Marcellus Shale Gas Play: Part 7

Natural gas is a preferred energy source with a wide variety of uses. The future looks good for the development of the Marcellus Shale in the northeastern United States.
Peter


Economic Development
The size of the economic impacts from Marcellus
depend critically on whether the businesses exist
within the Pennsylvania communities to support
ancillary economic activity created by natural gas
exploration and development. The more spending
that occurs outside the community, the less economic
benefit will accrue locally since those dollars will
simply leave the community rather than recirculating
among local businesses.

Similarly, to the extent
nonresidents hold new jobs, the lower the benefit to
the community. The twofold economic development
challenge is thus:

1. Finding ways to help local businesses and workers
compete for the new business opportunities
arising from natural gas.

2. Finding ways to encourage businesses, workers,
and royalty owners to spend their new dollars
locally rather than out of town. New business
start-up and technical assistance should target
business opportunities related to natural gas, and
workforce development training should focus on
the new specialized jobs that will be created (such
as land men who service the wells).

General local business and community development
programs focused on helping local businesses
or downtowns be competitive could similarly help
Pennsylvania communities better compete for the
new spending resulting from the natural gas revenues.

Environmental Impacts
The construction, activity, and existence of natural
gas wells in the community and industry may cause
significant environmental changes to the areas.
These issues should be considered when planning
and enforcing local action to accommodate the
developing gas industry. Possible environmental
concerns that could arise from drilling activity
include:

• Aesthetics and recreation—heightened noise and
the effects of drilling may affect the aesthetics and
recreational value of a resource for both nonconsumptive
(e.g., hiking, birding) and consumptive
(e.g., fishing, hunting) recreational use. This may
affect communities that are promoting natural resource-
based tourism.

• Habitat fragmentation—well sites and associated
infrastructure may fragment Pennsylvania forests.
Fragmentation will decrease habitat quality for
many wildlife species that are dependent on
deep forest habitat; it is also associated with an
increased spread of nonnative and invasive plants,
causing further habitat degradation for native
plants and animals.

• Water impacts—water consumption and
wastewater disposal may affect aquatic resources
both locally and within the larger watershed.

• Timber resources—access roads and pipelines
may cause damage to timber stands, resulting
in loss of forestry income, appraisal, and sale of
timber.

• Soil compaction and long-term site fertility—
well sites may compact the soil, affecting the
long-term health and fertility of the area.

Forestry concerns that show effects on forests,
wildlife, ecology, and local natural balance need to
be addressed by DEP, Conservation Districts, and
other associated agencies through regulation and
enforcement.

After drilling has occurred in an area,
proper site restoration is a necessity. The best ways
to restore sites depend on the location and natural
surroundings, making it necessary for officials to
gather information on the pros and cons of different
methods of site restoration. The type and quantity of
vegetation replanted will make a large impact on the
natural ecology and balance.

What Local Officials Can Do
Local government officials concerned about the
impact of Marcellus shale development on their
community need to greatly expand and upgrade their
comprehensive community planning efforts. The fast
pace of gas drilling—and all its related activities—
means that planning must be done on a continuous,
daily basis. Every new well that is drilled causes small
changes in the community. Monthly meetings of the
planning commission are not sufficient to keep up
with these changes.

We also need a new way to think
about how communities plan for gas exploration.
Comprehensive community planning is more
than just the established “comprehensive plan.” A
comprehensive plan, as permitted in the Municipalities
Planning Code, serves as a useful tool for
municipal management by providing a broad, general
framework for common development issues projected
ten to twenty years into the future. This would be
acceptable if things did not change very quickly, but
that is not the case with gas drilling. Few comprehensive
plans were prepared with major natural gas
development in mind, so they are not adequately
prepared to address the potential impacts of the
Marcellus shale formation.

A more comprehensive view must take into
account all the important issues and how they interrelate
to one another. This view involves more
than just land use. Gas drilling brings many new
factors to communities that have not been experienced
previously in many areas of Pennsylvania.

Exploration of the Marcellus shale will generate
large amounts of money from the leasing of land,
construction, trucking, commerce, and housing development.
Some residents will have more money to
spend, but will they spend it in the community and
region? Will they take that capital somewhere else
if there are no places for them to spend their money
locally?

New opportunities for business development
should increase with gas drilling, which will require
infrastructure investments in roads, water, and
sewer facilities. Housing needs for gas and related
workers will increase. Will their needs be met with a
temporary variety of housing or is the plan to build
long-term residential areas that will be attractive to
gas industry workers and their families?
There will also be new service, public safety, and other expenses
imposed on local governments that may not be
consistent with tax revenues derived from natural gas
drilling or leasing activities.

To address these complex issues, the comprehensive
planning undertaken by municipalities and
counties should have four components:

1. Taxation and municipal finance: a component to
examine tax revenues and expenditures related
to gas exploration and project future financial
resources needed for municipal and county operations,
and school districts in the region.

2. Public investment: for examining and developing
a plan on how municipalities, counties, and
school districts can use their assets and facilities
to generate revenues from drilling, transmission,
water, and wastewater activities related to gas
exploration.

