Friday, March 8, 2013

UK Fracking: A Safe Regulatory Environment?

UK Fracking: A Safe Regulatory Environment?

Hydraulic fracturing operations are back on in the UK after the country's government declared in early December that it had lifted a temporary ban on the practice. But the controversy surrounding the safety of shale gas fracking has not gone away despite the announcement from the Chancellor of the Exchequer that the Department of Energy and Climate Change would establish an Office for Unconventional Gas and Oil.

The news was followed in January by an announcement from Cuadrilla Resources that it plans to submit a planning application to Lancashire County Council, in northwest England, to conduct hydraulic fracturing and flow testing at a well site near the village of Banks. In December, Rigzone reported that the British Geological Society believes shale deposits in the Bowland Basin area of Lancashire could amount to 300 trillion cubic feet of gas.

One of the conditions for the UK government's relenting over shale gas fracking was that it would be subject to new controls to mitigate the risks of seismic activity.

Fracking was originally suspended in the UK in May 2011 after two small seismic tremors were detected in Lancashire near what was then the country's only fracking operation.

As a result, companies planning to carry out hydraulic fracking must now:

Conduct a prior review before fracking begins to assess seismic risk and the existence of faultsSubmit a fracking plan to the Department of Energy and Climate Change (DECC) showing how seismic risks will be addressedCarry out seismic monitoring before, during and after fracking

The government also insists that a new traffic light system is employed to categorize seismic activity and direct appropriate responses, with a trigger mechanism being used to stop fracking operations in certain conditions.

Cuadrilla, meanwhile, appears to be taking the seismic issue very seriously. Late January, the company announced plans to install the same sensitive monitoring technology around its Anna's Road site that the company had already installed at the Banks site last year.

However, the new focus on monitoring seismic activity connected to fracking is not nearly enough to make the practice safe, according to several groups. As soon as the government decision to allow fracking was made in December, Friends of the Earth Executive Director Andy Atkins issued a statement in which he accused the government of being reckless and that the decision "threatens to contaminate our air and water".

Greenpeace UK added that Freedom of Information requests had revealed that the UK Environment Agency privately expressed fears to the government over threats to drinking water near proposed fracking sites in Sussex, England.

Greenpeace and Friends of the Earth are two organizations fundamentally opposed to any technology that will see an increased use in fossil fuels – even if it means the increased use of natural gas (which is cleaner in terms of carbon emissions than oil and coal). But there are other voices, friendlier to the oil and gas industry, who believe that the government has got it wrong when it comes to its approach to fracking.

Mike Hill, an engineer who lives in the area where Cuadrilla is carrying out its fracking operations, has been lobbying the UK government for a more rigorous approach to regulating the activity. Having worked in the oil and gas sector himself, and now a director of Gemini Control & Automation, he takes a more sober view of fracking but wants to see operations thoroughly checked to ensure it is done safely.

"I got involved in this about two years ago simply because, when I heard that fracking was coming to the UK, I knew that if it is not regulated properly the risks are fairly high," he told Rigzone in a recent interview.

After getting in touch with the UK's Health and Safety Executive (HSE) and the Environment Agency two years ago, Hill expected these bodies to be "very hot" when it came to regulating fracking.

"I was really expecting that was going to be the case but the responses I got at the time… were absolutely atrocious. It was breathtakingly complacent. Well, breathtakingly complacent from the HSE and, quite frankly, incompetent from the Environment Agency," he said.

"They didn't know what they were talking about. They don't understand oil and gas. They've never had to with [UK] oil companies being offshore and out of their scope and remit."

A key criticism Hill has is that these agencies – which are charged with health and safety, as well as environmental protection, in the UK – have been approaching the practice of fracking "with an offshore bent".

While acknowledging that the UK has sufficient regulations to ensure that its offshore oil and gas sector cannot cause another Deepwater Horizon or Exxon Valdez disaster, Hill believes that the problem with applying these same regulations onshore is that they do not take the public into account.

"There is no public offshore," he said.

"Cuadrilla is fracking 250 meters [820 feet] from the largest housing estate in Lytham St. Annes, with 2,000 homes on it. There is a public – a big one. And you can't ignore that fact."

"I live in the fracking zone. My kids live in the fracking zone. If this [activity] is properly regulated, I've no issue with it. I am not anti-fracking at all. But if you don't regulate this industry properly, introduce some specific onshore shale gas exploration regs and do proper inspections, then I do have a problem with it."

