Slide #1 – Oil & Gas Shale State Regulatory and Legislative Update
Slide #2 – Natural Gas: What’s all the fuss about? Marcellus Shale – The “Shale Gale” or “Mighty Marcellus” Utica Shale – Potentially could surpass Marcellus in production But for Directional Drilling & Fracking, we would not be able to unlock the Marcellus & Utica geological formations and you would not have invited me to speak here today Shale formations – They are geological formations that are about 350-450 million years old These elements have all come together to create what has been named the “Golden Age of Gas!”
Slide #3 – World’s Top Reserve Holders (as of February 2012) – 24.4 Trin cubic metres or roughly 862 Tcf (Trillion cubic feet) in the U.S. According to the Annual Energy Outlook 2012 Early Release Overview, the United States is projected to become a net exporter of liquefied natural gas (LNG) in 2016, a net pipeline exporter in 2025, and an overall net exporter of natural gas in 2021. The outlook reflects increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States compared to other global markets. Marcellus formation in the United States is estimated at 141 Tcf according to the 2012 report by the Energy Information Agency (EIA) Approximately 24,309,599 Mcf was consumed by the United States in 2011 and it’s predicted to increase each year. Kentucky consumed approximately 103,770 Mcf in 2011 (according to the EIA)
Slide #4 – Shale Gas Plays, Lower 48 States Henry Harmon – CEO, Triana Energy, LLC, Charleston, West Virginia – He has predicted that three (3) new major Shale formations will be discovered in the United States. Barnett, underlying Dallas & Fort Worth, Texas started Natural Gas - “Shale Gas” Eagle Ford – Oil Shale Bakken - Oil Shale – North Dakota is now trailing only Texas, having surpassed both Alaska and California in oil production for 2012 . The oil pipeline is running at 100% capacity. They are using tanker trucks to pick up the oil and deliver the oil to tank farms, which off-load the oil into tanker rail cars. Marcellus & Utica Shale – Focus of my talk today.
Slide #5 – 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: New York West Virginia Pennsylvania Ohio Maryland Virginia Marcellus Shale covers an area of 95,000 square miles at an average thickness of 50 to 350+ ft. and at a depth ranging between 2,000 and 9,000 ft. below the surface.
Slide #6 – Utica Shale Utica Shale spans the following 8 states in Northeastern U.S. and a portion of Canada and is believed to hold as much as 17 trillion cubic feet of natural gas: New York West Virginia Pennsylvania Ohio Maryland Tennessee Virginia Kentucky Utica Shale covers an area of 170,000 square miles at an average thickness of 50 to 500 ft. and at a depth between 2,000 ft and 14,000+0 ft. below the surface.
Slide #7 – Marcellus & Utica Shale Marcellus Shale – Outlined in Yellow Utica Shale – Greem
Slide #8 – Generalized Cross Section – Utica & Marcellus Shale – Ohio to Pennsylvania A-B: East from about Cleveland, OH to west of Pittsburgh, PA just above the panhandle of WV Marcellus – Devonian geological formation Utica – Ordovician geological formation Why is the geological formation so important? Kentucky – “ Shallow well” means a gas well drilled and completed in Eastern KY at a depth less than 4,000 feet or above the base of the lower member of the Devonian Brown Shale formation. (KRS § 353.510) Statutory spacing - In KY a shallow gas well shall be at least 500 ft. from the nearest mineral boundary and 1,000 feet from the nearest gas producing well. (KRS § 353.610) West Virginia – “‘ Shallow well’" means any gas well drilled and completed in a formation above the top of the uppermost member of the "Onondaga Group": Provided, That in drilling a shallow well the well operator may penetrate into the "Onondaga Group" to a reasonable depth, not in excess of twenty feet, in order to allow for logging and completion operations, but in no event may the "Onondaga Group" formation be otherwise produced, perforated or stimulated in any manner; (WV Code § 22C-8-2) “ For all shallow wells with a depth less than 3,000 feet, there shall be a minimum distance of 1,000 feet from the drilling location to the nearest existing well. For all shallow wells with a depth of 3,000 feet or more, there shall be a minimum distance of 1,500 feet from the drilling location to the nearest existing well.” (WV Code § 22C-8-8)
Slide #9 – Utica Shale in Eastern Ohio Utica Shale – Ohio eastern counties – main focus of shale drilling Stark Portage Summit Mahoning (Youngstown - A company is to open a plant to make pipeline for the oil & gas industry.) Trumbull Columbiana Carroll Tuscarawas Jefferson Harrison Belmont
Slide #10 – Permitting and Regulatory Issues Pennsylvania Department of Environmental Protection New York Department of Environmental Conservation West Virginia Department of Environmental Protection Similar to Kentucky Department for Environmental Protection Water Use/Conservation Agencies: Consumptive Use: generally 100,000 gallons withdrawn from streams or rivers Susquehanna River Basin Commission (SRBC) New York, Pennsylvania & Maryland Delaware River Basin Commission (DRBC) Pennsylvania, New Jersey, New York and Delaware Chesapeake Bay Commission (CBC) Maryland, Virginia and Pennsylvania Local government authorities - Zoning & Land Use – Depending on whether state has statutory preemption, the local government can’t ban all drilling, but may be able to dictate time & place for drilling U.S. Environmental Protection Agency – 500 lb gorilla in the room PA is drafting regulations to allow companies to use coal mine drainage water that will allow them to convert into potable water for use as the fluid in hydraulic fracturing or “fracing” a Marcellus or Utica Shale well.
