According to this news release, Chesapeake has sold a 32.5% interest in its Marcellus Shale assets for $3.375 to StatoilHydro, including approximately 1.8 million net acres of leasehold (StatoilHydro now owns approximately 0.6 million net acres and Chesapeake owns approximately 1.2 million net acres). It received $1.25 billion in cash at the closing and will receive the remainder through funding of its share of drilling and completion expenditures.
The downturn in the natural gas market, and the economy more generally, has dampened the zeal of natural gas drillers in Pennsylvania for exploring the Marcellus shale, according to this article in the Tribune Democrat. Only months ago, local residents viewed it as a madhouse.
Concerns over the impact of hydraulic fracturing have been raised with increasing frequency over the last several years. This article from Scientific American is just one example of the kind of reporting we are seeing, challenging the exemption for frac water contained in the SWDA and a producer's community-right-to-know obligations.
The FERC has issued a Notice of Inquiry seeking comments on whether "the Commission should impose additional reporting requirements on (1) intrastate pipelines providing interstate services pursuant to section 311 of the Natural Gas Policy Act of 1978 (NGPA) and (2) Hinshaw pipelines providing interstate services subject to the Commission's Natural Gas Act (NGA) jurisdiction pursuant to blanket certificates issued under s. 284.224 of the Commission's regulations." More specifically, the Commission is asking whether it should require section 311 and Hinshaw pipelines to post shipper transaction details in a manner similar to that required of interstate lines under the Commission's regulations.
Comments are due 60 days from the date the NOI is published in the Federal Register.
Natural gas pipeline capacity and related constraints are a "hot topic" right now, particularly in the Appalachian Basin. The Department of Energy's Energy Information Administration (EIA) has put together a presentation to illustrate graphically major areas of transmission pipeline growth between 1998 and 2008. An example:
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The Natural Gas Supply Association has calculated that 25 percent of U.S. natural gas demand could be met by shales located in Appalachia, the Barnett Permian Basin of Texas and elsewhere in the U.S. A copy of the statement can be found here.
Permitting delays are a significant source of aggravation for producers, according to this article at CNNMoney.com. One possible solution proposed by the PA DEP - increased fees to pay for additional staff to process applications and inspect wells!
This isn't the only state to propose fee increases to address agency staffing issues.
[Update: For more on regulatory obstacles to development of the Marcellus, see this article in the Wayne Independent. According to a University of North Texas professor, PA is a "disjoined jungle of agencies, boards, counsels, and regulatory bodies" with tremendous uncertainty that presents significant challenges to Marcellus Shale production.] (moved up)
Late last year, the FERC issued a Notice of Inquiry (NOI) seeking comments on whether it should change its current policy on the in-kind recovery of fuel and lost-and-unaccounted-for gas by interstate pipelines. That policy, in general, allowed pipelines two options - One, to establish a fixed fuel retention percentage that would remain unchanged until the pipeline filed a subsequent NGA Section 4 rate case. Two, to establish a tariff mechanism that allowed for periodic adjustments to the fuel retention percentage outside of a general NGA Section 4 rate case, but which included a true-up mechanism for over- and under-recoveries of fuel. The NOI asked whether the Commission should change it policy for the purpose of minimizing over-recoveries and provide greater incentives to reduce fuel loss.
Continue Reading...U.S. EPA has redefined the term "navigable waters" for purposes of the Spill Prevention, Countermeasure and Control rule (SPCC rule) (40 C.F.R Part 112). Restored to the regulatory definition promulgated by EPA in 1973, the term now includes:
On its face, and for the time being, this is a significant reduction in the definition's reach.
[Update: A Federal Register copy of the rule can be found here.]
On July 25, 2008, U.S. EPA proposed regulations for the underground injection of CO2 for sequestration under the Safe Water Drinking Act's UIC program. EPA has extended the deadline for filing comments from November 24, 2008, to December 24, 2008. A copy of the original rulemaking proposal can be found here.
On July 17, 2002, U.S. EPA unexpectedly amended the Oil Pollution Prevention Regulation (40 C.F.R. Part 112), substantially increasing the demands imposed on producers when preparing and implementing their spill prevention, control and countermeasure (SPCC) plans. Recognizing the increased burdens placed on producers, EPA extended the deadline for compliance several times to review and address the issues created by its regulatory amendments.
