Archive Monthly Archives: March 2011

SherWare Blog gets a face-lift

If you’ve checked in with us this morning, you hopefully have noticed that our blog got a face-lift overnight. Yes, don’t worry. You are on the correct site. This is still SherWare’s oil and gas blog, just with a cleaner (and prettier, right?) look and an easier-to-use interface behind the scenes for people like me.

SherWare LogoWe’ve been pretty quiet on the blog this month as we’ve been in the process of switching it over and preparing for the topics we want to cover throughout the rest of the year. Here are some of the pieces we’re hoping to release in the next few months:

– What is oil and gas accounting software, really and is it even necessary? Thoughts and ideas from our clients on how it’s made a difference in their business and why they purchased.

– How can the industry help to change public opinion from the greedy big ol’ boys persona to a truer picture of a rapidly changing industry made up of both male and female who want to deliver energy to Americans at a lower cost and protect the environment at the same time?

– A day in the life of…. What happens behind the scenes in the industry when I get to work at various jobs in your shoes for a day.

– Investing in oil. How do you invest in oil, how many investors are there and a unveiling of our new Investment Manager software.

Thanks for continuing to read our blog!

Excitement soars for oil and gas industry in Ohio

A palpable excitement is growing in the industry and I don’t think its attributed to spring’s imminent arrival.

I spent last week at the Ohio Oil & Gas Winter Meeting in Columbus and the mood there was markedly different from last year. Gone were the overwhelming worries of companies folding and wells not being drilled, and gone were the pessimistic attitudes of what the future held. This year, there was pride and enthusiasm for growth in the industry, and excitement that most have had a better start this year than last.

OOGA LogoNow that’s not to say that the Ohio oil and gas producers and operators aren’t worried about money and politics this year. They are, but they are also optimistic about the future – a trend I think others nationwide are feeling as well.

As I sat at my booth and watched the more than 700-person crowd squeeze between the booths on their way to events and meetings, it felt like a family reunion of sorts. For the majority of people, this meeting is one of the only times operators and businesses meet up with others in the state each year. Familiar faces pass by or stop and say hello, and it’s nice to see how the year as changed, helped their business.

Here are some of my observations from watching and listening to those around me last week:

– The Utica Shale play, increasingly gaining exposure in Ohio right now, appears to be a game-changer for the state and those involved in drilling. Unlike the Marcellus Shale, which barely hovers on the eastern edges of the state, the Utica encompasses half the state and provides numerous opportunities for local businesses. This coincides with a recent article out of Dayton, Ohio, about how Ohio’s investments show the state could be part of an oil boom.

– Because the Republicans now control the State’s government, there is literally an excitement when those in the industry met with Senators and House leaders about changes the state will make to increase jobs, pay down the debt former Governor Ted Strickland left and once again make the state an ideal place for businesses to be.

– Those in Ohio’s industry realize that something has to change regarding public relations and hydraulic fracturing in order for the debate to end. Obviously those using the technique (which is almost everyone) care deeply about the environment and community they are working in, and understand the need is great to educate those in their reach how the process works and separate fact from fiction.

– Drilling is only going to continue to grow in the state and many companies are trying new and different things in light of the Utica shale discovery. Propositions and deals were floating through the air as clusters of the men I can affectionately describe as “Good Ol’ Boys” congregated, told stories of success and highlighted what the future would bring.

Despite political setbacks from the President’s lack of knowledge of how energy really works in the country to an uproar from politicians, environmentalists and ill-researched filmmakers about hydraulic fracturing, I think this will be a good year for the industry overall. What’s your take on 2011?

See you at the Ohio Oil & Gas Association’s Winter Meeting

Today we’re packing up around the office and preparing to head to the Ohio Oil and Gas Association’s Winter Meeting and Tradeshow in Columbus for the rest of the week. Of all the tradeshows that we attend throughout the year, this is the only one that I attend and I love it!

