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No Country Stands Alone: Energy Security & Geopolitics

Thu, 12 Jan 2012 14:00:00 GMT

No Country Stands Alone: Energy Security & Geopolitics
Iran and the Strait of Hormuz

WASHINGTON, DC – Geopolitics beckons. Defined as “a study of the influence of such factors as geography, economics, and demography on the politics and especially the foreign policy of a state,” geopolitics is highlighted by the developing situation with Iran.

The nuclear weapons brinksmanship involving Iran versus the U.S. and European Union (EU) continues to roil tensions in one of the world’s critical oil supply epicenters. At the center of the saber-rattling is the recent threat of an EU embargo on Iran oil and Iran’s retaliatory threat to close the strategic Strait of Hormuz, which of course, means a self-imposed oil embargo rather than one applied by the West.

It is important to look at how this potential oil supply shock might impact both the global, regional and North American oil markets in the sense of oil-specific trade movements, geopolitics and energy security. As the upcoming trade movement piece will further delineate some of the nuances involved in the global trade flows, this piece emphasizes how a geopolitical flashpoint of this magnitude can exacerbate both regional and global oil market sensitivities.

Defining the Players: Nuke-Seeking Oil Rogue vs. OECD Oil Consumers

The tensions are dangerously high. Mohammad Reza Rahimi, Iran’s first vice president, warned that Iran would not allow “even one drop of oil” to flow through the strait should the West impose oil sanctions on Tehran. Iran also threatened to take military action if the U.S. Navy moves the USS John C. Stennis aircraft carrier group back into the Gulf, but the U.S. is proceeding as planned. The Western sanctions ramp-up has targeted both Iran’s financial and oil assets. Not to mention, the U.S. is sending thousands of troops to Israel for a major missile defense exercise. Essentially, a game of chicken with potentially dire consequences has emerged.

Geography Matters

In 2008, Stratfor Chief Executive, George Friedman, spoke at the IPAA Midyear Meeting in Laguna Niguel about future U.S. foreign policy priorities and potential threats. One of them included the importance of sea lanes and the growing importance of the U.S. Navy to keep them open. After all, shipping accounts for 90 percent of world trade in goods.

Sea lanes are indeed critical in a world that relies on oil for approximately 34 percent of its energy supply with over 44 percent of global crude oil exports originating in the Middle East. The Strait of Hormuz is a key oil transit route with approximately 17 million barrels of oil per day (around 35 percent of all seaborne traded oil and 20 percent of all oil traded worldwide) moving through this strategic point of the Persian Gulf in 2010.

Energy Security Lens

Where does Iran stand in the geopolitical list and what does this mean for worldwide energy security? Defined as “an association between national security and the availability of natural resources for energy consumption,” energy security is inextricably linked to geopolitics.

Iran is the second largest OPEC producer and the world’s third largest oil exporter, accounting for almost four percent of global oil output and almost six percent of total world oil exports, according to the EIA. But it is important to illustrate exactly where this oil goes. Just as Libya’s oil production and export shutdown impacted Europe, Iran’s embargo or any potential conflagration involving the Strait of Hormuz, would inordinately impact Asia and Europe, two regions with growing import dependence on the Middle East.

The EU imports almost a fifth of Iran’s oil. In particular, Italy receives about 13 percent of its crude from Iran, making it the most vulnerable to such a supply shortfall. Iran and Libya are Spain’s second and third biggest suppliers of crude oil. Another 1.3 million barrels go to Asian OECD countries such as Japan and South Korea, while another 1.2 million barrels go to China and India who are the top two recipients of Iran’s oil. According to numbers released by Deutsche Bank, Iran is China’s third largest oil source, accounting for 11 percent of China’s total imports.

If the ban goes into place this month as expected, the oil supply dislocation could add considerable stress to the already hobbled economies of Greece, Italy and Spain. A contingency plan to tap the International Energy Agency’s (IEA) strategic stockpile has already been composed and due to larger strategic and commercial stockpiles, the U.S. has much more cover than in the past.

The pain would be most severe for Iran, which relies on crude revenues for around 80 percent of its foreign exchange earnings. Given their client list, Iran could be hard pressed to make up for the large chunk of their crude market portfolio in the short-term. There are various forecasts regarding the extent to which Iran’s actions would ‘shock’ the oil price, with many analysts hovering around $150/bbl for the short term squeeze.

American Energy Security: Translating Geopolitics to U.S. Oil Markets

This unfolding scenario underscores several main themes for the U.S. and domestic energy markets. On the positive side, the U.S. does not directly import oil from Iran. Second, the U.S. is gradually reducing its dependence on the Middle Eastern region. The percentage of our imports from the Persian Gulf has dropped from 24.5 percent in 1990 to 14.5 percent in 2010. Third, our total import dependence is declining. U.S. net imports have dropped from over 60 percent of our total consumption in 2005 to around 45 percent in 2011 through November. As the upcoming trade piece will demonstrate, almost 52 percent of our oil imports emanate from the Western Hemisphere.

All those who once claimed that the U.S. was destined to increase its dependence on Middle East supply as we ran out of oil and natural gas are busy re-working their obsolete scripts. U.S. energy dependence is indeed falling and our energy security leverage has vastly improved due the U.S. shale oil and natural gas boom. Thanks in large part to America’s independent producers, analysts are positioning the U.S. as the top world oil producer within the next ten years.

The world’s trade-oil interdependence makes America more sensitive to Middle East export exposure. Since almost 15 percent of U.S. imported oil still comes from this region, we are far from immune to regional flare-ups affecting global oil supply. Oil is a globally traded commodity—higher prices in the more Middle East-dependent Asia and Europe will have a ripple effect that will lap American shores. Given the current debilitated state of world markets, every bit of negative economic news from Europe or China exacts a toll on our recovering economic markets because they are two of our top trading partners. Any oil shock of this magnitude would pass quickly through the global business cycle as energy costs directly impact trade flows, industrial activity and consumer spending which comprises over two-thirds of the U.S. economy.

America’s revitalized energy footprint gives our country increased options regarding our energy trade, national security and foreign policy. Clearly, the Iran case study reveals that energy remains one of the most critical multilateral assets in the world. Domestically, U.S. policymakers must do everything they can to increase this energy security that is so tied to geopolitics. Increasing access to our nation’s vast reserves both offshore and on federal lands is a good start. Also, approving the Keystone XL pipeline would ensure more of our imported oil came from a friendly trading partner rather than a hostile, unstable region. As we begin the second decade of the 21^st century, geopolitics and energy security influence U.S. policy more than ever.

To review our past analyses and our latest data, please visit the Resources section of www.oilindependents.org.

INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

1201 15TH STREET, NW, SUITE 300, WASHINGTON, DC 20005

P (202) 857-4722 | F (202) 857-4799 | www.ipaa.org

12-Jan-12 8:00 AM

NY Times Article featuring quote from Jack Richards, AAPL President

Wed, 28 Dec 2011 20:00:00 GMT

http://www.nytimes.com/2011/12/02/us/drilling-down-fighting-over-oil-and-gas-well-leases.html?pagewanted=2&utm_campaign=Feed

28-Dec-11 2:00 PM

Six Questions for EPA on Pavillion

Fri, 09 Dec 2011 18:30:00 GMT

Friday, Dec. 9, 2011 | PERMALINK | PDF

Contact: Jeff Eshelman • 202-857-4774 • jeff@energyindepth.org

Chris Tucker • 202-346-8825 • chris@energyindepth.org

Six Questions for EPA on Pavillion

Draft report from EPA in Denver produces more questions than it does answers; EID poses a few of the most serious

Call it a sign of the “Times,” let’s say, that less than 24 hours removed from the release of EPA Region 8’s report on groundwater sampling near Pavillion, Wyo., nearly a thousand different news stories have been generated -- in 12 different countries, and best we can tell, four different languages. But set aside the breathless headlines for a moment and the triumphant quotes from a small segment of folks committed to ending the responsible development of natural gas, and one’s left with a pretty straightforward question: Is EPA right? And if so, what exactly does that mean moving forward?

Of course, before you can answer the second question, it’d be helpful if you had a good answer for the first. And the truth is, as we sit here today, one day A.P. (After Pavillion), we simply don’t. What we do know, however, even at these early stages, is that several of the assertions put forth in EPA’s report yesterday don’t quite square with the facts as they actually, demonstrably, exist on the ground out there. Because of that, a number of folks are starting to ask some basic questions about what the agency found and how it went about finding it. Below, a few of the most obvious:

1) Why the huge difference between what EPA found in its monitoring wells and what was detected in private wells from which people actually get their water?

· Contrary to what was reported yesterday, the compounds of greatest concern detected by EPA in Pavillion weren’t found in water wells that actually supply residents their water – they were detected by two “monitoring wells” drilled by EPA outside of town.

· After several rounds of EPA testing of domestic drinking water wells in town, only one organic compound (bis (2-ethylhexyl) phthalate) was found to exceed state or federal drinking water standards – an additive in plastics and one of the most commonly detected organic compounds in water. According to EPA: “Detections in drinking water wells are generally below established health and safety standards.”

· Bruce Hinchey, president of Petroleum Association of Wyoming: “Let me be clear, the EPA’s findings indicate that there is no connection between oil and natural gas operations and impacts to domestic water wells.” (PAW press release, Dec. 8, 2011)

· In contrast, EPA found “a wide variety of organic chemicals” in its two monitoring wells, with greater concentrations found in the deeper of the two. The only problem? EPA drilled its monitoring wells into a hydrocarbon-bearing formation. Think it’s possible that could explain the presence of hydrocarbons?

· According to governor of Wyoming: “The study released today from EPA was based on data from two test wells drilled in 2010 and tested once that year and once in April, 2011. Those test wells are deeper than drinking wells. The data from the test wells was not available to the rest of the working group until a month ago.” (Gov. Mead press release, issued Dec. 8, 2011)

2) After reviewing the data collected by Region 8, why did EPA administrator Lisa Jackson tell a reporter that, specific to Pavillion, “we have absolutely no indication now that drinking water is at risk”? (video available here)

· Of note, Administrator Jackson offered those comments to a reporter a full week after Region 8 publicly released its final batch of Pavillion data. In that interview, Jackson indicates that she personally analyzed the findings of the report, and was personally involved in conversations and consultations with staff, local officials, environmental groups, the state and the operator.

· After reviewing all that information, and participating in all those consultations, if the administrator believed that test results from EPA’s monitoring wells posed a danger to the community, why would she say the opposite of that on television?

