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

Read the Full BBC Article HERE

“We plan to further increase activity in the Haynesville, Fayetteville, Marcellus, Eagle Ford, and Bakken shale plays,” said ExxonMobil’s Vice President of Investors Relations David Rosenthal, who was speaking to analysts in a conference call.

ExxonMobil completed its acquisition of natural gas producer XTO Energy Inc. in June, becoming the largest natural gas producer in the U.S.

From Shell to Total, from BP to Chesapeake and ExxonMobil, nearly every major oil company has been making mergers and acquisitions to become players in the shale gas game.

Coupling the advancement of hydraulic fracturing technology with the seemingly abundant resources in plays like Marcellus, Haynesville and Eagle Ford, shale gas is not only revolutionizing the oil and gas industry in America, but is also making an impact around the world.

Shale gas was cited by Russian gas monopoly Gazprom, for example, as a reason for shutting down one of their major projects in the Shtokman oil fields.

Moreover, the rush to shale gas is a rush towards a more renewable energy source and a more environmentally friendly option, says The Economist.

“The majors’ dash for gas is a bet on demand and climate-change policy,” the article states. “Efforts by the world’s governments to cut carbon emissions have stalled, but the oil majors are voting with their drill bits. The future, they believe, will be less oily and a lot gassier.”

READ THE FULL ARTICLE

The Midcontinent region, which includes the Woodford and Fayetteville shale plays in the Arkoma Basin, will contribute an estimated .972 Tcf of shale production in 2020 and 1.25 Tcf in 2035.

Southwest shale gas plays, which include older Barnett shale, will produce 1.1 Tcf in 2020 and 1.2 Tcf in 2035, while Northeast region, which includes the Marcellus shale play, will produce .8 Tcf of shale gas in 2020 and 1.2 Tcf in 2035.

SOURCE:
Rigzone: “Today’s Trends: Gulf Coast to Dominate Future Shale Gas Production”

The deal comes less than a month after Exco sold 50 per cent of its shale assets in Appalachia to British gas producer BG Group Plc for $835.2 million.

The new properties that Exco plans to acquire are located within the area of mutual interest that was established by that acquisition, meaning that BG will have the opportunity to buy 50 per cent of these properties as well.

Exco execs don’t forsee this being a problem, however:

“Assuming BG Group participates in the acquisition, Exco and BG Group will each double their working and net revenue interests in much of the common acreage,” Dallas, Texas-based Exco said.

Exco said the purchase will increase its interest in over 900 gross drilling locations. The assets include producing properties with current gross production of more than 51 million cubic feet per day (Mmcf/d) from 9 producing wells and about 20,000 net acres prospective for the Haynesville and Bossier shales.

READ THE FULL PRESS RELEASE

Shale isn’t coming to Europe anytime soon, although the indirect impact of US production in places like the Marcellus shale in Pennsylvania means that we get the benefit of the prices even today. So the question of whether we will see shale in Europe, next year, 2015 or 2020 is not pressing. But for those who think the European experience is going to be so slow, let’s look at the Marcellus experience.

The history of the Marcellus shale is interesting. Five years ago, back when many expert European studies yet to even be published today were just starting out, the Marcellus wasn’t even on the radar. But the ramp up in both reserves and actual production is startling. Next time you hear about shale gas being “hype”, consider the reality of the Marcellus, where hype understated the facts on the ground, or is that flowing out of the ground?

Natural gas production from the Marcellus Shale in Pennsylvania is expected to more than double in 2011 to 2.5 Bcf/d from 1 Bcf/d in 2010, the Pennsylvania State University’s College of Earth and Mineral Sciences said in a study Tuesday. By 2015, the Pennsylvania Marcellus could be producing more than 7 Bcf/d,substantially exceeding all gas output from offshore federal waters, the report noted. Marcellus natural gas production could nearly double again by 2020, with more than 13.5 Bcf/d, “which would make Pennsylvania second only to Texas in natural gas production.”

A major takeaway here from something thrown away in the above, so I’ll repeat it.

By 2015, the Pennsylvania Marcellus could be producing more than 7 Bcf/d, substantially exceeding all gas output from offshore federal waters.

