bakerhostetler shale symposium · 7/16/2014 · anadarko’s mission is to provide a competitive...
TRANSCRIPT
BakerHostetler Shale Symposium The Politics and Economic Reality of Shale Development in the Rockies
July 16, 2014
Table of Contents Agenda Tab 1
Presentation by Brad Holly, Anadarko Petroleum Corporation Tab 2
Presentation by Mark Williams, Whiting Petroleum Corporation Tab 3
Presentation by Matt Most, Encana Oil & Gas (USA) Inc. Tab 4
BakerHostetler North America Shale Blog (www.northamericashaleblog.com) Tab 5
Speaker Biographies Tab 6
Shale Symposium
The Politics and Economic Reality of Shale Development in the Rockies
5:30 pm – 6:30 pm Registration and Networking Reception
6:30 pm – 6:40 pm Introductions by Ray Whitman (BakerHostetler)
6:40 pm – 7:05 pm Brad Holly (Anadarko Petroleum Corporation)
7:05 pm – 7:30 pm Mark R. Williams (Whiting Petroleum Corporation)
7:30 pm – 7:55 pm Matt Most (Encana Oil & Gas (USA) Inc.)
7:55 pm – 8:00 pm Closing
8:00 pm – 9:00 pm Networking Reception
Brad Holly, Vice President - Rockies
2
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Anadarko believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this presentation, including Anadarko’s ability to meet financial and operating guidance, to achieve its production targets, successfully manage its capital expenditures, and timely complete and commercially operate the projects and drilling prospects identified in this presentation. See “Risk Factors” in the company’s 2013 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements.
Please also see our website at www.anadarko.com under “Investor Relations” for reconciliations of the differences between any non-GAAP measure used in this presentation and the most directly comparable GAAP financial measures.
Cautionary Note to Investors: The United States Securities and Exchange Commission (“SEC”) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC’s definitions for such terms. Anadarko uses certain terms in this news release, such as “resources,” “net resources,” “net risked resources,” and similar terms that the SEC’s guidelines strictly prohibit Anadarko from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in Anadarko’s Form 10-K for the year ended Dec. 31, 2013, File No. 001-08968, available from Anadarko at www.anadarko.com or by writing Anadarko at: Anadarko Petroleum Corporation, 1201 Lake Robbins Drive, The Woodlands, Texas 77380, Attn: Investor Relations. This form may also be obtained by contacting the SEC at 1-800-SEC-0330.
Geology and Geophysical Cautionary Language
The ideas and thoughts expressed herein are for discussion purposes only. They do not necessarily represent views of Anadarko Petroleum Corporation or its subsidiaries, affiliates, shareholders, directors or officers, nor do they apply in every circumstance.
Regarding Forward Looking Statements and Other Matters
Anadarko’s mission is to provide a competitive and sustainable rate of return to shareholders by exploring for, acquiring and developing oil and natural gas resources vital to the world’s health and welfare
Integrity and Trust
Servant Leadership
People and Passion
Commercial Focus
Open Communication
3
Production
Exploration
Among the World’s Largest Independent Oil and Natural Gas E&P Companies2.79 BBOE Proved Reserves at Year End 2013781,000 BOE/d Production-2013Investing $8.4 – $8.8 Billion in 2014
Included in the S&P 100 Index with 6,000+ Employees Worldwide
Headquartered in The Woodlands, Texas with Activity in 15+ Countries
Producing Enough Energy to Meet Daily Demands of ~25 Million Avg. American Homes
Our Goal is to Send Each Employee Home Safely Every Day
0.28
0.60
0.00
0.20
0.40
0.60
0.80
1.00
2008 2009 2010 2011 2012 2013
TRIR
Total Recordable Incident Rate*
Anadarko Employees AXPC Average**
* Total Recordable Incidence Rate (TRIR) is a measure of the rate of recordable workplace injuries, normalized per 100 workers per year.
