Aubrey McClendon acquires stake in Oklahoma shale pipeline

Aubrey McClendon, the U.S. shale wildcatter who’s raised $10 billion in capital since getting fired from Chesapeake Energy Corp. last year, acquired a stake in an Oklahoma pipeline project.

An affiliate of McClendon’s American Energy Partners LP contributed natural gas lines in exchange for a minority interest in Tall Oak Midstream LLC’s planned 250-mi pipeline and processing network, Oklahoma City-based Tall Oak said in a Business Wire statement today, June 25.

McClendon’s company also dedicated drilling prospects spread throughout six Oklahoma counties to the new network, according to the statement. Casey Nikoloric, a Tall Oak spokeswoman with the public-relations firm Ten 10 Group, said the size of the acreage commitment wasn’t disclosed.

American Energy, also based in Oklahoma City, has an option to increase its stake to as much as 50%. McClendon announced plans on June 18 to expand his growing shale empire into the pipeline business, with backing from buyout firm The Energy & Minerals Group.

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Statoil reports fire at Ohio wellsite

A fire reported on June 28 at Statoil’s onshore Eisenbarth well pad in Monroe County, Ohio has been extinguished but follow-up work is continuing.

The fire was limited to surface equipment; none of the wells have been on fire. A Statoil well inspection team on site reported yesterday, June 29, that all wells are secure and are shut-in.

All personnel working on the site were evacuated and remain safe. In addition, as a precautionary measure, residents living nearby were evacuated temporarily. There have been no reports of serious injuries to date associated with this incident.

Statoil continues to work with local, state and federal authorities to manage this incident.

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Towns in New York state win right to ban fracing

New York’s cities and towns can block hydraulic fracturing within their borders, the state’s highest court ruled, dealing a blow to an industry awaiting Governor Andrew Cuomo’s decision on whether to uphold a six-year-old statewide moratorium.

The state Court of Appeals in Albany today, June 30, ruled 5-2 to uphold the dismissal of lawsuits challenging bans in the upstate towns of Dryden and Middlefield.

The towns engaged in a “reasonable exercise” of their zoning authority when they banned oil and gas extraction and production, the court said in an opinion by Judge Victoria Graffeo.

“The towns both studied the issue and acted within their home-rule powers in determining that gas drilling would permanently alter and adversely affect the deliberately cultivated small-town character of their communities,” Graffeo wrote.

The ruling may lead the oil and gas industry to abandon fracing in New York as Cuomo considers whether to lift a statewide moratorium instituted in 2008 that he inherited when he took office. It might create a patchwork across the state of municipalities that do and don’t permit the process.

“These appeals are not just about whether hydrofracking is beneficial or detrimental to the economy, environment or energy needs of New York, and we pass no judgment on its merits,” Graffeo wrote. “These are major policy questions for the coordinate branches of government to resolve.”

Enlarging Cracks

Fracing, used in states from North Dakota to Pennsylvania, has helped push U.S. natural gas production to new highs in each of the past seven years, according to the U.S. Energy Information Administration. It has come under increasing scrutiny from environmental advocates.

Parts of New York sit above the Marcellus shale, a rock formation that the Energy Information Administration estimates may hold enough natural gas to meet U.S. consumption for almost six years.

The state barred fracing in 2008 while studying the environmental effects of the drilling method, which is allowed in more than 30 states.

N.Y. Bans

Since then, more than 75 New York towns have banned fracing while more than 40 have passed resolutions stating they support it or are open to it, according to Karen Edelstein, an Ithaca consultant affiliated with FracTracker Alliance, which analyzes the effects of oil and gas drilling.

Other jurisdictions are adopting similar laws. Beverly Hills in May became the first municipality in California to prohibit fracing. The industry also has sued the Colorado cities of Fort Collins, Lafayette and Longmont over bans.

Scott Kurkoski, attorney for a dairy farm in Middlefield that sued the township to overturn a ban passed in August 2011, argued to the Court of Appeals on June 3 that the state’s Oil, Gas and Solution Mining Law prevents local governments from enacting zoning ordinances that ban fracing. The dairy farm signed leases in 2007 to explore and develop natural-gas resources under the property.

Anschutz Lawsuit

In September 2011, Anschutz Exploration Corp., an affiliate of billionaire Philip Anschutz’s closely held company, sued Dryden over its ban after buying about 22,000 acres of gas leases there. Norse Energy, a Lysaker, Norway-based explorer whose U.S. unit filed for bankruptcy in December 2012, replaced Anschutz Exploration in the Dryden appeal.

Separate state judges dismissed the lawsuits challenging the bans in February 2012. Those rulings were affirmed by an intermediate appellate court in Albany in May 2013. A judge in Livingston County in April dismissed another lawsuit seeking to overturn a ban in Avon, a town of about 7,000 people south of Rochester.

While state law prohibits municipalities from passing laws or ordinances related to oil, gas and mining regulations, the zoning restrictions enacted in Dryden and Middletown don’t qualify as attempts to regulate the industry and aren’t preempted, the appellate court said in the May 2013 ruling.

Attorneys for the towns have contended they have the right to enact zoning laws as long as they don’t impede state regulations.

Municipalities’ Rights

Deborah Goldberg, an attorney for the nonprofit group EarthJustice representing Dryden, told the Court of Appeals on June 3 that the state legislature can take away municipalities’ rights to specific zoning laws, yet usually leaves protections in place when it does so.

Thomas West, an attorney for Norse Energy, said the industry may decide to turn its back on the state if local bans are allowed.

Cuomo, a 56-year-old Democrat, is trying to balance the prospect of the type of economic development seen in Ohio and Pennsylvania against claims by environmental groups that drilling will contaminate drinking water.

Cuomo took office in 2011. The following year he put Health Commissioner Nirav Shah in charge of studying how drilling may affect residents’ well-being. The governor had said he would base his determination on Shah’s conclusions.

Shah resigned in May to take a job with the Kaiser Foundation Health Plan in southern California, leaving the review to acting Health Commissioner Howard Zucker.

Joe Martens, head of the state’s Environmental Conservation Department, told state lawmakers in January that he won’t issue fracing regulations until at least April 2015, signaling that Cuomo probably won’t make a decision before he faces re-election in November.

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Oil supply expected to grow faster than demand, says consultancy

The IEA, on June 17, released its Medium-Term Oil Market Report. Rystad Energy, an independent oil and gas consulting group, has compared the revised IEA demand outlook with its own supply estimates derived from its global upstream database, UCube. The estimates are based on Rystad’s bottom-up analysis of 30,000 fields and 2,500 oil companies in 150 countries.

Analysis shows that oil markets have gradually been tightening over the last two years, while the outlook indicates a possible inflection point in early 2015 and an increasing downward pressure on oil prices for the coming two to three years.

The recent geopolitical outages of oil production from the Middle East and North Africa have, until now, been perfectly balanced by the increased supply of unconventional tight oil from the U.S. This predicted easing of the oil markets is partly driven by an assumption of gradual return over the next two years of oil from Libya, Iran, Iraq and Sudan, while U.S. drillers are continuing their activities with unchanged intensity and increased efficiency.

Rystad Energy now forecasts North American tight liquids production to pass 10 million bbl before 2020, making the region a net exporter of seaborne crude and petroleum products within three years.

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