This should really make US (and European) energy traders sick. Traders will no longer be able to rely on scenarios like this old favourite although it was published only yesterday:

It’s a very difficult period of time to be short natural gas with hurricane season right ahead of us,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

Sorry, that one doesn’t really matter anymore, which I pointed out one year and one day ago channeling Peter Tertzakian yet again:

In the past, waiting for the first hurricanes in the Gulf of Mexico has been a highly anticipated time for onshore natural gas producers, like waiting for the park warden to open the campgrounds in spring. The mere threat of a hurricane barreling over Cuba and into the Gulf toward the Texas or Louisiana coast – trashing production platforms and creating enough of a surge to uproot shallow pipelines and disrupt supply lines to the continent – was enough to elevate natural gas prices, allow producers to boost their Q3 cash flows and use the opportunity to lock in higher priced forward contracts.

Everyone in the business is now well aware of the shale gas boom, which is an ongoing mega trend that is redefining the sources and costs of supplying natural gas in North America. One less-realized consequence of this shakeup is that hurricane season in the gas markets has effectively been neutered. There isn’t a lot of production coming from the Gulf of Mexico anymore, so there isn’t much left to be trashed by the occasional Category 4 storm. In effect, hurricane season in natural gas markets has been obsolesced with a human activity that’s been around ever since the time of Stonehenge – innovation.

Evidently, the news didn’t travel from Calgary to Florida in the past year. But the traders’ job is to talk up their book. Mine, unlike the energy experts who never saw shale coming, and now are in denial stage, is to question conventional wisdom, not blindly accept it.

Back to Pennsylvania. Is there any hope for the pathological pessimists? In a world of good news that that keeps on getting better, they clutch at this straw.

The future is not without some challenges, the report noted.

The habitually cautious breathe a sigh of relief. Not for long.

“Currently,there are at least five other major shale gas plays competing with the Marcellus, including the Barnett, Haynesville, Fayetteville, Woodford and Eagle Ford formations as well as several shale formations in Canada. As production from these plays expands, prices for natural gas are likely to remain relatively low and pressures for cost containment will be intense.”

SOURCE:
No Hot Air: “More, and more, and more gas from the Marcellus shale”

China Investment Corporation and Korea Investment Corp are in advanced negotiations to join a consortium planning to acquire convertible preferred stock in New York-listed Chesapeake Energy, according to people familiar with the matter. The talks follow last week’s disclosure that Temasek, the Singapore state investment fund, and Hopu Investment Management, a Beijing-based group, had acquired $600m of its convertible preferred stock.

Chesapeake signaled last week that it would issue a further $500m of preferred stock by mid-June, but this second tranche has swollen to about $900m amid strong investor demand in Asia, people familiar with the situation said.

CIC and KIC are each expected to acquire about $300m worth of preferred stock, with the remainder purchased by Hopu, Seatown, an affiliate of Temasek, and a Japanese industrial group. CIC and KIC could not be reached for comment.

The Asian funds believe the price of natural gas, trading at less than a third of the price of oil on an equivalent basis, is at a cyclical low point and that demand will climb for environmental reasons.

The investment also underscores how Asia’s SWFs are turning to natural resources, seen as more tangible than sectors such as financial services.

Gas is about 30 per cent less carbon-intensive than oil and about 50 per cent less than coal. New drilling technology has also led to higher estimates for US gas reserves, of 100 years’ worth at current usage rates, up from 30 years’ worth.

The investments form part of steps by Chesapeake to raise up to $5bn over the next two years, to reduce debt and attain an investment-grade rating.

The convertible preferred stock carries a coupon of 5.75 per cent. The combined $1.5bn investment in preferred stock would eventually translate into an equity holding in Chesapeake of about 10 per cent.

Chesapeake is either the number one or number two in the four biggest US shale fields: Haynesville, Marcellus, Barnett and Fayetteville.

By Sundeep Tucker for The Financial Times. May 20, 2010.

SOURCE:
Financial Times: “Asian Sovereign Wealth Targets US Shale Gas”

The area where the industry first unlocked natural gas from shale by using horizontal drilling techniques and hydraulic fracturing, a process that shoots chemical-laced water into the deposit to crack the rock. Early indicators of potential production in 2015: four billion cubic feet (bcf) a day.

Haynesville (Northwest Louisiana, East Texas, Arkansas)

This deposit rivals the Barnett as one of the biggest plays in North America. It has attracted investment from international oil companies, including Exxon Mobil Corp., Royal Dutch Shell PLC and Calgary’s Encana Corp. Early indicators for production in 2015: four bcf a day.

