Friday, October 31, 2008

Chesapeake Profits in 3rd Quarter with Natural Gas

NEW YORK (MarketWatch) -- Chesapeake Energy Corp., the nation's biggest natural gas company, posted a huge jump in third-quarter profit Thursday, most of it tied to derivatives gains totaling nearly $3 billion.

reported net income rose to $3.28 billion, or $5.61 a share, from $346 million, or 72 cents a share, a year ago.

The results were heavily skewed by a $2.85 billion unrealized, non-cash, after-tax, mark-to-market gain on energy and interest hedges.

Excluding one-time items, Chesapeake's adjusted third-quarter net earnings available to common shareholders rose to $486 million, or 85 cents a share, from $330 million, or 69 cents a share, in the third quarter of 2007.

Analysts polled by FactSet Research, who typically exclude one-time items, had predicted the company would earn 88 cents a share.

The Oklahoma City, Okla.-based company said revenue rose to $7.49 billion for the quarter from $2.03 billion.

Including oil production, Chesapeake boosted its overall energy output by 15% during the quarter to the equivalent of 2.32 billion cubic feet of natural gas a day compared with 2.03 billion cubic feet a year earlier.

The company said it finished the quarter with proven reserves equivalent to 12.1 trillion cubic feet of gas, up from 10.88 trillion at the start of the year.
About 92% of Chesapeake's energy output is natural gas, with crude-oil and natural gas liquids making up the remaining 8%.

During the quarter the company fetched on average $8.02 per thousand feet of gas and $75.74 per barrel of oil.

As of Oct. 30, it had open swaps hedges on 62% of its fourth-quarter gas output at $9.15 per thousand cubic feet on the New York Mercantile Exchange and 43% of its oil output at $78.09 a barrel.

Chesapeake shares fell 0.5% to $21.96 on Friday morning.
The stock is down nearly 43% over the past 12 months, compared with a 24% drop on the Amex Natural Gas Index (XNG:
amex natural gas index

The company said it finished the quarter with proven reserves equivalent to 12.1 trillion cubic feet of gas, up from 10.88 trillion at the start of the year.
About 92% of Chesapeake's energy output is natural gas, with crude-oil and natural gas liquids making up the remaining 8%.

During the quarter the company fetched on average $8.02 per thousand feet of gas and $75.74 per barrel of oil.

As of Oct. 30, it had open swaps hedges on 62% of its fourth-quarter gas output at $9.15 per thousand cubic feet on the New York Mercantile Exchange and 43% of its oil output at $78.09 a barrel.

Chesapeake shares fell 0.5% to $21.96 on Friday morning.
The stock is down nearly 43% over the past 12 months, compared with a 24% drop on
XNG 440.18, +13.30, +3.1%) over the same period.

Chesapeake came under heavy selling pressure earlier this month, hit by falling natural-gas prices, tight credit markets and an ambitious but costly capital spending program. The steep drop in share price in turn raised speculation that the company could become a takeover target, helping lift the stock from a 52-week low of $11.99 on Oct. 10.

T. Boone Still Fighting for America & Natural Gas Supremacy

It’s the end of a long Wednesday and T. Boone Pickens is in the Nashville studio of the RFD Network, surrounded by young members of 4-H clubs and Future Farmers of America.

It seems the 80-year-old billionaire has touched a nerve with these young people. They chant, “Boone! Boone! Boone!” Maybe he’s got a few new recruits here to the Pickens Plan Army of supporters he’s built to back his proposal to start weaning the United States off foreign oil. Pickens and his army want wind farms across the Great Plains to generate electricity, and natural gas to be used as a transportation fuel, reducing the need for foreign oil.

But even at such a triumphant moment as Wednesday night, T. Boone Pickens knows he’s got a long way to go. He wants his Pickens plan adopted in the first hundred days of a new administration. (To see video of Pickens, click here.) He’s campaigning for it as hard as if he were running for office himself. But the two men he most wants in his army, John McCain and Barack Obama, haven’t signed on.

“This is about America,” he said. “It’s not just about party politics.” And, he said of the candidates, “They don’t know anything about energy. The two candidates that we have, neither one has a plan. We’ve got to put pressure on these guys, whichever is elected president,” Pickens said.

Pickens is campaigning hard.

On Wednesday in Charlotte, N.C., he spoke to 40 editors of American City Business Journals, publisher of the Philadelphia Business Journal, then hopped onto his private jet to fly to Nashville, where he held a live town hall meeting broadcast on RFD, the rural network. The day for Pickens started at 6 a.m. in Texas. He wasn’t done with the town hall meeting in Nashville until 8:30 p.m. and had a flight home to Dallas still ahead of him.

It’s part of a grueling schedule. He has met with dozens of Congress people and governors, and with both presidential candidates. He’s held town hall meetings around the nation, appeared on television programs as widely varied as 60 Minutes and the Tonight Show with Jay Leno, and raised what he calls the Pickens Plan Army of 1.5 million who have joined the Pickens Plan online community. The plan has drawn support from such different quarters as the Sierra Club and Warren Buffett.

The Texas oilman turned wind farmer and hedge-fund manager believes so much in his plan for weaning the United States off foreign oil that he’s barnstorming the country like a candidate in the final stretch of a campaign. He’s already spent $40 million on television commercials pitching his proposal.

But the pitch comes at a very tough economic time. The plan is expensive, neither presidential candidate has committed to it, and private investment dollars necessary for the wind farms Pickens envisions have dried up.

Still, Pickens argues that without a plan, the nation will dig itself into a deeper hole than it’s already in — importing 70 percent of its oil from foreign countries, many of them hostile to the United States. The nation was spending $700 billion a year on foreign oil July 8, when Pickens launched his effort, and it spends about $300 billion a year now that oil prices have been cut nearly in half since their summer highs.

That price shock of the summer is just the beginning, though, said Pickens. He predicts the price of oil will climb again, and he said it could reach $300 a barrel, twice as high as it was this summer, within 10 years. That would wreak havoc that makes the recent financial crisis seem minor by comparison, he said, and it’s why he’s pushing so hard for his plan.

“We have gotten ourselves into such a hell of a mess,” he said. “We don’t have oil, but we operate like we do. We Americans have got to solve the problem.”

Pickens said he’s drawn on his decades of experience in the energy field to come up with what he calls, “the only” credible energy policy that moves the U.S. away from importing so much oil. “I know what I’m talking about,” he said.

He wants private industry to build wind farms from West Texas to North Dakota, in one of the richest corridors for wind on earth. Solar farms could dot the Southwest as well, he points out. He wants the government to create easements through eminent domain so transmission lines can take electricity generated by wind and solar from the Great Plains to the nation’s population centers. He likens the effort of creating the easements to the effort put forth in the creation of the Interstate Highway system in the 1950s.

But that’s not all. The wind power would replace natural gas as a fuel for electricity generation. About 22 percent of the nation’s electricity is generated using natural gas. Natural gas could then be used to power transportation, first heavy trucks, but ultimately cars as well.

Using natural gas as a transportation fuel would allow the nation to cut its foreign oil consumption by 38 percent within 10 years, Pickens said. He advocates focusing the natural gas conversion on the heavy trucks that ply the nation’s highways, burning huge amounts of diesel fuel now. The government would offer credits for buying new natural gas powered trucks. Focusing on trucks allows the biggest bang for the buck, he argues.

“Natural gas is the only one that will do,” he said. “A battery won’t move an 18-wheeler. (Natural gas) is cleaner (than gasoline and diesel), it’s cheaper, it’s abundant, and it’s ours.”

Pickens has a long history in the energy business. Trained as a geologist, he founded Mesa Energy in 1954 and built it into one of the most important independent oil and natural gas players in the country. Along the way, he earned a reputation in the 1980s as a corporate raider, after he launched several takeover attempts in the energy field.

Pickens argues in his recent book “The First Billion is the Hardest” that his takeover attempts launched a change in the corporate world toward companies treating shareholder value with more respect. He shook up a complacent corporate America.

Now, he’s trying to do the same thing with his energy plan, except it’s not just corporate America T. Boone Pickens wants to shake up. He’s aiming to shake up the whole country and change the way the economy is run.

Thursday, October 30, 2008

New York Natural Gas Pipeline is Almost Done!

ALBANY, N.Y. - A long-planned pipeline stretching across 182 miles of the state is to begin delivering natural gas to the New York City area in December, a month behind schedule.

The Millennium Pipeline will run from Corning in New York's Southern Tier to Ramapo in suburban Rockland County, where it will tie into other lines and provide gas to area utilities.

The pipeline was first proposed in 1997 as a 425-mile link connecting gas supplies in Canada with the New York City market. Work was delayed for years by a combination of regulatory complications and local opposition. The plan was eventually retooled to the existing 182-mile pipeline, 30 inches in diameter.

Construction on the pipeline is expected to finish Dec. 1 and gas will start flowing soon after, said Millennium spokesman Michael Armiak. There will be a compressor station in Corning, where Millennium will tie into another pipeline that brings natural gas down from Ontario.
Millennium says the pipeline can handle enough gas on a daily basis to handle the needs of about 2 million households.

"By introducing more supply options, it should make the prices more competitive with national averages," Armiak said.

Armiak said Millennium also will be able to carry gas from wells and subterranean supply fields in western New York. That region has undergone a boom in gas exploration in the past decade and more wells could come online once exploration of the deep but plentiful Marcellus reserve gears up in New York.

Armiak said while the company is now focused on completing the pipeline, its capacity could be increased to handle production from Marcellus wells.

The pipeline is owned by subsidiaries of NiSource Inc., National Grid and DTE Energy Co. Millennium has long-term deals to provide gas to the utilities Consolidated Edison, KeySpan and Central Hudson.

Columbia Gas Transmission, a subsidiary of NiSource, will use the gas to serve its existing customers including, Orange and Rockland Utilities, Central Hudson and NYSEG.