3. Comprehensive land use: a plan to incorporate
natural gas development as a new and distinctive
land use and provide for economic development,
new commercial and residential activity, and
improvements to the local transportation system.

4. Municipal management: a component of planning
to provide personnel that will keep track of
mining activities, carry out inspections, anticipate
production changes, and encourage workforce
development to supply skilled workers. Since gas
exploration is regional in scope, the management
process needs to be carried out jointly by affected
municipalities, counties, and school districts, as
well as the private sector.

The vast economic and social impacts related
to exploration of the Marcellus shale deposit call
for new thinking. Sound, innovative, continuous
comprehensive planning is needed for Pennsylvania
municipalities to maximize the long-term benefits
from Marcellus shale development while minimizing
potential negative impacts.

The experience of some local governments
with the gas companies has been very positive, and
many companies have shown a desire to conduct
themselves appropriately within the community.
The companies are investing millions of dollars into
drilling and pipeline construction with plans to remain
in the drilling areas for years. The length of these
relationships demands a certain level of cooperation
between parties, and jeopardizing the ability of the
companies to operate would be detrimental to a
productive and beneficial relationship. It is important
for municipal officials to ensure good communication
and collaboration, with a method for quickly and
easily addressing problems if they occur.

Areas to Consider
Road Bonding
The Commonwealth can prohibit the use of and
impose size or weight restrictions on highways and
bridges under its jurisdiction in accordance with
Department of Transportation regulations. Trucks
considered heavy haulers must pay for the road
damages that they create; thus, bonding is necessary.

No vehicles in excess of the size or weight
limitations specified are allowed on Pennsylvania
highways unless the department or local authority
grants a waiver. Local authorities that post size or
weight restrictions, either in accordance with the
size, weight, and load chapter or that differ from that
chapter, must comply with the department regulations.
Posting and bonding municipal roads is
authorized in the state vehicle code.

The PennDOT
Bureau of Maintenance and Operations is in charge
of municipal road posting and bonding information.
You can also find codes for the authorization to use
bridges posted owing to condition of the bridge and
to use highways posted because of traffic conditions.

Some of the key provisions of road bonding include:

• Posting: a road must be posted with a weight
limit before a bond can be required of a hauler.
The steps taken to establish a weight limit include
(1) completing an engineering and traffic study
that supports the need for a weight restriction;
(2) passing an ordinance identifying the road
segment and setting the weight restriction; (3)
advertising the posting two times in a general
circulation newspaper at least five days prior
to actual posting; (4) contacting known heavy
haulers who are using the road about executing a
maintenance agreement; and (5) erecting standard
signs showing the weight limit.

• Excess maintenance agreement: after posting a
road, the local government enters into an excess
maintenance agreement with each hauler who will
be operating overweight vehicles on that road.
This agreement allows the local government to
shift responsibility for repairing road damages
on a pro rata basis to the haulers who damage the
road. Note that haulers are only responsible for
damage they cause in excess of normal wear and
tear on the road.

• Permits: driving an overweight vehicle on posted
roads generally requires a permit. The type of
permit depends on the number of vehicles, the
number of posted roads used, and the amount of
use. Permits are issued only after an excess maintenance
agreement has been signed.

• Inspections and monitoring: before overweight
hauling begins, the local government inspects the
road to determine its condition. The hauler who
pays for this service has the right to be present.
After hauling begins, the local government is
responsible for monitoring the condition of the
road and notifying the hauler of any necessary
repairs. If the local government is responsible for
making the repairs under the excess maintenance
agreement, the local government bills the hauler
for the costs.

• Security (bonding): haulers generally must provide
security to ensure payment for any road repairs for
which they are responsible under the agreement.
This security is usually a performance bond, a
standby letter of credit, or a certified bank check.
The regulations specify the amount of security that
may be required for unpaved roads ($6,000 per
linear mile) and paved roads ($12,500 per linear
mile) in cases wherein the hauler agrees not to
downgrade the road. When the local government
and the hauler agree that the road type can be
downgraded during hauling and restored after
hauling ceases, the amount of security required is
$50,000 per linear mile. If the hauler uses several
roads for only a short time or makes relatively few
trips, the rates per mile may be replaced with a flat
rate of $10,000. By following these rules, local
officials can assure taxpayers that they will not
have to pay for road repairs caused by overweight
vehicles.

Local governments considering road bonding or
posting weight limits on bridges should carefully
consider potential impacts on other road users since
they may unintentionally affect others. Bridge weight
limits, for example, could make it difficult for milk
trucks or feed trucks to reach farms, hurting those
businesses.

For more about road bonding, see PennDot
publication 221: Posting and Bonding Procedures for
Municipal Highways, which may be purchased from
the PennDOT store. ftp://ftp.dot.state.pa.us/public/
PubsForms/Publications/PUB%2012.pdf
Zoning and Subdivision and Land Development
Ordinances

At the time of the writing of this publication,
Pennsylvania’s Oil and Gas Act and the Municipalities
Planning Code restrict the ability of local
governments to zone or permit drilling, so zoning
has limited usefulness to influence where and when
drilling occurs. Yet zoning and subdivision and land
development ordinances remain a vitally important
tool for influencing the potential secondary effects
of natural gas activity, such as from possible new
residents, housing, supporting businesses, patterns
of development, and the other spinoff impacts. Much
of the economic opportunity (and challenge) from
Marcellus will be these secondary effects, which can
be influenced and regulated through zoning and other
land-use tools.

