Marcellus Shale And Penn State

The following is a link to the new Penn State University web site about their activities related to gas development of the Marcellus Shale.
P

Penn State Marcellus Center for Outreach and Research
September 2, 2010 Penn State Marcellus Center for Outreach and Research

“The Penn State Marcellus Center for Outreach and Research will be the research, information and education leader for the Appalachian region by fostering, supporting and advancing research and research-based outreach on gas shale development.”

Life Goes On, As Does Drilling For Oil

People around the world are not going to stop using oil and gas (nor can they) because of the recent oil leak in the Gulf of Mexico. As they say in the following article, the oil and gas industry must learn from this catastrophic spill and move on. There is nothing to be gained by punishing the entire industry because of British Petroleum's mistakes.
Peter

The World Drills On

Written by Wall Street Journal Editorial 08 August 2010

With reason to hope that the ruptured oil well in the Gulf of Mexico is being brought under control, it's time to start thinking into the future. The Obama Administration is sticking by its ruinous deepwater drilling moratorium, when it would be better to take a hint from the rest of the world's oil-producers. Their response to the Gulf disaster? Learn from it, and drill on.

Norway, run by the very model of modern environmentalists, announced a deep-water drilling halt until the spill is done. However, its ban applies only to new drilling, unlike the Obama Administration's total ban.

Norway also announced it's moving ahead with a deep water push into the Barents and Norwegian Seas, putting up 94 new blocks for drilling leases. Minister of Petroleum and Energy Terje Riis-Johansen made clear he views the stoppage as temporary.

Brazil is accelerating its drilling pace, announcing it would spend some $200 billion the next five years to tap newly discovered offshore reserves at depths to 23,000 feet. State-controlled Petrobras, the world's biggest deep water producer, recently struck oil three miles under Brazil's sea—a reserve that could yield 380 million barrels of oil and natural gas.

Australian Resources Minister Martin Ferguson has offered 31 new leases off his country's coast that allow for wells at twice the depth of the BP Macondo. As recently as 2000, Australia was self-sufficient in oil and gas but its import costs are rising. The new leases reverse that trend.

"There is no intention by the government to scale back the development of the oil and gas industry in Australia," Mr. Ferguson said. "It is important in terms of the nation's energy security, jobs and the overall economy." Maybe he'd consider a position at Interior?

New Zealand has authorized its first permit to drill off the east coast of its North Island, with Energy and Resources Minister Gerry Brownlee saying it is vital that the country "attract investment" from the same oil companies that U.S. politicians are bashing.

Canada continues to allow drilling in deep water off Newfoundland and Labrador and is moving ahead with exploration licenses in the Arctic. The U.K. is still drilling in deep water in the North Sea.

Many of these countries even hope to benefit from America's politically motivated moratorium by bidding for deep water rigs now working in the Gulf. Brazil's Petrobras is looking far and wide for deep water drilling rigs, with a goal of 60 by 2017, and it's looking to sign long-term contracts with owners of rigs now idled in the Gulf.

These are hardly rogue nations. What they share is an understanding that environmental concerns must be balanced with the reality that oil and gas remain crucial to economic growth, and that their reserves are increasingly in deep water. The leaders of these nations are also confident that the oil industry has the technology and know-how to do this right, with proper oversight.

America's oil and gas reserves are no less essential to the U.S. economy, notwithstanding President Obama's romance with "green jobs." Every day the Administration spends trying to justify its moratorium is one more day when the U.S. is losing jobs that may not return.

Source

Shale Gas Explained

There is a reason why Newsweek Magazine (where the following article was just published) recently sold for a pittance. The article is poorly researched and reveals the author's ignorance of the subject. However, it does explain some of the reasons why gas produced from shale is so very important. (Source) I've reproduced the article here just to show what the general public is being told about shale gas.
Peter

Shale Gas: Hope for Our Energy Future

You probably have never heard of oilman George Mitchell, but more than anyone else, he has changed the global energy outlook. In 1981, Mitchell's small petroleum company faced dwindling natural gas reserves. He proposed a radical idea: drill deeper in the company's Texas fields to reach gas-bearing shale rock more than a mile down. Because the gas was tightly packed, most engineers believed it was too costly to extract profitably. But after nearly two decades of trying, Mitchell proved doubters wrong. The result: The world has far more available natural gas than anyone suspected.

The BP oil spill cast a cloud over almost all energy news. Well, shale gas is good news. Here's why.

Until recently, scarce U.S. natural gas reserves suggested increasing dependence on expensive foreign supplies of liquefied natural gas. No more. Also, natural gas emits about 50 percent less carbon dioxide—the major greenhouse gas—than coal. Substituting gas for coal in electricity plants could temper emissions. Finally, shale gas in Europe and Asia has huge geopolitical implications. It could reduce dependence on Russian natural gas and frustrate any gas cartel mimicking OPEC.

How much shale gas exists is unknown, but estimates are huge. The Potential Gas Committee is a group of geologists who regularly estimate future U.S. gas supplies. In 2000, the group's estimate equaled about 54 years of present annual consumption; by 2008, it was almost 90 years. "This isn't the end," says Colorado School of Mines geologist John Curtis. Globally, one study estimated the recoverable supply at 16,200 trillion cubic feet, more than 150 times today's annual world gas use.

Some standard drilling techniques, applied imaginatively, liberated shale gas. The first was "fracturing" (also called "fracing"): injecting liquids into reservoirs to create openings that allow the gas to flow up the drill pipe. For years, Mitchell's engineers experimented with different "fracing fluids." All were expensive, and the resulting gas flows weren't profitable. In 1997, engineers tried a less costly mix of sand and water. The economics of shale gas improved dramatically, says Dan Steward, a former geologist for Mitchell.

Devon Energy, which bought Mitchell's company in 2002, improved the economics further by emphasizing "horizontal drilling." In conventional wells, the drill goes straight down and collects gas or oil near the well bore. With horizontal drilling, the pipe is turned sideways when it hits the reservoir and collects gas or oil for hundreds or thousands of feet. Gas flows increase. Fewer wells are needed. Costs drop.

Natural gas provides about a quarter of U.S. energy—for home heating, electricity generation and factories. This proportion will probably increase, but the emerging shale boom faces two problems. The first is hype.

Shale gas has many virtues, but gains will come at the margin. It isn't a panacea for every energy ailment.

Consider the impact on oil imports. In theory, natural gas—compressed or converted into a liquid—could replace oil in some vehicles. But natural gas now fuels only about 120,000 of roughly 250 million U.S. cars, vans, trucks and buses. At today's prices, natural gas is competitive with oil, but there's a chicken-and-egg problem: Drivers won't use it without filling stations; companies won't build stations without drivers.

So fuel switching will likely focus on heavy-duty trucks with regular routes that require few stations. If 500,000 heavy-duty trucks changed to natural gas, oil consumption would drop almost half a million barrels a day, estimates Michael Eaves of Clean Energy, a builder of natural gas filling stations. That's about 5 percent of U.S. imports. The impact is large because trucks travel about 100,000 miles a year and get only about five miles to a gallon, says Eaves.

