January 2012              UOGM                                                                                            ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
UOGM                                                                            2011 Annual Review                        ...
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
Unconventional Oil & Gas -  2011 Annual Review
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Unconventional Oil & Gas - 2011 Annual Review

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The NewsBase 2011 Annual Review of the Global Unconventional Oil & Gas Sector

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Unconventional Oil & Gas - 2011 Annual Review

  1. 1. January 2012 UOGM News Analysis Intelligence Published by 2011 Annual Review NewsBaseJANUARY 2 THE YEAR IN REVIEW Spotlight shines on UK’s unconventional gasFEBRUARY 2 3 Fracking furore The controversy surrounding hydraulic fracturing Reflections on a decade of shale 3 (fracking) showed little sign of abating in 2011,MARCH 5 which had a significant effect on potential shale gas Haynesville claims pole position 5 production in Europe.APRIL 7 New acreage awards boost Indonesia’s France’s decision to ban fracking has had a major CBM sector 7 impact on companies that are exploring shaleMAY 9 deposits in the country and the wider unconventional oil and gas industry. (Page 12) Fractious fracking debate explodes in wake of Pennsylvania blowout 9 Developments in France were watched closely byJUNE 10 the UK government as it assessed the best way Shale investments continue in North forward for its own shale gas industry. (Page 2) American gas island 10JULY 12 Meanwhile, the debate about fracking in the US intensified after a blowout at one of Chesapeake The Franco fracking furore 12 Energy’s shale gas wells in Pennsylvania. (Page 9)AUGUST 14 Chesapeake remained a major player in the US Shale offers North Africa alternatives 14 unconventional energy sector last year, with theSEPTEMBER 15 company claiming it had so far spent US$2 billion Chesapeake upbeat about Utica 15 on its acreage in the Utica shale. (Page 15)OCTOBER 17 Chesapeake’s CEO believes oil and gas reserves UCG potential could match shale gas 17 in the Utica shale could be worth US$500bn andNOVEMBER 19 has urged speedy development of the formation. (Page 15) Moving GTL into the oil business 19 Another shale play that is developing rapidly isDECEMBER 21 the Haynesville, which a report claimed had Argentina ready to reap rewards of its overtaken the Barnett as the largest producing unconventional potential 21 natural gas shale formation in the US. (Page 5)For analysis and commentary on these and other stories, plus the latest unconventional developments, see inside… Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  2. 2. UOGM 2011 Annual Review page 2 JANUARYSpotlight shines on UK’sunconventional gasAs the UK’s unconventional gas industry gathers momentum questions are being raisedabout its environmental impact and sustainabilityBy Kevin Godier Cuadrilla Resources is advancing its shale gas operations in north-west England Environmentalists are advocating close scrutiny of fracking and a possible moratorium on drilling The government would find it difficult to ignore a new domestic energy source with gas imports risingDebate is intensifying over the potential in land near Kirkham more than 9,000 after the publication in mid-January of afor unconventional gas extraction in the feet (2,743m) down into the so-called report from the Tyndall Centre forUK as the country’s first shale gas well Bowland shale, which runs from Climate Change, which argued that nocontinues to make progress in Clitheroe to Blackpool in Lancashire. shale work should take place in the UKLancashire. The well is due to start extracting gas until the end of 2012, when a US According to Lord Browne, the former soon, and Cuadrilla has described it as Environmental Protection Agency reportCEO of BP, who has a significant the “first true shale gas” find in Europe, into the topic will produce its firstinterest in the project, the UK “is in a noting that preliminary drilling had results.strong position to benefit from potential confirmed and “possibly exceeded” itsgrowth in the unconventional gas.” But expectations. The firm counts among its UK prospectsfigures who oppose the embryonic backers a group of energy-focused The UK is one of a number of Europeanindustry have emerged in recent weeks, private equity funds managed by markets that have sprung to prominencethe latest being shadow energy minister, Riverstone, which is reported to hold a as potential shale gas plays, and oneHuw Irranca-Davies, who has called for a 36% stake in the company. Lord Browne, where public awareness, has, untiltemporary ban on shale gas and coal-bed who is now managing director of recently, been low. In addition tomethane (CBM) exploration. Riverstone Holdings’ European portfolio, Lancashire, possible plays in the UK that Shale gas production in the US has and a board member at Cuadrilla, have been mentioned in this contextgrown dramatically in the last decade, recently said: “Unconventional gas is include Surrey, Kent, Hampshire,almost tripling between 2007 and 2009 proving to be a game changer in the oil Cheshire and Nottinghamshire. However,owing to improved exploration and gas industry.” His comments are experts have said that the UK’s reservestechniques. These have helped to turn the helping to promote an unconventional of shale gas are unlikely to change theUS gas industry on its head, flipping the gas conference being held in Aberdeen in landscape of the market in an identicalglobal gas market from under-supply to early March, but will likely do little to manner to the effect of the gasover-supply. placate the environmentalist lobby now discoveries in the US, where