Never mind that hydraulic fracturing was once again linked to an earthquake, this time a 4.0 tremor in Ohio on New Year’s Eve, the year 2012 kicked off in impressive fashion for the shale industry, which has been revolutionized by the controversial drilling practice.

Undaunted by the environmental and geological challenges, two oil giants signed shale deals in the United States for a combined US$4.5-billion ($4.58-billion) in one day. On January 3, France’s Total SA bought a 25% interest in Chesapeake Energy’s Utica shale play worth US$2.3-billion, while China Petroleum & Chemical Corp., or Sinopec, took up a one-third interest in Devon Energy’s shale projects for US$2.2-billion.

It’s a trend that’s set to continue and go beyond North American borders, says Moody’s Investor Services, as majors catch up with independent developers.

“Independent E&Ps have led the way in shale drilling, developing expertise in natural gas,” Moody’s said in a note. “The majors came late to the game in North America, but have begun pursuing E&Ps for their expertise in the new development techniques.”

Shale activity took off in earnest in 2011: ExxonMobil Corp. bought two companies in the Marcellus basin in Pennsylvania, and Marathon Oil Co. acquired Eagle Ford properties in south Texas from Hilcorp Resources Holdings LP. Mining giant BHP Billiton Ltd. acquired Petrohawk Energy Corp., a major player in the Haynesville and Eagle Ford, plus some Fayetteville shale properties, for US$15.1-billion. Norway’s Statoil ASA spent US$4.7-billion to buy Brigham Exploration Co. with operations concentrated in North Dakota’s Bakken Shale and Three Forks in Montana. Overall, shale acquisitions helped push overseas offers for U.S. oil and gas fields to US$51-billion last year, the most in at least 12 years, according to data compiled by Bloomberg.

“In Canada, the Montney Shale — a large natural gas basin in British Columbia and Alberta — has sparked interest for its proximity to a number of proposed projects to export LNG to Asia, and for potential gas-to-liquids (GTL) plants,” Moody’s says. “Sasol has two JVs with Talisman Energy and has begun studying a future GTL plant in western Canada that would use its proprietary technology. Petronas, Malaysia’s state oil company, created its first Montney JV with Progress Energy Resources — possibly with an eye on exporting LNG to Asia.”

GOING GLOBAL

Despite the ban in promising jurisdictions such as France, major companies are looking outside North America for growth. “These companies will strive to apply their expertise and mature cash flows toward other basins— particularly in Argentina, Brazil, China, Mexico, Poland and South Africa. The NOCs also hope shale development will help them improve energy security and self-sufficiency,” Moody’s says.

On Wednesday, China approved shale gas as an independent mining resource, a legal status that it hopes will encourage smaller Chinese energy firms to develop the unconventional energy source. The energy-hungry giant is expected to announce a new round of shale-gas tenders in early 2012, and although foreign companies can’t participate directly, they can team up with local firms.

Poland, which holds the most active and best areas geologically for shale in Europe, where governments want to diversify their natural-gas supplies away from Russia, is another promising play. The country has drawn investment from JVs involving ExxonMobil/Total, Marathon/Nexen, ConocoPhillips and OMV Petrom, among others.

But Moody’s says the development of these shale resources will not be quick or straightforward, and will face numerous obstacles similar to those seen in North America.

“Hydraulic fracturing has led to widespread environmental concerns over such issues as water contamination, wastewater disposal, land subsidence, earthquakes, and noise pollution. Areas more densely populated than sparsely inhabited North Dakota will present further challenges — particularly in Europe, where resistance to shale development has emerged,” the ratings agency says.

Source: Financial Post

Total agreed to pay $700m for a 25 per cent stake in shale assets totalling 619,000 acres rich in liquids as well as natural gas, held by Chesapeake and EnerVest in Ohio’s Utica formation.

It has also committed to pay an additional sum of up to $1.63bn to cover future capital expenditure on drilling and well completion in the area for up to seven years.

In 2010, Total bought a 25% stake in Chesapeake’s Barnett Shale field in Texas  at a deal valued at up to $2.25bn.

He noted that the dangers associated with shale gas drilling — which is accomplished by hydraulic fracturing, a process commonly known as fracking — are largely the same as other oil-drilling operations.

“Hydraulic fracturing doesn’t seem to be of concern to groundwater,” Groat said. “If there has been water contaminated related to shale gas development let’s not look at fracturing, let’s look at surface processes.”

Read the Full Article from the Austin American-Statesman HERE

Speaking at the World Shale Gas conference in Houston, John Bannerman, chief executive officer of Total E&P USA, said that the company was exploring new joint ventures or becoming an operator.