Hill, who has met with various government advisers involved with fracking (as well as Cuadrilla itself) several times during the past two years, has made it clear to them that he feels the offshore regulations developed in the 1990s, (following the North Sea’s Piper Alpha disaster in 1988) are not sufficient to address the issues with onshore drilling, exploration and production.

He wants to see regulations that cover the quality of cement used in onshore drilling, including onsite sampling and laboratory testing, along with several other regulations that will cover good safety practices such as: surface methane detection, post tremor actions, publication of which fracking chemicals are used at each well and the storage and disposal of flow-back water.

Hill also insists that well site inspections should be required and that they be random so that the Environment Agency or Health and Safety Executive can go and check which chemicals are being put down shale fracking wells "because, believe it or not, they don't check".

"You've got to have independent regulation. You can't just rely on self-regulation because, when push comes to shove, this is a very expensive business and if [a company] gets an issue that's going to cost it, say, three million pounds to resolve, or they can do it for 30,000 but in a slightly naughty manner, which option is it going to take when it knows categorically that no-one is inspecting and it absolutely won't be caught out? These are private companies that are there to make a profit."

The HSE confirmed to Rigzone that it made an inspection visit to Cuadrilla's Preese Hall and Grange Hill sites in March 2011 and that, as part of its well notification process, it has held six "inspection meetings" with Cuadrilla at both the firm's offices and at the HSE's own offices. The body also insists that it has well inspectors who "maintain regular contact" with Cuadrilla so that they are kept up to date with shale gas operations.

The HSE also made the point that well site visits, whether planned or unannounced, "can be of very limited value on their own in assessing well integrity and the management of well risks". Instead, it said that given the complexity of oil and gas wells "the key to well integrity inspection is to ensure that the operator is managing risks effectively throughout the life cycle of the well".

Hill is sticking to his guns, however, and believes a set of onshore drilling proper regulations are required to prevent a major incident.

"I think unless that happens we are going to have some sort of disaster at some point in time – our own version of Gaslands. There will be a public outcry and shale gas will then be banned in the UK. So we won't get that shale gas out of the ground and the UK won't benefit from the energy security it would provide."

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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Gulfport Energy Buys More Utica Shale Acres from Windsor Ohio

Gulfport Energy Corp. agreed to acquire another 22,000 net acres in the Utica Shale in Eastern Ohio from Windsor Ohio LLC for about $220 million as the oil-and-natural-gas producer continues to boost its presence in the shale basin.

The Utica Shale, which stretches through Ohio and Pennsylvania, is a relatively new and very promising shale basin that consists of a potentially significant liquids-rich gas source.

Gulfport paid about $300 million in December to take over 37,000 net acres in the Utica Shale from Windsor Ohio LLC, an affiliate of the Greenwich, Conn., hedge fund Wexford Capital LP.

Gulfport said the latest deal, which should close by the end of the month, will increase its working interest in the acreage to 93.8%.

The company also said it plans to fund the transaction with a public offering of 7.75 million common shares.

Gulfport reported in November its third-quarter profit slumped 98% as it logged a $15.5 million income-tax expense related to its oil and natural-gas interests in the Permian Basin.

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Private Sector Plays Bigger Role In China Energy Sector

BEIJING - Privately-held enterprises are playing a bigger role in China's energy sector, which has been long dominated by state-owned businesses, a report Sunday from state-run Xinhua news agency said.

Data from the China Petroleum and Chemical Federation showed 32 private enterprises had entered China's oil mining industry by August 2012, as well as nine in the natural-gas sector and 64 in commercial activities related to oil and gas exploitation, it said.

The higher profile of the private sector came after the State Council issued new guidelines in May 2010 to encourage private investment in the industry, a report this weekend by China National Petroleum Corp. said.

Some 877 private enterprises are involved in processing of crude oil and oil-related products, including 50 privately-owned refineries, with a combined capacity accounting for 7.1% of the country's total, the Xinhua report said.

Six private enterprises were included in the national strategic oil reserve storage system for the first time in 2011, it added.

Copyright (c) 2012 Dow Jones & Company, Inc.

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FairWest CEO Resigns

FairWest Energy Corporation announced that Vernon R. Fauth has resigned as the Chairman and Chief Executive Officer and as a director of FairWest effective Friday, February 8, 2013. FairWest extends its thanks to Mr. Fauth for his service to the Company and wishes him all the best in his future endeavours.


