NYTimes Article on Marcellus Shale

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Big Money Drives Up the Betting on the Marcellus Shale - NYTimes.com Page 1 of 10 July 8, 2010 Big Money Drives Up the Betting on the Marcellus Shale By JOEL KIRKLAND of ClimateWire WILLIAMSPORT, Pa. -- Halliburton is building a permanent outpost here on the edge of a one of the 21st century's biggest energy booms. Southeast of here, on an old strawberry patch at a bend in the river, Halliburton's industrial dwelling rests against the lush landscape of hills and valleys. In July, the Texas o
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    July 8, 2010 Big Money Drives Up the Betting on the MarcellusShale By JOEL KIRKLAND of ClimateWire  WILLIAMSPORT, Pa. -- Halliburton is building a permanent outpost here on the edge of aone of the 21st century's biggest energy booms.Southeast of here, on an old strawberry patch at a bend in the river, Halliburton's industrialdwelling rests against the lush landscape of hills and valleys. In July, the Texas oil servicesgiant will start mixing cement and storing equipment for natural gas companies drilling inthe tough shale rock of northeastern Pennsylvania.Halliburton is a ubiquitous presence in the world's biggest oil fields. For the past twomonths, it has defended itself against charges that shoddy cement work contributed to amethane blast that sank BP's rig in the Gulf of Mexico and killed 11 people. As long as the well keeps gushing, public anger could weaken America's appetite for offshore drilling.But far from the Gulf Coast and outside of the media spotlight, Halliburton and the oil andgas industry are spending billions of dollars in preparation for decades of drilling in theMarcellus Shale. The 95,000-square-mile sheet of natural gas-rich sediment sprawls acrossPennsylvania, southern New York, West Virginia and eastern Ohio.Geologists have long known about gas deposits trapped in the 390-million-year-oldformation. But only since 2008, and at a rapidly escalating pace, has the oil and gas industry  brought to bear the technological and financial resources to crack it. Companies see how close the shale gas is to the Northeast consumer markets, says Alay Patel, an upstream research analyst for Wood Mackenzie. They see a long-term source where the cost of supply is really low compared to what they see in other areas of the Lower48. Drillers blast water, sand and chemicals 8,000 feet into the ground, creating the pressureneeded to crack the shale and release the gas. On today's industrial drilling sites, plumes of  Page 1of 10Big Money Drives Up the Betting on the Marcellus Shale -NYTimes.com7/8/2010http://www.nytimes.com/cwire/2010/07/08/08climatewire-big-money-drives-up-the-betting-...  smog-forming pollutants escape from trucks, generators, condensate tanks and compressorstations.In northern Appalachia, deep-seated public anxiety has set in about the environmentalimpact of horizontal gas drilling and hydraulic fracturing, or fracking. Regulatorsresponsible for protecting the clean water supplies of New York City and Philadelphia havecalled a drilling timeout in the Delaware River watershed.But rivers of corporate cash continue to flow into the Marcellus and other shale fields. Themagnitude of investment this year alone suggests energy companies have no plans to retreatfrom an ocean of recoverable gas. At the power plant, a natural gas-burning electricity generator produces half the carbondioxide emissions of a plant that burns coal. Some advocates for slashing emissions tied toglobal warming say gas is a plausible alternative for utilities saddled with aging coal-firedpower plants.Plans for 30,000 wells in 10 yearsThe industry expects to drill some 30,000 Marcellus wells by 2020. Placing a thumb on anaccurate figure for how much gas can be recovered from the Marcellus remains a matter of geological guesswork. But if companies develop the shale to its full potential, according tosome estimates, it rivals Russia's massive gas fields and the untapped reserves off the coastof Iran and in the Caspian Sea.On June 25, shareholders for Texas gas producer XTO Energy finalized a $31 billion sale toExxon Mobil Corp. The deal injects into North America's gas fields the muscle and capitalheft of the world's largest integrated energy company. Exxon will become the third-largestgas producer in the prolific Barnett Shale and gain a strong bridgehead in the Marcellus, where XTO controls minerals under 280,000 acres near Williamsport and Pittsburgh.In early June, Royal Dutch Shell PLC announced that it plans to buy Pittsburgh-based EastResources for $4.7 billion. That sale yields a significant return for one of the nation's richestprivate equity firms, Kohlberg Kravis Roberts & Co. Just a year ago, KKR spent about $320million for a substantial minority stake in East Resources.For Exxon and Shell, the bet is that relatively low-cost gas production means a steady revenue stream, as electricity generators in the eastern half of the United States switch fromcoal to gas to comply with clean air standards and slash carbon dioxide emissions tied toglobal warming. Page 2of 10Big Money Drives Up the Betting on the Marcellus Shale -NYTimes.com7/8/2010http://www.nytimes.com/cwire/2010/07/08/08climatewire-big-money-drives-up-the-betting-...  