· And if she believed that the state of Wyoming had failed to do its job, why would she – in that same interview – tell energyNOW! that “you can’t start to talk about a federal role [in regulating fracturing] without acknowledging the very strong state role.” (2:46) A week later, why did she choose to double-down on those comments in an interview with Rachel Maddow, telling the cable host that “states are stepping up and doing a good job”? (9:01, aired Nov. 21, 2011)

3) Did all those chemicals that EPA used to drill its monitoring wells affect the results?

· Diethanolamine? Anionic polyacrylamide? Trydymite? Bentonite? Contrary to conventional wisdom, chemicals are needed to drill wells, not just fracture them – even when the purpose of those wells has nothing to do with oil or natural gas development.

· In this case, however, EPA’s decision to use “dense soda ash” as part of the process for drilling its monitoring wells could have proved a bad one.

· One of the main justifications EPA uses to implicate hydraulic fracturing as a source of potential contamination is the high pH readings it says it found in its monitoring wells. But dense soda ash has a recorded pH (11.5) very similar to the level found in the deep wells, creating the possibility that the high pH recorded by EPA could have been caused by the very chemicals it used to drill its own wells.

· According to Tom Doll, supervisor of the Wyoming Oil and Gas Conservation Commission: “More sampling is needed to rule out surface contamination or the process of building these test wells as the source of the concerning results.” (as quoted in governor’s press release, Dec. 8, 2011)

4) Why is the author so confident that fracturing is to blame when most of his actual report focuses on potential issues with casing, cement and legacy pits?

· The report singles-out old legacy pits (which the operator had already voluntarily placed in a state remediation program prior to EPA's investigation) as the most obvious source of potential contamination. These decades-old pits, which are obviously no longer used, have nothing to do with hydraulic fracturing.

· From the report (page xi): "Detection of high concentrations of benzene, xylenes, gasoline range organics, diesel range organics, and total purgeable hydrocarbons in ground water samples from shallow monitoring wells near pits indicates that pits are a source of shallow ground water contamination in the area of investigation. Pits were used for disposal of drilling cuttings, flowback, and produced water. There are at least 33 pits in the area of investigation."

· From the report’s concluding paragraph: “[T]his investigation supports recommendations made by the U.S. Department of Energy Panel on … greater emphasis on well construction and integrity requirements and testing. As stated by the panel, implementation of these recommendations would decrease the likelihood of impact to ground water and increase public confidence in the technology.” (p. 39)

5) 2-BE or not 2-BE? That is the question.

· EPA indicates that it found tris (2-butoxyethyl) phosphate in a few domestic water wells. What the agency doesn’t mention is that this chemical is a common fire retardant found in plastics and plastic components used in drinking water wells. It’s not 2-BE, which, although also a common material, is sometimes associated with the completions process.

· According to EPA, in one of the eight samples collected, a small amount of 2-BE was detected. Interestingly, two other EPA labs that measured for the same exact compound reported not being able to detect it in the duplicate samples they were given.

· According to Wyo. Governor: “Members of the [Pavillion] working group also have questions about the compound 2-BE, which was found in 1 sample … while other labs tested the exact same water sample and did not find it.” (Mead press release, Dec. 8, 2011)

6) Is EPA getting enough potassium?

· Several times in its report, EPA notes that potassium and chloride levels were found to be elevated in its monitoring wells. But just because you have potassium and chloride in a solution doesn’t mean you’ve got potassium chloride, a different chemical entirely and one that’s sometimes associated with fracturing solutions. Nowhere in its report does EPA suggest that potassium chloride was detected.

· According to several USGS studies of groundwater quality in the area, variable -- and in some cases, high -- concentrations of potassium and chloride have been detected in Pavillion-area groundwater for more than 20 years. (USGS 1991, 1992)

· Interestingly, the potassium levels detected in EPA’s first monitoring well declined by more than 50 percent from October 2010 to April 2011, while the potassium level in EPA’s second monitoring well increased during that same period. Only natural variations in groundwater flow and/or composition could have accounted for this disparity.

READ MORE

Statement from Wyo. Governor: Draft EPA report “scientifically questionable”
Statement from PAW president: “The draft report coming out of the EPA is reckless.”
EID issue alert: Five Quick Facts on Pavillion
Letter: 2009 letter from Encana to Pavillion community

www.energyindepth.org

9-Dec-11 12:30 PM

EPA Alleges Ground Water Damage from Fracturing -- Our Response

Thu, 08 Dec 2011 18:00:00 GMT

December 9, 2011

Dear IPAA Members and Colleagues:

Yesterday, the Environmental Protection Agency released a draft report on natural gas drilling in the town of Pavillion, Wyoming. According to the EPA's press release, "The draft report indicates that ground water in the aquifer contains compounds likely associated with gas production practices, including hydraulic fracturing." The report is still in draft form and needs to be peer-reviewed. The onus is now on EPA to legitimize this report after more than six decades of safely hydraulic fracturing over a million wells. As we have seen time and again, the current EPA has made our industry a primary target.

Most news headlines already have it wrong, instead reporting some conclusive link that hydraulic fracturing contaminates drinking water. Today's New York Times' headline pounces: "E.P.A. Links Tainted Water in Wyoming to Hydraulic Fracturing for Natural Gas."

IPAA filed this week a Freedom of Information Act (FOIA) request to EPA on this draft report, particularly whether it had been "leaked" prior to its public release yesterday.

Energy in Depth, the hydraulic fracturing and environmental issues coalition managed by the Independent Petroleum Association of America, released the following Issue Alert. I thought you might be interested, in case you have questions arise in your communities.

Please feel free to contact us if you comments or questions.

Sincerely,

Barry Russell

President and CEO

Six Questions for EPA on Pavillion

Draft report from EPA in Denver produces lots more questions than answers; EID poses a few of its own

Of course, before you can answer the second question, it’d be helpful if you had a good answer for the first. And the truth is, as we sit here today, less than 20 hours A.P. (After Pavillion), we simply don’t. What we do know, however, even at these early stages, is that several of the assertions put forth in EPA’s report yesterday don’t quite square with the facts as they actually exist on the ground out there. Because of that, a number of folks are starting to ask some pretty basic questions about what the agency found and how it went about finding it. Below, a few of the most obvious:

1) Why the huge difference between what EPA found in its monitoring wells and what was detected in private wells from which people actually get their water?

· After several rounds of EPA testing of domestic drinking water wells in town, only one organic compound (bis (2-ethylhexyl) phthalate) was found to exceed state or federal drinking water standards – an additive in plastics and one of the most commonly detected organic compounds in water. According to EPA: “Detections in drinking water wells are generally below established health and safety standards.”

· Bruce Hinchey, president of Petroleum Association of Wyoming: “Let me be clear, the EPA’s findings indicate that there is no connection between oil and natural gas operations and impacts to domestic water wells.” (PAW press release, Dec. 8, 2011)

· In contrast, EPA found “a wide variety of organic chemicals” in its two monitoring wells, with greater concentrations found in the deeper of the two. The only problem? EPA drilled its monitoring wells into a hydrocarbon-bearing formation. Think it’s possible that could explain the presence of hydrocarbons?

· According to governor of Wyoming: “The study released today from EPA was based on data from two test wells drilled in 2010 and tested once that year and once in April, 2011. Those test wells are deeper than drinking wells. The data from the test wells was not available to the rest of the working group until a month ago.” (Gov. Mead press release, issued Dec. 8, 2011)

· Of note, Administrator Jackson offered those comments to a reporter from energyNOW! a full week after Region 8 publicly released its final batch of Pavillion data. In that interview, Jackson indicates that she personally analyzed the findings of the report, and was personally involved in conversations and consultations with staff, local officials, environmental groups, the state and the operator.

· After reviewing all that information, and conducting all those interviews, if the administrator believed that test results from EPA’s monitoring wells posed a danger to the community, why would she say the opposite of that on television?

3) Did all those chemicals that EPA used to drill its monitoring wells affect the results?

· In this case, however, EPA’s decision to use “dense soda ash” as part of the process for drilling its monitoring wells could have proved a bad one.

· According to Tom Doll, supervisor of the Wyoming Oil and Gas Conservation Commission: “More sampling is needed to rule out surface contamination or the process of building these test wells as the source of the concerning results.” (as quoted in governor’s press release, Dec. 8, 2011)

4) Why is the author so confident that fracturing is to blame when most of his actual report focuses on potential issues with casing, cement and legacy pits?

· From the report (page xi): "Detection of high concentrations of benzene, xylenes, gasoline range organics, diesel range organics, and total purgeable hydrocarbons in ground water samples from shallow monitoring wells near pits indicates that pits are a source of shallow ground water contamination in the area of investigation. Pits were used for disposal of drilling cuttings, flowback, and produced water. There are at least 33 pits in the area of investigation."

· From the report’s concluding paragraph: “[T]his investigation supports recommendations made by the U.S. Department of Energy Panel on … greater emphasis on well construction and integrity requirements and testing. As stated by the panel, implementation of these recommendations would decrease the likelihood of impact to ground water and increase public confidence in the technology.” (p. 39)

5) 2-BE or not 2-BE? That is the question.

· EPA indicates that it found tris (2-butoxyethyl) phosphate in a few domestic water wells. What the agency doesn’t mention is that this chemical is a common fire retardant found in plastics and plastic components used in drinking water wells. It’s not 2-BE, which, although also a common material, is sometimes associated with the completions process.

· According to EPA, in one of the eight samples collected, a small amount of 2-BE was detected. Interestingly, two other EPA labs that measured for the same exact compound reported not being able to detect it in the duplicate samples they were given.

· According to Wyo. governor Mead: “Members of the [Pavillion] working group also have questions about the compound 2-BE, which was found in 1 sample … while other labs tested the exact same water sample and did not find it.” (Mead press release, Dec. 8, 2011)

6) Is EPA getting enough potassium?

· Several times in its report, EPA notes that potassium and chloride levels were found to be elevated in its monitoring wells. But just because you have potassium and chloride doesn’t mean you’ve got potassium chloride, a different chemical entirely and one that’s sometimes associated with fracturing solutions. Nowhere in its report does EPA suggest that potassium chloride was detected.

· Interestingly, the potassium levels detected in EPA’s first monitoring well declined by more than 50 percent from October 2010 to April 2011, while the potassium level in EPA’s second monitoring well increased during that same period. Only natural variations in groundwater flow and/or composition could have accounted for this disparity.

www.energyindepth.org

8-Dec-11 12:00 PM

Getting to the Bottom of NYT’s Latest Story on Leases

Thu, 08 Dec 2011 14:00:00 GMT

http://www.energyindepth.org/getting-to-the-bottom-of-nyt%e2%80%99s-latest-story-on-leases/

Getting to the Bottom of NYT’s Latest Story on Leases

Jerry Simmons

Executive Director

National Association of Royalty Owners (NARO)
December 7, 2011

As the Executive Director of an organization that represents the rights and interests of millions of mineral and royalty owners across this country, you can bet your bacon I’ve been following closely The New York Times’ ongoing series on natural gas development – and in particular, the stories about leasing, lending and mineral owners in some areas crying foul.