OOGA logoThe Association puts on an interesting meeting with presentations and meetings about the how the industry’s faring in the state, upcoming and pending legislation, economic outlook for the new shale prospects and education initiatives to spread the good word throughout the state. More than 500 producers, operators and accountants come from around the state for the 3-day event that features luncheons, networking opportunities, classes and the tradeshow.

Since we are based in Ohio, many of the people we see at the tradeshow are already clients so it’s a good chance for us to reconnect, get ideas for upcoming releases and answer questions in general.

If you’re interested in our oil and gas accounting software or if you’re a client already, please stop by our booth! We are at Booth #16 and would love to meet you. Mention that you check out the blog and we’ll give you a free 2GB USB drive to take home as well.

Hope to see you there!

An Inside Look: Fracturing Q&A with Oil and Gas Industry Leaders – 3

Here’s the last installment of the question and answer session with industry leaders on hydraulic fracturing. You can read the first and second parts here.

How would you explain why hydraulic fracturing is so important to the industry?

Hydraulic Fracturing q&AA: Cobb – “There would be a tremendous amount of oil and gas that would never make it to the surface without hydraulic fracturing,” he said. “The big area we’re talking about now is these shales. We’ve known for years and years like in the Marcellus that there is gas in those shales, but the thing of it is, you can drill a hole down in there and you can’t get it out. Small amounts come out but with these frac jobs, they are creating huge fractures through the shale and you’ve enhanced the recovery just thousands and thousands of fold.”

How can the industry prove to the media and environmentalists that hydraulic fracturing really  is safe?

A: Clute – You can’t unless they choose to believe it.

“The EPA has done studies and service companies like Halliburton have done studies on the process,” Clute said. “If no one chooses to believe it, how do you defend yourself? People can make all these allegations and because the oil and gas industry has such as bad reputation, for better or for worse, it’s indefensible.

“There are places where there are problems, or where they were having casing failures, but for the most part it’s pretty minimal.”

A: Talmage – “I think the safety record in 50-60 years of fracing is pretty good when you compare it to any other industry out there,” he said. “We need to talk honestly about what we’re doing and also just using the actual safety record of the past 50 years of fracturing and saying hey, here are the numbers, here’s the ration and proportion of what has actually happened in a real way and not just listen to scare stories.

“I mean there are always going to be scare stories out there for anything. The industry also has to be responsible itself and say, hey, some of the stuff we’re doing we might need to take a look at and we might need to make some changes.”

Talmage said that change does not mean abandonment though.

“I don’t think anyone in the industry would say, ‘hey we need to stop hydraulic fracturing completely’ and walk away from it. It doesn’t make any sense because the rewards are much greater than the risk. But we need to honestly evaluate the risks and do whatever we can to prevent them.”

A: Cobb – “I don’t necessarily think you’ll change their minds,” he said. “I think people tend to distrust oil and gas and think they’re paying too much for oil at the pump and too much for natural gas and probably think their water is too high as well. But I think some more time could be spent [by the industry] on educating the public on what is transpiring in a frac job and how safe it is to drinking water.

What didn’t I ask that you think we should know about hydraulic fracturing?

A: Cobb – “Fracing in my opinion is relatively safe,” he said. “I don’t think there is anything that is foolproof. I think the BP blowout was a real disaster and those things do happen, even though most of it is human error. As long as humans are involved, we’ll continue to have problems sometimes, but we just have to hope that the impact is at a minimum.”

A: Clute – “Fracing in my opinion, is something that is a proven technology,” he said. “It’s been around since the 1940s and has improved domestic production immeasurably. If you took that method of completing oil and gas wells away, you’re going say goodbye to most domestic oil and gas production and existing production depletes.

“What you’re doing is running the risk of turning all of the wealth of the country over to people who don’t have our best interests in mind.”

