EOG will sell 117,000 acres in the Eagle Ford Shale in South Texas, 51,000 acres in the Marcellus Shale in Pennsylvania; and 15,000 acres in the Haynesville Shale, an article in Reuters reports.

“We’re so long on acreage relative to what we can logically develop in a reasonable period of time,” EOG CEO Mark Papa told analysts.

The company also plans to sell Canadian shallow gas assets that produce 170 million cubic feet per day, says Reuters.

READ THE FULL ARTICLE HERE

“We plan to further increase activity in the Haynesville, Fayetteville, Marcellus, Eagle Ford, and Bakken shale plays,” said ExxonMobil’s Vice President of Investors Relations David Rosenthal, who was speaking to analysts in a conference call.

ExxonMobil completed its acquisition of natural gas producer XTO Energy Inc. in June, becoming the largest natural gas producer in the U.S.

BG said it was paying $800 million cash and $150 million towards EXCO’s drilling share of drilling costs for a half-share in the assets, which produced 35 million standard cubic feet per day of natural gas.

Production of gas from shale reservoirs, which are tight and display low permeability, has exploded in recent years.

Although this has weighed on gas prices, companies including BG hope strong future energy demand, especially for fuels which emit less CO2 than coal or oil will ensure good profit margins in the future.

In April BG and Dallas-based EXCO agreed to jointly acquire privately held Common Resources LLC for about $446 million.

In June 2009, BG said it would pay Exco $1.3 billion for an interest in shale gas resources in the Haynesville shale gas area.

In August, the companies agreed to a $249 million deal to develop and operate EXCO’s midstream assets in East Texas and North Louisiana.

SOURCE:
Reuters: “BG Group To Buy Exco Shale Assets For $950 Mln”

We’ve always known the potential of shale; we just didn’t have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.

I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.

To understand why, you have to consider that even before the shale discoveries, natural gas was destined to play a big role in our future. As environmental concerns have grown, nations have leaned more heavily on the fuel, which gives off just half the carbon dioxide of coal. But the rise of gas power seemed likely to doom the world’s consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world.

The advent of abundant, low-cost gas will throw all that out the window—so long as the recent drilling catastrophe doesn’t curtail offshore oil and gas activity and push up the price of oil and eventually other forms of energy. Not only will the shale discoveries prevent a cartel from forming, but the petro-states will lose lots of the muscle they now have in world affairs, as customers over time cut them loose and turn to cheap fuel produced closer to home.

The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there’s a cheap, plentiful fuel out there that’s a lot cleaner than coal, even if gas isn’t as politically popular as wind or solar.

But that’s not the end of the story: I also believe this offers a tremendous new longer-term opportunity for alternative fuels. Since there’s no longer an urgent need to make them competitive immediately through subsidies, since we can use natural gas now, we can pour that money into R&D—so renewables will be ready to compete without lots of help when shale supplies run low, decades from now.

To be sure, plenty of people (including Russian Prime Minister Vladimir Putin and many Wall Street energy analysts) aren’t convinced that shale gas has the potential to be such a game changer. Their arguments revolve around two main points: that shale-gas exploration is too expensive and that it carries environmental risks.

I’d argue they are wrong on both counts.

Take costs first. Over the past decade, new techniques have been developed that drastically cut the price tag of production. The Haynesville shale, which extends from Texas into Louisiana, is seeing costs as low as $3 per million British thermal units, down from $5 or more in the Barnett shale in the 1990s. And more cost-cutting developments are likely on the way as major oil companies get into the game. If they need to do shale for $2, I am willing to bet they can, in the next five years.

When it comes to environmental risks, critics do have a point: They say drilling for shale gas runs a risk to ground water, even though shale is generally found thousands of feet below the water table. If a well casing fails, they argue, drilling fluids can seep into aquifers.

