Jim Willis slides from 2nd Utica Shale Development & Growth Forum


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Marcellus Drilling News editor Jim Willis moderated an all-star Utica Shale media panel at an industry event held on Feb. 27, 2013 in Columbus, OH. On the panel were Rick Stouffer, editor of Gas Business Briefing, Bob Downing, reporter for the Akron Beacon Journal, and Peter Behr, reporter for EnergyWire. Our media panel took a look at the most important and most interesting stories of 2012 for the Utica Shale. This is a variation of the slide deck used to discuss the big news in the Utica.

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Jim Willis slides from 2nd Utica Shale Development & Growth Forum

  1. 1. Utica from the Media’s Perspective Jim Willis - Marcellus Drilling News Bob Downing – Akron Beacon Journal Rick Stouffer – Gas Business Briefing Peter Behr – EnergyWire
  2. 2. I’d like you to go on a little tour with me.Last September I was invited to tour some shale well sites in Dimock, Pennsylvania.Yes, that Dimock—a small township of 1,497 people in Susquehanna County innortheastern PA made famous in the documentary Gasland and more recently inFrackNation.Dimock is about 40 minutes from where I live in Binghamton, New York.
  3. 3. It was a perfect early fall day with blue skies and the temperature about 65 degrees.I took this picture. This is the kind of scenery I was treated to as I meandered downcountry roads to Dimock. Rolling hills, lots of farms, plenty of fresh air.Cabot Oil & Gas had invited me to go on a tour of some of their operations aroundDimock. So I arrived at a small office building owned by Cabot and hopped into aCNG-powered Chevy pickup with my tour guide Bill DesRosiers and we took off.
  4. 4. Not far from the Cabot office we turned off onto State Route 2024 and went ridingcross country. Of course, it’s all cross country around Dimock.This map doesn’t show it well but we went up and down hills. At one point we flewby an intersection and Bill pointed to the right and said “that’s Carter Road.” THECarter Road, where some families sued Cabot for supposedly contaminating theirdrinking water from fracking. About a mile after Carter Road Bill turned off and wetook a hard-pack gravel drive up a short hill to this spot.
  5. 5. As we crested a little knoll, this is what I saw. It’s a well pad completed about threeyears ago. You can see three of four wells in this picture I took.Bill told me what I was looking at. He explained the wellhead itself is called aChristmas Tree because the valves and knobs on it make it look like a Christmas Tree. Iasked what those white containers are. Those hold a chemical used to make sure theChristmas Tree valves don’t freeze up. The gas is under tremendous pressure and thetemperature of the gas is quite cold and when it hits the warm air topside it canquickly lead to the formation of ice in the wellhead. Something like that. So thosewhite containers hold a chemical used to regulate the temperature of the ChristmasTree wellhead.Even though in this part of northeastern PA the gas coming out of the ground is “drygas” or methane only, it still contains a little bit of water in it. So this machinery backhere separates out the water and stores it in these tanks over here. Trucks come byabout once a week to empty the tanks.Finally, the whole thing is monitored 24/7 with little radio transmitters that send asignal back to the office. And yes, those transmitters are powered by solar panels!
  6. 6. This is a closer pic of the Christmas Tree wellhead. If you’re more than a couple ofhundred feet away from it, you can’t even see it!As we stood there Bill told me this. He said that Cabot drilled and still operates about3,000 vertical gas wells in West Virginia. He said Jim, these four horizontal wellsyou’re looking at here? They produce more natural gas in a single day than all 3000 ofthose vertical wells in West Virginia produce in a day.My jaw hit the ground. I don’t know about you, but I was shocked. Startled. Iremember thinking to myself, now I know why shale is not just another new energysource—it’s an energy revolution. And that revolution has come to Ohio and theUtica Shale.If I turned around and faced the opposite direction away from the wells, this is what Isaw…
  7. 7. Beautiful rolling hills. Hayfields. Farms and houses. Not an industrial waste land. NotLove Canal come to Pennsylvania. I saw beautiful countryside.There’s a little bit more to this story, but I’m going to make you wait until the end tohear it.
