France to Ban Fracking

[Try2B_Comprehensive]

@LonghornDave

Okay, I’ll take a stab at looking at that slide show. I can tell you that as far as sources go, I’ll take the United States governement, a coalition of countries, and Universities over Business Insider who I have never heard of but apparently was started in 2007 and keeps an updated ranking of “Sexiest CEOs”. Nevertheless, I’ll treat them as if they were a reputable source.

I missed the bit about the sexiest CEOs. Understand I am not taking a stand for Business Insider- I learned of France’s frac ban originally from a hardcopy of Investor’s Business Daily, which can’t be shared online, and I had to google up another source to talk about it on here. That said…

First, I started looking at the slide show, but I quickly quit on that when they start off on slide one with the odd statement that the Shale Gas boom started in the 1990s with the discovery of the Marcellus Shale. Obviously this is factually incorrect. The Barnett Shale started the boom in the 1990s; the Marcellus was more like a decade later.

Good to know. That didn’t jump out at me as I’m still learning about this stuff.

That report at least starts out reasonably. When you get to the some experts talk about 7years supply, the report makes it clear that it is talking about Art Berman. You can read here

I’m going to get spoiled hanging out on the 'dope. Thanks for posting the original interview, that was interesting.

I’m not a geologist or petroleum engineer, but I can tell you that the top reservoir engineering firms in the world don’t agree with him. I’m talking about the Ryder Scott, Netherland Sewell, DeGolyer & MacNaughton level firms that are the highest respected in the industry.

From the financial perspective of what he is talking about, I can say for an absolute fact that most companies are not spending 200% to 400% of their cash flow on capital expenditures. That’s simply not even close to reality. He talks about Chesapeake Energy as one of the big boys of shale, and that is certainly true. CapEx is about 100% of cash flow for them (91.85% over last twelve months). Devon, which is the biggest in the Barnett, spends 81.66% of LTM cash flow on CapEx. Southwestern, which is the dominant Fayetteville shale producer spends 129.37% of LTM cash flow on CapEx. Continental, which is the biggest Bakken Shale producer (which is more of an oil play) spends 136.29%. EXCO spends 109.29%, Range spends 122.28%. The big guys (Exxon through their XTO acquisition) are no where close to that. They would be more like 50%, but I haven’t done the analysis. The only way you would get the 200% to 400% numbers is if you are only talking about small start-ups, which would be an absurd way to look at it.

Allright, thanks for the information. However, reading his article reveals that Berman himself is involved with small start-ups, which could explain why his point of view comes from there. You’re right- it sounds like he isn’t taking a big-picture view.
As for it being absurd perspective, remember that next time our Republican friends in Congress take the point of view of the smaller companies when blocking an end to subsidies to the oil companies. When the conversation changes to ending subsidies just for the big guys, why then its a tax hike! And not the same rules which apply to everyone! Which I find absurd. Between the two of us they are absurd all the way around, a common result these days.

However, after reading a few of his writeups, his biggest issue with the Department of Energy report is that he doesn’t think the wells will be economic at the prices they state. He’s basically saying that you will shut the wells in earlier than their forecasts because operating costs will exceed revenues. That’s a self-correcting phenomenon though.

I got that impression too. This being the business reality, that shale gas will only work at higher prices, clashes with the constant trumpeting about the low low price of natural gas compared to alternatives. My impoverished knowledge base aside, can you at least understand why I get a sense of conflict between the realities and the image being painted of natural gas by, for instance, the Chamber of Commerce?

If commodity prices are so low that the wells are uneconomic and people don’t produce, then that lack of production will increase commodity prices to the point that it is economic. Obviously this extremely low natural gas price environment won’t last forever. Everyone in the industry acknowledges that $4.00/mcf gas is way too cheap. That’s why people are only drilling to maintain acreage in the Haynesville and other expensive places. They want to keep the leases but want to shift toward more economic plays. That’s why everyone is much more active in the Eagle Ford, Bakken, and Permian right now.

Ok. What do you think of the claims that these plays have a ‘sweet spot’, that is the part being drilled, and the reserves aren’t as of high of quality across the board? The reserves are huge either way, but I wonder if this is another misleading claim or if the entire plays really can be drilled.