the shale However, the prospect of thousands of emerging within the UK. The topic of basins are much larger. Althoughnew hydro fracturing drilling sites being unconventional gas has recently been accurate data are still lacking, petroleumestablished in the coming decades has pushed far higher up the UK agenda, geologist Nigel Smith at the Britishspurred environmental opposition to Geological Survey (BGS) said in Marchunconventionals in the US, with most 2010 that the UK’s shale gas might onlyconcerns linked to the potential With the UK expected to increase onshore production by 12%, orcontamination of drinking water. have to import 80% of its 11.64 million cubic metres per year, a fraction of the UK’s total 73.4 bcm gasUK debut gas supplies by 2020, an output in 2008. The report from theBy contrast the technique is relatively opportunity to tap into Tyndall Centre, as well as pointing outnew to the UK, where private company the environmental impact associated withCuadrilla Resources, founded in 2002, fresh domestic resources fracking techniques, drew attention to therecently completed the first exploratory may yet prove to be an lack of publicly available information ondrilling by sinking a test well in the its safety and stressed that more researchonshore part of the East Irish Sea Basin irresistible opportunity was needed. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  3. 3. UOGM 2011 Annual Review page 3 JANUARY It also predicted that gas drilling in aquifers or local communities.” including directional drilling andLancashire would give rise to a range of fracking, are conventional and have beenlocal concerns, including noise pollution, Caudrilla response used across the wider oil and gas industryhigh levels of truck movements and land- Cuadrilla has rejected the call by Irranca- (including previously in the UK) foruse demands. The report was funded by Davies, who revealed on January 27 that many decades.”the Co-operative, which offers green he had written to UK Minister of State The company defended theinvestment funds and is campaigning for Energy Charles Hendry urging a composition of its fracking fluid, whichagainst the expansion of ‘toxic fuels’ moratorium and to “properly explore the includes a biocide used at a lowsuch as crude from Canada’s oil sands. full implications of shale gas and CBM concentration, and said that it had Kevin Anderson, a professor of energy for the UK” while environmental submitted evidence to a House ofand climate change at the Tyndall Centre concerns over hydro-fracking techniques Commons energy committee’s inquiryat Manchester University, who authored were studied. This would prevent into shale gas.the report, has contended that the shale ministers being “caught napping” by a It additionally contended that the newgas should be left in the ground. surge of applications from companies industry could offer a “triple win” for “In an energy-hungry world any new looking to exploit shale gas reserves, he UK citizens: by helping to ensure energyfossil fuel resource will only lead to said, in comments that will inevitably security through new domestic energyadditional carbon emissions. In the case place fresh pressure on Westminster to supplies; by lowering the cost and priceof shale gas there is also a significant risk address the growing controversy volatility of energy to consumers and byits use will delay the introduction of surrounding fracking. reducing greenhouse gas emissions byrenewable energy alternatives,” he said. “The government must assure itself replacing coal as a power station The report’s launch also coincided and the wider public that fracking and the feedstock.with a visit to the UK by Josh Fox, associated processes used for extraction Cuadrilla made an earlier statement ondirector of the Oscar-nominated anti- of gas from shale or CBM are safe for January 17 seeking to reassureshale gas documentary Gasland, which use in the UK,” Irranca-Davies added. Lancashire residents andinvestigates the effects of shale drilling “Ministers cannot turn a blind eye and environmentalists that its processes wereon local communities. sacrifice our natural environment, or safe. “We are doing this by the book,” The UK’s official governmental compromise on our climate change said its CEO, Mark Miller, beforereaction has to date been cautious. targets.” adding: “We are using the bestAcknowledging that it is aware of reports Cuadrilla responded on January 27 technology the industry has.”from the US of environmental and health with a statement that said it had around With the UK expected to have toissues linked to some shale gas projects, 200 years of cumulative experience in its import 80% of its gas supplies by 2020,a letter from the Department of Energy team, including drilling and/or fracture an opportunity to tap into fresh domesticand Climate Change quoted by The stimulation of more than 3,000 wells, resources may yet prove to be anGuardian newspaper in mid-January said: mainly in the US. “The potential risks irresistible opportunity despite the“We understand that these are only in a associated with shale gas exploration are building clamour from the environmentalfew cases and that, when carried out not unique and are common to all lobby.correctly, shale gas exploration and hydrocarbon exploration,” it stressed.development does not pose a threat to “Shale gas exploration techniques, FEBRUARYReflections on a decade of shaleA new report analyses the impact of shale gas on the global gas market and highlights thelong-term opportunities that exist in the unconventional energy sectorBy Jim BrummAfter 10 years of development, shale gas development of that potential will focus to Global Shale Gas Technologies andhas the potential to impact global energy on North America, and the US in Markets.markets dramatically. But commercial particular, for the next decade, according Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  4. 