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Wednesday, April 30, 2014

Utica Shale Up to 1,230 Permits After Last Week's Action

The latest report from the Ohio Department of Natural Resources shows that 13 new permits were issued for horizontal drilling in the Utica shale last week.

Guernsey County continues to be a hot spot for new permitting.  With 6 new permits last week, it has been the location for 33 of the last 95 wells permitted in the state.  Eclipse Resources is the operator on all 6 of those wells permitted last week.  4 permits were for Monroe County, which is where 5 of the top 10 gas-producing wells on the 2013 fourth quarter production report are located.  2 permits were for Belmont County, which now has 99 total permits.  The final permit went to Carroll County, which creeps within 3 of having 400 permitted wells.

The new cumulative totals: 1,230 wells permitted, 838 wells drilled, 392 wells producing.  The Utica rig count is 39.

Click here to view the whole report.

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BP Folds Up Tents, Abandons Utica Shale Drilling

BP made a big splash in 2012 when the company leased about 85,000 acres in Trumbull County for over $330 million.  The company maintained that it was excited about its Utica shale prospects afterwards, even as other drillers in the northern part of the play expressed disappointment with what they were finding there.

Now, only a couple of years later, BP is abandoning its Utica shale holdings.  The company announced it with this brief statement while reporting its 2014 first quarter results:

“Following on from the decision to create a separate BP business around its US lower 48 onshore oil and gas activities, and as a consequence of appraisal results, BP has decided not to proceed with development plans in the Utica shale. The Upstream result includes a write-off relating to the Utica acreage.”

Trumbull County has proven to be an economically untenable location for Utica shale drillers because the shale there has yielded mostly dry gas, but it could reemerge as a target if the economics of natural gas change.

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Ohio DNR Releases 4th Quarter 2013 Horizontal Shale Production Figures

The Ohio Department of Natural Resources released production figures from the state's horizontal shale wells for the fourth quarter of 2013 last week.  I was away from the office because my wife was giving birth, so here is a rundown to get our readers up-to-date on what the report revealed.

First, here is what the ODNR said in its statement with the release of the production numbers:
The report lists 397 wells, 352 of which reported production results. Forty-five wells reported no production as they are waiting on pipeline infrastructure. The 352 wells produced 1,439,308 barrels of oil and 43,124,803 Mcf (1,000 cubic feet) of natural gas. 
Of those 352 wells: 
- The average amount of oil produced was 4,089 barrels.
- The average amount of gas produced was 122,514 Mcf.
- The average number of days in production was 62. 
The highest producing oil well was the Gulfport Energy “Boy Scout” well in Harrison County at 26,095 barrels of oil during 80 days of production. The highest producing gas well was the Antero Resources’ “Gary” well in Monroe County at 1,329,318 Mcf during 67 days of production. 
Compared to revised 2013 third quarter data, oil production increased by 103,982 barrels or 8 percent. Natural gas production increased by 9,491,914 Mcf or 28 percent.
Here is a breakdown of some of the numbers.

PRODUCTION BY COUNTY


TOP 10 GAS PRODUCING WELLS


TOP 10 OIL PRODUCING WELLS


To view the entire production report, click here.

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Tuesday, April 29, 2014

EQT Becomes Latest Driller to Express Disappointment in Utica Shale Wells

From TribLIVE:
EQT Corp. said on Thursday that it has had some disappointing results from wells at the edge of the Utica shale in Ohio and will stop drilling in the formation while it evaluates its prospects. 
EQT's decision follows Antero Resources Corp.'s reduction 10 days earlier in what it predicts to get from wells in a similar area on the western edge of the play. 
The Utica shale is viewed as the next front for gas drillers who benefited from booming production in the Marcellus shale and are looking to expand to other promising plays. 
“The first wells we drilled were not where they needed to be,” Steve Schlotterbeck, an executive vice president at EQT, said during a conference call discussing an otherwise successful quarter for the Downtown company.
You can click here to read the whole article.

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Sunday, April 27, 2014

Links for 4/27/14: Change at the Top For Utica Driller Gulfport, Another Shale Success Story, and More

Press release:  Gulfport Energy Corporation Names Michael Moore Chief Executive Officer, Ross Kirtley Chief Operations Officer and Appoints Michael Reddin and Michael Moore to Its Board of Directors

Weirton Daily Times:  Vendors Benefit From Shale Boom   -   "Eagle Manufacturing soon will hire about 25 additional employees as it prepares to roll out a new spill containment system for oil and gas drilling rig sites, according to..." 

Public News Service:  Marcellus Waste Radioactivity In Water Leaching From Landfills   -   "Tests show that wastewater from gas field landfills contains radioactivity. That is raising concerns about the disposal of..."

Mansfield News Journal:  Frack Free Ohio Cites Success in Richland   -   "Frack Free Ohio soon will wrap up its Richland County campaign. But the group has its sights set on educational programs in Ashland and Crawford counties. “We were very successful in Mansfield,” said Bill Baker, the..."

Ohio Business Roundtable:  Statement on Ernst & Young Analysis of Severance Tax Provisions in 
Governor Kasich’s 2014 Mid-Biennium Budget Review   -   (Ohio Business Roundtable says it supports severance tax proposal)

Wall Street Journal:  Welders Make $150,000? Bring Back Shop Class   -   "In American high schools, it is becoming increasingly hard to defend the vanishing of shop class from the curriculum. The trend began in the 1970s, when it became conventional wisdom that a four-year college degree was..."

Platts:  Next disruptive shale technology will improve recoveries: Schlumberger fellow   -   "Technologies that will increase the low rate of ultimate recoveries in shale plays are the next disruptive forces in US oil and gas production, experts said Tuesday in Washington. "The revolutionary change will be breaking out of the primary recovery trap," Schlumberger fellow Robert Kleinberg said. "How do you..."

