Natural gas industry hits back at 'biased' shale media coverage

According to a recent study, shale gas production in the US and Canada is expected to increase from 13 billion cubic feet per day in 2010 to 52 billion cubic feet per day in 2035.

The New York Times recently published an article about the burgeoning shale natural gas drilling, development and production in the US -- claiming that companies have been exaggerating production numbers and questioning the commercial viability of development.

Various energy veterans have publicly condemned the article, backing the development of an abundant source of domestic clean energy in numerous shale formations across the country.

From Aubrey McClendon, CEO of Chesapeake Energy, a major natural gas producer and committed shale developer in the US:

“The Times story was obviously motivated by an anti-natural gas agenda. It is telling that the reporter chose not to interview a single reliable source and instead selectively quoted emails from unnamed sources or well-known industry critics dating back to as early as 2007 to invent a series of inaccurate and misleading allegations. If the Times was interested in reporting the facts and advancing the debate about the prospective benefits of natural gas usage to energy consumers, it could easily have contacted respected independent reservoir evaluation and consulting firms that annually provide reserve certifications to the US Securities and Exchange Commission or contacted experts at the US Energy Information Administration, the Colorado School of Mines’ Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and others who would gladly have gone on record to confirm the abundant resources that have been made available thanks to the horizontal drilling and hydraulic fracturing techniques that Chesapeake and other industry peers have pioneered in deep shale formations across the US.

"By analyzing our own and industry peer well performance, we know that the initial productivity of a majority of the industry’s shale gas wells have been steadily improving, both in initial production rates and the expected ultimate recoveries of natural gas. We fully expect that the majority of these wells will be productive for 30-50 years, or even longer. In fact, Chesapeake and the industry are currently producing from vertical Devonian Shale natural gas wells in Appalachia that were drilled more than 100 years ago, and new horizontal wells that interface with a significantly greater amount of shale that may produce that long as well. In fact, Chesapeake operates or has an interest in nearly 8,000 wells that are more than 30 years old and we believe there is ample evidence that shale gas wells can produce for as long as other gas wells have been able to produce.

"The Times questioned the economic merits of shale gas production in complete disregard and/or ignorance of supply and demand fundamentals as well as recent and forward market natural gas prices. No one would argue that with today's natural gas prices the economics of dry gas projects have lower rates of return than they do at prices of $5.00-$6.00 per thousand cubic feet (mcf), which we believe will ultimately be the prevailing price when higher natural gas demand arrives in the years ahead from the utility and transportation sectors. The primary focus of our current drilling program – as we’ve said on numerous occasions through our various press releases and conference calls – has been on identifying and developing new natural gas plays in the U.S. wherein natural gas liquids and oil will add significantly to the overall project economics. Nevertheless, we and others in the industry continue to have learning-curve benefits that make U.S. shale gas projects attractive to the global energy industry.

"In addition to Chesapeake, the list of large companies now active in shale gas development in the US includes such world class energy companies as Anadarko, BG, BHP, BP, Chevron, CNOOC, Conoco, Devon, EnCana, ENI, EOG, ExxonMobil, KNOC, Marathon, Mitsubishi, Mitsui, PetroChina, Reliance, Shell, Statoil, Talisman, and Total, among others. Consider whether it could really be possible that all of these well-respected energy leaders, with a combined market cap of almost $2 trillion, know less about the economics of shale gas production than a single New York Times reporter, a few environmental activists and a handful of shale gas doubters?

"It is also absurd to conclude that shale gas wells are underperforming while America is awash in natural gas and benefiting from natural gas prices less than half of what they averaged in 2008. I also note that Chesapeake and other shale gas producers are routinely beating natural gas production forecasts. In fact, in 2009, thanks to shale gas, the US passed Russia as the largest natural gas producer in the world. Today shale gas production represents approximately 25% of total US natural gas production. How can shale gas wells be underperforming if shale gas companies are beating their production forecasts, natural gas prices remain low and US natural gas demand is at a record high?"

America's Natural Gas Alliance called the story "deeply flawed, inaccurate and misleading," adding:

"This selective use of facts implies a clear bias and continues the reporter's demonstrated pattern of telling one-sided stories without providing readers with any sense of context, nuance or balance.

"Earlier faulty reporting on water contamination has been contradicted by sampling of water supplies in the state of Pennsylvania. And the more recent claims questioning the natural gas industry's ability to tap into our vast potential natural gas resource are challenged by the world's leading geoscientists, and by numerous independent analysts, and academic and industry data, not to mention the federal government. All of this information was provided to the paper, but ignored in the articles.