4. UOGM 2011 Annual Review page 4 FEBRUARY Sweden and Austria. A number of gas shale basins have also been identified in Australia, China, India and southern African nations. By 2015, the report said, commercial shale gas production is likely to be occurring in Poland, China and India, whilst many other countries will have advanced exploration and development efforts under way. Global shale gas production volume is expected to grow by 10.8% per year from 5.04 tcf (142.7 bcm) in 2010 to 8.44 tcf (239 bcm) in 2015. The vast majority of the increase in output is expected to come from North America, with US and Canadian Noting that demand for natural gas was tcm) – enough resource for almost 140 production rises accounting for over 96%expected to continue to increase, the SBI years at current levels of consumption, of global growth during the period.Energy report projected it would account according to ICF International’s vice- While US shale gas production isfor nearly 24% of global energy supplies president of gas market modelling, Kevin expected to increase by 7.7% per year toby 2020. That compares with the less Petak. Over 50% of the assumed resource 7.07 tcf (200.2 bcm) in 2015, Canadianthan 23% of global energy demand met is shale gas, he noted. growth is expected to be dramaticallyby gas in 2010, noted Shannon Shuflat, So far, shale gas production is higher, averaging over 48% per year,an SBI Energy analyst and co-author of predominantly limited to North America, with output reaching 1.24 tcf (35.1 bcm)the report. with the US accounting for the vast in 2015. “The confluence of growing natural majority of historic and current Global shale gas production growth isgas demand and breakthroughs in production. As a percentage of total further expected to grow by 6.1% pertechnological advancements has made North American gas production, shale year until 2020, reaching 11.34 tcf (321.1investments in shale plays attractive in gas has climbed from virtually nothing in bcm).recent years,” said the report’s co-author 2000 to 13% in 2009, enabling the US toAkash Shah. “Advancements in eclipse Russia as the world’s leading Long-term opportunitieshorizontal drilling and hydraulic producer of natural gas, the SBI report The long-term opportunities presented byfracturing technologies have enabled the said. Production in Canada, as yet the shale plays have attracted newachievement of high rates of gas only other nation extracting shale gas in participants into the industry. Theproduction from deep, low-permeability commercial quantities, has grown from successes in profitable shale gas recoveryshale formations. These breakthroughs about 5 billion cubic feet (141.6 million in North America have begun to attracthave facilitated access to some of the cubic metres) in 2006 to 172 bcf (4.9 the attention of international oillargest undeveloped gas resources in the bcm) in 2010, accounting for 3.5% of companies (IOCs) seeking to replenishworld,” Shah explained. Estimating the current global output. reserves and foreign national oilshale gas resource base at 18,775 trillion Commercial production in Canada companies (NOCs) that are seeking tocubic feet (531.7 trillion cubic metres), currently comes from shale gas wells in gain technical expertise in extractingthe report said the resource potential of the Montney and Horn River shale plays, unconventional resources. A notableshale gas exceeded that of conventional while the majority of US production is recent example of this is the gas dealglobal resources. Noting that world derived from the Barnett, Haynesville, signed by PetroChina and Encana.natural gas consumption in 2010 is Antrim, Woodford and Marcellus shales. Merger and acquisition activityestimated at 112 tcf (3.17 tcm), the SBI The successes in the North American between independents and the energyanalysts point out that even if only 25% shales, particularly in the US, have majors in the US shale plays began anof the total shale resource base becomes piqued the attention of governments and upward trend in 2008 is likely totechnically recoverable, shale gas alone gas companies alike around the world, continue as major energy companies seekcan meet natural gas demand for over 40 the SBI report said. to buy into US shale gas resources, theyears at current consumption levels. Noting several countries around the SBI report said, adding this will change In North America, reserves that can be world hold prime targets for shale gas the landscape for shale producerseconomically recovered using current exploration, it said significant gas shale substantially over the next severaltechnologies total over 3,700 tcf (104.8 resources had been identified in Poland, years. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  5. 5. UOGM 2011 Annual Review page 5 MARCHHaynesville claims pole positionThe US EIA has released data indicating that the Haynesville Shale has overtaken theBarnett Shale as the largest producing natural gas shale formation in the USBy Kevin Godier According to the EIA, the formation is producing 155.8 million cubic metres per day of gas Drilling volumes in Barnett have flattened as explorers have turned their attention to US$100 per barrel oil However, El Paso-based Lippman Consulting has said that Haynesville has not overtaken Barnett…yetThe Haynesville Shale in northwestern mid-February, having taken advantage of gas wells, it was only producing aboutLouisiana has become the largest technological advances in drilling and 5.25 bcf (148.6 mcm) of gas per day, theproducing natural gas shale find in the expanded pipeline infrastructure that EIA noted, citing reported gas pipelineUS, surpassing the more mature Barnett more efficiently gets the gas into the flows.Shale in North Texas, according to the market. Illustrating the production