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Quality of Sites Proving More Important Than Quantity for Shale Drillers

From the Wall Street Journal:
Like their bigger rivals, the upstarts frack to tap previously untouchable oil and gas deposits in dense shale formations. But these companies have focused on the right property instead of the most property—and raked in big stock paydays as a result. 
For the most part, neither the less-is-more upstarts, nor the bigger-is-better graybeards are bringing in more than they spend to drill and frack. The difference is that Wall Street no longer is throwing cash at established shale players holding loads of acreage.
"It's quality over quantity. We don't have one million acres and we don't strive to have one million acres," says Daniel Rice IV, the 33-year-old chief executive of Rice Energy Inc.,RICE 0.00% which drilled its first well in 2009.
The company, which went public in January, has a stock-market value of $3.9 billion, its stock up 44% since its initial public offering. The Rice family owns a third of the stock.
Rice holds the rights to lease about 90,000 acres in the Marcellus Shale, nearly all in two counties in Pennsylvania and one in Ohio.
Compare that with Chesapeake Energy Corp. CHK 0.00% , which holds leases to drill on nearly 13 million acres in eight states, after vacuuming up as many leases as possible in the mid-2000s. Despite having the right to drill in an area 140 times that of Rice, Chesapeake's market value is $18.33 billion.
Click here to read the entire article (subscription required).

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Thursday, April 24, 2014

Activist Group Not At All Happy With MWCD's Latest Lease Agreement

The Fresh Water Accountability Project put out the following press release after the Muskingum Watershed Conservancy District signed a lease agreement with Antero Resources last week.
Property Owners Organizing Against Conservancy District
The Muskingum Watershed Conservancy District (MWCD) Board Meeting held last Friday, April 18, 2014, provided another stunning example of how the conservancy district is allowed to tax property owners in the district without accountability to respond to their concerns, represent their best interests and “conserve.” The MWCD is a large political subdivision in the State of Ohio created in the 1930’s for flood control and other public interest protections. This mandate to operate for “public benefit” was the basis of the 2005 amendment to the District’s “Official Plan” that justified the implementation of additional property taxes in the district. These taxes were reduced at last Friday’s Board Meeting, but the meager savings to property owners in no way would compensate them for the potential long-term damage done by the Board’s ongoing decisions to support the abnormally dangerous, resource-intensive and highly unregulated industrial process of horizontal fracturing (fracking).

On Friday, the Board of the MWCD ratified the administration’s recommendation to sign a lease to Antero Resources to lease a fourth reservoir in the district, Piedmont, for fracking. The district will receive another windfall profit of over $94 million just in signing bonus, plus 20% royalty. In addition, the MWCD ratified three additional, renewable, “short-term” sales of water from the district of up to 120 million gallons that would provide additional profits of almost $700,000.

In recognition of this, and left with no other recourse due to continued failed attempts to influence the MWCD otherwise, the FreshWater Accountability Project (FWAP) is connecting property owners with information and other experts in the field to protect themselves and their property. Property owners in the district near reservoirs such as Piedmont that have been leased are urged to obtain baseline water testing for their drinking water wells from a lab certified by the OEPA for Tier 3 testing. It’s an additional cost, but property owners may also want to test for radioactivity because of the water soluble Radium 226 and 228 and other toxins such as arsenic which are brought to the surface due to fracking. Those who are concerned about air contamination by being downwind from fracking and flaring may want to obtain air quality measurement canisters by contacting FWAP or researchers at FracTracker who are currently seeking opportunities to work with communities to understand air quality impacts of fracking emissions. Property owners, especially those who are lessees of the MWCD, are urged to obtain professional baseline appraisals for property values. “By engaging in an industry that negatively impacts property values and denies responsibility for pollution it causes by arguing ‘plausible deniability’, it is now up to the property owners to protect themselves,” stated Lea Harper. “Lack of adequate regulations and industry oversight along with the conservancy’s unquestioning support and promotion of fracking has put us in this unfortunate situation. We believe that property owners should bill the MWCD for their costs to obtain this baseline information because it would not be necessary if not for the MWCD’s reckless and irresponsible decisions to promote fracking in the district.”

It’s not only pollution problems and property devaluation that are of concern; there is growing awareness of the long-term implications of permanently removing large quantities of water from the watershed. The increasing rate of freshwater loss caused by the MWCD’s decision to provide the fracking industry with water from watershed reservoirs means that non-trivial impacts to water quality and quantity will occur. According to Ted Auch of FracTracker: "Even with a preliminary analysis of data, it appears the decision to sell such massive quantities of water needed to frack each well unleashes supply/demand-side trends which will harm the hydrological and ecosystem integrity of the watershed. Ohio’s Utica wells consume on average 5.2 million gallons per frack and this number is increasing by 206-240,000 gallons per well per quarter. The number of wells drilled is also increasing. Presently, the horizontal fracking industry consumes 8% of annual residential water usage in Ohio. The industry allocates less than .27% of total well pad costs for water, which is one of Ohio’s most valuable natural resource. Selling massive quantities of water at cut-rate prices basically subsidizes the true cost of fracking. The MWCD is charged with stewarding public resources for future environmental and economic benefit but is instead threatening the fundamental qualities that make the conservancy district attractive and viable for future long-term growth, prosperity and development.”

