One of the contentious issues with hydraulic fracturing, and perhaps its most salient is the high use of water. The development of the technology that has transformed the oil and gas industry and been an economic boon to the states that approve of fracking has mostly only been possible where there has been ample water supplies.
Indeed, the high volumes of water being used and its potential impact on the environment has necessitated innovation in how to recycle used fracking water as in Pennsylvania and Ohio, the frontline of the Marcellus Shale gas play.
But what about areas where there is no water such as deserts? Kevin Bullis of MIT’s Technology Review writes that engineers are developing an app for that as well by using carbon dioxide. His salve to environmentalists, whom we imagine would think this is the worst of all choices, is a price on carbon emissions would be need to make it happen on a large scale.
It’s possible to fracture gas-rich rock formations without using any water at all. Indeed, gas and oil companies have been using carbon dioxide this way for decades, albeit on a limited basis. But if this approach is going to be used on a large scale, it will require a major investment in infrastructure for getting carbon dioxide to fracking sites. And in some cases a price on carbon emissions may be the only way to make the economics work. [...]
Fracking with carbon dioxide has a number of potential advantages. Not only would it eliminate the need for millions of gallons of water per well, it would also eliminate the large amounts of wastewater produced in the process (see “Studies Link Earthquakes to Wastewater from Fracking”).
Water-free fracking could also solve other problems. In conventional fracking, half the water pumped into a well flows back to the surface, but the other half stays in the rock formation. The water that’s left behind can block the path of the natural gas, slowing down production and possibly decreasing the total amount a well can produce over its lifetime, [Robert Dilmore, a research engineer at the U.S. National Energy Technology Laboratory] says.
When carbon dioxide is used instead of water, most of it comes back out of the well (where it can be captured and used again). This in turn allows natural gas to flow out more freely. Some recent research suggests that using carbon dioxide can also result in a better network of fractures, making it easier to extract the fuel.
Using carbon dioxide as a fracking agent is not new. Wyoming has been using it, according to Bullis. Gasfrac Energy Serivces Inc. of Calgary is using propane as a fracking agent, and Kittanning-Pa.-based MDS Energy Ltd. moved to nitrogen fracking, according to Timoty Puko of the Pittsburgh Post Tribune, whose article goes into greater detail on the role being played by non-water substances.
And, Bullis said in his to-be-sure paragraph that there are still many challenges to carbon dioxide fracking than infrastructure, such as carbon dioxide needing more pressure to condense because it’s a gas, unlike water, and thus fracture the rock. However, this will be an interesting development to watch as the shale gas revolution continues forward.
According to the Associated Press, Ohio lawmakers are considering whether to scrap its renewable energy standard. That standard requires power companies to generate a portion of their electricity from renewable sources such as solar and wind.
In hearings last week, Ohio Senate Public Utilities Chairman Bill Seitz, a Cincinnati Republican, reopened discussions on the 2008 state law, which said utilities must produce 12.5 percent of their electricity from renewables by 2025. The law also set energy efficiency targets to be met by the companies.
A surge in shale gas drilling that’s promising new domestic supplies of a traditional energy source has added a new twist to the debate.
Opponents of the mandates say they fatten electric bills in a state whose rates are already higher than some neighbors. Some also question global warming and those who use it to push for reduced use of coal-fired power plants.
There are similar thresholds in 29 other states and the District of Columbia, the article said. It is not clear whether the standards actually help or not.
There are more signs the solar industry is coming to heel because of market pressures. On Friday the AP reported that German engineering company Bosch is abandoning its solar energy business, because there is no way to make it economically viable amid overcapacity and huge price pressure in the industry.
The solar power industry has been hit by falling subsidies, weaker sales and increasingly stiff price competition, especially by Chinese manufacturers. [...] The solar energy division, which employs about 3,000 people, lost around 1 billion euros ($1.3 billion) last year. The company said that, despite efforts to reduce manufacturing costs, it was unable to offset a drop in prices of as much as 40 percent.
Robert Bosch GmbH’s move came after German industrial conglomerate Siemens announced last October that it would give up its loss-making solar business, the article said.
