving. Two new assessments...

Energy in Depth:  Putting water use into perspective in the Utica shaleIt’s no secret the development of the Utica Shale requires oil and natural gas companies to utilize water for hydraulic fracturing. In fact, the average hydraulic fracturing job requires between three and five million gallons...

Akron Beacon Journal:  Two Ohio legislators seek hearings on Kasich, ODNR, drillersState Representatives Nickie J. Antonio (D-Lakewood) and Robert F. Hagan (D-Youngstown) today called on the Speaker of the House to hold legislative hearings to determine whether the Governor and...

The Coloradoan:  CSU study: Methane in water not linked to frackingIs there methane in Weld County’s water?  A new study by CSU researchers indicates there is, but it’s not the same methane for which companies are drilling.  Few issues in the natural gas arena are as controversial...

Akron Beacon Journal:  Member of 'Athens Eight' to get Ohio stewardship award - Kip Rondy, co-owner of Green Edge Gardens, and one of those recently arrested for blocking the K&H Injection Well in Athens County's Troy Township, is this year’s recipient...


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Operators Continue to Increase Investment in the Utica Shale

by Shawn Bennett, Energy in Depth
Companies investing and developing the Utica Shale continue to expand operational allocations as production ramps up.  While 2013 was known as the year of the midstream, companies are now focused on developing this promising resource as some of the midstream constraints are removed.  Announcements by companies like Chesapeake, Hess, XTO and Antero all suggest that 2014 is going to be a big year for the Utica Shale.
Chesapeake Energy is the clear leader in the Utica with over 50 percent of the permitted sites in the Utica.  Fifteen percent of its 2014 budget focused on the development of the Utica Shale, and they are excited to see production increases in the new year.  In a recent earnings call, CEO Doug Lawler noted:
“We see a very strong ramp in the production in Utica in 2014 as infrastructure and compression processing comes available to us, and we’re very excited.”
This excitement is not confined to Chesapeake.  As Hess looks to 2014, the company is ramping up its presence in Ohio.  Hess has allocated $2.85 billion in 2014 toward developing its shale resources across the nation, with 10 percent, $ 550 million, of that budget dedicated to developing 35 wells in the liquids-rich portion of the Utica Shale.
Antero Resources continues to place a major focus on the Utica Shale as well.  For 2014, Anteroplans to run four rigs and develop 49 wells in both Noble and Monroe Counties.  Also in Monroe County, XTO, a subsidiary of Exxon, is pleased with its first well developed in the Utica.  XTO Energy President Randy Cleveland said:
“We just initiated development in the Utica and are encouraged by results from our initial well that is producing at a peak 30-day rate of about 15 million cubic feet of dry gas per day.”
These investments aren’t going unnoticed by the local communities, either.  Monroe County is experiencing a growth in sales tax and fees collected by the recorder’s office, which is boosting general revenue funds for the county. Monroe County Auditor Pandora Neuhart is particularlyexcited about the increased development:
“The oil and gas is a real shot in the arm for us, right now, we are seeing an increase in sales tax because people are buying stuff. It will probably be about two years before we really see money coming in from the oil and gas because that is when they will have the pipelines ready.”
Michael Silva, president of the Cadiz Community Improvement Corp., is also seeing the tremendous benefits shale development is bringing to Harrison County.  In a recent letter to the editor discussing the positive impact shale development is having on the county, Mr. Silva shared some very compelling facts:
“There is no doubt that shale development is providing good-paying jobs to local residents. This much is evident as total county tax receipts have reached almost $4.7 million in 2013, compared with not quite $1.4 million in 2010. In addition, income-tax collections in the village of Cadiz have increased from $788,000 in 2012 to nearly $1.2 million in 2013.”
These investments each year by companies like Chesapeake, Hess, XTO and Antero have a direct correlation with the growth of the economy in eastern Ohio.  These companies developing wells in Ohio are providing jobs for our residents and creating more revenue for our local governments.  As we continue to see more development as well as infrastructure constraints removed, these benefits will continue to accrue, making eastern Ohio’s economies remain strong for years to come.
Copyright Energy in Depth.  Reprinted with permission.  View original article here.