The MWCD labels the one-time consumptive use of water for fracking as “short-term” water sales, although the contracts are renewable and will result in long-term loss of hundreds of millions of gallons of water from the Muskingum Watershed. “What is so reprehensible about this destruction of water for profit is that the MWCD twists terms and makes broad interpretation of statutes in order to avoid necessary environmental assessments and accountability through the existing loose regulations,” continued Lea Harper. “The MWCD must believe the public is gullible when it makes weak assurances that water sales can be stopped when the watershed is negatively impacted. We know that when that happens, it’s too late. The MWCD will not be able to replace the water it sold that is gone forever from the watershed. This could pose great hardship in the area, especially in case of drought, which is predicted. Already other areas in the country are feeling the detrimental impacts of water loss due to fracking. Looks like Southeast Ohio could very well be next.”

There are obvious reasons to be concerned about the industry’s rapid growth in Ohio. The fracking industry was given special exemptions to important Federal regulations in 2005 Energy Policy Act that allowed it to move forward profitably with little liability for damage to public health and the environment. These exemptions are referred to as the, “Halliburton loophole,” for the special accommodations given the industry by the Bush/Cheney administration.

Another serious concern is the risk of investments into gas and oil drilling companies identified by sources such as Energy Policy Forum and the North American Securities Administrators Association (NASAA). Horizontally fractured wells are known to rapidly deplete in production after initial reserves are tapped. Companies such as Antero Resources admit that it may be under insured for the potential costs that could be incurred due to the nature of industry. Antero has also recently reported disappointing drilling results in the Utica shale play. “What is really unfortunate is that the drillers will eventually leave the area, and some could even go quickly out of business before then. That means the MWCD will be left for any environmental cleanup costs imposed or class action lawsuits due to damages incurred,” observed Lea Harper. “We know what happens in the boom/bust cycle of fossil fuel extraction. Already there are costs to us and them because of lawsuits, and there will be more. We have put the MWCD on notice that they cannot expect to tax us even more on down the line to pay for their short-term profiteering at our long-term expense. The MWCD is killing the golden goose – our clean air and water – for a temporary, toxic industry. It doesn’t make sense.”

For those who would like more information, Coshocton Environmental Community Awareness, Inc. is sponsoring a regional information event about horizontal fracking entitled, “Living on the Shale.” The event will be held at the Coshocton Village Inn on Saturday, May 17, from 10 am until 6 pm. More information can be found at http://www.cecaware.org/. For MWCD property owners who would like to organize to learn more and protect themselves, please log on towww.fwap.organd contact us. Information on watershed impacts can be found at www.fractracker.org.
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Ohio Joins Interstate Group to Look Into Fracking-Related Issues

From the Alliance Review:
With as many as 179 underground disposal wells, Ohio has absorbed more than 1 billion gallons in hydraulic fracturing wastewater since 2010, according to state records.
But with all that wastewater comes potentially devastating side effects: Earthquakes. While officials and scientists spar over the relationship between fracking, wastewater disposal and quakes, Ohio is aiming to advance its understanding of the industry and protect the property values of homeowners.
This month, Buckeye State regulators joined Kansas, Texas and Oklahoma officials to address the earthquake risk associated with hydraulic fracturing.
The Interstate Oil and Gas Compact Commission gathered in Oklahoma City and was said to be off to a “productive start” on discussions and potential new regulatory practices for this burgeoning industry.
Click right here to read the rest of this article.

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Fairmont Supply Grand Opening Open House – Friday, April 25th

Join Fairmont Supply on Friday, April 25th as they celebrate the official Grand Opening of their new location in Uhrichsville, OH.

305 E. McCauley Drive
Uhrichsville, OH 44683

Take some time and visit with the suppliers on-site and to check out the storefront location’s full-line of merchandise.

Sales management and representatives will be on-site to answer any questions about support and Fairmont Supply’s services.

The event will run from 9 am to 3 pm and lunch will be provided from 11 am to 1 pm, sponsored by Phoenix Specialty.

Fairmont Supply hopes to see you there!


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Editorial Rails Against Activists' Third Attempt to Pass Youngstown Fracking Ban

From the Youngstown Vindicator:
Nothing has changed on the legal front from last year when proponents of the anti-fracking amendment to the Youngstown Home Rule Charter twice failed to win voter approval. And yet, the misnamed Community Bill of Rights is back on the ballot in Youngstown in the May primary. 
We say misnamed because passage of the amendment will not give city government any of the rights detailed in the 1,300-word tome. It is unenforceable. The Ohio General Assembly has given the Ohio Department of Natural Resources sole authority to oversee the hydraulic fracturing process used to extract oil and gas from shale formations deep beneath the earth’s surface. 
The Legislature’s authority to act on issues of statewide importance is provided for in the Ohio Constitution and has been upheld by the Ohio Supreme Court. 
The proposed Youngstown charter amendment is designed to place the city outside the reach of either the Ohio Constitution or the U.S. Constitution. 
In order words, should city voters throw caution to the wind and approve the amendment May 6, it is a safe bet Youngstown will be in legal jeopardy if government attempts to enforce the provisions. It will be a costly proposition, one that the shrinking, fiscally challenged community can ill afford.
Click here to read much more.