James Montgomery of Renewable Energy World reports a different sort of peak on Monday, noting that wind energy generated more than 5 gigawatt-hours (GWh) of electricity consistently over a 48-hour period last week. What is notable is that is enough to power more than 10 percent of the country’s overall electricity needs, and the equivalent of nearly four out of every 10 homes, according to Montgomery.
More notably, The United Kingdom and Denmark are leading your Europe in the wind revolution.
The UK is far and away Europe’s leader in offshore wind, accounting for nearly 60 percent of the region’s total 5 GW offshore capacity in 2012 (Denmark is net with 18 percent). The UK now has 870 turbines running in 20 offshore wind farms (twice as much as Denmark), including 243 of Europe’s total 293 new offshore wind turbines that were grid-connected in 2012. Earlier this month (March 7) the London Array had 141 of its 175 wind turbines online (3.6 MW each), able to generate 507 MW of energy. The final turbine was installed in December and the project should be fully operational later this spring.
Speaking of Denmark, earlier this month Danish wind turbines sent nearly 4 GW into the electricity grid, only about 800 MW shy of meeting the nation’s entire energy needs. (Though in reality the energy is sold to other European countries.) The Danish government has targeted wind to produce half its electricity by 2020, double its current rate.
Yet it seems despite the advances the wind industry still cannot stand on its own feet yet. The New York Times Diane Cardwell reports an uptick in wind-related projects following a deep slump last year. The projects, however, are not new, but are merely picking up form whence they were abandoned, she said.
The rush to development is in large part because of Congress. Lawmakers had allowed a popular incentive, known as the production tax credit, to lapse at the end of last year, but then renewed it in January. They also changed the requirement so that projects only have to be under construction by the end of the year to qualify, rather than fully operational, as had traditionally been the case.
“We are now back on the treadmill trying to get as much of our portfolio qualified for the P.T.C. by the end of this year,” said Paul J. Gaynor, First Wind’s chief executive, referring to the credit. Without the renewal, he said, “I think we would have had zero megawatts to develop.”
Projects take such a long time to finish, industry executives and analysts say, that development and manufacturing will continue to pick up through this year and next, potentially spilling over into 2015.
Indeed, the flurry of activity may represent more of a shuffle than an expansion. Developers are mainly dusting off projects they already had in the works, rather than seeking out new business, while others are trying to sell off unfinished projects, experts and executives said.
Cardwell reports there may be other problems in bringing more wind projects on line, as “demand for new power plants is relatively low because of a sluggish economy; natural gas is cheaper and, especially in the West, many utilities are choosing to meet state renewable energy mandates with solar.”
Images from Wikimedia Commons
Rapidly advancing technologies are opening up astonishing sources of oil and gas all over the world. We are entering a new era of fossil fuels that is reshaping global economics and politics—and the planet.
That’s the subhed for an article by Vince Beiser at Pacific Standard. For more than 100 years humans have been pulling oil from the ground, and it’s probably been just as long that humans having been predicting the end of oil as a resource, nowadays known by the phrase “peak oil.” Writes Beiser:
The story of Kern River reflects our entire history with oil: every time we think we’re starting to run out of it, new technologies arise that find us more. The widely circulated fears of a few years ago that we were approaching ‘peak oil’ have turned out to be completely wrong. From the Arctic to Africa, nanoengineered materials, underwater robots, side-scanning 3-D sonar, specially engineered lubricants, and myriad other advances are opening up titanic new supplies of fossil fuels, many of them in unexpected places—Brazil, Australia, and, perhaps most significantly, North America. ‘Contrary to what most people believe,’ declares a recent study from the Harvard Kennedy School, ‘oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption.’
Yet, much to the consternation of many, it never really does go away. New technologies continue to open the way for more and deeper drilling. Daniel Yergin comes back to this time and again in his great read “The Prize, The Epic Quest for Oil, Money & Power,” which has the review from Publisher’s Weekly said, “limns oil’s central role in most of the wars and many international crises of the 20th century.”
It also points to how, as another reviewer at the above-linked site puts it, “how oil went from freewheeling business of refiners and speculators to an instrument of great geopolitical importance.”