The story posted by NYT reporter Ian Urbina last week fits into this final category. Its basic thesis goes something like this: as shale exploration has continued to ramp-up, land- and mineral owners are increasingly being fooled (or forced) into bad leases – bad because they don’t protect the environment, bad because they don’t protect them in case of an accident; bad because they’re too low on the financial end. I should note here that I actually reached out to Mr. Urbina before he ran this story; none of the information I provided made it into the article. In light of that, I thought I’d take just a few minutes to lay out a few facts, and maybe set straight a few of the things that the Times didn’t quite get right.

For starters, let me say that its clear an awful lot of research went into this piece -- Urbina and his crew say they reviewed 110,000 individual leases before putting pen to pad. Yes, critics will point to the fact that more than 100,000 of those leases came from only one county (Tarrant) in one state (Texas), but sorting through them all is still a pretty big project, so at least give them some credit for that. I also appreciate the fact that people like Ron Staments, Jack Richards and Dave McMahon – all friends and/or professional acquaintances of mine – were interviewed for and quoted in the story.

To my eye, the biggest problem with this latest piece is that the Times attempts to manufacture a narrative in which land-owners at every turn are pitted against energy producers. In reality, it’s a partnership – with the lease document representing the statement of terms under which that partnership will be pursued. It’s true that some statements are tilted more toward one party’s interests than the other’s. Should we be surprised by that? Should we be aghast? As was pointed out in the article by Mike Knapp: “There are bad leases out there, and, as with any industry, there have also been some unscrupulous opportunists.” But is that a basis to shut down an entire industry? Reading the Times’ story, it’s tough not to get the impression that the reporter wouldn’t mind if we did.

As I’ve said many times before, leasing your minerals for development is more of an art than a science. You make the best deal you can with the best information and advice you can find – and if you find out later that your neighbor did better than you, you walk across the lawn, shake his hand, and let him know that next time, lunch is on him. Often, in the early days of a play, the discrepancies between lease deals can be significant – a natural function of uncertainty. Higher risks on the question of commercial viability have to be offset by lower upfront costs.

But as I’ve seen literally thousands of times over the years, as areas are proved up, and resources start flowing, mineral owners find themselves in a much better position to negotiate a better deal -- at least for the few who may have been unhappy with the original one. Remember: it often takes years, even decades, for operators to fully tap these reservoirs, and lease and royalty payments often represent only a fraction of the costs they’ll encounter over that time. Used to be, drilling a well was a 10-year commitment – now it’s a 40-year one. With the proliferation of electronic media, the incentive to cut-corners on the environment or get away with low-ball lease offers (for very long) is simply no longer there. And even if all of us don’t use Twitter yet, believe me, us mineral owners can be a pretty persuasive bunch once we get going.

The article had four bullet-points in the first few paragraphs that I will attempt to address here:

NYT: “Fewer than half the leases require companies to compensate landowners for water contamination after drilling begins. And only about half the documents have language that lawyers suggest should be included to require payment for damages to livestock or crops.”

· The amazing thing about this point is that, if you follow the links embedded in the body of the Times piece, the information provided appears to directly contradict the point he’s trying to make.

· Take a look for yourself: “If a gas company causes property damage or goes beyond what is ‘reasonably necessary’ to drill for oil or gas, the company may be held liable for damages. In many states there are also laws or regulations that govern the extent to which the surface must be returned to its original condition, including rules that require the company to remove unnecessary equipment or repair any damage. Some leases include addenda that specify how and when any wells will be plugged. They also sometimes include language that establishes how the company will handle specifics, like the removal of roads or restoration of the landscape.”

· In other words, all the protections that the Times laments aren’t included in a standard lease are included in a different kind of contract – called the law. No oil and gas lease I’ve ever seen includes anything banning a producer from, let’s say, hitting me in the head with a shovel. According to the Times’ logic, though, I guess that means it would be legal for him to do it -- since it wasn’t mentioned in my lease. Can you see why this entire premise is flawed?

NYT: “Most leases grant gas companies broad rights to decide where they can cut down trees, store chemicals, build roads and drill. Companies are also permitted to operate generators and spotlights through the night near homes during drilling.”

· Again, in most cases a surface-use agreement is required by the state, but if not, we’ve always recommended that the mineral owner (even if not surface owner) include one as part of the deal. In that agreement, you will negotiate compensation for roads, tree removal, crops, livestock, etc. But drilling itself is permitted by the state, and proximity to structures is determined by the appropriate state regulatory agencies. Distances may differ, but the principle does not.

NYT: “In the leases, drilling companies rarely describe to landowners the potential environmental and other risks that federal laws require them to disclose in filings to investors.”

· As stated above, mineral and surface landowners are protected from liability by state and federal regulations. If you believe a lease clause or addendum is needed to spell out potential risks and liabilities, then you should negotiate that into your lease – as most folks have done for years.

NYT: “Most leases are for three or five years, but at least two-thirds of those reviewed by The Times allow extensions without additional approval from landowners. If landowners have second thoughts about drilling on their land or want to negotiate for more money, they may be out of luck.”

· Oil and gas leases for decades (perhaps always) have allowed for the option to extend at the end of a primary term. The reason is that the company may not get to all drilling locations within the primary term and wants the ability to maintain its acreage position in an area.

· If you sign a lease with an option to extend, you have given your approval to extend the lease if certain stipulations are met. Once a well is producing, your acreage is “Held-By-Production” (HBP) for as long as the well is capable of production. As mentioned, this could be decades -- so leases are serious contractual instruments that one should not enter into without proper knowledge and professional advice.

· That’s our position as mineral owners – and guess what? It’s industry’s position as well. According to Kathryn Klaber, president of the Marcellus Shale Coalition: “The most educated landowner is going to be this industry’s best business partner, and that means legal review.” (Associated Press, 7/23/11)

It is too bad this article did not attempt to emphasize the need for mineral and surface land owners to accept their responsibility and become educated on the process of mineral leasing and mineral/royalty income. If it had, the Times could have done a real service to the citizens facing decisions on leasing instead of trying to generate fear in a process that could (and does) pay off a mortgage; send kids or grandkids to college; keep elderly folks off state assistance; keep the family farm in the family; build new fences, barns, houses; supplement retirement; and on and on.

The point is, of the millions of oil and gas leases in effect in America today, the vast majority are held by folks who are very happy with the process and benefit greatly from the income that this partnership produces. Too bad the Times doesn’t consider that much of a story.

8-Dec-11 8:00 AM

Interesting Quote

Phil Jones - noemail@ocapl.org — Tue, 06 Dec 2011 17:00:00 GMT

‘Mr. Brownlow, who has a Ph.D. in geochemistry, says it takes 407 million gallons to irrigate 640 acres and grow about $200,000 worth of corn on the arid land. The same amount of water, he says, could be used to frack enough wells to generate $2.5 billion worth of oil. "No water, no frack, no wealth," says Mr. Brownlow, who has leased his cattle ranch for oil exploration.’

6-Dec-11 11:00 AM

Industry Affairs November 2011

Sat, 19 Nov 2011 18:00:00 GMT

OCAPL

INDUSTRY AFFAIRS REPORT

November 14, 2011

This is the 72^nd report from the Industry Affairs Committee of OCAPL. The opinions expressed herein are those of the writers and not those of OCAPL, AAPL, former clients, or our current employers. The objective of this exercise is to alert OCAPL members to (a) the activities of organizations and governments that affect the way we do business, (b) public opinion that shapes legislation, and (c) judicial decisions relating to energy issues. Hopefully, this knowledge will provoke each of us to recognize the critical role we, as LANDMEN, play in sustaining America’s standard of living and thereby feel compelled to respond to the challenges before us. Your comments regarding this effort are always welcome.

The Committee at Work: Current members in the OCAPL Industry Affairs committee include Phil Jones, Brandt Vawter, Brett Hudson, John Raines, and Jack Rayburn. If you would like to participate in the committee’s effort, we would be pleased to hear from you.

BHP Billiton to Spend $4.5B On US Shale This Year

by Robb M. Stewart

Dow Jones Newswires

Monday, November 14, 2011

MELBOURNE (Dow Jones Newswires), Nov. 14, 2011

BHP Billiton plans to invest roughly US $4.5 billion developing the shale oil and gas assets it bought in the U.S. this financial year as it ramps up production, the head of the mining company's petroleum division said Monday.

BHP expects capital spending to jump to almost US $6 billion in the 2015 fiscal year and roughly US $6.5 billion by 2020 as the company ramps up the number of rigs on its four project areas, Michael Yeager said in a conference call from Melbourne.

BHP spent almost US $17 billion this year buying Petrohawk Energy Corp. along with its assets in Texas and Louisiana and Chesapeake's Fayetteville shale assets in Arkansas.

Yeager, who defended the hydraulic fracturing or "fracking" technology used to extract hydrocarbons from deep shale deposits, said BHP is targeting U.S. shale production of 90 million barrels of oil equivalent in the year through June or about 250,000 BOE a day. He said he expects this to reach 600,000 BOE a day in fiscal 2015 and 1 million by 2020.

BHP has targeted 225 million BOE this year from all its petroleum operations, including wells in the Gulf of Mexico and elsewhere. The figures don't include prospective oil shale projects in the Permian Basin in Texas acquired with Petrohawk and where Yeager said BHP is still actively expanding.

Yeager said shale is forecast to account for half of U.S. gas production by 2020 and is an opportunity for the U.S. to secure energy supplies. Although he acknowledged concerns over fracking technologies globally and its potential impact on the environment, shale continues to gain acceptance, he said

Salazar unveils new proposed 5-year OCS leasing program

By Nick Snow
Washington Editor

US Sec. of the Interior Ken Salazar announced a proposed US Outer Continental Shelf program for 2012-17 with 15 potential oil and gas lease sales, 12 in the Gulf of Mexico and 3 off Alaska's coast. "This 5-year program will make available for development more than three-quarters of undiscovered oil and gas resources estimated on the OCS, including frontier areas such as the Arctic, where we must proceed cautiously, safely and based on the best science available," Salazar said on Nov. 8 as DOI's US Bureau of Ocean Energy Management released the tentative schedule.