They’re overplaying the danger of such a failure. For drilling on land, where most shale-gas deposits are, the casings have been around for decades with a good track record. But water pollution can occur if drilling fluids are disposed of improperly. So, regulations and enforcement must be tightened to ensure safety. More rules will raise costs—but, given the abundance of supply, producers can likely absorb the hit. Already, some are moving to nontoxic drilling fluids, even without imposed bans.

But the skeptics aren’t just overstating the obstacles. They’re missing two much bigger points. For one thing, they’re ignoring history: The reserves and production of new energy resources tend to increase over time, not decrease. They’re also not taking into account how quickly public opinion can change. The country can turn on a dime and embrace a cheaper energy source, casting aside political or environmental reservations. This has happened before, with the rapid spread of liquefied-natural-gas terminals over the past few years.

In short, the skeptics are missing the bigger picture—the picture I think is the much more likely one. Here’s a closer look at what I’m talking about, and how I believe the boom in shale gas will shake up the world.

One of the biggest effects of the shale boom will be to give Western and Chinese consumers fuel supplies close to home—thus scuttling a potential natural-gas cartel. Remember: Prior to the discovery of shale gas, huge declines were expected in domestic production in U.S., Canada and the North Sea. That meant an increasing reliance on foreign supplies—at a time when natural gas was becoming more important as a source of energy.

Even more troubling, most of those gas supplies were located in unstable regions. Two countries in particular had a stranglehold over supply: Russia and Iran. Before the shale discoveries, these nations were expected to account for more than half the world’s known gas resources.

Russia made no secret about its desire to leverage its position and create a cartel of gas producers—a kind of latter-day OPEC. That seemed to set the stage for a repeat of the oil issues that have worried the world over the past 40 years.

As far as I’m concerned, you can now forget all that. Shale gas will breed competition among energy companies and exporting countries—which in turn will help economic stability in industrial countries, and thwart petro-suppliers that try to empower themselves at our expense. Market competition is the best kryptonite for cartel power.

For one measure of the coming change, consider the prospects for liquefied natural gas, which has been converted to a liquid so it can be carried in a supertanker like oil. It’s the easiest way to move natural gas very long distances, so it gives a good picture of how much countries are relying on foreign supplies.

Before the shale discoveries, experts expected liquefied natural gas, or LNG, to account for half of the international gas trade by 2025, up from 5% in the 1990s. With the shale boom, that share will be more like one-third.

In the U.S., the impact of shale gas and deep-water drilling is already apparent. Import terminals for LNG sit virtually empty, and the prospects that the U.S. will become even more dependent on foreign imports are receding. Also, soaring shale-gas production in the U.S. has meant that cargoes of LNG from Qatar and elsewhere are going to European buyers, easing their dependence on Russia. So, Russia has had to accept far lower prices from formerly captive customers, slashing prices to Ukraine by 30%, for instance.

But the political fallout from shale gas will do a lot more than stifle natural-gas cartels. It will throw world politics for a loop—putting some longtime troublemakers in their place and possibly bringing some rivals into the Western fold.

Again, remember that as their energy-producing influence grew, nations like Russia, Venezuela and Iran became more successful in resisting Western interference in their affairs—and exporting their ideologies and strategic agendas through energy-linked deal-making and threats of cutoffs.

In 2006 and 2007, disputes with Ukraine led Russia to cut off supplies, leaving customers in Kiev and Western Europe briefly without fuel in the dead of winter. That cutoff effectively shifted Ukraine’s internal politics: The country turned away from the pro-NATO, anti-Moscow candidate and toward a coalition more to Moscow’s liking.

It looked like the U.S. and Europe would see their global power eclipse as they kowtowed to their energy suppliers. But shale gas is going to defang the energy diplomacy of petro-nations. Consuming nations throughout Europe and Asia will be able to turn to major U.S. oil companies and their own shale rock for cheap natural gas, and tell the Chavezes and Putins of the world where to stick their supplies—back in the ground.