Yesterday, EPA announced new, final SPCC rule amendments designed "to provide clarity, tailor requirements to particular industry sectors, and streamline certain requirements while maintaining protection of human health and the environment." Among other things, EPA states that the revised rule will exempt intra-facility gathering lines already regulated by U.S. DOT; and "[p]roduced water containers that do not contain oil in harmful quantities." It will also contain requirements tailored for marginal production facilities and compliance alternatives for produced water containers that are not otherwise exempt.
An update will be provided once the revised rule is posted.
[Update: A pre-publication copy of the rule can be found here.]
[Update: U.S. EPA is proposing to extend the deadlines for compliance for certain facilities, including certain oil production facilities. Comments are due December 26, 2008.]
We can expect a more aggressive stand on environmental issues. According to this article from MSNBC, Rep. H. Waxman (D-CA) has replaced Rep. John Dingell (D-MI) as chairman of the House Energy and Commerce committee on a vote of 137-122 in the Democratic Party caucus. The energy sector can expect significant, proposed changes as a result, particularly with respect to issues of global warming and water quality.
EIA has issued its short-term energy outlook for November, 2008. Among other things, it projects an annual average Henry Hub spot price for natural gas of $6.82 per Mcf for 2009. A copy of the full report can be found here.
In addition to landfill gas, Muskegon County, MI, is exploring the use of algae from the huge wastewater holding ponds and grease trucked in from local restaurants as a marketable energy source according to this article in the Muskegon Chronicle. If it works, it can convert a problem for wastewater systems into an energy solution. Very interesting.
The Bureau of Land Management has finalized new regulations governing oil shale development on public lands in the West. According to the BLM: "Commercial development of oil shale will not begin until it is technologically viable, which is not expected for several years. The regulations will provide a basis for decisions, as 'rules of the road' for the large investment that will be necessary for industry to develop technologies to extract the resource in an environmentally sound manner." A copy of the rules can be found here.
In the Energy Policy Act of 2005, Congress clarified that storm water discharges from field activities associated with E&P operations, including construction activities, are exempt from NPDES permitting requirements absent a contaminated discharge. The next year, U.S. EPA completed a rulemaking codifying that statutory exemption in its regulations; and further establishing an exemption for storm water discharges containing sediment only, finding that such discharges did not constitute a violation of a water quality standard.
122.26(a)(2) The Director may not require a permit for discharges of storm water runoff from mining operations or oil and gas exploration, production, processing or treatment operations or transmission facilities, composed entirely of flows which are from conveyances or systems of conveyances (including but not limited to pipes, conduits, ditches, and channels) used for collecting and conveying precipitation runoff and which are not contaminated by contact with or that has not come into contact with, any overburden, raw material, intermediate products, finished product, byproduct or waste products located on the site of such operations.
122.26(e)(8) For any storm water discharge associated with small construction activity identified in paragraph (b)(15)(i) of this section, see 122.21(c)(1). Discharges from these sources, other than discharges associated with small construction activity at oil and gas exploration, production, processing, and treatment operations or transmission facilities, require permit authorization by March 10, 2003, unless designated for coverage before then. Discharges associated with small construction activity at such oil and gas sites require permit authorization by June 12, 2006.
According to this article in the WSJ, the market for batteries is potentially huge due to the push to use alternative energy and avoid fossil fuels. Lux Research Inc., which tracks emerging technologies, reports that the battery market could be as $50 billion if only 10% of wind-power plants installed them. It predicts, however, that the actual market will be much smaller because of the long planning cycles and risk-aversion of utilities. This isn't surprising given how expensive the batteries can be - e.g., on the order of $10 million for a relatively small one.
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It appears that the Bradford County commissioners received favorable bonus payment and royalty terms following weeks of negotiations with EOG Resources Inc. (according to this article in the Daily Gazette). EOG will pay the county $2.4 million to lease the gas rights on the 939 acres of land owned by the county and a 17.5% royalty. Not bad at all.
MMS has announced that it would begin the process to issue more leases at a site at least 50 miles off the coast of Virginia, according to this article in the LA Times. The comment period ends December 29th. You can find a copy of the notice here.
