Fracking in the Permian Basin Texas

Permian Basin Map

The Permian basin in West Texas is one the mostly widely known producing areas in the U.S. Improvements in horizontal drilling technology and fracking techniques have made it one of the premier producing regions in the world.

 Hydraulic fracturing, or fracking is a proven technology to improve oil and gas production from "tite" geologic formations and shale zones. these "tier" formations are characterized geologically as having low porosity and permeability. This technologies make it possible for zones previously thought to be uneconomic to be produced at profitable rates.

A combination of water, sand, and anti friction fluids are pumped down the well to create small fissures or cracks to release gas trapped oil or natural gas. Generally these frack fluids are 99% water.

Fracking has used for well completions for more than 50 years. The water used in the frack process is recycled for future frack jobs. The industry has made big strides in reducing emissions such as eliminating flaring of gas while improving production rates for wells.

The Permian basin is an example of industry evolution in a complex world of oil and gas horizontal drilling and development.

Ohio Utica Shale Permit Activity

EPA announces Dimock, PA drinking water safe

EPA completes Dimock, PA drinking water sampling

July 25, 2012

Source: U.S. Environmental Protection Agency
The U.S. Environmental Protection Agency announced today that it has completed its sampling of private drinking water wells in Dimock, Pa. Data previously supplied to the agency by residents, the Pennsylvania Department of Environmental Protection and Cabot Oil and Gas Exploration had indicated the potential for elevated levels of water contaminants in wells, and following requests by residents EPA took steps to sample water in the area to ensure there were not elevated levels of contaminants. Based on the outcome of that sampling, EPA has determined that there are not levels of contaminants present that would require additional action by the Agency.
“Our goal was to provide the Dimock community with complete and reliable information about the presence of contaminants in their drinking water and to determine whether further action was warranted to protect public health,” said EPA Regional Administrator Shawn M. Garvin. “The sampling and an evaluation of the particular circumstances at each home did not indicate levels of contaminants that would give EPA reason to take further action. Throughout EPA's work in Dimock, the Agency has used the best available scientific data to provide clarity to Dimock residents and address their concerns about the safety of their drinking water.”
EPA visited Dimock, Pa. in late 2011, surveyed residents regarding their private wells and reviewed hundreds of pages of drinking water data supplied to the agency by Dimock residents, the Pennsylvania Department of Environmental Protection and Cabot. Because data for some homes showed elevated contaminant levels and several residents expressed concern about their drinking water, EPA determined that well sampling was necessary to gather additional data and evaluate whether residents had access to safe drinking water.
Between January and June 2012, EPA sampled private drinking water wells serving 64 homes, including two rounds of sampling at four wells where EPA was delivering temporary water supplies as a precautionary step in response to prior data indicating the well water contained levels of contaminants that pose a health concern. At one of those wells EPA did find an elevated level of manganese in untreated well water. The two residences serviced by the well each have water treatment systems that can reduce manganese to levels that do not present a health concern.
As a result of the two rounds of sampling at these four wells, EPA has determined that it is no longer necessary to provide residents with alternative water. EPA is working with residents on the schedule to disconnect the alternate water sources provided by EPA.
Overall during the sampling in Dimock, EPA found hazardous substances, specifically arsenic, barium or manganese, all of which are also naturally occurring substances, in well water at five homes at levels that could present a health concern. In all cases the residents have now or will have their own treatment systems that can reduce concentrations of those hazardous substances to acceptable levels at the tap. EPA has provided the residents with all of their sampling results and has no further plans to conduct additional drinking water sampling in Dimock.
For more information on the results of sampling, visit: http://www.epa.gov/aboutepa/states/pa.html.

Tax "Loopholes" for Oil Companies

FORBES - June 4, 2012

Why We Should Keep Tax 'Loopholes' For Oil Companies
By Deborah Byers

Across Washington, D.C., the push to end so-called energy company “subsidies” has become a well-worn political trope – touted as a solution for everything from reducing the deficit to punishing oil companies for high gasoline prices.

The president himself said he was in favor of repealing “billions in tax giveaways” to energy firms during a much-publicized address in March.  But is that really an accurate portrayal of the current tax code?

For the most part, energy companies are treated just like any other industry when it comes to taxes.  Much of what politicians call giveaways are simply timing issues related to when particular items can be expensed – governed by provisions in the tax code established decades ago to strengthen U.S. energy production.  These provisions are not tax credits, which allow for a dollar-for-dollar reduction in tax liability.

For example, the president’s most recent budget proposal calls for the repeal of   a provision that details how energy companies account for intangible drilling costs, or IDCs.   U.S. tax law has long allowed oil and gas companies to deduct IDCs – expenses for labor and services related to drilling a well – at the time they are incurred, versus depreciating those costs over time.

Eliminating those deductions would have dramatic consequences on domestic energy production.  Despite lawmakers’ and the public’s perception of “Big Oil,” approximately 90% of all wells in the U.S. are drilled by independent energy producers, most of whom are small or mid-sized companies.

To independent producers, IDCs are the equivalent of research and development costs that technology and pharmaceutical companies incur – up-front expenses with no guarantee that the investment will deliver results.  Even if a well is successful, it typically takes many months before revenue is captured.  Thus, the IDC provision simply accelerates the actual cash flow of the project but does not eliminate the tax liability.