Anadarko Industry Average
North Africa
West Africa
Alaska
Deepwater GOM
U.S. Onshore
New Zealand
East Africa
South Africa
Net Risked Resources (BBOE) South America
Emerging Opportunities
0 - 1
1 - 5
5+
Predictable, Repeatable U.S. Onshore
Higher-Margin Liquids
Driving Efficiencies
Leveraging Midstream
Advancing Next-Generation Mega Projects
High-Margin Oil
Industry-Leading Project Management
World-Class Exploration
High-Impact Targets
First-Mover Advantage
Track Record of Success
Deliver Short-Cycle, Capital-Efficient Liquids Growth
Build Enabling Infrastructure
Increase Efficiencies and EURs
Explore for and Accelerate the Next Resource Play
Maintain Natural Gas Option Value Key Growth Contributors
0
200,000
400,000
2009 2010 2011 2012 2013 2014E
BO
E/d
Zero to 375,000 BOE/d Horizontal Sales-Volume Growth in 5 Years
Marcellus
Eagleford
Delaware Basin
E TX / N LA
Wattenberg HZ
8
Wyoming
ColoradoUtah
GNB
Wattenberg
APC Acreage
APC Land Grant40 Miles
CBM
Salt Creek
MonellMoxa Wamsutter
Sizeable Acreage PositionLeasehold: 1.5 MM acresMinerals: 8 MM acres
Optimizing Core Producing Assets
Accelerating Wattenberg field in Colorado
231 MMCF/d
EOR:13,000 BOE/d
129,000 BOE/d563 MMCF/d
Accelerating 2014 Activity Operate 13 Rigs Drill 360+ wells Optimizing Lateral Length, Spacing and Completions
1.0 - 1.5 BBOE Net Resources
20+% Transparent Sales-Volumes CAGR
Superior Returns: 100+% ROR Mineral-Interest Uplift Consolidated Core Acreage
Expanding Enabling Infrastructure
~350,000 Net Acres in Core Wattenberg
Boulder
Larimer
Denver
Jefferson
Weld
Adams
10 Miles
APC Land Grant and LeaseholdAPC Core Wattenberg AcreageAreas of 2013 Activity
$4.8
$2.2
350 MBOE EUR WellBased on $4 million well cost and unescalated NYMEX
prices of $90/Bbl and $4/Mcf
Anadarko Economics Enhanced by Land Grant Position
($ Millions)
$7.0APC Mineral Ownership Advantage
0
150
300
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
MB
OE
/d
Gross Operated Wattenberg Production
Horizontal
Vertical
OilLight Oil
Wet Gas
5 MilesWATTENBERG
Trade OutlineAPC Acreage
APC Mineral InterestOperated HZ Producing Wells
Net Wattenberg Acres ~350,000
MB
OE
/Day
Vertical Wells (1970 – 2011)
Discovered in 1970
Currently ~17,000 producing vertical wells~ 5,500 Anadarko operated
Developed primarily on 20 acre spacing
Average EUR = ~40 MBOE
Field production at YE 2010 = 120 MBOE/dayAnadarko = 60 MBOE/day
2010
J-Sand &Sussex Codell
Wattenberg Field ProductionAll Operators140
120
100
80
60
01970s 1980s 1990s 2000-2009
40
20Codell & Niobrara
HZ volumes quickly replacing vertical base
Moving toward 65% liquids; 35% gas product mix
Rapidly expanding in-field infrastructure and takeaway capacity
0
50
100
2011 2012 2013 1Q14
MB
OE
/d
Wattenberg Operated HZ Net Sales Volumes
Oil NGL Gas
Cushing
Front Range
OPPLConway, KS
Mt. Belvieu, Tx
White Cliffs NGL HUB
WTI HUB
NGL HUB
ChipetaLancaster
WattenbergPlatte Valley
Oil Equity Pipeline
NGL Equity Pipeline
NGL Pipeline
Processing Plant
Market Center
Texas Express
Colorado
New Mexico
Texas
OK
KS
Lancaster Cryogenic Plant
New Infrastructure In Place 300 MMcf/d Lancaster Cryogenic Plant 150,000 Bbl/d Front Range NGL Pipeline
Expanding ~80,000 Bbl/d White Cliffs Oil Pipeline Field Gathering and Compression 300 MMcf/d Lancaster II Cryogenic Plant
13
Boulder
Larimer
Denver
Jefferson
Weld
Adams
10 Miles
APC Land Grant and LeaseholdAPC Core Wattenberg Acreage
APC Acreage in Optimal Fluid Type
Thermal Anomaly Benefits Better fluid properties to flow More reservoir energy Enhanced porosity and
permeability Reduction in water
saturation
WetGas
LightOil
BlackOil
14
Minimizing Surface & Maximizing Subsurface
15
Anadarko is awarded a 2013 Environmental Protection Award by the COGCC for the third consecutive year.
Anadarko, EDF, Governor John Hickenlooper and 2 Other Operators Collaborate on New Air-Quality Rules in Colorado.
Reducing Impacts Collaborative Air-Quality Rules in Colorado with
Governor, Regulators and EDF Expanding Infrastructure to Reduce Truck Traffic Water Pipeline and Management
Leading Industry Initiatives FracFocus.org University of Texas Emissions Study Expanding CNG Fleet and Infrastructure
Actively Engaging Stakeholders
Recognized for Best Practices
Community Open Houses Fort Lupton, Firestone, Loveland, Mead
Operational Media Tours
Anadarko EmployeeAmbassador Toolkit
Anadarko Response Line
Anadarko YouTube Channel www.YouTube.com/AnadarkoTV
Oil and Natural Gas in Colorado Fact Book Free industry publication in print and online
Coloradans for Responsible Energy www.CRED.org and www.StudyFracking.com
“Longmont fracking ban storms to victory”“Anti-fracking measures win in
Lafayette, Boulder and Fort Collins”
“Judge upholds Broomfield election; fracking ban remains in effect”
“Voters reject Loveland fracking moratorium”
… and Eliminate an Estimated $6,000 in Annual Income for a Family of Four.