Capital Budgeting
Capital budgeting is a powerful but often underutilized
tool of Pennsylvania local governments. By
planning future expenditure needs for infrastructure
and other capital expenses, such as road maintenance
and repair, trucks, and equipment, capital budgets
allow the local government to ensure it has the funds
in hand to pay for upcoming needs. This includes a
schedule of setting funds aside for future needs and
anticipating spending for future needs in current
budget decisions.

Local Natural Gas Task Force
Given the localized nature of many of these impacts,
a local, comprehensive, and proactive approach can
help ensure that a wide range of the community’s
interests are represented—and importantly—
taken into account when decisions are made. One
important way to meet this challenge is to create a
local task force or a similar organized effort to guide
community discussions, information gathering, and
decision making. Members should reflect the broad
community, including businesses, the chamber of
commerce, nonprofits, schools, local government,
and citizens, among others. Such a task force can
ensure that regular communication occurs among
local governments, the business sector, real estate,
workforce development, academics, service
providers, and citizens, and that the community is
able to be proactive about the opportunities.

As of this publication, several counties in Pennsylvania
have already formed local task forces to
address gas exploration and development issues in
their communities. Several counties in Texas helped
pioneer this approach to responding to the natural gas
opportunities and challenges and have found it useful.
For a more in-depth discussion of ways to build a
successful local strategy, see the Penn State publication
“Creating and Fostering a Local Task Force”
available from http://www.naturalgas.psu.edu/.

Leasing Municipal Land
Many Pennsylvania local governments themselves
will have the opportunity to lease their own land, such
as parks, open space, reservoirs, and other municipal
property, and may receive substantial royalty
income in the future. If a local government has this
opportunity, it is vital to take care during the leasing
process.

As with landowners, Penn State Cooperative
Extension’s Marcellus Education Team recommends
talking with several companies and with an attorney
familiar with leasing issues because the typical
contract offered by the companies may not adequately
protect or represent municipal interests and likely
will require some amendments written by an attorney.

Those issues may include the ability to jointly approve
the location of access roads, drilling pad locations, and
how land is cleared (and disposal of the trees).
Site restoration is another postdrilling issue that
local officials should try to address. Restoration is
a requirement for all drilling sites and is regulated
by DEP. However, it is important for local officials
to talk with gas companies about the specifications
of each site’s restoration to ensure that the recreated
habitat is appropriate for the area. Site restoration
should be conducted in accordance to the surrounding
ecology of the well site so that local wildlife is
provided the proper vegetation species and coverage
for their environment.

It is also critical for local officials to carefully
consider how leasing and royalty income will be used.
It may be tempting to use the funds to cover current
operating expenses, reducing taxes in the short run.
But the dollars result from the sale of a capital asset,
so they should be used for capital expenditures that
benefit more than just current residents; the gas being
sold also is owned by future generations of residents,
who also should benefit from the sale. Good fiscal
management suggests viewing these dollars as a
way to invest in the future of the jurisdiction, such as
building infrastructure or purchasing land and other
assets that benefit current and future residents; in
other words, use the windfall gains to improve the
community for the long run, not just for the period
when the gas is flowing.

Looking Ahead
Marcellus shale is providing many Pennsylvania
communities a significant opportunity for strong
economic development and improvements in the
quality of life. Along with these strong opportunities,
major challenges will need to be addressed directly.
The role of local officials should be to help balance
these challenges and benefits to ensure the focus is
not just short-term gain. They must constantly keep
in mind how to use this opportunity to improve
the community for the long run so that when the
Marcellus play is over, the community has improved
and is poised for the future. ■

Marcellus Shale Gas Play Swamps State Agencies

Ah, if the exploration for and production of oil and gas was only as simple as the science and engineering. Of course now we have politics. I suppose there has always been politics, but have politics and environmental regulations ever been so restrictive? It is not my intent to discuss politics here, but the following article provides some insight into some of the issues that must be dealt with before exploration and production can even begin.
Peter


March 10, 2009
New York understaffed to handle gas rush
By Tom Wilber
twilber@gannett.com (source : The Ithaca Journal)

The debate over natural gas production in the Central New York region is often couched in terms of economy versus ecology. But many advocates and officials believe one doesn't have to be sacrificed for the other.

There is a catch, of course, and it has everything to do with money.
In order to capitalize on the gas-rich Marcellus Shale formation, while minimizing environmental risks, there must be sufficient manpower to draft and enforce regulations.
On that, there is little disagreement.

In Pennsylvania, the Department of Environmental Protection is creating 37 new positions - despite a statewide hiring freeze - to oversee Marcellus production. The positions will be added to Pennsylvania's Office of Mineral Resources Management, which oversees nearly 600 employees who handle many issues in addition to natural gas production.

