UK to allow shale-license holders to retain bigger areas

The UK announced new license terms to spur the development of the resource that may supply the nation with half a century of natural gas from shale rock.

The measures will allow license holders to retain bigger areas and cut costs, Energy Minister Michael Fallon said today, June 24, at a conference. The 14th licensing will be launched “shortly,” he said.

“Unlike traditional oil and gas, shale gas is not concentrated in small high-value fields, but is likely to be dispersed across large areas with ‘sweet spots,’” he told a conference in London. “I am removing unnecessary barriers and introducing a new flexibility to licenses.”

At the same time, the changes will ensure everyone has access to information earlier by cutting the length of time explorers can keep data on drilling and flow rates confidential to six months from four years, he said.

Fallon’s Conservative Party is seeking to spur shale exploration to secure energy resources as North Sea reserves decline. The Bowland basin in northern England may contain as much as 1,300 Tcf of gas, the British Geological Survey has said. That will last almost 50 years based on an extraction rate of 10%, similar to U.S. fields, according to Bloomberg calculations.

Opponents fear that hydraulic fracturing, also known as fracing, causes earthquakes and water contamination as the process uses water, sand and chemicals at high pressure to blast the fuel out of rock.

The Labour opposition party said baseline monitoring should take place for a year before extraction to ensure well integrity and safety, Tom Greatrex, shadow energy minister, said at the same conference via videolink.

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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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Oilfield set aside for U.S. Navy 99 years ago goes to auction

The U.S. government wants to sell a naval petroleum reserve field first set aside by presidential decree 99 years ago to ensure fuel supplies for American warships.

The Energy Department is seeking bids for the Teapot Dome field north of Casper, Wyoming, by Sept. 30, according to an offering document published on the website of Meagher Energy Advisors Inc. today, June 23. The field, which includes several layers of shale and oil wells more than 1 mile (1.6 km) deep, currently produces about 240 bbl of crude a day.

The Teapot Dome field was designated a naval reserve in 1915. The 9,481-acre parcel is the last such reserve still under control of the Energy Department, according to the offering document.

The field has several untapped layers of oil- and gas-soaked rocks that may be suitable for enhanced recovery techniques such as carbon-dioxide flooding, according to the offering. A data room with technical details about the geology of the field is scheduled to open on July 30.

The U.S. began divesting naval petroleum reserves in 1998, when it sold the Elk Hills field near Bakersfield, California, to Occidental Petroleum Corp. for $3.65 billion.

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DNO falls for second day on fears Iraq tensions could spread north

DNO ASA, the Norwegian oil producer focused on northern Iraq, fell for a second day after Islamist insurgents seized several cities south of the Kurdistan region where it operates.

While no violence has been reported in the semi-autonomous region, the Oslo-based company fell as much as 5.7% and traded 0.5% lower at 22.19 kroner a share as of 2:01 p.m., extending losses to 6.4% over the last two days.

“When the unrest is at this level and terror groups are involved, the stock will never thrive,” analyst Teodor Sveen Nilsen of Swedbank First Securities said in a phone interview. “The unrest is 150 kilometers from DNO’s Tawke field and might as such not have a big impact, but investors have a lot of others stocks to choose from and will react negatively when faced with uncertainty.”

Militants

DNO, the first foreign oil company to drill in Iraq after the U.S.-led invasion in 2003, got almost 80% of its production from the Kurdish region of the country’s north in the first quarter. The area is situated north of Mosul, Iraq’s second-biggest city, which was seized by militants of the Islamic State in Iraq and the Levant this week.

The violence has raised the prospect of a resurgence of sectarian conflict in Iraq, the second-biggest producer of the Organization of Petroleum Exporting Countries, as Prime Minister Nouri al-Maliki’s Shiite-led government struggles to control Sunni-majority regions.

DNO spokesman Henrik Schwabe couldn’t immediately comment, he said in an email.

Swedbank downgraded DNO to neutral from buy on “increased political risk,” it said in a note yesterday, June 11. “It’s escalated more than I had thought,” Sveen Nilsen said today.

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Argentine governors said to seek tax breaks for rigs in oil bill

Argentine provincial authorities are pushing for tax cuts to be included in an energy bill covering the country’s nascent shale oil and gas industry, three officials briefed on the matter said.

The governors of 10 provinces with oil and gas reserves agreed to request the elimination of a 35% levy on imports of rigs and other machinery before agreeing to the federal government’s proposed reform, the provincial officials said, asking not to be named as discussions are private. Provinces also want royalties to be based on global benchmarks rather than the price set by the federal government, they said.

The demands are part of federal-provincial talks on replacing a 1967 hydrocarbons law with rules for distributing revenue from the world’s fourth-biggest shale oil reserves and second-largest shale gas reserves. The bill would end political tensions derived from unclear regulations for both shale and offshore resources and lure more investors to Vaca Muerta, a Belgium-sized formation in the country’s south.

“All I can say is that all the actors are participating in the writing of the draft,” Horacio Mizrahi, spokesman for federal Planning Minister Julio De Vido, said by phone from Buenos Aires. “We prefer not to comment while negotiations between all parties involved are going on in a civilized way.”

Chubut Governor Martin Buzzi, who heads a committee of the 10 provinces, and Neuquen Governor Jorge Sapag weren’t available to comment, their respective assistants said.

While the provinces are prepared to reduce their taxes and the participation of provincial companies in projects, they want the same benefits stipulated in a July decree imposed for a venture between YPF SA and Chevron Corp. to be extended to all companies, the officials said.

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Gazprom Neft inks drilling, fracturing agreement with C.A.T. oil AG

C.A.T. oil AG, a provider of oil and gas field services in Russia and Kazakhstan, signed a framework agreement with Gazprom Neft on drilling and hydraulic fracturing services on June 17, 2014.

The agreement guarantees full utilization of four new drilling rigs and one new fracturing fleet until the end of 2016 and foresees conclusion of respective service agreements between the operating subsidiaries of Gazprom Neft and C.A.T. oil.

The new drilling and fracturing capacities will be successively deployed in the field from September to December 2014 and are part of C.A.T. oil’s growth strategy.
 
In November 2013, C.A.T. oil announced its 2014-16 investment program of EUR 390 million aiming at expansion of its operating capacities by around 33% for fracturing, 55% for sidetracking and 170% for drilling by the end of 2016 as compared to the end of 2013

For 2014, C.A.T. oil has ordered six drilling rigs, four sidetracking rigs and one fracturing fleet. Execution of the program and manufacturing of the ordered new capacities are fully on schedule.

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KCA Deutag awarded rig contract by Brunei Shell Petroleum

KCA Deutag has secured a contract with Brunei Shell Petroleum (BSP) for the construction and operation of a new build land rig in Brunei.

The design and fabrication of the rig will be undertaken by Bentec, KCA Deutag' s manufacturer of drilling rigs and equipment.

KCA Deutag already operates one 1,500hp rig in Brunei (the T-201), which has been Shell’s land rig of the year for four of the last six years.

Andy Hendry, President of KCA Deutag Land division, said, “This new rig for BSP is very high profile within Brunei, allowing exploration and development of deeper horizons.  Given the desire for best in class drilling efficiency and safety, we are extremely excited to be partnering with BSP on this project and continuing to deliver world-class performance.  This is a very significant land drilling contract for KCA Deutag and I am especially proud of the many employees and functional teams that contributed to its award. Drilling is expected to commence in late 2015.”

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