A fact sheet about the proposed program—the second of three that must be issued before a final 2012-17 program is established—said it included five annual area-wide sales offering all unleased acreage in the western Gulf of Mexico beginning in fall 2012; five more similar annual area-wide sales in the central gulf beginning in spring 2013; and two sales in the eastern gulf, in 2014 and 2016, in areas not under congressional moratorium.

The proposed schedule also included a sale in the Beaufort Sea in 2015 and one in the Chukchi Sea in 2016 off Alaska. The schedule provides time to learn from interim exploration and further analyze environmental, subsistence use, and infrastructure issues so the sales can be tailored to address these issue. A special interest sale in Alaska's Cook Inlet, initially scheduled for 2013, might be delayed depending on industry interest.

It did not include any lease sales off the US Atlantic coast. The fact sheet said that while a 2009 OCS development strategy included the south and mid-Atlantic planning areas under possible consideration for a 2012-17 program, a lack of oil and gas infrastructure and spill preparedness and response capacity, along with potentially conflicting uses with the US Department of Defense, supported Salazar's decision to leave it out.

Virginia Gov. Robert F. McDonnell (R) reacted sharply. "Virginia is poised to become the 'Energy Capitol of the East Coast' by responsibly developing nuclear, natural gas, coal, biomass, wind, solar, and offshore oil and gas," he said. "There is a burgeoning energy exploration industry, hundreds of millions of dollars in new capital investment, and thousands of new jobs at stake if Virginia is not allowed to pursue its innovative and comprehensive energy strategy."

'A missed opportunity'

Oil and gas industry groups also were disappointed. "Moving forward with the proposed 2012-17 5-year OCS leasing program is a good first step," said Erik Milito, the American Petroleum Institute's upstream and industry operations group director. "However, this is a missed opportunity to open additional areas that could have helped address rising energy demand, create American jobs and reduce the federal deficit."

"This ill-conceived plan leaves us looking in the same areas we have looked for over a generation and would cast our energy reliability and security lot to the whims of other, often unfriendly nations," said National Ocean Industries Association President Randall B. Luthi. "While today's decision is not unexpected, the lack of new access is deeply disappointing, and frankly bears little resemblance to the president's announcement in March of this year—amid high energy prices—that [his administration] had set the goal of reducing oil imports by one-third by 2025."

Environmental organizations also were critical. "The president's Oil Spill Commission put forth a game plan to improve the industry's safety, but it has yet to be realized," said Natural Resources Defense Council President Frances G. Beineke, who served on that commission. "Congress has failed to pass a single law to better protect workers or the environment. Industry has not invested sufficiently in developing the technologies needed to prevent future disasters. And the government still needs additional resources and science in order to effectively police an industry that so desperately needs it."

Lori LeBlanc, executive director of the Gulf Economic Survival Team, said that the organization appreciated the latest proposed 5-year OCS plan with its 12 gulf and 3 Alaska offshore sales. "However, there continues to be tremendous uncertainty within the industry as to the ability of the government to timely approve the necessary plans and permits to enable future projects to move forward," she continued. "We fear that this air of uncertainty may impair the ability of the industry to invest in currently planned and future lease sales."

Written comments on the draft programmatic environmental impact statement for the proposed 5-year program will be accepted until Jan. 9, 2012. BOEM also has scheduled public hearings next month on the draft programmatic EIS in nine Alaska communities. Public hearings also are scheduled in Washington; Houston; Mobile, Ala.; and New Orleans.

Industry officials attack latest call to raise oil, gas taxes

By Nick Snow
Washington Editor

Oil and gas industry association officials blasted a proposal sent by several congressional Democrats to the deficit reduction super committee on Nov. 2 to raise revenue by eliminating key provisions benefiting the industry. Congress and the super committee should take the necessary time to comprehensively address tax reform questions and resist apparently easy suggestions which actually would do more economic damage, they said on Nov. 7.

"Some of the proposals are just punitive to oil and gas as a sector. Others are even more specifically selective and more punitive by selecting just a handful of companies," American Petroleum Institute Pres. Jack N. Gerard said in a teleconference with reporters. "All you have to do is look at corporate earnings, and you'll find companies that make more but pay a lower effective tax rate. No one is calling for higher tax rates for those companies, nor should they. We should be focused on creating jobs, not punishing a particular industry."

Others questioned the wisdom of Congress trying to make major tax policy reforms in such a short period. "Proposals to drop corporate rates into the 25% level will require repealing significant depletion exemptions that are way beyond our industry, such as eliminating accelerated depletion and the manufacturers' tax deduction for every industry, not just ours," noted Lee O. Fuller, vice-president of government relations at the Independent Petroleum Association of America. "When you start sweeping through it in that context, we're a minor player."

In a separate interview, V. Bruce Thompson, president of the American Exploration & Production Council (AXPC), said, "It's a blanket approach—just get rid of everything oil and gas, and let the chips fall where they may. Our concern is with the thinking on intangible drilling cost deductions, which is clearly a tax code provision which lets us recover, in the year of expenditure, any items that have no salvageable tax value, as with any company's research and development expenses."

Negative impacts

"These tax increases would hurt American consumers and employers by raising the costs of driving, raising the costs of manufacturing and transporting products, and raising the costs of operating businesses," National Petrochemical & Refiners Association Pres. Charles T. Drevna said in a statement. "They would make it harder for American oil and gas producers, and fuel and petrochemical manufacturers to compete with foreign rivals on a level playing field. This would wipe out jobs, weaken our economy, and increase America's reliance on foreign oil, fuels, and petrochemicals."

Their responses came after several congressional Democrats urged the super committee to repeal federal tax provisions which directly benefit the oil and gas industry or exclude the industry specifically from general corporate tax exemptions. "This is not class warfare. This is common sense," declared Robert Menendez (NJ), a Senate Energy and Natural Resources Committee member, in a Nov. 2 press release. "We want the oil companies and their shareholders to do well, but we should not be spending 21 billion taxpayer dollars to unfairly reward their tremendous success."

"I applaud the success of these companies and believe that in the United States individuals should, through merit and hard work, be able to build wealth," Rep. James P. Moran (Va.), ranking minority member on the House Interior Appropriations Subcommittee, said in a commentary in the Nov. 3-9 Falls Church (Va.) News-Press. "But given their profitability, it's clear that these companies do not need their current tax breaks and the public subsidies they receive. Big oil tax expenditures are, without doubt, wasteful spending of taxpayer dollars. Removing these tax breaks will not hurt the oil and gas industry, nor will it affect the price of oil."

Gerard disputed such characterizations. Oil and gas pays more in total corporate taxes than any other US industry, he maintained. Its effective 2010 tax rate was an average 41.1%, compared with 26.5% for other businesses in Standard & Poor's Industrial Index, and the tax provisions critics target are no different than normal business deductions and cost recovery mechanisms widely used throughout the US economy, he said.

Keystone Pipeline May Not ‘Survive’ U.S. Delay, Flaherty Says

November 14, 2011, 12:11 AM EST

By Andrew Mayeda and Greg Quinn

Nov. 11 (Bloomberg) -- The U.S. State Department’s decision to delay its review of TransCanada Corp.’s $7-billion Keystone XL pipeline until after next year’s presidential election may doom the project and accelerate Canada’s efforts to ship crude to Asia, Canadian Finance Minister Jim Flaherty said.

“The decision to delay it that long is actually quite a crucial decision. I’m not sure this project would survive that kind of delay,” Flaherty said yesterday in an interview at the Asia-Pacific Economic Cooperation summit in Honolulu. “It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia.”

The deferral on Keystone XL is a blow to the government of Prime Minister Stephen Harper, who called U.S. approval of the pipeline a “no brainer.” Canadian officials underestimated the strength of resistance to the project by Nebraska farmers and environmentalists, political and foreign-policy experts said.

The State Department said yesterday it will study an alternative route to avoid environmentally sensitive areas in Nebraska. Nebraskan farmers, officials in the state and some members of Congress argue the proposed route across the Sandhills area risks contaminating the Ogallala aquifer that supplies water to 1.5 million people.

Flaherty, who travels to China this week, called the State Department’s move “disappointing,” noting that unions and business groups appeared to back Keystone.

“This project would have provided thousands and thousands of jobs in the United States, a lot of unionized, well-paying jobs,” he said. “The delay, we hope, doesn’t doom the project. We hope it will still happen.”

Hollywood Opposition

The project was also opposed by environmentalists who, backed by Hollywood celebrities such as Daryl Hannah and Julia Louis-Dreyfus, said the crude it would deliver from the Alberta oil sands to Gulf Coast refineries produces more greenhouse-gas emissions than conventional oil.

“The whole thing was kind of mishandled by not understanding the local resistance to it,” said Andy Hira, a professor of political science at Simon Fraser University in Vancouver who studies energy policy. Harper and TransCanada need to be more flexible about the route for the project to be approved, he said.

Harper has promoted his country as an “energy superpower,” pointing to its political stability compared with other suppliers. Canada is already the biggest foreign supplier of oil to the U.S. and provides the country with almost a quarter of its crude imports, twice what Saudi Arabia does.

Canada had dispatched senior officials and diplomats to lobby on behalf of the pipeline. In an interview at Bloomberg headquarters in New York on Sept. 21, Harper said approval of the project was a “no brainer” because it would create jobs in the U.S. and help the country secure its energy supply.

Gulf Coast

The 1,661-mile (2,673-kilometer) pipeline would deliver 700,000 barrels a day of crude from Alberta’s oil sands to the Gulf of Mexico by crossing Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.

Flaherty, 61, will travel later this week to Beijing, where he will discuss increasing energy exports to China and facilitating investment in Canadian natural-resource assets.

Enbridge Inc. has proposed building a pipeline, called Northern Gateway, that would transport crude from Alberta’s oil sands to Canada’s Pacific coast, while Kinder Morgan Inc. plans to expand its Trans Mountain route to do the same.

Opposition to Keystone XL grew over this year, as environmentalists and other groups held protests outside the White House that led to arrests. The Nebraska legislature is in a special session weighing measures to force a rerouting of the project.

Environmental Risks

As the political pressure on his administration grew, Obama himself acknowledged the health and environmental risks in Nebraska.

“Folks in Nebraska, like all across the country, aren’t going to say to themselves, ‘We’ll take a few thousand jobs if it means our kids are potentially drinking water that would damage their health,’” Obama said in Nov. 2 interview with Nebraska TV station KETV. “We don’t want, for example, aquifers to be adversely affected. Folks in Nebraska obviously would be directly impacted.”

The Canadians appeared not to pick up on the shift in U.S. thinking on the pipeline, said Hira.

“Over the last month or two the Canadian government really should have re-assessed the situation based on the amount of resistance that was coming from in Nebraska,” he said.