Similar qualifications apply to the substitution of natural gas for coal in electricity generation. On paper, the potential seems enormous, because many gas generating units are underutilized. But practical problems intrude. Coal is the low-cost fuel; coal-fired and gas-fired plants often serve different markets. On balance, present gas-fired plants might reduce use of coal-fired electricity by 5 to 9 percent, a Congressional Research Service study estimated. Future gas plants might expand this.

The second threat to shale gas is over-regulation. Environmentalists are split. Some favor shale gas as a desirable "bridge fuel" until use of non-carbon energy expands. Others argue gas drilling will threaten drinking water supplies; that was a theme of "Gasland," a film shown this year on HBO. The charges seem overblown. As the BP spill reaffirmed, all drilling requires regulation. There are environmental issues, especially the safe disposal of "fracing fluids." But onshore drilling, including "fracing," has proceeded for decades without polluting water supplies. In shale gas, thousands of feet typically separate shale deposits from water tables.

George Mitchell's persistence made shale gas a huge geological gift. Only fools would discard it.

Barnett Horizontal Shale Gas Production Holds Steady

There is good news from where horizontal drilling and shale gas production was perfected, The Barnett Shale of north Texas. Even though there has been a dramatic decline in drilling activity because of lower gas prices, the production level of the existing and the few new wells appears to be holding steady. I interepret this as good news for the Barnett Shale and good news for all the similar shale gas plays such as the Haynesville, Fayetteville, and Marcellus Shales. Hopefully once these wells are drilled into the optimum stratigraphic location, properly fracture-stimulated and completed, they continue producing at substantial rates for a prolonged period. These are positive economic signals and something we're all concerned about. (Source) From the U.S. Energy Information Administration.
Peter

Prices, Investment, and Drilling Technology Drive Barnett Shale Production Growth. Despite a sharp decline in Henry Hub spot prices from the levels reached in the summer of 2008, natural gas production in the Barnett shale in Texas continued to climb through the middle of 2009 and appears to have reached an undulating plateau since then. Production growth in the Barnett shale comes from several large natural gas producers who continued to maintain strong production even in an environment of relatively low natural gas prices (see Figure). During 2005-2008, growth in the Barnett shale production was driven by high natural gas prices, successful application of horizontal drilling, and hydraulic fracturing, as well as significant investments made by natural gas companies in production assets and state-of-the-art technology. When natural gas prices declined sharply in the second half of 2008, the momentum in production growth continued, in part because of the 3-6 month lag generally observed between changes in prices and a production response. As natural gas prices continued to decline in 2009, so did the number of drilling rigs. However, despite more than a 60 percent reduction in the number of drilling rigs from the peak levels in 2007-08, production in the Barnett shale remained high due to several factors:

Increased per-unit production output as a result of improved production efficiencies from horizontal drilling (which allows multiple horizontal wells to be drilled from a single rig) and an improved understanding of how natural gas is produced from this formation. Large operators hedged a significant portion of their natural gas production on the futures market when natural gas prices were higher. Significant capital investments in acquiring technologies, leases, etc., combined with the resultant large debt, required continuous production so operators could service the debt. Contractual lease obligations require operators to continue drilling or risk losing leases. High initial production rates in the Barnett shale wells decreased the number of drilling rigs required to maintain and even to increase natural gas production output.

The Importance And Many Uses Of Natural Gas

The following article at geology.com is an excellent summary of the many uses of natural gas, the demand for it, its cost and production cycles. It is obviously an enormously important resource. Go here to see the entire article.
Peter

The Many Uses of Natural Gas
July 29, 2010 Geology.com

Natural gas is important as a fuel and as a raw material for manufacturing. This article explores the many uses of natural gas and has a number of graphs to illustrate variations in use by season, by industry sector and over

Natural gas is used by everyone, in one way or another. Right now, and in the foreseeable future, there is no replacement, no "alternative" for it.

Prices for natural gas vary from one place to another as geology.com shows in the above map. The production of gas close to the areas where gas is now very expensive will have a great positive impact on those areas.

Range Resources Betting Heavily On The Marcellus Shale Gas Play

With offshore drilling in the Gulf of Mexico in limbo, activity is shifting to onshore oil and gas exploration and drilling opportunities. One thing is certain, America and the world, recession or not, global warming or not, people are going to use and need energy. We can't afford to wait around for "pie in the sky" ideas like solar, wind, nuclear, and geothermal energy to meet our needs. Natural gas as a pre-eminent energy source is looking better all the time. Obviously many others see the same thing. I wonder when our leaders in Washington D.C. will catch on.
Peter


Range hikes spending for Marcellus activity

By OGJ editors (source)
HOUSTON, July 27 – Range Resources Corp., Fort Worth, hiked its 2010 capital budget $215 million to $1.2 billion, all but $5 million of which is related to expanding activity in the Marcellus shale play in Pennsylvania.

The company plans to end 2010 producing a net 200-210 MMcfd of gas equivalent from the Marcellus, up from 180-200 MMcfed estimated earlier, and end 2011 at 400-420 MMcfed, up from 360-400 MMcfed. Current output is 160 MMcfed.

The other $5 million spending hike is related to acquired properties in western Virginia (OGJ Online, July 27, 2010).

Of the Marcellus spending hike, $65 million is to drill 18 wells in the southwest part of the play and to complete 15 of them by the end of 2010, and $73 million is for pre-winter construction of drilling locations, roads, and other facilities for wells to be drilled in 2011.

Range is combining 14,000 net acres in Bradford County, Pa., with Talisman Energy Inc., Calgary, in an industry joint venture in which Range will own 33% in the combined acreage position. Talisman, which has drilled several excellent wells in the area, will be operator for the joint venture, for which Range’s share of costs is likely $25 million for the rest of 2010.

Another $40 million is for Marcellus shale leasehold, and $7 million is for seismic.

In the southwest part of the play, 30 MMcfed of pipeline capacity is to be complete in the fourth quarter and a further 150 MMcfed is set for first quarter 2011.

The first phase of the Lycoming County pipeline project in the northeast part of the play is scheduled to begin flowing gas by yearend 2010. Firm take away capacity has been contracted for both the southwest and northeast areas.

Range previously announced an encouraging test of its first Upper Devonian shale horizontal well. Given the Upper Devonian’s prevalence across the company’s acreage position, it is very encouraged regarding the increased unproved resource potential this well implies on the southwestern Pennsylvania acreage.

The company’s Marcellus shale team plans to drill two more Upper Devonian test wells in 2010 and one Utica shale well early in the first quarter of 2011.

Will Shale Gas Create An International Economic Energy Revolution?