Europe, for instance, receives 25% of its natural-gas supply via pipelines from Russia, with some consumers almost completely dependent on the big supplier. In the wake of Russia’s strong-arming of Ukraine, Europe has been actively diversifying its supply, and shale gas will make that task cheaper and easier.

Shale-gas resources are believed to extend into countries such as Poland, Romania, Sweden, Austria, Germany—and Ukraine. Once European shale gas comes, the Kremlin will be hard-pressed to use its energy exports as a political lever.

I would also argue that greater shale-gas production in Europe will make it harder for Iran to profit from exporting natural gas. Iran is currently hampered by Western sanctions against investment in its energy sector, so by the time it can get its natural gas ready for export, the marketing window to Europe will likely be closed by the availability of inexpensive shale gas.

And that may lead Tehran to tone down its nuclear efforts. Look at it this way: If Iran can’t sell its gas in Europe, what options does it have? Piping to the Indian subcontinent is impractical, and LNG markets will be crowded with lower-cost, competing supplies.

It’s admittedly a long shot, but if the regime acts rationally, it will realize it has a chance to win some global goodwill by shifting away from nuclear-power efforts—and using its cheap natural-gas supplies to generate electricity at home.

Overall, the Middle East might get a bit poorer as gas eats into the market for oil. If the drop in revenue is severe enough, it could bring instability.

Shale-gas development could also mean big changes for China. The need for energy imports has taken China to problematic nations such as Iran, Sudan and Burma, making it harder for the West to forge global policies to address the problems those countries create. But with newly accessible natural gas available at home, China could well turn away from imports—and the hot spots that produce them.

The less vulnerable China is to imported oil and gas, the more likely it would be to support sanctions or other measures against petro-states with human-rights problems or aggressive agendas. Moreover, the less Beijing worries about U.S. control of sea lanes, the easier it will be for the U.S. and China to build trust. So, domestic shale gas for China may help integrate Beijing into a Pax Americana global system.

With natural gas cheap and abundant, the prospects for renewable energy will change just as drastically. I have been a big believer that renewable energy was about to see its time. Prior to the shale-gas revolution, I thought rising hydrocarbon prices would propel renewables and nuclear power into the marketplace easily—albeit with a little shove from a carbon tax or a cap-and-trade system.

But the shale discoveries complicate the issue, making it harder for wind, solar and biomass energy, as well as nuclear, to compete on economic grounds. Subsidies that made renewables competitive with shale gas would get more expensive, as would loan guarantees and incentives for new nuclear plants. Shale gas also hurts the energy-independence argument for renewables: Shale gas is domestic, just like wind and solar, so we won’t be shipping those dollars to the Middle East.

But that doesn’t mean we should stop investing in renewables. As large as our shale-gas resources are, they’re still exhaustible, and eventually we will still need to transition to energy that is cleaner and more plentiful. So, what should we do?

First, avoid the urge to protect coal states and let cheaper natural gas displace coal, which accounts for about half of all power generated in the U.S. Ample natural gas for electricity generation could also make it easier to shift to electric vehicles—once again helping the environment and lessening our dependence on the Middle East.

Then, I think we still need to invest in renewables—but smartly. States with renewable-energy potential, such as windy Texas or sunny California, should keep their mandates that a fixed percentage of electricity must be generated by alternative sources. That will give companies incentives and opportunities to bring renewables to market and lower costs over time through experience and innovation. Yes, renewables may seem relatively more expensive in those states as shale gas hits the market. And, yes, that may mean getting more help from government subsidies. But I don’t think the cost would be prohibitive, and the long-term benefits are worth it.

Still, I don’t believe we should set national mandates—which would get prohibitively expensive in states without abundant renewable resources. Instead of pouring money into subsidies to make such a plan work, the federal government should invest in R&D to make renewables competitive down the road without big subsidies.

In the end, what’s important to understand is that shale gas may be the key to solving some of our most pressing short-term crises, a way to bridge the gap to a more-secure energy and economic future.