strides madecountry’s Energy Information by Haynesville producers in recent years,Administration (EIA). Haynesville surge the Louisiana Department of Natural For the past decade, the Barnett has Citing data from Bentek Energy, the EIA Resources (DNR) said recently that thebeen the US’ largest shale producer, said the Haynesville – which experts say state had issued permits for around 2,000hosting the drilling of around 10,000 could hold up to 39 trillion cubic feet wells in Haynesville and that more thanwells and leading the North American (1.1 trillion cubic metres) of natural gas – 1,000 had gone into production sincerevolution underway in the natural gas was currently producing around 5.5 mid-2008.sector. But the EIA noted in a March 18 billion cubic feet (155.8 million cubic The agency said 500 more wells werereport that Haynesville was now the new metres) per day of gas. near completion and that 121 weretop dog, after its gas players lifted their Even after the Texas site recovered currently being drilled – and stressed thatproduction above their Barnett peers by from freezing weather that can shut down Louisiana’s natural gas production had exceeded 2 tcf (56.6 bcm) in 2010 for the first time since 1982. The EIA – a division of the US Department of Energy (DOE) – listed several factors as contributors to the Haynesville surge. It said that drillers and producers in Haynesville had been able to take advantage of what had been learned while developing Barnett to help ramp up production far more rapidly. For example, nearly a decade of shale- focused drilling was needed to reach production of 5 bcf (142 mcm) per day in Texas, using early prototypes of horizontal drilling programmes, whereas the same level was reached in less than three years in northwestern Louisiana, the EIA underlined, as Haynesville operators have been able to tap into that experience. “Technology-driven efficiency gains have enabled the Haynesville producers to reach that level with far fewer wells,” it said. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  6. 6. UOGM 2011 Annual Review page 6 MARCH Moreover, regional infrastructure is remain relatively low, operators are president George Lippman has taken firmalso a key factor, as major expansions to turning their attention to the more issue with the claim, underlining thatthe gas transmission system that have liquids-rich areas of the play, thereby “our data clearly show that the Barnettbeen developed in northwestern reducing the emphasis on gas.” production is still greater than theLouisiana have supported the rising The data from Bentek Energy – an Haynesville production”.natural gas production from the Evergreen, Colorado-based consulting In an e-mail to the Fort Worth-basedHaynesville. Pipeline capacity firm – said that Barnett Shale production Star-Telegram, on March 22, Lippmanexpansions were recently completed on had been maintained at about 5.35 bcf said his firm’s estimates showed Barnettthe Regency, Midcontinental Express, (151.5 mcm) of gas per day in the first production averaging 5.52 bcf (156.3and Gulf Crossing systems, each of several weeks of 2011, but fell off mcm) per day in February, easilywhich transports Haynesville gas. sharply in mid-February before exceeded the output of 5.03 bcf (142.4 recovering to its current level. At about mcm) per day from Haynesville.Characteristics the same time that Barnett production Lippman said his company’sOne of the so-called “Big Four” key was just getting back on line, Haynesville calculations were derived from Texasshale formations in the US – the others production began following a sharp Railroad Commission data, “plus thebeing the Fayetteville, Marcellus and upward trend toward its current peak. most recent data from our GasBarnett shales – the Haynesville According to Matt Marshall, Bentek Processing Plant database that collectsformation is a layer of sedimentary rock senior energy analyst, shale gas daily volumes at the outlet of all gas-more than 10,000 feet (3,048 metres) production in the Fort Worth Basin has processing plants in each region and thenbelow the surface of northwestern been in slight decline since November extrapolates that data back to wellheadLouisiana, southwestern Arkansas and 2010, at the same time as the Haynesville volumes.”eastern Texas, with some of the has entered a strong growth trend. According to the Star-Telegram,formation stretching well across the “Haynesville would have passed the Steven Grape, the Dallas-based domesticnorthern central portion of Louisiana. Barnett in a couple of months anyway if reserves project manager for the EIA, Named after the town of Haynesville these trends had continued,” he told and Gene Powell, publisher of the Fortin Claiborne Parish, Louisiana, and Platts on March 21. Marshall estimated Worth-based Powell Shale Digest, saididentified by geologists 60 years ago, the Haynesville’s current production at on March 21 that the agency neededformation is of a type once considered around 5.62 bcf (159 mcm) per day, further clarification and confirming datatoo costly to explore, but rising energy compared with 5.40 bcf (152.9 mcm) per before it could be assured that theprices and newer technology and day in the Barnett Shale. Haynesville was the new leader.processes have changed that, leading to a Lippman said that although herush of activity as energy exploration Casting doubt expected that Haynesville would surpasscompanies have taken out leases on However, not all market observers are the Barnett in production “in the monthsproperty in north Louisiana. convinced by the Bentek and EIA views ahead ... [it] has not happened yet”. The most active areas in this respect that the Barnett Shale has been eclipsed These comments go to show that shalehave been Caddo, Bienville, Bossier, by the Haynesville Shale as the US’s gas production is something