Increased finding, production and usage of natural gas may affect the world economy. There are questions and challenges for sure, but the technology to find and produce this gas is well-established and in most places, particularly the United States, the infrastructure to transport and use this gas already exists. Now if the Federal Government will let us explore for, drill and complete the necessary wells, we might be a able to pull ourselves out of this economic recession.
Peter

WoodMac: Pay attention to 'unconventional gas revolution'

Eric Watkins
OGJ Oil Diplomacy Editor (source)

LOS ANGELES, July 23 -- Global unconventional gas has the potential to reshape global gas dynamics, according to a report by analyst Wood Mackenzie. Indeed, according to the report’s authors, companies that position themselves early will be best placed to benefit from the “unconventional gas revolution.”

Rhodri Thomas, a principal analyst from WoodMac’s unconventional gas service, said, “Development of just a small proportion of this resource could dramatically change local gas markets with further implications for global gas dynamics.”

Specifically, according to Thomas, unconventional gas could reduce import requirements, provide additional export sources, and impact global gas pricing. “There is huge potential but there are also huge associated challenges and uncertainties,” Thomas said.

“For potential suppliers, specific issues include the need to develop a gas marketing strategy cognizant of lengthy initial ramp-up periods, potentially unreliable early production and often illiquid local markets,” said Noel Tomnay, head of global gas service for WoodMac, and coauthor of the report.

“Such strategy development will likely include partner screening, particularly for those companies without a suitable gas portfolio and/or local gas marketing capabilities,” Tomnay said.

The authors note in particular the potential effect of unconventional gas on geopolitics, especially in Europe where “successful development of unconventional gas will mean indigenous supply for countries which currently rely on imports.”

According to Tomnay, reduced import dependency could “significantly blunt” the future pricing power of key gas exporters such as Russia.

“In Asia, the potential for indigenous unconventional gas production is higher than in Europe and the relative expectation of import dependency lower,” said Tomnay. As a result, he said, the impact of unconventional gas “could be greater” in Asia than in Europe.

Unconventional gas in fact “could put a significant dent in, or even negate, incremental gas import requirements in key Asian markets and could also provide an additional competitive threat to future LNG export expansion from high cost projects such as in Australia.”

While the longer term impact of unconventional gas could be profound, the reality is that outside of North America and eastern Australia the economics and logistics of undertaking large scale unconventional gas operations have yet to be proven.

More to the point, some of the key success factors behind the rapid growth in North America are missing. As a result, the pace of growth is likely to be slower than that witnessed in North America and substantial volumes on a global scale are unlikely before 2020.

“It is too early to say how the future of unconventional gas will play out, but it is clear that stakeholders across the gas value chain—gas suppliers, resource holders, buyers and policy makers—need to understand the possible impact of future developments,” said Thomas.

“Those that do this early and monitor key signposts will be best placed to benefit from the unconventional gas revolution,” Thomas said.

Encana, Shale Gas And Horizontal Drilling

Encana is another major player in the development of shale gas resources in the United States and Canada. http://www.encana.com/aboutus/
Peter

Encana sees N. America gas play efficiencies

Jul 22, 2010

Alan Petzet
OGJ Chief Editor-Exploration (source)
HOUSTON, July 21 – Encana Corp. has only just begun to implement the gas factory approach in its North American resource plays and sees large operational and cost efficiencies in doing so, company management said on a July 21 conference call.

The company hiked its capital spending $500 million to $5 billion in 2010, to be spent $300 million in Canada and $200 million in the US. Encana boosted the budget due to strong performance from its resource plays this year.

Encana said it realized just under $4.70/MMbtu for its gas year to date and that it estimates that a price closer to $6 is required to balance markets in North America.

Encana is looking for ways to manage completion costs, which it said make up 40% of all-in capital cost per well, including fit-for-purpose skid-mounted equipment and potential long-term partnership arrangements with service providers.

Haynesville shale
Encana is in a land retention strategy in the Haynesville shale play, having drilled 41 net wells in the first half of 2010.

The company needs to drill 100 more wells this year and 150 in 2011 to hold its acreage. It moved five to six rigs into Louisiana from the East Texas Deep Bossier gas play this year to help hold acreage and is running 26 rigs in the Haynesville.

The company’s Brent-Miller well in Sabine County, Tex., went to 14,500 ft vertically and flowed 25 MMcfd of gas from a first horizontal leg and 32 MMcfd after a second leg was added. Besides proving up 45,000 net Encana acres on the Texas side of the play, the high pressure-high temperature well demonstrated high reservoir quality at depth.

It performed as well as any we have seen in the play to date, Encana said.

The company produced a net 270 MMcfd of gas equivalent from the Haynesville in the second quarter and is on track to average 325 MMcfe/d this year and end the year above 500 MMcfe/d.

Encana will launch its first gas factory approach in the Haynesville shale by drilling eight wells from a single pad in DeSoto Parish, La., later this year.

It will employ gas factories from the outset in the Horn River basin of Northeast British Columbia, where it may be able to develop as much as 5 sq miles from a single drillsite. It plans to drill 16 wells/pad with legs 3,000 m or longer and 20-28 fracs/well.

Collingwood shale play
Encana revealed little about its Collingwood/Utica shale discovery in the Michigan basin, the only well the company is aware of in that play, because another Michigan lease sale looms this October.

Encana said the first exploratory well on the 250,000-acre position it has built over several years was subcommercial, but the company continues leasing in the play.

Encana said the first well’s costs were too high and the type curve insufficient for commercial development, but it proved the existence of gas and liquids in the petroleum system.

Canadian joint venture
Encana decided it would take 18 years, much too long for shareholders, for it to exploit its Canadian gas plays at its current drilling rate of 1,300 wells/year.

So it is discussing a previously announced joint venture with China National Petroleum Corp. in Greater Sierra, including parts of the Horn River and Montney plays, and Cutbank Ridge. As wells are drilled in those plays, Encana expects the drilling inventory to increase.

Range Resources To Reveal Composition Of Hydraulic Fracturing Fluid Used To Produce Gas From The Marcellus Shale

Range Resources, (of Fort Worth, Texas) is making public the composition of the fluid it uses in its hydraulic fracturing treatment of the underground rock formation in the northeastern United States known as the Marcellus Shale. In addition to horizontal drilling, this process of fracturing these dense rocks is largely what makes possible the production of such large quantities of natural gas. The overall process is revolutionizing the gas (and oil) industry, creating many jobs and providing much-needed revenue to the Pennsylvania government and others.

I view this as a very positive development. There are many environmental groups across the country and around the world who do and have done their best to demonize the oil and gas industry for decades. They generally scare the public about the process of drilling for and producing oil and gas. Of course the oil and gas business is risky, but sadly, these groups are exploiting the current tragedy in the Gulf of Mexico to their maximum benefit. One well went very bad. It is ludicrous to condemn the entire industry with such a broad-brush scare tactic strategy. Who will this help? We know it will harm millions.