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Enegi in New Farm-Out Deal with Azimuth

Enegi Oil announced Monday that it is farming out part of Block 22/12b in the UK North Sea to Azimuth Limited. The block contains the Phoenix discovery, while its remaining acreage is made up of potential exploration opportunities.

Azimuth will earn a 50-percent interest in the exploration area in exchange for the completion of an agreed work program that includes certain geological, geophysical and reservoir analysis. This analysis will use existing seismic and well data in respect of both the Phoenix area and the exploration area that Azimuth currently possesses. Enegi, and its partner ABTechnology, will retain a 100-percent working interest in the Phoenix area.

Block 22/12b is located in the Forties-Montrose High area of the central North Sea. The license was awarded to Enegi in the 27th Seaward licensing round for the UK Continental Shelf in October 2012.

Enegi CEO Alan Minty commented in a statement:

"This is the second farm-out agreement that we have completed with Azimuth and we are delighted to be working with them and have access to their extensive exploration expertise on both our North Sea assets.

"Both deals are completely in line with our strategy of de-risking our portfolio whilst maintaining a significant interest in work programmes which we believe have the ability to deliver value to the Company for a minimal capital outlay."

On February 1, Enegi announced it had reached an agreement to farm out to Azimuth part of North Sea Block 3/23, which contains the Malvolio prospect.

A former engineer, Jon is an award-winning editor who has covered the technology, engineering and energy sectors since the mid-1990s. Email Jon at jmainwaring@rigzone.com.

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Oil & Natural Gas Net Profit Falls 17.5%

NEW DELHI - India's Oil & Natural Gas Corp. Monday said its third-quarter net profit fell 17.5%, hurt by state-mandated discounts given to government-run fuel retailers.

India's largest oil explorer by output said that its net profit for the October-December period shrank to 55.62 billion rupees ($1.04 billion) from 67.41 billion rupees a year earlier.

Sales rose 16% to 209.87 billion rupees from 181.24 billion rupees.

ONGC's year-earlier net profit was boosted by a one-time gain of 31.42 billion rupees.

At a press conference, ONGC Chairman Sudhir Vasudeva said net profit would have been higher by 72.70 billion rupees had the company not given discounts to fuel retailers.

He added that the company's net realization -- or the income on each barrel of oil -- rose to $47.97 from $44.71 a year earlier.

However, the cost of production climbed 18% to 141.62 billion rupees.

ONGC, like the country's other state-run explorer Oil India Ltd., is forced to give large discounts to fuel retailers Indian Oil Corp., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd..

The retailers are, in turn, made to sell diesel and cooking fuels at government-set discounted prices to help control inflation.

Apart from the discounts, the government also gives cash to the fuel marketing companies to offset part of their losses.

ONGC, which contributes just under two-thirds of India's local crude oil output, has been struggling to raise production. It hasn't been able to bring any new major fields into operation in recent years.

Copyright (c) 2012 Dow Jones & Company, Inc.

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Harvest Scores Another Success Offshore Gabon

Houston-based Harvest Natural Resources announced Monday that it has made another oil discovery in the pre-salt layer offshore Gabon, West Africa.

Harvest said the Dussafu Tortue Marin-1 (DTM-1) well, drilled in the Dussafu Marin production sharing contract, was initially drilled in 380 feet of water to a vertical depth of 11,260 feet. On January 4, Harvest announced an oil discovery in the pre-salt Gamba and Dentale reservoirs and that it planned to drill a sidetrack to appraise the extent of the Dentale oil discovery.

The Tortue oil discovery was appraised by drilling a sidetrack (DTM-1ST1) to the southwest to test the lateral extent and structural elevation of both the Gamba and Dentale reservoirs. The sidetrack was drilled to a total depth in the Dentale of 11,385 feet, 10,790 feet true vertical depth subsea and approximately 1,800 feet from the original wellbore.

The well found 65 feet of oil pay in the primary Dentale reservoir with better reservoir character and an apparent similar fluid level to that encountered in the vertical well, DTM-1, according to Harvest. The firm added that several other stacked sands with oil shows were encountered, but due to a stuck downhole tool logging operations in the sidetrack were terminated early before pressure data could be collected to confirm connectivity.