IN THE FIRST 5 YEARS
20
• 93,000 Colorado Jobs
• $985 Million in Tax Revenue per Year
• $12 Billion in GDP
Source: Leeds School of Business, University of Colorado Boulder
IN THE NEXT 25 YEARS
• 68,000 Colorado Jobs
• $567 Million in Tax Revenue per Year
• $8 Billion in GDP
A Statewide Fracking Ban Would Eliminate an Estimated …
21
Local Control Ballot Measures5 currently in circulation
Gives local governments authority to regulate oil and gas development
Setback Ballot Measures4 currently in circulation
Revises state-wide setbacks to 1,500’ – 2,640’ from occupied buildings
Online
22
MOBILIZE
Free Industry Primer
JOIN
SHAREIn Person
In PrintOilandNaturalGasInColorado.com
CRED.orgStudyFracking.com
Engage through social & professional networks
Learn how Anadarko is safely developing vital oil and natural gas resources in Colorado at:
www.Anadarko.com
Messaging the energy boom in ColoradoMatt MostVice President, Government Relations US
Encana OverviewLeading North American Resource Play Company
America’s energy boom
US becoming a leading global energy producer
Benefits being felt across the country by all Americans
Colorado is at the heart
Industry’s economic impactTechnological breakthroughs changed the game
Industry’s economic impactUnlocked massive resource base
0
500
1,000
1,500
2,000
2,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Bcf/Month
Thousands
Dry Conventional Dry CBM Dry Shale
US Natural Gas Production
Industry’s economic impactUnlocked massive resource base
0
50
100
150
200
250
300
Barrels per
Month
Millions
US Conventional Crude Production US Estimated Shale Oil Production
Estimated Production Contribution due to Shale Oil
US Crude Oil Production
Industry’s economic impactBenefitting all Americans
Energy security and lower costs
2.1 million jobs across the country in 2012
Added $1,200 to every American household in 2012
Colorado at the HeartBenefitting all Americans
Colorado is home to one of the fastest growing energy markets in the country
Industry’s economic impactImportance of domestic production
• State severance taxes
• Royalties
• Property taxes
• Development costs
• Operating costs
For every $1.00 invested, $0.65 stays in the local economy
Encana in ColoradoFocused investment
EnvironmentBenefits and Risk Mitigation
USA leading the world in emissions reductions while growing the economy.
Aligning innovation with Social LicenseWe must innovate and engage
Water Use and Protection
Participating in regulation
Drilling improvements
Multiple wells drilled from one pad
Three-phase gathering via pipeline
Centralized production facility
Completions water distribution via pipeline
Closed-loop drilling system
CONFIDENTIAL
13
EnvironmentBest Practices in Colorado
Colorado’s Energy BoomEncana’s commitment
Energy industry is vitally important to America
Preserves high quality of life
Encana committed to Colorado
Industry’s social licenseOperating in the backyard
Mandate for Engagement
68% say the energy industry should be a more active participant in the broader debate our domestic energy policy.
“A license to engage stakeholders and play a key role in the policy debate.”
Source: Edelman (2014 trust barometer)
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Rural Nevada Anti-Fracking Group Seeks to Enjoin Oiland Gas Lease SaleBy Laura Bertram on July 7, 2014
Posted in Fracking, U.S. Bureau of Land Management
Reese River Basin Citizens Against Fracking filed a complaint in federal court on June 27, seeking toenjoin the United States Bureau of Land Management (BLM) from holding an oil and gas lease sale.The rural group is comprised of owners of “farming and ranching land, water rights, and grazingrights” adjacent to the land that the BLM intends to lease. Citizens Against Fracking’s members claimthey “derive recreation, aesthetic and spiritual benefit” from their use and enjoyment of the land atissue. In their complaint, the group claims that the BLM violated the National Environmental Policy Act(NEPA) by: (1) minimizing the proposed lease sale’s consequences, environmental impact andadverse effects in its environmental assessment and (2) proposing the lease sale without preparingan environmental impact statement.
In April, the Battle Mountain District Office of the BLM announced that it intended to hold a lease saleof about 230,989 acres of land in Lander, Nye and Esmeralda counties in Nevada. The BLMconducted an environmental assessment of the proposed sale and determined that the proposedsale’s environmental impacts are insignificant based on: (1) the low probability that any of the landwill actually be used for oil and gas development and (2) the fact that leasing does not authorize oiland gas development. The BLM wrote an Interested Party Letter this past February and sent it tothose with grazing rights to the land, posted it on its website, and noticed it in the Federal Register.The public had thirty days to respond, but Citizens Against Fracking did not respond because itsmembers allegedly did not learn about the proposed sale until after the deadline had passed.