“We’re very clearly on the lookout,” said Bannerman.

Total is targeting basins that have crude oil or natural gas with a high liquids content. ”In this current climate, liquids have an added advantage,” Bannerman told reporters.

“It will be a natural progression” for Total to focus its shale expansion on shale liquids areas such as Texas’s Eagle Ford Shale and Ohio’s Utica Shale, the Total executive said.

Bannerman declined to say whether Total was Chesapeake Energy’s partner in the Utica Shale in Ohio, Earlier this month, Chesapeake announced a joint venture deal with an undisclosed international major.

Last year, Total signed a $2.25 billion joint venture agreement to buy a 25% stake in Chesapeake Barnett Shale in Texas.

The properties produce 125 MMcfd equivalent of gas and include associated gathering pipelines on 50,000 net acres.

Encana said that the Barnett shale has provided the company with foundational knowledge it has applied across its newer US and Canadian resource plays.

The transaction is part of Encana’s previously announced plans to divest up to $2 billion in noncore assets by yearend.

The shale gas industry has had its collective ass kicked, and kicked hard, by Gasland and others opposed to hydraulic fracturing and needs to redefine its core messages to defuse a burgeoning negative public perception of the controversial drilling technique, the President and Chief Executive Officer of the Colorado Oil & Gas Association (COGA) said today.

“What we’ve seen in the last few years, and I hope it’s peaking, is a completely heightened public awareness around hydraulic fracturing and an increase in active opposition,” Tisha Conoly-Schuller said this afternoon. “I hate to credit the movie Gasland, but it’s really changed the conversation.”

Conoly-Schuller made her comments to a group of shale gas industry executives as the Keynote Speaker on the opening day of the “Enhancing Shale Oil & Gas Development Strategies” conference in Denver, Colorado.

The conference, organized by Marcus Evans, will continue throughout tomorrow. The conference offers industry executives a variety of workshops and panel discussions on using “drilling, completion and reservoir engineering knowledge to advance exploration and diversify shale portfolios,” according to material prepared by Marcus Evans describing the event.

Conoly-Schuller noted that the opposition to hydraulic fracturing — or “fracking” as it has come to be known in the parlance of our times — has evolved remarkably over the last few years, even though the science and empirical data related to hydraulic fracturing indicates that the practice has nothing to do with water contamination.

Shale gas industry executives credit the movie, “Gasland” with helping to shape public opinion about hydraulic fracturing, even though they say there is no proof that the practice contributes to contaminated drinking water. Image from the film, “Gasland.”

“The flaming faucet — that was disproven by the Colorado Oil & Gas Authority,” Conoly-Schuller said. “The methane in that well was naturally occurring. People have been lighting their water on fire in that area for 100 years. Josh Fox knows this and he has never admitted it — and he’s working on Gasland II.”

Today, she explained, those opposed to hydraulic fracturing can no longer be characterized as environmental extremists because the movement has gone mainstream. She credited Fox, the producer of the movie, Gasland, which helped to coalesce opposition to fracking, with playing a large role in that shift.

As a result, Conoly-Schuller continued, the industry needs to change not only its messaging, but how it delivers its key talking points.

“We need to change,” Conoly-Schuller said. “We’re talking to moms and dads and grandmothers who are worried about the safety of the water their children are drinking, and that’s an emotional issue. It hits a chord. We need to be sensitive to that. We’re not on engineering and scientific turf anymore, we’re on emotional turf, and we need to get our point across.”

Conoly-Schuller told the executives that COGA had recently completed some polling around the issue of how the public perceives hydraulic fracturing and the shale gas industry.

The news, she said, was not good.

“The public is skeptical of anything we say,” she said. “The favorable perception of the oil and gas industry polls at seven percent — that’s lower than Congress. The public does not believe us. We need someone else delivering our message for us.”

Conoly-Schuller went on to outline a set of recommendations that she said would help the industry improve its public perception. Her recommendations included:

•    identifying other messengers to carry positive messages about oil and gas to a skeptical public; university professors, she said, polled the highest and are well positioned in that regard.
•    broadening the sources of information for executives — “We have sources we are comfortable with,” she said, “and the reinforce our views. We need to go beyond that, even if it makes our blood boil, so we can learn the language used by our opposition and learn what they think. These nuts make up about 90 percent of our population, so we can’t really call them nuts any more. They’re the mainstream.”
•    respecting industry critics — “Historically, the industry has been dismissive of its critics,” she said. “We have to understand that they are well-intentioned and believe in what they are doing
•    recognize the emotional nature of the discourse — “It’s ineffective to respond to emotion with science. We need empathy and we have to recognize that emotional is not irrational.”
•    reframe the issue of hydraulic fracturing in economic terms — “We need to talk about how energy is the building block of our economy.”
•    engage in dialogue about hydraulic fracturing more broadly — “Engage with people with people not necessarily to change their minds, but to learn what they know and think. That will inform what works.”
•    reposition the industry to appeal more broadly to young people — “The issue is serious, but we shouldn’t take ourselves so seriously. We need to become much more clever. Our industry is going to have to become hipper.”