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Wednesday, April 23, 2014

Closer Look at Latest Gas Drilling Methane Study Raises Questions

From the New York Times:
The study, “Toward a better understanding and quantification of methane emissions from shale gas development,” was published in the Proceedings of the National Academy of Sciences and undertaken by Dana R. Caulton and Paul B. Shepson of Purdue and a host of co-authors, including Anthony Ingraffea and Robert Howarth, Cornell scientists who are prominent foes of fracking, along with Renee Santoro of the anti-fracking group Physicians Scientists & Engineers for Healthy Energy (Ingraffea is affiliated with the group, as well).
Much of the news coverage and commentary was greatly oversimplified, implying that airplane measurements taken on two days in 2012 and showing high methane levels over a handful of wells (and nothing unusual over almost all the other wells in the region) pointed to an extraordinary new pollution and climate change risk. A case in point was this Climate Central post: “Huge Methane Leaks Add Doubt on Gas as ‘Bridge’ Fuel.”
In fact, the study is consistent with other recent work covered here that shows there are specific and tractable issues that can be addressed, making gas production far less leaky and thus a legitimate successor to coal mining.
This section from the paper says as much (I added the paper links to the citation numbers): 
[T]hese regional scale findings and a recent national study (23) indicate that overall sites leak rates can be higher than current inventory estimates. Additionally, a recent comprehensive study of measured natural gas emission rates versus “official” inventory estimates found that the inventories consistently underestimated measured emissions and hypothesized that one explanation for this discrepancy could be a small number of high-emitting wells or components (33) . These high leak rates illustrate the urgent need to identify and mitigate these leaks as shale gas production continues to increase nationally (10).
There is one aspect of the new study that’s worth a deeper dive. The authors noted the presence of sources of coalbed methane — a common peril in coal mines throughout the history of coal mining — near the methane hot spots they found (the supplementary information is here).
Click here to check out this entire article, which contains some very interesting insights.

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Family Awarded $3 Million by Jury in Lawsuit Over Impacts of Nearby Gas Drilling

From ThinkProgress:
A family claiming they were sickened because of pollution from hydraulic fracturing operations near their home should be awarded $2.95 million for their troubles, a jury ruled on Tuesday. 
The Parr family had sued Aruba Petroleum Inc. in 2011, alleging the oil and gas producer exposed them to hazardous gases, chemicals and industrial waste that seeped into the air from 22 wells drilled near the family’s 40-acre plot of land, which sits atop the Barnett Shale. 
The jury returned a 5-1 verdict saying Aruba “intentionally created a private nuisance,” awarding $275,000 for losses on property value, $2 million for past physical pain and suffering, $250,000 for future physical pain and suffering, and $400,000 for mental anguish. 
“They’re vindicated,” David Matthews, one of the Parr’s attorneys, wrote on his firm’s blog Tuesday. “I’m really proud of the family that went through what they went through … It’s not easy to go through a lawsuit and have your personal life uncovered and exposed to the extent this family went through.”
Click here to read more about this trial.


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Tuesday, April 22, 2014

Links for 4/22/14: Process Cleans Dirty Fracking Water, New Books About Shale, and Much More

Business Journal Daily:  Company Gets Permit to Handle Radioactive Waste   -   "Activists in Ohio are concerned that a local company may soon be handling waste from the oil and gas industry that they say is just too hot to handle. But a principal of the operation says that the objective of his company is to protect..."

ENR:  Fracking Foes Cringe as Unions Back Drilling Boom   -   "After early complaints that out-of-state firms got the most jobs, some local construction trade workers and union members in Pennsylvania , Ohio and West Virginia say they're now benefiting in a big way from the Marcellus and Utica Shale oil..."

Energy in Depth:  Shale Development Boosting U.S. Retail Sector   -   "The model for a successful business has always famously been: “location, location, location.” And according to a recent Wall Street Journal article, “location” is now synonymous with drilling permits.  Thanks to advancements in..."

The Atlantic:  America's Coming Manufacturing Revolution   -   "Hardly a day goes by without an article predicting, lamenting, or celebrating America's decline. The turmoil in Crimea and Syria, the polarized and frequently gridlocked U.S. political system, the deepening income and wealth inequalities in the United States, and..."

WTAE News:  3 tanker trucks crash in Canton Township, spilling fracking water, diesel fuel   -   "Two fracking water tankers and a third, larger tanker truck were all involved in a crash Monday morning in Washington County, causing a hazmat situation that closed Henderson Avenue. Canton Township Fire Chief Dave Gump estimated between 1,200 and 1,300 gallons of diesel fuel may have spilled..."

Kansas City Star:  Study: Fuels From Corn Waste Not Better Than Gas   -   "Biofuels made from the leftovers of harvested corn plants are worse than gasoline for global warming in the short term, a study shows, challenging the Obama administration's conclusions that they are a much cleaner oil alternative and will..."

Read more here: http://www.kansascity.com/2014/04/20/4971451/study-fuels-from-corn-waste-not.html#storylink=cpy...

Cornell Chronicle:  Book offers simplified guide to shale gas extraction   -   "The new book, “Science Beneath the Surface: A Very Short Guide to the Marcellus Shale,” attempts to offer a reader-friendly, unbiased, scientific guide needed to make well-informed decisions regarding..."

Fosters:  New Book on Fracking Illuminates Pros, Cons   -   "The once-obscure oil and gas drilling process known as fracking has generated hundreds of billions of dollars and considerable dissent, as communities and experts argue over how to balance the vast amounts of money at stake with environmental and health..."

The Boston Globe:  Seven things you should know about Jim Matheson   -   "Flagship Ventures partner Jim Matheson is also chief executive of Oasys Water of Boston. The five-year-old firm’s desalination technology is used to clean and recycle some of the world’s dirtiest waters, including the effluent produced by the controversial drilling technique known as fracking, which..."