Citizens Against Fracking now claims the BLM minimized the environmental impacts that the leasesale and possible development would have on “air quality, cultural and historical resources, NativeAmerican religious and cultural sites, riparian and wetland impacts, threatened and endangeredspecies, waste fluids, forest and rangeland, geology and mineral resources, geothermal conflicts,range resources, and recreation impacts.” Citizens Against Fracking also claims that the BLM did notconsider the impacts that may be caused by fracking if the leases are developed. The group allegesthat the BLM’s reliance on the low probability of development is misplaced because the BLM did notconsider the impact of the newly evaluated Chainman Shale Formation, an area that a 2005 U.S.Geological Survey estimated could contain 1.598 billion barrels of oil and 1.836 trillion cubic feet ofnatural gas.
For additional coverage of this lawsuit, click here.
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This post was coauthored by Kathryn Geisinger (BakerHostetler 2014 Summer Associate).
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Tags: "Bureau of Land Management", "Citizens Against Fracking", Fracking, NEPA, Nevada
More Oil and Gas Patenting Worldwide, Especially inChinaBy Harold Fullmer on July 2, 2014
Posted in Oil and Gas
Innovation in the oil and gas industries, as measured by the number of patent filings, is increasingworldwide. As reported by Thomson Reuters, from 2012 to 2013 the number of patent applicationsfiled worldwide increased by a whopping one-third. (“Unconventional energy boom drives oil and gaspatents to record” (Thomson Reuters)) See below for a caveat. Thomson Reuters attributes theincreasing IP filings to the oil industry’s expansion into less-established forms of oil and gasextraction, such as hydraulic fracturing.
The oil and gas patent filings in the U.S. went up 18 percent in 2013. Much of the increasingpatenting occurs in China, where roughly 60 percent of new patent applications are filed. The recentgrowth in Chinese industry has led to a greater demand for energy, and China’s filings havesurpassed those of the U.S. to take over the top spot in international filings in the industry, accordingto the report.
The numbers reflect an increasing investment in intellectual property in the oil and gas industries, butthe conclusions based on the numbers require some explaining because of the heavy effect ofChinese patent numbers. First, the Chinese government subsidizes patent application filing in severalways, which results in more patents of dubious value. A recent study found that Chinese applicantsbreak up inventions into small bites for the purpose of filing multiple applications on one invention toincrease subsidies (Z. Lei, Z. Sun, B. Wright, “Patent subsidy and patent filing in China”). Second, alarge majority of Chinese patent applications are low quality “utility models,” rather than patents oninventions, as in the U.S. and Europe. Without the eye-popping patent numbers from China, thenumbers still increase, just not in a hockey stick.
Further, it is unclear how Thomson Reuters obtained data for 2013 because patent applicationsremain secret for 18 months in nearly all countries. The numbers might reflect official reports frompatent offices around the world, which tend to be crude.
But the above questions about the data do not affect the overall conclusion: increased investment inIP in the oil and gas industries is clear and the surge of patenting in China is impressive.
This post was coauthored by Dmitry Dymarsky (BakerHostetler 2014 Summer Associate).
Comment
Tags: "oil and gas patenting", China
New York High Court Affirms Local Fracking BansBy Daniel Kavouras on July 1, 2014
Posted in Fracking, Hydraulic Fracturing, New York
On Monday, New York’s highest court—the New York Court of Appeals—upheld local bans on shale
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gas drilling designed to eliminate hydraulic fracturing. The 5-2 decision clears the way for drillingopponents to target fracking at the local government level while the statewide moratorium remains inlimbo.
Judge Victoria Graffeo wrote the opinion for the majority, which held that the “statewide Oil, Gas andSolution Mining Law (OGSML) does not preempt the home rule authority vested in municipalities toregulate land use,” and therefore could not restrict municipalities’ ability to eliminate drilling through itszoning powers.
The court emphasized that it “will invalidate a zoning law only where there is a ‘clear expression oflegislative intent to preempt local control over land use,’” because zoning is a “core power” ofmunicipalities in New York.
The dissent, written by Judge Eugene Pigott, criticized the municipalities’ use of zoning as a “pretext”to regulate oil and gas drilling, likening the bans instead to “regulation.”
Over 70 local fracking bans have already been passed in New York, along with several dozenfracking “moratoriums.”
The decision to uphold these bans creates additional risk for drillers in New York, with the potentialfor acquiring mineral rights that may become worthless in the event of a local ban. To overturn thebans, drilling operators would need to ask the legislature to revise New York’s oil and gas laws tospecifically preempt local zoning laws.
Additional coverage of this story can be found here, here, and here.
Comment
Tags: Fracking, Hydraulic Fracturing, New York
Loveland Voters Reject Two-Year Ban On FrackingBy Dan McClain on June 27, 2014
Posted in Colorado, Fracking, Hydraulic Fracturing
Loveland voters defeated an anti-fracking initiative that would have imposed a two-year moratoriumon hydraulic fracturing, or fracking, within the city’s borders. Loveland is located about an hour northof Denver.
The proposed ban on fracking failed by about 1,000 votes—with a tally of 9,942 votes in favor of themoratorium, and 10,844 against the measure, according to Loveland’s elections website.