The trade deficit has crippled our economy and shows no signs of abating as long as we remain tethered to imported energy. Why ship dollars abroad where they can destabilize global financial markets—and then hit us back in lost jobs and savings—when we can develop the resources we have here in our own country? Shall we pay Vladimir Putin and Mahmoud Ahmadinejad to develop our natural gas—or the citizens of Pennsylvania and Louisiana?

By Amy Meyers Jaffe for The Wall Street Journal

Ms. Jaffe is the Wallace S. Wilson Fellow for Energy Studies at the James A. Baker III Institute for Public Policy at Rice University and co-author of “Oil, Dollars, Debt and Crises: The Global Curse of Black Gold.”

SOURCE:
Natural Gas For Europe: “How Shale Gas Is Going To Rock The World”

But the natural gas folks now have numbers on their side due to new successes in getting gas out of shale rock. Geologists have always known that shale rock, often found in combination with coal and oil deposits, holds substantial amounts of natural gas. If a piece of shale rock is broken and lit with a match, it will actually burn for a few moments with a small flame.

The shale gas was previously considered unreachable, but advances in drilling techniques have changed that assessment. The result is a dramatic increase in estimated natural gas reserves. The Potential Gas Committee, loosely affiliated with the Colorado School of Mines, reported in June that natural gas reserves in the United States are actually 35 percent higher than believed just two years ago, and some geologists say even that estimate is too conservative.

Drowning In Natural Gas

A deep drilling rig at the site of a shale rock formation in southwestern Pennsylvania. The rig, which was set up by Range Resources, a leading shale gas player, serves as a brace to support the drill. “I used to say the nation is awash in natural gas,” Hefner says. “Now I say we’re drowning in it.”

One area getting new attention is the Haynesville Shale and the Marcellus basin, a 400-million-year-old shale formation stretching from New York to West Virginia. That basin alone is believed to hold as much as 500 trillion cubic feet of natural gas, the equivalent of about 80 billion barrels of oil. (There are also large shale gas basins in Texas, Wyoming, Arkansas and Michigan.) It is not clear how much of the shale gas is recoverable, but the new production techniques have boosted all previous estimates.

Shale formations are deep underground — 6,000 feet or more — and the rock is relatively impermeable. Deep drilling is expensive, and in the past the amount of gas that could be reached was not considered sufficient to justify the cost.

Horizontal Drilling

In recent years, however, gas producers expanded the use of “horizontal” drilling. After boring more than a mile below the Earth’s surface to reach the shale layer, a drill operator will slowly “steer” the drill bit to one side, until it is heading sideways across the shale layer, thus achieving access to more of the shale than a traditional vertical well could provide.

The drilling platform on a shale gas drilling rig. The shaft in the center is turning a drill bit deep underground. The drilling operation continues 24/7.
Even so, the tightness of the shale rock would mean that relatively little of the trapped gas would seep into the pipeline. Gas producers therefore fracture the rock by forcing a water and sand mixture into the formation at very high pressure. This “water fracturing” technique opens millions of tiny cracks in the rock, enabling more of the gas to seep out.

Horizontal drilling and water fracturing are not new techniques in the oil and gas business, but only in recent years have producers used the procedures in combination to produce shale gas, and the results have been dramatic.

“It’s the biggest thing I’ve ever even heard of,” says Ray Walker, vice president of Range Resources, a gas exploration and production company. “It’s huge. The ability to produce these shale reservoirs is going to revolutionize this industry all over the world.”

Walker moved to Pennsylvania from Texas two years ago to direct his Fort Worth-based company’s exploration of the Marcellus basin. Since then, Range Resources has dug more than 40 horizontal wells in Pennsylvania, and several dozen more are in preparation. In Texas, Wyoming and other areas, it’s the same story.