"The fact is that we are now producing vast supplies of natural gas, and as demand grows there will be ample clean, American natural gas to meet future needs. Advances in horizontal drilling technology just in the last two years allow us to reach sources of natural gas that before were not accessible."

Louisiana Oil & Gas Association President Don Briggs added:

"Recent estimates show that the U.S. holds nearly 1,000 trillion cubic feet of recoverable natural gas in its shale gas deposits.  In fact, the federal government’s own Energy Information Agency attests to these reserve numbers and agrees that they will play a significant role in our nation’s energy portfolio. Currently, the U.S. produces nearly 30 trillion cubic feet of natural gas per year.  That is the most annual natural gas production in U.S. history.


"It is also a fact that shale gas wells are becoming less profitable and taking longer periods of time to payout due to sluggish natural gas prices.  But, the declining price and economics are a result of substantial supply increases of natural gas that these shale developments have produced.

"The New York Times reporter points to a decrease in production in the Barnett Shale region.  However, production and rig activity reports do not seem to support this claim.  Today, the Barnett Shale produces 5.6 billion cubic feet of gas per day.  Two years ago, the Barnett was producing 5.3 billion cubic feet per day.  With over half of the rigs that were in operation a year ago now gone, the statement that production is declining is simply not true.

"The assertion that the Haynesville Shale has not lived up to its expectations is a bold and outlandish statement.  Since its development began in 2008, the Haynesville Shale has resulted in the injection of over $22 billion into the local and state economy in Louisiana, just in fiscal years 2008 & 2009 alone.  In fact, while other states have lost jobs and revenue, the Haynesville Shale development has shielded our state from the economic recession.

"As has been the case since the first shale gas well was drilled, advancements in natural gas drilling technology will continue to drive down the costs associated with developing these reservoirs.  Companies are finding new and innovative ways to positively impact their bottom line, while also drilling more safely and efficiently.  Some of these measures include utilizing drilling rigs that run on natural gas and advancements in the hydraulic fracturing and drilling process.

"The article also makes claim that the hydraulic fracturing process is a threat to the environment.  Contrary to the reporter's claims, hydraulic fracturing is essential to the development and production of shale gas resources.  The process is well-regulated by the states and conducted safely, with a proven track record. The oil and natural gas produced thanks to this technology helps fuel our nation's economy by providing jobs, and the energy needed to heat our homes, fill-up our cars, generate electricity and create the basic materials for such things as fertilizer and plastics of every variety.

"Hydraulic fracturing is an environmentally responsible way to make the most of our American energy resources. Without it, wells that would have run dry years ago, or would never have been drilled at all, are made viable. Experts believe 60 to 80 percent of all wells drilled in the United States in the next ten years will require fracturing to remain profitable and operating."

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Industry reels at IEA release of oil from Strategic Petroleum Reserve

Thursday, the International Energy Agency (IEA) revealed that the 28 member-country group is planning to release 60 million barrels of oil from the Strategic Petroleum Reserve over the month of July.

The US will release 30 million barrels, while European-member countries will provide 20 million, and Asian-member countries will offer 10 million barrels from their emergency supplies.

"Today, for the third time in the history of the International Energy Agency, our member countries have decided to release stocks," IEA Executive Director Nobuo Tanaka said. "I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy."

On the other hand, OPEC decided to keep oil production the same at its recent meeting.

When oil prices were at their recent high a few months ago, the Obama administration hinted that a release from the Strategic Petroleum Reserve may be the answer to bring down gasoline prices for American families.

Nonetheless, today's announcement comes as a surprise to many, after oil prices have drastically dropped on the NYMEX and gasoline prices are down across the country. Why release oil supplies now?

The IEA pointed to the disrupted oil supply in Libya as the reason for the release of oil from emergency coffers, although the civil unrest in the North African country has been going on for months.

Additionally, the group said that it would decide later if it would continue adding oil to the market.

Various energy  industry veterans have expressed concern about the IEA's move.

"Releasing oil from the Strategic Petroleum Reserve today, when gasoline prices are falling and there is no supply shortage, makes no sense and weakens our economic and national security," said Charles Drevna, president of the NPRA. "The Strategic Petroleum Reserve is an emergency lifeline to protect our nation against critical shortages in our oil supply and shouldn't be used as a Strategic Political Reserve to boost the popularity of elected officials. 