Slide #11 – Pennsylvania Marcellus Wells as of July, 2011 Range Resources Corporation Chairman John Pinkerton calls Utica a “ triple play .” He said, “A very significant advantage we’ll have in developing the Upper Devonian and Utica will be that we’ll be drilling where we’ve been drilling Marcellus wells. We’ve already incurred the cost for acreage , roads , surface location , water management , gas lines and compression [& power lines] . Therefore, the incremental costs to develop the Upper Devonian and Utica will be reduced by approximately one-third versus developing these zones on a stand-alone basis.”
Slide #12 – Marcellus Shale – Pennsylvania Drilling Activity Comparison of horizontal wells vs. non-horizontal wells as of April, 2012 Between 2009 and 2011, Pennsylvania's natural gas production more than quadrupled due to expanded horizontal drilling combined with hydraulic fracturing (according to the EIA) Annual gross natural gas production more than doubled in 2011, exceeding 1 trillion cubic feet, due to production from the Marcellus shale
Slide #13 – Average Monthly Natural Gas Production – Billion Cubic Feet Per Day on Left of Slide with Month & Year on the Bottom Marcellus: January 2010 roughly 10 Bcf per month May 2012 > 20 Bcf per month
Slide #14 – Marcellus Shale – West Virginia Drilling Activity As of February 29, 2012 Top Producing Counties in WV: Doddridge County Harrison County Jackson County Kanawha County Lewis County Logan County McDowell County Mingo County Ritchie County Upshur County
Slide #15 – Marcellus & Utica Shales – 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)
Slide #16 – 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
Slide #17 – Example of Horizontal Drilling & Hydraulic Fracturing Shale Gas Extraction
Slide #18 – Vertical versus Horizontal Wells Marcellus Shale – 100 ft thickness with the lateral leg 5,000 ft. in length Hydraulic fracture zone – every 300 ft.-500 ft.
Slide #19 – Horizontal Drilling – Horizontal Plays Coalbed Methane – CBM Conventional Plat – Berea/Weir/Big Line – 1,500-5,000 ft Lower Huron Shale – 2,500-5,000 ft Marcellus Shale – 2,500-7,500 ft
Slide #20 – Vertical Drilling Topographic constraints Coal seam, streams, lakes and surface topography may eliminate many locations for vertical wells
Slide #21 – Vertical vs. Horizontal, cont. Traditional Vertical Well Spacing: 32 separate pad sites needed for 32 wells Horizontal Well Spacing: 1 pad site for up to 32 wells According to Cheseapeake
Slide #22 – Multiple Locations from Same Wellpad This slide shows multiple locations from the same wellpad. These are “stacked” locations for four (4) locations. The actual distance from the center to each end is 7,000 ft with a total length of 14,000 ft.
Slide #23 – Vertical vs. Vertical vs. Horizontal Drilling 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
Slide #24 – Horizontal Drilling Horizontal Wells: 6 to 8 horizontal wells anticipated drilled from a common 3-acre pad One road with pipeline and utilities to well pad
Slide #25 – Hydraulic Fracturing – What is it? A pressurized mixture of sand, water and chemicals is injected into a horizontally drilled well The mix cracks the shale and fills the cracks with sandy grit, allowing natural gas to flow up from the well The recovered water is stored in lined pits or taken to a treatment plant Has become controversial because: Environmentalists fear the cracks created can spread to existing cracks in the rock layer and become pathways to ground water Environmentalists also fear the well casings can crack and leak chemicals into the ground water BUT there have been NO known cases of this happening
Slide #26 – 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.
Slide #27 – Typical Well Schematic +/- 6,000 feet deep = 4 Empire State Buildings 13 3/8” Conductor Casing (30-60 feet) 9 5/8” Water Protection Casing (at least 300 feet) Cemented to surface 7” Coal Protection Casing (2,000-3,000 feet) Cemented to surface 4 ½” Production Casing (5,000-6,000 feet) Cemented across gas zones
Slide #28 – Underground Aquifer Regarding a Pennsylvania paper published on July 10, 2012 by Duke University researchers: "The results reinforce our earlier work showing no evidence of brine contamination from shale gas exploration," said Robert Jackson, director of Duke's Center on Global Change and a co-author of the paper, which appeared online in the Proceedings of the National Academy of Sciences. The team evaluated 426 samples from groundwater aquifers in six counties. "This research demonstrates that freshwater aquifers in northeastern Pennsylvania have not been impacted by natural gas development activities," said Kathryn Klaber, president of the Marcellus Shale Coalition.