So I applaud Range Resources. I think these environmental concerns should be tackled head-on, honestly and openly. Once the public understands how these wells are drilled and completed in more detail, they won't be so afraid, the environmental extremists can be reined in and maybe we can begin the process of economic recovery. The following comes from Range Resources' Web site here: http://www.rangeresources.com/
Peter

Range Resources

Marcellus Shale Hydraulic Fracturing Source

Range Resources Announces Voluntary Disclosure of Marcellus Shale Hydraulic Fracturing

Sample Marcellus Shale Completion Report and Voluntary Disclosure

Future reports will be available online no longer than 30 days upon completion

Marcellus Shale Well Casing Design and Depth of the Marcellus

Range Resources Announces Voluntary Disclosure of Marcellus Shale Hydraulic Fracturing

Company to include per well disclosure in regulatory reports and to make available on Company website

CANONSBURG, PENNSYLVANIA, JULY 14, 2010

– Citing the extraordinary potential of responsibly developing natural gas from the Marcellus Shale, Range Resources Corporation (NYSE: RRC) today announced a voluntary disclosure initiative of Marcellus Shale hydraulic fracturing additives. Beginning immediately, Range will voluntarily submit to the Pennsylvania Department of Environmental Protection (DEP) additional information about additives used in the process of hydraulic fracturing of natural gas wells in Pennsylvania operated by Range Resources.

Range’s disclosure initiative will provide regulators, landowners and citizens of the Commonwealth an accounting of the highly diluted additives used at each well site, along with their classifications, volumes, dilution factors, and specific and common purposes. The information will be submitted to the DEP as part of Range’s well completion reports and on the Company’s website.

"With more than 25 years of responsible operation in the Commonwealth, Range is concerned what Pennsylvanians think about our industry. We understand that there is the perception among some that the additives used in hydraulic fracturing present a risk to the public, even though the Marcellus Shale formation is found more than a mile below the water table. We are committed to achieving the proper balance of pursuing the enormous opportunity that the Marcellus Shale provides and observing a higher standard of care for the environment and the communities where we live and work," said John Pinkerton, chairman and CEO of Range Resources. "Our voluntary initiative will increase transparency and allow people to better understand that the Marcellus Shale is a valuable resource that can be pursued responsibly and for the benefit of all of the citizens of Pennsylvania."

"Drilling for natural gas in the Marcellus Shale formation must be done right, and efforts to protect our environment and address the concerns of our residents have to be done immediately," said DEP Secretary John Hanger. "Last month, DEP took the lead on this initiative by becoming the first state environmental agency in the country to post a comprehensive list of additives used in surface and fracturing operations – online, in one place, in full view of the public. Today’s announcement that Range intends to go even further on this issue is welcome news, and represents a model that other operators in the Marcellus must follow without further delay."

Range is currently using four additives in the hydraulic fracturing of its natural gas wells in the Marcellus Shale. These highly diluted and common additives collectively make up about fourteen one-hundredths of one-percent (0.14%) of the hydraulic fracturing fluid -- with the remaining 99.86-percent comprised of water and sand. Approximately four one-hundredths of one-percent (0.04%) of the fluid and sand mixture is considered hazardous in a concentrated form, according to federal regulatory classifications, and like most common household chemical substances in diluted form, pose no harm. In partnership with its service companies, Range has reduced the number of additives and is continuing to undertake research to further refine materials used in the hydraulic fracturing process.

"Range has been transparent in its listing of additives used at the well site, both through voluntary means and as part of the federal disclosure process enforced by OSHA, DOT and the DEP," said Ray Walker, Range’s senior vice president for the Marcellus Shale Division. "But we also understand the historic opportunities the Marcellus makes possible, and that’s why we’re going even further with our efforts to voluntarily disclose additives on a well-by-well basis. As our website will make clear, all of the additives we use are highly diluted, carefully managed and in many cases commonly used in our everyday lives. We are hopeful that our voluntary disclosure will help dispel the misconceptions that have persisted and allow Range and others to deliver on the potential of this extraordinary resource base."

In 2004, Range was the first natural gas company to drill and complete a Marcellus Shale well in Pennsylvania using modern technology. While it’s still early, geologists believe the Marcellus Shale formation could hold as much as 500 trillion cubic feet of natural gas – enough to fuel Pennsylvania’s economy for centuries. A recent report from the

Massachusetts Institute of Technology predicts the Marcellus could yield as much as 8 billion cubic feet of natural gas per day by 2030; a May 2010 report from the Pennsylvania State University

projects that number could exceed 13.5 billion cubic feet of natural gas per day by 2020, while creating nearly 200,000 new jobs in Pennsylvania.

RANGE RESOURCES CORPORATION (NYSE: RRC)

is an independent oil and gas company operating in the Southwestern and Appalachian regions of the United States.

Contacts:

News Media:

Matt Pitzarella, Public Affairs Director

Office: 724-873-3224

Cellular: 724-678-5138

Investor Relations:

Rodney Waller, Sr. Vice President

817-869-4258

Main number: 817-870-2601

Marcellus Shale Division: 724-743-6700

FOLLOW THE MONEY, con't.

Good news for America, our economy, and the future.
Peter


July 8, 2010
Big Money Drives Up the Betting on the Marcellus Shale
By JOEL KIRKLAND of ClimateWire (source)
WILLIAMSPORT, Pa. -- Halliburton is building a permanent outpost here on the edge of a one of the 21st century's biggest energy booms.

Southeast of here, on an old strawberry patch at a bend in the river, Halliburton's industrial dwelling rests against the lush landscape of hills and valleys. In July, the Texas oil services giant will start mixing cement and storing equipment for natural gas companies drilling in the tough shale rock of northeastern Pennsylvania.

Halliburton is a ubiquitous presence in the world's biggest oil fields. For the past two months, it has defended itself against charges that shoddy cement work contributed to a methane blast that sank BP's rig in the Gulf of Mexico and killed 11 people. As long as the well keeps gushing, public anger could weaken America's appetite for offshore drilling.

But far from the Gulf Coast and outside of the media spotlight, Halliburton and the oil and gas industry are spending billions of dollars in preparation for decades of drilling in the Marcellus Shale. The 95,000-square-mile sheet of natural gas-rich sediment sprawls across Pennsylvania, southern New York, West Virginia and eastern Ohio.

Geologists have long known about gas deposits trapped in the 390-million-year-old formation. But only since 2008, and at a rapidly escalating pace, has the oil and gas industry brought to bear the technological and financial resources to crack it.

"Companies see how close the shale gas is to the Northeast consumer markets," says Alay Patel, an upstream research analyst for Wood Mackenzie. "They see a long-term source where the cost of supply is really low compared to what they see in other areas of the Lower 48."

Drillers blast water, sand and chemicals 8,000 feet into the ground, creating the pressure needed to crack the shale and release the gas. On today's industrial drilling sites, plumes of smog-forming pollutants escape from trucks, generators, condensate tanks and compressor stations.
In northern Appalachia, deep-seated public anxiety has set in about the environmental impact of horizontal gas drilling and hydraulic fracturing, or "fracking." Regulators responsible for protecting the clean water supplies of New York City and Philadelphia have called a drilling timeout in the Delaware River watershed.

