Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

- Watson: Energy Renaissance Possible with Right Regulatory, Tax Policies

Thursday, September 01, 2011
Rigzone Staff
by Karen Boman

Chevron Chairman and CEO John S. Watson said Wednesday that the U.S. is within reach of an energy renaissance that would unlock U.S. energy resources and generate economic growth if a rational, robust and comprehensive energy policy in the U.S. can be established.

"Such a policy would prepare us for rising demand, expand safe and responsible production at home and promote energy efficiency across the country," Watson told attendees at the Greater Houston Partnership luncheon in Houston. This policy also would encourage alternative sources, not by mandates and subsidies, but by allowing the market to identify the best new fuels and bring them up to commercial scale.

"Make no mistake – this is not the kind of energy policy we have today," Watson said. "To the extent that we have an energy policy, it is paralyzed by a fundamental contradiction. On one hand, there is wide consensus in America that we should strive for energy security. Whether we can be truly energy independent is debatable, but we can certainly do much more to enhance our country's energy security."

At the same time, the U.S. government has declared the Outer Continental Shelf on the east and west coasts off limits to new development, and regulatory agencies have put a strong collar on development pace in the U.S. Gulf of Mexico and Alaska.

Watson said the company is seeing progress with the Bureau of Ocean Energy Management, Regulatory and Enforcement's (BOEMRE) permitting process. While it has taken time for BOEMRE to decide on the standards for permitting and time for the energy industry to understand, Watson believes the permitting process will accelerate going forward. Still, exploration and production in the Gulf of Mexico "is still far short of where we should be."

Watson agrees with President Obama that the U.S. should support vigorous development of Brazil's oil and gas industry – where Chevron has partnered with Brazil's state energy company Petrobras for two major offshore Brazilian projects – but noted that "we have an even bigger opportunity to build a stronger oil and gas industry in the United States, with results like job creation, revenue growth and economic expansion directly benefiting U.S. citizens."

While Chevron has made significant investment in U.S. unconventional gas plays with its acquisition Atlas Energy, the company remains bullish on conventional oil and gas assets, including conventional assets in California and the deepwater Gulf of Mexico. The company has sanctioned $14 billion in deepwater U.S. Gulf projects despite the moratorium resulting from the Macondo incident in 2010.

Chevron will continue to make its headquarters in California, but is expanding its presence in Houston, with the recent acquisitions of buildings on Smith Street and Louisiana Street downtown. The most recent acquisition, the former YMCA building site, will give Chevron three buildings in the downtown area.

"I always like visiting Texas," Watson said. "It's a chance to catch up with business friends who have moved here from the West Coast. I've even heard a new saying out there: If you want to find a happy California businessperson, just visit Texas." However, the company's 130 year-plus history in California, along with its refineries, substantial retail station presence, employees and access to Silicon Valley technology in the state, offer compelling reasons for the company to stay, a company spokesperson said.

The company employs 10,000 workers in Houston, triple the number of workers it had here in 2001. Chevron's current employees in Houston include 7,000 full-time employees and 3,000 contract workers. Watson noted that Texas understands that energy must play a vital role in any economic growth scenario. "A strong oil and gas industry certainly makes a difference for Texas, but it's every bit as important to the future of our whole country," said Watson, adding that the energy industry has still been hiring, investing and generating tax revenues during the recession.

The company continues to recruit on college campuses, but also is hiring large numbers of experienced workers. Petrotech workers, including engineers and scientists, are in high demand both in the U.S. and worldwide, and Chevron has been scrambling to find these workers. Watson wouldn't give an exact number for how many new workers it would hire, but noted that the company has twice increased the number of new employees it would add to its roster this year. Chevron typically hires around 5,000 petrotech workers worldwide per year. Chevron has hired a number of former nuclear industry employees for its refining operations, and would welcome former NASA employees. "We need to continue hiring good people wherever we can," Watson said.