In that respect, Conoly-Schuller said, industry executives and communicators are going to have to become well versed in the use of social media and online tools.

“People that like South Park are our audience,” she said, “and we need to figure out how to talk to them. We need to figure out what works and how to get it out to them.”

Conoly-Schuller closed her remarks by urging each of the executives to get on Facebook.

“That’s your homework because that’s where they are, the people who are talking about this, the people we need to reach,” she said.

With thanks to NaturalGasWatch.org

NaturalGasWatch.org has been designated the “Official Blogger” of the Enhancing Shale Oil & Gas Development Strategiesconference, and is not receiving any compensation from the industry in exchange for writing about the event.

Canada’s biggest natural-gas producer is seeking buyers for its North Texas natural gas producing assets in the Forth Worth basin, hoping for proceeds of upto $2 billion this year.

“These North Texas facilities are high-quality assets, having mature properties and strong potential  for future development,” Encana USA president Jeff Wojahn said on Thursday.

The assets currently produce about 125 million cubic feet (of gas) equivalent per day and include the associated processing and pipeline facilities on about 52,000 net acres of land in the Fort Worth basin.

Some other non-core midstream producing assets are also up for grab and the company is in the midst of discussion with potential partners looking for joint-venture opportunities.

On Aug. 14, 2001, the Oklahoma City-based oil and gas company announced a deal to acquire Mitchell Energy & Development of Houston for $3.5 billion.

Mitchell Energy, led by legendary oilman George Mitchell, was the pioneering company that cracked the code of the Barnett’s dense shale rock by using new hydraulic fracturing techniques and experimenting with horizontal drilling. At the time, it had drilled about 400 wells in the Barnett, and executives saw the potential for 1,200.

But over the decade, Devon would advance the ball significantly with improved horizontal drilling and an expansion of drilling far beyond areas north of Fort Worth where Mitchell Energy had focused. The result would be a drilling boom that by 2008 would draw numerous rivals into the field and make the Barnett the biggest gas-producing area in the U.S. Tarrant and Johnson counties would emerge as the top two gas-producing counties in Texas.

Today, Devon has drilled more than 4,700 wells in the Barnett. The field now accounts for 39 percent of the company’s total production, which includes operations that stretch to the Rocky Mountains and into Canada.

In the Barnett, “our drilling costs are down, our production is up and our efficiencies are increasing,” said Brad Foster, senior vice president of Devon’s Central Division, which includes Barnett operations.

Devon has achieved, or is on the verge of, several Barnett milestones:

It posted record production in this year’s second quarter, averaging the equivalent of 1.28 billion cubic feet of gas per day, even while keeping only 12 drilling rigs busy. That’s less than a third as many as it ran in 2008, before gas prices cratered.

Devon’s total Barnett production since the Mitchell acquisition is expected to hit the equivalent of 3 trillion cubic feet by year’s end, spokesman Chip Minty said. It’s at 2.8 trillion now.

Despite weak gas prices, now about $4 per 1,000 cubic feet, Devon is realizing solid returns from the Barnett because “our ability to drill wells economically just gets better every year,” said Chairman Larry Nichols, who was CEO during the Mitchell acquisition.

A 35-well pad site

Devon’s advances in the Barnett are exemplified at a rural 12-acre drilling site in far southwest Tarrant County. The 31st well there was drilled last week by contractor Patterson-UTI Drilling Co.

Devon expects to have 35 producing wells at the site by March, said Jay Ewing, its manager of Barnett well completions.

That will be the most wells ever on a single Barnett Shale pad site, but the project development has “been pretty routine. … It’s been pretty close to plan,” Ewing said. Horizontal legs of the wells, called “laterals,” will be steered thousands of feet under Benbrook Lake.

Devon estimates that the 350 Barnett wells it drills this year will yield, on average, the equivalent of 3.2 billion cubic feet of gas apiece over their producing lifetimes. By that measure, the 35 at the southwest Tarrant pad site cumulatively would produce 112 billion cubic feet.

