U.S. has ‘overfracked and overdrilled,’ Shell director says

Buyer beware: Shell admits not all fields are created equal. 

U.S. has ‘overfracked and overdrilled,’ Shell director says

Yadullah Hussain | 18/10/13 7:00 AM ET
More from Yadullah Hussain | @Yad_FPEnergy

Matthias Bichsel, director of the projects and technology business at Royal Dutch Shell Plc.
The United States’ oil and gas industry has “over-fracked and over-drilled”, according to Matthias Bichsel, projects and technology director at Royal Dutch Shell Plc.

“The reservoirs don’t need that many wells. The reservoirs don’t need that many stages of fracks, because not all the pieces of the rocks are as good,” Mr. Bichsel said in a telephone interview from Vancouver last week, where he was speaking at a company event.

The United States is on course to become the world’s largest oil supplier, according to PIRA Energy Group, a New York-based energy consultancy.

“The U.S. shale liquids growth of 3.2 million barrels per day over the last four years has been nearly unparalleled in the history of world oil; only Saudi Arabia in 1970-74 raised its production faster,” PIRA said in a statement.

But it has not translated into a boost in profits of all companies, especially as natural gas prices have slid amid a production surge. Shell came late to the U.S. shale boom and has been left disappointed by the performance of its Eagle Ford shale assets. The company recently announced that it’s selling its 106,000 net acres in Dimmit, LaSalle and Webb counties as they did not fit its “global targets for materiality and scale.”

While Mr. Bichsel does not believe the U.S. shale gas is overhyped, he does think that not all fields are created equal.

“We only talk about the Bakken, Eagle Ford, and the Permian in West Texas, and the Marcellus — we never talk about the basins that have not worked,” said Mr. Bichsel, a geologist by training. “We have some areas that are simply not as good as others.”

In Wyoming and Utah, for instance, the industry could not get the Green River basin to really work, Mr. Bichsel said in a speech this year.

“And I’m afraid that some countries may be setting themselves up for dashed expectations. Take Poland, for instance, where a number of operators have announced that they’re pulling out.”

The shale industry is evoking either over-optimism or excessive negativity, which is not helping the industry, Mr. Bichsel said.

“What we are often lacking is the middle-of-the-road approach — and it is very dangerous when we hype things, because it sets expectation which perhaps can’t be fulfilled to the degree that you would like.”

Shale gas opportunities in British Columbia are also gaining momentum, with Shell and its Asian partners among the consortiums interested in shipping liquefied natural gas from the West Coast to Asian markets.

Canada has the opportunity to create a vibrant export industry for a commodity that is ready to take on a greater role in the world’s energy mix, Mr. Bichsel said in a speech in Vancouver last week.

But there are challenges ahead.

“An LNG project also requires a large capital outlay, and so the project owners also must keep a wary eye on the global financial markets. As any investor knows, these are susceptible to unpredictable changes, too,” Mr. Bichsel noted.

A key sticking point could be pricing that’s crucial to determine feasibility of projects. Shell, which sells 80% of its LNG linked to oil prices, believes long-term, oil-indexed contracts reassures investors who are building the capital- intensive projects.

Major natural gas importers such as Japan, India and China, however, want to delink LNG prices from oil prices.

“But energy security is also a priority for them, and LNG sellers that offer reliable supply have a competitive advantage. And caveat emptor – let the buyer beware: linking LNG to the vagaries of a gas-trading hub may not necessarily provide as stable a pricing mechanism.”

Keep your dirty money to yourself, Shell.

Universities around the world are divesting in oil and gas funds. Who will write the “studies” now?

UK universities urged to pull cash from fossil fuel giants

Anti-carbon divestment campaign targets £5bn of British funds

Money to burn: Fiddlers Ferry coal-fired power station near Liverpool.

Money to burn: Fiddlers Ferry coal-fired power station near Liverpool. Photograph: Phil Noble/Reuters


An international campaign to urge large institutions to dump fossil fuel investments reaches the UK this week, following rapid success in the US.

The year-old divestment campaign, Fossil Free, has grown even faster than similar efforts that once targeted apartheid, tobacco and arms manufacturers. It now aims to focus attention on the £5bn invested in coal, oil and gas by the endowment funds of UK universities. The move comes as financial giants such as HSBC, Deutsche Bank and Goldman Sachs are starting to take seriously the prospect that global action to reduce carbon emissions could leave two-thirds of the world’s proven fossil fuel reserves unburnable and worthless.

“The divestment campaign will start politically to bankrupt the fossil fuel industry and throw into stronger relief that it is a rogue industry, committed to burning more carbon than any government on Earth thinks it would be safe to burn,” said Bill McKibben, a prominent US climate campaigner and figurehead of the Fossil Free campaign. “One reason we are losing the battle against climate change – the most important challenge humans have faced – is the power of the fossil fuel industry to block change,” he told the Observer. “It is the richest industry in the history of human enterprise.”