Lobby Efforts

Canada’s drive to secure Keystone’s approval included two trips to Washington by Natural Resources Minister Joe Oliver, where he met with U.S. Energy Secretary Stephen Chu and pressed the case with Obama administration officials and numerous House representatives and senators, Patricia Best, Oliver’s chief spokeswoman, said in an e-mail.

In advocating the pipeline, Canada had appealed to the democratic and economic values it shares with the U.S. It is a position outlined by Canadian conservative commentator Ezra Levant in his book “Ethical Oil,” in which he argues that countries such as the U.S. should opt for oil from Canada rather than from Middle East dictatorships such as Saudi Arabia or socialist Venezuela.

“In Canada, as is the case in the United States, energy policy is rooted in the principles of the open market and shaped by a commitment to develop our energy resources in an environmentally and socially responsible way,” Oliver said in an Oct. 4 speech in Washington to the U.S. Energy Association. “How different the situation is elsewhere.”

Judged on Merit

Canada’s ambassador in Washington, Gary Doer, also lobbied U.S. and state officials to support the pipeline. After Obama’s televised interview, Doer told reporters in Ottawa that he expected the project to be approved if judged on “merit,” rather than ”noise.”

“We’re very excited here in Nebraska that our voices have been heard,” Nebraska Governor Dave Heineman, a Republican, said yesterday in an interview. “And I want to emphasize, most Nebraskans, including myself, we support the pipeline but we’re opposed to the route.”

In an environmental impact study in August, the State Department said it studied 14 “major route alternatives” for the pipeline. The department “did not find any of the major alternatives to be preferable to the proposed project,” it said at the time.

Still, environmentalists were able to raise doubts about the project’s impact, a factor that the Canadian government didn’t take seriously enough, said Michael Byers, an expert in international law at the University of British Columbia.

Rigorous Review

“Their mistake was to gloss over the environmental dimensions,” said Byers, who ran as a candidate for the opposition New Democratic Party in a 2008 general election. ”Obama was conscious that he needs to get out his base on election day. He didn’t want the environmentalists to stay home.”

The delay is an opportunity for a more “sober” and “rigorous” assessment of the pipeline on all sides, outside of the politicized climate of a presidential election campaign, he said.

Russ Girling, chief executive officer of Calgary-based TransCanada, who had said rerouting delays might kill the project, said yesterday the company remains “confident Keystone XL will ultimately be approved.”

“This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed,” Girling said a statement.

--With assistance from Theophilos Argitis in Ottawa. Editors: David Scanlan, John Simpson

19-Nov-11 12:00 PM

Oklahoma Geologic Society Discussion Group 11/8

Thu, 27 Oct 2011 15:00:00 GMT

OKLAHOMA CITY GEOLOGICAL SOCIETY

DISCUSSION GROUP

November 8, 2011

5:00PM

OKLAHOMA CITY GEOLOGICAL LIBRARY

Oklahoma Corporation Commission 2011 Oil and Gas Institute

“Changing Dynamics: New Perspectives on Oklahoma Oil and Gas Conservation Law and Practice”

Did you know, on April 13, 2011, Governor Mary Fallin signed House Bill No. 1909 (HB 1909, the 2011 Shale Reservoir Development Act) into law?

Did you know, on May 17, 2011, The Oklahoma Corporation Commission (OCC), through Emergency Rule Making Cause RM No. 201100004 supplanted the normal process of promulgating rules through the permanent rule making process?

Did you know the 2011 Shale Reservoir Development Act was the first new State law enacted related to horizontal drilled wells in over 20 years?

Did you know the 2011 Shale Reservoir Development Act contains many new definitions such as “Associated Common Source of Supply” that will GREATLY AFFECT OWNERSHIP RIGHTS (including overrides), economics and the orderly development of common sources of supply relative to shale reservoirs?

Did you know the 2011 Shale Reservoir Development Act will allow an operator to drill a horizontal Woodford well and commingle the “Associated Common Sources of Supply“, (i.e., the Mississippi and Hunton Formations) into a SINGLE productive shale unit?

Did you know the 2011 Shale Reservoir Development Act and OCC do not require the submission of the MWD Gamma Ray Log (which is a standard formation evaluation type wireline log per OAC 165: 10-3-26) for horizontal wells?

Did you know OCC Commissioner Dana Murphy recently spoke to the members of the OCGS, challenging us to, “get involved,” or learn to live under the laws and rules that are enacted, supposedly “for our benefit?”

Did you know only 45 Geoscientists attended Commissioner Murphy’s discussion?

Which of the above questions are based on fact? In the next year we will elect two OCC Commissioners, but today the laws and rules that regulate the way we do the business of developing and producing Oklahoma’s natural resources are being promulgated in the legislature and courts. Are you aware of the dynamic changes taking place in Oklahoma’s Oil and Gas Conservation Law? Get involved; take the time to read;

Google HB 1909 and download the law from the Ok Legislature website,
Search the OCC website imaged documents RM 201100004
Contact the Governor, your Legislature and a friend

The Oklahoma Geological Society’s November 8^th, 2011 Discussion Group will look at and discuss these changes and how they may relate to a case study area around the West Cana Woodford Play area in Dewey County, OK.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

MEETINGS ARE INFORMAL, THERE IS NO CHARGE AND GUESTS ARE WELCOME.

NO RESERVATIONS NECESSARY

27-Oct-11 10:00 AM

Colleges Gas Boom

Mon, 17 Oct 2011 14:00:00 GMT

Colleges Gas Boom

17-Oct-11 9:00 AM

Senators pin Critical Minerals Hopes on Currency Reform Bill

Fri, 07 Oct 2011 13:00:00 GMT

Click HERE for article.

7-Oct-11 8:00 AM

Industry Affairs July 2011

Tue, 02 Aug 2011 15:00:00 GMT

OCAPL

INDUSTRY AFFAIRS REPORT

July 18, 2011

This is the 71^st report from the Industry Affairs Committee of OCAPL. The opinions expressed herein are those of the writers and not those of OCAPL, AAPL, former clients, or our current employers. The objective of this exercise is to alert OCAPL members to (a) the activities of organizations and governments that affect the way we do business, (b) public opinion that shapes legislation, and (c) judicial decisions relating to energy issues. Hopefully, this knowledge will provoke each of us to recognize the critical role we, as LANDMEN, play in sustaining America’s standard of living and thereby feel compelled to respond to the challenges before us. Your comments regarding this effort are always welcome.

Local OCAPL member produces video in hopes of advancing CNG vehicle transportation.

Ron Mercer and Bob Hammack teamed-up to make “Pump Fiction”, a video available on YouTube. Copy and paste the following address in your browser to view Pump Fiction: http://youtu.be/cJOZ--5d_68

Pollution from drilling in Fort Worth isn’t harming health, study says

By Elizabeth Souder

Dallas Morning News

7-14-11

Natural gas drilling and production in Fort Worth doesn’t generate enough air pollution to cause adverse health effects, although some facilities don’t comply with environmental rules.

Those are the findings of an air quality report commissioned by the city of Fort Worth and released Thursday. The city, with its 2,000 natural gas wells, is in the heart of the Barnett Shale natural gas field, where residents, drillers and politicians have argued about making sure operations are safe.

“The measured and estimated air pollution levels did not reach levels that have been observed to cause adverse health effects,” the report states, and “the measured benzene and formaldehyde levels in Fort Worth were not unusually elevated when compared to levels currently measured by TCEQ [Texas Commission on Environmental Quality] elsewhere in Texas.”

Further, 98 percent of the emissions came from pollutants with low toxicities, such as methane, ethane, propane and butane, the report states.

Five sites reviewed by the study — a processing facility, three compressor stations and a well pad — emitted more pollution than allowed. Most natural gas sites do not emit enough pollution to require a permit, but those five sites “had overall emission rates that exceed regulatory thresholds that are supposed to trigger certain permitting requirements,” the report states.

The study is the most comprehensive publicly available information about pollution caused by new drilling techniques. It could help other cities in shale plays around the world understand pollution in their own areas.

Understanding emissions

The study could be of particular interest to members of a task force that will recommend new drilling ordinances for Dallas.

“This will be a significant contribution to the understanding of how much emissions are being released from natural gas operations,” said Ramon Alvarez, a senior scientist with the Texas office of the Environmental Defense Fund and a member of the Dallas task force.

The report “shows us some things that are working,” said Bruce Bullock, another member of the task force and director of Southern Methodist University’s Maguire Energy Institute.

“At the same time, it shows us — albeit some relatively minor things — some things we need to make sure are done from a housekeeping standpoint,” he said.

Reasonable precautions

According to the report, Fort Worth’s rule that wells must be at least 600 feet from homes and businesses is adequate. Still, the report urged city leaders not to be complacent.

Eastern Research Group Inc., which conducted the study, said it “fully supports implementing all reasonable precautions to reduce emissions from the well pads and compressor stations,” and it recommended equipment the operators could use to cut emissions.

The most common sources of emissions were pneumatic valve controllers at well pads and compressor stations, the report states. And at a few sites, equipment had malfunctioned or corroded, or hatches on top of tanks were left open, allowing pollutants to escape.

“I was actually rather pleasantly surprised by reading the report,” said Bill Godsey, founder of GeoLogic Environmental Services, which helps companies comply with environmental regulations. “I was really expecting something a little different than what came out.”

Clashing Views on the Future of Natural Gas

By ARTHUR S. BRISBANE, Editor- The New York Times, 7/17/2011

A NEW YORK TIMES article last month, “Insiders Sound an Alarm Amid a Natural Gas Rush,” warned across two columns at the top of the front page that high expectations for companies drilling shale gas might be headed for a fall. It was the kind of story you wish The Times had written about Enron before it collapsed. Or about Bernard Madoff.

The June 26 article, written by Ian Urbina, was clearly intended to offer that kind of signal and specifically invoked “Enron,” “Ponzi schemes” and “dot-coms” in the early paragraphs.

Raising the prospect of a fall, though, is a journalistic gamble. Adding to the risk, the story painted its subject with an overly broad brush and didn’t include dissenting views from experts who aren’t entrenched on one side or another of the subject. After publication, critics jumped in with both feet.

A UBS investment analyst, William A. Featherston, and colleagues issued a report saying that the article, part of The Times’s continuing “Drilling Down” series on shale gas, was “unduly harsh,” failed to recognize the “enormous” growth of shale gas in recent years and offered no “credible source and context.”

An M.I.T. natural gas study group released a statement taking issue with The Times’s analysis of shale gas economics, well productivity and other matters. Other commentators assailed the sourcing used to support the article’s premise: only two people named in the text, plus a large trove of e-mail from people whose names were redacted by The Times.