That’s enough fuel for gas heating and cooking at more than 1.5 million homes for a year, based on American Gas Association data.

If Devon maintains its current drilling pace, it will drill its 5,000th well next year. Less than 1 percent of Devon’s Barnett wells have been dry or otherwise not worth putting into production.

Devon, which has more than 600 Barnett employees and an office in downtown Fort Worth, has boosted its Barnett reserves for seven straight years. Proven reserves are now the equivalent of 6.7 trillion cubic feet.

Drilling time slashed

When Devon began drilling in the Barnett in 2002, it took three to six weeks to drill a single horizontal well, said David Fortenberry, Devon vice president of technology.

“The rigs we used were really too small and underpowered for horizontal wells,” he said.

Now, with higher-efficiency rigs and much more experience, Devon averages only about 12 days to drill a Barnett well, and “we’ve actually drilled some wells down in southwest Johnson County in about six days,” Foster said.

Drilling-rig design “has improved dramatically in the past 10 years,” with rigs now “ideally suited to drill these horizontal wells,” Nichols said.

Devon uses a “walking rig” device to scoot a 156-foot-high rig between surface well bores at its southwest Tarrant pad site. If well bores are 20 feet apart, the rig can move that far in just an hour. Without the walking device, it could take two days to disassemble a rig and set it up 20 feet away.

The Barnett wells that Devon has drilled this year have provided “some of the best results we’ve ever gotten,” Nichols said.

Supply rises, prices fall

Ample supplies from dramatic increases in U.S. shale-gas production have kept prices low, as the industry has become “in part … a victim of our own success,” Nichols said.

Devon has dropped to 12 drilling rigs because it can keep production at least flat at that level of activity and because “at this time, the country just doesn’t need any more natural gas,” Nichols said.

Production declines have been lower than expected in Barnett wells, he said. There will be “steep declines in the first year, but it flattens out a lot sooner than we originally thought” — often after 12 to 18 months of production, he said.

The Barnett may soon lose its spot as the top gas-producing area, if it hasn’t been already, to the Haynesville Shale in northwest Louisiana and East Texas. But Devon has lots more drilling to do in the Barnett.

7,500 drill sites left

Foster said Devon still has “7,500 potential drilling locations,” which represent “probably over 20 years of inventory” for future drilling.

About 2,500 are in “the liquids-rich portion of the play,” Foster said. Natural gas liquids such as ethane, propane and butane generate higher profit margins.

Future gas prices will determine how many of the 7,500 locations are eventually drilled, he said.

On average, drilling and completing a Barnett well costs Devon $2.8 million. Wells are 6,500 to 9,200 feet deep, and the average lateral length is more than 4,000 feet.

Devon’s Barnett production is 78 percent natural gas, 21 percent natural gas liquids, and 1 percent oil.

In announcing Devon’s purchase of Mitchell Energy 10 years ago, Nichols said the Mitchell properties “fit perfectly with our long-term objectives.”

That appears perhaps even more so now, as Devon has sold international and Gulf of Mexico properties in the last two years as it embraces a new focus on onshore production in North America.

Source: Star-Telegram

Jack Williams, a 47-year-old Exxon Mobil veteran, took the reins of XTO one year ago upon the completion of the merger. XTO, now a wholly owned subsidiary of Irving-based Exxon, has continued to base its operations in downtown Fort Worth.

In an interview last week, Williams said he is “absolutely thrilled” to lead XTO and believes the marriage of the two companies provides “a pretty powerful combination,” pairing XTO’s expertise in shale with Exxon’s unparalleled finances, research and technology capabilities and massive global presence.

Read the full the Star Telegram interview with Williams HERE

EPA investigators will study places where fracking has already taken place and look for any impact on residential water wells and other sources of drinking water.

Part of the study will see EPA investigators to look at the effects on drinking water through the entire life-cycle of a horizontally drilled, hydraulically fractured shale gas or oil shale well, in two locations in Louisiana’s DeSoto County and Pennsylvania’s Washington County.

Sites in the Marcellus, Barnett and Raton shale basins, will all be studied for any effects past drilling has had on drinking water, EPA said.

The case studies were selected by the EPA on criteria including the proximity of people and drinking water supplies to fracking sites. For the retrospective studies, concerns about impaired water quality and health and environmental impacts were also taken into account.

“This is an important part of a process that will use the best science to help us better understand the potential impacts of hydraulic fracturing on drinking water,” Paul Anastas, assistant administrator for EPA’s Office of Research and Development, said in a statement.

The study, which was mandated by Congress, is expected to publish interim conclusions by the end of 2012, with final results in 2014.