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Washington County Commissioner Speaks Out Against Proposed Ohio Severance Tax

The debate over the proposed severance tax for Ohio oil and natural gas production seems to have been going on forever now, and it isn't letting up.  There have been many voices on both sides of the issue, and now Washington County commissioner Ron Feathers has added his to the throng with a letter to the Parkersburg News and Sentinel:
We are told that oil and gas producers are not paying their fair share, however the taxes paid by the oil and gas industry and landowners are many; income tax, property tax, motor vehicle gas tax, ad valorem tax, commercial activity tax, and sales tax. 
I am opposed to any additional increase in the Severance Tax. I believe our local landowners and private business know best how to manage their profits. If the industry is not strapped with the burden of more taxes, local and regional revenues will increase substantially by the advance of business development and employment. 
I refuse to accept the falsehoods that government can pick winners and losers and that government confiscation/redistribution of wealth is somehow fair. 
The citizens of Southern and Eastern Ohio stand at the edge of an unparalleled economic legacy not realized since the late 19th century. This tax will undoubtedly thwart any recompense if not extinguish.
Click here to read the entire letter.

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Do You Practice Quality of Life Investing? Michael Berry Does

Source: JT Long of The Energy Report (4/17/14)

http://www.theenergyreport.com/pub/na/do-you-practice-quality-of-life-investing-michael-berry-does

Energy and food will be hot commodities as emerging middle classes start buying cars and beef. That is why, in this interview with The Energy Report, Discovery Investing Founder Michael Berry explains the importance of quality of life investing. Oil and gas, uranium and fertilizer stocks are on sale now, but might not be in the years to come.

The Energy Report: When we last interviewed your son, Chris Berry, he advised to invest based on the reality of a growing, emerging market in China. That included both energy and agriculture sectors. Are you also bullish on quality of life-based (QOL) investing?

Michael Berry: I am bullish; I developed the QOL concept a few years ago. What I'm seeing is quite a few big institutions—life insurance companies, family offices and money management companies—opening quality of life funds, although often with different names. They are beginning to recognize that as people move from the country to the cities in the emerging markets, and a new middle class develops, they will want more animal-based protein—chicken, fish, pork, beef and eggs. By 2030, once the credit cycle is corrected, I'm very bullish that quality of life funds are going to push forward. I think both the energy and the agriculture sectors are going to be interesting investment areas.

Chris and I have been spending a fair amount of time lecturing and presenting our QOL thesis and talking to investors and companies that have big stakes in this area. When you have 2 billion (2B) new consumers who want to live longer, healthier and easier, and who want better food, education and transportation, energy and nutrition will be key sectors.

TER: Does that mean that you are not worried about reports of slowing economic growth in China?

MB: I'm not worried about the long term because growth in China must slow. As economies expand, growth, by definition, slows. I'm not saying we won't have serious economic headwinds in the next few years. We have talked before about the impact of possible deflation in the metals sector. But ultimately, that will be overcome because members of the new and much larger middle class want to live better and they want to consume.

China and India are changing their models from export-driven economies to consumer-based economies. That might take a decade or more, but the Chinese government is transforming it now. China has its own credit problems that it must solve. Same goes for the United States. Regardless of the timeframe, energy and food are still keys to a higher quality of life. We are prepared to watch as this secular tsunami develops, and then take investment positions.

TER: A big part of that energy play is oil and gas. When we last interviewed Matt Badiali, he was very excited about shale plays because, "these are real companies producing real profits" compared to gold explorers. What's your approach to the controversial shale oil sector?

MB: Shale oil is a great diversification play for all of your readers in either the metals sector or the energy sector. You want to spend some time and understand the Bakken and also the Eagle Ford Shale. I'm very bullish on the Eagle Ford. It is clear fracking technology works. The biggest oil producers are involved, including Freeport-McMoRan Copper & Gold Inc. (FCX:NYSE).

Specifically, I like the royalty play in the Eagle Ford Shale Trend. The U.S. is a great country because if you own the land, you own all of the mineral rights beneath the land. We are the only country in the world where private citizens can own the minerals. The first 25% of oil that comes out of the land comes to the property owner, with no working interest risks and no environmental risks. The royalty owner pays only his share of the taxes; other than the cost of purchasing the royalty, he has no capital costs associated with drilling and completing the wells, or monthly lease operating expenses.

It is a great dividend-like diversifier for people who are looking for yield and a hedge against inflation. Just in the Eagle Ford Shale alone, there have been approximately 9,000 wells drilled since its discovery in 2008, with a 97% success rate. The current average estimated ultimate recovery (EUR) per well is 351,000 barrels of oil equivalent (351 Mboe). This recovery rate appears to be increasing over time as the technology improves. There will likely be an additional 200,000 wells drilled in the Eagle Ford over the next 50 years.

TER: So you're not worried about decline rates.

MB: Not at all, because the initial rate of production is about 1,000 barrels per day (1 Mbbl/d) or more. First-year declines are 76%, second-year declines are 35%, 20% for the third year and 6% or less thereafter. So 40% of the total estimated ultimate reserves are produced in the first five years, then it tapers off. But a company like EOG Resources Inc. (EOG:NYSE) is now drilling one well on 20 acres. There is lots of potential, even though the decline rates are steep and it's $10 million ($10M) to drill a well. When you're producing 11,500 bbl/d at $100/barrel ($100/bbl), the economics work. The risk is if oil were to fall to $40 or $50/bbl.

TER: What are some other companies that have been active in the shales?

MB: Penn Virginia Corp. (PVA:NYSE) and Carrizo Oil & Gas Inc. (CRZO:NASDAQ) are producers that know where the profitable properties are located.

TER: My understanding is that Penn Virginia is buying on the outskirts of the Eagle Ford, where the property is cheaper. Is that working?