According to the Independent Petroleum Association of America, IDCs typically account for about 20% to 35% of the capital expenditure budgets of a well.  Without the ability to expense these costs, many independents’ cash flow would be significantly diminished and they would have to immediately reduce their drilling budgets since they lack the cash flow to fund these operations internally and their cost of capital would otherwise increase.

And as producers scale back, production from shale oil and natural gas, which is heavily driven by independents, will be at risk.  In recent years, the shale boom has played a major role in providing jobs, boosting domestic supplies and increasing state and federal tax revenues.  It is not an exaggeration to say that the IDC provision is one of the factors that has allowed the “shale revolution” to ramp up so quickly.

But IDCs aren’t the only tax item under scrutiny in Washington, D.C.  Another provision slated for repeal in the president’s budget governs percentage depletion, a calculation used to determine the decreasing value of a mineral resource as it is produced.  But its use is limited by guidelines that make it applicable only to small companies and individual royalty owners, so it has a minimal impact on federal tax revenues.

Proponents say repealing provisions that deal with IDCs, percentage depletion and the domestic manufacturing credit – available to all industries but used by just a small subset of the oil and gas industry – would bring in close to $40 billion in new tax revenues over a 10-year period.

That $4 billion a year figure – small as it is compared to the overall budget deficit – is based on current levels of drilling.  It doesn’t take into account the fact that domestic activity would most likely decrease as independents cut back on their capital budgets in response and investments in new production dry up.

In other words, changing the current tax code might make lawmakers happy, but it won’t achieve its hoped-for objectives and, in fact, will do the opposite:
• Integrated majors won’t be affected meaningfully
• Cash-strapped independents will be hit hard
• Domestic production will be depressed
• Job growth related to the shale boom will stall
• Tax revenue will fall

The technology advancements that are driving the shale boom, coupled with the existing tax code, have put the U.S. in a position not seen in years – one where domestic production is high and new reserves are creating economic opportunities across the country.  If we want to increase security of supply, keep retail energy prices low and create high-paying jobs, our energy policy should encourage future drilling by allowing proven tax provisions to remain in place.

Deborah Byers is the Transaction Advisory Services (M&A) Leader for Ernst & Young LLP’s Southwest Sub-Area, and she also serves as the Ernst & Young Americas Oil and Gas Tax Sector Leader.  Deborah has represented investors and companies in various types of domestic and cross-border oil and gas transactions. The views expressed in this article are Deborah Byers’ and not necessarily those of Ernst & Young LLP.

Natural Gas Price, How Low can it go?

US Gas Rigs Continue to Tank

Over the past eight reports going back to late October, natural gas rigs have dropped 132 while oil rigs have jumped 123, further entrenching oil's market share in the drilling space. Oil rigs now account for almost 60% of all U.S. drilling, up from 53.3% just eight weeks ago. Comparatively, natural gas drilling makes up less than 40% of U.S. activity, down from 46.2% eight weeks ago.
According to the survey, 802 rigs were drilling for gas, down 16 on the week, down 129 on the year and at its lowest point in almost two years. The report shows 1,201 rigs were drilling for oil, up five on the week, up 430 on the year and above 1,200 for the first time in Baker Hughes records. Miscellaneous rigs, typically associated with geothermal drilling, were unchanged on the week at five.

Marcellus Cumulative Gas Production West Virginia

Marcellus Shale

Comingled wells excluded

259 Total wells

212 Vertical, 47 horizontal

Marcellus Shale West Virgina

The Middle Devonian Marcellus Shale Play has put the Appalachian Basin at the center of a national debate concerning America’s future energy supply. Although it has been received in the region with mixed reviews, this highly organic shale formation has secured itself as a major contributor to the natural gas supply of West Virginia and other states in the Basin. As production continues throughout West Virginia, areas of high production continue to emerge; however, it appears that some of these “sweet spots” may not actually be within the “Marcellus” per se, but rather, in other, overlying Devonian shales.

Natural Gas vs. Wind: Which is Greener?

Why Natural Gas is Greener than Wind Energy

We have an opportunity to actually achieve real energy independence by shifting our efforts away from wind and solar and adopting a natural-gas infrastructure instead. The best part? It won’t require an avalanche of subsidies to succeed, either. All we need to do is get government and its social engineers out of the way.

Unconventional Resouces......Cheer

Peak Oil Revisited

Hubbert’s Peak or Yergin’s Plateau?
In 1956, Shell geologist M. King Hubbert correctly predicted that oil production in the United States would reach a peak around 1970. Since his Peak Oil theory fits so well with the Malthusian worldview of “Progressives”, anti-capitalists and anarchists, Hubbert has become a posthumous hero to the Left, an unusual role for a scientist polluted by the filthy lucre of the oil industry.

Hubbert's depiction of Global Peak Oil. From Wikipedia.

Peak Oil’s fundamental assumption is that the supply of oil is finite and fixed. The peak of the oil production curve is reached when half of the total resource base has been produced, so rate vs time exhibits a symmetric bell-shaped curve. Post peak, rate declines rapidly. Hubbert demonstrated a peak for oil production in Texas, and he extended his theory to correctly predict the time (but not the rate) of the peak for the U.S. World oil production is supposed to have peaked in the last five years or so.