  8. 8. Who am I? My name is Jim Willis, and I’m the founder and editor of Marcellus Drilling News, what I call a newsslash blog site that covers the story of shale drilling in both the Marcellus and the Utica Shale.Monday through Friday I read, research, curate, aggregate and write about what’s happening with shale gasdrilling in the Marcellus and Utica Shale, and I spend about 5 hours a day doing it—what I call my first full-timejob.If you do something for five hours a day and you’re not getting paid for it, it’s an unhealthy obsession. If youdo something for 5 hours a day and you get paid for it, it’s a brilliant business model. So in May of last year Istarted charging a monthly fee to read full stories--$5.95 a month. Today, 10 months later, I have 900 payingsubscribers. What that says to me is that this is a white hot issue and there’s a lot of people interested in it.I get about 35,000 unique, different people each month visiting my site over 60,000 times and clicking to readmy stories over 100,000 times. Not all of them subscribe—quite a few find me from Google searches.With MDN I try to inject some humor, sarcasm, and hopefully some whit in the writing I do. I take a side whichI guess is what makes my site different from a mainstream media or regular news site. I’m proudly pro- butsafe drilling. My shtick, my angle is to look at the drilling issue through the eyes of a landowner or smallbusinessperson. What would they be interested in knowing?I guess if I could sum it up, I try to answer the “why” questions. Not just what happened, but why ithappened—what it all means. Make sense of it. And if it’s technical, break it down into understandable terms.So I’ve been watching this space for a few years now—I’ve watched it take off in Pennsylvania and WestVirginia, and over the past year, I’ve watched it take off like rocket in Ohio.
  9. 9. MarcellusDrilling.comMarcellus & Utica Shale News
  10. 10. With me today are three other people—experts—who have also been watching theshale energy space in Ohio. I’ll let them introduce themselves in a few minutes.I’ll just mention we have Bob Downing, a reporter with the Akron Beacon Journal. I’ma fan of Bob’s writing and I follow it closely. He’s broken some extremely importantUtica stories—one in just the past couple of weeks that he’ll share with you.And we have Rick Stouffer, editor of Platt’s Gas Business Briefing—really one of themust-have publications for the energy industry. Rick is an expert and he’ll have somegreat material to share with us.And late-breaking, Peter Behr is also joining us on the panel. Peter is a reporter withEnergyWire. He previously worked for 25 years covering energy for the WashingtonPost.
  11. 11. www.Ohio.com www.gassbb.com
  12. 12. When we were fleshing out ideas for what we might talk about on this panel, wethought it would be interesting for us to put our heads together and talk about someof the biggest and most important stories to happen in the Utica Shale in 2012.From earthquakes to taxes to protests to hugely productive wells, there were a lot ofstories to come out of the Utica in 2012. Everyone will have their own opinion.For me, the biggest story in the Utica was the sheer size of it. The enormous growththat happened in 2012. I call it, “The Utica Shale grows up.”
  13. 13. What was THE biggestUtica Shale story of 2012? The Utica Shale Grows Up
  14. 14. We’ve seen quite a few maps yesterday and today. I’ll add a few more to providesome context to what I believe is the #1 one story from 2012. This map is from a 3-volume research report that I publish called the Marcellus and Utica Shale Databook.This map shows the boundary of the Utica Shale, the dark purple line along the left.The lighter purple area that’s shaded in shows where the Marcellus Shale can befound.As you can see, the shale play of interest—the Utica/Point Pleasant and to somedegree the Marcellus, is found in about the eastern 1/3 of Ohio.
  15. 15. Let me illustrate the growth of drilling in Ohio with a few maps from the Databook.Here’s a map that shows permits issued in Carroll County for all of 2011 (DatabookVol. 1). As you can see, the only company receiving permits in 2011 for Uticahorizontal wells in Carroll for 2011 was Chesapeake Energy. The purple dots are wellpads or potential well pads. Each purple dot can have from 1 to 10 wells drilled inthat location.Over on the right, the first number is the total number of permits, and the secondnumber in parentheses is for the number of unique well locations. So Chesapeakehad 19 permits issued for 19 different wells for all of 2011 in Carroll County.
  16. 16. This map shows permits for horizontal wells issued for January through June 2012 inCarroll County (Databook Vol. 2).You can see Chesapeake picked up 63 new permits for that period and those 63permits were for 58 unique, different locations or wells. We also have Enervest andRE Gas picking up a handful of permits.
  17. 17. And this map shows Carroll County permits issued for July through December 2012(Databook Vol. 3). Chesapeake now gets another 101 new permits for 93 locations.Some permits may be for wells previously permitted—it takes more than one permitto drill a well. The point of these maps? It shows the progression of activity. If youwant to know where drilling is about to happen, watch where the permits are beingissued. Permits preceded drilling. When drilling begins, a lot of activity begins.Permits precede drilling, and drilling precedes pipelines and infrastructure. Onefollows the other like spring follows winter and summer follows spring. Again, permitsare the key signal to watch.
  18. 18. Here’s one more example—this one is Harrison County. Just 2 permits in 2011.
  19. 19. Things start to pick up in the first half of 2012. Chesapeake has 12 permits, Gulfporthas 7, and Hess 5.
  20. 20. And by the second half of 2012, Gulfport has really picked up steam with 25 permitsfor 13 locations and Chesapeake with 22 permits in 19 locations.