Horizontal Drilling And Water Fracturing: The Keys To Shale Gas Production
Gas embedded in shale rock formations deep below the Earth’s surface has long been considered inaccessible, due to high drilling costs. New horizontal drilling methods, combined with techniques to fracture the rock, have for the first time made shale gas production practical.

Roll over the red dots below for more information about the drilling methods.

“[Shale gas] is the most important energy development since the discovery of oil,” says Fred Julander, founder and chief executive of his own Denver-based gas company, Julander Energy.

But the word has not yet spread as far as gas advocates would like. Ian Cronshaw, the top gas analyst at the Paris-based International Energy Agency, highlighted the jump in estimated gas in his most recent energy outlook report, but noted that the news had gotten little notice. “If that had happened in the oil industry, it would be a headline item,” Cronshaw said at a recent meeting in Washington. “But because it happened in gas, nobody seems to be paying any attention.”

As an energy source, natural gas is cheaper than oil, and when burned it produces only about half the carbon dioxide that comes from burning coal. As long as natural gas reserves in the United States were believed to be nearing depletion, the fuel did not get much attention, but with the upward revision of estimated reserves, that has changed.

“Natural gas is the fuel that can change everything for our nation,” says Robert Hefner, who lays out his case in a new book, The Grand Energy Transition. Hefner argues that a big boost in the use of natural gas would dramatically lower greenhouse gas emissions and reduce the U.S. dependence on foreign oil. Much of the nation’s electrical power now generated by burning coal could instead come from natural gas, and a switch to natural gas-powered automobiles would produce dramatic results.

“If we were to convert half of our existing vehicle fleet [to natural gas], we would eliminate a little over half our oil imports,” Hefner contends. He and other natural gas advocates have been supported in recent months by environmental organizations.

“There’s a huge capacity of natural gas that is lying idle,” says Timothy Wirth, a former Democratic senator from Colorado who now heads the United Nations Foundation. “That makes absolutely no sense at all when what we’re trying to do is clean up the atmosphere.”

A ‘Transition’ Fuel

Natural gas is still a fossil fuel, and when burned it does produce greenhouse gases. Environmentalists working for the use of renewable energy sources nonetheless see natural gas as a transition fuel. One idea is to build mini-power generating stations, each connected to the natural gas pipeline infrastructure. A station attached to a hospital or a shopping mall could produce heat as well as electrical power, cutting energy costs dramatically.

“You can combine that with improvements in end-use efficiency and the development of renewable energy sources, and really see these as a partnership,” says Christopher Flavin, president of Worldwatch Institute, an environmental research organization.

“Even the International Energy Agency is saying the path for oil is downward, and suddenly we’ve got this very different picture for natural gas,” says Flavin. “I think it’s unfortunately not fully percolated into the understanding of what’s possible among policymakers. But I think as that takes hold in the next few years, it’s really going to change the game.”

Credit: Tom Gjelten, Alyson Hurt and Avie Schneider/NPR
Spreading The Word

Posted: C. Keddy

BG Buys Exco Stake for $1.06 Billion to Tap Shale Gas

U.K.’s third- largest natural-gas company, bought assets from Exco Resources Inc. for $1.06 billion to develop its first U.S. shale gas project. Exco shares rose as much as 21 percent, the most since December. It acquired a 50 percent stake in 120,000 net acres in east Texas and north Louisiana, the company said today in a statement. The purchase includes part of the Haynesville shale gas formation and adds 2.6 trillion standard cubic feet to BG’s resources, with current net output of 78 million standard cubic feet a day.

“We expect BG will use this shale gas to meet U.S. contract commitments, thereby releasing Atlantic basin LNG cargoes for higher priced global” markets, said Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co. BG will compete with larger rivals including Royal Dutch Shell Plc, BP Plc and StatoilHydro ASA in the development of U.S. shale deposits. It has also expanded oil and gas resources in Australia and Brazil and forecasts production will rise between 6 percent and 8 percent a year and reach 1.6 million barrels of oil equivalent a day in 2020.