of aDeSoto, Red River and Webster Parishes number one natural gas field. moveable feast where the lead canof Louisiana, plus adjacent areas in At Lippman Consulting, an El Paso- change hands on a regular basis. Somesouth-west Arkansas and east Texas based natural gas consulting firm, industry analysts have predicted thatwhere the shale element of the formation drilling in the Haynesville will probablyis believed to run at its thickest. be on the end of a slowdown similar to The Haynesville – which the Barnett if oil prices remain high andFocus gas prices remain low, while other haveIts rise to prominence has come at a time experts say could hold up highlighted how the severe decline rateswhen drilling in all US shale basins has to 39 trillion cubic feet (1.1 that follow initial shale gas productionincreased tremendously, although Barnett spurts may yet alter the figuresactivity may now be tailing off because trillion cubic metres) of dramatically in the months and yearsof a swing in focus to liquids-rich plays. natural gas – was ahead. The EIA report observes that drilling For the time being, at least, thevolumes have been flattening in the producing around 5.5 Haynesville producers have grabbed poleBarnett as explorers turn their attention billion cubic feet (155.8 position in the US and are likely to leadto US$100 per barrel oil. the “shale gale” peloton into the next It said: “As gas-directed drilling in the million cubic metres) per bend in the route.Barnett slows and natural gas prices day of gas Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  7. 7. UOGM 2011 Annual Review page 7 APRILNew acreage awards boostIndonesia’s CBM sectorThe signing of nine CBM production-sharing contracts has provided a major boost toIndonesia’s flagging oil and gas industryBy Kevin Godier Together the PSCs account for investment of US$42.55 million Four of the contracts involve BP ventures in the Barito basin of South Kalimantan Over 30 CBM PSCs have been granted by the Indonesian government since 2008The Indonesian government has signed Indonesia holds a potential 453 trillion potential operators, while those for thenine new production-sharing contracts cubic feet (12.83 trillion cubic metres) of remaining six blocks were decided in(PSCs) in its coal-bed methane (CBM) CBM reserves in-place, more than auctions. The three directly offeredsector, four of which involve BP ventures double the country’s natural gas reserves, blocks are: the Tanjung IV block inin the Barito basin of South Kalimantan. according to a 2004 estimate by Stevens Central Kalimantan, which was awarded Indonesian Energy Minister Darwin and Hadiyanto. to a consortium of PHE Metana TanjungZahedy Saleh announced the PSCs on The commitments by BP – which has IV and BP Tanjung IV; the Muara EnimApril 1 and said the nine contracts in over 35 years of experience in Indonesia II block in South Sumatra, which wasKalimantan and Sumatra would help to and is one of the largest foreign investors awarded to a consortium of PHE Metanarevive flagging investment in Indonesia’s in the country – will be seen as a Sumatera 5, Metana Enim Energi andoil and gas sector. Together, the contracts particular boost for Jakarta in this Indo CBM Sumbagsel 2, and the Muaraaccount for investment of US$42.55 respect. Enim Block III, which went to amillion with a total signature bonus of “BP has significant experience and consortium of PHE Metana Sumatera 4US$11.3 million across the nine blocks. expertise in the development of and Baturaja Metana Indonesia. Illustrating the momentum that is unconventional gas, including CBM, and Three of the six auctioned blocks – thebuilding in the CBM industry in coal-rich we look forward to working with our Kapuas I, Kapuas II and Kapuas IIIIndonesia, the deals were announced on partners to apply this to the potential of blocks – are located in Centralthe same day that Dart Energy said it had Indonesia’s coal resources,” said BP’s Kalimantan. These were awardedproduced first gas from its SCBM-1 well CEO, Bob Dudley. respectively to: a consortium ofat the Sangatta West project in East Another PSC participant, Pertamina Transasia CBM and BP Kapuas I; aKalimantan. It is believed to be the first Hulu Energi (PHE), has emphasised that grouping of Kapuan CBM Indonesia anddedicated CBM well to produce gas from the contracts demonstrate support for BP Kapuas II, and a consortium of Gasa PSC in Indonesia. Indonesia’s push to develop alternative Methan Utama and BP Kapuas III. One of the reasons for growing interest energy resources to curb the country’s The remaining three blocks comprised:in CBM in Jakarta is the soaring dependence on crude oil and the Kutai Timur block in Eastdomestic demand for natural gas, which conventional gas. “We hope that this Kalimantan, won by a consortium ofhas made it difficult for Indonesia to strategy [developing CBM] can tackle Senyiur CBM and Total E&P Kutaimaintain and expand its exports of the gas supply shortfall,” said PHE’s Timur; the Kutai Barat block, also in theliquefied natural gas (LNG) in recent president, Dwi Martono, in a press same province, won by Gas Methanyears. release. Abadi, and the Sijunjung block in West Sumatra, awarded to a consortium of IntiJakarta’s jackpot Nine blocks Gas Energi and Bukit Asam.Over 30 CBM PSCs have been granted Of the nine CBM blocks, three wereby the government since 2008. These directly offered by the government to BP pushinclude exploration commitments of From BP’s perspective, the new PSCsaround US$150 million over the next add to its existing operations inthree years as Jakarta pushes harder to The commitments by BP Indonesia, including the Tangguh naturaldevelop its unconventional gas resources. will be seen as a particular gas project in West Papua. boost for Jakarta Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  8. 