A countervailing surge of support for the article, meanwhile, has come from environment-minded readers. And four Democrats in Congress have called on public agencies to examine some of the issues that Mr. Urbina raised in that story and one the next day.

The reaction underscored the stakes involved in shale gas. Hailed as a cleaner replacement for coal, it is extracted using a relatively new, water-intensive drilling technique commonly called fracking. As The Times documented in an earlier installment of “Drilling Down,” there is concern that fracking could wreak environmental havoc in shale basins across the country.

I asked Mr. Urbina and his editors to address complaints about the article, starting with the broad objection that it cast doubt on shale gas without mentioning that it had grown rapidly as an energy source — rising from 2 percent of all natural gas production in 2000 to 23 percent 10 years later, which the M.I.T. group called a “paradigm shift.” The journalists said The Times had already cited the big picture of a gas boom in the “Drilling Down” series opener back in February and had thoroughly covered it elsewhere.

I also asked why The Times didn’t include input from the energy giants, like Exxon Mobil, that have invested billions in natural gas recently. If shale gas is a Ponzi scheme, I wondered, why would the nation’s energy leader jump in?

Mr. Urbina and Adam Bryant, a deputy national editor, said the focus was not on the major companies but on the “independents” that focus on shale gas, because these firms have been the most vocal boosters of shale gas, have benefited most from federal rules changes regarding reserves and are most vulnerable to sharp financial swings. The independents, in industry parlance, are a diverse group that are smaller than major companies like Exxon Mobil and don’t operate major-brand gas stations.

This was lost on many readers, including me. Michael Levi, a senior fellow for energy and the environment at the Council on Foreign Relations, wrote that the article “repeatedly confuses the fortunes of various risk-hungry independents with the fortunes of the industry as a whole.”

He told me he hadn’t realized that the report was focused on independents and read it more broadly, adding, “If I didn’t know they were talking about certain independents, then Times readers — who don’t know what an independent is — they aren’t going to know what they are talking about either.”

This confusion stems from the language in the article, which near the top referred to “natural gas companies” and “energy companies.” The term “independent” appeared only once, inside a quoted e-mail.

The article’s sourcing has also been questioned. The Times presented a large array of e-mails — some recent, some three and four years old — from geologists, analysts, energy executives and others who expressed the belief that companies were exaggerating their prospects. The Times excised the names but not the company affiliations from the e-mails. It was from this trove, which became part of a 487-page online document collection for readers to peruse, that the hot-button references to dot-coms, Ponzi schemes and Enron were pulled for the text of the article.

The two named sources in the story, Art Berman, a geologist from Houston, and Deborah Rogers, a farm owner from Fort Worth, say they provided some of these e-mail conversations.

Mr. Berman, who was described appropriately as “one of the most vocal skeptics of shale gas economics,” told me he had traveled the country giving presentations questioning some companies’ claims for shale gas prospects. It’s clear that some of the e-mails in The Times article came from people who had heard him speak.

Ms. Rogers, a former stockbroker, was described as serving on an advisory group of the Federal Reserve Bank of Dallas. What was not mentioned was that her primary business was a small agricultural operation and that she had clashed with Chesapeake Energy, a leading shale gas producer, over its drilling on land next to hers. Mr. Bryant told me it wasn’t necessary to mention this because the issue had not resulted in litigation and Ms. Rogers was clearly presented as an industry critic.

My view is that such a pointed article needed more convincing substantiation, more space for a reasoned explanation of the other side and more clarity about its focus. The Times journalists countered that their reporting consisted of more than three dozen interviews with industry experts, and analysis of S.E.C. filings from two dozen companies and data from more than 9,000 wells. The Times also published several dozen e-mails from industry officials and federal regulators voicing concerns.

“The article challenges conventional wisdom and a powerful industry, so we expected criticism,” said Richard L. Berke, the national editor. “But it is deeply sourced, meticulously reported and measured, and we would not change a word.”

No question, the article challenged conventional thinking, and perhaps some of the shale gas independents will eventually founder. But the article went out on a limb, lacked an in-depth dissenting view in the text and should have made clear that shale gas had boomed.

SEC probe of US-listed Chinese firms hits Great Wall

U.S. investors had risked billions of dollars on hundreds of companies based in China – under a belief they were subject to U.S. rules when they sell and list shares in the United States – but a lot of that money has gone up in smoke, according to a July 10 Reuters report.

According to the news agency, the accounting blowups have humbled some prominent American investors such as top hedge fund manager John Paulson and former AIG CEO Maurice “Hank” Greenberg, spawned lawsuits and prompted a broad investigation by U.S. regulators.

Since March alone, more than two dozen U.S.-listed Chinese companies have announced auditor resignations or accounting problems, and there have been similar blowups in Canada.

Regulators and exchanges also have appeared flat-footed in the face of the growing scandal.

U.S. laws, including the sweeping 2002 Sarbanes-Oxley reform act meant to root out accounting fraud, lose some of their power with Chinese-based entities. The U.S. has no extradition treaty with China and the evidence gathering process in China is impeded by state secrets laws.

“The Chinese accounting problem has been festering for a long time,” said Duke University law professor Jim Cox, who serves on a standing advisory group of the Public Company Accounting Oversight Board, which was set up under Sarbanes-Oxley to oversee accounting firms, including doing thorough inspections of their work.

Thwarted by state laws?

“It's going to get worse before it gets better,” said Cox, who faults the U.S. Securities and Exchange Commission for not taking quicker action.

In particular, he said, the SEC has been slow to tighten oversight of U.S. shell companies acquired by Chinese firms through so-called “reverse mergers” to gain access to U.S. capital markets without having to go through an initial public offering.

SEC officials acknowledged problems with inspecting the accounting records of China-based companies well over a year ago at a meeting of the PCAOB advisory group, he said.

Meredith Cross, head of corporation finance for the SEC, said the agency has stepped up its reviews of Chinese reverse merger firms over the past year.

“We’re currently thinking through whether there is more that we can do,” Cross said.

A year ago, it launched a cross-border working group to review issues with Chinese reverse mergers and other companies with substantial foreign operations.

Officials from the SEC and PCAOB are holding talks with counterparts in Beijing this week in an attempt to get inspection access to Chinese auditors for U.S.-listed companies as one way to get on top of the problem.

But regulators said there is a core problem with tackling the reverse merger question head on because mergers come under state rather than federal law.

“We don’t have a way to say, ‘you can’t do reverse mergers,’ ” said the SEC’s Cross. “Because the issue of whether someone can merge is not an SEC question, but a matter of state law, it's not something where we could just wave a magic wand and say, 'we're not going to let reverse mergers happen anymore.’ ”

She did, though, note that such firms were bound by reporting requirements once they were listed.

The SEC also has resource constraints, she said, with about 350 people in its corporation finance division reviewing financial reports of more than 10,000 public companies. It has, though, been devoting more resources to the reverse mergers problem, she noted.

Further complicating matters, the SEC’s Chinese counterpart, the China Securities Regulatory Commission, has no enforcement authority over many of the companies accused of fraud because they only sell shares in the United States.

Like other securities regulators, the CSRC has limited resources, said former SEC chairman Christopher Cox. “When triage is the name of the game, it's natural that the home country’s priority is protecting its own citizens.”

The SEC has brought several actions against China-based issuers in recent years. In most cases, action consisted of suspending trading or revoking companies’ registration, though more severe penalties were also pursued.

China Energy Savings Technology Inc and its managers were ordered by a federal court in 2009 to pay a US$34 million judgment after being charged with a stock manipulation scheme by the SEC.

Chinese courts typically do not enforce U.S. judgments, though at least US$4 million will be recovered in that case because the SEC froze assets in the United States.

Accessing work papers difficult

Accounting misconduct fell dramatically in the United States after authorities cracked down on corporate crime in the wake of the Enron and WorldCom frauds. A section of Sarbanes-Oxley that made it a felony for executives to certify false financial statements was one big deterrent.

That provision applies to companies that sell securities in U.S. markets, whether they are based in the United States or another country, but few Chinese executives fear being led away in handcuffs because of the lack of an extradition treaty, lawyers said.

“If you’re a CEO of a company based in China and sign a false Sarbanes-Oxley certification, it’s very difficult for the U.S. government or Justice Department to charge you with that crime, indict you and bring you to justice,” said Phillip Kim, attorney at the Rosen Law Firm. “There are no treaties that provide for that.”

Some Chinese executives resist answering to U.S. authorities at all, auditors said.

“They believe they should not have to respond if they feel any request is too intrusive and believe that they can tell the SEC no,” Mimi Justice, head of Deloitte's forensic and dispute practice in Orange County, California said at a recent conference in Los Angeles.

Getting auditors’ work papers – crucial evidence in many accounting frauds – has been especially difficult. Many accounting firms would like to hand over records but fear violating China's state secrets law, attorneys said.

“They have a real dilemma on their hands as to how to respond to the U.S. regulators when to do so might expose them to criminal sanctions in China,” said Alan Linning, a partner at Sidley Austin in Hong Kong.

Crashing share prices and the publicity surrounding them do, of course, have their own Darwinian way of making investors more vigilant. There is, for example, much less appetite for new Chinese listings now, and many of the earlier listings are little more than penny-stock wreckage.

But to some that just begs the question – is the action from the regulators too little, too late?

“I think the public is looking for an SEC that is proactive and in front of these issues, and they have yet to do that in this instance,” said Lynn Turner, a former chief accountant at the SEC.

BHP to Acquire Petrohawk For $12.1 Billion, Betting Natural Gas Will Climb

BHP Billiton Ltd. (BHP), the world’s largest mining company, agreed to buy Petrohawk Energy Corp. (HK) for about $12.1 billion in cash in its biggest acquisition, betting natural gas demand will gain in the U.S.

BHP will pay $38.75 a share using cash and debt, the companies said in a statement today. That’s 61 percent more than Houston-based Petrohawk’s average price over the past 20 trading days and compares with the 25 percent average premium in 17 deals worth at least $5 billion for oil and gas producers in the past five years, according to data compiled by Bloomberg.

The deal marks Chief Executive Officer Marius Kloppers’s second foray in shale gas, forecast to make up half of U.S. gas output by 2030, after the $4.75 billion purchase of Chesapeake Energy Corp. (CHK) assets in March. BHP, based in Melbourne, sees total spending on developing Petrohawk assets of as much as $65 billion by 2020, Morgan Stanley analysts said in a note today.

“BHP wants to increase the scale of its oil and gas business given that most of its existing energy assets are mature,” said Jason Teh, who helps manage about $3 billion, including BHP stock, at Investors Mutual Ltd. in Sydney. “This acquisition nearly doubles BHP’s resource base.”

