THE UBIQUITOUS NATURE OF SHALE - ARTICLE: EASTERN OHIO SWEPT BY DRILLER'S LAND RUSH
THE COLUMBUS DISPATCH
When a natural-gas company offered Stanley Miller $8 an acre for the right to drill on his Carroll County cattle farm a decade ago, he jumped at the deal.
"They paid us enough to cover our property taxes every year," Miller said of the mineral-rights lease he signed with Tri-Star Energy Co.
It might be time to renegotiate. The promise of a largely untapped, potentially rich reserve of oil and natural gas deep underground has created a land rush in eastern Ohio, with tales of offers by energy companies of $1,000 to $1,500 per acre for the right to drill.
"It's pure speculation," said Craig Brown, the Columbiana County recorder. The region's previous oil-and-gas boom, along the Marcellus shale formation, promised billions of dollars for drillers in upstate New York, West Virginia and parts of Pennsylvania, but little for Ohio. But geologists say the Utica shale formation, a layer of thick black rock that lies 8,000 feet beneath most of the state, might hold enormous oil and natural-gas reserves. This promise has oil-and-gas companies spending a lot of money to snap up mineral rights to land.
As many as 40 energy-company representatives file into Brown's office every day, he said, combing through property records and filing new leases. Energy companies have filed 600 new mineral-rights leases in Columbiana County this year. They filed 197 new leases in the same period last year.
The Jefferson County recorder's office reported 417 new leases since May. In the first four months of the year, there were 52. Harrison County Recorder Tracy Boyer said her office has been "absolutely packed" with energy-company reps since April. "It's so full in here people are sitting on the floor," she said. "We've got people in here from Canada, Oklahoma, Texas, Pennsylvania and West Virginia."
The activity springs from a new horizontal drilling technique that helps draw gas from once-unimaginable depths. It also has drawn fire from environmental groups and fears of polluted groundwater. The drilling technique, called hydro-fracturing, uses large amounts of water laced with
chemicals to "crack" the shale. The state of New York and Pittsburgh officials have halted drilling, and West Virginia officials are debating tougher restrictions. Pennsylvania landowners got as much as $6,000 an acre for mineral rights for Marcellus drilling, said Tom Tugend, deputy chief of the Ohio Department of Natural Resources, which regulates mining and drilling companies.
There's been so much interest in the Marcellus shale that it's drawn business away from Ohio. The Natural Resources Department reported this week that the number of oil and gas wells drilled in Ohio in 2009 - 558 - was a 48 percent drop from 2008. The state blames low natural-gas prices and
demand for more drilling rigs in Pennsylvania. Now it's Ohio's turn.
In September, Anschutz Exploration Corp. of Colorado secured the mineral rights at Donna Rector's family dairy farm near Carrollton in Carroll County. "I was in amazement," Rector said. "They just came to our door." She won't say how much Anschutz paid her family; she doesn't want her neighbors to know. Anschutz officials didn't return calls seeking comment. On Nov. 3, Texas-based Chesapeake Energy reported that it bought 500,000 acres of Marcellus and Utica shale mineral rights in Pennsylvania, Ohio and New York from Anschutz for $850 million. That's about $1,700 per acre. Chesapeake officials declined to comment.
As the land rush continues, environmental groups, including the Northeast Ohio Gas Accountability Project, want property owners to consult lawyers and add protective measures to the leases. The group said companies need to test groundwater for pollution before and after drilling. "You need to know what's in your water today and how that might change if drilling takes place," said Kari Matsko, the project's director.
Views: 126
Replies to This Discussion
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Permalink Reply by Robert Duke on -
Hi Skip,
Well, a highly speculative question for you and the other folks with real industry knowledge. If you look at all the land in the world where the major shale players could actually do leases (ie., stable economy, government, site accessibility, etc.), has anyone attempted to total up the square miles of potential shale plays, and the percentage of that that is actually likely to be "commercial" at various price points and current or soon-to-be-actualized technology? I am sitting back, watching all this leasing activity, and thinking that all these guys are going to blow all their capital on leasing frenzies, but they are driven to do it because they don't want to miss the next big play. And indeed if shale is "ubiquitous", it seems it would be a long time before the price of natural gas gets much about $4. I can just imagine that the guys that make decisions about the leasing programs have got substantial problems with ulcers. I also imagine that it is hard to get really good industry info because it is undoubtedly kept company proprietary until the leasing is done. Still, the amassed knowledge of university geology depts and the geology literature must have a tale to tale... Anyway, I went off on this tangent because to me "ubiquitous" means "all over the place", and what I see with the Ohio development is more a matter of the Marcellus being maybe 10% larger than they thought it was..., that to me does not necessarily imply "ubiquitous" shale. Seems to me that if shale is truly everywhere, then the HS will be worth less, and aside from infrastructure issues, more marginal areas of developed plays will take a long time to become commercially viable.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Robert, I think that shale is definitely ubiquitous, world wide. North America certainly has a healthy share. Bakken, Barnett, Fayetteville, Granite Wash, Haynesville/Bossier, Horn River, Marcellus, New Albany, Niobrara, Piceance/Unita, Pinedale/Jonah, Utica and Woodford, for example. I have not seen a list of shale formations world wide which claims to be comprehensive. Poland and Hungary are two European countries that are believed to have productive shale. The question is which countries will have commercial shale gas deposits? I think a good answer to that question is 5 to 10 years off.
