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Friday, February 27, 2015

Harrison County Continues to Take In Oil and Gas Money

From Shale Play:
Harrison County Commissioner Don Bethel said the county has taken in $1.6 million in revenue from the oil and gas industry in the past week to 10 days. 
The commission passed two agreements Wednesday, bolstering the total. 
An agreement with Chesapeake Exploration for 3.96612 acres of county property pays the county $21,000 at $5,500 per acre with a 20 percent gross royalty provision. A second agreement with American Energy Utica for a right-of-way allowing placement of a water line over 60 feet of county property on the rail line for $500 was also approved. 
Commissioners agreed that the oil and gas monies would be used to maximum benefit, identifying projects which had been neglected when the budget was operating in fiscal deficit. 
In a related matter, Jim Williamson, a pipe fitter who had been working on construction of the MarkWest cryogenic facility at the Cadiz-Harrison County Industrial Park, spoke to the board about a concern he has about the oil and gas construction taking place in the county. 
Williamson, a member of the Upper Ohio Valley Building Trades Council, said that after being employed at the job site in Harrison County for two years, he had been reassigned, and his concern was that it seems mostly out-of-state contractors are doing the work.
Click here to continue reading this article. 

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White House Report Says States Are In Best Position to Regulate Shale Drilling

From Energy in Depth:
A new report from the White House Council of Economic Advisers (CEA) demonstrates that states, not the federal government, are best suited to regulate shale development. The report counters a common criticism from “ban fracking” groups, who have pushed for the U.S. EPA to regulate development. 
As the report states: 
“The regulatory structure for addressing local environmental concerns, especially around land and water use, exists primarily at the state and local level.” (p. 280) 
This complements the findings of the Groundwater Protection Council, which concluded last year that states are “on the forefront of regulating oil and gas.” As EID reported recently, states like Ohio, Oklahoma, Texas, California and Colorado are also leading the way on regulations for wastewater disposal wells. The regulatory actions by these states are far more advanced than what EPA would require – and, because they have the flexibility to implement their own programs, they can easily update and strengthen their regulations whenever improvements are needed, without having to navigate through a lengthy federal bureaucracy. 
In fact, the conclusions from the CEA report join a long list of experts and regulators who understand states are best equipped to regulate shale development. 
Read the entire article by clicking here. 

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Thursday, February 26, 2015

Ohio Supreme Court Ruling Doesn't Slam Door Shut on Local Regulation of Drilling

As we covered in the blog, Beck Energy won its case against the community of Munroe Falls over the city's ordinances that conflicted with state law, which says that the Ohio Department of Natural Resources has full authority over permitting for oil and gas drilling.  While the ruling by the Ohio Supreme Court was anxiously awaited in hopes that it would offer the final word on home rule in the state of Ohio, the win for the industry in this case is not being viewed as a slam dunk that other efforts by Ohio communities to ban fracking on a local level will similarly be struck down by the courts.

From Business Journal Daily:
The Ohio Oil and Gas Association applauded the ruling in a statement issued Tuesday. 
“We commend Ohio’s Supreme Court for its decision in Morrison V. Beck Energy today, which upholds state law concerning local government control over oil and gas activities,” Shawn Bennett, executive vice president of OOGA, said. “The court’s ruling affirmed that municipalities are prohibited from instituting rules and regulations that would discriminate against, unfairly impede or obstruct oil and gas activities that the state has permitted.” 
“We strongly believe that oil and gas development is a matter of statewide interest and should be managed by professionals with the expertise to adequately regulate and oversee the industry,” Bennett said. 
Nevertheless, Wenger points out to language in four of the seven opinions that is sympathetic to local zoning ordinances relative to drilling. 
At issue, he says, were the five ordinances that required a new zoning certificate, filing fees and the $2,000 bond. 
“Essentially, the ruling is that a municipality can’t act as a mini ODNR,” Wenger says. The last paragraph of the majority opinion states that Home Rule amendments do not allow for the “kind of double licensing at issue here. We make no judgment as to whether other ordinances could coexist with the General Assembly’s comprehensive regulatory scheme. Rather, our holding is limited to the five municipal ordinances at issue in this case.”
Read more by clicking here.

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8 Utica and Marcellus Drillers Included on "Oil Company Death List"




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With Home Rule Case Won, Beck Energy May Pass on Drilling Well at Center of Dispute

From Columbus Business First:
Now that the case is over, the company at the center of a widely watched dispute over state versus local drilling regulation might not even go ahead with the well in question. 
In 2011, Beck Energy Corp. was prepared to drill a natural gas well on leased residential land in Munroe Falls. The city near Akron sued, saying the well violated local zoning ordinances, leading to court fights that went up to the Ohio Supreme Court. So, victory in hand, the Ravenna-based company can start drilling, right? 
"It needs to first of all determine if it makes economic sense to drill those wells," said John Keller, the Vorys Sater Seymour and Pease LLP attorney who argued Beck's case in front of the court. "Prices have gone down since they first proposed this."
Click here to read more.