BHP fell 1.9 percent to 2,340 pence at the 4:30 p.m. close in London, the lowest price since June 27. It dropped 1.6 percent to A$42.89 in Sydney. Petrohawk had its biggest gain, increasing $14.68, or 62 percent, to $38.17 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have more than doubled this year.

Bigger Premium

The premium is “probably a little bit more than expected,” Cameron Peacock, a market analyst at IG Markets Ltd. in Melbourne, said by phone. Paying in advance for future growth “is something the analysts often don’t like to see,” he said.

The cost of protecting BHP’s debt against default rose 3 basis points to 80.5 basis points as of 2:28 p.m. in Sydney, according to Deutsche Bank AG. Standard & Poor’s Ratings Services said it’s A+ credit rating on BHP remains unchanged because the company’s cash flow can support the acquisition. The takeover also includes $3 billion in Petrohawk debt, BHP said.

The deal adds three fields across about 1 million net acres in Texas and Louisiana and takes BHP into the top 10 of oil and gas companies. The offer values Petrohawk CEO Floyd C. Wilson’s 0.99 percent stake in the company at about $117 million.

Rejected Deals

Kloppers, 48, has had three deals totaling more than $100 billion aborted or rejected in the past four years, including hostile bids for Rio Tinto Group and Potash Corp. of Saskatchewan Inc. BHP is committed “to be in every aisle of the energy supermarket,” he said today on a conference call.

“There has been growing pressure on Marius Kloppers, or a feeling among the board at least anyhow, that they have to do some sort of deal,” Gavin Wendt, director at Sydney-based Mine Life Pty Ltd., said by telephone. “They’ve spent a significant amount of time, money and energy coming up with nothing.”

Still, “shareholders may well have some concerns, considering BHP is planning on spending a total of about $20 billion on an entirely new business that they don’t know that much about,” he said.

Formed in 2003, Petrohawk expanded by acquiring companies including Missions Resources Corp. in 2005 and KCS Energy Inc. in 2006 before “aggressively” buying shale acreages in 2007, the developer’s website shows. It has about 650 employees. BHP expects to complete the acquisition in the third quarter.

Acreage Tripled

Petrohawk held 3.4 trillion cubic feet of reserves at the end of 2010. It produced 825 million cubic feet of gas as of March this year, of which 10 percent was in the form of liquids such as oil. The company expects to produce 950 million cubic feet of gas a day this year, with liquids accounting for 15 percent of output, according to its website.

The Chesapeake purchase gave BHP 487,000 net acres of properties in central Arkansas with 2.4 trillion cubic feet of proven reserves. Petrohawk’s million acres triple BHP’s acreage in U.S. oil and gas fields.

BHP will become the seventh-largest independent upstream oil and gas company based on total resources, BHP said in an investor presentation, citing Wood MacKenzie Consultants Ltd. The U.S. gas market is the world’s largest, BHP said.

“Petrohawk are extremely well regarded as innovative but aggressive operators,” Prasad Patkar, who helps manage the equivalent of $1.7 billion, including BHP shares, at Sydney- based Platypus Asset Management Ltd. said by phone. “You might find that they have made a very smart acquisition.”

Record Deal

The proposed deal would be the biggest all-cash takeover by any Australian company, according to Bloomberg data. BHP is being advised by Barclays Capital and Scotia Waterous. Barclays will act as dealer manager for the offer, the statement said. Goldman Sachs Group Inc. (GS) is advising Petrohawk.

BHP is paying 18.4 times earnings before interest, tax, depreciation and amortization, versus a median of 13.5 times for seven purchases by producers over the past five years, the data show. It’s paying $2.54 a barrel of oil equivalent for Petrohawk, compared with $2.79 a barrel for the Chesapeake assets, Morgan Stanley Melbourne-based analyst Cameron Judd said today in a note to clients.

“BHP has valued this asset for growth,” Deutsche Bank AG analysts Grant Sporre, Rob Clifford and Gaetan De Buyer, said in an e-mailed note. “BHP is increasingly confident on the future of gas and shale in particular as they continue their broadened push into the shale gas sector.”

BHP Debt

The company, which forecasts the acquisition will boost earnings in its first full year, asked Barclays Capital to coordinate a $7.5 billion credit facility to help finance the purchase. BHP expects to have net cash of $7.4 billion in fiscal 2012, according to a May report by Royal Bank of Scotland Group Plc.

BHP, which this year committed to spend $80 billion on mines and oilfields by 2015, joins Exxon Mobil Corp. and Chevron Corp. in ramping up acquisitions in gas prospects previously considered too costly and difficult to exploit. Shale-rock formations require injection of water, sand and chemicals to release gas. Environmental groups have opposed using the process called hydraulic fracturing, or fracking.

Transactions for shale gas properties in the Eagle Ford area of Texas, where some of the Petrohawk assets are located, accounted for 20 percent of energy deals in the second-quarter, according to data compiled by Bloomberg. The purchase would be the largest acquisition of a U.S. exploration and production company since Exxon announced its $34.9 billion purchase of XTO Energy in 2009, according to Bloomberg data.

Mergers and acquisitions in the industry will continue as “various majors and others consolidate their positions to get scale, synergy, and so on,” Kloppers said on a conference call. “It’s very highly likely that you’re going to continue to see us participate in that as well.”

2-Aug-11 10:00 AM

Legislative Affairs June 2011

Thu, 16 Jun 2011 18:00:00 GMT

LEGISLATIVE AFFAIRS COMMITTEE REPORT

The following legislative report is submitted by Blaine Dyer and Ryan Cole, Co-Chairs of the OCAPL Legislative Affairs Committee. If you would like to discuss how a particular bill might impact your business and operations, you may contact Blaine (Blaine@thedyerlawfirm.com; 405.831.1145) or Ryan (rcole@maproyalty.com) at your convenience.

If you are interested in a specific bill indicated below, you may obtain a copy of the full text of the bill by calling the Senate Bill Distribution, Room 310 at the State Capitol (405-521-5514). Copies may also be downloaded from the Legislative Services Bureau web site http://www.lsb.state.ok.us.

The first session of the 53^rd Oklahoma Legislature concluded at the end of May. Below is a list of bills recently signed into laws which are particularly relevant to the oil and gas industry.

Blaine M. Dyer, Esq. ~ Legislative Affairs Committee

HB1909 Oil & Gas-Advanced Horizontal Drilling and Spacing Law

Sponsor: Representative Jackson & Senator Branan

Approved by Governor on April 13, 2011.

· “2011 Shale Reservoir Development Act” With the advancement in horizontal drilling techniques, the new law updates state law as to unit spacing and seeks to give the Corporation Commission the authority to authorize units beyond the historical statutory spacing scheme found in Okla. Stat. 52 §§ 87.1, 287.1 through 287.15. Each unit shall be two governmental sections. However, the Commission may expand the size of the unit by including additional governmental sections up to a maximum unit size of four governmental sections.

HB1564 Real Property: Creating the Airspace Severance Restriction Act.

Sponsor: Representative Jordan & Senator Schultz

Approved by Governor on April 13, 2011

· New law amends Okla. Stat. 60 § 820.1, which restricts the permanent severing of the airspace over any real property for the purpose of developing and operating commercial wind or solar energy conversion systems.

HB1821 Wind Energy: Exploration Rights Act of 2011

Sponsor: Representative Trebilcock & Senator Marlatt

Approved by Governor on May 10, 2011

· The measure specifies a mineral owner’s rights with regard to the surface estate, and stipulates that certain parties may not unreasonably interfere with the mineral owner’s right to make reasonable use of the surface estate. The measure also requires a wind energy developer to provide a notice of intent at least 30 days prior to beginning construction of wind energy facility; the required contents of the notice and publication dates are specified for wind energy facilities constructed on or after November 1, 2011.

SB124 Eminent domain: Amending Okla. Stat. 27 § 7

Sponsor: Senator Justice & Representative Newell

Approved by Governor on May 10, 2011

· The measure amends the existing statute to prohibit the use of governmental eminent domain power for the development of wind farms or wind turbines on private property.

SB521 Nontestamentary Transfer of Property (Transfer on Death Deed)

Senator Crain & Representative Sherrer

Approved by Governor on May 26, 2011

· The measure modifies Okla. Stat. 58 § 1252 to apply to the surface, minerals, structures and fixtures. Further, unless the named grantee beneficiary records an affidavit accepting the property under the deed within 9 months of the death of the owner, the estate shall revert to the deceased grantor’s estate.

SB277 Material man’s Liens: Modifying procedures for pre-line notices.

Sponsor: Senator Anderson & Representative Sullivan

Approved by Governor on April 6, 2011.

· The new law modifies Okla. Stat. 42 § 142.6 to state that a materialman’s lien filed against an occupied dwelling will not be valid unless it is proceeded by a pre-lien notice is given to a contractor and an owner of said dwelling within 75 days of the last furnishing of materials, services or labor by the claimant.

HB1594 Real Property – Prohibiting Transfer Fee Covenants.

Sponsor: Representative Steve Martin & Senator Crain

Approved by Governor on May 20, 2011.

· The measure establishes Okla. Stat. 60 § 350, prohibiting the establishment and/or enforcement of developer created transfer fee covenants.

SB102 Liens: Oklahoma Energy Independence Act; Amending Okla. Stat. 19 § 460.5

Senator Aldridge & Representative Schwartz

Approved by Governor on May 19, 2011

· The amendments allow for loans to be granted for energy conservation upgrades to existing structures and liens attached to the subject property in the same manner as mortgages.

16-Jun-11 1:00 PM

Industry Affairs April 2011

Mon, 18 Apr 2011 18:00:00 GMT

OCAPL

INDUSTRY AFFAIRS REPORT

April 14, 2011

This is the 70^th report from the Industry Affairs Committee of OCAPL. The opinions expressed herein are those of the writers and not those of OCAPL, AAPL, former clients, or our current employers. The objective of this exercise is to alert OCAPL members to (a) the activities of organizations and governments that affect the way we do business, (b) public opinion that shapes legislation, and (c) judicial decisions relating to energy issues. Hopefully, this knowledge will provoke each of us to recognize the critical role we, as LANDMEN, play in sustaining America’s standard of living and thereby feel compelled to respond to the challenges before us. Your comments regarding this effort are always welcome.

The Committee at Work: Current members in the OCAPL Industry Affairs committee include Phil Jones, Monica Smith, Brandt Vawter, Brett Hudson, John Raines, Ryan Coe, and Jack Rayburn. If you would like to participate in the committee’s effort, we would be pleased to hear from you.