A: Talmage – “It would be great if we could all have some completely renewable, completely free energy that we just get naturally, but anything from solar to wind has an environmental and economic impact and gas is no different,” he said. “If you compare something like natural gas fracturing to virtually any other energy source in the big picture and look at the safety record, the process and the volume, you’d probably find that it’s one of the cleaner and safer sources out there.”

Talmage also said that the industry isn’t great at communicating and those throwing blame don’t necessarily understand what’s actually happening, a sentiment echoed by the others I interviewed as well.

“I consider myself an environmentalist. I have a college degree in biology from Colorado and I care about the environment,” Talmage said. “But a lot of the people that are attacking the oil and gas industry don’t really understand it and they don’t understand science. They’re not really scientists. Whereas,  a lot of people in the oil and gas industry are engineers and they get the nitty gritty science of the stuff, but kind of by definition, engineers are very bad at explaining things so others can understand it well and people who often very good at explaining thins have very little to no expertise behind them.”

That is something that needs to change as well, he said.

“People that are bringing forth problems, yes, there are some legitimate problems they are bringing forth, but a large portion of them is just other crap, if I’m allowed to say that. And we need to do better at not getting riled up at the accusations and listen to some of the things they’re saying and see if there are things that make sense that we need to look at.

“This is all part of a bigger debate and that is population. We need energy to maintain our current lifestyle and we all have to make sacrifices somewhere.”

An Inside Look: Fracturing Q &A with Oil and Gas Industry Leaders – 2

Here’s the second part from my interviews with SherWare clients on their experience with hydraulic fracturing. Check out the first post here if you missed it.

Is the biggest issue the fact that you’re drilling down through the water supply or the fluids used in the process that they’re [environmentalists] against?

Hydraulic Fracturing Q&AA: Clute – “I think it‘s the fluids, but 99.5 percent of the fluid is freshwater,” he said. “There are some additives, but it’s not a big deal and we treat wells all the time with acid and solvents and this and that, but it’s in the formation. You produce it, and put the salt water in a disposal well and it’s all permitted by the EPA and states.”

Clute said this is the reason the oil and gas commissions are set up in the individual states, to protect the lease rights and ensure proper exploration and production without pollution.

“You aren’t allowed to pollute. Period. This has been ongoing for a long time,” he said. “The cleanest, most effective way to get energy out of the ground is to drill a hole, drill a well.”

A: Talmage – The “toxic chemicals” seem to be the problem, which is curious because when aren’t chemicals used by people?

“If you start defining what those are, yeah there are chemical components put into fluids depending on what you’re trying to achieve, but they are very different and there isn’t really a standard package,” Talmage said. “The kind of things you see are in relatively small percentages. For example, one that’s been used forever is KCL or potassium chloride. It’s essentially a salt and generally used in a 2 percent solution, so you’re talking 98 percent water and 2 percent KCL, which is a salt.

“When they make it out to be toxic slurries and nasty stuff, I wouldn’t be afraid to walk over there, stick my finger in and lick it, but I wouldn’t want to do that every day for 20 years. It’s that sort of idea. The level of toxicity we’re talking about then is relatively minor compared to other things.

“That being said, there might be places where they are using huge chemical slurries in some parts of the country that I don’t know about and maybe there are some concerns there. What we’re doing here, it’s not an issue. It’s not so much the concern of what chemicals we’re using but being responsible with the ones that we do and taking responsibility for that.”

What is this deal with using diesel fuel in the fracing fluids?

A: Talmage – It sounds like a bigger issue than it is because of how it’s handled and where it goes.

“A lot of people are concerned with things like using diesel fuel, but it’s not all that common to fracture with diesel, that’s more of a fluid compatibility issue if you have a formation that has issues with water specifically, as water is typically what is used,” Talmage said.

“If you think about it, you’re injecting diesel fuel, which is a hydrocarbon into a hydrocarbon bearing reservoir. So you’re kind of returning it to where it came from. You’re not injecting it into a water table and it’s nowhere near a water table, so that, to me, doesn’t make a lot of sense.