Officials in New York, however, have few answers as to how 19 employees in the Bureau of Oil & Gas Regulation - part of the state's Department of Environmental Conservation - will be able to handle a rush of permits and intensive drilling activity on this side of the border.
"Clearly, we are not staffed to do the job," said Assemblywoman Donna A. Lupardo, D-Endwell.

As a member of the Assembly's Environmental Conservation Committee, Lupardo has been closely following the heated debate over gas drilling's ecological consequences and its economic opportunity.
While she champions environmental causes, she is quick to acknowledge the importance of the economic boost the gas rush promises for the Southern Tier.
"You can't have a conversation about this topic without talking about both of these things," she said.

As of now, there are no provisions in the proposed New York budget to add to the state's Bureau of Oil & Gas Regulation. But adjusting for the gas rush has to be addressed, Lupardo said, and she and other lawmakers are "waiting to hear from the governor's office on what direction to take."

Lindsay Wickham, a spokesman of the New York State Farm Bureau, is scheduled to travel to Albany early this week to lobby lawmakers to address issues related to the gas rush.
"We know they (New York oil and gas regulators) need more staff," he said. "That's been an ongoing issue for years."

Jeffrey Gordon, a spokesman for New York State's Division of Budget, said Friday the state is determining the need for more staff and how to pay for it as it assesses the environmental impact from drilling.
For now, permit applications in New York are effectively on hold while companies wait for the state to update its drilling regulations, expected to be completed later this year.
"Both of those processes are ongoing and will be resolved as we get more information," he said.
Not everybody feels the urgency to staff up.

Dan Fitzsimmons, who heads a group of about 400 residents owning about 15,000 acres in the towns of Binghamton and Conklin, is afraid the regulatory overhaul delaying Marcellus production in New York will stifle interest over the long run.
"Pennsylvania is doing it right," he said. "They have the industry, and now they are hiring the people. Let's get the industry here first."

Pennsylvania's natural gas industry is, in fact, booming, with a record 7,924 permits issued and nearly 4,200 new wells drilled in the past year, according to information from the DEP. Agency officials expect to process and oversee 40,000 new drilling permits during the next three years.

By comparison, about 2,000 permits were issued in the year 2000.
Like New York, Pennsylvania faces a budget crisis and hiring freeze. But the DEP is creating 37 new positions and opening up a new office in Williamsport to oversee the gas rush in the northeast and north central regions.

The positions will include geologists, environmental engineers, oil and gas inspectors, and water quality experts, said Teresa Candori, press secretary for the DEP.
"This has the potential to be an enormous economic development," she said. "The comparison is to the gold rush. We want to make sure we can take advantage of the economic opportunity while protecting our water resources."

To pay for the staff increases, Pennsylvania has increased permit fees for drilling.
The New York State Farm Bureau - whose members have a large stake in the issues economically and environmentally - supports a similar approach for New York, Wickham said.
Lupardo said lawmakers and administrators are considering a fee increase as a way to pay for oversight, although no formal proposal has been publicly brought to the table.
Without more regulators, permit applications and review could become quickly backlogged, which would in turn discourage development, according to some industry watchers.
Could a logjam and pressure from industry make it too convenient for officials to rubber-stamp applications to keep up with an overwhelming workload?
Lupardo doubts it.

"I would be surprised if this is fast-tracked without environmental oversight," she said. "There are way too many people looking at this."
Wickham wasn't sure.
"There is no question the gas industry is a very powerful lobby," he said.


Addendum: An interesting comment from a reader....

urn4580 wrote:
This is but one of thousands of examples why government can offer nothing but excuses.Get ready for when 'the messiah' socializes healthcare in the US.Your heart attack will have to wait six months because "clearly we are understaffed to do the job..."3/10/2009 8:09:19 AM

Good News In Bleak Times

This is good news for producers in the Haynesville Shale Play in NW Louisiana and East Texas. It is good to hear someone is spending and investing.
Peter


Friday, February 27, 2009, 10:08am CST
Regency Energy lines up financing for Haynesville expansion
Dallas Business Journal
Natural gas pipeline company Regency Energy Partners has entered into a joint venture to finance the construction of Regency’s Haynesville Shale pipeline project, a pipeline expansion initiative that will transport gas out of the gas-rich Haynesville Shale in Northern Louisiana.
GE Energy Financial Services, and Alinda Capital Partners LLC are financing the deal in a joint venture arrangement with Regency.

As part of the joint venture, Regency (Nasdaq: RGNC) brings its $400 million Regency Intrastate Gas System to the table, while GE Energy Financial Services and Alinda Capital Partners LLC have agreed to contribute $126.5 million and $526.5 million, respectively, in cash towards the venture in exchange for a 12 percent and 50 percent interest in the general partnership established with Regency.

Regency will receive a cash payment covering the entire cost of the expansion project. The cash payment also provides Regency with a level of financing that enables the expansion project to move forward, while allowing Regency to continue to finance its current distribution levels.
Thus far, Regency says shippers wanting to utilize the pipeline’s capacity have already committed to using up to 84 percent of the pipeline’s capacity. The expansion is projected to double Regency’s pipeline in North Louisiana. The project should be in service by the end of this year.
The joint-venture between the companies is expected to close by April 30.

