LOGA Industry Report - Fall 2008 - (Page 40)

Independents are increasingly targeting unconventional reservoirs that require increased applications of technology, from the Bakken Shale in the northwest to the Marcellus Shale in the northeast. According to Baker Hughes data, horizontal wells are up 50 percent compared to a year ago. SII Rotary Rig 2008 year-to-date data shows deep development (greater than 10,000 feet) up by 5.6 percent compared to 2007. Based on these numbers, it seems like the U.S. independent is busy doing its job of exploring and developing oil and natural gas for American consumers. Endeavors to make the industry out to be the scapegoat will continue by some, but the producer has more important things to do and is putting rigs to work in more than 30 states. as Haynesville and onshore Gulf projects have stimulated activity. One company has recently announced that it will triple the number of its rigs operating in Haynesville by 2009. Another independent will be drilling almost 475 wells in the Fayetteville Shale in Arkansas with approximately 20 rigs. According to the Land Rig Newsletter, the rig ﬂeet continues to grow with the additions of new builds and refurbished rigs to meet the increased pace of ﬁeld activity. A recent survey by the Land Rig Newsletter “suggested more than 100 rigs contemplated, under construction, or under refurbishment…What looked like a net addition of maybe three or four dozen rigs to the U.S. land ﬂeet earlier this year now looks more like a net addition twice that size in 2008. And that doesn’t include rigs re-activated from stacked status, a process underway, particularly in the sub-1,000 HP class.” This gain compliments the 640 additional rigs brought onto the market between 2004 and 2007, according to the Land Rig Newsletter. As the independent producer is increasingly confronted with horizontal development in shale formations and other new subsurface challenges associated with these nonconventional resource plays, the rig market must adapt accordingly. Nine of the 12 largest U.S. natural gas ﬁelds are unconventional and the EIA projects that unconventional production will grow from about eight trillion cubic feet (Tcf)/year in 2005 to 8.8 Tcf in 2015 and 10.2 Tcf/year in 2030 (accounting for more than half of the U.S. Lower 48 gas Production, according to a study in the Oil and Gas Journal). As the rig count goes higher with demand, equipment that was previously unutilized (or ‘stacked’ because it was less efﬁcient or smaller in horsepower rating) is ﬁnding its way onto the market as mid-size operators (using four to nine rigs) continue to expand their development programs. Data from IHS shows the cumulative year-to-date number of permits at 28,718 for May 2008, up almost 7.5 percent from the previous year count. According to the Land Rig Newsletter, second quarter running averages are up 24 percent in the Rockies, 17 percent in ArklaTex, nine percent in the Mid-continent and eight percent in the Permian Basin. Certainly the Rockies and Texas will see ample increases in yearly rig activity and the Oil and Gas Journal shows well growth in at least 25 of the producing states for 2008. Data from the Energy Information Administration shows aggressive growth in numbers of wells, with exploratory wells up almost 25 percent, development wells up 20 percent and footage up more than 20 percent compared to the same ﬁve month period in 2006. More wells are needed as less is produced from each well: the average crude oil per well has fallen from more than 14 barrels/day in 1986 to about 10 barrels/ day in 2007, and the average natural gas well has declined from 435 Mcf per day in 1971 to 118 Mcf/d in 2007. The bright spot is that the U.S. producers have been able to expand natural gas production by an estimated 6 percent over 2007 as a result of accelerated unconventional activity across the country. MMS Issues Final Rule On Open Access to OCS Pipelines The Minerals Management Service (MMS) issued a ﬁnal rule on June 18 establishing a complaint procedure for shippers of oil and natural gas from offshore federal leases seeking redress for denial of access to offshore pipelines. The rule also established an informal hotline to allow shippers to contact MMS staff. The proceeding evolved after several court decisions found that the Federal Energy Regulatory Commission lacked jurisdiction over pipelines in the outer continental shelf (OCS) and that the Department of Interior was primarily responsible for ensuring open access to OCS pipelines under the OCS Lands Act (OCSLA). MMS chose not to adopt speciﬁc standards as to what constitutes discriminatory behavior. MMS will use a broad “reasonableness” standard on a case-by-case basis. A shipper may ﬁle a complaint with the MMS director if it believes it has been denied access to an OCS pipeline that is not an FERC-regulated pipeline. The shipper must include a nonrefundable processing fee of $7,500, although a reduction or waiver of the fee can be requested. If the MMS ﬁnds a violation of OCSLA, it may order the transporter to provide open and non-discriminatory access or assess a civil penalty up to $10,000 per day for failure to comply. Prior to ﬁling a complaint, a shipper may contact the MMS hotline to resolve the dispute informally. The ﬁnal rule took effect August 18, 2008. Source: IPAA 40 | LOGA INDUSTRY REPORT | FALL 2008

Table of Contents Feed for the Digital Edition of LOGA Industry Report - Fall 2008

LOGA Industry Report - Fall 2008 Contents Chairman's Corner President's Perspective Commissioner's Comments From the Pipeline... Supreme Court Upholds Act 312 LOGA Challenges Commission's Ad Valorem Tax Rules The Haynesville Shale - Waiting for the Gas to Come In 2008 Legislative Recap Gulf Coast Prospect Expo 2008 2nd Annual LAGCOE Open Golf Tournament Conservationist by Trade Katrina Relief Fund Update DNR Intent Natural Gas Production Surges: A Free Market At Work IPAA Washington Report Legal Updates New Members Index to Advertisers

LOGA Industry Report - Fall 2008

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