‘It’s All About that Basin, Bout Dat Basin…No Trouble (Well Maybe a Little)

Cases from the Shale Plays That Will Impact the Oil and Gas Industry

If there is a lesson to be learned from recent and pending cases in the shale plays, it might just be, “Proceed with Caution.” This is particularly true in states in the newer shale plays, like Ohio, where the local courts are revisiting settled rules governing mineral ownership, conflicts between local and state regulators, traditional lease terms, and even the very nature of oil and gas property rights. While the outcomes of these cases are unclear and sometimes even surprising, what is clear is they will impact operators far beyond the borders of the Utica and the other basins where they are decided.
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Shaky Claims: Hydraulic Fracturing Is Causing Earthquakes

The term “fracking”—short for hydraulic fracturing—has become a buzzword throughout the United States. Proponents of the technology celebrate oil and natural gas production as a means of reducing energy prices and stimulating economic growth, while opponents of the well-completion technique voice environmental concerns, among them the fear hydraulic fracturing will usher in a new era of manmade earthquakes.
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The Shale Revolution: Expanding the Use of Alternative Financing Structures

THE BOOM: It is difficult, if not impossible, to survey the current energy landscape in the United States without seeing the phrase “shale boom”—for good or for bad—somewhere in the rhetoric. In the past 10 years, technological advances in fracking and horizontal drilling have drastically changed domestic production and overhauled the possibilities for the future. The U.S. shale boom is attributed with not only record U.S. gasoline exports and record increases in domestic crude production, but also lower gas prices for U.S. consumers, increased jobs for American workers, reductions in carbon emissions and even a possible boost to Black Friday spending in 2014. And in the realm of U.S. policy, the shale boom has provided a market response to concerns of foreign oil dependence that many would say is unrivaled by any formal government response. For these reasons, some say the “shale boom” is actually a “shale revolution” if we consider that shale advances have created a fundamental shift in the North American energy landscape in a relatively short period of time.
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Key Developments that Shape the World of Oil and Gas

The recent rise of oil production in the United States, referred to by some as the “shale boom,” has caused a significant change in the global discussion about energy. The United States is poised to become a much larger presence in global oil, thanks to higher levels of production from new drilling techniques that allow companies to tap into reserves of tight oil in formations of rocks. This rise in production has caused some to call for a lifting of the ban in place on exporting crude oil in the United States. To understand whether or not the lifting of this ban is a good idea, it is important to consider the current situation as well as the most common beliefs about the forecast for the future of oil production and reserves.

The U.S. Shale Boom

The shale boom is the name for a trend in the U.S. energy industry that has allowed oil companies to unlock more oil than ever before from rock formations, particularly shale. Some of the areas where production has risen tremendously include the Eagle Ford formation in south Texas and the Marcellus formation in western Pennsylvania, West Virginia, and parts of upstate New York.

Statistics from the Energy Information Association show that production in several key oil fields of the United States has tripled in growth between 2008 and 2014, from around 4 million barrels of oil per day to roughly 12 million. In May 2014, the EIA released a report indicating that U.S. crude oil production had reached an average of 8.3 million barrels per day, the highest monthly level in 26 years.

This tremendous growth in American oil has lead to a new dynamic in the global oil market. In the summer of 2014, the United States overtook Saudi Arabia and Russia to become the world’s largest producer of oil. This means that the U.S. is less dependent on foreign oil imports, since the wide-reaching ban on crude oil exports in the U.S. means that a huge majority of that oil stays at home.

Why the U.S. Bans Crude Oil Exports

Since the middle of the 1970s, the United States has banned almost all crude oil exports, to insulate the American economy from fluctuations by conserving as much of the country’s oil reserves as possible. This law and similar oil-conserving laws of the era grew out of fear from the 1973 oil embargo by OPEC against the United States, which resulted in a gas shortage that saw gas prices rise exponentially and dealt a significant blow to the American economy. Today, certain areas of California and Cook Inlet in Alaska are among the few places where gas can still be exported out of the country from.

Decades later, however, many believe that these bans are outdated and need to be revised based on current U.S. oil production levels and economic conditions, as well as future projections for energy production in the U.S. Opponents, however, are concerned that these forecasts may be misleading and are worried about the impact of increasing oil production.

Two Views on the Forecast for U.S. Oil Production and Reserves

Those that are in support of lifting the ban on crude oil exports generally feel that this would be an economically-sound decision, in part because of several reports showing that levels of oil reserves are higher than previously believed. In its annual study on world energy, BP put the United States’ oil reserves at 44.2 billion barrels, a 26% increase from its previous estimate. In 2012, the U.S. EIA similarly raised its projection of U.S. crude oil reserves by 15% to 33 billion barrels.

The combination of increased oil reserves, rapidly-rising oil production rates, and more efficient use of gas and oil leads some to believe that the U.S. will have enough oil to fulfill domestic energy requirements sooner rather than later. A report from BP in January projected that the U.S. will achieve energy independence by 2035. Proponents of lifting the ban on crude exports believe that allowing oil companies to export a portion of this surplus of American oil will help contribute to positive growth and sustained levels of oil production in the future.

On the other side of the debate, there are those who believe that the ban should stay in place for a few reasons. Some, like U.S. Senator Robert Menendez, believe that lifting the ban on exporting crude oil is simply an attempt by energy companies to grab more profits and will hurt America’s economic recovery by raising gas prices for businesses and consumers. Others are worried about the accuracy of oil estimates from the EIA and energy companies like BP.

In October, geoscientist J. David Hughes and the Post Carbon Institute published a report that conducted a comprehensive analysis of the 12 major shale formations that currently account for more than four-fifths of tight oil production in the United States. Hughes’ study paints a much different picture of the future of energy: it projects that oil production from most of the major U.S. formations will peak in the next decade, and by 2040 production levels will be far below the EIA’s predictions.

After reviewing the data, one thing is clear: production of oil in the United States is on the rise. The country’s future direction depends on exactly how sharp that rise is. While the precise numbers may still be unknown, it is safe to say that the amount of oil reserves available in the U.S. and the ability of energy companies to extract this oil will have a major impact on the American economy and foreign policy in the coming years.