As Beiser writes, ”[f]or centuries, the ever-shifting map of where energy comes from has defined much of the character of our world.” That’s as true now as ever as the following stories help convey.
The New York Times’ Stanley Reed reports “Italian energy giant Eni began Monday to restart operations of the trans-Mediterranean natural gas pipeline it closed Saturday after fighting between two Libyan militias threatened its gas complex west of Tripoli.”
Since the fall of Col. Muammar el-Qaddafi in 2011, Libya has been in a state of chaos as rival militias vie for turf and treasure. But until now the armed groups have left Libya’s oil and gas fields alone — or in Eni’s case, have even carefully protected the operations, which keep the country’s lights on and the money flowing in.
‘The energy installations have been left out of the instability because there is wide recognition about as to how important they are to the economy,’ said Richard Cochrane, a security analyst at IHS.
Why the militias crossed a line this past weekend is not entirely clear. One theory, not denied by Eni, is that the two militias were fighting for the privilege of guarding Libya’s most important oil and gas installation, as well as the economic and political benefits that accrue to whoever has that status.
The pipeline is the single transmission conduit for Libyan natural gas to Italy and, from there, elsewhere in Europe, Reed said.
Walter Russell Mead highlights how Burma’s new democracy is opening the hydrocarbon door for its energy industry, amongst other industries, and giving it the potential for great wealth.
Because exploration (especially offshore) has been limited, numerous foreign energy companies are on the move. ‘There has never been a better time for you to come to Myanmar and search for opportunities in the oil and gas sectors,’ Burma’s Energy Minister Than Htay told Big Oil bigwigs at a conference in March last year. Another conference attended by international oil companies took place in Yangon today; the Burmese government pledged to put up‘over 20′ offshore blocks for auction by April. This is in addition to 18 onshore blocks opened for bids in January. ‘In our language,’ a Burmese oil tycoon told Agence France-Presse, ‘we call [oil and gas fields] ‘treasure troves’ as we can expect that they can bring us a large amount of treasure.’
“Burma also sits astride one of the most important sea trade routes in the world, and its territory abuts China—for now the most populated and resource-hungry market in the world. These are big opportunities for an infant democracy,” Mead said.
In a related story, via Mead, YahooNews reports that Myanmar plans to put over 20 offshoreoil and gas exploration blocks up for auction by April.
China is poised to become a major importer as well. Htin Aung said China’s 495 mile gas pipeline, which connects the Bay of Bengal with Yunnan province in southwest China, will start operations in June, while a parallel 481 mile oil pipeline will begin pumping in September.
The pipelines are strategically important to China, which now routes most energy imports through the narrow Strait of Malacca and wants to develop an alternate supply route. The pipelines pass through an area of northeastern Myanmar where violence recently broke out between the government and ethnic Kachin fighters who want greater self-rule. China has been concerned about the skirmishes and brokered peace talks between the two sides in February.
Oil and gas are often blamed for many misfortunes. But it seems politics is its midwife.
Indeed, even when governments — or governments of free countries, at least — don’t want to improve their country’s oil supplies it is hard to stop, as this Congressional Research Service report said. From the summary:
Congress is faced with proposals designed to increase domestic energy supply, enhance security, and/or amend the requirements of environmental statutes. A key question in this discussion is how much oil and gas is produced each year and how much of that comes from federal and non-federal areas. On non-federal lands, there were modest fluctuations in oil production from fiscal years (FY) 2008-2010, then a significant increase from FY2010 to FY2012 increasing total U.S. oil production by about 1.1 million barrels per day over FY2007 production levels. All of the increase from FY2007 to FY2012 took place on non-federal lands, and the federal share of total U.S. crude oil production fell by about seven percentage points.
Natural gas prices, on the other hand, have remained low for the past several years, allowing gas to become much more competitive with coal for power generation. The shale gas boom has resulted in rising supplies of natural gas. Overall, U.S. natural gas production rose by four trillion cubic feet (tcf) or 20% since 2007, while production on federal lands (onshore and offshore) fell by about 33% and production on non-federal lands grew by 40%. The big shale gas plays are primarily on non-federal lands and are attracting a significant portion of investment for natural gas development.