8. UOGM 2011 Annual Review page 8 APRIL Eventual gas output from the block is to be sold initially to the local market under a deal similar to that for Sangatta West. Other initiatives under way in Indonesia attest to the country’s awakening of its unconventional gas potential. Houston-based Contractor Core Laboratories and Indonesia’s upstream oil and gas regulator BPMigas have commenced a study into the shale gas potential in Sumatra and Kalimantan in Western Indonesia, after indications from the Bandung Technology University that the country has around 1,000 trillion cubic feet (28.3 trillion cubic metres) of shale gas reserves in place. The participation of the UK major will be – and whether the gas extracted Reports have said that ministers arecomes shortly after its striking of can be sold outside the lower-margin hoping to offer blocks for shale gasagreements to access new gas resources Indonesian market – remains to be seen. evaluation and exploration by the end ofin China, India and Australia, and also But the bigger point is that Indonesia the year, with a target of signing the firstfollows the company’s CBM joint appears to be on the verge of joining co-operation agreement to exploit shaleventure in Indonesia with Eni and VICO, other markets where the CBM industry gas in 2012. Indonesia’s Energy Ministrywhich in late 2009 was awarded a has made spectacular strides, notably the has also started a study into the shale oilcontract at Sanga Sanga near the Bontang US, Canada, Australia and China. potential on Buton Island in south-eastLNG plant in East Kalimantan. The authorities in Jakarta will have Sulawesi. BP currently produces about 650 been especially encouraged by the news Indonesia’s growing interest in itsmillion cubic feet (18.4 million cubic from Dart Energy’s SCBM-1 well, which unconventional resources is inevitable,metres) per day of gas in the San Juan is the first of four pilot wells planned for given the natural depletion of its maturebasin in Colorado, which is currently its Sangatta West, having been drilled last oilfields, from which crude andsole CBM-producing operation. The month to a depth of 830 metres. condensate output has fallen from peaksIndonesian activity suggests the UK giant Dart said that well testing over the next of above 1.5 million barrels per day inis now branching out in its pursuit of two to three months would determine the 1970s to 947,000 bpd in 2010.CBM acreage around the world. production and reserves potential, once a Indonesia was also formerly the Together the four Indonesian PSCs stabilised gas flow is achieved, and that world’s second largest gas exportercover an area of approximately 4,800 gas produced from the Sangatta West behind Qatar, but has been overtaken bysquare km. BP said it had committed to pilot holes would initially be sold under Malaysia after recent declines in itsspend US$15 million on seismic an approved gas-to-power scheme to the output owing to a decrease in productionexploration and surveying over the next local grid. from the Arun LNG plant in Aceh andthree years and might begin production Dart is the joint operator of the the rising use of natural gas at home towithin that period. BP will hold a 44% Sangatta West CBM PSC with Ephindo avoid costly imports and dwindlingparticipating interest in the Tanjung IV Energy, each firm holding 24%, while domestic supply.PSC and co-owner Pertamina will hold Pertamina holds the remaining 52%. BP’s willingness to dip its toes in onethe remaining 56%. Its stake in the three Also in Indonesia, Dart said a joint of the world’s largest and most under-other PSCs will be 45%, alongside operating agreement for the Tanjung explored CBM resources will ensure thatentities all controlled by Sugico, a Enim PSC has been signed by all parties, other global energy giants followJakarta-based mining company. enabling the first exploration well on the progress in Indonesia’s CBM sector How successful the nine new ventures Sumatra block to be spudded shortly. closely. Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  9. 9. UOGM 2011 Annual Review page 9 MAYFractious fracking debate explodesin wake of Pennsylvania blowoutEnvironmental groups are on the offensive against the unconventional gas industry afterthe recent blowout at one of Chesapeake Energy’s wells in PennsylvaniaBy Kevin Godier The blowout led to thousands of gallons of drilling fluid seeping into local waterways Chesapeake shut down all of its fracking operations in Pennsylvania and West Virginia following the incident The US government is under pressure over plans to develop oil sands and oil shale in the west of the countryThe environmental spotlight on North reached a salinity level inappropriate for stretches from West Virginia to NewAmerica’s unconventional oil and gas consumption owing to drillers’ use of York.industries has intensified recently after a chemicals in the fracking process. Chesapeake, which had 87 active wellsblowout at a natural gas well in Against this backdrop, the shale gas in Pennsylvania in the second half ofPennsylvania. The incident led to producers are looking to expand drilling 2010, said the accident was caused by athousands of gallons of drilling fluid to new parts of the US. But they will be broken piece of equipment. Whileseeping into local waterways and braced for a barrage of criticism after the industry commentators suggested that theintensified debate about the threat of blowout at Chesapeake Energy’s well in incident could hurt Chesapeake’swater contamination posed by the Pennsylvania on April 19. reputation for safety and could lead tohydraulic fracturing (fracking) process. The accident in LeRoy Township, just calls for stricter regulation of shale Elsewhere, the US Bureau of Land south of the New York State border, drilling in Pennsylvania, the companyManagement (BLM) has come under reportedly spilled thousands of gallons