More than a dozen companies have amassed leasehold positions in excess of 100,000 acresin Pennsylvania.Chesapeake Energy Corp. of Oklahoma City boasts the largest Marcellus foothold. It hasaggressively built its 1.6-million-acre position since scooping up Appalachian gas producerColumbia Natural Resources LLC for $2.2 billion in 2005. Following drilling tests thatreaffirmed strong hunches about the gas formation's potential, Chesapeake signed a joint venture with Statoil in 2008.The deal handed the Norwegian oil behemoth 600,000 acres of American shale to explorefor a tidy sum of $3.3 billion, including a $1.2 billion upfront capital injection to helpChesapeake expand its drilling operation.Drilling for dealsThe Statoil deal paved the way for other joint ventures and buyouts in the shale. Small andmid-sized companies that spent years locking up Marcellus acreage needed the financialresources of bigger partners to develop it. In the past six months, the deal-making has only accelerated. The sheer scope and resource potential of the Marcellus is a big draw, says Eric Kuhle, agas analyst at Wood Mackenzie. You can capture the upside with these partnerships. Energy companies from India and Japan are dumping shareholder wealth into Appalachiangas production. In February, Japan's Mitsui & Co. entered a $1.4 billion joint venture with Anadarko Petroleum Corp.Pittsburgh-based Atlas Energy Inc. in April formed a $1.7 billion partnership with RelianceIndustries Ltd., the largest private-sector company in India. The conglomerate is controlled by Indian billionaire Mukesh Ambani, who has been pushing the company to securelucrative energy investments outside of India. In the last few years, we realized we had this extremely valuable asset, says Jeff Kupfer,senior vice president of Atlas. We needed a lot of capital to develop it. Once Atlas put out afeeler, the Marcellus prospect attracted attention from the world's major oil and gascompanies. There was something in the chemistry with Atlas and Reliance. Reliance agreed to pay $340 million in upfront cash and to contribute $1.3 billion to developthe Marcellus. In return, Reliance gets a 40 percent share of the venture and can sendengineers and field workers to learn about the fracking technology. They're looking at it asa way to gain exposure and expertise, Kupfer says. Page 3of 10Big Money Drives Up the Betting on the Marcellus Shale -NYTimes.com7/8/2010http://www.nytimes.com/cwire/2010/07/08/08climatewire-big-money-drives-up-the-betting-...  Shale gas underlies North America, Europe and possibly China. In a statement toshareholders a few weeks ago, the Reliance chairman made his take on the gas boom plain. It is likely to overtake both conventional gas as well as liquid fuels as a source of energy  within the next decade, Ambani told investors. A few days later, on June 23, Reliance agreed to buy a 45 percent stake in Pioneer NaturalResources Co.'s acreage in the Eagle Ford shale field in south Texas for $1.15 billion.Companies that tested fracking technology in Texas and Oklahoma in the 1990s have spentthe past five years locking up access to millions of acres in those states and across Appalachia, Louisiana, Arkansas, Great Plains states and western Canada. In 25 years,according to IHS Cambridge Energy Research Associates and Wood Mackenzie, shale andtight-sand formations will account for more than half of U.S. gas production. The supply potential has expanded by as much as 50 percent. A shift that surprised the governmentIt has been a surprising shift. In 2005, both the gas industry and the U.S. government,including Congress and the Federal Energy Regulatory Commission, had settled on the ideathat the United States would import liquefied natural gas from the Middle East, Russia and Africa. As the American economy expanded, imported LNG would make up for declining gassupplies from the Gulf of Mexico and Canada.Today, the industry boldly promises the shale gas will fill the gap and create a long-termsurplus of gas.The Marcellus is among the five big shales identified as the best bets for production. TheBarnett in east Texas, Haynesville in Louisiana, Fayetteville in Arkansas, and Woodford inOklahoma top those shales. Barclays Capital anticipates that once investments targetingMarcellus gas reach full bloom, it could rapidly surpass production out of Arkansas andOklahoma by the end of 2012 and compete with the mighty Barnett for kingmaker inonshore gas development by 2020.The low cost of producing Marcellus gas, its pipeline-ready quality and its proximity toconsumers in the Northeast have driven investment. With total production costs around$3.50 to $4 per million British thermal units, according to Barclays Capital, gas companiescan make money even if future gas prices languish some.But if gas prices crater, the boom ends.Meanwhile, though, it is jobs, jobs and more jobs in Pennsylvania that matter the most. Page 4of 10Big Money Drives Up the Betting on the Marcellus Shale -NYTimes.com7/8/2010http://www.nytimes.com/cwire/2010/07/08/08climatewire-big-money-drives-up-the-betting-...
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