Anyway, it doesn’t look like the US will ban fracking altogether. Obama is promoting the use of natural gas to replace diesel in trucks. Looks like it is here to stay.

I’m out of time. Thanks for your answers and I’ll try to respond to the rest later.

[LonghornDave]

@Try2B_Comprehensive

As for it being absurd perspective, remember that next time our Republican friends in Congress take the point of view of the smaller companies when blocking an end to subsidies to the oil companies. When the conversation changes to ending subsidies just for the big guys, why then its a tax hike! And not the same rules which apply to everyone! Which I find absurd. Between the two of us they are absurd all the way around, a common result these days.

Well, you are talking about dumb politicians; they are almost never going to be knowledgeable about any issue. They get some talking points that they believe will be good as sound bites and mangle through them when they try to regurgitate them.

Also, realize that I don’t believe that there are any subsidies for oil companies with the exception of the depletion allowance*. Depletion allowance is only available to small companies and individuals. The bill currently proposed does not end any subsidies for oil companies. It is trying to exclude five companies from taking the same tax deductions that every other company in the country is permitted. It is a lie to call them subsidies. The Republicans and lobbyists are too stupid to debate the issue correctly, and the Democrats are either lying or too stupid to understand it either.

• I’ll agree that certain millitary spending, infrastructure building, and potentially not capturing the “true” cost of pollution could be considered indirect subsidies. Also, the expensing of intangible drilling costs is sort of like a subsidy in that it can improve the present value of projects but it ultimately is just a timing difference and probably increases taxes paid by oil companies. It’s also pretty meaningless to the majors.

@Try2B_Comprehensive

I got that impression too. This being the business reality, that shale gas will only work at higher prices, clashes with the constant trumpeting about the low low price of natural gas compared to alternatives. My impoverished knowledge base aside, can you at least understand why I get a sense of conflict between the realities and the image being painted of natural gas by, for instance, the Chamber of Commerce?

Natural gas is significantly lower priced than oil. The BTU equivalency is 6 mcf of gas to 1 barrel of oil. The pricing differential currently is about to 24:1. Therefore natural gas could quadruple in price and still be competitive with oil. Even Berman thinks that the true economic price is in the $6 to $7 per mcf range. The argument is that these shales plays aren’t economic at $4. Nobody in the industry believes they are. The issue currently is two-fold: 1) companies are drilling the minimum amount necessary to maintain acreage per their lease arrangements and that those wells are massively prolific; and 2) there are a number of plays (for example, the Eagle Ford) which are being drilled for oil, condensate, and natural gas liquids (propane etc.) now that also have a lot of natural gas production. The combination of those two activities is keeping natural gas prices too low to be really economic in many of these shale plays.

Also, I’m no expert on renewables, but natural gas is clearly lower priced than solar (which is very far away from being a legitimate fuel) and probably quite a bit lower than wind as well as much more reliable as a base fuel.

I’m certain the coal is and will continue to be the cheapest fuel. It also is strangely protected by the Democrats and in a round about way, environmentalists, even though it is the dirtiest fuel.

@Try2B_Comprehensive

Ok. What do you think of the claims that these plays have a ‘sweet spot’, that is the part being drilled, and the reserves aren’t as of high of quality across the board? The reserves are huge either way, but I wonder if this is another misleading claim or if the entire plays really can be drilled.

The plays definitely have a sweet spot. That’s not a secret to anyone. The Barnett Shale (the first and most productive) has been broken up into tier 1, tier 2, tier 3 acreage since the beginning. It’s absolutely undeniable that certain areas of these plays are more prolific than others. Here is a paper by Tudor Pickering (highly respected boutique energy investment firm) from 2005. Read the bullet points from page 3 and you will see what the industry has thought about that play since early on. The exact same thing will be the case in all of the plays everywhere in the world. Nobody in the industry would deny that.

Having said that, it doesn’t mean that only the swet spot is productive. It just means it is the most economic. Also, what is uneconomic now will be economic in the future. Costs will be cheaper, commodity prices will be higher, technology will improve, and operations will get more efficient. That’s just the way it works. The big oil fields in the U.S. are still productive now and may be a century old. They’ve far surpassed any original EURs (estimated ultimate recovery).