  21. 21. Perhaps this chart will better explain just how much the Utica “grew up” in 2012. Itshows by year the number of horizontal Utica permits issued, and the current statusof the wells for which the permits were issued. Permits issued in 2012 jumped 443%from 2011—or 4.4 times as many permits in 2012 as 2011.Just to complete the rest of the data, for the first month and a half of 2013 another60 permits were issued. So far, as of Feb 16th, there have been 529 permits issuedsince 2010, and 242 of those wells have now been drilled—roughly half.
  22. 22. OH Utica/Pt Pleasant Shale Wells Status of Wells as of Feb 16, 20132010 2011 2012Drilled – 1 Drilled – 14 Drilled – 133Producing – 1 Drilling – 1 Drilling – 13 Inactive – 2 Inactive – 1TOTAL PERMITS: 2 Not Drilled – 2 Not Drilled – 4 Permitted – 22 Permitted – 197 Plugged – 6 Plugged – 42013 (1.5 months) Producing – 39 Producing – 29Drilling – 1 TOTAL PERMITS: 86 TOTAL PERMITS: 381Not Drilled – 1Permitted – 58 Horizontal Permits: 529TOTAL PERMITS: 60 Horizontal Wells Drilled: 242
  23. 23. Once wells are drilled, natural gas and gas liquids and oil starts to flow. I took a look atjust the natural gas portion for both the Marcellus and the Utica Shale and back inJanuary I went out on a limb and made some predictions. So far one of them hascome true. I predicted that Pennsylvania’s Marcellus Shale gas production would hit 2trillion cubic feet for 2012. The numbers for PA came out last week and it was 2.1 tcf.I said that West Virginia’s production of shale gas would double and hit 455 billioncubic feet. Still waiting to hear on that one. And finally, my toughest prediction, butone that I think will bear out: I said that the Ohio Utica Shale would see about 67billion cubic feet of natural gas produced for 2012. Ohio’s numbers come out nextmonth, so keep a sharp eye out.Permits are way up. Drilling is way up. And I believe production will be way up. That’swhy “the Utica Shale grew up” is the biggest story of 2012.
  24. 24. Although we didn’t have time to cover all of these stories, here is a list of some of themore interesting and important stories from 2012 for the Utica Shale. I threw outsome of these to the panel for comment...
  25. 25. Protesters Get Violent, Shut Down OH Frack Water Planthttp://mdn.bz/2zYsqSGreenHunter brine storage/transfer facility in Washington County, near New Matamoras overrun by 100protesters. One errected a 30 tower and climbed it and stayed there for hours. Vandalized the facility. May becharged under the anti-terrorism act. Being a politically incorrect blogger, I call them nutjobs. 7 of the 10 peoplearrested werent even from Ohio! What do you guys know about it?Big OH Company Will Leave Town if Anti-Drilling Resolution Passeshttp://mdn.bz/2zHlDVPhilpott Energy & Transportation Company/Rubber company says if New Brunswick (near Cleveland) passes aresolution calling on the state to support home rule, an overtly anti-drilling resolution--they will locate newconstruction for a major expansion outside of the city limits denying the city a big future tax revenue source. Hardball? Justified? Not justified?Patriot Water in Warren, OH Objects to ODNR Directivehttp://mdn.bz/2z1RRxSeems to me that theres been bad blood between the ODNR and Patriot Water Treatment of Warren, OH going allthe way back to June 2011. ODNR has been trying to shut down this shale wastewater treatment plant becauseafter they treat the water its then taken to the Warren municipal water treatment plant for final disposal. ODNRdenied renewal of a permit, Patriot appealed... its been a mess. The latest skirmish comes with the story aboutD&L Energy and their wastewater dumping. Apparently D&L was sending some of its wastewater to Patriot andODNR ended that. What is the story between Patriot & ODNR?Muskingum Watershed District Signs with Antero for $40.3M Bonushttp://mdn.bz/2ylxyHThe Muskingum Watershed District just signed a big deal with Antero Resources to least 6,500 acres aroundSeneca Lake. But in June of last year the Watershed District first voted to sell water to shale drillers, then pulledback and said they wouldnt sell any water until a study was completed by the U.S. Geological Survey. Then inSeptember they reversed again and said they would sell some water. Whats the deal with the Watershed District?Is someone yanking their chain? Did the U.S. Geological Survey ever complete the long-awaited water study?