Construction began in May 2007 and was expected to be finished by Nov. 1, but crews hit some snags. Wet weather this spring slowed crews down, work in environmentally sensitive areas took longer than anticipated, workers hit hard bedrock while drilling under water bodies in the Catskills region and the company had to wait for materials, Armiak said.

"There's so much pipeline construction going on around the world the suppliers were behind schedule," he said.

As of this week, pipe was still going in the ground in Orange, Delaware, Sullivan, Broome and Tioga counties, while pipeline was being tested in Chemung and Steuben counties. Work also was continuing on the Corning compressor station.

Millennium is nearing completion as other plans to update New York's energy infrastructure have faced difficulties. The governors of New York and Connecticut this year announced their opposition to a plan to build the world's first floating liquefied natural gas terminal in Long Island Sound, and a proposed 190-mile long high voltage power line through upstate New York has been vehemently opposed by local residents.

Heather Briccetti, vice president of government affairs for the Business Council of New York State, the increased gas supply from Millennium will be beneficial.

"There's certainly the market for it in the New York City area," she said.

Wednesday, October 29, 2008

Natural Gas Going Higher Today

NEW YORK NEW YORK, Oct 28 (Reuters) - U.S. natural gas futures were expected to open about 8 to 10 cents higher on Tuesday, edging up along with stronger cash gas and crude futures amid cooler weather in key consuming regions of the nation, traders said.

But while some traders remain concerned about continued shut-in Gulf of Mexico production from recent storms, others said ongoing fears of a global economic downturn and big gains in onshore production should limit the upside.

The U.S. Minerals Management Service said Thursday about 35 percent of offshore Gulf gas production was still shut in from hurricanes Gustav and Ike, down from about 37 percent shut in as of Tuesday's report.

The next MMS report will be released later Tuesday.

The cumulative total of offshore gas production cuts from both storms since Aug. 29 is near 247 billion cubic feet.

November over-the-counter trade was heard late near $6.185 to $6.19 per million British thermal units.

On Monday, front month November futures on the New York Mercantile Exchange, which expire Wednesday, fell 11.8 cents to settle at $6.121, pressured by growing supplies and worries over the severe economic slowdown curbing demand.

Early Monday, the November contract traded as low as $5.99, the lowest level for a front month contract since late September 2007, according to Reuters data.

In electronic trade, however, November futures traded late 7.1 cents higher at $6.192, after trading between $6.098 and $6.239.

NYMEX front month crude futures, meanwhile, were seen opening about $1.40 higher, under $65 a barrel.

In the cash market, gas for delivery at Henry Hub , the NYMEX delivery point in Louisiana, was heard near $6.41 on volume near 175 million cubic feet, up 14 cents from Monday's average of $6.27, its lowest level since late October 2007.

Early cash deals were heard at about a 19-cent premium to the front month contract, little changed from deals done late Monday at about a 23-cent premium.

Gas on the Transco pipeline at the New York city gate traded once at $7.65, up 50 cents from Monday's average of $7.15.

Temperatures in key gas consuming cities New York and Chicago were seen mixed, with New York below normal and Chicago mostly above normal for the next six days. High temperatures were seen mostly in the 50s degrees Fahrenheit in both cities, with lows dipping into the 30s F, according to forecaster DTN Meteorlogix.

Tuesday, October 28, 2008

$7 Billion Liquid Natural Gas Project for Angola

The global law firm of Thompson & Knight has assisted Sonangol, the state-owned oil company of Angola, in a transaction for one of the world's largest integrated natural gas projects. Under terms of the deal, Sonangol's Sonagas unit and Chevron Corp., together with their European partners Total SA, BP PLC, and Eni SpA, have agreed to invest more than $7 billion in a new liquefied natural gas export facility located near the city of Soyo on Angola's northwest coast.
The project was led and coordinated by the in-house general counsel of Sonangol, Fernando Gomes dos Santos. Much of the strategic planning and virtually all of the documentation was handled by attorneys with Thompson & Knight LLP, including lawyers from the Firm's Rio de Janeiro, Dallas, Houston, and New York offices who served as international legal counsel to Sonangol for the transaction, along with the Angolan Law Firm of Carlos Feijo and Raul Araujo. "This was a complex exercise in corporate and project development negotiations and diplomacy for all parties involved," says Alexandre Chequer, a partner with Thompson & Knight. "This deal is a milestone in the development of the Angolan economy and great promise for nations around the world seeking alternatives to traditional suppliers of petroleum-based fuels."
The agreement marks what is estimated to be Angola's largest foreign investment project and is scheduled for completion in 2012. Nearly all of the gas from the project is expected to be shipped to the United States.
According to Chequer, the construction and operational phases of the project will create new jobs and business opportunities for sustainable development in Angola, particularly in Soyo and the Zaire provinces. "This is a comprehensive project that involves the expanded exploration of gas fields, pipeline infrastructure, facility construction, and product marketing," says Chequer. "In terms of the amount of investment and the scope and integration of these components, this is rivaled perhaps only by similar developments in Qatar."
The processing facility is expected to receive approximately 1 billion cubic feet of associated gas per day from offshore producing blocks, resulting in an annual production of 5.2 million tons of liquefied natural gas and related products. It is also expected to process and treat up to 125 million cubic feet per day of gas for use in industrial projects.
The Angola LNG Project will utilize associated natural gas initially from the Cabinda Association and from Blocks 14, 15, 17, and 18, as well as from dedicated non-associated gas fields.

Monday, October 27, 2008

U.S. Natural Gas Future Touches $5.99/mmBtu

Oct. 27 (Bloomberg) -- Natural gas futures in New York fell on signs supply will be ample for the winter heating season and on concern the weaker economy will slow demand.

Stockpiles of natural gas now exceed the five-year average of 3.327 trillion cubic feet on hand at the start of the heating season in early November by 93 billion cubic feet.

``We're basically well-supplied and there are no disruptions on the horizon,'' said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There's also some liquidation going on across all commodities.''

Natural gas for November delivery fell 6.8 cents, or 1.1 percent, to $6.171 per million British thermal units at 12:49 p.m. on the New York Mercantile Exchange. Futures touched $5.99, the lowest since Sept. 24, 2007, when they traded at $5.916. Natural gas is heading for its fourth month of declines, the longest streak since 2001.

``You have some liquidation on margin calls,'' Rose said. ``People are trying to free up equity.''

Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said Oct. 23. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production.

About 40 percent of natural gas demand in the U.S. originates with commercial and industrial consumers, who tend to cut back in times of economic weakness.

Sunday, October 26, 2008

North Texas Natural Gas Shale Slowing Down


The party in the Barnett Shale is winding down.

With natural gas prices half what they were earlier this year, production companies called a cease-fire in the bidding war for land leases, and some are rolling their drilling rigs to newer, hotter fields elsewhere.

"We had an unprecedented and phenomenal run-up in gas prices, which I think led to a lot of exuberance, particularly in the Barnett Shale," said Roy Patton, senior vice president of commercial operations for the pipeline company Energy Transfer Partners.

"Is it winding down from the exuberant place it was last year? Yes."

For North Texas, this means one of the region's important buffers against a national recession has thinned. Lower natural gas prices mean smaller royalty checks, shrunken leasing bonuses and fewer rigs, leading to smaller tax receipts and fewer jobs.

The tight credit market, ugly economy and reduced fuel prices come just as the Barnett Shale approaches its production peak. Even if the economy hadn't tanked, the field probably only has a couple of more years of production growth before the flow of fuel begins to peter out.

"I think perhaps by the first quarter of 2009, if oil and gas prices continue at the current level, or certainly if they decline, I think companies are going to pull back a bit," said Texas Railroad Commissioner Victor Carrillo. "But that doesn't mean they're going to abandon the Barnett."

The rich natural gas field will continue producing for many years, only at lower rates.

And growth could return. A cold winter might boost natural gas prices high enough to reignite the leasing frenzy.

Engineers could invent new technology to significantly boost the amount of natural gas that producers can squeeze from the hard underground shale rock, lengthening the life of the Barnett field.

"I don't think the party is over," said University of North Texas economist Bud Weinstein.

The bidding war to lease land for drilling has collapsed.

On Oct. 14, Vantage Energy sent a stunning letter to homeowners in southwest Fort Worth. The company halted its record bonus offer of $27,500 per acre. Those who already signed the deal still get the cash. Everybody else is out of luck.

"It really is a function of just the current energy market, the current credit market, equity market," said Vantage vice president John Wehrle.

Representatives of the Southwest Fort Worth Alliance, a coalition of 25 neighborhood groups representing more than 8,000 acres and 24,000 property owners, had spent more than a year negotiating the deal with Vantage. About 4,000 property owners had signed before Vantage nuked it.

"There are a lot of unhappy, disappointed people," said Tolli Thomas, chairwoman of the alliance.

Yanked offers

Suddenly, producers across the Barnett were yanking their generous offers.

"The procrastinators and stragglers lost out," said Bryan Wang, a resident of the Timarron neighborhood in Southlake. The group had negotiated a $24,000 per acre signing bonus with XTO Energy Inc. That deal is also dead.

Chesapeake Energy Corp., the second-largest producer in North Texas, called a truce earlier this month. The Oklahoma City company backed off its strategy to aggressively gobble up land leases.

Chesapeake had boosted its bonus offers above $25,000 an acre. Now "$5,000 would probably be a maximum," said Julie Wilson, vice president of corporate development in Texas.

"Those upfront payments got so out of hand because of the competitive pressure between the companies to sign leases and the high price of natural gas," said Ed Ireland, executive director of the Barnett Shale Energy Education Council, an organization founded by eight gas companies to provide public information about natural gas drilling in the Barnett Shale.

Chesapeake, a member of the council, leases aggressively because, as chief executive Aubrey McClendon has said, leasing is cheap compared with the millions it costs to drill a well.

But the company had been relying on loans to pay for some of its leasing. No more. Earlier this month, Chesapeake tightened its budget and will live within its means.

On top of the global economic troubles, Chesapeake faces neighborhood protests and new restrictions on urban drilling. The company chose to retreat to the areas that have already welcomed its rigs.

