Fracking Fraying at Edges

August 28, 2013

The little-questioned assumptions at the heart of the Business-as-usual model for energy development, are that “we are the Saudi Arabia of coal”, and there are “hundreds of years of natural gas” available for us to exploit.  I’ve posted recently on the slow fade of the coal industry,  and the “cheap natural gas” myth – but the story continues.
The realization is slowly dawning that we need to develop greater efficiency and renewables, not because it would be nice and “green”, but because that is the only way to maintain our civilization.

Bloomberg:

Oil companies are hitting the brakes on a U.S. shale land grab that produced an abundance of cheap natural gas — and troubles for the industry.

The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price, according to analysts.

The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. The decline has pushed acquisitions of North American energy assets in the first-half of the year to the lowest since 2004.

“Their appetite has slowed,” said Stephen Trauber, Citigroup Inc.’s vice chairman and global head of energy investment banking, who specializes in large oil and gas acquisitions. “It hasn’t stopped, but it has slowed.”

North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.

Grist reports on the impact fracking wells are having on real estate in heavily drilled areas.

When it comes to the real estate market in Bradford County, Pa., where 62,600 residents live above the Marcellus Shale, nothing is black and white, says Bob Benjamin, a local broker and certified appraiser. There aren’t exactly “fifty shades of grey,” he says, but residential mortgage lending here is an especially murky situation.

When Benjamin fills out an appraisal for a lender, he has to note if there is a fracked well or an impoundment lake on or near the property. “I’m having to explain a lot of things when I give the appraisal to the lender,” he says. “They are asking questions about the well quite often.”

And national lenders are becoming more cautious about underwriting mortgages for properties near fracking, even ones they would have routinely financed in the past, Benjamin says.

That’s a real problem in Bradford County, where 93 percent of the acreage is now under lease to a gas company.

Local banks are still lending because they have to if they want the business in the county, according to Benjamin, who has been involved in the area’s real estate market since 1980. But, he says, “The big boys, Wells Fargo and the other banks are probably pretty similar, they are going to protect their butt.”

Lawyers, realtors, public officials, and environmental advocates from Pennsylvania to Arkansas to Colorado are noticing that banks and federal agencies are revisiting their lending policies to account for the potential impact of drilling on property values, and in some cases are refusing to finance property with or even just near drilling activity.

Real estate experts say another problematic trend is that many homeowners insurance policies do not cover residential properties with a gas lease or gas well, yet all mortgage companies require homeowners insurance from their borrowers.

“Well, that is a conflict,” says Greg May, vice president of residential mortgage lending at Ithaca, N.Y.-based Tompkins Trust Company.

And don’t count on  becoming a Jed Clampett-style millionaire off the gas lease on your back 40.

ProPublica via InsideClimate News:

Don Feusner ran dairy cattle on his 370-acre slice of northern Pennsylvania until he could no longer turn a profit by farming. Then, at age 60, he sold all but a few Angus and aimed for a comfortable retirement on money from drilling his land for natural gas instead.

It seemed promising. Two wells drilled on his lease hit as sweet a spot as the Marcellus shale could offer—tens of millions of cubic feet of natural gas gushed forth. Last December, he received a check for $8,506 for a month’s share of the gas.

Then one day in April, Feusner ripped open his royalty envelope to find that while his wells were still producing the same amount of gas, the gusher of cash had slowed. His eyes cascaded down the page to his monthly balance at the bottom: $1,690.

Chesapeake Energy, the company that drilled his wells, was withholding almost 90 percent of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why.

“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”

An analysis of lease agreements, government documents and thousands of pages of court records shows that such underpayments are widespread. Thousands of landowners…are receiving far less than they expected based on the sales value of gas or oil produced on their property. In some cases, they are being paid virtually nothing at all.

In many cases, lawyers and auditors who specialize in production accounting tell ProPublica energy companies are using complex accounting and business arrangements to skim profits off the sale of resources and increase the expenses charged to landowners

clampett

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5 Responses to “Fracking Fraying at Edges”

  1. daryan12 Says:

    Sounds like shale gas is going to be the next sub prime bubble.

    Maybe not as spectacular a collapse, but still the usual chase the end of the rainbow pot of gold fad.

    Its a pity these stories don’t make it onto the news in the UK, as it might make people think twice about allowing shale gas drilling in their area.


  2. Shale gas is one of the many “unconventional” fossil fuels we are now consuming now that conventional oil has peaked. This should be fairly predictable. Exponential growth driven by a compound interest economy results in a series of Hubbert’s peaks. What we experienced before was wind and water power, wood burning power, coal, then oil. Each time the replacement power source allowed compound growth to continue. The difference now is that the replacement power sources cannot maintain that compound growth. The economics reflect the increasing effort required to obtain diminishing resources. The net effect: recession. Shale gas, like tar sands, deep ocean drilling, etc. were clearly recognized as being lower quality energy sources than conventional oil. This is reflected in their higher costs and their higher EROI. Following the math of compound growth in Hubbert’s curve, we will see a bell shaped curve. We are seeing in the beginning, a massive drop in price. However shale gas requires drilling new wells every three years just to maintain a fixed production level.
    http://oilprice.com/Energy/Natural-Gas/Has-the-Shale-Gas-Boom-Already-Ended.html
    Its easy to see why this “boom” is having trouble sustaining itself. It is a an expensive replacement for the cheap oil of the past. There is some CNG transport to absorb its benefit, but we do not have national fleets of CNG cars yet, either.

  3. Rick Spung Says:

    the only reason why this is occurring is because so much natural gas flooded the market all at once, lowering the price from about $6 to about $4. the appetite has not slowed. the production overwhelmed existing appetite.

    however, the market will tighten again when two things happen- coal-fired utility plants are converted to natural gas and liquefied natural gas exporting starts up. both things are already happening, slowly. the next few years will see massive increases in both.

    fracking is here to stay. natural gas is here to stay. natural gas is the cheapest form of energy and fracking has put America on the road to energy independence faster than anyone could have imagined a decade ago.

    thank god for American ingenuity!


  4. I’m looking for natural gas to rise significantly over coming years. That rise should start within a few weeks. There are two reasons for the rise in natural gas prices: (1) the first cause of the rise will be supply/demand, (2) the second rise will be the “discovery” that fracked natural gas has two major drawbacks(first…it is awful for the water supply, and second…..in it horrible for climate change).

    Everyone without rose colored glasses…..knows both drawbacks to fracked natural gas. But first……demand will moderately push up the price as more LNG is shipped overseas.

    The year 2013/2014 move up in price from the DEMAND SIDE should start within weeks. The move up in price due to the issues with fracked natural gas being awful for the environment (poisoning water supply and increasing global warming) is now known by scientists as well as anyone who doesn’t watch FOX. But as the weather and oceans continue to warm…..it will be impossible to ignore. More of “that” will be happening over the coming year(s). THAT….will REALLY jack up the price of natural gas……and send more money into alternative energy.

    • Rick Spung Says:

      every investigation of fracking has shown it to be safe for drinking water. josh fox lied about every piece of evidence he showed in his films.

      natural gas prices will stay low (unfortunately for suppliers) because fracking is spreading all over the world, increasing output. and the Obama administration has finally decided to let American producers export lpg, which will further lower prices outside the us.

      and global avg temps haven’t increased in almost 17 years. there is no “warming”.


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