Colorado cities that voted on fracking bans prior to Loveland–Longmont, Boulder, Fort Collins,Lafayette and Broomfield–all approved restrictions on hydraulic fracturing. Several of these voter-approved bans have been taken to court, and the state has a legal case pending against Longmont,which, in 2012, became the first city in Colorado to approve a ban. The Loveland decision appears todull the prospects of a statewide ban.
B.J. Nikkel, the director of the Loveland Energy Action Project, considers the Loveland decision aturning point in Colorado. Nikkel credits the victory to an unprecedented coalition of citizens and civicleaders that came together to take a stand against a pernicious ban. Nikkel attributed the Lovelandresults to voters being informed, stating “Loveland serves as a great example that when votersreceive the right information and encouragement they see through the activists’ deception and feartactics.”
Notwithstanding the result, opponents of hydraulic fracturing in Colorado remain confident their effortswill ultimately succeed. Nick Passante, spokesman for Coloradans for Safe and Clean Energy, viewsthe Loveland result as a small skirmish leading up to a larger battle. According to Passante, “[t]he [oil
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Ground Water Protection Council
FracFocus
and gas] industry should certainly be running scared as we head towards the ballot in November, topass clear and decisive measures in support of sensible setback limits and responsible protections forColorado families”.
Following the Loveland decision, Colorado Governor John Hickenlooper stated that negotiations werecontinuing on the possibility of calling lawmakers back to Denver for a special session to addressfracking-related ballot initiatives that are being circulated for the November election. The lawmakerswould consider a bill aimed at stalling potential statewide ballot measures.
Regardless of how the energy debate in Colorado is resolved, whether at ballot boxes or thelegislature, it is clear that decisions regarding the future of Colorado’s “energy economy” areimminent. There is little doubt that these decisions could have significant impacts on Colorado’seconomy. In addition, burgeoning shale-rich states which are supportive of hydraulic fracturing will nodoubt look to attract investment from oil and gas companies currently operating in Colorado in theevent hydraulic fracturing is banned or severely restricted.
For further coverage:
“Loveland voters’ rejection of fracking ban is seen as victory in Colorado battle” (Denver BusinessJournal)
“Voters reject Loveland fracking moratorium” (Denver Post)
“Fracking vote doesn’t end special session talk” (Denver Post)
Comment
Tags: anti-fracking, Colorado, Hydraulic Fracturing, Loveland
California Issues Proposed Fracking RulesBy Andrew Doggett on June 23, 2014
Posted in California, Fracking
On June 13, the California Department of Conservation released proposed regulations for oil and gasproduction activities in the state. The draft rules are being issued pursuant to legislation passed lastyear. They would replace interim rules that have been in place since the beginning of the year. Theregulations, which are now subject to a 45-day notice and comment period, apply to productionactivities on both land and water.
If approved, the draft rules would introduce new requirements addressing a wide-range of fracking-related issues. For instance, the regulations introduce new standards for calculating the amount ofacid used in wells, shifting from a concentration-based measurement system to a volume-basedthreshold. Oil and gas producers also would be subject to more rigorous notification and monitoringobligations. The rules call for drillers to provide written notice, in both Spanish and English, toadjacent landowners, informing them of their right to have local waters tested prior to and followingdrilling operations. Moreover, drillers would be obligated to monitor seismic activity at well sites whilefracking activities are in progress and for 10 days after production ends. Any earthquakes at a siteregistering at 2.0 or higher on the Richter scale would need to be reported to the state.
California’s Conservation Department released the proposed rules in response to nearly 150,000comments it received concerning similar draft regulations released last year. Department DirectorMark Nechodom explained, “There are significant differences between the version [of the rules]released last November and this revised version, thanks in no small part to some helpfulrecommendations received during the initial public input process, as well as extensive consultationwith other regulatory agencies.”
Oil and gas industry interest groups have come out in support of the revised regulations. Catherine
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Reheis-Boyd, President of the Western States Petroleum Association, said the rules appear “to be inline with the conservation department’s . . . commitment to transparency and collaboration with theindustry and the public.”
We will keep you updated as new developments emerge.
For additional coverage, click here, here, and here.
Comment
Tags: California, California Department of Conservation, Fracking
Oil and Gas Companies Ask Colorado Supreme Court toApprove Trial Court Order Requiring Plaintiffs to PresentPreliminary Evidence of Their Claims Before Engaging inFull DiscoveryBy Justin Winquist on June 23, 2014
Posted in Colorado, Fracking
On June 18th, Antero Resources Corp., Antero Resources Piceance Corp, Calfrac Well ServicesCorp, and Frontier Drilling LLC filed their Opening Brief before the Colorado Supreme Court in a “toxictort” case concerning fracking operations in Silt, Colorado. The plaintiffs in the case, landowners inSilt, claim that the defendant companies’ operations caused contamination of their property and thatthey suffered “physical and personal injuries.” Before the plaintiffs filed suit, the Colorado Oil and GasConservation Commission conducted an investigation of the plaintiffs’ complaints of contaminationand issued a report finding no evidence of contamination due to oil and gas operations.
