The "Fracking" Issue and A Question About Morocco
As I await my next flight to London, now seems a good time to answer a couple of recent emails from your fellow Oil & Energy Investor subscribers.
If you've got a question or comment of your own, please write to me at firstname.lastname@example.org. I can't offer any personalized investment advice, but I can address your questions and comments in future broadcasts.
Let's get right to it.
Q: Kent, can you address the “fracking” issue one more time?
The 2010 documentary Gasland showed how bad things can get when 600+ chemicals are used to get the oil out of the ground, especially in close proximity to water resources. What companies employ this technique?
Also, the French recently revoked the licenses of one company – Toreador Resources in Paris – because fracking would have been their preferred method of oil extraction. The stock plummeted on the news. Will other companies (and countries) that use fracking find it difficult to lease land where the water table may be affected? ~ R. J.
A: Actually, several of you have written in with similar questions surrounding the French decision on fracking. But R.J. asks several questions here, so let me address them in order.
First, all companies that utilize horizontal drilling for shale gas extraction use hydrofracking.
Second, the French decision results from where the drilling would be located.
To date, significant shale gas deposits have been determined at Bassin d'Ales, Plaine d'Ales, Montélimar, and Moselle (where there is also coal bed methane). The first three are most advanced in terms of exploration; unfortunately, they are also in the Paris region and have population density concerns.
This has become a political issue in the days before an election… and that is rarely a good time to get an objective appraisal.
Still, the environmentalists do have it right – if a company cannot provide sufficient guarantees that drilling poses no danger to water tables, it should not receive a license.
And these French companies will have a hard time providing the required guarantee. France has no history of combining hydrofracking and horizontal drilling. There have been no environmental baseline studies completed and no previous unconventional drilling as a basis.
Third, there is shale drilling under development in other European countries: Lower Saxony (Germany), Alum (Sweden), the Makó Trough/Szolnok Formation (Hungary), the Vienna Basin (Austria/Slovakia), as well as four very promising basins in Poland.
The French have a valid concern about heavy populations in proximity to drilling. True, the Barnett in Texas was initially an urban-based play (Fort Worth to Denton)… but France's density distribution is different.
Now let's return to the documentary…
The episodes portrayed in Gasland were the results of early drilling in Colorado, where, in my judgment, the companies were clearly at fault. There have been some questions raised about more recent drilling in the Marcellus on the East Coast
, but these are quite infrequent.
Shale gas wells are at least 5,500 to 7,000 feet below the surface. Some – such as the Eagle Ford in Texas and the deep Utica, currently under evaluation below the Marcellus – are more than 12,000 feet down.
These are well below any water resources.
The problems arise in two other ways:
- Gas contamination on its way up to the surface, and
- The use of fracking fluid.
Gas contamination is a standard problem for both traditional – vertical – drilling and the newer unconventional drilling. It is not, therefore, something that has emerged only with the advent of shale gas development.
In passing, gas contamination is what caused the igniting water shown in Gasland.
Yet the problem can be resolved with the use of concentric pipe strings. Range Resources Corp. (NYSE:RRC) has an excellent system used in the Marcellus.
Regulators need to require the usage of the better pipe strings. Most of them do already.
The other matter, fracking fluid, is more contentious.
Of the hundreds of chemicals used for fracking, most are of no consequence to health or environment.
The problems emerge with the danger of leakage from the use of ethylene glycol (to inhibit the formation of scaling; also used in antifreeze), petroleum distillates (to reduce friction), and especially glutaraldehyde (as an antibacterial agent).
Once again, a secure system of returning the fluids (along with the flowback water) to the surface, and safe disposal of that water, is essential. Today this is accomplished by injecting it into deep disposal wells after processing.
However, new developments are already in field use in the Fayetteville in Arkansas and the Woodford in Oklahoma that eliminate the use of chemicals altogether… and even reduce overall operational costs per well at the same time.
Next, here's a direct question related to my recent travels.
Q: If Morocco is any good, why is TransAtlantic Petroleum pulling out? ~ Norman C.
A: The Canadian TransAtlantic Petroleum Ltd. (AMEX:TAT) stated in a June 28 SEC filing that it was likely to cap an exploration well and move associated equipment to its Turkish operations. The well in question, GRB-1, is on the Asilah exploration permit in Morocco.
The company further said that the well would probably be abandoned as noncommercial. However, the company provided no information in the filing about why it has decided to move equipment to Turkey.
The move comes only some three weeks after TAT acquired the production and oilfield assets of Thrace Basin Natural Gas in Turkey. The company may simply consider this one a better overall development opportunity.