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Chesapeake Energy Takes Legal Action Against Aubrey McClendon for Stealing Trade Secrets

From Forbes:
Today Chesapeake Energy CHK -1.06% sued American Energy Partners, the new company created by its embattled former CEO Aubrey McClendon. The complaint, filed in Oklahoma County District Court, alleges that in his waning days as CEO of Chesapeake, McClendon squirreled away massive amounts of data, containing “highly sensitive trade secrets.” After his departure from Chesapeake, in April 2013, McClendon set up his new company, American Energy Partners, and leveraged that data to make a series of deals to snap up more than 100,000 acres across the Utica shale play. According to Chesapeake’s complaint, “these purchases involved the same acreage evaluated in the data stolen by McClendon.” 
According to the complaint: 
“McClendon committed this theft by requiring his assistant to print highly sensitive maps and prospect data, which he took with him as he left Chesapeake. He also included a blind carbon copy to his own private e-mail account on e-mails which contained the same highly sensitive and valuable information.” 
Chesapeake alleges that even before McClendon was gone from the company — pushed out after extensive revelations of self-dealing, conflicts of interest and even what prosecutors say was collusion with the head of a rival firm — he was using his possession of confidential information to lure in investors for his new venture. Chesapeake is seeking the return of all confidential data as well as payment of compensatory and punitive damages.
American Energy Partners responded with this press release:
Aubrey K. McClendon and American Energy Partners, LP (AELP) today announced their intention to respond vigorously to a baseless legal action commenced by Chesapeake Energy Corporation (NYSE:CHK). When Mr. McClendon agreed to leave Chesapeake in January 2013, the company made a deal with him: first, the company promised he would be paid his compensation benefits as provided for in his employment agreement and second, the company promised he would be provided with an extensive array of information about the more than 16,000 wells, and the related leasehold acreage and future wells, he jointly owns with Chesapeake. That information includes land, well, title, accounting, geological, engineering, reservoir, operating, marketing, and performance data. The deal further gave Mr. McClendon the right to own and use this information for his own purposes, including sharing it with his employees, contractors, advisors, consultants and affiliated entities. 
The agreement to share this information was well-documented and very clear - and it was a critical part of a detailed and extensively negotiated set of documents that were approved by Chesapeake, its attorneys, and its Board and filed with the SEC in April 2013. Now it appears that Chesapeake wishes it had not agreed to the deal it made with Mr. McClendon and has sued to break those promises. However, a deal is a deal and Mr. McClendon and AELP will be vindicated in this dispute, and Mr. McClendon’s contractual rights to keep and use the information he received in the deal will be affirmed. 
The allegations in the Chesapeake lawsuit are meritless given the following:
  • Mr. McClendon was entitled to own and use the information in his possession by contractual right;
  • Mr. McClendon’s agreement with the company clearly gives him broad and deep information rights consistent with past practices;
  • Chesapeake has given Mr. McClendon almost 20 terabytes of information in accordance with the terms of the Separation Agreement; and
  • Mr. McClendon has paid Chesapeake nearly $2.5 billion in connection with the jointly owned properties and is still a working interest owner in more than 16,000 Chesapeake wells, making him the company’s single largest partner.
The information in Mr. McClendon’s possession is rightfully his under the terms of the agreements Chesapeake made with him in early 2013. Indeed, under those agreements, he is entitled to much more information from the company, but the information is not yet in his possession because of Chesapeake’s refusal to provide it. Further, Chesapeake has refused to provide over 1,000 assignments of leases to Mr. McClendon for interests in wells for which he has been billed and for which he has paid more than $100 million on a net basis to Chesapeake. It has also converted to its own use revenue due him that has been paid to Chesapeake by third parties on at least 63 other wells. Mr. McClendon will enforce his rights under the agreements. 
Mr. McClendon stated, “It is beyond belief that the company that I co-founded 25 years ago and where I worked tirelessly to build it into one of America’s largest and most successful oil and gas producers has now decided to add insult to injury almost two years to the day after my resignation by wrongly accusing me of misappropriating information. Under my agreements with Chesapeake, I am entitled to possess and use the 20 terabytes of information I own. It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake.” 
Mr. McClendon and AELP are represented by Matthew A. Taylor with Philadelphia-based Duane Morris, LLP and Emmet T. Flood with Washington, DC-based Williams & Connolly, LLP. 
Mr. Taylor, said, “Our filings will show that any information in Mr. McClendon’s possession is rightfully his pursuant to the terms of the agreements entered into between the parties. In fact, the separation agreement between the parties makes explicit and repeated reference to the data and services owed to Mr. McClendon, recognizing that the sharing of information is ‘essential’ and in fact ‘beneficial to the Company’. We are 100% confident that Mr. McClendon and AELP will prevail in this dispute.” 
Mr. McClendon and AELP have established a website (www.AELPvCHKLitigation.com) on which copies of all relevant documents concerning this dispute may be located. 
MEDIA CONTACT: Ryan Colaianni, Edelman, ryan.colaianni@edelman.com, 202-777-3845 
### 
KEY PROVISIONS OF MCCLENDON’S SEPARATION AGREEMENTS