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Number of Utica Wells Producing Takes Big Jump in Latest ODNR Update


The Ohio Department of Natural Resources has released the weekly permitting update for last week, and activity picked up considerably from the previous report.

While only 3 new permits were issued in the week of February 2-February 8, 17 new permits were issued last week.  Leading the way was Belmont County, where 8 new permits were issued to Gulfport Energy.  Next up was Harrison County, with 6 permits.  Rounding out the activity were Monroe County, with 2 permits, and Carroll County, with one.

That brings the permit total to within striking distance of 1,100, with 1,093.  The number of wells drilled is 737.  The Utica rig count remained at 40.

The other big news is the number of producing wells, though, which jumped from 310 on the previous report to 367 on this latest one, which means that the number wells producing has nearly tripled since early September.  The midstream infrastructure improvements are really beginning to make a difference.

Read the report here.

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Athens Fracking Ban Could Be on November Election Ballot

From The Athens News:
With the Athens County Board of Elections slated to certify spring primary ballot petitions on Tuesday, county Prosecutor Keller Blackburn is poised to recommend that an anti-fracking measure be approved for the November election. 
The group behind the measure, the Athens Bill of Rights Committee, has sent a letter to the elections board and Blackburn through its attorney requesting the measure be approved for a vote on May 6. 
This was after Blackburn was informed by the elections board office, and subsequently notified the group, that Ohio Revised Code stipulates that ordinance petitions must be put before voters only on a general election ballot. 
Blackburn reaffirmed his position Friday, saying that he has not received any authoritative legal argument from the group for making an exception to put the question on the primary ballot instead. 
"I asked (the BORC's attorney) for any authority at all that they could find in law that didn't create a fatal flaw and would allow this to go on the (spring) ballot," he said. "The group did not respond with any type of authority whatsoever."
Read the whole article here. 

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Rex Energy Releases 2013 Operational and Financial Results


