Sunday, January 9, 2011

Follow the Money as it Exits New York:
Drilling Drops Like a Rock in the Former Empire State

Online records covering oil, gas, and other wells from the New York State Department of Environmental Conservation show newly "spudded" wells have dropped 44 percent, and 42 percent, respectively, since 2008 — a time period covering the first two full calendar years of a temporary freeze on all full-scale shale gas wells.
Counting all oil and gas wells — and including non-fossil-fuel-producing wells such as stratigraphic, brine, storage, and geothermal — the state's database shows the number of wells started dropped from 542 in 2008 (the last year of a very high, three-year run) to 301 in 2009, and to 317 in 2010.

Looking at the numbers of wells permitted — some of which have not been drilled, may never be drilled, or were not drilled in the same calendar year — approved applications from industry dropped 25 percent, and 34 percent, respectively, from 738 in 2008 (the highest of three very active years) to 552 in 2009, and to 485 in 2010.

Examining all wells completed — some of which may have been permitted or spudded in prior years — the decline in activity is similar:  Down 48 percent, and 51 percent, respectively, from 535 in 2008, to 277 in 2009, and to 264 in 2010.

Note that these numbers are based on the online records for all 4,235 wells permitted in New York State since 1-1-2000, as those records electronically existed on 1-9-2011.  Drilling permits applied for, but never granted, were not covered.  It is also possible that there will be some 2010 records which had not yet been entered into the database as of 1-9-2011.

New York's now-famous frack moratorium covers only the issuance of drilling permits for horizontal shale gas wells in which the necessary completion techniques involve high-volume hydraulic fracturing, now commonly dubbed hydrofracking, or fracking. The original, temporary ban on this kind of shale gas development traces its origins to a between-the-lines reading of a July 23, 2008 press release, in which then-Governor David Paterson announced he had directed the DEC to update its 1992-vintage environmental impact statement covering all oil and gas drilling. 

This effort was aimed specifically at the private sector's significant amplification upon existing, five-decade-old hydraulic fracturing technology — with especially higher volumes of water being deployed along long horizontal wellbores, running a mile or so beneath rural residents' homes, and their key well water supplies.  Soon thereafter, it became clear to industry that New York State would not be issuing any shale gas drilling permits in the meantime, while the DEC's professional staff got busy with their study, and also a still-unreleased rewrite of the rules governing gas well drilling and completion.

In December 2010 — while vetoing a more sloppily worded moratorium supported by anti-drilling activists, and handily passed by both houses of the State Legislature — Paterson effectively doubled up New York's white knuckles over fracking by issuing an executive order which specifically extended the DEC's then two-and-a-half-year-old frack study, all the way to three years, or July 2011, at the earliest.

This measure, incoming-Governor Andrew Cuomo lost no time in seconding.  Cuomo has also appointed a new DEC Commissioner, Joseph Martens, who as a leader from the state's well-heeled not-for-profit sector had previously given at least one public speech in which he called for as much slowness as bureaucratically possible, prior to permitting exploitation of New York's largely privately owned shale gas resource.

The drop in wells permitted, spudded, or completed since 2008 is not directly due to the moratorium serving to freeze out a large number of previously existing projects.  That's because none of the New York drilling records (before or since 2008) has ever included a permitted, full-on, full-horizontal, full-fracture shale gas well.  Before 2008, industry had not yet ever proposed such a project in New York.

In Pennsylvania, the first such well was drilled and fracked without publicity as early as October 2004.  A number of additional gas-bearing eastern states — namely Ohio, West Virginia, and Michigan — have since found ways of following PA's lead, without getting bogged down in much political controversy.

New York, on the other hand, has witnessed a drilling decline which appears indirectly related to the moratorium, acting in conjunction with dramatically increased investment focus on unconventional shale gas, to the exclusion of more conventional source rocks.

Industry has chosen to drill fewer such traditional wells in New York (which the state has always permitted, and which it still permits, both before and since 2008), and is instead transferring much of that investment capital to shale gas developments in other states, such as Pennsylvania, where there has been much less regulatory holdup.

In Pennsylvania, the number of wells permitted, spudded, and completed has gone virtually off the charts between 2007 and 2011, driven largely by the boom in developing horizontal wells in the Marcellus shale formation

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