Rice Energy Provides Fourth Quarter and Full Year 2014 Operational Update and Reports 117% Increase in Proved Reserves to 1.3 Tcfe

Rice Energy Inc. (NYSE: RICE) ("Rice Energy") today provided a 2014 operational update and announced year-end 2014 proved reserves. Highlights include:
  • Averaged 398 MMcfe/d of net production for the fourth quarter of 2014, a 61% increase from third quarter 2014
  • Averaged 274 MMcfe/d for full-year 2014 pro forma(1) net production, a 118% increase over pro forma 2013 daily production
  • Adjusted realized natural gas price of $3.46 per Mcf in the fourth quarter of 2014
  • Increased core acreage position to approximately 141,000 net acres as of year end 2014, consisting of 86,000 acres in southwestern Pennsylvania and 55,000 net acres in Belmont County, Ohio
  • Proved reserves increased to 1.3 Tcfe at December 31, 2014, a 117% increase from year-end 2013 pro forma figures
  • Proved developed reserves increased to 644 Bcfe at December 31, 2014, a 159% increase from year-end 2013 pro forma figures
  • Increased proved PV-10(2) value to $1.8 billion, a 146% increase from year-end 2013 pro forma figures
  • Increased proved developed PV-10 value to $1.1 billion, a 173% increase from year-end 2013 pro forma figures
(1)
References to pro forma throughout this release relate to our acquisition of the remaining 50% interest in our Marcellus joint venture from Alpha Natural Resources, Inc. on January 29, 2014.
(2)
Please see "Supplemental Non-GAAP Financial Measure" for a description of PV-10.
Operations Update
Fourth Quarter 2014
Net production for the quarter averaged 398 MMcfe/d, a 61% increase over third quarter 2014 average daily production and a 158% increase over pro forma fourth quarter 2013 production of 154 MMcfe/d. During the quarter, we successfully completed and turned to sales 22 gross (19 net) horizontal Marcellus wells with an average lateral length of 7,000 feet, including 5 gross (4 net) wells that were completed and turned to sales in mid-December, approximately six weeks ahead of schedule. Production from our horizontal Marcellus wells accounted for approximately 85% of our total fourth quarter 2014 production. Net production for the quarter was comprised of 36.1 Bcf of natural gas and 90.8 MBbls of oil and NGLs. Our fourth quarter 2014 realized natural gas price, before the effect of hedges, was$3.00 per Mcf. After giving effect to hedges, our average natural gas price was $3.06 per Mcf. Our average adjusted realized price, including our firm transportation sales and the impact of hedging, was $3.46 per Mcf. Our average realized oil and NGL price was $45.18per Bbl.
Full Year 2014
Pro forma net production for 2014 averaged 274 MMcfe/d, a 118% increase over pro forma 2013 daily production. During the year, we initiated production from 36 net Marcellus wells and 7 net Utica wells. Total pro forma net production for the year was comprised of 99.6 Bcf of natural gas and 94.2 MBbls of oil and NGLs. Our 2014 realized natural gas price, before the effect of hedges, was $3.65 per Mcf. After giving effect to hedges, our average natural gas price was $3.46 per Mcf. Our average adjusted realized price, including our firm transportation sales and the impact of hedging, was $3.73 per Mcf. Our average realized oil and NGL price was $46.07 per Bbl.

Wednesday, February 25, 2015

Water Alert Reporting Network Introduced to Carroll County

Carrollton Ohio: Carroll Concerned Citizens (CCC) will host Elissa Yoder, Ohio Sierra Club Conservation Coordinator, at its March 5th meeting to introduce citizens to the Water Alert Reporting Network (WARN). The program and network are designed to empower volunteers to communicate ways to protect our waterways and stand as watchdogs against environmental harm.

WARN helps Ohioans record and report suspected incidents of pollution or misconduct that could potentially harm our natural environment. The program’s goal is to ensure that state regulators are aware of incidents of concern and that they address the incidents in a timely and appropriate manner.

Elissa Yoder, explains the need for public participation in the Water Alert Reporting Network. "Unfortunately, the Ohio EPA and the Ohio Department of Natural Resources do not have the capacity to monitor all of Ohio’s 199,000 miles of rivers and streams. Luckily, there are many folks willing to keep a watchful eye over our waterways."

The meeting will be held at the Church of Christ – Christian Disciples 353 Moody Ave. Carrollton beginning at 7pm and is free and open to the public.
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Is Carroll County Still Leading the Way in the Utica Shale?

From FracTracker Alliance:
Oil Production 
Carroll falls short of the ROS on a total and per-day basis of oil production, although the 442-barrel difference in total oil production is likely not significant. Carroll wells are producing 74 barrels of oil per day (OPD) (±73 OPD) compared to 96 OPD (±122 OPD) for the rest of the state; however, well-to-well variability is so large as to make this type of comparison quite difficult at this juncture. Fifty-seven percent of OH’s 11,361,332 barrels of Utica oil has been produced outside of Carroll County to date. This level of production is equivalent to 16,231 rail tanker cars and roughly 00.18% of US oil production between 2011 and 2013.