  • Average daily production from oil and NGLs reached a record level of 5.7 MBoe/d, a 7% increase over the third quarter of 2013
  • Fourth quarter adjusted EBITDAX reached $40.7 million, the highest level in company history
  • Increased proved reserves at December 31, 2013 by 37% over December 31, 2012Appalachian Basin drill-bit F&D of $0.70/Mcfe for 2013
  • Baillie Trust pad continues to perform well; 30-day sales rate of 5.1 MMcfe/d per well from four vertically offset stacked laterals
  • Currently drilling the three-well Schilling pad, with an estimated lateral length of ~ 5,800 feet, the longest average lateral length of any combination of wells drilled in the Butler Operated Area
  • Drilling final well of six-well Grunder pad in Warrior North Prospect; nine wells in the Warrior North Prospect to be placed into sales in second quarter of 2014
  • Exited 2013 with approximately 79,000 gross acres in the Butler Operated Area
STATE COLLEGE, Pa.Feb. 19, 2014 (GLOBE NEWSWIRE) -- Rex Energy Corporation (Nasdaq:REXX) today announced its fourth quarter and full year 2013 operational and financial results.
Fourth Quarter Financial Results
Operating revenues from continuing operations for the three months ended December 31, 2013 were $72.1 million, which represents an increase of 60% over the same period in 2012. Commodity revenues, including the net cash received from derivatives, were $65.1 million, an increase of 49% over the comparable period of 2012. Commodity revenues from oil and natural gas liquids (NGLs), including net cash received from derivatives, represented 56% of total commodity revenues for the three months ended December 31, 2013.
Lease operating expense (LOE) from continuing operations was $18.4 million, or $1.82 per Mcfe for the quarter, a 6% decrease on a per unit basis compared to the same period in 2012. DD&A expense for the fourth quarter of 2013 was$23.6 million, an increase of $10.4 million over the fourth quarter of 2012 and $7.3 million over the third quarter of 2013. This increase in depletion is due to the significant production growth in the Appalachian Basin assets and higher finding costs in the Illinois Basin.
The company incurred a non-cash impairment charge of approximately $29.7 million during the fourth quarter of 2013, largely due to higher finding costs on its exploration program in the Illinois Basin as well as decreases in expected future prices for crude oil.
Loss from continuing operations attributable to common shareholders for the three months ended December 31, 2013 was $13.9 million, or $0.26 per share. Adjusted net income, a non-GAAP measure, for the three months endedDecember 31, 2013 was $5.4 million, or $0.10 per share.
EBITDAX from continuing operations, a non-GAAP measure, was $40.7 million for the fourth quarter, an increase of 54% over the fourth quarter of 2012 and 17% over the third quarter of 2013.
Reconciliations of cash G&A expenses to GAAP G&A expenses, adjusted net income to GAAP net income, and EBITDAX to GAAP net income for the three months ended December 31, 2013, as well as a discussion of the uses of each measure, are presented in the appendix attached to this release.
Full Year 2013 Financial Results
Operating revenues from continuing operations for the full year 2013 were $237.9 million, which is an increase of 61% over full year 2012 operating revenues. Commodity revenues, including the net cash received from derivatives, were$221.0 million, an increase of 47% over full year 2012. Commodity revenues from oil and NGLs, including net cash received from derivatives, represented 56% of total commodity revenues for the full year 2013.
LOE from continuing operations was $62.1 million, or $1.84 per Mcfe for the full year 2013. Cash G&A expenses from continuing operations, a non-GAAP measure which excludes stock based compensation, were $27.7 million for the full year 2013. DD&A expense for the full year 2013 was $63.9 million, an increase of $18.5 million over the full year 2012. This increase in depletion is due to the significant production growth in the Appalachian Basin assets and higher finding costs in the Illinois Basin.
Loss from continuing operations attributable to common shareholders for the full year 2013 was $1.9 million, or $0.04 per share. Adjusted net income, a non-GAAP measure, for the full year 2013 was $23.8 million, or $0.45 per share.
EBITDAX from continuing operations, a non-GAAP measure, was $134.9 million for the full year 2013, an increase of 52% over the full year 2012.
Reconciliations of cash G&A expenses to GAAP G&A expenses, adjusted net income to GAAP net income, and EBITDAX to GAAP net income for the twelve months ended December 31, 2013, as well as a discussion of the uses of each measure, are presented in the appendix attached to this release.
Production Update