According to this article in Globe and Mail, although Henry Groppe may skeptical that worldwide oil consumption in transportation can be significantly reduced over the next decade by using alternative fuels, he believes that fuel substitutions already happening among industrial users will offset declining global oil production.
A new U.S. Geological Survey study released by the Interior Department estimates that there is 85.4 trillion cubic feet of undiscovered, technically recoverable natural gas frozen in Alaska's North Slope region, according to this article from CNN. Natural gas hydrates recoverable with current technologies? Cool.
[Update: You can find a copy of the assessment here, and even a podcast discussing it here.]
According to this article in the NYT, President-elect Barack Obama choice of Rahm Emanuel to be his chief of staff may be good for proponents of compressed natural gas cars.
From the WSJ: Statoil has agreed to pay Chesapeake $1.25 billion in cash for a 32.5% interest in its assets in the Marcellus Shale; and spend an additional $2.13 billion over four years as part of Chesapeake's drilling costs.
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From the National Regulatory Research Institute: "Speculation in itself is not a bad thing. Good speculation provides a valuable market function. It helps local gas distribution companies and other large gas consumers, for example, to hedge against rising prices, and so to reduce risk - a significant benefit amid highly volatile gas prices and the current economic situation. By the same token, good speculation provides natural gas producers with more predictable future revenues, allowing them to expand with less uncertainty and borrowing costs. That trend, in turn, should help to lower the price of natural gas in the long run. Any attempt to curtail good speculation, therefore, is likely to make life harder for firms and raise natural gas prices." A copy of the report can be found here (entitled, Speculation in the Natural Gas Market: What It Is and What It Isn’t; When It’s Good and When It’s Bad).
The Texas Railroad Commission has held that more than two dozen east Fort Worth landowners who didn’t sign a mineral-rights lease nonetheless may be forced to join a drilling unit, according to this article in the Star-Telegram.
Uncertainty remains regarding how quickly the new administration will move on energy-related issues, according to this article in the Columbus Dispatch. President-elect Obama has stated that his first priority would be an economic recovery program, but advisers said that the real issue was whether the new Administration could tackle health care, climate change and energy independence at the same time, or would the new initiatives need to be staggered.
The Public Utilities Commission of Ohio has adopted new regulations for electric line extensions and minimum service and safety standards. A copy of the entry and new rules can be found here.
Looks like most independents may drill what they have rather than try to acquire new locations, according to this article in the Star-Telegram. According to the Director of Research for SMH Capital: "'When you [i.e., production companies] retrench, the first thing that gets cut is money for new acreage or exploration.' * * * 'What does get spent is money for production projects,' which offer the fastest return of capital and best chance to pad cash flow."
California Governor Arnold Schwarzenegger has called for a 9.9% tax on every barrel of crude oil produced in the state, according to this article from the LA Times. This would make CA producers the most heavily taxed in the country.
We're seeing a lot of articles like this: "Oil prices last week hovered just over $60 a barrel after peaking around $140 this summer. Will today’s falling oil prices also bury fledgling efforts to convert the US auto fleet from gas guzzling SUVs into fuel-sipping hybrids? Will investors still want to invest in advanced biofuels? Will the new president slow the push for energy security?" (From the Christian Science Monitor.) It depends in large part on whether you believe - or investors believe - that lower prices are here to stay.
Federal regulators have been asked for permission by a unit of Dominion Resources to build a $40.6 million natural gas pipeline to transport gas through western Pennsylvania to retail markets. Looks like the throughput will be 57 MMcfd.
Not surprising with increasing use of gas for generation: The sharp drop in natural gas prices is leading to a similar drop in electric rates in the country.
In September, the Ohio Oil and Gas Association hosted both its annual Fall Technical Conference and the 2008 Appalachian Producers Issues Seminar. Copies of many of the presentations can be found here.
This is a large increase: A Penn State University geoscientist estimates that there may be more than 360 Tcf of natural gas recoverable in the Marcellus Shale. This is seven times greater than his earlier estimate.
There are there are few signs of environmental damage from the Cosco Busan oil spill in San Francisco Bay from only one year ago. A complete recovery is estimated to take several years.
Difficult times for another biofuel producer: VerSun Energy Corp. has filed for bankruptcy protection as a result of entering into certain hedges on corn.
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