Petrohawk: A Very Successful Producer In Shale Gas Plays

Consider the following facts and figures. The numbers of wells drilled, their success rate, and production rates all demonstrate a very skilled operation. The follwing comes from Petrohawk's own website here.
Peter

Petrohawk Provides Fourth Quarter Operational Update (2008)

Final Proved Reserves up 34% Year Over Year at 1.42 Tcfe, 419% of Production Replaced Haynesville Shale Gross Operated Production Reaches 160 Mmcfe/d

HOUSTON, Feb. 3 /PRNewswire-FirstCall/ -- Petrohawk Energy Corporation ("Petrohawk" or the "Company") (NYSE: HK) provided its fourth quarter 2008 operational update, including additional drilling results in the Haynesville Shale and proved reserves for year-end 2008.
During the fourth quarter, Petrohawk drilled 218 wells, with a success rate of 98%. On average, 32 operated rigs and 15 non-operated rigs were running during the quarter, including a combination of spudder rigs and horizontal rigs in both the Haynesville Shale and Fayetteville Shale development programs. For 2008, Petrohawk drilled 739 total wells, also with a success rate of 98%.

Production for the fourth quarter was approximately 361 million cubic feet of natural gas equivalent (Mmcfe/d), a 15% quarter over quarter increase and a 52% increase over fourth quarter 2007, on a pro forma basis. Petrohawk exited the quarter producing approximately 400 Mmcfe/d. Full year 2008 production was approximately 305 Mmcfe/d.
strong>Haynesville Shale
Petrohawk recently placed four additional wells online utilizing production practices consistent with previously reported wells. The initial production rates of these wells averaged 17.7 Mmcfe/d, detailed as follows:

The Mack Hogan #4 (Bossier Parish, Section 3, 16N, 11W) had an initial production rate of 13.4 Mmcfe/d on a 24/64" choke with 6,350# flowing casing pressure.

The Osborne 8 #3H (Bossier Parish, Section 8, 16N, 11W) had an initial production rate of 18.8 Mmcfe/d on a 24/64" choke with 6,800# flowing casing pressure.

The Roos "A" #5 (Bossier Parish, Section 3, 16N, 11W) had an initial production rate of 15.1 Mmcfe/d on a 24/64" choke with 6,100# flowing casing pressure.

The Griffith 11 #1 (DeSoto Parish, Section 11, 13N, 14W) had an initial production rate of 23.3 Mmcfe/d on a 28/64" choke with 7,550# flowing casing pressure. This well is a significant step-out to the southwest from existing completions.

Two Haynesville Shale completions, the Sample 4 #1 and the R.E. Smith Jr. 32 #1, experienced mechanical problems that resulted in lower than expected initial production rates. On the Sample 4 #1, a valve malfunctioned following completion, causing casing damage in the lateral portion of the well. The Company elected to produce the well on a 12/64" choke as a precaution against further wellbore damage. This well had an initial production rate of 5.4 Mmcfe/d with 7,020# flowing casing pressure. The R.E. Smith Jr. 32 #1 screened out halfway through completion due to the inadvertent firing of a perforating gun in the curve of the lateral. With only six stages of fracture stimulation, this well had an initial production rate of 11.1 Mmcfe/d on a 20/64" choke with 5,900# flowing casing pressure.

The Company is currently producing approximately 160 Mmcfe/d gross from the Haynesville Shale with 16 operated wells on production. Eleven operated wells have been on production 30 days or more, averaging 15.2 Mmcfe/d over their first 30 days of production. Eight operated wells have been on production 60 days or more, averaging 13.2 Mmcfe/d over their first 60 days of production. The four wells on production greater than 90 days have averaged 8.8 Mmcfe/d over their first 90 days of production. All operated wells to date have been produced utilizing similar production practices. During 2009, Petrohawk will conduct a pilot program on certain wells whereby production practices will be altered to restrict production by utilizing smaller choke sizes. The Company will monitor this subset of wells for effects on decline rate and mechanical operation.

Petrohawk's current drilling and completion methodology focuses on completing wells with longer laterals and maximizing the number of frac stages, spaced approximately 325 feet apart. The objective of this technique is to minimize the total number of wells required to effectively drain the reservoir, resulting in lower overall development costs. The Company is currently targeting lateral lengths between 4,300' and 4,600' with up to 15 frac stages. Petrohawk's first four completions averaged 3,339' in lateral length with 10 frac stages while the last twelve completions have averaged 3,958' in lateral length and 12 stages (with the exception of the R.E. Smith Jr 32 #3, which had down hole mechanical issues and only six frac stages).

During 2008, the Company utilized a "pre-drill" program whereby smaller, "spudder" rigs drilled the vertical portion of the wellbore in advance of horizontal rigs moving in to drill the lateral. At year end 2008, Petrohawk had eleven operated horizontal rigs running in the Haynesville Shale. The Company expects spud-to-first sales to average approximately 75 days during 2009, assuming longer laterals are drilled.

Petrohawk has budgeted $690 million for Haynesville Shale drilling in 2009. Seventy-five to eighty gross operated wells are budgeted, with approximately 6 wells expected to be completed per month. The Company expects to operate an average of 12 rigs in the play in 2009 with an emphasis on holding operated acreage.