But rivers of corporate cash continue to flow into the Marcellus and other shale fields. The magnitude of investment this year alone suggests energy companies have no plans to retreat from an ocean of recoverable gas.

At the power plant, a natural gas-burning electricity generator produces half the carbon dioxide emissions of a plant that burns coal. Some advocates for slashing emissions tied to global warming say gas is a plausible alternative for utilities saddled with aging coal-fired power plants.

Plans for 30,000 wells in 10 years
The industry expects to drill some 30,000 Marcellus wells by 2020. Placing a thumb on an accurate figure for how much gas can be recovered from the Marcellus remains a matter of geological guesswork. But if companies develop the shale to its full potential, according to some estimates, it rivals Russia's massive gas fields and the untapped reserves off the coast of Iran and in the Caspian Sea.

On June 25, shareholders for Texas gas producer XTO Energy finalized a $31 billion sale to Exxon Mobil Corp. The deal injects into North America's gas fields the muscle and capital heft of the world's largest integrated energy company. Exxon will become the third-largest gas producer in the prolific Barnett Shale and gain a strong bridgehead in the Marcellus, where XTO controls minerals under 280,000 acres near Williamsport and Pittsburgh.

In early June, Royal Dutch Shell PLC announced that it plans to buy Pittsburgh-based East Resources for $4.7 billion. That sale yields a significant return for one of the nation's richest private equity firms, Kohlberg Kravis Roberts & Co. Just a year ago, KKR spent about $320 million for a substantial minority stake in East Resources.

For Exxon and Shell, the bet is that relatively low-cost gas production means a steady revenue stream, as electricity generators in the eastern half of the United States switch from coal to gas to comply with clean air standards and slash carbon dioxide emissions tied to global warming.
More than a dozen companies have amassed leasehold positions in excess of 100,000 acres in Pennsylvania.

Chesapeake Energy Corp. of Oklahoma City boasts the largest Marcellus foothold. It has aggressively built its 1.6-million-acre position since scooping up Appalachian gas producer Columbia Natural Resources LLC for $2.2 billion in 2005. Following drilling tests that reaffirmed strong hunches about the gas formation's potential, Chesapeake signed a joint venture with Statoil in 2008.

The deal handed the Norwegian oil behemoth 600,000 acres of American shale to explore for a tidy sum of $3.3 billion, including a $1.2 billion upfront capital injection to help Chesapeake expand its drilling operation.

Drilling for deals
The Statoil deal paved the way for other joint ventures and buyouts in the shale. Small and mid-sized companies that spent years locking up Marcellus acreage needed the financial resources of bigger partners to develop it. In the past six months, the deal-making has only accelerated.
"The sheer scope and resource potential of the Marcellus is a big draw," says Eric Kuhle, a gas analyst at Wood Mackenzie. "You can capture the upside with these partnerships."
Energy companies from India and Japan are dumping shareholder wealth into Appalachian gas production. In February, Japan's Mitsui & Co. entered a $1.4 billion joint venture with Anadarko Petroleum Corp.

Pittsburgh-based Atlas Energy Inc. in April formed a $1.7 billion partnership with Reliance Industries Ltd., the largest private-sector company in India. The conglomerate is controlled by Indian billionaire Mukesh Ambani, who has been pushing the company to secure lucrative energy investments outside of India.

"In the last few years, we realized we had this extremely valuable asset," says Jeff Kupfer, senior vice president of Atlas. "We needed a lot of capital to develop it." Once Atlas put out a feeler, the Marcellus prospect attracted attention from the world's major oil and gas companies. "There was something in the chemistry with Atlas and Reliance."

Reliance agreed to pay $340 million in upfront cash and to contribute $1.3 billion to develop the Marcellus. In return, Reliance gets a 40 percent share of the venture and can send engineers and field workers to learn about the fracking technology. "They're looking at it as a way to gain exposure and expertise," Kupfer says.

Shale gas underlies North America, Europe and possibly China. In a statement to shareholders a few weeks ago, the Reliance chairman made his take on the gas boom plain. "It is likely to overtake both conventional gas as well as liquid fuels as a source of energy within the next decade," Ambani told investors.

A few days later, on June 23, Reliance agreed to buy a 45 percent stake in Pioneer Natural Resources Co.'s acreage in the Eagle Ford shale field in south Texas for $1.15 billion.
Companies that tested fracking technology in Texas and Oklahoma in the 1990s have spent the past five years locking up access to millions of acres in those states and across Appalachia, Louisiana, Arkansas, Great Plains states and western Canada. In 25 years, according to IHS Cambridge Energy Research Associates and Wood Mackenzie, shale and tight-sand formations will account for more than half of U.S. gas production. The supply potential has expanded by as much as 50 percent.

A shift that surprised the government
It has been a surprising shift. In 2005, both the gas industry and the U.S. government, including Congress and the Federal Energy Regulatory Commission, had settled on the idea that the United States would import liquefied natural gas from the Middle East, Russia and Africa. As the American economy expanded, imported LNG would make up for declining gas supplies from the Gulf of Mexico and Canada.

Today, the industry boldly promises the shale gas will fill the gap and create a long-term surplus of gas.
The Marcellus is among the five "big shales" identified as the best bets for production. The Barnett in east Texas, Haynesville in Louisiana, Fayetteville in Arkansas, and Woodford in Oklahoma top those shales. Barclays Capital anticipates that once investments targeting Marcellus gas reach full bloom, it could rapidly surpass production out of Arkansas and Oklahoma by the end of 2012 and compete with the mighty Barnett for kingmaker in onshore gas development by 2020.

The low cost of producing Marcellus gas, its pipeline-ready quality and its proximity to consumers in the Northeast have driven investment. With total production costs around $3.50 to $4 per million British thermal units, according to Barclays Capital, gas companies can make money even if future gas prices languish some.
But if gas prices crater, the boom ends.

Meanwhile, though, it is jobs, jobs and more jobs in Pennsylvania that matter the most.
If gas prices stay in the sweet spot to spur supply and demand, then job creation could be huge, depending on the state's ability to train workers, says Larry Michael, who heads a training program at Pennsylvania College of Technology in Williamsport.
"The optimistic charts are not optimistic enough," Michael says.

The gas rush in southwestern Pennsylvania has claimed a significant slice of Pittsburgh's economy. One in five business expansions is tied to the nearby shale deposits, according to the Pittsburgh Regional Alliance.

From flatboat merchants to steel, oil and coal, Pittsburgh is the embodiment of U.S. industrial grit and natural resource potential. But the slow-moving dilution of the American manufacturing core since the collapse of Steel City has given way to a fresh crop of entrepreneurs and financiers: The gas barons have pushed their way into Pittsburgh's new economy.

The new barons of Pittsburgh
Consol Energy Inc., the coal giant and one of Pittsburgh's corporate icons, said in March that it would pay $3.4 billion for a chunk of Marcellus acreage in its buyout of Richmond, Va.-based Dominion Resources Inc. And in August, former Beatle Paul McCartney will open Consol Energy Center, the future home of the Pittsburgh Penguins.