Fourth quarter 2013 production volumes were 110.4 MMcfe/d, an increase of 12% over the third quarter of 2013 and 49% over the fourth quarter of 2012, consisting of 76.4 MMcf/d of natural gas and 5.7 Mboe/d of oil and NGLs. Oil and NGLs accounted for 31% of net production during the fourth quarter and increased by 7% over the third quarter of 2013. For full year 2013, production volumes increased by 38% over 2012 to 92.7 MMcfe/d, consisting of 64.2 MMcf/d of natural gas and 4.8 Mboe/d of oil and NGLs. Oil and NGLs increased by 59% over 2012 and accounted for 31% of net production during 2013. Both the company's fourth quarter 2013 and full year 2013 average daily production volumes exceeded the midpoint of the company's previously announced fourth quarter 2013 and full year 2013 production guidance.
Including the effects of cash-settled derivatives, realized prices for the three months ended December 31, 2013 were $90.30 per barrel for oil and condensate, $4.03 for natural gas and $52.19 per barrel for NGLs. For the full year 2013, realized prices including the effects of cash-settled derivatives were $91.30 per barrel for oil and condensate, $4.17 for natural gas and $48.34 per barrel for NGLs. Before the effects of hedging, realized prices for the three months endedDecember 31, 2013 were $93.33 per barrel for oil and condensate, $3.60 for natural gas and $54.81 per barrel for NGLs. For the full year 2013, realized prices prior the effects of hedging were $95.12 per barrel for oil and condensate,$3.71 for natural gas and $48.66 per barrel for NGLs.
Full Year 2013 Capital Investments
For the full year 2013, the company made operational capital investments of approximately $303.2 million, of which $233.0 million was used to fund Marcellus and Ohio Utica operations and $70.2 million was used to fund conventional drilling, water flood enhancement and facility upgrades in the Illinois Basin. The Marcellus and Ohio Utica capital investment funded the drilling of 42.0 gross (29.8 net) wells, fracture stimulation of 44.0 gross (30.0 net) wells, placing 47.0 gross (31.7 net) wells into sales and other projects related to drilling and completing wells in the Appalachian BasinThe Illinois Basin capital investment funded the drilling of 19 gross (19.0 net) wells, fracture stimulation of 29 gross (29.0 net) wells and placing 29 gross (29.0 net) wells into sales and other projects related to drilling and completing wells.
In addition to operational capital investments, investments for leasing and property acquisitions were $35.6 million and capitalized interest was $7.5 million for the full year 2013.
Estimated Proved Reserves
Rex Energy previously reported proved oil, NGL and natural gas reserves as of December 31, 2013 of 849.8 Bcfe, an increase of 37% over December 31, 2012. Of the proved reserves, 39% was attributable to oil, natural gas liquids and condensate, assuming 55% ethane recovery. The proved developed portion of the reserves increased to 356.5 Bcfe from 257.9 Bcfe as of December 31, 2012 and accounted for 42% of proved reserves. Drill-bit finding and development costs on a per unit basis were $0.91 per Mcfe for 2013 and $0.70 per Mcfe for the Appalachian Basin. The proved reserves estimates as of December 31, 2013 were prepared by the company's independent reservoir engineers,Netherland, Sewell & Associates, Inc. For more information on proved reserves and related information, see "Note on Hydrocarbon Volumes and Estimates" below.
Operational Update
Note: Unless specifically stated otherwise in this operational update, all numbers are gross; all well results assume full ethane recovery and all wells were completed using the company's 150' stage spacing "Super Frac" design.
Appalachian Basin - Butler Operated Area, Pennsylvania
In the Butler Operated Area, the company drilled 19.0 gross (13.3 net) wells in 2013, with 26.0 gross (18.2 net) wells fracture stimulated and 26.0 gross (18.2 net) wells placed into service. The company had 11.0 gross (7.7 net) wells drilled and awaiting completion as of December 31, 2013.
As previously reported, the company placed into sales the six-well Baillie Trust pad, which produced into sales at an average five-day sales rate per well (excluding downtime) of 5,957 Mcfe/d (52% NGLs, 47% gas, 1% condensate), assuming full ethane recovery. The six wells have gone on to produce at an average 30-day sales rate per well (excluding downtime) of 5,192 Mcfe/d (52% NGLs, 47% gas, 1% condensate), assuming full ethane recovery. In addition, the company tested slightly different landing zones for the laterals on two of the six wells drilled. Based on the results of these wells, the company plans to target its historical landing zone in the high organic section of the reservoir for future laterals in its Butler Operated Area. The 30-day sales rate per well for the four wells landed in the high organic section of the reservoir was 5.5 MMcfe/d.
The company is currently drilling the third of three wells on the Schilling pad. The three wells will be drilled with an average lateral length of approximately 5,800 feet, which represents the longest average lateral length of any combination of wells drilled in the Butler Operated Area. The company expects to finish drilling the wells during the first quarter of 2014 and begin completion operations in the second quarter of 2014.
The table below lists, where available, the 5-day and 30-day sales rates for the company's recent completions.
 