Eagle Ford Shale
A second well in Petrohawk's Eagle Ford Shale discovery in South Texas, formally known as Hawkville Field, was completed in mid-January. The Dora Martin #1H, located approximately 14 miles west of the Company's first Eagle Ford Shale well, tested at a rate of 8.3 Mmcfe/d on a 22/64" choke with 4,610# flowing casing pressure. The well was drilled to a true vertical depth of approximately 11,000' and had a lateral length of 4,300' with 12 stages of fracture stimulation. The Company has also reached total depth on its third well, the Donnell #1H. Completion is scheduled for mid-February. Petrohawk is currently running one rig in the play with drilling and completion expected to average 50 days.

Fayetteville Shale
During the fourth quarter, Petrohawk drilled 44 operated and 74 non-operated wells in the Fayetteville Shale. Of 143 horizontal wells drilled during 2008, 113 had state test data available at December 31, 12 were waiting on state tests to be performed, and 18 were waiting on completion due to the delayed in-operation date of the Boardwalk pipeline. Current gross operated production in the Fayetteville Shale reached approximately 145 Mmcfe/d as of December 31, 2008.

Throughout 2008, the Company experienced significant operational improvements in the results of its completions, primarily as a result of drilling longer laterals with cemented liners. This supported by the following data comparing first quarter 2008 and fourth quarter 2008 techniques and results as follows:
Percentage of cemented liners increased from 4% in the first quarter to 100% in the fourth quarter.
Average lateral length increased from 2,286' in the first quarter to 2,655' in the fourth quarter, a 16% increase.
Average number of frac stages increased from 6.0 in the first quarter to 7.6 in the fourth quarter, a 27% increase.
Average state initial production test rate increased from 1.919 Mmcfe/d in the first quarter to 2.456 in Mmcfe/d in the fourth quarter, a 28% increase.
Percentage of completions that tested greater than 3 Mmcfe/d increased from 12% in the first quarter to 54% in the fourth quarter, with 2 wells in the second half of 2008 testing greater than 5 Mmcfe/d.

Price realizations and overall production from the Fayetteville Shale were impacted in the fourth quarter by a delay in the completion of a new third-party pipeline, which increased demand on other transportation lines servicing the play, causing wider than normal basis differentials. Production was either sold at lower than normal prices or shut in at various times during the quarter as a result of these market conditions. The new pipeline, constructed by Boardwalk Pipeline Partners LP, is currently in service and the Company currently expects no additional transportation constraints on its production in the area.

New Gathering Subsidiary - Hawk Field Services, LLC
During 2008, Petrohawk initiated construction of its own gathering systems servicing the Company's as well as third party production in the Fayetteville Shale and Haynesville Shale. Operating under a new subsidiary, Hawk Field Services, LLC, Petrohawk constructed approximately 100 miles of gathering lines in the Fayetteville Shale in 2008, with approximately 150 miles of gathering lines currently in service, under construction or planned in the Haynesville Shale during 2009.

Petrohawk Fourth Quarter and Full Year 2008 Earnings Conference Call
Petrohawk has scheduled a conference call for Wednesday, February 25, 2009 at 9:30 a.m. CDT (10:30 a.m. EDT) to discuss fourth quarter and full year 2008 financial and operating results. To access, dial 800-644-8607 five to ten minutes before the call begins. Please reference Petrohawk Energy Conference ID 81822729. International callers may also participate by dialing 706-679-8184. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until March 11, 2009. To access the replay, please dial 800-642-1687 and reference conference ID 81822729. International callers may listen to a playback by dialing 706-645-9291. In addition, the call will be webcast live on Petrohawk's website at http://www.petrohawk.com/. A replay of the call will be available at that site through March 11, 2008.

Petrohawk Energy Corporation is an independent energy company engaged in the acquisition, production, exploration and development of natural gas and oil with properties concentrated in North Louisiana, Arkansas, East Texas, Oklahoma and the Permian basin.

For more information contact Joan Dunlap, Vice President - Investor Relations, at 832-204-2737 or jdunlap@petrohawk.com. For additional information about Petrohawk, please visit our website at http://www.petrohawk.com/.

Some Incredible Gas Wells In The Haynesville Shale

Undoubtedly these are horizontal wells by Petrohawk. It is easy to understand the excitement over the potential of the Haynesville Shale Gas Play.
Peter

Petrohawk Announces Three New Haynesville Shale Wells Placed on Production at a Combined Rate of 73 Mmcfe/d

HOUSTON, Dec. 9 /PRNewswire-FirstCall/ -- Petrohawk Energy Corporation ("Petrohawk" or the "Company") (NYSE: HK) has placed three additional Haynesville Shale wells on production at a combined rate of 73 Mmcfe/d, one with the highest reported initial production rate of any well in Petrohawk's history, as follows:

--The Brown 17 #4 (69% W.I.), located in Section 17-T16N-R11W, Bossier Parish, Louisiana, was completed on November 18 and produced at a rate of 23.4 Mmcfe/d on a 26/64" choke with 7,700# flowing casing pressure.