Back in Williamsport, Jason Fink, vice president of the Williamsport-Lycoming Chamber of Commerce, is the point man for employers. As he drove his SUV from site to site in May, he took a phone call: Does Schlumberger have all the information it needs? Weatherford, a Swiss-based competitor, is setting up shop nearby.

Square-jawed and young, an early-morning bike rider, Fink has spent the past year connecting gas field companies to offices, warehouses and real estate. "It's our proximity to the northeast part of this play," he tells companies, "and the distance between us and Pittsburgh." He also wants to lure back a manufacturing base that dried up in the 1990s. "How we'll position it is this," he explains. "If you use natural gas, be close to where it's at."

Fink stops at the 24-acre Halliburton site, where the first building could be operational in July. On a walk around the site with a ClimateWire reporter, the construction manager who moved east from Texas says his contract for the Marcellus job is for three years. After that, he says, he might stick around.

Perhaps the greatest challenge, Fink acknowledges, is preparing locals to work in the gas industry.
Pennsylvania is the birthplace of U.S. oil drilling, and Fink's father worked for Sun Oil. "These are good-paying jobs, but you got to work it through. It's a long day," he says.
In the Rust Belt, a hard day's work is only a memory to some. "But the gas industry is rooted in 12-hour and 14-hour days for weeks on end," he says. A job fair in May attracted hundreds of men who needed work. Once the companies explained how their industry operates, some stayed to hear more, and some left.

Almost 600,000 people are unemployed in Pennsylvania, and the state struggles to find the economic growth to cover a $1.2 billion budget shortfall. Questions about job growth tied to Marcellus development are at the heart of discussions about recharging the economy.
An industry-sponsored report out of Pennsylvania State University served as ammunition for the gas industry's argument that there will be a lot of jobs and they're here to stay. The report claims that 88,000 jobs directly and loosely tied to the Marcellus -- from drillers to hotel employees -- will have been created in the state by the end of this year, and more than 200,000 jobs will be created by 2020. It estimates about $8 billion in indirect economic stimulus in 2010.
More and more wells are drilled each year in the Marcellus. This year, according to the report, producers expect to drill nearly 1,750 wells, double the number of wells drilled last year. By 2020, gas producers will have drilled roughly 30,000 wells in the four-state gas formation, double the number of wells drilled today in the earliest and most productive shale gas field, the Barnett that surrounds Fort Worth, Texas.

If the drilling rate ramps up at this rate, the Marcellus will produce 13 billion cubic feet a day of gas by 2020, a twenty-sevenfold increase.

Will the prices and the jobs remain high?

But the report rolled out in May has faced withering attacks, primarily because it was paid for by the influential gas drillers' alliance, the Marcellus Shale Coalition, and touted by the Washington-based gas coalition Energy in Depth. The critics contend that the industry tally of the jobs and economic benefits is wildly optimistic and ignores the environmental and social costs. They point out that U.S. Labor Department and state tallies of jobs directly tied to the gas industry are far lower.

Questions remain, says Michael Wood, research director of the Pennsylvania Budget and Policy Center. They include the speed by which the gas industry will replace workers imported from Texas, Oklahoma and Calgary, Alberta, with homegrown laborers and technicians.
The Penn State economic study assumes Marcellus development continues unabated. But that only happens if gas prices remain high enough to support drilling costs. And demand will only grow if gas prices remain competitive with low-cost coal used for power generation.
"When it's gone, the state is left holding the tab, cleaning up the environmental damage," Wood says. If anything, he says, the BP PLC oil spill in the Gulf of Mexico underscores that a costly environmental catastrophe isn't out of the question.
"Even with the best protections, things happen."

* *
Former Colo. senator calls for 'aggressive' lobbying campaign
U.N. Foundation President Tim Wirth is expected to urge natural gas producers today to lobby more aggressively for U.S. public policies that encourage electric utilities to retire old coal-fired power plants and burn cleaner natural gas.

"The coal industry has been fiercely effective with Congress and regulatory authorities in defending its turf, and you have to be as well," Wirth says in remarks prepared for a Colorado Oil and Gas Association meeting in Denver.

The former Democratic senator from Colorado doesn't mince words, admonishing the broader gas industry for failing to make a public policy case for gas.
"So far your industry has mostly run nice, positive, feel-good advertising, rather than conducting the persistent, aggressive campaign that will be needed for this transition," he says. "Fortunately, you have some new ammunition: The shale deposits in coal states like Illinois, Indiana, West Virginia, Ohio and Pennsylvania can change both the economies and the politics of those key states -- and therefore of Washington."

Tension in the energy sector about the extent to which state and federal policies should incentivize utilities to retire coal plants and instead use gas is palpable on a national level. Gas burns cleaner than coal, emitting half the amount of greenhouse gases as well as far less ozone and haze-causing nitrogen oxide.

Yet on the national stage, coal has kept a hold on the politics of energy and climate change. Coal interests have opposed climate bills that would increase the cost of using coal. And lawmakers from states that produce or consume a lot of coal have sought federal funding to incentivize "clean coal" projects that develop carbon capture and storage for coal-fired power generators.
If the state of play in the climate debate has as much to do with job creation and the cost of cutting emissions, Wirth says, why not make that part of the argument?
"After all, it's not that the voters love coal," he says, "it's that they love the jobs and the economic benefits that come with it. And natural gas can do better."

Gas industry still using old tactics
Wirth's U.N. Foundation, the philanthropic arm of the United Nations, works closely with a Washington-based group called the Energy Future Coalition. C. Boyden Gray, a White House counsel in the George H.W. Bush administration, and John Podesta, White House chief of staff under President Clinton, both sit on the group's steering committee, which also includes other major players in the development of U.S. energy and environmental policies.

Wirth told ClimateWire yesterday that the Energy Future Coalition is calling on the gas industry and its cohorts in the electric utility industry to reject adversarial tactics that pit natural gas production against environmental regulations, or that pit gas against wind power.
"They have this new fuel and opportunity, but they're unfortunately largely stuck in the old way of doing business," Wirth said.

Wirth compared today's fight over disclosing chemicals used with unconventional gas drilling with food labeling debates that ended decades ago. The decision by the gas lobby to battle disclosure of chemicals injected into the ground during the hydraulic fracturing process needlessly alienates the public.

"If gas companies don't disclose, they'll get into a fight with the public that will ultimately revolve around their right to operate," he said in the interview.
In Denver, Wirth and the coalition will urge gas producers to throw their weight behind natural gas use in heavy-duty trucks, a plan famously sought by the Texas oil magnate T. Boone Pickens; alternative fuel use, including natural gas, in urban vehicle fleets; and a large-scale transition from old coal-fired plants to gas plants for electricity generation.

For 20 years, the coal industry has lobbied to keep aging power plants open. Gas prices are low, Wirth said, so it's time to start talking about signing long-term supply contracts with utilities. Combined-cycle gas plants run at only about 40 percent of their full capacity, and there is greater spare gas capacity in the Southeast.