THIS NUMBER OF RAIL TANKER CARS IS EQUIVALENT TO 6% OF THE US DOT-111 FLEET, OR 184 MILES WORTH OF TRAINS – ENOUGH TO STRETCH FROM COLUMBUS TO PITTSBURGH. 

Natural Gas 
The natural gas story is mixed, with Carroll’s 312 wells having produced 13,430 MCF more than the ROS wells. On a per-well basis, however, the latter are producing 3,327 MCF per day (MCFPD) (±3,477 MCFPD) relative to the 2,155 MCFPD (±1,264 MCFPD) average for Carroll’s wells. Yet again, well-to-well variability – especially in the case of the 409 ROS wells – is high enough that such simple comparisons would require further statistical analysis to determine whether differences are significant or not.
The natural gas produced here in OH currently amounts to roughly 00.51% of U.S. Natural Gas Marketed Production, according to the latest data from the EIA. 
Waste – Brine 
From a waste generation point of view, the ROS laterals have produced 41 more barrels of brine per day (BPD) than the Carroll laterals and 1,465 BPD since production began in 2011. On a per-day basis, the ROS laterals are producing more oil than waste at a rate of 1.92 barrels of oil per barrel of brine waste. Conversely, since production began these respective sums result in Carroll County laterals having produced 1.56 barrels of oil for every barrel of brine vs. the 1.40 oil-to-brine ratio for the ROS. Finally, it is worth noting that the 7,775,130 barrels of brine produced here in OH amounts to 13% of all fracking waste processed by the state’s 235+ Class II Injection wells. 
What do these figures mean? 
As we begin to compare OH’s Utica Shale expectations vs. reality we see that the “sweet spot” of the play is truly a moving target. The train seems to have already left – or is in the process of leaving – the station in Carroll County (Figures 3 and 4). It seems two of the most important questions to ask now are: 
How will this rapidly shifting flow of capital, labor, and resources affect future counties deemed the next best thing? and 
What will be left in the wake of such hot money flows? 
Answers to these questions will be integral to the preparation for the inevitable sudden or slow-and-steady decline in shale gas activity. These dropouts are just the most recent in a long line of boom-bust cycles to have been foisted on Southeast OH and Appalachia. 
Effects will include questions regarding watershed resilience, local and regional resource utilization (Figures 5 and 6), social cohesion, tax-base uncertainty, roads, and a rapidly changing physical landscape. 
Whether Carroll County can maintain its perch on top of the OH shale mountain is far from certain, but whether it will have to begin to – or should have already – prepare for the downside of this cliff is fact based on the above analysis.
Read more and view several graphics comparing Carroll County to the rest of the state by clicking here.

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Number of Utica Shale Wells in Production Continues to Increase on Latest Report

The latest weekly permitting update from the Ohio Department of Natural Resources shows that permitting continues despite the oil prices being down, and it also reveals that more and more Utica shale wells are going into production with each week that passes.

16 new permits were issued last week.  Nine of those wells are in Noble County's Marion Township.  Five permits were issued to Antero Resources for drilling in Monroe County.  Rounding out the report were Belmont and Guernsey counties, which each saw one new well permitted.

The total number of permits issued for horizontal drilling in Ohio's Utica shale has now increased to 1,824.  The number of wells drilled increased by 14 to 1,370.  But perhaps most noteworthy about the latest report is the number of producing wells.  There was a big jump of 54 from last week's total of 762, with the total at the end of the week standing at 816.  The Utica rig count decreased by two, falling to 37.

View the report below (or click here to open it in a new window):


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Obama Chooses to Veto Keystone XL Pipeline Bill With No Hesitation

US-OR-Portland-20140204 052753 LLS
By Brylie Oxley (Own work) [CC BY-SA 3.0
(http://creativecommons.org/licenses/by-sa/3.0)],
via Wikimedia Commons
From Reuters:
President Barack Obama on Tuesday, as promised, swiftly vetoed a Republican bill approving the Keystone XL oil pipeline, leaving the long-debated project in limbo for another indefinite period. 
The U.S. Senate Majority Leader Mitch McConnell, after receiving Obama's veto message, immediately countered by announcing the Republican-led chamber would attempt to override it by March 3. 
That is unlikely. Despite their majority, Republicans are four votes short of being able to overturn Obama's veto. 
They have vowed to attach language approving the pipeline to a spending bill or other legislation later in the year that the president would find difficult to veto. 
The TransCanada Corp pipeline would carry 830,000 barrels a day of mostly Canadian oil sands crude to Nebraska en route to refineries and ports along the U.S. Gulf. It has been pending for more than six years. 
Obama, who rejected the bill hours after it was sent to the White House, said the measure unwisely bypassed a State Department process that will determine whether the project would be beneficial to the United States.
Read more by clicking here.