Fayetteville (Central Arkansas)

Chesapeake Energy Corp., the largest shale gas producer in the U.S., is heavily involved with this play, which could generate 20 trillion cubic feet of gas over its lifetime. Early indications of production in 2015: less than four bcf a day.

Horn River/Montney (British Columbia)

Two neighbouring plays in northeastern British Columbia have become the Canadian hot spots for natural gas producers. Apache Energy and Talisman Energy Inc. of Calgary are among the leading investors in the plays. Early indicators of production in 2015: up to three bcf a day.

Eagle Ford (South Texas)

One of the newer plays to attract investment following an announcement in April by EOG Resources Inc. of a major discovery in the area. Talisman has expanded its acreage in the deposit, where the gas is rich in liquids like butane and propane that are used by the petrochemical industry. Early indicators of production in 2015: up to three bcf a day.

Utica (south shore of St. Lawrence River, Quebec)

Talisman’s partner, Questerre Energy Corp., has announced a significant result in this region. The two companies have embarked on a more extensive drilling program to determine the extent of commercial viability. Early indications of production in 2015: less that 0.5 bcf a day.

Collingwood (Michigan)

The Michigan basin is being explored by companies that include Encana. The formation extends into Ontario, where companies are examining its potential, but have not yet announced drilling programs. Early indications of production in 2015: Not available.

SOURCE:
The Globe and Mail: “North America’s Other Shale Plays”

With the creation of KinderHawk Field Services, the small Houston-based exploration and production company will have raised $1.4 billion in cash from asset sales in 2010 alone.

That’s on top of another $1.2 billion in asset sales, $2.7 billion in equity fund raising and $1.1 billion in debt issued since December 2007.

“Yes, we’ve raised a lot of capital, but we’ve had a great use for those funds,” Petrohawk Chairman and CEO Floyd Wilson said.

In that time the company took its acreage in the Haynesville and expanded it to become a top producer of natural gas from the tight, cement-like shales that until recent years were considered too expensive to drill. And almost single-handedly Petrohawk made the rest of the world aware of the Eagle Ford Shale in South Texas, becoming the dominant player there.

All told, Petrohawk has gone from being a company with 4 trillion cubic feet equivalent of gas reserves and a $3 billion market capitalization in December 2007 to 34 trillion cubic feet in reserves and a $7 billion market cap. With the scale also has come greater efficiency: Petrohawk went from 25,000 wells to 5,000 in that same time.

The cash raised this year will let it continue to focus on drilling to hold on to all its acreage, which should keep it busy for years to come.

Betting on shale

Kinder Morgan Chairman and CEO Rich Kinder said the Petrohawk deal will let his company benefit from what he sees as a long, steady future of shale gas production.

“This opportunity allowed us to hook up with a producer with a lot of very good acreage and a lot of infrastructure already built out,” Kinder said. “We like toll roads, and this joint venture lets us get pretty close to a toll road.”

Tuesday’s deal takes Petrohawk’s 170-mile natural gas gathering and processing system and turns it into a stand-alone joint venture with its own employees, executive team and board of directors. That transition will happen over the next six months.

The system will expand to 375 miles by year-end, anchored by years of production from Petrohawk’s wells. It could grow further if other producers hook into it.

Kinder Morgan had already tied into shale plays, but on the periphery, said Kinder. The pipeline giant owned many of the processing facilities in the Haynesville but was leasing them back to producers like Petrohawk.

It launched the Midcontinent Express pipeline last year with Energy Transfer Partners to move gas out of the Barnett Shale in North Texas and is working with ETP on the Fayetteville Express to get gas out of the Fayetteville Shale in Arkansas.

And it already has a gathering system in the Eagle Ford Shale through a Copano Energy joint venture.

“But we weren’t in the Haynesville. When we add this, we’ll have a pretty good portfolio in all the major shales, except one,” Kinder said, referring to the Marcellus Shale in New York and Pennsylvania. “We have nothing to announce on the Marcellus at this time, but we know the shale plays will continue to be very important.”

By Tom Fowler for the Houston Chronicle. April 13, 2010.

SOURCE:
Houston Chronicle: “Petrohawk On A Roll In Quest For Capital”