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OIL & GAS:SHALE STATE REGULATORY AND LEGISLATIVE UPDATE George Mason George Mason Law Firm, PSC (Formerly known as A. George Mason, Jr., PSC) (Licensed in KY, TN, VA, WV & PA) Kentucky Mineral Law Conference Thursday, October 25, 2012
NATURAL GAS:WHAT’S ALL THE FUSS ABOUT? MARCELLUS SHALE FORMATION UTICA SHALE FORMATION DIRECTIONAL DRILLINGHYDRAULIC FRACTURING OR “FRACKING” THE GOLDEN AGE OF NATURAL GAS
MARCELLUS SHALE• Marcellus Shale spans the following 6 states in Northeastern U.S. and is believed to hold as much as 141 trillion cubic feet of natural gas (the equivalent of about 33 billion Bbls of oil): New York West Virginia Pennsylvania Ohio Maryland Virginia• Marcellus Shale covers an area of 95,000 square miles (or 60.8 million acres) at an average thickness of 50 to 350+ ft. and at a depth between 2,000 to 9,000 ft. below the surface.
UTICA SHALE• Utica Shale extends much farther geographically, covering parts of: Kentucky Pennsylvania Tennessee New York • Ohio West Virginia Maryland Virginia • Canada• Utica Shale covers an area of 170,000 square miles (or 108.8 million acres) at an average thickness of 50 to 500 ft. and at a depth between 2,000 and 14,000+ ft. below the surface
Permitting andRegulatory Issues:Multiple state agencies,commissions, andgovernmental entitiesto consider:Pennsylvania DEPNew York DECWest Virginia DEPOhio Dept. of Natural ResourcesOhio EPAWater use/conservation agencies:Susquehanna River Basin CommissionDelaware River Basin CommissionChesapeake Bay CommissionLocal governmental authorities
MARCELLUS & UTICA SHALE Horizontal Drilling & Hydraulic Fracturing• What has changed from the past that now enables us to drill and produce the Marcellus & Utica Shales and other similar natural gas reserves around the U.S.? – horizontal drilling and hydraulic fracturing.• Environmental benefit of horizontal drilling – reserve areas can be reached with less surface disruption like gas reserves under parks, lakes, buildings and other locations.• More than 60 percent of all active rigs now are drilling horizontally, according to data compiled by The American Oil & Gas Reporter (April 2012)
Horizontal Drilling Technologies• Recent advancements in drilling and completion practices have helped unlock potential of gas shale plays• Exposes more of the organic shale horizons• Allows more natural fractures to be intersected in wellbore• Enhances initial production rates and ultimate gas recoveries• Requires fewer wells to drain natural gas reserves• Single lateral: 3,500 feet - +6,000 feet• Average horizontal well cost: $4 Million - $5 Million
Horizontal Drilling Horizontal Plays CBM 1,000 – 3,500 ft Pennsylvanian Conventional Play Berea/Weir/Big Lime 1500 – 5,000 ft Devonian Lower Huron Shale 2,500 – 5,000 ft Marcellus Shale 2,500 – 7,500 ftCourtesy of EQT Corp.
Multiple Locations from same wellpad 566923 143821 567130 567131Courtesy of EQT Corp.
Ver tical vs. Horizontal, cont.• Vertical Wells:• Up to 16 well pads (2 acres) needed to recover the natural gas from 640 acres• Multiple roads with pipelines and utilities• Total surface disturbance is ~45 acres
Ver tical vs. Horizontal , cont.• Horizontal Wells:• 6 to 8 horizontal wells anticipated drilled from a common 3-acre pad• One road with pipeline and utilities to well pad
HYDRAULIC FRACTURING• The process of injecting a fluid under pressure through wellbore to overcome native stresses and create a fracture or a fracture system in a porous medium.• Generally a propping agent is also injected along with the fluid since hydraulically formed fractures tend to heal after parting pressure is released.
Generalized Geology and Profile of a Utica Shale Well Prototype in East Central OhioAt these depths, the pressure fromthe overlying rocks and fluidsmake it physically impossible toinduce a fracture all the way up tothe groundwater layers.
HYDRAULIC FRACTURING• In 50 years > 1 million wells have been drilled using the “fracking” technique, and not one verifiable case of contamination has been reported.• About 99.5% of the fluid used to fracture rocks is made of sand and water.• Unconventional gas activity accounted for 53 percent of total U.S. natural gas production in 2010 and is projected to rise to 79 percent of total U.S. natural gas production by 2035.• Nearly $3.2 trillion in cumulative investments in the development of unconventional gas are expected to fuel the increase in production between 2010 and 2035.
HYDRAULIC FRACTURING, cont.• By 2015, the annual contribution of unconventional gas activity to U.S. gross domestic product is projected to reach nearly $197 billion, more than $22 billion of which will be from non- producing states. In total, the annual contribution is expected to more than double by 2035 to almost $332 billion.• Government revenue from unconventional gas activity is projected to reach more than $49 billion annually by 2015 and will continue to rise, to just over $85 billion by 2035. Over the studys entire 25-year horizon, unconventional gas is expected to generate nearly $1.5 trillion in total government revenue.(The Economic and Employment Contributions of Unconventional Gas Development in State Economies, HIS Global Insight 2012)
Adequate natural gas supply at competitive prices helps grow the U.S. economy• Lower gas prices have helped U.S. industry• Chemical and fertilizer facilities are seeing increased utilization with lower gas prices• Energy-intensive industry can be more competitive in the global market• Additional potential demand from natural gas vehicles US wellhead natural gas prices based on EIA data, adjusted to January 2012 price levels using US CPI All Urban Price data
Natural gas prices in the United States, Europe, and Japan, based on World Bank Commodity Price Data (March 2012)