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Tuesday, February 24, 2015

Study Finds Low Methane Emissions From Natural Gas Collection and Processing Facilities

From an API press release:
The vast majority of natural gas collection and processing facilities have methane leak rates of less than 1 percent, according to a major field study led by Colorado State University that examined 114 gathering facilities and 16 processing plants across 13 states. 
“The industry has every incentive to reduce emissions and sell more natural gas to consumers,” said API Senior Director of Regulatory and Scientific Affairs Howard Feldman. “We’re making remarkable progress reducing emissions, and this progress will continue as operators detect and seal leaks – including leaks from the few high emitting sites identified in the study. Burdensome new regulations would only interfere with our progress reducing emissions and jeopardize production of the clean-burning natural gas that has helped drive U.S. carbon emissions to near 20-year lows.” 
Of 130 facilities the study examined, 101 had methane loss rates below 1 percent, according to the study.

Methane emissions from oil and gas production declined by 38 percent from 2005 to 2012, and methane emissions from hydraulically fractured natural gas wells have plummeted 73 percent since 2011, according to EPA data.
Read the entire news release by clicking here.

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Monday, February 23, 2015

Will Latest Rail Car Accident Prompt Obama to Reconsider Keystone XL Veto?

US-OR-Portland-20140204 052753 LLS
By Brylie Oxley (Own work) [CC BY-SA 3.0
(http://creativecommons.org/licenses/by-sa/3.0)],
via Wikimedia Commons
From Forbes:
When some rail cars carrying oil went astray this week, witnesses saw huge fire balls — mushroom clouds eerily similar to those of atomic blasts. That mammoth explosion is now being felt beyond the West Virginia borders where it occurred and among those who are asking about the safest way to move oil. 
The key question here is whether it is safer and more efficient to transport such hazardous liquids by rail, barge, truck or pipeline within the United States. And by extension, the bigger question is whether this latest rail accident will push President Obama to Okay the Keystone XL Pipeline — a project that has just as much symbolic significance as it does practical implications. 
That’s because the thick and gooey Canadian tar sands are still getting piped east within Canada before they are placed into rail cars and sent to US refineries along the Gulf Coast. At issue is whether the last stage of the Keystone pipeline will get the official thumb’s up or whether the oil will be forced onto rail cars — all in light of what occurred Monday afternoon 30-miles outside Charleston, WV.
Click right here to read more.

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Debate Underway About What Will Happen to Oil Prices in Immediate Future

From Forbes:
Oil bulls and bears need to stop talking their books and get real. Crude isn’t going back above $100 a barrel – at least not anytime soon. Nor is it falling to $20. 
How can I be so sure? A confluence of political, economic, and, most importantly, technological changes are having a major impact on the way we produce and consume oil, making it both cheaper and more abundant. Barring some major international conflict, oil prices will most likely be range bound for quite a while, with a floor of somewhere around $40 a barrel (where we have seen massive rig count and CAPEX reductions) and a top around $80 a barrel, above which production really ramps up. 
The sharp drop in oil prices last year managed to catch pretty much the entire market off guard. West Texas Intermediate crude (WTI) has fallen from a high of over $100 a barrel in June to a low in the mid-$40’s last month. But the recent rebound in oil prices, which sent WTI to as high as $58 a barrel, has oil bulls ready to tell the market, “I told you so.” They believe that, even though WTI prices have weakened slightly from their highs in the last week to around $52 a barrel, the overall trajectory of oil prices is up and we will be testing $100 a barrel again in short order.
While that author is confident that prices will level out for a while, other reports paint a different picture.

From MarketWatch:
Crude-oil futures have been mounting a come back, lately. 
But not everyone believes this rally is a legitimate rebound for the beaten-down commodity. 
In a note Monday, analysts at Citigroup raised the possibility that West Texas Intermediate oil prices may fall to as low as the $20 range. Prices on the New York Mercantile Exchange already suffered a loss of 46% last year.
Meanwhile, another article from Forbes points out that U.S. shale producers have reacted exactly the way OPEC hoped they would when the Saudis chose not to cut back on production a few months ago.
The American shale sector is now revealing itself as a nimble and price-responsive producer, performing exactly as Saudi oil minister Ali al-Naimi hoped it would when he told the world that high-cost oil producers should relinquish their share of the market to the low-cost crude produced by OPEC. 
Since the 1970s, the Saudis have usually acted to balance markets and calm volatile prices by twisting a few valves and either raising or cutting production.

On November 27, when the Saudis said “No” to expectations of cutting output, the price fell sharply. By January, a barrel cost half as much as it did in June.

As a result, new oil production in some US shale plays appears to have been curtailed, especially since late November.

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EIA Releases Latest Drilling Productivity Report




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Lawsuit Filed Against Chesapeake for Violating Racketeering Laws

My Trusty Gavel by steakpinball, on Flickr
Creative Commons Creative Commons Attribution 2.0 Generic License  by  steakpinball

Indik & McNamara, P.C. Announces Antitrust and RICO Lawsuit Against Chesapeake Energy and Williams Partners By Landowners in Bradford County, Pennsylvania


Pennsylvania landowners claim they have been systematically underpaid royalties owed to them in connection with natural gas produced from the Marcellus Shale as a result of the wrongful deduction of impermissible post-production costs, which are arbitrary, excessive and unreasonable in amount due to anticompetitive conduct involving gas gathering pipelines.