After the parties served their initial disclosures (a mandatory exchange of key information early in thecase), the defendant companies argued to the trial court that the plaintiffs’ allegations were vagueand unsupported by information in their initial disclosures. Based on these deficiencies in the plaintiffs’case, the defendant companies asked the trial court to issue a modified case management orderrequiring the plaintiffs to present evidence of their alleged injuries before beginning complex andexpensive discovery. The trial court agreed with defendants and directed the plaintiffs to provideprima facie (i.e., preliminary) evidence, supported by expert analysis, to back up their allegationsbefore the parties engaged in discovery. Such orders are typically referred to as “Lone Pine” orders—named after the New Jersey case that created the procedure. After the period of time set by the trialcourt for the plaintiffs to proffer evidence of their claims, the defendants moved to dismiss the casearguing that the evidence put forth was insufficient. The trial court agreed and dismissed the case.
The plaintiffs appealed the dismissal of their case to the Colorado Court of Appeals, which reversedthe trial court concluding that Lone Pine orders “are not permitted as a matter of Colorado law.” TheCourt of Appeals reasoned that Colorado Supreme Court precedent prohibited trial courts fromrequiring plaintiffs to make a preliminary showing of exposure, causation, and injury before having thebenefit of full discovery.
The companies then appealed the Court of Appeals’ reversal to the Colorado Supreme Court, whichagreed in April to hear the case. The companies’ Opening Brief urges the high court to rule that trialcourts are within their discretion to manage the discovery process when they order parties to make apreliminary Lone Pine showing of evidence supporting their case.
The outcome of this case is important for all oil and gas companies operating in Colorado becauseLone Pine orders provide companies with an effective tool for disposing of meritless litigation prior toincurring the significant expenses associated with modern discovery, and e-discovery in particular.
Additional coverage
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Comment
Tags: Colorado, Fracking, Lone Pine orders, Silt
New York State Assembly Passes Three-Year FrackingMoratorium – Senate Vote UnlikelyBy Daniel Kavouras on June 19, 2014
Posted in Fracking, Hydraulic Fracturing, Legislative, Marcellus Shale, Natural Gas, New York
On Monday, the New York State Assembly voted 89-34 in favor of a three-year statewide moratoriumon hydraulic fracturing. But with the legislative session ending in just a few days, the Senate appearsunlikely to take up the bill, rendering the vote largely symbolic.
Speaker Sheldon Silver emphasized the need for caution in exploring New York’s natural gasdeposits.
“We have heard from thousands of residents across the state about many issues associated withhydrofracking, and prudent leadership demands that we take our time to address all these concerns,”said Silver. “The natural gas deposits within the Marcellus Shale are not going to go anywhere.”
Hydraulic fracturing has been stalled in New York for over five years while the state continuesstudying the environmental and health effects of the practice. Governor Andrew Cuomo has comeunder fire for what some believe are politically-motivated delays in issuing final environmental rulings.
In fact, a group of landowners—the Joint Landowners Coalition of New York—has sued New York forillegally delaying a final decision on hydraulic fracturing, alleging both administrative law andconstitutional takings claims. The Assembly bill could essentially moot those claims, at least until2017.
A large number of municipalities within the state have enacted their own fracking bans. But the NewYork Court of Appeals is now considering whether those bans are preempted by state law.
Additional news coverage can be seen here, here, and here.
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Aubrey McClendon’s American Energy Partners LPAnnounces Agreements to Purchase over $4 Billion ofShale Acreage in Utica, Marcellus, and the PermianBasin.By Emily Myers on June 12, 2014
Posted in Marcellus Shale, Ohio, Shale, Texas, Utica Shale, West Virginia
In two press releases Monday, American Energy Partners LP announced agreements to purchaseshale acreage in the Utica and Marcellus shale for $1.75 billion, and acreage in the Permian Basin inTexas for $2.5 billion. The deals are expected to close in the next 60 days.
American Energy Partners CEO Aubrey McClendon formed the company last year with financial
Defendant/Appellants’ Opening Brief
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backing from First Reserve Corp. and the son of retired Exxon CEO Lee Raymond. McClendon wasousted from his position as CEO of Chesapeake Energy Corp. last year due to “philosophicaldifferences” with the board of directors. During his tenure at Chesapeake Energy, which he co-founded in 1990, he aggressively built the company’s shale portfolio. McClendon has raised $10billion for American Energy Partners in the last nine months, and is now running five closely heldaffiliates, each focused on drilling in distinct locations. To date, American Energy has acquired orannounced deals to acquire drilling rights on about 400,000 acres, equivalent to 3 percent ofChesapeake’s 12.79 million acres.