The US campaign has already led to more than 40 institutions, including the city of Seattle, universities and churches, pulling out of fossil fuel investments. Addressing the political debate in the UK over rising energy bills, McKibben said: “England has been burning fossil fuels since James Watt: there is no way you get to transition [to low-carbon energy] for free. But as economist Lord Nicholas Stern has said over and over again, the cost of not doing it is orders of magnitude higher than doing it.”

Student divestment campaigns have sprung up at 20 UK universities, including the three with the largest investments: Cambridge, Oxford and Edinburgh. UK universities have more than £5bn – £2,000 per student – invested in fossil fuels, according to student group People & Planet and the 350.org campaign, which McKibben co-founded.

“Investing in fossil fuel companies, which harm communities and destroy the climate, is not OK,” said Miriam Dobson, from People & Planet at Edinburgh University, where the campaign tour begins on Wednesday before visiting Birmingham and London.

British campaigners claimed a first victory last week, with the University of Surrey shifting funds from two unnamed fossil fuel companies into a renewable-energy-focused company.

The report also lists the research funding that companies, including Shell and BP, give universities, including £6m to Oxford and £17m to Imperial College London. “UK universities have become victims of corporate capture,” said Kevin Smith from oil and gas watchdog Platform. “We are allowing public infrastructure to be used to subsidise a dangerous, outdated energy model.”

A separate report found that the fossil fuel divestment campaign is growing faster than any previous one. “Stigmatisation poses a far-reaching threat to fossil fuel companies,” said Ben Caldecott, a research fellow at the University of Oxford’s Smith School of Enterprise and the Environment, and an author of the report. “In every case we reviewed, divestment campaigns were successful in lobbying for restrictive legislation.”

The divestment campaign argues that there is also a financial reason for getting rid of fossil fuel investments, because increasing policies to cut carbon will eventually impact on the stocks’ value. The landmark climate change report in September, from the Intergovernmental Panel on Climate Change, stated that agreement by the world’s governments to restrict global warming to less than 2C meant keeping total future carbon emissions under 500 gigatonnes. Analysis by the International Energy Agency and the Carbon Tracker thinktank has shown this would mean that about two-thirds of the coal, oil and gas on the books of fossil fuel companies would have to remain unburned.

Carbon capture and storage technology would, if developed successfully, bury emissions equivalent to just 4% of total global reserves, according to Carbon Tracker.

With the 200 biggest fossil fuel companies spending $674bn in 2012 on finding new reserves (compared to $281bn renewable energy investment), the risk of inflating a stock market “carbon bubble” to the tune of trillions of dollars is “very big indeed”, according to Stern. “The financial crisis has shown what happens when risks accumulate unnoticed,” he said in April.

On Thursday, a group of 70 global investors with $3 trillion of collective assets launched the first coordinated effort to demand that the world’s 40 leading fossil fuel companies, including ExxonMobil andf BHP Billiton, assess the financial risks a carbon bubble poses to their businesses.

“Companies must plan properly for the risk of falling demand to minimise the risk our clients’ capital is wasted,” said Craig Mackenzie, at Scottish Widows Investment Partnership, one of Europe’s largest asset management companies. Storebrand, a $76bn Norwegian pension fund, divested from 19 fossil fuel companies in July, saying that the stocks would be “worthless financially” in the future.

While stock markets, including London which is heavily exposed to coal, have yet to significantly adjust company valuations, big financial players have started analysing the issue with reports in the last six months on the future risks of coal investments from Deutsche Bank, Goldman Sachs and Citi Commodities, while Morgan Stanley and Citi GPS have examined the wider energy market.

McKibben said the divestment campaign was one front in the battle against climate change, but a vital one given the role of similar tactics in previous historic changes, such as ending apartheid in South Africa. The Nobel peace prize winner Archbishop Desmond Tutu has blessed the movement, stating: “Divestment played a key role in helping liberate South Africa. The corporations understood money even when they weren’t swayed by morality. Climate change is a deeply moral issue, too.”

Another country moves against fracking – while the ANC barges ahead

Scotland to block fracking on environmental grounds


Paul Wheelhouse, the Scottish environment and climate change minister, has said there are “no environmental permissions which would allow hydraulic fracturing (fracking) in Scotland at this time”.

The comments came as the Scottish Government announced plans to strengthen Scottish Planning Policy relating to onshore unconventional oil and gas.

Due to come into force next year, the policy aims to reinforce environmental and community protection and community consultation guidance in relation to planning applications for unconventional gas extraction.

The policy states that the planning system must “minimise the impacts of extraction on local communities, built and natural heritage, and the water environment.”

In addition, it says that proposals “should also provide an adequate buffer zone between sites and settlements.”

Environment and Climate Change Minister Paul Wheelhouse said it was important that the views of the local communities, and the impact on the environment were given “due consideration” in the planning process.

Currently the UK government’s Department of Energy and Climate Change issue Petroleum Exploration and Development Licences (PEDL) in licence rounds which grant exclusivity to operators in the licence area.

However, PEDLs do not give consent for drilling and operators are still required to obtain planning permissions and other licenses before any exploration or development work can be carried out.