Philadelphia, PA - February 19, 2015. More than 90 landowners and other owners of royalty interests in natural gas produced in Bradford County, Pennsylvania have filed a lawsuit asserting that Chesapeake Energy Corporation and Williams Partners, LP, formerly known as Access Midstream Partners, L.P., have conspired to restrain trade in the market for gas gathering services in and around Bradford County, in violation of federal antitrust laws. The lawsuit also alleges that Chesapeake Energy and Williams Partners engaged in a scheme and transactions to help Chesapeake solve financial problems associated with the massive amount of debt that it incurred in acquiring oil and gas leases at the expense of royalty interest owners, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

According to the complaint, filed on Tuesday in the U.S. District Court for the Middle District of Pennsylvania in Scranton, the transactions between Chesapeake Energy and Williams Partners have artificially inflated the costs of gas gathering services by eliminating competition in the market, resulting in a $5 Billion financial windfall for Chesapeake Energy, and in the ongoing underpayment of royalties to landowners and other royalty interest owners, as a result of the improper deduction of the artificially inflated costs.

The lawsuit also includes claims for breach of contract, and for an accounting and declaratory relief, against Chesapeake Appalachia, Anadarko E&P Company LP, Statoil USA Onshore Properties, Inc., and Mitsui E&P USA LLC, based on their alleged underpayment of royalties as a result of the improper deduction of gathering and other post-production costs.

Although Chesapeake is facing antitrust claims by the Attorney General of Michigan, attorneys for the Bradford County royalty interest owners say that it is the first case raising antitrust claims relating to gathering systems in the Marcellus Shale region:

“While several class action lawsuits and class arbitrations have been filed against Chesapeake based on similar allegations, this is the first direct action by Pennsylvania royalty owners seeking to address what we believe is one of the underlying causes of the problem – the fact that the gathering pipeline system in most of Bradford County, and in parts of Sullivan, Susquehanna and Wyoming Counties, were, and for the most part still are, owned and controlled by the same companies responsible for paying royalties on the gas transported through those pipelines, resulting in an inherent conflict of interest, as well as harm to competition”, said Thomas McNamara, one of the attorneys for the plaintiffs. “The terms of the transaction by which Chesapeake sold its interests to Access Midstream (now Williams Partners) only made the problem worse” , said McNamara.

Unlike several other pending actions and arbitration claims alleging underpayment of royalties, the lawsuit by the Bradford County royalty owners asserts the direct claims of each of the plaintiffs, rather than claims on behalf of a class.

“Our clients were not satisfied with relying on the efforts of other individual royalty owners to protect their rights and interests through class actions or class arbitrations, which are largely driven by attorneys, or with the terms of settlements which have been proposed to date. As a result, they have retained us to pursue their direct claims, on a group basis, which enables them to have more direct input into and control over their claims”, stated attorney Christopher Jones, of Towanda.

“This initial case is on behalf of only royalty owners who receive royalties under leases originally signed with Anadarko or T.S. Calkins. We also currently represent hundreds of other royalty owners who signed leases directly with Chesapeake Appalachia or other gas companies,” said attorney Taunya Knolles Rosenbloom, of Athens.

The royalty owner plaintiffs in the lawsuit are being represented by a team of lawyers with two Bradford County, Pennsylvania, law firms -- Christopher D. Jones, of Griffin, Dawsey, DePaola & Jones, P.C., in Towanda, and Taunya Knolles Rosenbloom, of the Law Offices of Taunya Knolles Rosenbloom in Athens --, together with Philadelphia attorney Thomas McNamara, of Indik & McNamara, P.C., as co-counsel.

A copy of the complaint in A&B Campbell Family LLC, et al. v. Chesapeake Energy Corporation, et al., Case No.3:15-cv-00340-MEM may be obtained from the Marcellus Royalty Action website athttp://www.marcellusroyaltyaction.com, or from the Clerk of the U.S. District Court.

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Thursday, February 19, 2015

Looking at the Past, Present, and Future of the Utica Shale

From the Youngstown Vindicator:
If you are looking for the Valley’s shale gas boom – look elsewhere. 
Experts say geology and better business sent oil and gas companies to southern parts of the state. 
“They will eventually come back up here,” said Professor Jeffrey Dick, chairman of the department of geologic and environment sciences at Youngstown State University. 
“You just have to be patient.” 
THE BEGINNING 
In 2010, the Valley saw landmen arrive and offer landowners money to lease their property for oil and gas exploration. 
“There was sort of a gold rush mentality in 2009 and 2010 and a lot of it was the image portrayed by the companies,” said Atty. Alan D. Wenger, chairman of the oil and gas group for Harrington, Hoppe and Mitchell. “Our clientele understood that this is not a sure thing and they should protect themselves.” 
Wenger and others represented several landowners propositioned by landmen. 
“We literally had hundreds of landmen flooding in and going door to door,” he said. 
Then came the drilling and plans to place pipeline, which has settled down. 
Dealing with leasing companies is now focused in southern Ohio counties such as Belmont. 
Some focus has switched from handling leases to royalty payments, Wenger said.
Read the whole article by clicking here. 