The summary continues by noting that “the number of producing acres may or may not be a function of how many acres are leased, and the amount of acres leased may or may not correlate to the amount of production[.]“
In conclusion the report said there are substantial, and already accessible, oil and natural gas reserves and resource potential in federal areas. And, that in the end it is red tape that holds back drilling on Federal lands compared to that done on non-fedral lands. But that is a far cry from no drilling at all on federal land, as even the opening up the Arctic National Wildlife Refuge show.
Beiser’s article is a full read and illuminating, covering how the world continues to change because of advances in oil and gas extraction technology, and, of course, politics.
All of this amounts to an economic bonanza, generating hundreds of thousands of jobs nationwide (though the areas where the drilling is actually taking place don’t always get the benefits they expect, as Lisa Margonelli explains in “The Energy Debate We Aren’t Having”). Moreover, it might bring the U.S. closer to the long-held dream of energy independence. The federal Energy Information Administration predicts imports of oil and other energy supplies will drop to 13 percent of total U.S. energy use by 2035, down from 29 percent in 2007.
And the fracking boom is only just beginning. There are believed to be oceans of yet-untapped shale gas and oil in Argentina, China, and several countries in Europe.
“Maybe we’ll figure out a means to innovate our way out of climate change, or at least slow its progress enough that we can adapt to its impacts. If there’s one thing our history with fossil fuels shows, it’s that we are unbelievably good at adapting, at finding new ways to overcome problems once thought impossible to solve,” he said, at the end.
Update: Made a slight grammatical edit in first paragraph.
Clifford Krauss of the New York Times reported yesterday that “a federal judge in New Orleans approved on ThursdayTransocean’s agreement with prosecutors to plead guilty to a misdemeanor charge and pay $400 million in criminal penalties for its role in the 2010 Gulf of Mexico oil well blowout that left 11 workers dead and resulted in a yearlong moratorium on deepwater drilling.”
Transocean’s criminal fine is the second highest assessed for an environmental disaster, but it pales in comparison with the $1.26 billion in criminal fines that BP was assessed for the same accident, which spewed millions of barrels of crude oil into the gulf, fouling hundreds of miles of beaches in Louisiana, Mississippi and Alabama. [...]
The company has also agreed to pay $1 billion in civil penalties, and will be on probation for five years. Much of the money Transocean has agreed to pay will go toward research for oil spill prevention and response and to restore coastal natural habitat, including barrier islands off the coast of Louisiana.
Now the long legal process surrounding the 2010 accident will focus again on BP.
He said the Switzerland-based owner and operator of the Deepwater Horizon oil rig was charged with negligently discharging oil into the gulf. By midday Friday, shares of Transocean Ltd. RIG -5.33% were off 4.6%, according to MarketWatch.
Obama’s friends in the environmental movement and Hollywood on one side. Obama’s friends in Big Labor allied with his enemies in Big Oil on the other. What’s a Democratic president to do? [...][Obama's 'friends'] know that last year the president put off deciding on the pipeline until after the election Now it appears he would rather do anything than make a choice that is going to make some of his most influential supporters very unhappy.
The other problem for the protesters is public opinion. Polls have consistently shown that most Americans support building the pipeline. In a Rasmussen poll released in January, 59 percent of those surveyed were in favor. On Wednesday, the petroleum institute released its own poll putting the number at 69 percent. [...]Given that pressure, and especially given the new fact of a safer route for the pipeline, it’s hard to see Obama saying no. But so far, the president just can’t face his environmental and Hollywood allies with the bad news. Even when they come to the White House to see him.
Witness the $20 million deal Solazyme announced last week with Japanese conglomerate Mitsui & Co. to develop new algae oils for the oleochemical industry. Oleochemicals are natural oils derived from palm, cocoanut and other plants and are used to make everything from detergent to plastics.