Watson said he agrees with U.S. Energy Secretary Chu's leadership on enabling public-private partnerships such as Chevron's research partnership with Los Alamos National Laboratory in New Mexico, where work to develop wireless technology for use in onshore and offshore oil and gas production from declassified military technology is underway. In June, Chevron announced a second strategic partnership with NASA's Jet Propulsion Lab in California to jointly develop technology that can benefit energy production. "If we're going to make step-changes in technology, our national laboratories are a great place to start."

Watson estimated that Chevron will make more than $7 billion in capital investments in the U.S. and $26 billion worldwide. Watson said Chevron's existing global portfolio of oil and gas assets puts the company is a position in which it does not have to make acquisitions; however, the company will continue to look for opportunities with the right fit, including opportunities in Russia. The company's current Russian operations include its interests in the Caspian Sea pipeline. "We see more opportunities in Russia, which has welcomed Western companies and their technology in recent years."

Watson anticipates further consolidation among U.S. onshore producers with shale gas assets. "While these companies went door-to-door, farm-to-farm, ranch-to-ranch putting together large acreage positions, a high business standard is needed to develop these opportunities, and larger companies are in a good position to develop these assets."

Oil & Gas Post

Promote Your Page Too
LINK

DNR Secretary Spotlights 3rd Possible Shale Play in La.

- DNR Secretary Spotlights 3rd Possible Shale Play in La.

Wednesday, August 31, 2011
Louisiana Department of Natural Resources

Louisiana Department of Natural Resources (DNR) Secretary Scott Angelle said Wednesday that the energy exploration industry has begun work on developing yet another new oil and natural gas shale play in Louisiana – giving the state one proven and producing shale formation and two that are being watched closely as the early stages of activity begin.

The potential new interest area, spanning portions of North Louisiana and southern Arkansas, is referred to as the "Brown Dense" or the "Lower Smackover," and is believed to be a layer of limestone at the base of the Smackover Formation – which itself is a well-known formation that has long been a source for traditionally produced oil and natural gas in North Louisiana.

The "Brown Dense" joins the Tuscaloosa Marine Shale as the second half of Louisiana's duo of dense rock plays believed to have the kind of production potential that has made shale plays such as Louisiana's Haynesville and the Barnett and Eagle Ford Shales of Texas the new normal in energy exploration. The Tuscaloosa Marine Shale is believed to underlie much of Central Louisiana, with potential productive areas currently being explored from Vernon Parish to East Feliciana Parish.

The energy industry is watching the development of the Tuscaloosa Marine Shale and the Brown Dense closely, as both are believed to have the potential to contain oil reserves, in addition to natural gas. New processes and technology have led to rapid gains in domestic oil and natural gas reserves, making them recoverable from ultra-dense formations once thought uneconomical to produce.

"We in Louisiana have a long and distinguished history of providing the energy that fuels this nation, and I am bullish on the future of energy production in this state and the role it will play in providing jobs and economic strength," Angelle said. "We are seeing that exploration companies and investors share that optimism and belief in Louisiana's natural resources as they seek new domestic reserves of oil and natural gas. The development of the Haynesville Shale natural gas play, the top-producing natural gas play in the nation, has helped give them that confidence."

Initial development of the Brown Dense formation, generally believed to underlie northern Claiborne, Union and Morehouse parishes in North Louisiana, has barely begun – with Southwestern Energy having begun the process of drilling its first well in Arkansas and having announced that it will seek a permit to begin drilling for a Brown Dense well in Claiborne Parish before the end of 2011.

Southwestern Energy has also announced that it has invested $150 million in leasing mineral rights for 460,000 acres to develop the play. Southwestern Energy recently applied to the Louisiana Office of Conservation for approval of an area of the Lower Smackover formation in Claiborne Parish near the Arkansas border as a designated unit for drilling.

Devon Energy has also announced that is has secured 40,000 acres in mineral leases for the Brown Dense and that the company intends to drill a test well for the play. Devon has already received a permit for a well targeting the deeper section of the Smackover in Morehouse Parish.