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18 New Utica Shale Permits Issued Last Week; Producing Wells Increase by 22

The Ohio Department of Natural Resources released the latest weekly permitting update for the Utica shale, and activity saw an uptick from the previous week.

18 new permits were issued last week.  15 of those were divided evenly across three of the most active counties in the play: Carroll, Harrison, and Monroe counties each saw five new permits.  All 10 of the permits in Carroll and Harrison were issued to Chesapeake, while CNX obtained the five in Monroe.  Of the remaining three permits, two were issued to Gulfport for wells in Belmont County and one to Hilcorp in Columbiana County.

With this latest round of permitting there are now over 1,800 permits issued for horizontal drilling in Ohio's Utica shale - 1,814, to be exact.  The number of wells drilled increased to 1,356, and the number of producing wells rose from 740 on the last report to 762 this week.  The Utica rig count also climbed by one to 39.

Here is the report:


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Wednesday, February 18, 2015

Links of the Day for 02/18/15: More Dormant Mineral Act Legal Wrangling, Pipeline Projects, and More

Shale Energy Law Blog:  Ohio Supreme Court Schedules Oral Argument in Dormant Mineral Act Cases

Gas & Oil:  350 Temporary Jobs Will Work From Former Modern Builders Supply in Cambridge

Marathon:  Cornerstone Pipeline & Utica Build-Out Projects Binding Open Season

ShaleOhio:  American Energy Corp. Requests Disclosure of Leases in Trade-Name Dispute with American Energy Partners

Gas & Oil:  Gas Compressor Manufacturer Chooses Heath Site for New Operations

U.S. Geological Service:  Historical Hydraulic Fracturing Trends and Data Unveiled in New USGS Publications

Gas & Oil:  Guernsey Energy Coalition Addresses Safety, Emergency Response

WFMJ News:  Columbiana County Residents Learn About Pipeline Proposal in Hanoverton

Powersource:  Managers Bunk Down at U.S. Refineries as Strike Enters Third Week

Shale Play:  Even More Advanced Gas, Oil Technologies Ahead

ShaleEnergy Law Blog:  Ohio Court of Appeals Holds Assignment of Shallow Rights Does Not Sever Lease

PIOGA:  PIOGA to Fight Wolf’s Moratorium Threat Against Pennsylvania’s Natural Gas Industry

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Layoffs Now Could Bring Headaches Later for Drillers and Suppliers

From CNBC:
The typical cycle of cutbacks has already begun, said Gladney B. Darroh, president and CEO of Houston-based Piper-Morgan Associates Personnel. 
Oilfield services companies have announced layoffs of thousands of workers in recent weeks. Those businesses are first to cut because they are dependent on contracts with exploration and production companies, many of which are scaling back operations and can no longer tap the high-yield debt that fueled their growth. 

The 'great crew change'

E&P companies have begun cutting capital budgets, and will look to trim their workforce first by offering early retirement packages, Darroh told CNBC. If they cannot make the cuts they need to balance the books through enhanced exit offers, forced retirements will follow, he said. 
"If (oil) prices stay in this range of $45 to $55 a barrel, if that persists in the next six months, we'll see companies taking more dramatic steps to rationalize their workforce in light of these new prices," he said.

In that scenario, companies face the danger of cutting too far and and putting too much stress on the remaining workers, some of whom could head for the exit, Darroh said. In particular, older workers who have seen their portfolios recover from the financial crisis may walk, Bush added. 
That raises another concern: Layoffs could hasten the onset of the so-called great crew change. The oil industry employs a lot of entry-level workers and veterans with 25 years of experience or more, but midcareer professionals are in short supply, leaving few candidates to replace the seasoned pros.
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Ohio Supreme Court Rules That Home Rule Drilling Ban Violates State Law

Art-Deco-Ohio-Supreme-Court-Building-who by homesower, on Flickr
Creative Commons Creative Commons Attribution-Share Alike 2.0 Generic Licenseby  homesower 
For months both anti-drilling and pro-drilling groups have eagerly awaited the Ohio Supreme Court's ruling in a landmark case regarding local municipalities' right to restrict oil and gas drilling where it has been permitted by the Ohio Department of Natural Resources.  Yesterday the court ruled in favor of drillers in the battle between Munroe Falls and Beck Energy, by a 4-3 margin.