@Try2B_Comprehensive

Anyway, it doesn’t look like the US will ban fracking altogether. Obama is promoting the use of natural gas to replace diesel in trucks. Looks like it is here to stay.

I have no doubt that it will never be banned. I may think politicans are stupid, but the good thing is that grid-lock usually keeps them from making too many stupid moves. Stupid Democrats didn’t do a very good job of keeping stupid Republicans in check when Bush was in power. Stupid Republicans are doing a much better job now.

[Try2B_Comprehensive]

@Tapioca_Dextrin

Disclaimer: I was due to be involved in French Fracking until it got cancelled.

The reason for the ban is nothing to do environmental concerns, it’s all down to French politics. The UMP (the party in power) is very unpopular and is looking for votes. Being seen to be Green is popular with voters, so they get out the ban stick. The consensus in France is that the ban will be overturned in September or so.

As to the process itself, it’s safe as long as it’s done right. Like virtually everything we do, there’s the danger of a screw up, but as long as the well has good integrity and the shale is a long way from the water table the risks are pretty minimal.

All right. I can’t really argue with fracking insiders about French fracking.

But I can point out Senate Rejects Republican Bill on Exploration for Oil and Gas

With Democrats citing last year’s oil spill in the Gulf of Mexico as a cautionary tale, the Senate on Wednesday decisively rejected a Republican plan to allow more coastal oil and gas exploration and to speed the issuance of drilling permits to oil companies.

Sounds about right. The judgment on issuing permits ought not be determined by the speed with which it is accomplished.

Meanwhile- while I could swear someone at some point used the word ‘subsidies’, the Democrat-backed bill to end tax breaks for the biggest oil companies also bit the dust.

[Try2B_Comprehensive]

Still, despite the insistence that the French fracking ban is purely political in nature, I remain unconvinced that is the case, or that their case has no merit whatsoever.

Gas Driller Fined:

Chesapeake Energy, one of the most active companies in Pennsylvania’s natural gas drilling boom, has been fined more than $1 million by the state, including a $900,000 penalty for contaminating private water supplies with methane in Bradford County. Officials called it the single largest state fine ever for an oil or gas operator in the state.

What I worry about is that companies like Chesapeake will behave just like BP i.e. they will decide that paying fines is simply cheaper than actually operating safely, they will continue on, recklessly not caring what effect they have as long as they continue to turn a profit. The ‘merit’ of the case I have in mind is that one really effective way to prevent your water from being poisoned in the rush for profit is to not allow the practice in the first place.

That said, Longhorn Dave, that PDF you linked to is a great, great reference for me. I’m still chewing on it and frankly I am having a tough time talking around it. Nice job, thumbs up to you.

[misterW]

Objections on he EPA study on fracking have been raised by staff within the EPA.

Defenders of natural gas drilling are often quick to point out that problems with pollution thus far are a result of casings failing or waste water spills above ground. I do not find this especially reassuring. What does it matter if my well water is polluted from these errors rather than because of fracking itself? It is polluted in either case. And pollution resulting from human error, or sloppy work done by unqualified and undersupervised workers who really don’t give a damn can be tough to eliminate.

Also, since the casing is a clear avenue of communication between chemicals and water supplies, exactly how long can these casings be guaranteed for?

[misterW]

Another question: A recent study by Duke University found strong evidence of methane migrating through cracks and contaminating nearby wells. While it seems much more difficult for the fracking chemicals to migrate through such cracks, is it impossible?

[gonzomax]

@misterW

Another question: A recent study by Duke University found strong evidence of methane migrating through cracks and contaminating nearby wells. While it seems much more difficult for the fracking chemicals to migrate through such cracks, is it impossible?

Is it leaking in many different states and countries that oddly have fracing going on , at the same time. Nope. methane slipping through cracks is an inadequate explanation. Somehow forcing large amounts of poisonous and combustible chemicals into the ground under great pressure just makes a lot more sense.

[misterW]

Sorry, I should have been more clear. The study examined wells in the vicinity of fracking sites. They found that the closer the well to the drilling site, the more methane contamination it had. Levels at the wells closest to the drilling point contained dangerous levels of methane.

So, yeah, this was meant to demonstrate that fracking can clearly result in a migration of methane from the depths to water supplies. My question was: is it impossible for fracking chemicals to take that same path?