"When you have so much opportunity and so much clamoring, it doesn't make sense to work in areas that are onerous to do business in," Ms. Wilson said.

Five thousand dollars might not do it for a lot of landowners.

"We will proceed very cautiously," said Ms. Thomas of the Southwest Fort Worth Alliance. "We are hoping that $5,000 is a starting point. If it isn't, a lot of people won't want drilling in their neighborhood for so little in return."

Rorie Cowden, who owns a 5.5-acre miniature golf course in the Lake Worth area, was counting on a $30,000 per acre signing bonus.

"When I went to sign, Chesapeake reduced the offer to $5,000 an acre," he said. "I didn't take it."

More factors

Natural gas prices have halved since early summer, triggering the leasing cool-off. Prices closed Friday down 3 percent at $6.21 per million British thermal units.

People use less fuel to run their factories and businesses when the economy weakens. Lower demand cuts prices.

Plus, since scientists figured out how to draw natural gas out of the Barnett Shale several years ago, production in shale plays across the country has boomed.

Total U.S. production was up 8 percent in July compared with last year, according to the most recent data from the Department of Energy.

The extra supply of natural gas also helped bring prices down.

When production companies fetch less money for their natural gas, they have less money to spend on new drilling.

If natural gas prices drop further, the market could hit levels that make new wells uneconomical.

Each Barnett Shale company has a different threshold.

For those that drill in urban areas or where the shale is thin, sustained prices below $6 or $7 per million British thermal units might trigger a halt.

In the core area of the play, where the shale is thick and rich with gas, a producer might not worry until prices hit $5 per million Btu.

"Most of the people talking about the Barnett Shale rolling over in the next while, I think that might reflect their own assets, their own acreage positions," said John Richels, president of Devon Energy Corp., the largest and one of the earliest producers of the Barnett Shale.

As an early pioneer, Devon leased land in the sweet spot of the play, in rural areas in Denton, Parker, Johnson, Tarrant and Wise counties.

Devon paid less for its leases than other companies and hasn't faced as much drilling protest as those companies working in urban areas.

Mr. Richels expects Devon to double its production in the next few years. He's more optimistic than some of his peers.

But even Mr. Richels agrees that lower natural gas prices will constrict drilling budgets in the industry.

'One more year'

"Our view is that the Barnett Shale, as an aggregate, probably has one more year of decent growth, and that's 2009," said Mark Papa, chief executive of EOG Resources, a Barnett Shale production company.

"By year-end 2009, we believe Johnson County is going to be pretty well drilled up by all operators," Mr. Papa told analysts in July.

"That's going to remove a lot of the thrust."

Other production company brass put the peak a year or two later, but most agree that the natural gas field may have only a few more years of growth.

Already data from the Railroad Commission show production has been declining nearly every month this year.

This can be explained partly by another set of data: rig count.

The number of rigs drilling wells in North Texas has been stable for months, around 255 rigs, according to data from oilfield services company Baker Hughes.

But producers must add rigs all the time to keep production volumes rising.

A Barnett Shale natural gas well gives up around 65 percent of its gas in the first year and around 80 percent in the first two years. The only way to replace that production is to drill more wells.

"I would guess you got maybe two or three more years of growth," XTO Energy president Keith Hutton said in the summer. "And it will slow, because people have to pick up rigs in order to make it keep growing. You've got to add rigs at least 10 percent or 15 percent every year to keep that kind of growth pace."

Instead, insiders say the rig count is more likely to go down.

Already, Chesapeake has said it will move 10 of its 43 Barnett Shale rigs to the Haynesville Shale, a budding natural gas field in northern Louisiana.

Saturday, October 25, 2008

Pennsylvania's Marcellus Shale Natural Gas to be Tax?

HARRISBURG, Pa. - The land agents, geologists and drilling crews rushing after the Marcellus Shale are raising something besides the natural gas they're seeking: Talk of a natural gas tax.

Thanks to a state Supreme Court decision six years ago, Pennsylvania is now one of the biggest natural-gas producing states , if not the biggest , that does not tax the methane sucked from beneath its ground.

But momentum is gathering to impose such a tax. The Marcellus Shale , a layer of black rock that holds a vast reservoir of gas , is luring some of the country's largest gas producers to Pennsylvania, and state government revenues are being waylaid by a worldwide economic malaise.

A spokesman for Gov. Ed Rendell says the administration is looking at the idea of a tax on natural gas, but a decision has not been made. Typically, Rendell does not reveal any tax or revenue proposals until his official budget plan is introduced each February.

Senate Republicans are planning a November hearing at Misericordia University in northeastern Pennsylvania to look at what effect can be expected on local governments if Marcellus Shale production lives up to its potential.

Local officials worry about damage to local roads ill-suited for heavy truck traffic and equipment. School districts could be strained by families of gas company employees moving into town. And some residents are concerned about gas wells disrupting or polluting the water tables from which they draw drinking water.

Legislators must find the fairest way for companies to share those costs, whether by levying a tax or through some other means, said Sen. Jake Corman, R-Centre, the GOP's policy chairman.

"I do think there is an understanding that some sort of compensation for municipalities is warranted," Corman said. "We just have to figure out the best way to do that."

So far, drilling activity is under way on the Marcellus Shale in at least 18 counties, primarily in the northern tier and southwest where the shale is thickest, according to the state Department of Environmental Protection.

Land agents are trooping in and out of county courthouses to research the below-ground mineral rights. At least several million acres above the Marcellus Shale have been leased by companies in West Virginia, New York and Pennsylvania.

Just this week, Range Resources Corp. and a Denver-based gas processor said they have started up Pennsylvania's first large-scale gas processing plant, about 20 miles south of Pittsburgh.

And CNX Gas Corp. announced that a $6 million horizontal well it drilled in southwest Pennsylvania is producing a respectable 1.2 million cubic feet a day , a rate it expects to improve in coming weeks.

In the opposite corner of Pennsylvania, drilling pads are now visible on Susquehanna County's farmland, and hotel rooms are booked with land agents and drilling crews.

"It is the talk at the coffee shops, at the local grocery store, the gas station , everybody," said state Sen. Lisa Baker, R-Luzerne.

Activity is still in the early stages, as exploration companies work to confirm their basic assumptions about the potential of the Marcellus Shale reservoir, and probe for the spots with the greatest promise, analysts say.

Industry representatives say they oppose a tax, and Stephen W. Rhoads, the president of the Pennsylvania Oil and Gas Association, questioned the wisdom of imposing a tax on gas production that is still speculative.

In some natural-gas states, a tax is collected based on a company's gas production by volume.

But in Pennsylvania, the Supreme Court ruled in 2002 that state law did not allow counties, schools and municipalities to impose a real estate tax based on the value of the subsurface oil and gas rights held by exploration companies.

An appraiser's study presented last year during a House Finance Committee hearing estimated that the court's decision had cost Greene, Fayette and Washington counties up to $30 million in county, school and municipal tax revenue.

The state's county commissioners and school boards support the resumption of some type of taxing authority , although that could mean landowners would get smaller royalty checks.

Regardless, Doug Hill, the executive director of the County Commissioners Association of Pennsylvania, said the matter is one of basic fairness since coal, gravel and limestone are assessed.

"The bottom line is it isn't a windfall issue," Hill said. "It's a tax equity issue."

Tap & Oil Producing Natural Gas at North Loeher Ranch

GOLIAD, Texas, Oct 24, 2008 /PRNewswire via COMTEX/ -- The Tap Oil and Gas LLC Loeher #7 well has logged and cored productive and is currently under completion. The Loeher #7 is the last scheduled location in the area.

Tap Oil and Gas LLC is an Austin based exploration and production company focusing primarily on natural gas reserves in the Texas Gulf Coast area. The company produces over 1,000,000 cubic feet per day of natural gas, controls over 750 acres of oil and gas leases and owns hundreds of square miles of three dimensional seismic data. Tap was founded in November of 2005.

Tap's most recent field development is the North Loeher Ranch with 6 producing natural gas wells. It is believed that the North Loeher Ranch leases will produce over 5 billion cubic feet of natural gas over the next 10 to 15 years.

Friday, October 24, 2008

Natural Gas Hits Low Price for mmBtu

Natural gas futures in New York fell to the lowest price in 13 months after a government report showed a bigger-than-average increase in U.S. supplies of the heating and factory fuel.

Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said today. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production. The average supply increase this time of year is 62 billion cubic feet.

“We’re sitting in a really great spot as far as the amount of natural gas we have coming into this heating season,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

Natural gas for November delivery fell 35.8 cents, or 5.3 percent, to settle at $6.419 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Sept. 25, 2007. Prices are down 5.1 percent from a year ago.

The surplus to the five-year average last week was 93 billion cubic feet, or 2.9 percent, after widening for four consecutive weeks. Supplies now exceed the five-year average of 3.327 trillion cubic feet that’s on hand at the start of the heating season in early November, when 52 percent of U.S. homes count on gas to keep them warm.

“Clearly, the market is well supplied,” George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York, said before the report. “There is some talk the U.S. winter may not be that cold in the consuming east regions.”

A worsening economic outlook in the U.S. is also dragging gas lower, Ellis said.

The number of Americans filing first-time claims for unemployment benefits increased last week, a sign the credit crisis is hurting employment, a Labor Department report showed.

A slowing economy would cut demand for gas from commercial and industrial companies, which accounted for 42 percent of U.S. consumption in 2007.

Energy producers have restored 66 percent of the 7.4 billion cubic feet of gas a day normally produced in the Gulf of Mexico, after hurricanes Ike and Gustav last month shut production platforms and pipelines, the U.S. Minerals Management Service said today.

“When you look back at the number of days we were down the supply is pretty amazing,” Rose said. “Once it’s all up and running there’s going to be a lot of gas” available this winter.

Supplies are also being bolstered by higher output from domestic onshore fields.

Stockpiles will probably reach 3.47 trillion cubic feet by the end of October, George Hopley, an analyst at Barclays Capital Inc. in New York, said in a report this week.