5-Day Sales Rate (Average Per Well)
Well NameTarget FormationNatural Gas (Mcf/d)NGLs / Condensate (Bbls/d)% LiquidsTotal - Ethane Recovery (Mcfe/d)Total - Ethane Rejection (Mcfe/d)
Baillie Trust(1) 2H, 4H, 5H(2), 6H (2)Marcellus / Upper Devonian2,82653153%6,0094,105
Baillie Trust 1H, 3HMarcellus2,71152454%5,8544,023
 
30-Day Sales Rate (Average Per Well)
Well NameTarget FormationNatural Gas (Mcf/d)NGLs / Condensate (Bbls/d)% LiquidsTotal - Ethane Recovery (Mcfe/d)Total - Ethane Rejection (Mcfe/d)
Baillie Trust(1) 2H, 4H, 5H(2), 6H (2)Marcellus / Upper Devonian2,40545053%5,1063,486
Baillie Trust 1H, 3HMarcellus2,48747954%5,3643,685
(1) Stacked laterals
(2) Upper Devonian wells
 
Total Operated Area - Butler County, PA
 Wells DrilledWells Fracture StimulatedWells Placed Into SalesWells Awaiting Completion
FY 2014 Forecast40 - 4535 - 3835 - 3816 - 18
Butler Operated Area - Midstream Capacity
As previously reported, the company's existing 90 MMcf/d of processing capacity at the Sarsen and Bluestone facilities has been substantially filled and the company expects the plant to remain at or near capacity until the Bluestone II facility, which is currently under construction, is commissioned. The company continues to expect that the Bluestone II facility will be commissioned in the second quarter of 2014, adding an incremental 120 MMcf/d of processing capacity in the Butler Operated Area (of which 100 MMcf/d is dedicated to Rex Energy). The company currently expects to place 10 - 12 wells into sales in the second quarter of 2014 in its Butler Operated Area due to the additional processing capacity at the Bluestone II facility.
In addition, Rex Energy recently secured approximately 48 MMcf/d of additional future firm residue transportation through Dominion Transmission in the Butler Operated Area. The company now has approximately 133 MMcf/d of firm transportation in the Butler Operated Area. The additional firm transportation will be used to support the expected production growth in the Butler Operated Area once the Bluestone II facility is commissioned in the second quarter of 2014.
Appalachian Basin - Warrior North Prospect, Carroll County, Ohio
In the Warrior North Prospect, the company drilled nine gross (9.0 net) wells in 2013, with four gross (4.0 net) wells fracture stimulated and four gross (4.0 net) wells placed into service. The company had six gross (6.0 net) wells awaiting completion as of December 31, 2013.
The company is drilling the last well on the six-well Grunder pad in the Warrior North Prospect. The six wells will average total measured depth of approximately 12,905 feet with an average lateral length of approximately 4,800 feet. The company recently added a sixth well to the Grunder pad in order to test 500 foot and 650 foot down spacing. Rex Energy expects to begin completion operations during the first quarter of 2014 and expects to place the wells into sales in the second quarter of 2014.
The company recently completed the three-well Ocel pad. The three wells on the pad were completed on 750 foot spacing and were drilled to an average total measured depth of approximately 12,700 feet with an average lateral length of approximately 4,400 feet and were completed with an average of 29 frac stages. The wells are expected to be placed into sales in the second quarter of 2014.
Appalachian Basin - Warrior South Prospect, Guernsey, Noble & Belmont Counties, Ohio
In the Warrior South Prospect, the company drilled five gross (3.9 net) wells in 2013, with five gross (3.9 net) wells fracture stimulated and eight gross (6.2 net) wells placed into service. The company had no wells awaiting completion as of December 31, 2013.
As previously reported, the company placed the five-well J. Anderson pad into sales during the fourth quarter of 2013. The wells produced at an average five-day sales rate (excluding downtime) of 1,886 Boe/d on an average 18/64 inch choke and have subsequently gone on to produce at an average 30-day sales rate (excluding downtime) of 1,721 Boe/d and a average last 5-day sales rate of 1,515 Boe/d. These wells, along with the initial three Warrior South Prospect wells placed into sales in June 2013, continue to flow into sales without processing constraints.
The company expects to start drilling operations on the six-well J. Hall pad, located in Guernsey County, in the second quarter of 2014. The six-wells on the J. Hall pad are expected to be drilled with an average lateral length of approximately 5,500 feet and are testing approximately 650 foot spacing between the laterals on this pad. The six-well J. Hall pad is expected to be completed in the third quarter of 2014 and placed into sales near the end of 2014. 
 
Total Operated Area - Ohio Utica Shale
 Wells DrilledWells Fracture StimulatedWells Placed Into SalesWells Awaiting Completion
FY 2014 Forecast1117110
Appalachian Basin - Well Cost Reduction
As previously reported, the company reduced its cost to drill and complete wells in the Appalachian Basin by approximately 10% in 2013 through a combination of improved pricing on service costs and operational efficiencies in both the Butler Operated Area and Ohio Utica Warrior Prospects. Rex Energy expects well costs in the Butler Operated Area to average approximately $5.9 million per well for a 4,000 foot lateral, a decrease of approximately 9% over the $6.5 millionaverage per well from one year ago.