--The Goodwin 9 #5 (97% W.I.), located in Section 9-T16N-R11W, Bossier Parish, Louisiana, was completed on November 25 and produced at a rate of 21.1 Mmcfe/d on a 26/64" choke with 6,750# flowing casing pressure.

--The Sample 9 #1 (100% W.I.) is located in Section 9-T14N-R11W, Red River Parish, Louisiana, approximately 12 miles south of Elm Grove Field. It was completed on November 27 and produced at a rate of 28.2 Mmcfe/d on a 30/64" choke with 7,100# flowing casing pressure.

The Company expects to complete five additional Haynesville Shale wells by the end of the year.
Petrohawk Energy Corporation is an independent energy company engaged in the acquisition, production, exploration and development of natural gas and oil with properties concentrated in Northwest Louisiana and East Texas (Haynesville / Bossier Shale and Cotton Valley), Arkansas (Fayetteville Shale), South Texas (Eagle Ford Shale), Oklahoma and the Permian basin.

For more information contact Joan Dunlap, Vice President - Investor Relations, at 832-204-2737 or jdunlap@petrohawk.com. For additional information about Petrohawk, please visit our website at http://www.petrohawk.com/.

Haynesville Shale May Become World's Largest Gas Field?

Ok, CEO's have been known to exaggerate their company's prognosis. See the following comments by the CEO of Chesapeake Energy. However, the Haynesville Shale in northwestern Louisiana and far eastern Texas is shaping up to be at least a major new gas play. Call it "unconventional shale gas", but it is for real. This gas play is at the heart of what I'm presenting on this blog.

The Haynesville Shale Play involves horizontal drilling, and the interpretation and steering while drilling of those wells, multi-stage frac jobs, and the opening of thousands of feet of pay zone, and multiple wells being drilled in all directions from one location. The Haynesville Shale and plays like it represent a big part of the future gas industry. Stay tuned.
Peter


Haynesville Shale Primed to Become World's Largest Gas Field by 2020 by Starr SpencerPlatts 2/11/2009
URL: http://www.rigzone.com/news/article.asp?a_id=72839

The Haynesville Shale may eventually become the world's largest producing gas field, Aubrey McClendon, CEO of Chesapeake Energy and a pioneer of the play in east Texas and northwest Louisiana, said Wednesday.
(Map showing the location of the Haynesville Gas Shale Play)

Chesapeake expects the play, which only became widely known when the company began talking about it last March, will produce at least 500 Tcf over time and then recover around 700 Tcf before potentially growing even larger, McClendon said during a presentation to the annual Cambridge Energy Research Associates conference in Houston.
"We think in time it will become the largest gas field in the world at 1.5 quadrillion cubic feet," he added.

Haynesville will become the largest US gas field by 2020, he added.
Meanwhile, the Barnett Shale play in north Texas, which sparked the shale craze earlier this decade, now produces 4.5 to 5 Bcf/d, and "is largely responsible for the current oversupply of natural gas" in the US, said the CEO. However, Chesapeake does not believe production will peak at more than 7 Bcf/d.

"If the current 100 rigs there -- half what it was six months ago -- holds, this field won't ever produce more than about 6 Bcf/d," he said.
Last week, Chesapeake peer EOG Resources said it expected the Haynesville to peak in the first quarter at 5 Bcf/d.

In addition, McClendon projected that a declining rig count could cause a 7% to 8%, and possibly even as much as 10%, decline in US natural gas production.

"You could see as much as a 10 Bcf/d swing in gas output year over year," McClendon said. US gas production currently hovers about 60 Bcf/d.

However, oilfield service costs should be down this year about 20%, and that, on top of the fall in rig count, should also spur recovery in the rig count, he said.

"The seeds of recovery in gas prices are being sown today and we think 2010 and 2011 should be a much better environment," said the CEO.

He also said he believes the US gas rig count, which peaked at about 1,500 rigs last September, needs to go down about 60% to create the much-sought price rebound. It is currently at 1,104 rigs.

Where Do We Go From Here? Bust, or Boom?

Here is some sobering news about the oil and gas industry in western Colorado. I have great affection for the area as my first job as a geologist was with the U.S. Geological Survey studying the oil shale in Piceance Basin of Colorado and the adjacent Uinta Basin in Utah. Years later I had relatives living in Parachute and I enjoyed my trips there to see them.

It seems there is an over-supply of natural gas coming from these western states, (Colorado, Wyoming, Utah, and New Mexico). One reason for the supply glut is a lack of transportation pipelines to move the gas to eastern and western markets. We're in for some "interesting" and challenging times with the economy in crisis and a new administration in Washington D.C. that is anything but friendly to the oil and gas industry. Yet I do not see solar and wind energy replacing oil, gas, and coal any time soon. Comments?
Peter

IN COLORADO: A natural gas well sits idle. Prices suddenly began to drop in September — natural gas is down 50% from its peak, and oil has plummeted from a high of $136 per barrel to about $40. Towns like tiny Parachute feel the pain.

http://www.latimes.com/news/nationworld/nation/la-na-energy-bust-town7-2009feb07,0,5750036.story
From the Los Angeles Times

An energy boomtown goes bust
Even as the national economy went into a tailspin, resource-rich towns like Parachute, Colo., were doing fine. Then natural gas prices began to plunge, and the pain began to rise.
By Nicholas Riccardi February 7, 2009
Reporting from Parachute, Colo. — Robert Knight was about to install wireless transmitters on eight new drilling rigs joining the thousands that dot the ravines and mesas here when he got the startling news: All but one of the rigs were coming down. Falling natural gas prices had led energy firms to abruptly curtail their work here last month, battering the last sector of the U.S. economy that had prospered despite the recession. "Boy, it was quick," said Knight, who has a business installing communication equipment and who serves as the town manager. "It was like the difference between night and day. "The sky-high oil and natural gas prices that burdened consumers during much of the decade were a blessing to residents of this tiny town and other energy-rich communities from Alaska to Arkansas.