The articles concerning the Marcellus are more informative, IMO, than those on the Haynesville regarding the impact that shale gas is having in the broader perspective. There are several reasons for this with the most important being its proximity to the largest market for natural gas in North American, the northeastern United States. Gas from the Marcellus Play will preempt much of existing and future supply causing that gas to seek other markets. There is already a serious concern in Canada that it's quite large reserves of natural gas will be "stranded". The U.S. can increase it's use of natural gas but not fast enough to over come the rate of supply growth. Where will all that gas go? I think it will go everywhere. In pipelines where possible and in LNG carriers where not.
Yes on the ulcers and the likelihood of a long period of depressed price. Eventually the value of shale gas reserves will decline until energy companies can no longer afford to keep adding new leasehold. IMO, the oil majors will end up controlling the vast majority of shale gas reserves. They have the financial strength to maintain a steady pace of leasing and development in periods of low prices. The large independents have already begun to shift to oil and liquids. To survive they will need a more balanced production mix.
The worth of the HS gas will depend on demand from its regional domestic market and the worldwide demand for LNG. I think the HS may be favorably situated for overseas LNG sales. Sorry for the long response. Let me know if I missed any of your points.
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Permalink Reply by Robert Duke on
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Hi Skip,
Thanks, I was looking for something insightful, not concise, so I got what I was after :-) I had not thought a lot about the distribution issues, but that clearly plays into the prices we currently get in the HS, so great additional point.
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Permalink Reply by Two Dogs, Pirate on
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Skip, I feel as you do that the largest players will end up with most of the shale plays. I also look for these high bonus payments to fall drastically in the near future.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Article on Shale Gas in Europe:
Europe is in a head-scratching mode over shale gas, said Jan Panek, the European Commission’s head of the coal and oil unit, at the recent Global Unconventional Gas 2010 conference in Amsterdam, put on by the Gas Technology Institute. This new class of resource is largely a research topic for curious European nations.
Currently, member states in the European Union use natural gas to generate a quarter of the power they need for their lives and economies. For decades, EU countries have relied on the great gas fields of the North Sea, along with imports from its mercurial neighbor Russia. Now, the North Sea fields are declining sharply and EU countries buy about 40% of their gas from Russia, Norway, Algeria and other suppliers.
Imports will continue to rise, but levels will be partially offset by an overall decline in gas use. The EU is committed to decarbonizing its energy mix, and the member states continue to aggressively develop renewable energy sources.
Meanwhile, the Continent’s unconventional resources are on the table as a partial solution to declining indigenous supplies. And yet, the embrace is tentative.
Concerns revolve around the environmental footprints, sustainability and infrastructure needs of unconventional resources. “At the moment we are asking more questions than we are seeing answers,” said Panek. “We need to get more details on the potential, and get a much better understanding of the environmental aspects and implications for infrastructure.”
But the allure of natural gas is strong. Globally, natural gas is an attractive fuel and will remain so into the future, said Jan Rune Schopp, vice president, natural gas, strategy and analysis, Statoil ASA.
Natural gas currently accounts for 20% of global energy demand, and gas is produced in 50 countries worldwide. In many markets, gas contracts were designed with the specific purpose of keeping gas competitive with other fossil fuels. That was one of the basic ideas behind long-term, oil-indexed prices for natural gas.
But now, dynamics are changing. While oil-indexed contracts remain the main pricing mechanism for gas in Europe, spot markets are beginning to develop.
Spot prices are much lower than contract prices at present because of the worldwide economic downturn, strong growth in worldwide LNG supplies and the explosion in U.S. production (driven by unconventional gas). Also, liquidity is growing in continental Europe, as more trading hubs are being established and markets continue to open. “Long-term supply contracts are now being adjusted to current market conditions,” he said.