A $20 million deal is pocket change in the global oleochemical business but the collaboration with Mitsui gives Solazyme entrée into an Asia-based industry looking to diversify. As demand skyrockets with the burgeoning middle classes in countries like China and India, palm oil producers and buyers have come under fire from environmentalists for widespread deforestation in countries like Indonesia that contribute to climate change and extirpation of endangered wildlife.
Solazyme is building two production facilities in the United States and one in Brazil that will have a capacity to produce 450,000 metric tons of algal oil, Woody said.
A South Dakota Senate committee endorsed a measure Thursday that would provide financial incentives to encourage the stalled construction of wind power projects in the state, according to Chet Brokaw of the Associated Press. The 6-1 vote came after “lawmakers and industry representatives said construction of wind farms has drawn to a standstill in South Dakota because the state imposes much higher taxes during construction than neighboring states do.”
Reporting from Madrid, Reuters reporters Tracy Rucinski and Jose Elías Rodríguez said Foreign investors in renewable energy projects in Spain have hired lawyers to prepare potential international legal action against the Spanish government over new rules they say break their contracts.
According to the article, international funds have invested more than 13 billion euros ($17 billion) of renewable energy assets in Spain. They say that the government has reneged on the terms of their investment after Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies.
That measure, along with other recent laws including a tax on power generation that hit green energyinvestments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say. [...]
Spain’s Industry Minister Jose Manuel Soria defended the law in Parliament on Thursday, saying that the measures were necessary to eliminate the accumulated 28 billion euro ($37.4 billion) tariff deficit in the electricity system. [...]
That deficit, built up through years of the government holding down electricity prices at a level that would not cover regulated costs including renewables premiums, is at the heart of Spain’s energy sector woes.
According to the article, the problem is that the cost of the subsidies were not passed on fully to consumers because that would have pushed prices to unprecedented highs.
Shares of Apache APA -3.30% declined 2.1%, with energy stocks the sole sector in the S&P 500 SPX -0.07% to post losses, , according to MarketWatch reporter Claudia Assis. Apache late Thursday disclosed lower-than-expected production growth goals, disappointing analysts, Assis reported. It announced a flat $10.5 billion capital expenditure budget that allocates about a fifth of its resources to projects that will contribute to production in 2014.
The company also said it would sell $2 billion in assets, without disclosing the properties, and will focus on repaying debt and focusing on long-term value for shareholders.
Apache went through a $16 billion buying spree in recent years, snapping up assets in the U.S., U.K., Australia and other locales.
To make matters a bit worse, the company was involved in a well incident late Thursday, U.S. regulators said.
It prevented a blowout in one of its wells in the Gulf of Mexico and reported an underground flow of natural gas at the well, the Bureau of Safety and Environmental Enforcement said.
Other decliners incude coal miner Peabody Energy Corp.BTU -2.32% , with shares down 1.4%, and Range Resources Corp. RRC -1.90% , down 1.5%, according to Assis. Oil-field-services firm Halliburton Co. HAL -1.45% lost 0.2%. Nabors Industries Ltd. NBR -1.76% declined 0.1%. Exxon Mobil Corp. XOM -0.31% shares were off 0.2%, and ConocoPhillips COP -1.33% shares retreated 0.3%. Chevron Corp. CVX -0.75% shares declined 0.5%, she said.
Reuters is reporting that French utility GDF Suez plans to build and operate Africa’s largest wind farm in the desert in southern Morocco. The goal is to expand its presence in emerging markets with fast-growing power needs, according to the article.
The company will invest around 90 million euros in the project, which is due to enter service at the end of next year, Chief Executive Gerard Mestrallet told a conference call on Thursday.
The Tarfaya wind park will have an output of 300 megawatts, representing around two-fifths of the country’s total wind energy capacity.
The Associated Press reports from Lagos, Nigeria that ExxonMobil PLC has warned that it won’t be able to meet its production forecast for Qua Iboe crude oil pumped from Nigeria due to pipeline repair work, declaring “a ‘force majeure’ warning for shipments of its Qua Iboe crude oil — meaning the company cannot cover the promised supply from the field.”
Nigeria, which produces more than 2 million of barrels of oil a day, is a top crude oil supplier to the U.S., according to the AP.