“A normal winter would result in a cumulative seasonal draw of 1.8 trillion cubic feet, leaving about 1.7 trillion in storage at the end of March,” Hopley said in his weekly gas outlook.

U.S. production is expected to increase 6.7 percent this year, particularly from fields in Texas and Wyoming, the Energy Department said in a monthly report on Oct. 7.

Thursday, October 23, 2008

Natural Gas Cartel Triumbirate of Russia, Qatar and Iran

Natural gas cartel would fail in bid for OPEC-like impact
Deborah Yedlin, Calgary Herald
Published: Wednesday, October 22, 2008

It's not enough that oil prices are subject to the vague inner workings of the Organization of Petroleum Exporting countries, but if things go according to plan, a natural gas-focused organization is in the process of being established.

Key energy officials from Qatar, Russia and Iran met Tuesday to discuss this very subject. This is significant because these countries are the three largest in the world in terms of natural gas reserves.

The obvious question from this news is what impact could it have on natural gas markets, especially in North America.

To understand how it might unfold, a few facts need to be established.

The first is that natural gas has yet to become a global commodity, though it is slowly headed in that direction.

This means that any fears about an initiative like a natural gas cartel involving Russia and any number of producers based in the Middle East delaying the development of North American natural gas initiatives such as the Mackenzie Valley pipeline or the Alaska pipeline are unfounded.

And there are a good number of reasons for this.

Let's start with the fact that a global market for natural gas is tied to the development of liquefied natural gas capabilities around the world -- whether it's liquefaction or regasification. Those facilities, in addition to the tankers needed to transport the LNG, are not exactly cheap.

As Tristone Capital's Chris Theal points out, the only way the so-called LNG trains are built is if they are tied to 20-year contracts; without those long-term contracts, the financing doesn't happen.

"There is a structural aspect to LNG markets that doesn't exist with crude oil, which trades on the spot or forward-month basis. LNG, on the other hand, is underpinned by 20-year pricing agreements," said Theal, Tristone's managing director of research.

Companies with unallocated capacity have the ability to play off markets that happen to be willing to pay more for natural gas at certain times of the year, but that happens to be a small percentage of the global market.

Moreover, the delivery capacity of oil far outstrips that of natural gas.

"An LNG tanker landing on the U.S. East Coast will have a cargo valued at about $20 million while an oil tanker can carry as much as one million barrels and be valued at $200 million," says Bob Skinner, the former director of the Oxford Energy Institute based in Oxford, England.

The countries importing LNG are those which lack any meaningful resources of their own; in other words, they have no choice.

As it stands today, three countries -- Japan, South Korea and Spain -- account for half of the 25 billion cubic feet of LNG produced every day. Of that

25 bcf, less than one billion cubic feet made it to North American shores last year, largely due to the success encountered by natural gas drilling in the shale plays in the U.S. southwest and Theal expects that trend will continue until 2013.

"Continued growth in LNG demand, coupled with willingness for many emerging players to pay crude (oil) equivalent prices, we anticipate that markets outside the U.S. will absorb 80 to 85 per cent of undedicated supply in 2009 and 2010," he wrote in a recently published research report.

Moreover, the biggest supplier of LNG today is Qatar and expectations are that it will continue to dominate the market. Iran and Russia on the other hand, while having big reserves, are not players in that world. At least not yet.

FirstEnergy's Martin King, who covers commodities for the investment firm, says Iran is not relevant at all in the LNG world, nor does it have well-developed markets that it supplies via pipeline.

Russia, on the other hand, is a major supplier to Europe in terms of natural gas delivered via pipeline, with about 95 per cent of its exports destined for western European countries. It also is the key supplier of natural gas to former Soviet bloc countries. Because of its reliance on Russia, with Germany being most dependent, Europe has long been looking for ways to diversify its natural gas sources but has been criticized for not moving fast enough; a natural gas cartel would only heighten the anxiety.

Part of Iran's challenge is that many western-based countries which were interested in developing its natural gas resources have packed their bags and left because of the country's opaque nuclear agenda. Until this is resolved, Iran will remain a peripheral player in the natural gas world, regardless of whether there is a cartel or not.

At this point, from a North American context, whether this initiative moves ahead and is formally established makes no difference to natural gas markets on this side of the Atlantic.

The way things appear to be progressing, according to Skinner, is that natural gas will eventually become a global commodity, but not in the same way that crude oil is today.

"We'll have a global natural gas market with regional elements," he said.

That means any initiative to control the supply and price of natural gas, along the lines of what the Russia, Qatar, Iran triumvirate is proposing will never succeed on a global scale.

"The long-term nature of LNG limits the ability of a natural gas consortium to act like the OPEC oil cartel," said Theal.

And, as the world awaits the outcome of Friday's emergency meeting among OPEC members to address the drop in oil prices, one thing is clear: another cartel manipulating energy prices is the last thing the world needs.

Wednesday, October 22, 2008

Natural Gas Bills Go Lower in Illinois


Ameren's natural-gas customers in Illinois will catch a break with their bills next month as winter heating season approaches.

The St. Louis-based utility says those 840,000 gas customers could pay anywhere from 22 to 35 percent less for gas in November, thanks to lower worldwide demand for energy.

Ameren (nyse: AEE - news - people ) vice president Scott Glaeser says the price of natural gas fluctuates from month to month based on supply and demand.

He says Ameren is "cautiously optimistic" that natural gas market prices will stay lower than first predicted throughout the heating season.

The effect on individual bills depends on usage.

Tuesday, October 21, 2008

Compressed Natural Gas - Everybody Talkin CNG

By Jennifer Alsever contributor
updated 2:48 p.m. PT, Mon., Oct. 20, 2008

What will power your car a decade from now? Billionaire T. Boone Pickens is betting big that it will be compressed natural gas.

The former oil tycoon has put $58 million into touting his "Pickens Plan" in TV ads, YouTube videos, town hall meetings and media interviews to get people talking about boosting wind power for electricity and using the nation's natural gas supply for the next auto fuel.

The publicity is working. After years of a relatively low profile in the alternative fuel discussion, compressed natural gas or "CNG" vehicles are now at the forefront of a national debate.

"No one would be talking about CNG in vehicles but for T. Boone Pickens’ ad campaign," said Tyson Slocum, director of the energy program for Public Citizen, a consumer advocacy group.

Multiple congressional bills aim to expand the use of natural gas vehicles, proposing new research programs, tax incentives for automakers and changes in fueling station requirements.

In California, a fight is under way over Proposition 10, a November ballot initiative that would authorize the state to issue $5 billion in bonds to provide financial incentives to buy and develop such vehicles.

Critics charge that Pickens' own financial interests drive the push for CNG cars. He is the largest shareholder of Clean Energy Fuels, a Seal Beach, Calif., company that builds natural gas filling stations for buses and fleet vehicles. Clean Energy is also the author and co-financier of the California ballot proposal.

Pickens also has come under fire for misstating some facts in the debate. For example, he contends in media interviews and in ads that the United States spends $700 billion on foreign oil, but the figure is closer to $327.6 billion, according to the U.S. Energy Information Administration.

And critics point out that natural gas is a finite resource, just like oil.

“Most environmentalists believe natural gas is not the future,” said Richard Holober, executive director of the Consumer Federation of California, which is opposed Prop 10. “This is an attempt to divert public money away from zero-emission vehicles to a dead-end technology that gets us nowhere.”

The group estimates the bond issue will cost state taxpayers $350 million a year.

Natural gas industry executives say CNG is a cleaner alternative to gasoline — producing 23 percent less greenhouse gas than diesel vehicles and 30 percent less than gasoline vehicles. And thanks to new drilling technology, they say, unprecedented amounts of natural gas can be obtained domestically and at far cheaper prices — about $1.50 a gallon.

“It is the most viable technology that you can do on a big scale,” says Jim Harger, a senior vice president of Clean Energy. “We have a glut of natural gas across the country. It’s right here in our backyard. We can do this now. It’s all ready to go.”

Harger said more than a dozen automakers, including Porsche, General Motors and Volkswagen, now make natural gas vehicles for the European, Argentinean and Brazilian markets. But the only domestically available natural gas car is the Civic GX from Honda.

Natural Gas Services Growing #38 on Forbes

MIDLAND, Texas, Oct 20, 2008 /PRNewswire-FirstCall via COMTEX/ -- Natural Gas Services Group, Inc. (NGS:
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NGS 12.77, +1.93, +17.8%) , a leading provider of equipment and services to the natural gas industry, announces it has been recognized by Forbes magazine as one of "America's 200 Best Small Companies" for the fourth consecutive year.
The America's 200 Best Small Companies list is selected following a comprehensive evaluation of financial results plus additional operating factors of candidate companies having sales between $5 million and $750 million and a minimum stock price of $5 as of Sept. 29, 2008. The ranking is based on return on equity, sales growth and profit growth over the past 12 months and five year periods. Forbes' editors also compared the Company's stock performance with that of its industry peers.
Steve Taylor, President and CEO of NGS said, "We are very pleased that, for the fourth year in a row, Forbes has recognized NGS's achievements and placed us on their prestigious list of America's 200 Best Small Companies. This is our highest ranking in the years we have been recognized by Forbes and it is a tribute to the Company's customer service focus, business strategy and financial execution. Our employees deserve the credit that goes with being named to this distinguished list four straight years."

Sunday, October 19, 2008

West Virginia Natural Gas Drilling Healthy

MOUNDSVILLE - Several Northern Panhandle and East Ohio counties - and numerous residents - have been experiencing an energy-driven economic boom over the past few years as companies drill deep into the Earth attempting to extract natural gas.

The current boom is poised to see a significant increase in the coming years, though, as companies are now planning to tap into what geologists believe is an even more lucrative natural gas source - the Marcellus Shale.

Monroe County alone has 1,504 active gas wells, with more being planned and permitted each month, county officials said. The same is true in Wetzel County, with 982 active gas wells; Tyler County, 842 wells; Harrison County, 472 wells; and Marshall County, 376 wells.