MB: The Eagle Ford Shale in Texas is more than 450 miles long and 50 miles wide. Moving west to east across south Texas, it is about 300 feet thick, thinning to 50 feet thick around central south Texas, and thickening to 1,000 feet as you move east, to the Eaglebine. That is why the best properties may not be found in the heart of the Eagle Ford, but to the east, on the fringes. The whole oil window play is moving east across Texas now. In fact, the Eagle Ford probably goes all the way into Florida. Penn Virginia is doing a great job of buying properties before they are overpriced. Carrizo is another great operator in the Eagle Ford Shale. There is a lot of potential here, and I'm just talking about Texas. I'm not talking about North Dakota, the Bakken, Pennsylvania or any of the other ones that are there. The future energy scenario for the U.S. is very positive.

TER: You mentioned that you think we're about a year from uranium prices returning to higher levels. What would be the catalyst behind that?

Monday, April 21, 2014

Land Grab Strategy Not Paying Off in Shale Plays

From Columbus Business First:
When hydraulic fracturing and horizontal drilling led to a new wave of domestic natural gas and oil drilling last decade, the common tactic was to buy, buy and buy some more. But companies who have played the shale plays differently, focusing on quality and not quantity, are the victors so far, the Wall Street Journal reports. 
“The land-grab approach, pioneered by Chesapeake and copied by its rivals, left companies spending more than wells generated in revenue,” the paper reported, citing Oklahoma City-based Cheseapeake Energy (NYSE:CHK), Ohio’s most-active driller. 
Opposite of Chesapeake are two smaller drillers: Denver-based Antero Resources Corp. (NYSE:AR) and Canonsburg, Penn.-based Rice Energy Inc. (NYSE:RICE).
Click here to read this full article.

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Ohio Now Has 1,218 Permits, 829 Wells Drilled in Utica Shale

The latest round of permitting in Ohio resulted in 12 new permits for horizontal drilling.

5 permits each were issued for Belmont and Harrison counties.  All 5 in Belmont were issued to Gulfport Energy, while the 5 Harrison County permits went to Chesapeake Energy.  1 permit was issued to Chesapeake Energy for a Carroll County well, and 1 went to Aubrey McClendon's American Energy Utica for the Shugert Daddy Wls Gr 5H well in Guernsey County.

Last week's activity pushes the Utica shale in Ohio up to 1,218 total permits, with 829 wells drilled and 389 wells producing.  The Utica rig count is 36.

You can view the full report from the Ohio Department of Natural Resources by clicking here.

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Will Increased Ohio Regulations Discourage Drilling Activity?

From Crain's Cleveland Business:
The Ohio Department of Natural Resources' announcement of new, stronger permit conditions for horizontal drilling near faults or areas of past seismic activity will add extra costs for some drillers looking to set up wells, but those watching the shale play in the state don't expect the change to drive away operators or investors.

The new permit conditions, announced April 11, would require companies to use seismic monitors if the proposed drill pad is within three miles of a fault or the site of previous seismic activity of more than 2.0 magnitude.

If a “seismic event” — known as an earthquake to most of us — of more than 1.0 magnitude was detected, any activity at the site would have to halt while an investigation is conducted. And if that investigation showed the event likely was related to hydraulic fracturing, commonly known as “fracking,” drilling at that site would cease.

But the department wants to make it clear: The new permit conditions don't prohibit hydraulic fracturing or drilling, even near fault lines.
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Muskingum Watershed Conservancy District Gets Huge Bonus Payment in Latest Lease Agreement

From the Akron Beacon Journal:
Landowners in the 18-county Muskingum Watershed Conservancy District will see a 50 percent reduction in annual assessments starting next year. 
The district’s board approved the cut at a meeting today in which it also announced what appears to be the most lucrative drilling-rights lease deal ever signed in Ohio. 
Colorado-based Antero Resources will pay $15,000 per acre to drill on more than 6,300 acres of district-owned land at Piedmont Lake in Guernsey, Harrison and Belmont counties. 
That would produce a one-time signing bonus for the district in excess of $94 million, plus royalty payments of 20 percent on natural gas and liquids produced by those wells. 
The biggest bonus paid landowners by drillers in eastern Ohio is about $7,500 an acre. There have been deals between companies where the price per acre has been $10,000 to $12,000. But the price paid by Antero to the district is unprecedented. 
Another 300 acres will be added to the lease later, officials said. That acreage will be leased later by Antero at the same financial rate.
You can read more here.

What do you think of the MWCD getting $15,000 an acre?

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Report Says Shale Jobs Impact in Ohio Has Been Much Lower Than Projected

From the Youngstown Vindicator:
Despite a sharp increase in economic activity, the number of new shale-related jobs in Carroll County fell far below industry promises, Policy Matters Ohio said. 
The report found that shale-related employment in Ohio topped out around 3,000 jobs, a far cry from the 40,000 estimated early on by one leading industry group. The biggest growth has been in ancillary shale industries that support drilling companies and their supply chains. 
The county’s 7.7 unemployment rate in February had decreased from the recession peak of 14 percent, but it still lagged behind its pre-recession level of 5.8 percent in July 2007. 
Most jobs have gone to transient, out-of-state workers, who follow drilling rigs from place to place, and the temporary nature of their work created high demand for temporary housing. The interest has spurred the construction of two new hotels in Carrollton and saturated local campgrounds and rental markets. 
The housing demand caused rental income to shoot up for owners, but squeezed lower-income residents who couldn’t afford to pay higher rent, researchers said.
Read more about this report by clicking here.

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Friday, April 18, 2014

Links for 4/18/14: Drilling on State Land Brings Big Money, Alarmist Fracktivists, Frac Sand Mines in the Spotlight, and More

Colorado Peak Politics:  Do Fractivists Even Know What They’re Protesting?   -   "A recent Bloomberg article revealed an interesting fact about some of the fractivists in Colorado trying to push a so-called local control measure that would stunt the growth of any business in Colorado localities – either they don’t understand what they’re pushing or are willfully misleading..."