Even as the national economy went into a tailspin in early 2008, home prices in boomtowns like Parachute kept rising and the streets were packed with shiny new pickups. But prices suddenly began to drop in September -- natural gas is down 50% from its peak and oil has plummeted from a high of $136 per barrel to about $40. The plunge brought some relief to recession-racked consumers, but has raised anxieties in Parachute, a town of 1,500 that bears the scars of busts that followed previous energy booms.

In better times, "you couldn't find a hotel room, you couldn't find a campground, you couldn't find a place to rent," said Laura Diaz, the town planning clerk. That's changing fast. "On Christmas Day there were three U-Hauls in my neighborhood," she said. "It is a little frightening for the people who have been here and know the history."

According to the energy service company Baker Hughes, the number of active oil and gas drilling rigs in the U.S. has dropped 13% since its peak in August. Gary Flaharty, the company's director of investor relations, said the decline matches the industry's response to previous price drops. Energy experts say the state of the economy could prolong this energy downturn. "The boom, absolutely, is over for the moment," said Pete Stark, vice president for industry relations at IHS in Englewood, Colo.

But energy-rich communities still have stronger economies than much of the rest of the nation. The seven states with budget surpluses can thank the energy industry, said Arturo Perez, a budget analyst with the National Conference of State Legislatures. Wyoming posts the nation's lowest unemployment rate, 3.4% -- less than half the national rate. Nonetheless, the reversal has been striking. Last summer, New Mexico held a special legislative session to spend a $200-million surplus fueled partly by energy revenue. Now it is scrambling to close a $400-million deficit. Alaska, which socked away billions in oil revenue over the last decade, warns that unless oil prices rise, it will face a budget deficit.

In Parachute, 200 miles west of Denver, the change has been dramatic. The town straddles I-70 along the Colorado River, in the shadow of massive mesas and buttes. On the slope of one mesa sits a subdivision of about 5,000 people that relies on Parachute businesses. Built to house expected oil and gas workers in the 1980s, the development emptied out when the energy industry killed oil shale exploration in the Grand Valley in 1982. It had filled back up by this decade, as high natural gas prices made exploration in the rugged land of the Piceance Basin economically feasible.

The streets of Parachute and similar towns were clogged with flatbed trucks hauling drilling equipment. Hotels were booked for months in advance. The region barely felt the recession that followed the dot-com bust in 2001, the recovery that followed, or the brutal downturn that began in late 2007. "We've had an economic bubble over us for some time," Knight said. "We've been pretty well sheltered. "Then in December, it all changed. Rumors began circulating about energy companies cutting jobs. "For Rent" notices appeared on homes and in local newspapers. Three hotel projects were put on hold, and the few existing hotels began to post vacancies. "We were known as the only one-stoplight town that had a traffic congestion issue," Knight said. "Compared to that, it's almost like a ghost town."

At VJ's Outlaw Ribbs, the regular flow of customers slowed to a trickle. Some began stopping in to say goodbye -- they'd been laid off and were heading back to their home states of Texas, Louisiana and elsewhere. "People we used to see every day, we just don't see anymore," said waitress Lori Ross. She tried to look on the bright side -- when she rented a house last year there were 50 applications per open rental. Now, she said, "there are rentals everywhere."

Last week, Del Dawson, a local real estate agent, did what had been unthinkable in Parachute for several years: He cut the prices on two homes. Like some other local business leaders, Dawson remains optimistic about the region's long-term prospects. He expects energy firms to redouble their efforts when the price of gas creeps back up -- local expectations are that will happen this summer or spring 2010. And many companies are maintaining a sizable workforce for their already drilled wells.

"We still feel it's a boom," said Hayden Rader, a developer who has two projects underway in Parachute. "People are saying there's not enough work here, but we've still got more than anyone else. "Yet residents are feeling the pain. Amy Beasley and her husband run the Old Mountain Gift & Jewelry store downtown and a neighboring shipping business. Their revenue has fallen this month, and people they know in the energy industry who had talked about an unending boom have abruptly lost their jobs. A fourth-generation Parachute native, Beasley, 35, has been ambivalent about the industry that keeps the town alive but has industrialized the wild lands where her family homesteaded. She and her husband have discussed whether to close their shops given the severity of the downturn. "We're going to stick it out and try to weather the storm," she said. "It may slow down for a few years, but it's going to be back. They're never going to leave us alone."nicholas.riccardi@latimes.com