These factors are driving gas prices lower, and for unconventional gas lower prices present an economic challenge. Unconventional resources in Europe are likely to be pricy to develop, and the economics are still an enigma.
Globally, in-place unconventional resources have been assessed at more than 920 trillion cubic meters (32.5 quadrillion cubic feet). “It’s an astonishing number, and almost half of this is expected to be shale gas,” said Schopp. The big question is how much of this will be ultimately recoverable. “We don’t know the answer to this. However, even if only a fraction of the potential is realized the implications are far-reaching.
“Personally, I don’t necessarily expect to see developments of unconventional gas in the rest of the world as we see in the U.S. Conditions are different.”
Nonetheless, unconventional gas will buttress the long-term future of natural gas by ensuring its continued availability and improving supply diversification and security. “If anything, the unconventional gas revolution will only add to the competitiveness of natural gas,” he said.
The scale of the potential resources is indeed huge, but the economics vary enormously, said Rhodri Thomas, managing consultant, Wood Mackenzie. “Broadly speaking, economics are better in North America. European tight gas and shales are very challenging on economics.”
Furthermore, shale-gas and tight-gas developments in Europe are much more about the surface than the subsurface. It’s a densely populated region, and landowners have no economic interest in supporting exploration and production, since minerals are owned by the states. There can be significant delays between permitting and drilling as well, and regulations are not clear in many areas.
“We need to sure the above-ground factors work. Cash flow has to be sustained over a long period of time,” he said.
Additionally, there are nuts-and-bolts problems. The types of drilling rigs and oilfield services needed for long horizontal wells and multi-stage fracture stimulations are lacking. Once gas is found, access to markets can be difficult, as European pipelines are not set up for easy access as in the U.S.
“We need wells drilled, but progress is slow.”
Several signposts can be used to measure shale-gas progress in Europe, said Thomas. Progress can be gauged by these steps, none of which has been fully achieved to date:
* Pilot projects that deliver wells with commercial flow rates.
* Large-scale developments (more than 50 wells) that are scaled up from successful pilots.
* The presence of a supply chain that supports unconventional drilling and completion operations.
* Large companies that show sustained interest.
* Governments and local entities that support development.
* An unconventional A&D market that develops outside of North America.
“We’ve seen a land grab in Europe for shale positions, but nobody knows yet if it’s justified.”
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Permalink Reply by Robert Duke on
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So pardon my ignorance here, but is there any real hope in heck that Europe can actually supplant its use of natural gas with renewables in the next decade? I spent a lot of time growing up in a military environment, so I tend to think about things like energy security - I think it has been incredibly foolish for the US to allow itself to become dependent on foreign oil from unstable or hostile govts with long supply lines. So now Europe willingly risks becoming a satellite of Russia, if they can't subsist on renewables? What about nuclear power in Europe? My impression was that France has a very high % of power generation based on nuclear. I have been really impressed with how quickly Russia becomes heavy-handed when they feel like improving their situation by raising the price of gas - they just crank a valve shut somewhere in the dead of winter... Of course, if Europe does not want to develop their own resources, then they represent another potential market for us, perhaps?
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Permalink Reply by Skip Peel - Mineral Consultant on
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My crystal ball only works on this side of the pond. I think there might be more support for development of natural gas supplies if Europeans owned their mineral rights instead of the state. You think? LOL!
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Permalink Reply by Robert Duke on
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The thought had crossed my mind, in terms of the voting public :-) It was countered by the thought that all these govts probably wouldn't mind getting their hands on additional income either (without having to risk anger over higher taxes). But yeah, I can well imagine in France some guy with a nice vinyard or pretty villa, not supporting the govt putting a bunch of concrete and piping somewhere. But me, personally, I had rather have that than all these bloody windmills!
(In a global economy, you need to work on extending the range of that crystal ball, Skip! ;-))
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Permalink Reply by essay on
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"is there any real hope in heck that Europe can actually supplant its use of natural gas with renewables in the next decade?"
my money's on "fat chance." it'll take a lot longer.
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Permalink Reply by Robert Duke on
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Mine too; the question was sort of rhettorical, along the lines of "how the heck do they think they can...???". Nuclear, on the other hand - my understanding is that the French already get a lot of their energy budget from that source. I am anciently aware (ie., I have not looked in a while) of the French and the Canadians both having reasonable reactor technology (the Canadians, at least, did a standardized design early on, which for some reason we did not embrace as a reasonable solution - it is extraordinarily expensive to design these things de novo every time). So my info on nuclear is old, but there are forces already making extensive use of it on the continent, so it might be possible to make up shortfall that way if they really pushed. If I were them, I would be worried about banking on the Russians playing nice...
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