Forbes:  Harold Hamm: The Billionaire Oilman Fueling America's Recovery   -   "Two Scotches in, with seats on the floor of Oklahoma City’s Chesapeake Energy CHK +2.47% Arena, Harold Hamm is feeling good. And why not? His hometown Thunder is spending the evening whupping..."

Washington Post:  Radioactive Waste Booms With Oil as U.S. States Weigh Rules   -   "Oilfields are spinning off thousands of tons of low-level radioactive trash as the U.S. drilling boom leads to a surge in illegal dumping and states debate how much landfills can safely take. State regulators are caught between environmental and public health groups demanding more regulation and the industry, which says it’s already..."

TribLIVE:  State reaps $582M windfall on gas drilling in state forests   -   "Private natural gas and oil wells in state forests pumped $582 million into Pennsylvania budgets in five years, more than tripling the combined revenue of the prior 60 years, state forestry officials said on..."

Oil Sands:  Whom to believe on Keystone XL – activists and Hollywood actors or actual experts?   -   "Today, several news outlets reported on a letter written by former President Jimmy Carter along with other Nobel laureates against Keystone XL. Considering that the usual suspects – NRDC and the Sierra Club – were behind the effort, it’s no surprise that..."

National Journal:  States Peering Over the Fence on Fracking Rules   -   "The natural-gas boom that has taken the country by storm has also taken states by surprise. Government with little experience in the relatively new hydraulic fracturing procedures are scrambling to..."

The Atlantic Cities:  Why Your Neighbors Will Finance Solar Panels for Your Roof   -   "Here's another reason to be nice to the neighbors: They might just give you a no-money-down, low-cost loan to put solar panels on your roof, and once you pay off that debt you’ll get essentially free electricity as long as you..."

PennEnergy:  Gastar Exploration begins drilling new well in Utica Shale   -   "Gastar Exploration, Inc. announced it began drilling its first Utica/Point Pleasant well on April 3, 2014. Gastar explores and develops drilling opportunities for oil and natural gas in the U.S. Its current projects focus on the Marcellus Shale in West Virginia, the Hunton Limestone play in Oklahoma and now the Utica Shale..."

Grist:  Here's What Fracking Can Do to Your Health   -   "If you know one thing about fracking, it might be that the wells have been linked to explosive tap water. Of course, a tendency toward combustion isn’t the biggest problem with gas-infused water; it’s what could happen to you when you drink..."

Great Lakes Echo:  Fracking sand mines credited for fluctuating property values   -   "Perry Schmitt describes himself as pro-mining but blames the frac sand mine across the highway from his home for driving down the asking price by more than $25,000, to $189,000. His neighbors made out better. Kari Curran and her husband sold 130 acres for $1.5 million to a company affiliated with Unimin Mining Corp., operator of..."

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Industry Responds to Activist Effort to Shut Down Ohio DNR's Injection Well Program

From Energy in Depth:
The Fresh Water Accountability Project announced this week that they have appealed to the U.S. EPA Region 5, urging the agency to revoke the Ohio Department of Natural Resources’ (ODNR) Class II Underground Injection Control (UIC) program.  While they have not published the actual request, their press release borders on comical and inflammatory, with an alarming lack of knowledge regarding the oil and gas industry and the agencies who oversee them. 
This isn’t the first time FWAP has appealed to Region 5, either.  In their press release, the group details a similar request on March 5th, which shows this group isn’t interested in regulation at all, but rather stopping the industry from operating anywhere. 
“Please consider this to be the statutorily-required notice that the citizens of Ohio, a/k/a the victims of this sinister, politically compromised and profit-driven plot, are putting the USEPA on notice of potential toxic tort and substantial endangerment damages in which the federal government will share, owing to the agency’s conscious and indifferent approach to the damage to public health and the environment.” (emphasis added) 
Sinister? Yikes. 
With this group’s true position on oil and gas development and generally unpleasant disposition in hand, let’s now take a closer look at some of their more egregious claims.
You can read EID's look at some of the statements in FWAP's letter by clicking here.

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API Poll Shows Strong Support for Oil and Gas Development From Ohio Voters

From Cleveland.com:
Overwhelming majorities of voters across the state support increased production of oil and gas, a poll commissioned by the American Petroleum Institute has found. 
The statewide telephone poll, conducted April 3-7 for API by Harris Poll of 600 registered Ohio voters, found 79 percent favor increasing current levels of production. 
The poll also found that: 
• 82 percent support increased development of the nation's energy infrastructure; 
• 88 percent agree that more domestic production could strengthen national energy security; 
• 90 percent think it could create new jobs; 
• 82 percent think it could lower consumer energy costs; and 
• 79 percent agreed producing more domestic oil and natural gas could benefit state and federal budgets. 
You can read the rest of this article by clicking here.

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Aubrey McClendon and Chesapeake Are Working Together Again

From Bloomberg:
Aubrey McClendon, the pioneering shale wildcatter who helped usher in the U.S. energy renaissance, has hired the company that fired him to drill wells for his newest natural gas venture. 
A subsidiary of McClendon’s American Energy Partners LP is paying between $23,500 and $26,000 a day to rent seven rigs from Chesapeake Energy (CHK:US)Corp., the Oklahoma City-based gas producer he co-founded a quarter century ago, according to a proxy filing today. 
Chesapeake, which terminated McClendon last year amid a shareholder revolt, signed the six-month agreements in October, according to the filing. Chesapeake’s rigs are drilling for American Energy-Utica LLC in the Utica shale formation that stretches beneath much of Ohio.
You can read more by clicking here.