“Now, how you get the diesel safely and responsibly to your frac site and if you happen to float it back after the process, how you safely dispose or treat that is absolutely critical.”

Would it even make a difference to those protesting if only non-toxic chemicals were used?

A: Clute – What does non-toxic even mean?

“Everything is designed to have that frac job go exactly where you want it, otherwise there is no point in drilling the well, there’s no point in anything,” Clute said. “You’re just wasting money and so I think that whatever chemicals you are using are necessary. They’re used for a purpose like a de-emulsifier, or a little bit of acid to eat up whatever calcium carbonates are in there. Any of this stuff by itself is toxic; it has to be used properly. Vinegar’s toxic, ammonia is toxic – common household chemicals. Why don’t we just outlaw all the chemicals and see how far we get ahead in keeping our homes clean?”

“You can drink so much water and your cells would explode,” he said. “Water then becomes a pollutant, a poison. Anything in a large enough quantity is toxic. The issue is that these chemicals are going into the formation, a long way down underground, thousands of feet underground.”

You said an issue that’s coming up is with the storing of the water recycled and taken back from the well. If there were more regulations/standards so that it wasn’t stored in pits, it was safer, would that take off some pressure from the industry?

A: Cobb – It’s possible.

“Yes, if some of these environmentalists could be assured that the return water that is coming back from these frac jobs was stored in the best place,” Cobb said. “When we were in Ohio, we were strictly using water. But today, more and more they are developing a chemical mix that is real thick like a jelly to carry these prop sands back out of the formation.”

Cobb said that if pits were handled better or disposal wells were mostly used instead, it would also help.

6. What would happen to oil and gas industry if the FRAC Act, introduced again by Rep. Maurice Hinchey, gets passed in its current form to reverse the law now and put hydraulic fracturing directly in the Safe Drinking Water Act as many senators are looking to do in Congress?

A: Unanimous answer by all three – It will shut the industry down.

A: Clute – “It’s already regulated by the Clean Water Act and you’re not allowed to pollute,” he said. “I think you can kiss the domestic oil and gas business goodbye. I think it will become so expensive to drill and complete that it won’t be worth it.

As an industry, Clute said you have to be careful and watch what you’re doing.

“We do that anyway. We’re already regulated,” he said. “Innumerable studies have said that the fracing technology is safe and that you’ve got to work at. Have accidents occurred? Yes, they have but it’s minimal.

“This business is hard enough to produce hydrocarbons, keep the equipment running and wells producing without having to fight these kinds of battles. Men and women are out there working their a**es off to make sure people have the energy they need to make their lives work, and to throw these kinds of roadblocks in front of people that are already working hard, is ridiculous.”

A: Talmage – “That depends on exactly what that would mean. I think there would be several scenarios you’d have to consider. One would be increased regulation and depending on where it existed, it wouldn’t necessarily be a bad thing, but it would increase costs, obviously,” he said.

He said the shales now are so appealing to large companies because you can produce so much gas fairly easily, which is why the gas market has been plummeting the past two years and still is.

Shales are constantly being discovered around the world, and if the price is suddenly increased, it would make some of these plays not so economical and the volume of resources we see now would dry up, driving the price of energy higher and higher.

“So kind of a really cheap, long-term natural gas pricing, which could be really, really good for our country and in a lot of ways pull us out from the economic funk we’re in right now, you can say bye to,” he said.

“Of course, having some sort of balance, I’m all for proper regulation. If there is something we can improve, like ‘hey, this is crappy, this is not right, it is polluting way more than the small acceptable amount’, then yeah, we need to do something to fix that. I think anyone in the industry for the most part is more than willing to do that and talk reasonably, scientifically and intellectually and figure out what really needs to be done.”

Talmage said on the other hand though, if the EPA or government would ban all hydraulic fracturing, it will kill the industry in the United States.