  26. 26. Youngstown Shale Wastewater Dumper Faces Jail and Big Fineshttp://mdn.bz/2y54SPHardrock Excavating and D&L Energy in Youngstown, OH, in the dead of night, dumped perhaps millions of gallonsof untreated fracking wastewater down a sewer drain outside of Youngstown that eventually ended up in theMahoning River. I mean, words cant even begin to express the outrage everyone feels about this. Whats thelatest? Has there been long-term environmental damage? Is the owner Ben Lupo headed for hard time in a federalpen?Gulfport Purchases More Utica Shale Leases for $10K/Acrehttp://mdn.bz/2xGvxYLast December Gulfport bought leases for 30,000 acres in the Utica Shale for $10,000 per acres. They paid thesame per acre price two weeks ago for another 22,000 acres. Thats some of the highest per acre prices Ive seen.Seems to me like Gulfport has a major crush on the Utica--would say thats a fair assessment?Gulfport’s New Utica Well Produces Mind-blowing 28.5 Mmcf/d!http://mdn.bz/2YGzR7In August last year we got word that Gulfports Wagner 1-28H well in Harrison County produced an initial flow rateof 14 million cubic feet of natural gas per day, over 1800 barrels of natural gas liquids, and some 430 barrels of oil.Astonishing. Then at the end of November Gulfport reported what I consider to be mind-blowing results for theirShugert 1-12H well in Belmont County: an initial daily flow rate of 28.5 million cubic feet of natural gas, 300 barrelsof condensate, 2,900 barrels of natural gas liquids per day. I guess we know why Gulfport has a crush on the Utica.Mind-blowing Earnings from a Single Utica Shale Wellhttp://mdn.bz/2sDZ4BOne more Gulfport story. A professor from West Virginia University ran some numbers for another Gulfport well--the Stutzman well, also in Belmont County. That well is producing 21 million cubic feet of natural gas per day. At $3Mcf, thats $63,000 per day in revenue. Add in the gas liquids and that one well has an earning power in excess of$100,000 per day.
  27. 27. OH Appeals Court Strikes Down Home Rule for Drillinghttp://mdn.bz/2w03HdI think one of the biggest ongoing stories across both the Marcellus and Utica Shale is that of home rule--the rightof local municipal governments to control--even ban--shale drilling in their borders. Drillers say its next toimpossible to work if the ground rules are different in every town. Locals say they know best where drilling shouldand should not be allowed. The Ohio Appeals Court just struck down home rule a few weeks ago. Where does thisgo from here? Will it be appealed? Is this it for home rule in Ohio?Details of OH Gov. Kasich’s Utica Shale Severance Tax Hikehttp://mdn.bz/2vhw2cOhio Gov. John Kasich really really wants to raise the severance tax for oil and gas drilling in Ohio. The industry(and yours truly) says hes nuts! If you tax it, it will mute the economic benefits the industry is creating in the state.But he fires back that "hey, its not all that much, especially when you look at the rates other states charge." WillOhio see a higher severance tax in this years budget? What are you hearing?Why More Ohioans Don’t Work in Utica Shale Industry? Drugshttp://mdn.bz/2n2J4YOne of the things I regularly rap Gov. Kasich on the knucles over is his attitude about what he calls "foreigners"coming in to work in Ohios gas and oil fields. By foreigners he means people from Texas and Oklahoma andLouisina. He wants Ohions in them thar jobs! Of course you need experienced people running equipment, andskilled people welding and so on--at least at first, until others can be trained. But then we had an interesting storynot long ago about how half or more of all the Ohioans applying for oil and gas field jobs fail the drug test. Whatsup with that? What of state are yall runnin here?Is Shale Brine Dumping Coming to OH Landfills?http://mdn.bz/2sDVC7Bob, update us on this story you broke at the end of January.
  28. 28. Utica Drilling in a Nutshell: Permits & Wells Drilled, by Drillerhttp://mdn.bz/2qjJWjWho are the players in the Ohio Utica Shale? The #1 player is a no-brainer: Chesapeake Energy. In mid-Januarywhen there were still only 498 wells permitted, Chesapeake had 325 of those permits--or 65%, spread across 10counties. After them comes Gulfport with 28 permits in Belmont, Guernsey and Harrison Counties. CNX has 20permits. HG Energy and EnerVest both had 16 permits, and Hess had 15. In all there are 23 different companieswith permits in the Ohio Utica Shale.BP’s Big Utica Shale Deal, Leases 84K Acres in Ohiohttp://mdn.bz/2QhKSgIn March 2012 BP signed a massive deal with the Associated Landowners of the Ohio Valley (ALOV) for 84,000acres in Trumbull County. The deal gave landowners $3,900 per acre as a signing bonus and will give them 17.5%royalties on anything produced. Yet BP hasnt even applied for a single permit yet. Whats the deal with BP and theUtica? Are they ever going to drill? What have you guys heard?More than $1.2B & Counting on New Utica Drilling for 2013http://mdn.bz/2qRsSTSo far, more than $1.2 billion (that we know of) has been budgeted by Ohio’s Utica Shale drillers for 2013. Awhopping $7 billion has been allocated for pipelines and processing plants over the next several years. Seems tome that the "big story" for the Utica in 2013 will be midstream and infrastructure. You guys agree with that?