"This action today will do nothing to benefit consumers. Instead, it leaves our nation vulnerable if hurricanes, other natural disasters or a foreign crisis causes a real supply shortage. These are the types of emergencies the Strategic Petroleum Reserve was created to protect against.

"Instead of releasing 30 million barrels of oil from our emergency supply when there is no emergency, our leaders should be drawing up plans to lift the roadblocks preventing our nation from utilizing the billions of barrels of oil and natural gas reserves right here in America. This would produce more energy, more jobs and economic prosperity. No other nation puts so many limits on the use of its own natural resources to benefit its own people." ..................

"The bottom line is this -- it's hard to believe that the Administration would rather tap into our emergency supply than support legislation to produce and develop North American supplies, which will create American jobs," said US House Energy and Commerce Committee Chairman Congressman Fred Upton (R-MI).

"The Strategic Petroleum Reserve was designed for energy emergencies, not political convenience. Releasing our reserves to calm the market is emblematic of an Administration whose energy policy is irrational and counter-productive. Ironically, 30 million barrels – the amount the Administration plans to deplete our emergency reserves – is the exact amount of oil we could produce in just one month from resources in Alaska's Outer Continental Shelf if only the EPA would stop blocking exploration. And we could exceed that production by finally giving a green light to the Keystone XL pipeline from our ally Canada, which could bring online the capacity for 1.3 million barrels per day."
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"The Obama Administration's decision to release oil from the Strategic Petroleum Reserve is ill-advised and not the signal the markets need," said Karen Harbert, president of the US Chamber of Commerce Energy Institute.

"Unrest in the Middle East is likely to continue for quite some time, so a temporary increase in supply is not a substitute for a long term fix. Our reserve is intended to address true emergencies, not politically inconvenient high prices. Rather than dabbling around the edges, the Administration should take steps to increase domestic production of oil -- on and offshore, like the bill the House passed last night. With US crude oil production expected to decrease by 90 million barrels in the next year, the Administration should instead focus on increasing domestic production to improve our energy security, reduce our dependence on foreign oil, and create thousands of jobs."
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"This decision would have been more timely if made when the disruption in Libyan oil supplies first occurred," said Senator Jeff Bingaman (D-NM), chairman of the Committee on Energy & Natural Resources. "However, I hope it helps deflate speculative froth in the markets and further settles prices back to levels where most experts believe they should be."


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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

O&G companies jump for Permian Basin opportunities

Oil and gas drilling and production has always been present in West Texas, but drilling, development, infrastructure -- and M&A -- activities are heating up across the Permian Basin as unconventional oil prospects and production increase.

US independent Laredo Petroleum acquired privately held, Permian Basin-focused Broad Oak Energy for $1 billion on Thursday. The merger, Laredo reported, will make the company "a leading player in the Wolfberry oil play," a complement to its established assets in the liquids-rich Granite Wash play.

In other billion-dollar Permian Basin deals, Concho Resources (NYSE:CXO) acquired Marbob Energy's Permian Basin assets in New Mexico for $1.65 billion in cash, focusing on the Bone Spring unconventional oil play it contained.

As a part of its efforts to divest assets to pay for the oil spill in the US Gulf of Mexico, BP (NYSE:BP) sold its Permian Basin assets to Apache (NYSE:APA) for $3.1 billion. The 10 fields are located in West Texas and New Mexico and represent daily average production in 2010 of 15,110 barrels of liquids and 81 million cubic feet of natural gas -- as well as myriad drilling opportunities.

Even super-major ExxonMobil (NYSE:XOM) is drilling in the Permian Basin, and onshore unconventional-focused US independent Devon Energy is also active in the Permian Basin.

In a surprise move, offshore-focused W&T Offshore (NYSE: WTI) diversified its assets with a $366 million West Texas Permian Basin acquisition.

Independent LINN Energy (Nasdaq:LINE) is also active in the region, recently spending more than $200 million to acquire Permian Basin assets within the Wolfberry trend. Junior player Blugrass Energy (OTC:BLUGE) has acquired acreage in Permian Basin it believes could hold up to 168 billion cubic feet of natural gas. Additionally, Energen Corporation (NYSE: EGN) is active in the Wolfberry, Bone Spring and Avalon Shale trends of the Permian Basin.

Other junior exploration and production companies, such as Lynden Energy, Berry Petroleum and Cross Border are active in the region.

In addition to drilling and development, millions of dollars of pipeline and processing infrastructure acquisitions, expansions and construction projects are currently ongoing to support the burgeoning oil, natural gas and liquids production from the region.

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.