“There would be really be no way you could make any commercial oil and gas in oil without fracturing in Ohio, and the same could be said in the Appalachian Basin and most of the stuff in the West,” he said. “You have some offshore potential still, some places like the Middle East and you’d have other countries that say, ‘Come gives us your rigs and service companies,’ and then you would have a mass exodus of companies from the United States. They would all be going and doing the exact same thing in other parts of the world with fewer regulations and environmental control. That’s a double edge sword.”

A: Cobb – “I think that it would totally destroy or stop activity. If the timber industry had to go to Greenpeace or someone like that every time they wanted to cut down a tree, I don’t think there’d be any trees cut down,” he said. “However, if a water resources board could be established that would use engineers rather than lay people to actually study this, then there is a possibility.

“But I don’t think that’s what they’re planning, and well it would make it far more expensive and we’re already having a hard time paying for gasoline now.”

Check out the last part of the interview with these three tomorrow!

An Inside Look: Hydraulic Fracturing Q & A with Oil and Gas Leaders

The hydraulic fracturing process of extracting oil and gas from the shales deep within the earth using pressurized water, sand and some chemicals has been under intense media scrutiny since the explosion of the gas shales in the Marcellus Shale. The media and environmentalists have done a fine job of twisting the facts well enough to create hysteria and confusion over what really happens underground during the process without hearing from the other side of the debate: the oil and gas industry.

I talked with a handful of clients the past two weeks to ask them questions that haven’t been addressed well in the public regarding the hydraulic fracturing debate. Their insights were passionate, knowledgeable and show just how important this process is to domestic production in America.

Hydraulic Fracturing questionsIt was hard to edit down the interviews because of how informative their responses were. I’ve decided to split the questions into a few posts so it’s more manageable to read and if I get the opportunity, will share a second round of responses from others in the industry next week.

A special thank you to the three men who allowed me to pick their brains and see their side of this debate. Enjoy!

About today’s participants:

Pete Clute, a geologist, runs Clute Oil Corporation in Colorado. With 40 years on the job, Pete’s laid hands on every job in the industry and been at more than 100 frac jobs.

Scott Talmage, from Northwood Energy in Ohio, has been working all facets in the industry, and has taken engineering courses in how to create and perform frac jobs. He’s also been on site for 40-50 frac jobs.

L.C. Cobb is the vice president of Keystone Gas Corporation, where he handles the land, legal and revenue disbursement. He was previously involved with the exploration side when he lived in Ohio as the vice president of the largest independent producer in the state before they sold out and he moved to Oklahoma to start his own petroleum consulting company in the 1970s. He’s been involved in hundreds of frac jobs.

In your opinion, what is the biggest concern/danger today with hydraulic fracturing?

A: Talmage – The potential to contaminate water tables

“The main issue that you hear going on and on and on is the potential for contaminating water tables and that I find in terms of the injection process to be a relatively crazy concern,” Talmage said. “It’s sort of like if you’ve prepared your well and done it legally, the right way, the chances of you invading a water zone with your fracture are slim to none. I mean in the last 50 years you can look up when that’s happened and count them on one hand, you know what I mean?  There really aren’t many good cases that I’ve ever seen of destroying water with fracturing.”

A: L. C. Cobb – The flowback water after a frac job and how it’s stored

“One of the concerns that the environmentalists have is this water that comes back out and it ends up on the surface,” Cobb said. “What they are more concerned with is, of it not being disposed of properly, and that it is allowed to be evaporated or have it sit in the pond and then leeches into the earth.”

He said all water that re-enters the ground has the earth as a great filter, but that he can see some of the concerns as a result of the surface containment of water since the earth is likely not able to filter all the harmful pollutants out.

Why is there all the hype now in the media with hydraulic fracturing when it has been around for 50-60 years?

A: Talmage – The rush in the Marcellus Shale and media coverage

“That’s a good question,” Talmage said. “I think that some of that has to do with simply the media coverage. It’s just that much easier to make a big deal out of things.