Devon is also active in the Tuscaloosa Marine Shale, where the company has secured 250,000 acres of mineral leases and is in the process of drilling two wells in the shale. About half a dozen wells targeting the Tuscaloosa Marine Shale – long thought to contain substantial reserves, but considered uneconomical to reach through previous methods – are currently in the process of permitting or drilling.

"New exploration methods have changed the game for development of energy prospects in Louisiana and the nation, as we saw firsthand with the incredible upswing investment and economic activity in North Louisiana in 2008," said Angelle. "This is yet another opportunity for Louisiana to show that we can be an inviting and exciting province to do the business of finding and providing new sources of domestic energy that provide economic strength and opportunity for our state and our nation."

"With that exploration of the denser formations will come the need for water for hydraulic fracturing," said state Conservation Commissioner Jim Welsh.

Welsh said that companies drilling for the Brown Dense formation have informed the Office of Conservation they intend to use surface water and recycled water for their overall project needs, in conformance with guidelines and advisories issued in nearby areas experiencing stressed ground water conditions.

The anticipated Brown Dense area of development in Louisiana underlies the Sparta Aquifer, which is currently experiencing improved water levels after combined state and local efforts to manage ground water use in the area.

"We are still discouraging new high-volume users from using ground water in that area, and giving guidance on alternative sources for water," Welsh said.

Oil & Gas Post

Promote Your Page Too
LINK

Mancos Oil Drilling Possible in 2012

- Mancos Oil Drilling Possible in 2012

Thursday, August 11, 2011
Knight Ridder/Tribune Business News
by Chuck Slothower, The Daily Times, Farmington, N.M.

The San Juan Basin could see an uptick in Mancos Shale drilling as soon as 2012, an oil and gas industry official said Wednesday.

"We think we'll see a critical mass by next year," said Steve Dunn, drilling and production manager at Merrion Oil and Gas. "We'll see some drilling."

Dunn was touting the potential for an oil boom in the Mancos Shale, a geologic layer deposited about 100 million years ago in the San Juan Basin. His remarks came at Wednesday's San Juan Economic Development Service meeting.

Horizontal drilling and hydraulic fracturing have made it possible for drillers to reach previously unavailable oil and gas deposits deep within shale rock. Plays, as the booms are called, have overtaken the Bakken Shale in North Dakota, the Barnett Shale in Texas and elsewhere.

"We believe the Mancos is going to be the next big play," he said.

Drilling in the Mancos Shale would require 10 to 20 stages of fracturing per well, Dunn said. Once drillers gain experience, the wells could be completed for about $5 million each.

"It takes a lot of money to do it, but there's the potential to make a lot of money if you're successful," Dunn said.

The oil-rich area of the Mancos Shale is mostly south of Farmington, spanning 3,400 square miles in San Juan, Rio Arriba and Sandoval counties, he said.

Drillers increasingly are focusing on drilling for oil as natural gas prices stagnate. Oil, however, hasn't been immune from economic worries. Investors

have driven down the price of oil this week, to $81 on the New York Mercantile Exchange on Wednesday. Natural gas traded for $4.07 per MMBtu on the Henry Hub.

A few wells already have been drilled in the Mancos Shale. EnerVest saw disappointing results for two wells drilled near Lindrith, Dunn said. However, Williams Exploration and Production got promising results from wells drilled near Navajo Lake.

Williams has applied to build eight well pads on Middle Mesa that could host as many as 13 well bores per pad. The project calls for a purpose-built drilling rig that would operate year-round, a major investment for the company.

The Middle Mesa project is slated to begin in fall 2012, pending an environmental impact statement and approval by the U.S. Bureau of Land Management.

Merrion Oil and Gas has been in discussions with several large producers interested in exploring the Mancos Shale.

"I really think Merrion Oil and Gas and our partners will lead the way in this Mancos Shale play," said T. Greg Merrion, the company's president.

Dunn said the Mancos Shale could support 13,000 additional wells.