Tuesday, February 18, 2014

Mayor of Gates Mills Wants Residents to Sign Over Their Mineral Rights to Village

From Cleveland.com:
GATES MILLS, Ohio — Gates Mills Mayor Shawn Riley wants property owners to form a real estate trust to control the location of controversial hydraulic fracturing sites if they are built in the village. 
The mayor said experts tell him horizontal drilling wells that facilitate fracking, a process used to extract natural gas, will be built in the Cleveland area in about 10-12 years, and he wants to begin preparing now. 
Horizontal wells require at least 200 acres and a fleet of trucks to operate. Fluids and chemicals are injected through the wells 8,000-10,000 feet into the ground at high pressure. Once the fluid reaches shale, it travels horizontally through the rock, releasing natural gas from the cracks.
Read the whole article here (although it should be noted that it misses on a few facts, such as that "horizontal wells require at least 200 acres" thing...as MDN points out, that number should be 20).




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Ohio DNR Releases Latest Utica Shale Activity Map



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735 Wells Drilled in Latest Ohio DNR Report

The latest weekly permitting report from the Ohio Department of Natural Resources shows a slow week of activity in new permitting, but the number of wells drilled and producing continues to grow.

Only 3 new permits were issued in the week of February 2-February 8.  2 were issued for Carroll County wells and 1 for Harrison County.

That brings the cumulative permit total to 1077.  735 wells have been drilled and 310 wells are producing.  The Utica rig count is 40.

View the report here.

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Ohio Oil & Gas Association Upset About Changes in Severance Tax Proposal

OOGA thought they had a deal
From the Youngstown Vindicator:
Tom Stewart, president of the Ohio Oil and Gas Association, which represents drillers throughout the state, took exception to the substitute bill that would raise the top tax rate on the net value of natural gas produced from horizontally fractured wells from 2 percent to 2.25 percent. 
But the most significant change, he said, was a provision that would enforce that rate after two years of production, instead of five. 
“That’s a huge issue,” he said in an interview. 
The shorter window would give producers less time to recover the cost of drilling and overburden them with tax obligations, he said. 
“On average, five years probably gives level playing ground across the state of Ohio,” Stewart said. A two-year window before the higher rate kicks in “is not reality.” 
The initial severance tax bill, introduced in December and sponsored by House Speaker Pro Tempore Matt Huffman of Lima, R-4th, proposed a 1 percent tax on the gross value of oil and natural gas from fracked wells for the first five years of production. After that, the rate would have risen to 2 percent for high-producing wells and then dropped back to 1 percent when production declined. 
The OOGA was heavily involved in the crafting of that proposal, and the industry group publicly endorsed the bill on the day it was introduced with the backing of House leadership.
Read the entire article here. 

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Ohio DNR Comes Under Fire For Internal Plan to Counter Fracking Claims of Anti-Drilling Crowd

Activists are up in arms over abandoned
Ohio Department of Natural Resources plan to
work with drillers on countering their fracking claims
From The Columbus Dispatch:
The Ohio Department of Natural Resources, the agency assigned to regulate oil-and-gas drilling in Ohio, developed a wide-ranging public-relations campaign in August 2012 to sell Ohioans on fracking in some state parks and forests. It was never officially implemented.
The 10-page memo recognized that the public-relations initiative “could blur public perception of ODNR’s regulatory role in oil and gas,” which would require “precise messaging and coordination” to counteract.
The memo also warned about the need to overcome “zealous resistance by environmental-activist opponents who are skilled propagandists.” Opponents of hydraulic fracturing would “attempt to create public panic” about possible health risks, brand the policies of Gov. John Kasich as “ dangerous and radical,” and “attempt to legally and physically disrupt or halt the drilling projects, including staging dangerous protests on state lands.” The latter would necessitate “ sustained legal countermeasures and crisis readiness” by the state.
Read the whole article here.

Some of the criticism of the ODNR can be read in an article from the Huffington Post:
The communication planning document warned that "'eco-left' pressure groups" will be key influencers seeking to stop the drilling and would "attempt to create public panic" about health risks related to fracking. It listed companies like Halliburton, as well as associations like the U.S. Chamber of Commerce and the Ohio Oil and Gas Association as "allied" groups on behalf of the state's initiative. Groups like the Sierra Club, Natural Resources Defense Council and the Ohio Environmental Council, as well as two specific state legislators, are listed as the "opposition." 
ProgressOhio Executive Director Brian Rothenberg called the memo evidence of the "Nixonian tactics" that the governor and his officials employ. 
And here is the internal memo that is causing such outrage among anti-drilling activists.