“This alliance brings material new resources and supply to our existing U.S. business at a competitive price and in a prime location at the heart of the world’s largest gas market,” Chief Executive Frank Chapman said in the statement. “The transaction increases BG Group’s exposure to long-term unconventional gas resources and skills.” Shale gas is natural gas stored in organic rich rocks such as dark-colored shale, interbedded with layers of shaley siltstone and sandstone, according to BG.

Marketing LNG
BG has been marketing liquefied natural gas in the U.S. and supplied 55 percent of all LNG cargos imported into the country in 2007, according to its Web site. The company also generates power in the U.S. to customers in New England.

A total of $655 million will be paid on completion, plus $400 million as a carry of 75 percent of Exco’s future costs to develop the Haynesville shale gas, the Reading, U.K.-based company said. The partners agreed to co-operate on further development and BG expects its production in the area will rise to 250 million cubic feet a day in 2012.

The British company will pay $19,000 per acre for the Haynesville shale gas assets. It may also buy a 50 percent interest in gas-gathering and transportation assets from Exco for $249 million to supply the fuel to U.S.’s Midwest and Eastern regions. “Recent deals in the shale gas play have been around $15,000 per acre,” said Bernstein’s Clint. “Hence this deal at $19,000 per acre could be viewed as expensive on that basis.”

The acquisition of the gas assets is conditional on the purchase of the transport infrastructure, BG said.

To contact the reporter responsible for this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

Posted by: C. Keddy

After months of studies, observations, surveys and research- the Louisiana Commissioner of Conservation, Mr. James H. Welsh issued an order effective Aug.1, 2009. The goal of the order is to manage exploration and production operations in the Haynesville Shale area.

The order includes issues such as:

- setbacks from buildings
- drilling operation concerns (dust, noise, fencing, work hours, maintenance of drill sites etc.)

The Haynesville Shale rules are not alone. In Texas, rules were developed for exploration in the Barnett Shale. Those rules were a sort of template for the new Haynesville shale rules.

SHREVEPORT TIMES/ Urban drilling rules set for Haynesville Shale

Pickens, who is promoting a plan to boost investment in wind power and natural gas to cut U.S. oil imports, said at a Calgary appearance that he sees little need for Alaskan gas given massive shale gas discoveries in the Haynesville and Barnett shale plays in Louisiana,Texas and elsewhere. “All the proven gas on the Arctic coast is 39 (trillion cubic feet). That’s not as much as you have in the Barnett shale,” Pickens said at a Calgary speech. “I don’t think a pipeline from Alaska through Canada to the lower-48 makes sense.”

Alaska has 39 tcf of gas, way up in the North. Haynesville [in Louisiana and Texas] has potentially 70 tcf of gas [close to the market], so where would you be going to get the natural gas??
Posted by: C Keddy

Source: LNGpedia

• companies have slapped down a surprise $178-million bet in British Columbia on the long-term future of natural gas

• the money is for new exploration rights to the hot Horn River play in northeastern B.C. The area is barely developed, but exploitation of similar geology in Texas and Louisiana is much further advanced.

• key players in the business are now convinced that politics will help underpin that demand, marketing the commodity’s ample availability, and its locally sourced and cleaner nature, compared with coal or imported oil.

• natural gas is cleaner than coal and oil, and doesn’t have to be shipped to North America from the Middle East, making the supply more secure – and keeping investment dollars closer to home. Gas is also usually relatively affordable, compared with oil.

• Industry groups – including the Canadian Association of Petroleum Producers – rushed yesterday to call gas “the fuel of the future,” “clean-burning,” and “sustainable,” after a U.S. report this week suggested new shale gas fields could supply current American demand for 100 years at current consumption rates.

Natural gas is positioned to be the clean fuel choice to lead North America to oil independence. If I were a betting person, I’d bet my loonies on Natural Gas !

C. Keddy