Brooke, Hancock and Ohio counties have little to no activity when it comes to natural gas production. According to information from the West Virginia Department of Environmental Protection, Hancock County has nine active wells while Ohio County has four wells and Brooke County has none.

Belmont County has 61 active wells while Jefferson County has a total of 25.

Ohio County's limited activity could change in the near future, however, as county commissioners last month approved a land lease for a drilling company at the county farm in Roney's Point. Also, about a half-dozen natural gas acquisition companies have been approaching homeowners throughout much of the local area over the past year, seeking to lease their mineral rights as drilling into the Marcellus Shale becomes possible.

But just what is the Marcellus Shale? Geologists believe the 400-million-year-old formation, which is more than a mile below the earth's surface, holds vast quantities of recoverable natural gas, possibly up to 50 trillion cubic feet, according to a recent study by the State University of New York at Fredonia.

The shale found throughout West Virginia and most of Ohio, Pennsylvania and New York holds the most promise, experts believe. And that has caught the eye of private landowners throughout the Ohio Valley, many of whom are contemplating the idea of drilling on their land.

A few landowners in the local area have been offered upwards of $1,000 per acre for their property. Most, however, are being offered in the hundreds of dollars per acre or less.

The West Virginia Farm Bureau held an informational meeting last month in Marshall County to discuss drilling and instruct landowners on how to best negotiate a land lease.

But just how much Marcellus Shale natural gas is in the local area? According to West Virginia University Professor of Geology and Geography Katherine Bruner, the exact amount may not be determined for several years. Bruner, who studies the Marcellus Shale, said that because much of the drilling is in its infancy, there is a lot to be learned about production in the area.

"Because the Marcellus play is very competitive, there is no public information available on production or projections for reserves," Bruner said. "Drilling is just beginning in many areas, and until wells are drilled and we see how they produce, all numbers are only speculation."

While Bruner said there have been informal reports that some Marcellus wells are producing more than a million cubic feet of natural gas per day, there is no concrete information to help determine the life of an active well.

"We do not know how long the wells will continue to produce gas, nor how much gas they will ultimately produce," Bruner said. "In addition, it will take several years of production to begin to understand the reservoir dynamics."

However, Bruner said that what has been estimated is the amount of recoverable natural gas throughout the 34 million acres of land between the state of New York and West Virginia.

"Calculations show 500 trillion cubic feet of gas in place," Bruner said. "If 10 percent of this gas can be recovered, then 50 trillion cubic feet of gas is theoretically available for production."

The study done by Gary Lash, geology professor at State University of New York at Fredonia, indicates that 50 trillion cubic feet of natural gas would satisfy approximately two years of total consumption in the United States.

Lash's study, released in January, placed the total value of the Marcellus Shale's natural gas at $1 trillion.

With the current state of the economy, Bruner said yielding high volumes of natural gas would be a great economic asset to the eastern United States.

"The close proximity of a natural gas supply to high population areas of the eastern seaboard will reduce transportation costs," Bruner said. "The addition of this gas will also help stabilize our natural gas supply - one less worry in uncertain economic times."

Mike McCormac, manager of the Ohio Department of Natural Resource's Oil and Gas permitting section, said there have been about a dozen Marcellus Shale permits issued in Ohio to date, with six of those currently being drilled.

"We are in the early stages (with the Marcellus Shale). We don't regulate leasing but we hear about it. It sounds like that phase is really active in your local counties, which is the precursor before permitting and drilling."

Many companies are taking part in the local drilling bonanza, as numerous wells currently being drilled and operated in West Virginia are owned by entities such as Columbia Gas Transmission and CONSOL Energy.

Laural Ziemba, manager of public relations for CNX Gas, a subsidiary for CONSOL Energy, said the company invested $34 million in natural gas well drilling in Marshall County for 2008. She said 22 wells in the county have already been drilled this year, and the company hopes to have a total of 34 wells drilled by the end of the year.

"CNX Gas is on target to produce 73 billion cubic feet of gas in 2008," Ziemba said. "Daily, that equates to about 200 million cubic feet, 4 million cubic feet of which is currently produced in Marshall County."

Ziemba said each of the 22 wells, which are located in Cameron, Liberty and Webster, costs $1 million to drill, adding that the company has invested $10 million in processing plants for natural gas.

While it's easy to determine how much gas has been produced, Ziemba said determining profit is more difficult.

"Our profit will fluctuate with gas prices," Ziemba said.

While Columbia Gas Transmission does not drill for or produce natural gas, it does have a strong presence in the local area. According to Columbia Gas spokeswoman Kelly Merritt, the company owns two active natural gas storage fields in Marshall County, Victory A and Victory B. He said both were activated in the 1950s as producing fields, but were later changed to storage fields as the natural gas in those fields was depleted.

Merritt said about 6 million cubic feet of natural gas and recyclables travel in and out of those storage fields in one year.

Columbia and several partners also are planning a natural gas processing plant in Majorsville, near the Pennsylvania border. Merritt said several existing Columbia Gas pipelines in Marshall and Wetzel counties, along with pipelines in Washington and Greene counties in Pennsylvania, would serve as the backbone of the gathering system. They would connect with the proposed processing plant, where the raw natural gas would be converted into gas for sale.

The company is expected to offer processing at Majorsville as early as January, bringing the natural gas capacity to about 100 million cubic feet per day by mid-2009 and to more than 200 million cubic feet per day by mid-2010.

"The people in the Northern Panhandle are just sitting on natural gas," Merritt said. "There is a lot of growth and production in that area."

Saturday, October 18, 2008

Natural Gas President's Spanked by Margin Calls

Oct. 17 (Bloomberg) -- Tom Ward, chairman of SandRidge Energy Inc., faced the same type of borrowing squeeze that has wiped out shareholdings of other natural gas executives -- until his board of directors stepped in last week to help.

SandRidge announced Oct. 10 that its board had approved the purchase of Ward's interest in some of its natural gas wells for $60 million in cash. Ward, who is also chief executive, faced potential margin calls at the time because 25 million SandRidge shares he'd pledged as collateral for a loan had lost more than two-thirds of their value since the beginning of September.

At least 18 other chairmen and chief executive officers, including Ward's former partner, Chesapeake Energy Corp. Chairman Aubrey McClendon, had to sell their company stakes this month after getting caught in a similar bind. Tom Orr, director of research for Weeden & Co., a brokerage in Greenwich, Connecticut, said it was a bad time for Ward to sell his interests in natural gas properties unless he was in need of cash.

``In the last week or so, anything you sold would have been distressed,'' said Orr, whose firm specializes in the energy industry. ``It's basically a fire sale.''

Amid this month's stock market crash -- the Standard & Poor's 500 Index has dropped 19 percent in October -- energy executives such as McClendon and Bruce Smith, the head of San Antonio-based Tesoro Corp., have reported they were forced to sell company shares after getting margin calls from lenders. Howard Lester, CEO of the San Francisco-based home furnishings retailer Williams-Sonoma Inc., disclosed on Oct. 15 that he sold $13 million of company stock to pay down a margin loan.

New Loan Limits

In past downturns, companies sometimes lent executives money to meet margin calls, a practice exemplified by the $408 million that WorldCom Inc. provided then CEO Bernard Ebbers between 2000 and 2002, primarily to help settle debts secured by company shares. Since Congress barred most types of corporate lending to top brass in the Sarbanes-Oxley Act of 2002, companies must find alternative ways to help executives or watch them sell shares.

``It puts the company between a rock and a hard place,'' said Keith Higgins, a securities attorney at Ropes & Gray LLP in Boston. ``On the one hand, you don't want your CEO to be financially decimated. But, on the other hand, you have a fiduciary duty to shareholders not to imprudently use their money.''

Neither Ward nor Dirk Van Doren, SandRidge's chief financial officer, returned telephone calls for comment. General Counsel Richard Gognat declined to comment. Oklahoma City-based SandRidge, an explorer and producer of natural gas and crude oil in Texas and the Gulf of Mexico, said Oct. 10 that the transaction with Ward was unanimously approved by disinterested directors who engaged an independent financial adviser to review the fairness of the $60 million price.

Well Rights

Under a program adopted in June 2006, Ward had the right to sign up for a working interest of up to 3 percent in certain wells drilled by or on behalf of SandRidge over the ensuing decade. During 2007, he was invoiced $23.5 million for his share of well-drilling costs and received oil and gas revenue totaling $2.3 million, according to an April 23 filing with the U.S. Securities and Exchange Commission.

The deal with Ward will increase SandRidge's net proved reserves by about 43 billion cubic feet of natural gas equivalent, according to the company's Oct. 10 release. That works out to a price of about $1.40 per thousand cubic feet of natural gas equivalent, which is lower than the $3 to $4 that rival XTO Energy Inc. paid for proved reserves earlier this year, analysts such as Fadel Gheit at Oppenheimer & Co. said.

`Attractive Price'

``It was a very attractive price to the company for what was purchased,'' said Roy Oliver, a private investor and founder of U.S. Rig and Equipment Inc. who now serves on SandRidge's board. ``It was less than our finding costs for drilling,'' Oliver said, adding that the company obtained its fairness opinion from the investment bank Houlihan Lokey.

In his 2007 letter to shareholders, Ward said SandRidge's finding costs for the year were $1.99 per thousand cubic feet of natural gas equivalent. Natural gas prices are down 11 percent from a year ago, 21.6 percent in the last two months and touched a one-year low of $6.535 per million Btu on Oct. 10.

Oliver declined to comment on whether Ward used the $60 million in proceeds he received from SandRidge to pay down loans secured by company stock. The timing of the sale, the sharp decline in SandRidge's share price and Ward's use of his stock to secure loans, has led analysts to question whether the transaction was designed to help Ward weather a cash crunch.

``Just putting the pieces together, it's a theory that he needed liquidity on his end,'' said Ben Silverman, director of research for, which cited Ward's deal with the company in an October 13 report sent to clients.