Slide #29 – Utica Shale Well (Casing Width Exaggerated) Generalized Geology and Profile of a Utica Shale Well Prototype in East Central Ohio – Larry Wickstrom, Division Chief and State Geologist, Ohio State Division of Geological Survey At these depths, the pressure from the overlying rocks and fluids make it physically impossible to induce a fracture all the way up to the groundwater layers. Approximate base of potable groundwater – 250 ft. Marcellus Shale: +3,000 feet Utica Shale: 6,000 feet – 7,000 feet
Slide #30 – FRACTURE FLUID MAKE-UP (according to the Department of Energy): Chemical Addititives: Less than 0.5% chemical additives: Acids: help dissolve minerals and initiate fissure in rock, also found in swimming pool cleaner Sodium Chloride: allows delayed breakdown of gel polymer chains, found in table salt Polyacrylamide: minimizes friction between fluid and pipe, found in water treatment and soil conditioner Ethylene Glycol: prevents scale deposits in pipe, found in auto anti-freeze, housing cleaners Borate Salts: maintains fluid viscosity as temperature increases, found in laundry detergent, hand soap, cosmetics Sodium/Potassium Carbonate: maintains effectiveness of other components, such as crosslinkers, found in detergent, soap, water softener, glass, ceramics Glutaraldehyde: eliminates bacteria in water, found disinfectant, sterilization of medical and dental equipment Guar Gum: thickens water to suspend sand, found in cosmetics, baked goods, ice cream, toothpaste, sauces Citric Acid: prevents precipitation of metal oxides, found in food additives, lemon juice, other food and beverages Isopropanol: used to increase viscosity of fracture fluid, found in glass cleaner, antiperspirant, hair coloring
Slide #31 – 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. According to the HIS Global Insight 2012 report, The Economic and Employment Contributions of Unconventional Gas Development in State Economies : 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.
Slide #32 – Hydraulic Fracturing 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 study's entire 25-year horizon, unconventional gas is expected to generate nearly $1.5 trillion in total government revenue.
Slide #33 – Supply and Demand According to U.S. Energy Information Administration's (EIA's) Annual Energy Outlook 2012 ( AEO2012 ): As a result of the projected growth in production, U.S. natural gas production exceeds consumption early in the next decade in the Reference case (Figure 4). The outlook reflects increased use of liquefied natural gas in markets outside North America, strong growth in domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States.
Slide #34 – Adequate Natural Gas Supply at Competitive Prices Helps Grown the U.S. Economy Lower gas prices have helped the 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 Policies to encourage shale development: Continue regulation of shale resources at the state level Avoid duplicative or unduly restrictive environmental regulation of shale gas Use of reasonable industry and government standards on land regulation, well construction, water management and pipeline safety Reasonable regulations to promote best industry practices are a positive for the energy industry. “ Produce the energy we need. Protect the environment we value” – Nick Deluliis, President, CONSOL Energy, Inc.
Slide #35: Natural Gas Prices in U.S., Europe and Japan Natural gas prices in the United States, Europe, and Japan, based on World Bank Commodity Price Data (March 2012)
Slide #36: By the Numbers Appeared in Whirl Magazine article “Wishing Wells” on August 27, 2012 One of the biggest misconceptions that people have about the Marcellus Shale is who these new jobs are going to. According to the Marcellus Shale Coalition, 7 out of 10 new hires in the Marcellus Shale industry in Pennsylvania are Pennsylvanians. Both 2012 Presidential candidates – President Barack Obama and Republican Presidential Hopeful Mitt Romney – have voiced support for the Marcellus Shale. According to the Pennsylvania Department of Labor: 238,414 PA jobs are supported by the natural gas industry, with more being added monthly $81,116 is average salary in the natural gas industry Bank of America Merrill Lynch estimates a total economic impact of nearly $1 billion per day, keeping the U.S. out of another recession. Natural gas is by far the cleanest fossil fuel, and is the most abundant domestically. Many electrical plants are powered by coal and many are looking into using natural gas, which is cleaner and cheaper. According to PA Dept. of Environmental Protection Secretary John Hanger, “Shale Gas is the key driver of falling carbon emissions.” According to a study by the PA College of Technology, 1 Marcellus well requires 410 different workers across 150 different job types. The Marcellus Shale is home to more than 5,000 wells. Because of the Marcellus Shale, manufacturing is making a comeback. Price, Waterhouse, Cooper’s Partner Robert McCutcheon estimates natural gas can help U.S. manufacturers save $11.6 billion a year, and create more than 500,000 jobs by the year 2025.
Slide #37 – Got Marcellus?
Slide #38 – Got Marcellus? This is what happens when your 16 year old son decides to draw on your PowerPoint slides!
1. 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
2. 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
4. 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.
5. 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
6. 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
7. Marcellus ShalePennsylvania Drilling Activity
8. Average Monthly Natural Gas Production
9. 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)
10. 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
11. 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.
12. Vertical DrillingCourtesy of EQT Corp.
13. Ver tical vs. Horizontal, cont.
14. Multiple Locations from same wellpad 566923 143821 567130 567131Courtesy of EQT Corp.
15. 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
16. 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
17. 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.
18. 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.
19. FRACTURE FLUID MAKE-UP
20. 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.
21. 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)
22. 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
23. Natural gas prices in the United States, Europe, and Japan, based on World Bank Commodity Price Data (March 2012)