"Keep in mind, I'm talking about potential here," he said.

Mayor Tommy Roberts said tax incentives play a big role in encouraging oil an gas production. A federal tax credit for coal-bed methane production helped spur the drilling boom during the 1990s.

New tax incentives are a tough sell in an uncertain economy, he said.

"Our state legislators seem to be reluctant to pursue it in an environment where the governor is trying to eliminate tax incentives," he said.

Copyright (c) 2011, The Daily Times, Farmington, N.M.

Oil & Gas Post

Promote Your Page Too
LINK

W.Va. IOGA: Reasonable Regs Possible without Special Session

W.Va. IOGA: Reasonable Regs Possible without Special Session

Tuesday, May 03, 2011
Knight Ridder/Tribune Business News
by David Beard, The Dominion Post, Morgantown, W.Va.

The Independent Oil and Gas Association of West Virginia (IOGA) wants to see reasonable and responsible regulation for the Marcellus gas industry, but doesn't see a need for a special legislative session to enact it.

In order to gain some industry perspective on the recent Marcellus drilling boom, The Dominion Post sat down with IOGA representatives in April.

They included President Mike McCown, who is vice president-Northeast of Gastar Exploration (not the same person as state Budget Director Mike McKown); Executive Director Charlie Burd; and a trio of public relations staffers for Chesapeake Energy, the single biggest player in the north-central West Virginia Marcellus operations.

IOGA has more than 600 members, McCown said. While members operate in 53 of the state's 55 counties, the organization had kept a relatively low profile until Marcellus hit the spotlight.

"Here recently the world's changed," he said. "We've been compelled to be more proactive" with communicating with the public.

McCown touted some oil and gas industry stats. The industry employs 35,000 people at an average annual wage of $60,000. In 2010, it made capital investments of $771 million, paid $71 million in severance taxes and $106 million in property taxes. As many as 7,000 new jobs may emerge from the Marcellus industry.

"The growth that we've got planned is significant going forward," he said. "We're a significant player. We're proud to be here. We're stewards of the environment. We take safety very seriously. We're a good corporate citizen."

"What are the energy alternatives?" he asked, adding that many are not viable on a wide scale -- such as solar and wind.

"We drill wells. We drill wells in West Virginia. We drill wells in this county. We drill them correctly. We continue to improve. We're proud to represent the oil and gas industry."

The discussion covered a variety of topics, from roads to legislation regulatory details. Here's a look at IOGA's views and comments. Members noted that discussion of new regulation and fees should apply only to horizontal wells, not conventional vertical wells.

Legislative goals

McCown: "We would support reasonable additional regulation" limited to horizontal Marcellus operations. Given the current low price of gas -- $4.20 per mcf (thousand cubic feet) -- there are virtually no conventional wells being drilled.

"Conventional players don't need and can't afford additional regulation. ... Marcellus wells are more complex, it's a different animal."

IOGA is agreeable to a significant permit fee increase, site safety plan requirements and design criteria for impoundments. "So many of the things they [legislators and others developing the failed Marcellus bill] advocated, we agreed to. But the bill got more things bolted on and became unmanageable."

Asked if IOGA would prefer a special session or acting Gov. Earl Ray Tomblin's proposal to let the Department of Environmental Protect draft emergency rules, McCown said, "There is no need for special session."

Road wear and maintenance

McCown: Although no other industry is singled out for rulemaking policies, IOGA met with Division of Highways representatives during the summer. "We agreed to it."

IOGA supports identifying the prior condition of the road, paying a bond, and restoring the road to its original condition.

"That's something that shows that we're willing to do what needs to be done." They know large trucks damage small roads not intended for the traffic. Some roads began as cowpaths -- with no base. They were graveled, then tarred and chipped, then coated with asphalt, with no sturdy base. "Any kind of heavy equipment is going to cause damage."

Chesapeake: The company knows the conditions of the roads in Wetzel County, and has heard the residents' complaints. "We have repaired those" while drilling operations are going on. "We didn't just let them go."