“A lot of the nature of these shale plays are leasing up thousands of acres seemingly overnight and huge amounts of money are being spent by multinational companies. That kind of exposure in a relatively condensed geographic area leaves people to kind of freak out, and rightfully so. They are trying to make sense of this technology that’s been around for a long time and a lot of them take issue with things they don’t fully understand and blow it out of proportion,” he said.

What must go wrong in the process for water to be contaminated?

A: Clute – Wellhead or casing failure

“Having wellhead or casing failure is the only way you’re going to have something happen with your groundwater or surface water,” Clute said. “As soon as something like that happens, you lose pressure and you shut down your frac job. You cease pumping.”

Clute also offered another suggestion that he said he’s seen happen in the Denver area recently.

“These oil bearing formations in the Appalachian Basin are very, very shallow and if somebody goes out and drills a water well and produces it, there is a good chance they are dewatering the formation and bringing in hydrocarbons – that’s what happened here in the Denver-Julesburg Basin in coalbed wells,” Clute said.

Explain the incentive for not wanting anything to happen to anyone’s water.

A: Clute – “When you go to that much expense, you want that frac to go exactly where it’s supposed to go. These horizontal wells, they’re doing 20 stage fracs and the last thing you want is a problem,” Clute said.

So a lot of money is spent running all the frac jobs. Depending on the location, horizontal wells can cost several millions of dollars from drilling to completion. If it doesn’t go exactly where you want it to go, you’ve not done your job right, he said.

“Everything is designed to get those hydrocarbons out of the ground as effectively and efficiently as possible. And pollution is the last thing that anybody wants to have happen because if you are polluting, you’re not efficient. It doesn’t work,” Clute said.

How much preparation goes into a frac job?

From working with service companies to learning the art yourself, research, equations, studying the variables and knowing your geological formation is essential before completing a frac job.

A: Talmage – Has taken engineering courses specifically to look at fracking application and how to design a frac job.

“I’ve taken some intense courses specifically meant to get to the nitty gritty of what goes on in a frac job,” Talmage said. “I handle a lot of the inside work at the desk to design the frac. With the different variables involved to get it right, it can get really complicated quickly.”

A: Cobb – Has mostly worked with service companies such as Halliburton for the well sites he’s been on that have been fractured.

“Halliburton has been doing this a long time and they know exactly what pressure you have to achieve to get the formation to actually break down, and how far to go before fracturing and what they’re going to use as a carrier to carry the proppant down,” Cobb said. “They always have a safety meeting and get all the guys together and discuss exactly what they were going to do and how it should go.”

How many people are involved in a frac job?

A: Cobb – Depending on the job it could be anywhere from 10 to 20 or more people.

“It would vary depending on how much fluid or horsepower you’ve got out there,” he said.

What are the legitimate concerns that people should have from your perspective? You know how it works and how it’s supposed to work, what’s legitimate and what’s hyped up?

A: Talmage – Surface treatment options for how flow back water is handled

“I think a legitimate concern would be our surface treatment options.  The larger frac jobs are done with surface pits and after the fracturing, there is flow back into those pits,” Talmage said. “So how we contain, treat, transport and dispose of that fluid properly, I think, to this point hasn’t been addressed very well in terms of policy and government intervention.

“Those sorts of questions are legitimate and obviously we need to create a series of standards and look at some real scientific investigation of what potential possibility for damage and accidents are and take whatever steps are necessary to prevent that,” he said.

In terms of what’s hyped up, the actual injection process itself should not be a problem, he said.

“You’re talking about having a separation of literally a mile to 2 miles down and all of that surface, by state mandates and common good practice, has been protected through cementing and steel. The likelihood of actually having a problem would come down to negligence or poor completion practice or an inspector missing something and not the process itself,” Talmage said.

Check out the rest of their answers on Monday and Tuesday!

Interested in sharing your experience? Send me an e-mail and let me know.