Lang Banks, World Wide Fund for Nature (WWF) Scotland director, said: “This is without doubt a set-back for those hoping to exploit shale gas in Scotland. We welcome this commitment and hope it is just the first of several steps ministers will take to begin to close the door on all new fossil fuels developments in Scotland.

“In the interests of tackling climate change and delivering climate justice we urgently need to be leaving fossil fuels, including shale gas, in the ground.”

Shale gas industry shedding jobs in the US

Did you know? As at 29 Sep 2013 there were 163 less drilling rigs operating in the US than at 31 December 2012. Wonder where ALL THOSE JOBS WENT TO?  Guess if fracking production does start here there may be some VERY red faces in the plush carpet halls of big oil n gas and government.

Chesapeake laying off 800 workers companywide

Chesapeake Energy CEO Doug Lawler promised that his “transformation teams” would complete their personnel evaluations, designed to get the company down to where it needed to be “competitive” by November 1.

Transformation took less time than Lawler projected, as Tuesday, the former Anadarko Petroleum executive revealed 800 employees “were informed today that they will be leaving the company,” according to a companywide email.

U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying Power


U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying Power

By  October 10, 2013

U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying PowerPhotograph by Slim Sepp/Alamy

Chesapeake Energy’s (CHK) Serenity 1-3H well near Oklahoma City came in as a gusher in 2009, pumping more than 1,200 barrels of oil a day and kicking off a rush to drill that extended into Kansas. Now the well produces less than 100 barrels a day, state records show. Serenity’s swift decline sheds light on a dirty secret of the oil boom: It may not last. Shale wells start strong and fade fast, and producers are drilling at a breakneck pace to hold output steady. In the fields, this incessant need to drill is known as the Red Queen, after the character in Through the Looking-Glass who tells Alice, “It takes all the running you can do, to keep in the same place.”

The U.S. is producing 7.8 million barrels of oil a day, more than it has in a quarter-century. Crude from shale formations has cut reliance on imports and put the U.S. closer to energy independence than it’s been since 1989. The International Energy Agency predicted last year that the U.S. would overtake Saudi Arabia by 2020 as the world’s largest producer.

Whether current production can hold up is the subject of debate. David Hughes, a geoscientist and president of Global Sustainability Research, has examined the life span of shale wells. “The Red Queen syndrome just gets worse and worse and worse,” he says. “The higher production goes, the more wells you need to offset the decline.”

The U.S. Energy Information Administration estimates that about 29 percent of U.S. oil production today comes from so-called tight oil formations. These dense layers of rock and shale are cracked open by blasting water, sand, and chemicals deep underground, creating fissures that allow the oil to flow into horizontal pipes, some of them thousands of feet long. Production from wells bored into these formations declines by 60 percent to 70 percent in the first year alone, says Allen Gilmer, chairman and chief executive officer of Drillinginfo, which tracks the performance of U.S. wells. Traditional wells take two years to slide 50 percent to 55 percent, and they can keep pumping for 20 years or more.

In North Dakota’s Bakken shale, a well formally known as Robert Heuer 1-17R put out 2,358 barrels in May 2004, when it went live. The output proved there was money to be made drilling in the Bakken and kicked off an oil rush in North Dakota. Continental Resources (CLR), the well’s operator, built a monument to it. Production declined 69 percent in the first year. “I look at shale as more of a retirement party than a revolution,” says Art Berman, a petroleum geologist who spent 20 years with what was then Amoco and now runs his own firm, Labyrinth Consulting Services, in Sugar Land, Tex. “It’s the last gasp.”

There are plenty of people who disagree. Aubrey McClendon, founder and former president and CEO of Chesapeake, called Berman a “third-tier geologist” in a 2011 interview on CNBC’s Mad Money With Jim Cramer. Harold Hamm, the chairman and CEO of Continental, estimated in 2010 that there were 24 billion barrels of recoverable oil in the Bakken and other formations underlying the Williston basin. Now, Hamm says improved technology could eventually boost that number to 45 billion: “We’re just getting started,” he says. Since Continental drilled the Robert Heuer, North Dakota’s oil production has increased more than 10-fold to 874,000 barrels a day, beating Ecuador and Qatar, the two smallest members of the Organization of Petroleum Exporting Countries.

Global Sustainability’s Hughes estimates the U.S. needs to drill 6,000 new wells per year at a cost of $35 billion to maintain current production. His research also shows that the newest wells aren’t as productive as those drilled in the first years of the boom, a sign that oil companies have already tapped the best spots, making it that much harder to keep breaking records. Hughes has predicted that production will peak in 2017 and fall to 2012 levels within two years.

“The hype about U.S. energy independence and ‘Saudi America’ is deafening if you look at the mainstream media,” Hughes says. “We need to have a much more in-depth and intelligent discussion about this.” On Oct. 7, Abdalla Salem el-Badri, OPEC’s secretary general, said at a conference in Kuwait that U.S. shale producers are “running out of sweet spots” and that output will peak in 2018.