"This discovery is the 2nd consecutive discovery that Panoro has made in the Southern Gabon, the first being the Ruche discovery in 2011," stated Nishant Dighe, Africa president for Panoro Energy. "This is an important step forward for the pre-salt in Gabon, but it is too soon to conclude on the results on the Tortue discovery as the partners will now spend some time understanding the results."

Panoro Energy holds a 33.33% stake in Dussafu Marin through a subsidiary company.

The well will be suspended pending future appraisal and development activities and the rig will be released and demobilized.

Harvest said that reservoir and conceptual engineering studies are to start with the aim of evaluating the commerciality of the discovered oil in the Gamba and Dentale reservoirs at Tortue, as well as the firm's previous Ruche oil discovery and the nearby Walt Whitman and Moubenga oil discoveries to determine the optimum development options for the block.

Harvest commented that the addition of the Tortue oil discovery extends the proven fairway for stacked pre-salt reservoirs and has demonstrated the exploration potential for the outboard part of the Dussafu license.

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JKX Upgrades Elizavetovskoye Reserves

JKX Oil & Gas announced Monday that it has seen an upgrade to the remaining reserves for its Elizavetovskoye field near Poltava, Ukraine. The reserves have been revised upwards to 22 billion cubic feet of gas (3.7 million barrels of oil equivalent) with a further 22 million barrels of net prospective resources in the license.

JKX said the revisions have followed long-term testing of the legacy East Machesvska 53 (M-53) well under a joint production agreement (JPA) between JKX and the well owner and former operator of the field. The reserves revision is based on mapping and material balance data from the M-53 well and other wells on the field.

JKX acquired the Elizavetovskoye license in November 2004 and finalized the JPA for the three legacy wells on the license in late 2011. In April 2012, JKX restored the M-53 well to production and now receives 33 percent of the production from it. It currently flows at 2.7 million cubic feet of gas per day on a restricted choke.

The firm is now proceeding with a five-well development of the license, with the spudding of the first new well scheduled for middle of this year. First gas is anticipated in 4Q 2013.

JKX Chief Executive Dr Paul Davies commented in a statement:

"We are very pleased that the data collected from our joint activity with the Ukrainian state production company has demonstrated both the materiality of the 2P reserves and the significant prospective resources on our Elizavetovskoye licence."

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Eni CEO to Rethink Structure of Saipem Relationship

Eni CEO to Rethink Structure of Saipem Relationship

NEW YORK - Eni SpA is rethinking the structure of its relationship with oil-services provider Saipem SpA in light of a criminal inquiry into the company for alleged bribes of Algerian officials, Eni Chief Executive Paolo Scaroni said Monday.

"What has happened leads us to think again and look again at the situation," said Mr. Scaroni in response to a question about Eni's stake in Saipem. "There is nothing worse than having no control and full responsibility."

Last week Milan prosecutors placed Mr. Scaroni under investigation as part of the Saipem inquiry. Prosecutors are investigating whether Saipem, which is 43% owned by Eni, paid bribes to secure billions of dollars in natural-gas contracts over a period of years leading up to 2009, according to people familiar with the investigation.

Mr. Scaroni and representatives from Eni said that they believe he is being investigated due to a series of meetings he had with Algeria's oil minister Chekib Kheli. On three or four occasions, Mr. Scaroni said, Mr. Kheli was accompanied by Farid Bedjaoui, who was introduced to Mr. Scaroni as a "personal assistant."

On Friday, Reuters first reported that the investigation into Mr. Scaroni was based on meetings with Mr. Bedjaoui, who allegedly distributed bribes to win gas contracts in Algeria.

In a statement Thursday, Eni said "Eni and its CEO declare themselves totally unrelated to the object of the investigation."

Mr. Scaroni said Monday that he and the company are fully cooperating with authorities but Eni will not conduct its own internal probe.

"We have nothing to investigate," he said. He also said that he never discusses Saipem's business during meetings with customers or other business contacts.

"Saipem has always been managed hands off completely," he said.

Mr. Scaroni said he learned in November that Saipem had a brokerage agreement in place since 2007, which could allow intermediaries to be paid to help arrange contracts.

Eni, he said, "does not have any intermediation contracts, they are forbidden." He said that when he learned of Saipem's arrangements, he "acted immediately" by contacting the chairman of Saipem.

Copyright (c) 2012 Dow Jones & Company, Inc.

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