Affiliate American Energy – Utica LLC (AEU) will acquire 27,000 acres in Monroe County, Ohio.American Energy – Marcellus LLC (AEM), another American Energy Partners affiliate, will purchase48,000 acres in West Virginia counties bordering Ohio. The Ohio acreage is expected to produce 40million cubic feet of natural gas equivalent per day. The West Virginia acreage is expected to produceapproximately 135 million cubic feet of natural gas equivalent per day. The two affiliates purchasedthe land from East Resources, Inc., and another undisclosed seller. The sellers are currently usingtwo rigs to develop the acreage that is being acquired, and AEU and AEM plan to increase operateddrilling activity to 4-6 rigs by year end 2015.
This is American Energy Partners’ seventh major acquisition in Utica, and it now holds approximately280,000 acres – the largest leasehold position in Utica. The company has invested over $3.5 billion inUtica, and plans to drill 1,600 wells. In 2012, the U.S. Geological Survey estimated that the Uticashale contains 38 trillion cubic feet of undiscovered, technically recoverable natural gas, with a meanof 940 million barrels of unconventional oil resources and a mean of 208 million barrels ofunconventional natural gas liquids. The Ohio Department of Natural Resources approved 32 newshale permits last week. To date, Ohio has approved 1,312 Utica shale permits, with 904 wells drilledand 467 in production. Ohio currently has 40 working rigs.
The Texas deal is American Energy Partners’ first acquisition in the Permian Basin. The PermianBasin has been producing oil since the 1920s, and is in the midst of a new drilling boom. AmericanEnergy – Permian Basin, LLC (AEPB) signed an agreement to acquire approximately 63,000 acres ofleasehold in the southern Permian Basin in Reagan and Irion Counties. AEPB purchased theleasehold from affiliates of Denver-based Enduring Resources LLC for $2.5 billion. The property isexpected to have a net production of 16,000 barrels of oil equivalent per day. The seller, an affiliate ofEnduring Resources LLC, is currently operating four rigs in the area. AEPB said it plans to increaseoperated drilling activity to six to eight rigs by the end of 2015.
Comment
Drought Conditions Cause Eagle Ford Operators to FindWastewater Recycling SolutionsBy Justin Scott on June 9, 2014
Posted in Hydraulic Fracturing, Texas, Water
Amidst what the National Drought Mitigation Center has classified as abnormal to severe droughtconditions, operators in Texas’ Eagle Ford Shale formation are taking steps to increase their ability torecycle wastewater generated during hydraulic fracturing operations. Bruce Bullock, director of theMaguire Energy Institute at Southern Methodist University’s Cox School of Business, estimates thatwithin five years Eagle Ford operators will be able to recycle half of the wastewater generated duringthe fracking process. Current estimates place the wastewater recycling rate at 30 percent, up fromjust 1 percent five years ago. “Water is becoming a precious resource,” says Bullock. “As it does, itwill become more and more economical for companies to recycle.”
In early May, Austin-based oilfield services provider Pinnergy Ltd. and Austin-based water-recyclingcompany Shalewater Solutions launched a joint venture to provide water-management services tooperators in U.S. shale plays, particularly in the Eagle Ford.
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The Pinnergy-Shalewater joint venture follows on the heels of Nuverra Environmental Solutions’announcement that it was purchasing 180 acres in South Texas to develop a facility to collect, treatand recycle liquid and solid waste from Eagle Ford wells. Some companies, including Houston-basedEnergy Water Solutions, have sought to address the wastewater issue by deploying a squadron ofmobile wastewater recycling units to Eagle Ford well sites.
“The oil and gas industry is really going to continue to move the meter on water recycling,” saysBullock. “It’s just a question of how fast they do it.”
Media Coverage Resources:
“Eagle Ford may recycle half of its wastewater within five years”:
“New joint venture targets water disposal in the Eagle Ford”:
“Nuverra buying South Texas site for Eagle Ford waste treatment”:
“Energy Water Solutions recycling well wastewater for EP Energy”:
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D.C. Circuit Tells EPA Its Policy on Aggregating Sourcesfor Clean Air Act Permitting Violates EPA’s OwnRegulationsBy Thomas Hogan and Peter Whitfield on June 5, 2014
Posted in Air Emissions, EPA Issues, Legislative, Oil and Gas, U.S. EPA
Following a ruling by the D.C. Circuit, EPA may no longer consider interrelatedness in determiningadjacency when making source determination decisions in its Title V or New Source Reviewpermitting decisions under the Clean Air Act. The decision, which vacates EPA’s policy directiveApplicability of the Summit Decision to EPA Title V and NSR Source Determinations (Dec. 21, 2012)(the “Summit Directive”), is National Environmental Development Association’s Clean Air Project v.EPA, No. 13-1035 (D.C. Cir. May 30, 2014). The ruling is significant to the oil and gas industrybecause EPA has been trying to aggregate well fields and processing facilities together for permittingpurposes.
Pursuant to EPA’s Clean Air Act regulations, multiple pollutant-emitting facilities are considered to bea single stationary source if they are, among other things, “adjacent.” See 40 C.F.R. §§ 71.2,52.21(b)(5)-(6). EPA made adjacency determinations based not only on the physical distancebetween two or more facilities, but also on the functional interrelationships of the facilities. This policywas rejected by the Sixth Circuit in Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012),which held that a natural gas plant and associated wells could not be considered one source underTitle V purely based on functional relatedness.