World shale gas resources outside US assessed

Apr 11, 2011

Guntis Moritis
Production Editor

Initial estimated technically recoverable shale gas resources in the 32 countries assessed in an Apr. 5 report is 5,760 tcf compared with the 862 tcf in the US. The report was commissioned by the US Energy Information Administration from Advanced Resources International Inc. (ARI).

The report includes 48 shale gas basins in 32 countries, containing almost 70 shale gas formations.

EIA noted that world proved reserves of natural gas as of Jan. 1, 2010, are about 6,609 tcf and world technically recoverable gas resources are about 16,000 tcf, largely excluding shale gas. Thus, adding the identified shale gas resources to other gas resources increases total world technically recoverable gas resources by more than 40% to 22,600 tcf.

EIA said these shale resouces are uncertain given the relatively sparse data that currently exist and the approach ARI employed would likely result in a higher estimate once better information becomes available.

At the current time, efforts are under way to develop more detailed shale gas resource assessments by the countries themselves, with many of these assessments being assisted by several US federal agencies under the auspices of the Global Shale Gas Initiative (GSGI) which was launched in April 2010.

EIA explained that shale gas development was more likely to emerge for two country groupings.

The first group consists of countries such as France, Poland, Turkey, Ukraine, South Africa, Morocco, and Chile that are highly dependent on natural gas imports, have at least some gas production infrastructure, and their estimated shale gas resources are substantial relative to their current gas consumption. South Africa also could use shale gas as feedstock for its existing gas-to-liquids and coal-to-liquids plants.

The second group consists of countries with more than 200 tcf of shale gas resource such as Canada, Mexico, China, Australia, Libya, Algeria, Argentina, and Brazil.

The report did not include Russia and Central Asia, Middle East, Southeast Asia, and Central Africa primarily because of existing significant quantities of conventional natural gas reserves in place (Russia and the Middle East) or because of a general lack of information for even an initial assessment.

Obama Administration to Act on Gas Drilling Safety in Six Months

By Katarzyna Klimasinska - Apr 14, 2011 1

The U.S. Energy Department, urged by President Barack Obama to ensure that extracting natural gas from shale is safe, will act within six months to protect drinking water from hydraulic fracturing, an official said.

The department plans to analyze the process that injects a chemical solution into shale to free trapped gas, Christopher Smith, deputy assistant secretary for oil and natural gas, said today in an interview in Washington. The examination will seek to ease public concern that fracking taints water supplies.

“In six months, there will be some conclusions announced,” he said. “We will be announcing specific actions.” He didn’t elaborate on the process or possible steps being considered.

Obama is seeking to increase the safety of domestic natural gas production as part of a plan to boost output and reduce U.S. dependence on imported fossil fuels. He wants to cut purchases of foreign oil by a third by 2025, he said on March 30.

Coffman reintroduces legislation to restart domestic REE industry

U.S. Rep. Mike Coffman, R-Colorado, April 6 introduced H.R. 1388, the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2011 (RESTART Act). Coffman said this bill, similar to H.R. 4866 introduced by the legislator in 2010, seeks to avert a U.S. rare earth supply crisis by reestablishing a domestic rare earth industry.

“Currently, the world is nearly 100 percent reliant on Chinese exports for these critical materials and China’s trade policies of restricting rare earth exports pose a serious threat to both the economic and national security of the United States,” the Colorado republican said.

China supplies about 95 percent of the world’s rare earth metals, used in everything from wind turbines, electric car batteries, television sets, smart phones, and advanced weapons systems. Chinese officials have said they will cut exports of rare earth metals by 35 percent in the first half of 2011.

“The Chinese government-ordered reduction in rare earth metals exports demonstrates the urgent need for us to act to correct our rare earth supply chain vulnerability,” Coffman said.

Coffman, who sits on the House Armed Services Committee, became alarmed in early 2009 when he learned that many U.S. defense contractors rely heavily on Chinese exports of rare earth metals to make everything from night vision goggles, tanks, and fighter aircraft, to precision guided munitions. This reliance on China poses a key vulnerability according to Coffman.

Coffman’s comprehensive, bipartisan legislation will put in place mechanisms to assist U.S. companies with meeting their needs for rare earth metals and ensures our national security needs are met in the near term.

Key provisions of the legislation include:

• Directing appropriate federal agencies to expedite the permitting process in order to increase the exploration and development of domestic rare earth elements, without waiving environmental laws, and establishing a multi-agency task force to carry out this process;

• Setting up a Defense Logistics Agency (DLA) rare earth inventory -- where DLA enters into long-term supply contracts and then makes the supplies available for purchase to federal government contractors – to generate a domestic market and facilitate the domestic sourcing of rare earth alloys and magnets;

• Making loans, backed by the federal government, available to start production should lending from the capital markets not be available;

• Requiring the various cabinet Secretaries to appoint Executive Agents for rare earths;

• Establishing a rare earth program at the U.S. Geological Survey.

“Our nation must act to protect our security interests with regard to rare earth elements," Coffman said. “China is neither an ally of the United States nor is it a reliable trade partner when it comes to these strategic metals.”

Coffman’s legislation has the support of the Coalition for a Prosperous America and the United States Magnet Materials Association and their members who are most affected by the disruption in the rare earth metals market.

"The manufacturing, agriculture and worker members of CPA are pleased to support Rep. Coffman's RESTART Act," said Coalition for a Prosperous America CEO Michael Stumo. "America needs a national strategy to address the unfair trade tactics of other countries which harm our economic growth and our workers. The RESTART Act will provide a strategy to help jump start American innovation and neutralize the Chinese government's attempts to freeze our country out of the many new technologies for which rare earth materials are needed."

18-Apr-11 1:00 PM

Legislative Affairs March 2011

Fri, 18 Mar 2011 19:00:00 GMT

LEGISLATIVE AFFAIRS COMMITTEE REPORT

If you are in favor of, or opposed to, any specific legislation, call or write your State Representative and/or your Senator. Few people take the time to contact members of the Legislature, and the magnitude of a simple letter or telephone call can have a real effect on pending legislation.

The bills listed below represent a selection deemed to be particularly relevant to the oil and gas industry. Because the range of bills that impact oil and gas is very broad, it is not possible to provide a full account of every bill. If there is a particular bill you would like OCAPL to focus more closely upon, please notify the OCAPL legislative committee and we will make efforts to make sure our members remain satisfied.

Respectfully,

Blaine M. Dyer, Esq. ~ Legislative Affairs Committee

HB1823: This bill would provide an exception for horizontal units from certain well spacing and drilling unit limits; establishing a maximum size of a well spacing and drilling unit for certain horizontal units. In particular the bill reads, “for a horizontal unit that will contain at least one lateral exceeding five thousand (5,000) feet in length, the acreage to be embraced within each unit shall not exceed one thousand two hundred eighty (1,280) acres for a gas well plus ten percent (10%) tolerance.

· Current Status – Referred to the House Energy & Utility Regulation Committee.

HB1909: Due to advancements in horizontal drilling techniques for wells drilled and completed in shale formations in Oklahoma, this bill calls for modification of the historical statutory spacing scheme found in Section 87.1 and Sections 287.1 through 287.15 of Title 52 of the Oklahoma Statutes, in particular with laterals exceeding five thousand two hundred eighty (5,280) feet in length.

· Current Status – The House Energy & Utility Regulation Committee recommended DO PASS by a vote of 24 to 0 on 3/2/2011.

SB242: This bill proposes a new law dealing with spacing requirements for a horizontal well, allowing for the unitization of multiple governmental sections into a single unit for the uniform development of the shale formation through the use of extended lateral horizontal wells.

· Update – Amended. The proposed amendment creates the 2011 Shale Reservoir Development Act and goes into great detail setting out new laws which would govern multi-unit horizontal wells. Please see proposed amendment for further details.

· Current Status – The Energy Committee recommended DO PASS as amended.

SB660: This bill addresses the increasing areas of conflict between the long-standing oil and gas production and exploration industry and the newly developing wind energy industries; asking the Oklahoma Corporation Commission to study the legal and equitable relationships between the owners of surface rights incident to wind energy and the owners of mineral interests incident to the right to explore for and produce oil and gas before conflicts arise leading to expensive legal battles and unnecessary delays in production.

· Current Status – Referred to Committee for further authorship on 2/16/2011.

SB113: This bill, which relates to permitting and regulation of seismic exploration, would require surety to be filed with the Secretary of State in certain amounts prior to the issuance of a permit; requiring the Oklahoma Corporation Commission to determine the amount of the bond and duration of the certain surety.

· Current Status – Referred to Energy Committee for Second Reading on 2/8/2011.

SB641: This bill, which relates to the Production Revenue Standards Act, modifies the amount of certain interest penalties and authorizes certain persons to seek court determinations.

· Current Status – Referred to Energy Committee for Second Reading on 2/8/2011.

SB889: This bill would create a rebuttable presumption that property was obtained by undue influence in any situation where a person with real or apparent authority over an elderly or disabled person transfers the elderly or disabled person’s real or personal property for less than full consideration.

· Current Status - Referred to Judiciary Committee for Second Reading on 2/14/2011.

18-Mar-11 2:00 PM

Industry Affairs March 2011

Tue, 15 Mar 2011 15:00:00 GMT

Industry Affairs March 2011

15-Mar-11 10:00 AM

Legislative Affairs February 2011

Fri, 18 Feb 2011 20:00:00 GMT

LEGISLATIVE AFFAIRS COMMITTEE REPORT

The deadline for introducing new bills has passed, and the new bills that could affect the oil and gas industry are now being discussed. At this point of the process, many of the new bills are in their “shell” form, meaning that the specific details of their content have not yet been fully formulated. Over the coming months, more details about the bills will come to light.

The bills listed below represent a selection deemed to be particularly relevant to the oil and gas industry. A more thorough listing of active bills with additional information, status and author will be available on the OCAPL website. Because the range of bills that impact oil and gas is very broad, it is not possible to provide a full account of every bill. If there is a particular bill you would like OCAPL to focus more closely upon, please notify the OCAPL legislative committee and we will make efforts to make sure our members remain satisfied.

Respectfully,

Blaine M. Dyer, Esq. ~ Legislative Affairs Committee

SB135 & SB242: These bills propose a new law also dealing with spacing requirements for a horizontal well, allowing for the unitization of two or more, but not to exceed four, governmental sections into a single unit for the uniform development of the shale formation through the use of extended lateral horizontal wells.

SB641: This bill, which relates to the Production Revenue Standards Act, modifies the amount of certain interest penalties and authorizes certain persons to seek court determinations.

18-Feb-11 2:00 PM