Emerging debate over fuel-switching
Coal-fired generation accounts for about 45 percent of U.S. electricity use. Some utilities, including Colorado's largest utility, Xcel Energy Inc., have started a slow-moving shift away from cheap coal to a combination of natural gas, wind and solar power and demand-side efficiency.
Colorado lawmakers and Gov. Bill Ritter (D) worked closely with Xcel earlier this year to craft legislation that enabled a relatively smooth transition away from coal-fired generation.
"It's a great model for the rest of the country," Wirth said. "And the industry ought to be working to make it a usable model."

Fuel-switching to gas is emerging in large part because of tougher U.S. EPA restrictions on air pollutants, state environmental mandates, cautious optimism that natural gas prices will remain competitive with coal, and a sense that Congress at some point plans to mandate cuts in greenhouse gas emissions.

Colorado is a major gas producer out of its Piceance Basin fields west along I-70 between Glenwood Springs and Grand Junction. To get at the tight gas deposits, some of the drilling requires the hydraulic fracturing used in the nation's major shale basins.

Wirth's comments come at an inflection point in the energy debate. Congress and the White House are deciding whether to pursue a climate bill that would put a price tag on carbon dioxide emissions that contribute to global warming. According to a recent Massachusetts Institute of Technology report and other energy policy researchers, a policy that increases the cost of burning coal would directly affect gas.

Gas could go from supplying about 20 percent of U.S. power generation to 40 percent or more by 2040, according to MIT. Nearly all of that would come at the expense of coal.
Copyright 2010 E&E Publishing. All Rights Reserved.
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Horizontal Drilling In Permian Basin

Horizontal drilling and presumably "geosteering" is apparently not limited to the shale gas plays going on around the United States. Whatever the case, it beats drilling in 5,000 feet of water. My guess is there is a lot of oil to be "wrung out" of various "tite" formations in places like the Permian Basin.
Peter

FieldPoint Partners in New Mexico HZ Drilling Project
FieldPoint Petroleum Corp. 6/21/2010
URL: http://www.rigzone.com/news/article.asp?a_id=94951

FieldPoint has signed an operating agreement with Cimarex to drill two wells that will target the Bone Spring formation in section 15 of the East Lusk Federal field in Lea County, New Mexico. The proposals include the possibility of drilling an additional well in the same section, depending upon the success of the first two wells. The total cost for each well is expected to be approximately $4,000,000.

The wells are proposed to be drilled vertically to a depth of approximately 9,500 feet to the Bone Spring formation and laterally within the formation to the bottom hole location. Total measured depth of the wells is expected to be approximately 14,000 plus feet. The time that drilling will begin is at the discretion of Cimarex, but it is anticipated that drilling will begin within approximately 90 to 120 days.

FieldPoint is aware of at least one horizontal well within approximately 5-10 miles of the subject area that had production tests ranging from 400 to 800 barrels of oil per day. This is not necessarily an indication of what the proposed wells should be expected to produce.

FieldPoint’s President and CEO, Ray Reaves stated, "There are two highly important aspects of this drilling program. First, we believe that when it comes down to the well completion process, Cimarex Energy is one of the best, if not the very best, in the industry at completing wells in the Bone Spring formation. This is very important for well success and optimal well production. And second, if successful, we believe that this drilling program could serve to significantly increase our daily production and reserve base. Considering those two points together makes this quite possibly our most important project to date."

FieldPoint will own a 43.75% working interest, Cimarex will own a 37.5% working interest, and other partners will own the remaining 18.75% working interest in the two proposed wells.

Europe Has Much To Learn About Shale (Unconventional) Gas

Before anyone gets too excited about the potential for shale gas or what some term "unconventional" gas potential in Europe, it must be recognized that there are political and environmental issues in Europe that are greatly different from those existing in the United States.

However, with the worldwide attention the problems with deepwater oil production in the Gulf of Mexico is receiving, the potential for finding and producing clean-burning natural gas, onshore, is drawing increasingly greater attention. The demand is there. The technology to find and produce this gas exists. It is the other problems which need to be overcome. Many countries in Europe could use an economic boost right now.
Peter

Does Europe Have Unconventional Gas?

(source)

It provides about half of the U.S. domestic natural gas production. And the U.S. product has already begun to shake up the market for gas in Europe. But the production of unconventional gas, which is usually tightly trapped in rocks and hard to extract, doesn’t seem likely to have a bright immediate future in Europe.

From a geological viewpoint, you could extract unconventional gas in Europe, according to Don Gautier, from the U.S. Geological Service. But that’s not the only thing that matters. Unconventional gas fields, particularly those tapping so-called shale gas, are very large and require the development of hundreds of wells.

Bloomberg

Chesapeake Energy drills on the Barnett Shale.

A field in northern Texas called Barnett Shale has about 8,000 wells covering an area roughly comparable to Belgium, the Netherlands and Luxembourg combined, Mr. Gautier says. “You can’t look at these wells as one well at a time, you have to look at thousands as a development plan,” says Mr. Gautier.

That is almost impossible for Europe, given high population density, regulatory difficulties of getting permits to drill over large areas that sometimes cross borders, and likely opposition from environmentalists and affected residents.

A new technology of digging horizontal wells — drilling vertically drill and then pushing out parallel to the ground — might offer some leeway.

Of course, all of this begs the main question: How much unconventional gas does Europe have and where are the main concentrations?

The country which promises most is Poland, where the government has granted concessions for research. However, the first exploration well is just being started, and the first estimates of how much gas is really there won’t come for four to five years, with production in 10 to 15 years, according to Ewa Zalewska, director of the department of geology and geological concessions at the Polish environment ministry.

“Shale gas is the gold rush of the 21st century,” she says. However, “it is too early to answer all the questions.”

Update: Perhaps by the time the first gas emerges, Bronislaw Komorowski, Poland’s likely next president, will have figured out that you don’t dig unconventional gas out of the ground like brown coal.

Shale Gas Potential In Eastern U.S. Growing

As all geologists know, organic-rich "shale" rock is a common rock type found nearly everywhere there are sedimentary rocks. This raises the question, can gas be produced from any, all, or some of these shales, in addition to the now well known Barnett, Haynesville and Marcellus Shales? The answer, at least in the northeastern United States seems to be a tentative yes. If certain environmental issues can be resolved, the future for increased drilling and production in these areas looks positive.

The energy the U.S. needs to heat our homes, generate our electricity, and power our vehicles must come from somewhere. Windmills and solar panels are gravely lacking in capacity for a host of reasons. Now with terrible problems caused by one notorious leaking offshore oil well and an outright ban on offshore drilling in deep water, the need for clean-burning natural gas is greater than ever.
Peter

Drillers testing other shale formations above and below the Marcellus strata

By Michael Bradwell, Business editor, mbradwell@observer-reporter.com

This article has been read 2210 times. (source)

Pennsylvania's geology has the potential of delivering natural gas from a variety of shale formations beyond the Marcellus strata, a geologist said last week.