SandRidge History

Ward, 49, came to SandRidge after working for about 17 years as the president and chief operating officer of Chesapeake, a company he co-founded with McClendon in 1989. As chief executive, McClendon built Chesapeake into the third-largest producer of natural gas in the U.S., with estimated proved reserves of almost 12.2 trillion cubic feet of natural gas equivalent at June 30.

The two executives still have ties. Both companies are based in Oklahoma City. Ronnie Ward, Tom's brother, remains a vice president at Chesapeake, and Ward himself still held a 4.7 percent stake in McClendon's company as recently as February, according to a March 27 SEC filing. Moreover, Ward and McClendon both built stakes in their respective companies by purchasing shares while taking out loans secured by their existing holdings.

After joining SandRidge, Ward bought stock from founder Noah Malone Mitchell, then purchased another 4.17 million company shares for about $108 million, or $26 each, in conjunction with its November 2007 initial public offering, according to documents he filed with the SEC on Nov. 19, 2007.

Shares Pledged

In May of this year, Ward filed SEC documents showing he spent another $101 million to buy 1.95 million shares at an average price of $51.69 each, raising his company stake to 23.7 percent of outstanding common stock.

As of July 25, Ward had pledged 25 million of his 37.8 million shares to secure a revolving credit line provided by a group of lenders led by Wachovia Bank N.A., according to an August 7 SEC filing. As of February 2008, Ward also had pledged 23.8 million Chesapeake shares -- acquired during his earlier career at the company -- as collateral for credit agreements with Deutsche Bank AG, his SEC filings show.

Vince Scanlon, a spokesman for Wachovia, and Michele Allison, a spokeswoman for Deutsche Bank, both declined to comment on whether their companies issued margin calls to Ward.

July Peak

From March 2007 through July 2008, McClendon bought almost 5 million Chesapeake shares on the open market at prices ranging from $30.55 to $59.75 each, according to SEC data compiled by the Washington Service. As of April 14, he had pledged 29.3 million company shares with a market value of $1.43 billion to secure borrowings, the company's annual proxy statement shows.

Both stocks peaked on July 2 -- SandRidge at $69.41 and Chesapeake at $74.00 -- and then began falling along with other energy company shares. By Oct. 10, SandRidge and Chesapeake shares were down almost 83 percent and 78 percent respectively from their record highs in July.

Chesapeake rose $2.76 to $21.11 each at 12:12 p.m. in composite trading on the New York Stock Exchange. SandRidge rose $1.07 or 10 percent to $11.64 each.

Chesapeake announced on Oct. 10 that McClendon had been forced to sell ``substantially all'' of his company stock during the week to meet margin calls. On the same day, less than two miles away, SandRidge was announcing that it would buy Ward's working interest in its wells. The company didn't disclose Ward's reason for selling.

``Aubrey McClendon had to sell most of his stock and Tom Ward was in a similar predicament,'' said Orr, the director of research at Weeden & Co. ``He just opted to take $60 million in cash for the carry he had in lieu of selling stock.''

Friday, October 17, 2008

Natural Gas Properties for Big Boy Buyers

Oil giant BP PLC is exploring a potential deal to buy natural-gas properties from once highflying Chesapeake Energy Corp., according to people close to the British company's thinking.

A deal would be an early sign that cash-rich global oil companies are prepared to embark on a spending spree as smaller natural gas producers scramble to raise cash amid declining energy prices and tight capital markets.

What's not clear is if BP is willing to pay close to what these properties were fetching in September, before the credit crunch and a 13% drop in gas prices, or whether Chesapeake, of Oklahoma City, Okla., is willing to accept less.

BP has already done two deals with Chesapeake this year, spending a combined $3.65 billion to acquire fields in Oklahoma and a 25% stake in another field in Arkansas. A Chesapeake spokesman said the company wants to sell a stake in a Pennsylvania gas-field similar to the Arkansas deal. The spokesman declined to discuss BP's interest in acquiring additional assets. A BP spokesman also declined comment.

BP is under pressure to expand its portfolio of energy projects as concerns mount about its ability to expand production. The company has relied heavily on its Russian operations for future growth. But conflicts with the billionaire co-owners of TNK-BP, its Russian subsidiary, have put that strategy in question.

While growth is an issue, BP's balance sheet isn't. The company reported $3.6 billion in cash and short-term liquid investments at the end of June, according to energy research firm John S. Herold. That hoard gives it the financial strength to pursue deals even in the current climate.

Following its Russian troubles, BP is focusing on North American natural gas markets, where small, independent companies have pioneered new techniques to extract gas from shale, long considered a lost cause.

Chesapeake was a leader in this shale-gas exploration effort, leasing thousands of acres over the past few years. But the strategy required frequent access to debt and equity markets, both of which are now effectively closed due to the global credit freeze. It has cut $4.7 billion from its capital budget over the next two years and is seeking buyers for assets to raise cash. Chesapeake said it hopes to raise between $2.5 billion and $3 billion by the end of the year through asset sales and other financial deals.

A person close to BP indicated the company was interested in acquiring some of Chesapeake's natural gas assets, though not the whole company. Chesapeake, the largest producer of natural gas in the U.S., has said it is in talks to sell a minority stake in its Marcellus Shale gas field, located mostly in Pennsylvania, as well as other assets.

It isn't clear whether BP is interested in the Marcellus assets or prefers other assets that Chesapeake has assembled over the years. The company is one of the top two leaseholders in four of the largest emerging gas fields in the U.S.

Thursday, October 16, 2008

New York Natural Gas Drilling Discussed

ALBANY, N.Y. - New York's top environmental official assured lawmakers that an expected boom in natural gas drilling will be carefully regulated even as they raised concerns ranging from truck congestion to contamination of New York City's water supply.

State Department of Environmental Conservation Commissioner Pete Grannis spent much of his two hours before an Assembly hearing Wednesday promising that gas exploration along a wide swath of the Southern Tier and the western Catskills won't happen unless it's proven safe for the environment. The region sits atop the northern reaches of a massive but deep natural gas reserve called the Marcellus shale formation.

Energy companies have been snapping up gas leases from landowners for more than a year in the region, bringing predictions of billions of dollars of revenue along with dire warnings of environmental degradation.

Ecological concerns center on the massive amounts of chemically treated water shot into deep wells to release pockets of gas. Grannis' agency is updating its mining regulations to deal with procedure, often called "hydrofracking" for the way it fractures rock.

Wednesday, October 15, 2008

Fort Worth Natural Gas Revenue Down

FORT WORTH (CBS 11 News) ― The slumping economy is taking a toll on one of North Texas' key economic engines -- natural gas production.

Low natural gas prices are slowing the boom and fueling worries about how low the market will go.

Natural gas closed at $6.76 Tuesday (click here to check prices). That's down from this year's high of $13.61 in July.

The price is down partly because demand for natural gas has fallen. And demand is not expected to increase until colder temperatures get here.

Because the price has dropped, companies like Chesapeake Energy are cutting back on their drilling in the Barnett Shale.

The City of Fort Worth held a meeting today to discuss the environmental impact of gas drilling. But people who attended the meeting were also concerned about the economic environment of the industry and its impact on North Texas.

Kimberly Clark is a Fort Worth homeowner who was there. "Maybe it is a chance that they can talk and discuss things so that it works for everyone," she said. "I think whatever they do it has to be balanced."

"I think we're in an unstable situation nationally," said Chesapeake representative Kenneth Barr. "Certainly the price of gas is down and that has an impact on all the companies here in the Barnett Shale area."

For Chesapeake, it's meant cancelling a planned internet news broadcast, pulling back from a drilling site on TCU property and plummeting stock values.
Some predictions are drilling will slow and some wells will be capped until market prices go up.

The concern at today's meeting was the trickle-down effect. The City of Fort Worth makes millions from natural gas revenues. But, knowing markets are volatile, city planners made sure their gas money was not used to fund critical items like salaries.

"You don't want to use any of those dollars in our endowment on operations," said Fort Worth Mayor Mike Moncrief. "Only for single-time purchases. And this is the very reason we put that policy in place."

Tuesday, October 14, 2008

Indiana Natural Gas Pipeline Started

BAINBRIDGE, Ind. - Construction work has started on the 166-mile segment across Indiana's midsection of a pipeline that will carry natural gas from Colorado into the Midwest.

The Rockies Express-East pipeline route crosses nine counties in central Indiana, dropping just south of Indianapolis. The pipeline is expected to be partially in service into western Indiana's Putnam County by April, with the entire section through Indiana completed by next July.

More than two years after the first public meetings were held on the project, 80-foot segments of pipe are being laid end to end near the Putnam County town of Bainbridge, about 40 miles east of Terre Haute.

Rockies Express-East is the final portion of a more than 1,600-mile, $5.6 billion pipeline stretching from Colorado to Ohio.

Monday, October 13, 2008

More Natural Gas in East Texas

Now for the news: It's not the Marcellus Shale formation they are banking on, but another formation called the Herkimer.

While the Marcellus and Trenton Black River formations have become big names in the Southern Tier's fledgling natural gas culture, they are just a few of a growing list of geological riches prospectors are seeking under the region's rolling landscape.

The Herkimer formation, which is being mapped out between northern Chenango and central Broome counties, is one of many gas-rich formations being discovered throughout the Southern Tier. Norse Energy, which holds mineral rights to more than 130,000 acres in Broome, Chenango and Madison counties, is discovering the potential of the Herkimer after drilling wells and building infrastructure in the Norwich area.

The company plans to continue working its way south into the heart of Broome County, where it can ship gas through the Millennium Pipeline, said Dennis Holbrook, a spokesman for Norse. The Millennium, a major transmission line bisecting the Southern Tier, is expected to be completed later this year.

"We believe the area has excellent potential," Holbrook said last week. "We're very positive with what we have been able to achieve so far."

Norse, based in Norway, recently developed two wells in Chenango County, with production rates for each approaching 1 million cubic feet per day. Those results have encouraged the company to commit more manpower and equipment to the area.