of stressed that its emergency responsepressure from environmental groups in water and chemicals into the nearby procedures and the design of the well siteUtah, Colorado and Wyoming after Towanda Creek and forced the temporary combined to minimise the amount oflaunching discourse on opening up large evacuation of nearby families. Workers fluid spillage.swathes of the states to oil shale and oil were able to contain the spill by April 20 “We spend our time focused onsands development. Environmentalists and regained permanent control of the ensuring that we have safe andare using ongoing hearings in Utah to well on April 25. Nobody was injured in environmentally responsible operations,”lobby the BLM against sanctioning such the incident and the Pennsylvania Chesapeake said in a statement. “If youdevelopment. authorities said the environmental impact take care of those two critical issues, appeared to have been minor. Yet the reputation will take care of itself,” saidFractious debate events have further heightened the the statement, which stressed thatFor the time being, the most contentious scrutiny on gas drilling in the Marcellus Chesapeake said it had had a well-controldebate surrounds the extraction of shale shale, the gas-bearing rock formation that specialist on the scene in 30 minutes.gas and the threat this poses to water “There was no delay in response ortables and the atmosphere. In Texas, a shortage of expertise throughout,” itpending fracking disclosure bill would emphasised.require drillers to disclose their array of Chesapeake, the second biggest US gaschemicals, while another would require producer after ExxonMobil, hasthem to use ‘tracer’ fluid in the liquid nevertheless elected to shut down all ofthey use for fracking, so that the industry its fracking operations in Pennsylvaniawould not face false claims of and West Virginia until it ascertains whatgroundwater pollution. went wrong in LeRoy Township. Elsewhere, the boom in the Marcellusshale has led to claims of contaminated IMAGE: Marcellus shale gas drillingwater, especially in Pittsburgh, where tower in Pennsylvaniareports claim water in some areas has Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  10. 10. UOGM 2011 Annual Review page 10 MAY The US Environmental Protection and development. One environmental NGO, LivingAgency (EPA) has asked for details, The first of seven hearings began on Rivers, is currently challenging Utah’sincluding sources of the discharge and April 26 in Salt Lake City, Utah, approval of a proposed commercial oilthe extent of environmental damage. The following a decision by US Interior sands project at the PR Springs mine inEPA is conducting a two-year study on Secretary Ken Salazar to take a fresh the Uinta Basin, which would be the firstthe safety of fracking and its impact on look at a federal oil shale plan covering of its kind in the US.drinking water. Initial results of the peer- Utah, Wyoming and Colorado that was The group contends the scheme wouldreviewed study are expected in late 2012. released in 2008 by the Bush dig up fragile topsoil, destroy limestone In addition, Pennsylvania’s administration. plateaus formed over thousands of yearsDepartment of Environmental Protection Hearings on the plans were due to be and pollute groundwater downstream thathas sent the company a “notice of held in Wyoming on April 29 in Rock flows into the Colorado River. Livingviolation,” representing the first step in Springs and on May 5 in Cheyenne, and Rivers filed a complaint with the state,enforcement proceedings and marking in Colorado on May 3 in Rifle and on claiming that the Utah Division of Waterthe 58th notice of violation for May 4 in Denver. Quality has not accurately assessed theChesapeake in Pennsylvania since 2008, Environmentalists have expressed potential for widespread environmentalthe third highest figure amongst concern not only about the impact of damage.Marcellus operators. mining in Utah’s San Rafael Swell and US President Barack Obama is Most of those violations were minor, the scenic Book Cliffs area, but also the generally supportive of developinghowever, and did not result in potentials risks to air quality and water domestic unconventional oil and gasenvironmental damage. Chesapeake has supplies downstream. resources in order to curb his country’ssaid in April that it will henceforth “The scoping process is designed to reliance on imported energy. Indeed,disclose the chemicals it uses on all of its explain to the public what we’re about to Obama has made natural gas thefracking jobs. do and gather their input early on,” said cornerstone of his energy policy. But Mitch Leverette, chief of the BLM’s despite support from the government, itSalt Lake City rumbles Solid Minerals Division. “Based on their is clear that unconventional energyOne the other side of the US, the BLM is comments, we hope to offer a range of developers in the US will continue toexamining whether as much as 1.9 alternatives in the final report,” he said, face pressure from environmental groupsmillion acres (7,690 square km) should quoted on April 28 by Associated Press. until they can prove that the drillingbe made available for commercial oil A draft of the BLM report is due to be processes they use are both safe andshale projects and also whether more completed by late September, and the clean.than 400,000 acres (1,618 square km) final report completed by Decembershould be opened up for oil sands leasing 2012, he said. JUNEShale investments continue inNorth American gas islandCash continues to pour into shale gas opportunities in the US and Canada, despite theprospects for exports diminishingBy Ed Reed ExxonMobil has affirmed its XTO shale gas position, acquiring two Marcellus-focused companiesThe unprecedented boom in shale gas in report from the Paris-based group said America, based on liquefied natural gasNorth America will have a worldwide the US and Canada would remain largely (LNG).impact, according to the International isolated from the global gas trade – aEnergy Agency (IEA). However, a new blow to hoped for exports from North Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