But Dr. Terry Engelder, professor of geosciences at Penn State, who has spent 30 years studying the Marcellus, said the "super giant" shale formation is in no danger of losing its position as one of the world's largest gas fields.

"It's not just the Marcellus," Engelder acknowledged when asked about recent announcements by two drilling companies working in Pennsylvania that test wells have been completed in two other shale formations which lie above and below the Marcellus strata.

Range Resources spokesman Matt Pitzarella said the company has drilled some test wells into the "Rhinestreet" formation, which is part of the Upper Devonian shale that sits about 1,000 feet above the Marcellus strata. The company has also tested the depths below the Marcellus where the Utica formation lies.

"The tests were encouraging enought that they could be stand-alone shale plays in their own right," he said.

In Northeastern Pennsylvania, Cabot Oil & Gas Corp. told analysts last year it had drilled a successful horizontal well through the Purcell Limestone sandwiched between two layers of its Marcellus acreage.

Engelder noted that all of the shale formations can yield gas. He added that while reports of test wells in the other strata are just now emerging in Pennsylvania, some of them have been drilled in other parts of the country for some time.

He said Pittsburgh-based EQT has been drilling in Upper Devonian shale in Kentucky's Big Sandy play for some time.

The emergence of the other shale formations in Pennsylvania are so new, that no one yet knows their impact on the gas exploration industry or their economic impact.

"It's just really early now," Pitzarella said. "No one's really given much detail in terms of production data."

When the authors of a Penn State study detailing the projected economic impacts of the Marcellus Shale gas play released an update two weeks ago, they noted that their report did not consider development of other shale formations that exist above and beneath the Marcellus.

There are also some regulatory factors that could affect the future extraction of gas from shale.

Drillers face the incresed scrutiny from the Environmental Protection Agency, which is studying the effects of water pollution used in hydraulic fracturing used to release the gas from the tight shale formations. There are also several legislative proposals in Harrisburg to enact a severance tax on gas extracted from the Marcellus shale.

Both Engelder and Pitzarella said the other shale formations could be places that drillers could return to after the Marcellus acreage is more fully developed.

Despite the promise of gas yields from the other formations, Pitzarella said Range still views the Marcellus as its primary goal.

"The Marcellus is the best of the best" formations, he said.

Alberta Claims 1.5 TRILLION Barrels Of Oil

1.5 TRILLION barrels of oil is an eye-opening figure. Of course much of this is "heavy" oil, thick and viscous, and trapped in "tar sands" and carbonate rocks, waiting on "new technology" to be economically feasible. However, when compared with the now obvious perils of deepwater offshore drilling, it is looking better all the time.
Peter

Alberta sitting on nearly 1.5 trillion barrels, says ERCB

Province hikes bitumen estimate

By Shaun Polczer, Calgary HeraldJune 4, 2010 (Source)

CALGARY - A re-evaluation of emerging oilsands areas and advances in production technology have pushed Alberta’s bitumen resources toward 1.5 trillion barrels in 2009, according to a report by the Energy Resources Conservation Board.

According to the ERCB’s annual reserve report, which will be officially released today, the increase was driven by a re-evaluation of the largely untapped Grosmont deposit, which is now said to contain 406 billion barrels in the ground waiting for the right technology to extract it.

In situ oilsands production grew 14 per cent last year, along with a 14 per cent increase in mining output due in large part to the startup of Canadian Natural Resources’ Horizon mine, the report notes. But in situ is expected to be the strongest driver of future activity, said Carol Crowfoot, the board’s chief economist and report co-author.

“Particularly on the in situ side, we’re forecasting quite a growth rate for the next 10 years, due to the SAGD (steam assisted gravity drainage),” she said.

In situ oilsands production now accounts for about half of the 1.49 million barrels of bitumen produced per day, a figure that is expected to double to 3.2 million barrels per day by the end of the decade, the report said.

The Grosmont is a lesser-known fourth oilsands area — after Athabasca, Peace River and Cold Lake — that is unique because the bitumen is contained in limestone instead of sand. Producers have known about the Grosmont carbonates for decades, but lacked practical ways of getting it out of the ground.

Although the resource potential rose nearly 30 per cent in the first evaluation of the Grosmont reserves since 1990, no commercial reserves were assigned due to the lack of production.

That could change later this year when in situ players such as Laricina Energy begin constructing pilot projects aimed at testing new production technologies, including the application of solvents, to the previously unattainable bitumen.

The company is moving ahead with a commercial pilot at Saleski and hopes to be producing oil by the end of the year, Laricina president Glen Schmidt told the Herald on Friday.

He said he wasn’t aware of the revised resource numbers, but confirmed his company worked with the ERCB to help prepare the estimates.

“It is very exciting to see the ERCB start talking about the Grosmont,” he said.

“It is clearly the second-largest in situ play, by far. We like to give ourselves some credit for leading the charge.”

Companies such as Unocal attempted pilot projects in the 1970s and ’80s to no avail. In 2006, Sure Northern, a subsidiary of Royal Dutch Shell, spent more than

$500 million to buy Grosmont rights adjacent to 75,000 hectares controlled by Husky Energy.

Unlike a conventional in situ development, Schmidt said carbonates require less steam at lower temperature and pressure to drain the oil. Laricina is hoping that will in turn translate into lower operating costs.

“The better Grosmont projects will do every bit as good as the McMurray,” he said.

In other highlights of the report, the more commonly known McMurray-Wabiskaw deposit — characterized by truck and shovel mining — declined 0.4 per cent to 959 million barrels. Cold Lake was also re-evaluated for the first time since 1999, resulting in a 20 per cent drop in available resources to

33.8 billion barrels. The region is host to Alberta’s largest and oldest in situ development, operated by Imperial Oil.

The report notes Alberta has produced about seven billion barrels of raw bitumen since oilsands production first began in 1967, or less than half of one per cent of the available resource, compared with 16 billion barrels of conventional crude oil since 1914.

While oilsands production continues to rise, conventional oil declined almost nine per cent in 2009 to 461,300 barrels per day. About

3.5 billion barrels of conventional oil remain to be developed, although the report notes that new technology is starting to unlock “tight oil” in places such as the Pembina Cardium play.

Other big revisions were made to the province’s inventory of coal bed methane, which increased

90 per cent. Gas from coal accounted for seven per cent of Alberta’s total gas production in 2009, a figure that is expected to rise to

20 per cent by 2019, the report said.

Shale gas was expanded in the 2009 report, but no reserves were assigned to what could be a major new supply source in Alberta. As part of the Alberta government’s royalty holiday on new shale gas wells, the province last week initiated a study by the Alberta Geological Survey to determine the exact size and location of a resource that could top

850 trillion cubic feet.

“At the moment we don’t actually see enough data to do a calculation,” said Kevin Parks, who oversees the AGS. “But you have to start somewhere. We’re ramping up to generate our own reasonable numbers, what’s out there are kind of bold estimates.”

spolczer@theherald.canwest.com