Crews are now working on two more wells near Norwich. In addition to plans to link to the Millennium Pipeline, the company has built a compression station at the northern end of its operations to pump gas into the Dominion Pipeline running through Madison County.

In a recent company report, company CEO Oivind Risberg characterized success in the Herkimer as "the tip of the iceberg," with the possibility of tapping into other gas formations, such as the Utica and Marcellus shales, also running under the region.
Small, but worthy

How big is the Herkimer? Smaller than the Marcellus, but big enough to attract attention from an international company.

Unlike the Marcellus, which extends uniformly over a vast area, the Herkimer holds gas-rich pockets here and there, many of which are still being discovered.

Generally speaking, limestone-type deposits such as the Herkimer run under a gas-rich shale formation called the Rochester, extending south from Rochester, through central New York, the Southern Tier and northeastern Pennsylvania, according to Terry Engelder, a professor of geosciences at Penn State University.

Similarly, the Trenton Black River holds gas-rich pockets running under the Utica shale throughout western New York and parts of the Southern Tier.

The Marcellus has the largest footprint, encompassing the Southern Tier, Pennsylvania and parts of West Virginia and Ohio, with a relatively uniform blanket of gas. At between 4,000 and 5,000 feet, it is the shallowest of the formations, with the others lying a mile or more beneath the surface.

While promising, the Herkimer and other formations hold less gas combined than the Marcellus, which is generally recognized as the mother lode, Engelder said. They also require detailed geological mapping, and heavy reliance on seismic testing to pinpoint gas pockets.

"The Marcellus is the meat and potatoes," Engelder said. "The others are like appetizers. An operator needs to live off the meat and potatoes."

Drillers will have to wait for the main course in New York, however, while the state updates its environmental regulations to deal with the intensive drilling process necessary to tap the Marcellus.
Environmental reviews

Regulators with the state Department of Environmental Conservation are reviewing the environmental impact of the process, which uses millions of gallons of water and chemical additives to fracture the bedrock at each well. It also produces relatively large amounts of waste, and the state is trying to answer questions about how it will be handled and treated, along with other environmental concerns.

The review is expected to last at least until spring.

That puts companies in a tough position, said Mark Scheuerman, head of media and legal affairs for Fortuna, an Elmira-based company with about 1 million acres in the Southern Tier and Pennsylvania. Some of those leases will expire next year, leaving the company to try to patch together the remaining quilt-work of leased land to form units large enough to drill.

While Fortuna executives may find that discouraging, landowners counting on more lucrative lease deals might prosper. Five years ago, leases were generally going for between $5 and $100 per acre, with 12.5 percent royalties. This year, the going rate has climbed to between $1,500 to $3,000 per acre, with royalties as high as 15 percent.

As companies wait to develop the Marcellus in New York, landowners with expiring leases might have the chance to renegotiate for better terms, said Lindsay Wickham, a field adviser for the New York State Farm Bureau. On the flip side, gas companies can extend leases indefinitely once they begin any type of work on the property, and new discoveries in other formations are likely to encourage that.

"It's a double-edged sword," Wickham said. "It's very encouraging gas companies are committed to working in the area and biding their time until they can explore the Marcellus. But it can also tie up leases."

In the meantime, Fortuna Energy is finding financial nourishment from the Trenton Black River, with plans to begin exploring the Marcellus in Pennsylvania.

"We still have high hopes for the Marcellus," Scheuerman said. "But we have to drill a number of wells to understand its reach."

Similarly, the Herkimer is providing welcome sustenance for Norse as it waits for regulatory issues to be worked out for the Marcellus.

"Our intent is to have multi-strata opportunities, so if one doesn't work out, we can produce from another," Holbrook said. "It's important to have options."

The company is tapping the Herkimer after investing 10 years of research and preliminary work in the area. As it begins showing the first signs of bearing fruit, Norse is moving manpower and equipment to the area to drill more wells and develop pipelines necessary to capitalize on the find.

With 250 potential well sites, the total take from the Herkimer could be more than three hundred billion cubic feet, according to company estimates. That would generate gross revenues of about $2 billion based on current gas prices, excluding returns from other formations that could be discovered while developing the Herkimer.
Pipeline a priority

In the complex world of geology and economics, several other parts of the equation must be accounted for to predict the future of gas development in the Southern Tier.

Who gains and who loses remains to be seen based on a number of wild cards, including the price of natural gas, the rate of infrastructure development, the future of the economy and the duration and outcome of the state's environmental review.

The credit crunch will likely affect the gas industry like any other, gas company officials said. It also could continue to push down the price of natural gas. But because gas resources are developed over 10- or 20-year periods, negative impact over the short term may not significantly affect outcomes over the long term.

Additionally, the largest reserves and the most prolific wells are essentially worthless if there are no pipelines to get gas to customers. To that end, Norse and companies like it are banking on the Millennium Pipeline to pump gas from the heart of Broome County to regional markets in and around the New York metropolitan area.

Where will the drilling action be most intense as the industry continues to forge ahead? For starters, look toward the pipelines.

"It is easier to drill a good well near a pipeline than it is to drill a better well that is farther away," Holbrook said.

Sunday, October 12, 2008

Natural Gas Fortunes Lost in Stock Margin Calls

By Steven Bodzin and Dan Lonkevich

Oct. 10 (Bloomberg) -- Chesapeake Energy Corp. said its chief executive officer, Aubrey McClendon, involuntarily sold ``substantially all'' of his common shares of the company's stock over the past three days to meet margin loan calls.

``These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis,'' McClendon said in today's statement. ``In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential.''

McClendon, 49, owned 33.5 million shares, or 5.8 percent of the company's common stock, according to a Sept. 30 filing with the U.S. Securities and Exchange Commission. He was the company's third-largest shareholder.

Chesapeake, this year's worst-performing petroleum producer in the Standard & Poor's 500, fell 6.7 percent in New York trading today amid concern hedging contracts won't protect the company against a plunge in natural-gas prices. McClendon's divestiture was announced after the close of regular trading on U.S. stock markets.

``You have to imagine Aubrey's lost a large portion of his fortune,'' Benjamin Dell, an analyst at Sanford C. Bernstein & Co., said today in a telephone interview. He rates the stock at ``market perform'' and owns none.

More than three-quarters of McClendon's $18.7 million in compensation last year was stock awards. The annual compensation helped boost McClendon to 134th place on the Forbes 400 list of wealthiest Americans this year from 220th place last year.

Price Revealed

Company spokesman Jeff Mobley declined to comment beyond the content of the statement. He said in an interview the company will soon file forms that will show what price McClendon received for his shares.

Investors are concerned that Chesapeake and other U.S. oil and gas producers have hedging contracts with financial firms and other counterparties that won't be able to pay for their output at the agreed-upon prices because of the global credit crisis, said Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston.

Oil and gas producers use hedging contracts to lock in prices and ensure adequate returns from their wells and sufficient cash flow to pay off their debt.

McClendon is the second oil chief executive officer in as many days to reveal company stock sales. XTO Energy Inc. Chief Executive Officer Bob Simpson sold more than $101 million of stock, according to an Oct. 8 filing with the Securities and Exchange Commission.

XTO Stock Sale

Simpson, 60, sold shares of the Ft. Worth, Texas-based company at prices ranging from $34.64 a share to more than $39.50 a share, the filing said.

The sales represent about a third of Simpson's stake in XTO. He was the company's tenth-largest shareholder.

Chesapeake also has so-called knockout swap contracts on more than one-third of its 2009 production, and those deals don't obligate the buyers to take gas when prices drop to $6.28 per thousand cubic feet of the heating and power-plant fuel, according to analyst Joseph Allman of JPMorgan Chase & Co. in New York.

Gas futures traded in New York dropped to $6.65 today and have plunged 50 percent since the end of June.

``With natural gas close to $6.60, we think the concern about Chesapeake's knockout swaps is legitimate,'' Allman said in a note to clients. He rates Chesapeake shares ``neutral.''

A portion of the company's hedging positions contain such provisions, Chesapeake said in a separate statement.

Kick out Swaps

``The company has consistently utilized kick out swaps for a portion of its production, and over the past 57 months, only four months have resulted in any portion of the company's hedges being kicked out.''

In response to the lower gas prices, Chesapeake plans to further cut its capital expenditures by about $1.5 billion in 2009 and 2010 through reduced drilling and lower leasehold expenditures.

The company on Sept. 22 lowered its capital expenditure budget by $3 billion through 2010.

To ensure its revolving credit can be fully used during these ``turbulent economic times,'' the company said it borrowed the remaining capacity of its facility at the end of the third quarter. It has invested the cash proceeds in short-term U.S. Treasury and other highly liquid securities.

Lehman Brothers

Chesapeake said it has cash and cash equivalents of about $1.5 billion as of Sept. 30. All 36 lenders that participate in Chesapeake's revolving credit facility fully funded their commitment, except for Lehman Brothers Holdings Inc., which didn't fund its $11 million share of the advance, the company said.

Chesapeake's financial exposure to Lehman Brothers included unpaid gas sales and derivates contracts. Chesapeake said it received cash payment for all natural-gas marketed through a former affiliate of Lehman Brothers. The company estimates a loss on terminated derivate contracts and the net value of hedges with Lehman won't be more than $50 million.

The company said it has hedging arrangements with 19 different counterparties.

Saturday, October 11, 2008

Natural Gas Prices at $6.53/mmBtu on Economic News

By Mario Parker

Oct. 10 (Bloomberg) -- Natural gas in New York dropped as investors fled commodities amid concern that the global financial crisis will slash energy usage.

A declining economy would reduce demand from commercial and industrial users of gas, which accounted for 9.64 trillion cubic feet, or 42 percent, of consumption in the U.S. in 2007. Oil in New York had its biggest weekly decline since March 2003.

``The credit market has been such that there is massive liquidation from commodities,'' said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There's panic and widespread pandemonium.''

Natural gas for November delivery fell 29 cents, or 4.3 percent, to settle at $6.535 per million British thermal units on the New York Mercantile Exchange. Prices have tumbled 52 percent from a 30-month intraday high of $13.694 on July 3. Futures are the lowest since Sept. 26, 2007. Natural gas had its worst week since Aug. 8, when it plummeted 12.2 percent.