   
From Cleveland.com:
But in her majority opinion, Justice Judith French wrote that the Munroe Falls regulations, which were enacted between 1980 and 1995, clashed with a 2004 law enacted by the General Assembly that provided for general statewide regulation of oil and gas drilling. 
"This is a classic licensing conflict under our home-rule precedent," French wrote in her opinion. "We have consistently held that a municipal-licensing ordinance conflicts with a state-licensing scheme if the local ordinance restricts an activity which a state license permits." 
Munroe Falls' regulations, she wrote, "prohibit -- even criminalize -- the act of drilling for oil and gas without a municipal permit," negating the state's authority to regulate drilling. The state statute, though, provides that it, not municipal authorities, shall have sole authority "to regulate 'all aspects' of the location, drilling, and operation of oil and gas wells," she noted. 
"Article II, Section 36 vests the General Assembly with the power to pass laws providing for the 'regulation of methods of mining, weighing, measuring and marketing coal, oil, gas and all other minerals.'" French wrote. "With the comprehensive regulatory scheme in [the regulatory statute], the General Assembly has done exactly that." 
The scope of home-rule authority, and the ability of the General Assembly to limit it, has sparked several court battles in recent years. Several times the Supreme Court has upheld the state's authority to trump local regulations and ordinances.
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It will be very interesting to see the ramifications of this ruling as shale development moves forward in Ohio.

Below you can read the opinion that was issued in the case.




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Tuesday, February 17, 2015

Bill Approving the Keystone XL Pipeline Heads to Obama, Where It Will Likely Be Vetoed

From CNN:
President Barack Obama will have 10 days to issue a veto on a bill authorizing construction of the Keystone XL pipeline once it hits his desk, now that the House has passed a final version, 270-152. 
Twenty-nine Democrats voted with Republicans on Wednesday to pass the measure, which Obama has repeatedly said he will veto. He believes the decision to build the pipeline should rest with the executive branch. Michigan GOP Rep. Justin Amash was the only Republican to vote against the legislation. 
Neither the House nor the Senate passed the proposal by a wide enough margin to override a presidential veto. 
Earlier in the day, House Speaker John Boehner mocked Obama's promised veto on the bill, saying the President is "standing with a bunch of left-fringe extremists and anarchists."
Read the entire article by clicking here. 

video


Photo: By chesapeakeclimate (Bill McKibben) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

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Monday, February 16, 2015

Low Oil Prices Are an Act of Economic Warfare: Veteran Investor Bob Moriarty

Source: Karen Roche, The Energy Report  (2/12/15)

This is a wonderful time to have cash and be in the oil business, according to Bob Moriarty of 321energy.com. That's because savvy juniors can go shopping for assets being sold as "uneconomic" when oil is $40–50/barrel. But the low price won't last, he tells The Energy Report, predicting much higher oil within the year. And while that increase will cause oil stocks to rise in tandem, Moriarty reminds investors that it still pays to be selective.



The Energy Report: Bob, in January you published an article saying that the drop in oil prices could be the "straw that pops the $7-trillion derivative bubble." Can you explain the influence of oil prices on derivatives?

Bob Moriarty: It's not the oil prices that are significant; it's the change in oil prices. If you own an oil field and it costs you $75 to produce a barrel, at $110 a barrel ($110/bbl), you're OK. If oil drops to $45/bbl, you're in serious trouble.

In the shale oil sector, producers were taking out hundreds of billions of dollars in loans to finance shale oil that was costing them about $110/bbl to produce. It looked good on paper, but was a disaster waiting to happen. A lot of people in the shale oil business will soon be going out of business.

This could start World War III. The United States is the biggest oil producer in the world today, and Russia is number two. Russia's economy is based on oil priced at $110/bbl. They are very angry at the U.S. and Saudi Arabia for the games that have been played in oil. Oil at $45/bbl is not sustainable. It could bring down the world's financial system all by itself.

The real cost of energy today is $60 to $70/bbl. In the last piece I did with The Energy Report, I said $75 to $100/bbl oil was the new normal. That's still true. Oil is way below the cost of production, and that's going to hurt a lot of people.

TER: There is speculation the Saudis are doing this to wipe out some of the Russian and deepwater production. Could that be true?

BM: It's an economic act of war. The Saudis did it to get at the Russians and to get at Iran and the U.S. The Saudis have the cheapest cost of oil in the world. They could put everybody else out of business. The Saudis think that's a good thing. It's an extremely dangerous thing. It's like pulling the pin off a hand grenade and playing hot potato with it. At the end of the day the potato blows up.

TER: Will King Salman change the Saudi oil production strategy?

BM: I'm not sure that anybody could answer that question. I can't.

TER: To what extent do you think the violence and disarray in the Middle East is affecting oil prices? Are just the Saudis behind it?

BM: Everybody is overproducing to beat demand. The volume of oil in storage is as high as it has ever been. Oil is selling at about $50/bbl today, but if you store it for three months you can get $60/bbl for it. That gives everybody a big incentive to buy oil and store it.

I would guess that 98% of a producer's sunk costs have been spent before he produces his first barrel. There's no economic incentive for shutting the well off.

Shale wells, on the other hand, deplete very rapidly. Once you've spent the money, you have to produce like crazy to pay for production, no matter what the oil price is.

I’m not sure we've seen the bottom. Oil could drop to

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