In response to the Sixth Circuit’s ruling, EPA issued the Summit Directive, stating that it would notfollow the Sixth Circuit’s ruling in states outside the Sixth Circuit’s jurisdiction. The Summit Directivewas subsequently challenged in the D.C. Circuit, where the Petitioner argued EPA put facilitiesoutside of the Sixth Circuit at a competitive disadvantage by establishing inconsistent permit criteriaapplicable to different parts of the country. The EPA argued that neither the Clean Air Act nor EPAregulations require it to ensure national uniformity in response to a judicial decision.
The D.C. Circuit vacated the Summit Directive. In doing so, the court did not reach the question of“whether the [Clean Air Act] allows EPA to adopt different standards in different circuits” because it
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was clear that EPA’s own regulations – specifically, its “Regional Consistency” rule – require suchuniformity. This rule states that EPA’s policy is to “[a]ssure fair and uniform application by allRegional Offices of the criteria, procedures, and policies employed in implementing and enforcing theact” and to “[p]rovide mechanisms for identifying and correcting inconsistencies by standardizingcriteria, procedures, and policies being employed by Regional Office employees.” 40 C.F.R. §56.3(a), (b). The D.C. Circuit found that by issuing the Summit Directive, the EPA clearly violated itsRegional Consistency rule, stating that “EPA was obligated to respond to the Summit Petroleumdecision in a manner that eliminated regional inconsistency, not preserved it.”
The D.C. Circuit did not address whether EPA could properly aggregate emissions from multiplefacilities. In fact, the court suggested that EPA could revise its regulations to allow for suchaggregation. Until EPA revises or replaces its Regional Consistency rule, however, EPA is precludedfrom considering multiple facilities to be a single source based solely on functional interrelatedness.
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Brad Holly Vice President, Operations Rocky Mountain Region Anadarko Petroleum Corporation Mr. Holly was named Vice President of Rocky Mountain Operations in May 2013. Mr. Holly is responsible for Anadarko’s oil and natural gas production and development activities throughout Colorado, Wyoming and Utah. Previously, he served as Anadarko’s Vice President, Southern and Appalachia Operations overseeing the companies operating activities in Louisiana, Oklahoma, Ohio, Pennsylvania and Texas. Mr. Holly began his career in 1994 with Amoco, joining Anadarko in 1997. During his 20 years of experience, Mr. Holly has held positions of increasing responsibility in onshore and offshore engineering and management. He has served as General Manager of Anadarko’s Greater Natural Buttes area in eastern Utah and the Maverick Basin, which includes the Eagleford Shale development in southern Texas. Prior to that, he served as Reserves and Planning Manager for the Southern and Appalachia region and was a reservoir engineer and development supervisor on Anadarko’s Marco Polo and K2 developments in the deepwater Gulf of Mexico.
Mr. Holly holds a Bachelor of Science in Petroleum Engineering from Texas Tech University. Currently, he serves on the Industry Advisory Board for the Texas Tech Petroleum Engineering Department, the Executive Committee of the Colorado Oil & Gas Association (COGA) and the Advisory Committee for Coloradans for Responsible Energy Development (CRED). Mr. Holly also is a member of the Society of Petroleum Engineers.
Mark R. Williams Senior Vice President, Exploration and Development Whiting Petroleum Corporation Mark R. Williams is Senior Vice President of Exploration and Development at Whiting Petroleum Corporation where he is responsible for the company’s upstream activity and capital budget, overseeing its efforts in identifying, quantifying and developing unconventional oil reservoirs. During his 30 year tenure, he has led Whiting’s efforts in the discovery and development of the Bakken in North Dakota and the Niobrara in Northeastern Colorado. He holds a Bachelor’s Degree in geology from the University of Utah and a Master’s Degree in geology from the Colorado School of Mines. His primary areas of technical expertise include sedimentology, stratigraphy, hydrocarbon systems, geophysics and petroleum economics. He has published and served in leadership positions in the AAPG, RMAG, SEG and SEPM.
Matt Most Vice-President, Government Relations USA Encana Oil & Gas (USA) Inc.
As Vice President of Government Relations, Matt’s team is responsible for key U.S. policy initiatives and governmental relationships for Encana Oil and Gas, Inc.
Previous to leading the Government Relations team, Matt led Encana Natural Gas, Inc., providing compressed and liquefied natural gas fueling solutions to a variety of industries.
Matt joined Encana in 2010 from Edison Mission Energy where he was Managing Director of Environmental Policy and Strategy. Prior to that role, he served as Director of Emissions and Fuels for Edison Mission Marketing & Trading. He also served as Chairperson of the Environmental Markets Association for three years and as Director for five years.
Matt holds a Bachelor’s degree from Clark University in Environmental Science and a Master of Business Administration from Babson College.