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FWAP Asks EPA to Revoke ODNR's Authority to Permit Injection Wells

From FreshWater Accountability Project:
April 16, 2014 — The Ohio Department of Natural Resources is the sole regulator of the horizontal hydraulic fracturing (fracking) industry which includes the permitting of not only fracking itself, but the disposal of its toxic and radioactive waste. As fracking continues to grow in the state, so does the amount of waste, including toxic liquids, solids and semi-solid waste, which is also radioactive to varying degrees. As fracking in Ohio produces millions of gallons of liquid and tons of solid waste, it also accepts frack waste from other states such as Pennsylvania and West Virginia. The ODNR issues permits for the disposal of this waste in Class II injection wells, solid waste dump sites and through various processing and recycling facilities. 
With proof that the ODNR has become captured by the very industry it is supposed to regulate (http://content.sierraclub.org/press-releases/2014/02/kasich-administration-caught-fracking-conspiracy-cover), the Freshwater Accountability Project (FWAP) appealed to the USEPA Region 5 office in Chicago to revoke the ODNR’s ability to permit for injection wells. In their email of March 3, 2014 to the USEPA, FWAP stated, “Please consider this to be the statutorily-required notice that the citizens of Ohio, a/k/a the victims of this sinister, politically compromised and profit-driven plot, are putting the USEPA on notice of potential toxic tort and substantial endangerment damages in which the federal government will share, owing to the agency’s conscious and indifferent approach to the damage to public health and the environment.” 
Since that time it was learned that there are at least 23 different frack waste storage, processing and disposal facilities that were permitted by the ODNR ahead of rules. These permits were issued over the 2013/2014 holiday season it is believed in order to escape public notice and grandfather the facilities in ahead of rules. These poorly regulated facilities would accept frack waste by the billions of gallons and hundreds of thousands of tons, not just from Ohio frack drilling, but from out of state. Whereas the ODNR and the companies see this as a revenue-producing scheme, most Ohioans would find the proposals deeply troubling. By profiting from pollution and taking the fracking industry’s biggest problem and finding a publicly-subsidized solution for it, the Kasich administration is taking the lead in the nation to receive massive amounts of frack waste for short-term industry profit and regulatory agency revenue at the long-term expense of millions of Ohioans. 
“Why should Ohio be designated as the frack waste dumping ground for the industry,” questioned Lea Harper of FWAP. “Not only is this waste toxic and radioactive, it is being treated as non-hazardous. It is not being traced, the radioactivity is not being measured, and it is being dumped all around the state without anyone knowing about it. We are going to end up like Pennsylvania trying to find out where all the frack waste went and how toxic it is after the fact. In the meantime, we are endangering the safety of our water and the health of future generations of Ohioans just to promote a temporary, highly toxic and unregulated industry while our elected officials take their campaign contributions and abandon concern for a healthy environment and economic future for Ohio.” 
The letter to the USEPA Region 5 dated April 14, 2014 goes on to criticize the ODNR for withholding public records that would have allowed local citizens to know of the toxic waste processing and dumping that was being planned for their communities. USEPA was asked to investigate the ODNR for deliberately denying the public the ability to know about frack waste facilities within the 30-day time frame in which permits that are issued are allowed to be appealed. “Because of the diligence of our colleague, Teresa Mills of Community Health and Environmental Justice (CHEJ) and Buckeye Forest Council (BFC), we were able to find out about one major frack waste dumping scheme in Belmont County in time to appeal,” stated Lea Harper. “This facility, if allowed to go into operation, plans to take 600,000 tons of radioactive frack waste per year and dump it on the bare ground – no oversight – no traceability – no responsibility for future pollution of groundwater and air. How can such things happen without the community knowing of the risks? Only because information is withheld, the facts are distorted, and toxicity is not measured and reported. We aren’t even told all that is in frack waste to be able to test for toxicity or know when it shows up in our water and air. People believe that their government and regulatory agencies are protecting them. This is not the case now in Ohio, and people must wake up to that fact.” 
Terry Lodge, attorney for FWAP, reiterates the statement made to the USEPA in the April 14th letter: “We believe the new Ohio statutory scheme violates the federal Safe Drinking Water Act and the Clean Water Act, along with federal and state sanitary landfill regulations. We aim to hold the ODNR accountable along with the USEPA if there is a failure to act to stem this tide of illicit dumping and disposal. We believe the ODNR has enacted a secret permitting process to serve the industry it is known to promote, most likely at the behest of the Governor through the head of the agency as a political appointee. We want the USEPA to revoke the ODNR’s permitting authority, and we also hope that Governor Kasich is held accountable for his role to allow fracking and its toxic waste dumping to overtake Ohio without necessary rules and regulations in place.” 
Without adequate rules and regulations to measure, track and properly dispose of fracking waste, Ohio could turn into a large superfund site in the future. Ohioans are already subsidizing frack waste disposal costs by allowing its hazardous waste to be disposed of in non-hazardous Class II injection wells. Radioactive frack waste is also going into unmonitored Ohio solid waste disposal sites. Some of it has been illegally dumped on the ground and into surface waters of the state, and this problem will grow as unscrupulous businesses and individuals attempt to profit from the industry. “Ohio should be protecting those who live here rather than promoting those who just want to make profits by exporting Ohio’s gas, destroying its water and then leaving without accountability for toxic cleanup,” asserted Lea Harper. “Someone needs to intervene to do the right thing. We hope it is the USEPA because obviously Ohio is not going to receive protection from within its own regulatory and legislative bodies.” 
For more information, a copy of the USEPA letter and a list of the 23 sites permitted, make contact throughwww.FWAP.org or email wewantcleanwater@gmail.com.

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