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The Weather Channel Goes After Oil & Gas Industry; Industry Responds Swiftly

First, the report from The Weather Channel:


Fracking The Eagle Ford Shale: Big Oil And Bad Air On The Texas Prairie from Weather Films on Vimeo.

And then, the response from Energy in Depth, which accuses the report of working backwards from the conclusion that oil and gas operations in the Eagle Ford shale are running roughshod over the health of residents with little to no regulation to slow them down, and stating those conclusions despite an utter lack of any real evidence:
A new investigative report by InsideClimate News and the Center for Public Integrity – promoted and produced by the Weather Channel – concludes that shale development in south Texas is “releasing a toxic soup of chemicals into the air,” which the researchers describe as “a bust for local residents who fear for their health.” But shaky research underlying the report raises serious questions about the validity of those claims, including the use of widely discredited literature promoted by activist groups.
The upshot of the InsideClimate/CPI report is that, despite complaints from residents in the Eagle Ford Shale region, regulators have done little to nothing to protect them. The researchers argue that operators who violate rules “face few, if any, repercussions,” all the while air emissions are allegedly threatening public health. To top it all off, the regulators themselves even admit that their rules are inadequate — at least according to the “report.”
The facts, as they say, tell a much different story.
Below is a list of claims made in the InsideClimate/CPI report and in excerpts from the Weather Channel video that accompanies the article, each followed by an explanation of reality.
CLAIM“The Texas Commission on Environmental Quality (TCEQ), which regulates most air emissions, doesn’t even know some of these facilities exist. An internal agency document acknowledges that the rule allowing this practice ‘[c]annot be proven to be protective.’” (p. 2)
FACT: What the InsideClimate/CPI team does not tell you is that this excerpt refers to an older version of the law, and in fact was part of a memo that compares the older version with the newly adopted rule. The new rule “[c]an prove protectiveness of health and human welfare and provides practically enforceable records,” according to TCEQ.
In other words, the researchers are suggesting current regulations are inadequate on the basis of an older rule that has since been updated based in part on the very flaw they’re citing.
The memo cited (which is referenced again on page six) does note that operations outside the Barnett Shale will “follow old requirements.” But a second memo (ironically also cited by the InsideClimate/CPI team, but in a different context later in the article) explains that the “old requirements” outside the Barnett only lasted until January 5, 2012. Facilities already permitted under the “permit by rule” system will be grandfathered, but only until January 1, 2016. If those facilities modify their operations, however, they will be required to meet the new requirements immediately.
The InsideClimate/CPI team carefully excerpted and strung together two separate memos, and either deliberately ignored the parts that contradicted their storyline or were unaware that they were critiquing a regulatory system that does not exist. Either way, the basis of the claim that TCEQ’s rules are not protective (and by extension many elements of the report that build off of it) is no longer valid.
CLAIM“Companies that break the law are rarely fined. Of the 284 oil and gas industry-related complaints filed with the TCEQ by Eagle Ford residents between Jan. 1, 2010, and Nov. 19, 2013, only two resulted in fines despite 164 documented violations. The largest was just $14,250. (Pending enforcement actions could lead to six more fines).” (p. 2)
FACT: The regulatory system in Texas is premised on fixing problems. As such, if there is a violation, regulators respond by requiring operators to fix the issue(s). The TCEQ carefully outlines this process on its website. When the TCEQ issues a notice of violation, operators are given a prescribed time to “return to compliance and provide documentation that all violations have been corrected.” If the violations are not corrected within that time period, TCEQ can initiate a notice of enforcement. Since most violations can be quickly corrected, the number of “violations” will always exceed the number of “enforcements,” but that doesn’t mean the regulatory agency isn’t acting.
The InsideClimate/CPI team is criticizing regulators for not focusing on imposing monetary penalties. That may be a fair critique, but in a world with limited taxpayer resources, state regulators have determined (appropriately) that fixing problems is more important than just levying fines. The researchers also gloss over the fact that a full 120 of the complaints did not show any actual violations, and refuse to detail what each of the 164 violations actually did entail (administrative and paperwork errors, for example, are categorized as “violations,” just as emissions events are).
You can read much more here. 

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