Chesapeake has done maintenance for the DOH in agreement with the DOH. "I think the DOH has been satisfied, but I don't think the residents have always been satisfied." Chesapeake hired a roadway engineer and has had drilling crews out repairing roads.

"Some of those roads are traditionally horrible during the spring. But yes, clearly our traffic doesn't help."

Brock Ridge Road, connecting W.Va. 7 from New Martinsville with Wetzel County Route 89 and the Victory Field gas pads, is an example of a problem road. It had no base, and attempts to build one didn't work. Once asphalt, it's now dirt. "It's frustrating that money was spent and the road didn't hold."

Inspectors

McCown: "Inspectors have the right to inspect any time they want. The numbers don't concern me. They don't concern my company as an operator."

While legislators have complained that there are 12 working inspectors for 59,000 gas wells, IOGA looks at it differently. Wells primarily need inspection during construction, drilling and reclamation. There are only 37 active wells being drilled now. With 12 inspectors, "that's not too bad a ratio compared to when they were drilling thousands a year."

Once a gas well is drilled and it's just sitting out there, annual inspection is adequate. "We police our own business."

Surface owner notification

McCown: "Some limited additional notice period would be acceptable. We are receptive to extending the notice period for work on site."

The problem: If there's too much notice, surface owners could take advantage of rules regarding distance from watercourses and buildings, and build a structure or dig a pond or a well to ward off drilling. "The rub comes in when the mineral owner is not the surface owner."

Water use

The Dominion Post asked about suggestions raised by legislators that unscrupulous subcontractors may dump frack water in streams.

McCown: "We dispose of our water properly."

Burd: "As expensive as it is to move water in and out, you recycle every drop you can. ... I just challenge the validity of those accusations." IOGA supported a water management plan in bills introduced, but not passed, in 2010 and 2011.

Chesapeake: Recovered frack water is trucked to the next drilling site.

McCown: After repeated uses, when there's no more use for it, it's taken to a certified disposal well where it's injected deep underground -- thousands of feet below any aquifer. "I take offense to that [suggestion]. It's without any substance."

Chesapeake: An average well uses about 5 million gallons for drilling and fracking. New York City uses that in about seven minutes; a 1,000 megawatt coal-fired power plant in 12 hours; a golf course in 25 days.

Marcellus fracking is "the most efficient use of water for energy creation compared to coal, nuclear, biofuels" and the amount of BTUs a gallon generates.

McCown: "Granted the footprint of one of our pads is larger. ... The footprint is tiny in comparison to the reserves that we generate from today's technology. Technology enables us to buy energy resources at home instead of importing Mideast oil."

Regulations to disclose frack fluids

Chesapeake: On new wells, the company uses a closedloop drilling system that reuses frack water without introducing it into water supplies. This technology-driven industry makes shifts before regulators can. "Those things occur and are happening just because of wanting to be good stewards, to be a good neighbor, and make good decisions.

Material safety data sheets are available at drilling sites and at the state DEP website.

McCown: "The allegation that there's some mysterious concoction of chemicals is bull."

Permit fees

McCown: "If I go to get my driver's license renewed and it goes from $65 to $1,000, I'm going to get kind of excited. So going from $650 to $10,000 caused us to be excited."

Fee hikes should take into account multiple wells on the same pad, allowing for much inspection work to be done at one time.

"Half that is what we as an association were looking at and would support," with corresponding fee reductions for multiple wells on the same pad.

Workers -- in state and out

McCown: "I'm an out-ofstate worker. I came here 35 years ago from out of state, and I stayed here and raised a family here."

With the state's population dropping, "I like the fact people are coming in here." They may come in and stay, or they may go back home -- but they spent money while they were here.

Chesapeake: While the supervisors still come from out of state, the entire rig crew for its Nomac Drilling subsidiary is all local -- from the West Virginia-Ohio-Pennsylvania corner area.

Oil & Gas Post

Promote Your Page Too