``I've been in this business for 25 years, seen 1987 and 2002 and this is worse,'' Rose said. ``I've never seen so much money being shredded in my life.''

The S&P 500 fell 10.7 points, or 1.2 percent to 899.32, capping it worst week since 1933. The Dow Jones Industrial Average lost 128 points, or 1.5 percent, to 8,451.19. The Nasdaq Composite Index added 4.39 points to 1,649.51.

The Reuters/Jeffries CRB Index of 19 commodities tumbled the most ever. The CRB fell 20.64, or 6.7 percent, to 289.89. The index has slumped 39 percent from a record on July 3.

Global Economy

``Right now it's impossible to separate ourselves from what's happening economically across the world,'' said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. ``People are worried that demand is just not going to be there.''

Natural gas inventories also are adequate heading into winter, Florer said.

Inventories gained 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet, the U.S. Energy Department said yesterday. Analysts forecast an 87 billion-cubic-foot advance. The average increase this time of year is 69 billion.

The increase kept supplies on a pace to be above the five- year average of 3.327 trillion cubic feet at next month's start of the peak-demand heating season. The surplus to the average widened to 69 billion, or 2.2 percent, from 50 billion, or 1.6 percent a week earlier.

``All momentum and all signs point lower,'' Florer said. ``It was definitely a bearish number.''

Crude Oil

Crude oil for November delivery plunged $8.89, or 10.3 percent, to settle at $77.70 a barrel in New York. Futures touched $77.09, the lowest since Sept. 11, 2007.

``One of the largest open interest segments was hedge funds,'' said Ed Kennedy, a trader with Commercial Brokerage Corp. in Miami. ``Now redemptions are huge in both mutual and hedge funds. They have to get out of positions because they need the money.''

Natural gas prices are slumping even as the heating season approaches. The cold-weather season runs from November to March when demand for natural gas outstrips production, requiring utilities and other large users to draw on supplies put into storage during the summer.

``In times of economic stress people will lower their temperatures a little bit, therefore lowering demand,'' said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York.

Ellis said the slowing economy will weigh on natural gas demand for those who rely on the fuel for manufacturing.

President George W. Bush today said the U.S. government will ``aggressively'' move to help stabilize markets and resolve the financial crisis.

``Unfortunately, right now I don't think there's a lot of confidence in elected officials, from the investor community,'' Ellis said.

Friday, October 10, 2008

Natural Gas Floor Set at $6.50/mmBtu

Oct. 9 (Bloomberg) -- Natural gas in New York gained after prices slid to the lowest in a year, prompting buying before the start of the heating season when demand for the fuel peaks.

Natural gas has tumbled 50 percent since closing at a 30- month high of $13.577 per million Btu on July 3. Utilities and industrial consumers can buy the fuel now to guard against higher prices that may come as demand rises and outstrips production.

``Gas is going to hold around $6.50 because if you go much lower, a lot of supply will come off the market,'' said Tom Orr, research director at Weeden & Co. in Greenwich, Connecticut. ``With cold weather arriving, prices may be more like $7.50 to $8.''

Natural gas for November delivery rose 8.3 cents, or 1.2 percent, to settle at $6.825 per million British thermal units on the New York Mercantile Exchange. Gas fell as low as $6.51 yesterday, the cheapest it has been since September 2007.

Natural gas for delivery in February 2009 is trading at a premium of about 66 cents to November product. When gas for future delivery costs more than near-month contracts, it's a situation technically known as contango, which encourages companies to boost stockpiles now for use later.

``Gas is a screaming buy right now, especially if we get above-normal heating demand this winter,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``You could have a big withdrawal season, perhaps as much as 2.5 trillion cubic feet.''

Stockpiles started the previous U.S. winter at a record 3.545 trillion cubic feet in November 2007 and declined by 2.31 trillion by the end of March in a normal winter, Jarvis said.

Cold Winter Forecast

The approaching U.S. winter may be the coldest in five years, especially in the eastern part of the country, Joe Bastardi, a forecaster for, said yesterday.

A lot of production may be taken off line as prices languish at a time when demand increases because of lower temperatures, said Jarvis.

Chesapeake Energy Corp., the second-biggest U.S. independent natural-gas producer, cut its output growth forecasts on Sept. 22 and lowered its capital expenditure budget by $3 billion through 2010 because of slumping energy prices.

A government report today showed that U.S. supplies advanced in line with analysts' expectations, keeping inventories in a small surplus to the five-year average.

Inventories gained 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet, the U.S. Energy Department said today. Analysts forecast an 87 billion-cubic-foot advance. The average increase this time of year is 69 billion.

Five-Year Average

The increase kept supplies on a pace to be above the five- year average of 3.327 trillion cubic feet at next month's start of the peak-demand heating season. The surplus to the average widened to 69 billion, or 2.2 percent, from 50 billion, or 1.6 percent a week earlier.

Oil and gas companies had yet to restore 39 percent of the Gulf of Mexico's daily output of 7.4 billion cubic feet as of yesterday, following last month's hurricanes, according to the U.S. Minerals Management Service.

Iran Extends Olive Branch to Saudi & Kuwait Natural Gas Fields

Oct. 9 (Bloomberg) -- Iran, holder of the world's second- largest oil and gas reserves, offered to cooperate with Saudi Arabia and Kuwait to jointly develop the disputed Arash gas field, which spreads over the three Persian Gulf nations.

Iran has suggested the three countries cooperate on ``investment, development and production and for the natural gas to be exported to Kuwait and Saudi Arabia,'' Mahmoud Zirak Chianzadeh, managing director of state-owned Falat Ghareh Oil Co., was quoted as saying by Shana.

It is the first time ``cooperation instead of rivalry for the development of this field was discussed,'' Zirak Chianzadeh said, according to the news agency run by the Oil Ministry.

In June, Iran announced plans to develop the offshore Arash oil and gas field despite it being subject to a maritime dispute with Kuwait. Iran owns half of the field, while Kuwait claims a share of more than 50 percent, the Oil Ministry then said.

Thursday, October 9, 2008

Natural Gas Prices for Winter 2008

ALBANY, GA (WALB) - natural gas is expected to be in abundance this winter and it likely won't cost anymore than it did last year.

Even though natural gas production was interrupted by hurricanes, things are expected to be back to normal soon.

After seeing gasoline stations empty in recent weeks, many South Georgians wondered if their natural gas heaters also might run out of fuel. The Natural Gas Industry says even though half of the natural gas production in the Gulf of Mexico is still getting back on line after Hurricane Ike, the supply is still plentiful.

"We have more sources of supply," said WG&L's Director of Fiscal Affairs John Vansant. "The storage facility is looking great. It's 75 percent full, and that's a lot of gas that they can hold in storage."

In June the price of natural gas spiked to $13 a unit, but now the price has tumbled to just about seven dollars, close to last winter's cost.

"The price has fallen forty to 45 percent, and you know if everybody was worried about a big supply problem out there, that would not have happened," Vansant said.

Many South Georgians heat their home and run appliances with propane, and dealers say the supply of propane is fine.

"I encourage everybody to go ahead and fill up. I don't see a supply problem this winter," said Modern Gas Vice President Mark Holloway

Both Water Gas and Light and Modern Gas say the price of natural gas is falling, because the struggling economy has industry not using as much, and the less demand means better prices for people heating their homes this winter.

The price of propane right now is about $2.70 a gallon, but dealers say they expect that price to go down a few pennies soon.

Wednesday, October 8, 2008

Natural Gas Discovery in Sacramento, California


Shares of Royale Energy Inc. jumped Tuesday after the company announced a natural gas discovery in California's Sacramento Basin.

Royale shares gained 58 cents, or 18.6 percent, to $3.70 in midday trading.

Donald Hosmer, Royale's chief executive, said the company previously drilled four commercially productive wells to the shallower Nortinville formations on Andrus Island, but this was the first attempt to drill to the deeper Starkey Channel.

Royale said that after completing and testing the Starkey sand in the Andrus Island East well, it was flowing more than 1 million cubic feet of natural gas per day.

"The deeper objective in the well was higher risk but because of the potential upside the company felt the risk was justified," Hosmer said in a statement.

San Diego-based Royale is an independent energy company focused on development, acquisition, exploration and production of natural gas and oil in California, Texas and the Rocky Mountains.

Monday, October 6, 2008

K.C. Star Says Natural Gas Prices High

Natural gas production is up, which is encouraging news for energy-conscious Americans. But prices are among the highest they have ever been at this time of the year. That’s a disturbing fact.

It appears that many Kansas Citians and millions of other consumers across the country could be paying a lot more than in past winters to heat their houses.

Experts suggest several effective ways to reduce those bills — or at least trim potential increases — as the colder months approach.

Install better insulation in attics and walls, and add weather-stripping around doors and windows.

Dial back thermostats, especially at night.

Hire an inspector for an annual heating system checkup.

Change filters once a month to help furnaces run more efficiently.

Set the water heater’s temperature at 125 degrees — lower than is often the case — and install an insulating wrap.

Open curtains so the sun can help keep some rooms warmer.

Natural-gas production is expected to increase by 8 percent this year over last. More gas wells are being completed, too, raising the possibility of more production. That also could help drive down or at least control natural gas prices.

Unfortunately, 2008 has seen one of the biggest price spikes in history.

The national wellhead price for a thousand cubic feet of natural gas stood at $6.99 in January — higher than any previous year except 2006 — and climbed to $10.82 in June.

Since then, the price has fallen to around $8. But that’s not cause for too much celebration; it’s still at a level higher than any fall in recent decades.

So if supplies of natural gas are up, why aren’t prices down?

The weakness of the U.S. currency means it takes more dollars to buy a commodity like natural gas.

International tensions — in the Middle East and because of Russia’s invasion of Georgia — have made traders nervous, boosting prices for oil and natural gas.
And here’s one more piece of advice for homeowner