At Forbes, Ken Silverstein shows how biomass use may help coal plants. By co-firing biomass, or wood chips, pollution cold be reduced. But there is a question of whether the cost is too high, and environmentalists, have their own worries.
Fossil-fired generation is now under intense scrutiny. But some utilities are reinventing their existing coal facilities so that they can simultaneously burn biomass. State regulators are generally giving their approval, although environmentalists are warning that cutting down trees to make it work is a no-no and that using wood waste or scraps is a more plausible option. [...]
Like any budding fuel source, biomass is not without its critics. Building such a power plant from scratch is a hugely expensive undertaking. FirstEnergy Corp., for example, shuttered its plans to convert an existing coal facility to a 312-megawatt biomass unit, concluding it was financially infeasible.
Estimates are that it cost double that of a coal unit, which produce twice the oomph, or BTUs, as do wood chips. That means that power plants have to burn two-times the wood as they do with coal.
That has led the Manomet Center for Conservation Sciences to say that the net effect on greenhouse gas emissions is higher. Generally, if more trees are cut down then there would be fewer of them to absorb the carbon emissions. [...]
At least 20 utilities in North America are now using wood chips to replace 5-25 percent of the needed coal or natural gas.
Bloomberg’s Christine Harvey reports that the cost of heating oil rose to the highest level in nearly four months on speculation that a snow storm in the U.S. Northeast will boost demand for distillates and drain stockpiles on the East Coast. East Coast supplies slipped almost 3 percent in the week ended Feb. 4, the Energy Information Administration said.
Heating oil for March delivery advanced 4.4 cents, or 1.4 percent, to $3.2433 a gallon on the New York Mercantile Exchange at 9:13 a.m., the highest level since Oct. 11. Volume was 11 percent below the 100-day average at 9:14 a.m. New York time.
The premium of March futures over April increased 0.34 cent to 2.70 cents a gallon.
Stockpiles of distillates including heating oil and diesel fuel fell 1.22 million barrels to 40.1 million last week, a fourth consecutive weekly decline, EIA data show. That’s also the lowest seasonal level in at least 10 years, according to data compiled by Bloomberg.
A National Geographic story says the start of a new cleaner energy drive for an oil-reliant Mexican nation has upended lives in the region’s native farming and fishing villages.
Outsiders increasingly covet the power of those air currents as energy that can be captured by modern turbines and transported to nearby factories and distant cities. Largely thanks to Oaxaca’s unique geography, Mexico’s wind power capacity expanded to 1,350 megawatts in 2012, according to reports from a national wind industry conference in Mexico City last month, marking nearly a 140 percent expansion in capacity in a single year. Stands of the turbines now fill Oaxacan horizons, with more planned as developers pour millions of dollars into wind farms. While bringing development to the isolated area, the turbines have disrupted pastoral lifestyles and divided villages over leasing fees and other benefits promised to local communities.
According to David LaGesse, the story’s author, local groups opposing the developments say the companies have turned communities against each other as they negotiated land leases, while others complain the developers cheated villages by not paying fair prices and abandoning promised development projects.
The Shanghai Daily reports the Indonesian government seeks to speed up development of geothermal energy to replace fossil fuel energy whose consumption continues to rise amid accelerating economic growth and dwindling oil production. (H/T EnergyDigger.com)
Director General of New Renewable Energy and Conservation, Ministry of Energy and Human Resources, Rida Mulyana said that Indonesia will further intensify synergy and boost coordination between relevant agencies.
‘In the years ahead, geothermal energy will be more optimized so that it can reduce fuel consumption,’ she said, quoted by the Antara news wire.
The director also said that the government will complete the development of 28 points of geothermal locations in partnership with the Ministry of Forestry.
Indonesia’s oil production has decreased in recent years, making it a net oil importer country and exit from the Organization of the Petroleum Exporting Countries in 2008.
The largest economy in Southeast Asia has expanded by more than 6 percent since 2010 and is expected to grow by 6.8 percent this year and 7 percent in 2014.
The rising gross domestic product has pushed higher demand for energy consumption.