  11. 11. UOGM 2011 Annual Review page 11 JUNE Despite this projected lack of export become significantly more gas-focused. strong competitive pressure to movecapacity, companies are continuing to The ExxonMobil deal in the Marcellus prices towards costs, North Americainvest substantial sums in opportunities will provide reassurance for other should play only a minor role in netin the US and Canada. The most recent, companies, as there has been increasing global LNG trade.”ExxonMobil, has struck a deal to acquire talk of an investment “bubble” in shale While a number of plans have beentwo companies focused on the Marcellus gas, with leasing prices rising while hub mooted on exports from North America –shale. prices remain low. with liquefaction plants planned for both Unconventional gas production in The IEA reported that seven the US Gulf Coast and Canada’s WestNorth America, under the IEA’s transactions in North America in 2010 – Coast – the extent to which this will bepredictions, will increase from 360 not including the XTO deal – carried followed through remains unclear andbillion cubic metres in 2008 to 670 bcm price tags of US$1-5 billion. This year, not everything will come to fruition.in 2035, making up around two thirds of significant deals have focused on the In addition, while the ability of LNGthe total output. Montney shale, in Canada, where export capacity has been cited as a means PetroChina committed US$5.4 billion in of hiking local gas prices – in effectMarcellus move February to a venture with EnCana and, opening North America up to globalExxonMobil, which took a substantial earlier this month, Petronas struck a pricing – the impact is likely to beshale gas position through its US$41 US$1.1 billion deal with Progress limited. Gas in Western Canada that isbillion acquisition of XTO Energy in Energy. being considered for export, for instance2010, has committed US$1.7 billion to via the Kitimat LNG plant, is strandedbuy Phillips Resources and TWP, both Gas island and will not play a role in meeting localbased in Pennsylvania. The two Some commentators have pinned further demand. Infrastructure challenges will becompanies are to be incorporated into the growth in shale gas developments on the significant in building these plants.XTO unit. ability to export this feedstock, but recent Plans for export capacity in the Gulf The deal, which completed on June 2, research suggests this may not happen to Coast, meanwhile, face a number ofwill involve ExxonMobil taking the extent hoped. obstacles and analysts have predictedownership of around 317,000 acres The IEA’s recent report, “Are we output will only reach 1-2 billion cubic(1,282 square km) in the Marcellus. entering a golden age of gas?” was feet (28-57 million cubic metres) per dayUnder the transaction, ExxoMobil will released last week and set out a new by 2017, which will be insufficient toadd around 228 billion cubic feet (6.46 scenario under which production of the turn around the local glut.billion cubic metres) equivalent of feedstock would increase beyond A number of new LNG plants areproven gas reserves and around 50 previously held expectations. In North planned around the world, particularly inmillion cubic feet (1.42 million cubic America, it said, “unconventional gas Australia, which was picked out by themetres) per day of production. helps domestic production keep pace IEA as potentially challenging Qatar’s A note from Tudor Pickering Holt said with increasing demand in the [new] position as top producer by 2020.the deal appeared attractive for the scenario. Overall, the region will In addition, the impact of shale gaspurchaser, with below-average pricing of maintain its status as a marginal net development in other countries will alsoaround US$5,000 per acre (US$1.25 importer [as a result of Mexico],” to have an effect on liquefaction plans.million per square km) and that the 2035 and “will remain relatively isolated China, for instance, is assessed assouth-west Pennsylvania assets were “in from the other gas markets.” holding the world’s largest shale gasa good zip code.” The brokerage note While prices in the US and Canada are reserves. The Asian state will continue tosaid, following this deal, ExxonMobil’s likely to remain low, with “mechanisms be reliant on gas imports but Northtotal Marcellus acreage was around in these countries continuing to apply American LNG supplies will face700,000 acres (2,830 square km). competition from a number of sources ExxonMobil – and the other large and are likely to be at the higher end ofenergy companies – are becoming ExxonMobil’s deal in the world prices.increasingly reliant on gas reserves andproduction to prop up their company Marcellus will provide Domestic consumptionstatistics. In February, ExxonMobil said reassurance for other While export opportunities are limited,53% of its proven reserves were gas, the IEA’s new scenario suggests therewith the remainder liquids. While it companies, as there has may be substantial demand increases inmanaged to replace around 100% of its been increasing talk of an the US. The “golden age” report predictsliquids production in 2010 it added a US demand could be nearly 790 bcm bysubstantial amount of gas – 328% of its investment “bubble” in 2035, up by 18% against previousprevious production, or 2.6 billion barrels shale gas scenarios.of oil equivalent – suggesting it will Copyright © 2012 NewsBase Ltd. www.newsbase.com Edited by Ryan Stevenson All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

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