Indonesia is an archipelago country and home to 129 active volcanoes, according to the Shanghai Daily. Last year we posted that Germany had teamed up with Indonesia to explore its geothermal options.
Volcanic areas, like Indonesia, are a rich source of geothermal energy. The island nation is situated on the so-called ‘Ring of Fire’ volcanic belt, which encircles the Pacific Ocean, accounting for 40 percent of the world’s geothermal reserves – more than any other country.
The government has pinpointed 250 locations where geothermal energy can be produced, including Seulawah on Sumatra, Ijen on Java and Tomohon on Sulawesi. Today, just 15 geothermal plants are in operation, with the last one going live in 1997.
Not all geothermal fields, however, are suited for commercial energy use because they don’t have the right temperature, pressure or permeability.
Most of the geothermal power plants in operation in Indonesia today are run by the state-owned natural gas and oil company PT Pertamina, according to the above linked story in our Daily Energy Dump archive.
Forbes staff writer Christopher Helman looks at the implications of Chesapeake Energy founder Aubrey K. McClendon is resigning April 1.
“The news has caused shares of Chesapeake, the nation’s no. 2 producer of natural gas, to jump 11% in after-hours trading. With McClendon out, a significant obstacle to the takeover of Chesapeake will have been removed.”
McClendon, whom Helman calls “the greatest wildcatter of his generation,” has been under scrutiny from within the company, most notably for his involvement in a sweetheart deal — the Well Participation Program — that allows McClendon to personally invest alongside the company on every well it drills. Helman reports the Chesapeake board’s review has not found any wrong-doing on McClendon’s part.
Chairman Archie Dunham, in a staff email, also said “the company is not for sale” and that Chesapeake would carry out its planned $6 billion in drilling this year, according to Helman. However, McClendon’s departure will open the way for a hostile takeover.
Chesapeake has the deepest collection of shale gas acreage in the country, and although many of those fields are not currently economic to drill at current gas prices, Chesapeake’s reserves wouldrepresent decades of development opportunities for a deep-pocketed energy company.
According to Ernst & Young the fourth quarter of 2012 saw the most oil and gas M&A transactions of any quarter in the past decade. That’s likely to continue into 2013. According to Bernstein Research, Chesapeake would make an excellent acquisition target, especially for Asian state-controlled oil companies. According to Bernstein analyst Neil Beveridge: “It is inevitable that there will continue to be consolidation of small cap E&Ps which have shale acreage or deepwater oil and gas discoveries but insufficient capital to develop these assets. Low risk (discovered buy undeveloped) are exactly the assets Asian NOCs want given their access to low cost financing.”
Chesapeake’s enterprise value (equity plus debt) is on the order of $35 billion. After a takeover premium, the acquisition price of the company would be north of $40 billion. The company has proven reserves of 3.1 billion boe (barrels of oil or the natural gas equivalent). Chesapeake carries a big debt load of more than $13 billion, and hasn’t generated free cash flow from operations for a decade. At its current rate of drilling it has enough acreage to keep its rigs busy for more than 20 years.
Billionaire investor and takeover expert Carl Icahn is a key figure to watch in a potential hostile takeover. In May of last year Icahn bought a 7.56 percent stake in the company and immediately began to put the pressure on, questioning its directors’ close ties to McClendon, insider deals and off-the-books loans.
Last year we had a number of stories on controversy surrounding Chesapeake.
An August shareholders revolt sent the message that the company needed to set a sound business course. This came after McClendon became embroiled in a questionable land deals in Michigan, it was reported that he plotted with Encana, a top competitor, to suppress land prices for a potentially lucrative gas play.
He was also a the center of controversy over reports that he arranged for more than $1 billion in personal loans using his stake in thousands of company wells as collateral. Additionally, the Oklahoma-City based energy explorer, faced a $22 billion cash-flow shortfall after natural-gas prices touched a decade low. That brought on discussions to sell its entire stake in Chesapeake Midstream Partners LP (CHKM) and other pipeline assets.
Chesapeake Midstream, operates pipeline networks in Texas, Louisiana, Pennsylvania and other gas-producing states, and had 3,953 miles (6,360 kilometers) of pipe as of March 31, according to a Bloomberg report. The partnership gets about 75 percent of its revenue from Chesapeake Energy, with the remainder from energy producers such as France’s Total SA (FP) and Norwegian oil company Statoil ASA. (STL) Chesapeake Energy also owned 1,950 miles of pipelines separate from the Midstream partnership as of Dec. 31, 2011.
It wil be interesting to see what happens in California, as the massive Green lobby lubricates its gears for a confrontation with the oil and gas industry. At issue in this story from the New York TImes, is the discovery of a massive shale gas formation in the central part of the state. Called the Monterey Shale, it has the potential to dwarf the Baaken and Eagleford fields, according to the TImes Norimitsu Onishi, reporting from Fellows Calif.
Comprising two-thirds of the United States’s total estimated shale oil reserves and covering 1,750 square miles from Southern to Central California, the Monterey Shale could turn California into the nation’s top oil-producing state and yield the kind of riches that far smaller shale oil deposits have showered on North Dakota and Texas.
For decades, oilmen have been unable to extricate the Monterey Shale’s crude because of its complex geological formation, which makes extraction quite expensive. But as the oil industry’s technological advances succeed in unlocking oil from increasingly difficult locations, there is heady talk that California could be in store for a new oil boom.
Established companies are expanding into the Monterey Shale, while newcomers are opening offices in Bakersfield, the capital of California’s oil industry, about 40 miles east of here. With oil prices remaining high, landmen are buying up leases on federal land, sometimes bidding more than a thousand dollars an acre in auctions that used to fetch the minimum of $2.
This is where the environmental groups come in. According to the Times, these “powerful groups” are pressing the state to strictly regulate hydraulic fracturing, or fracking. Additionally, despite the long history of drilling in the state, and the boom in drilling in Pennsylvania, Ohio, North Dakota, and Texas, because of technological advances like fracking and horizontal drilling, California has relatively loose regulations on these newer methods, according to Onishi’s story.
The Monterey Shale’s geological formation will require companies to engage in more intensive fracking and deeper, horizontal drilling, a dangerous prospect in a seismically active region like California, environmental groups say.
Environmental groups, including the Sierra Club and the Center for Biological Diversity, are suing the Bureau of Land Management and the Department of Conservation to prevent the opening up of further land to oil exploration and to enforce stricter environmental practices.
‘If and when the oil companies figure out how to exploit that shale oil, California could be transformed almost overnight,’ said Kassie Siegel, a lawyer at the Center for Biological Diversity. ‘Fracking poisons the air we breathe and the water we drink. It is one of the most, if not the most, important environmental issue in California.’
Tupper Hull, a spokesman for the Western States Petroleum Association, an industry lobbying group, said oil companies had safely used fracking for decades in California, mostly combined with traditional vertical drilling.
Interestingly, California was once a major player in the oil and gas industry, (see here, here, and here, for some background). And, as Onishi notes in his lede: “Secure in this state’s history and mythology, the venerable Midway-Sunset oil field near here keeps producing crude more than a century after Southern California’s oil boom. Many of its bobbing pump jacks are relatively short, a telltale sign of the shallowness of the wells and the ease of extracting their prize.”
This should be an all-out political and idealogical war and while addressing the larger issues of whether it’s good for Californians, their economy, and the state’s environment, will be most likely campaigned on fear and recrimination, by both sides. California has had economic difficulties (see multiple places like here, and here). But there are signs of it improving (here), though the scenarios are based on projections. Either way there will be an important fight that will likely set the course of its prosperity, whether you count prosperity in environmental terms, or in jobs and economic terms.
Via Walter Russell Mead at his American Interest blog ViaMedia, who sums it up by saying: “The intrigues in this drama are many. Does California’s Democratic Party come down on the side of low income Californians, who desperately need the jobs and state services new oil extraction will fund? Or does it come down on the side of a green lobby that is heavily backed by some of the wealthiest people in the state? To what extent does the wealthy coastal elite control the future of the inland poor in California? Can the GOP use the issue as a wedge to rebuild its credibility in a state it once dominated? Will black gold bail out big blue California?”