Jericho Oil and Field Redevelopment – April 19, 2015

Today we talk about five things in the news last week:

  1. EIA Annual Energy Outlook Sees Net Natural Gas Exports by 2017
  2. House Fires Back Against Clean Power Plan
  3. The President, the Pope, and Hollywood Go After Climate Change
  4. University of Colorado Stays In Fossil Fuel Business
  5. The Marcellus Is a Great Place for Women (and Men) in the Industry

Our interview is with Allen Wilson, the CEO of Jericho Oil, a company that is focusing on field redevelopment with shorter, vertical, non-fracked wells.

Click below to listen or find us on iTunes or Stitcher.

1.  EIA Annual Energy Outlook Sees Net Natural Gas Exports by 2017

On Tuesday, the U.S. Energy Information Administration released its Annual Energy Outlook for 2015.  This report presents long-term projections of U.S. energy supply, demand, and prices through 2040. The projections assume that current laws and regulations remain unchanged.  The projections are an important benchmark, and they also allow policymakers to see what the impact of various policy changes are likely to be.

The biggest takeaways in this year’s outlook include:

  • In most scenarios, U.S. net energy imports decline and ultimately end by 2030 for the first time since the 1950s
  • Increased oil production and declining demand leads to a decline in net petroleum and other liquids imports
  • The United States transitions from being a net importer of natural gas to a net exporter by 2017
  • Natural gas and renewables take some market share away from coal
  • Carbon dioxide emissions will likely grow but remain below 2005 levels
  • The “center of gravity” of gas production is shifting east towards the Marcellus
  • Manufacturing will grow in part because of cheap energy prices

That is a pretty mind blowing change in situation from just a few years ago.  In 2005, Congress acted to speed up the import of natural gas, and the New York Times reported:

International energy companies, the Bush administration and governments in gas-rich countries are aggressively championing the creation of a global market for natural gas, with the United States at its center as the largest importer. They are promoting the fuel as more plentiful and less polluting than oil and needed to sustain economic growth.

But in the same way that American oil output began to fall short in the 1960’s and has steadily diminished as a source of energy, the United States is already running low on its own production of natural gas. To fill the gap, vast amounts of gas will have to be imported – in liquefied form, arriving by tanker on the coasts of the United States or elsewhere in North America.

On Thursday, Administrator Sieminski shared his findings with the Senate Energy Committee.  One interesting exchange there centered on the dramatic shift in natural gas supplies.  Sen. Cory Gardner (R-CO) had Mr. Sieminski confirm that hydraulic fracturing is the cause of America’s newfound abundance.

Sen. Maria Cantwell (D-WA) touched on a popular criticism of the EIA’s work, that it underestimates growth in renewables.  Administrator Sieminski pointed out that EIA projections assume subsidies expire as they are currently slated to under current law, and thus projections are off when subsidies get extended.

2.  House Fires Back Against Clean Power Plan

On Tuesday, the House Energy and Power Subcommittee held a hearing on the “Ratepayer Protection Act,” a bill Republicans are offering in response to the President’s Clean Power Plan regulations for existing powerplants.  Chairman Fred Upton (R-MI) explained the bill:

First, the bill extends the compliance deadlines until after judicial review is completed. Given that so many states have raised serious concerns about the legality of EPA’s proposed rule and a dozen have already sued, it makes sense to clear things up legally before the rule’s costly and complex requirements take effect.

The Ratepayer Protection Act also provides each state governor with authority to protect its ratepayers to the extent a state or federal plan under the rule would have a significant adverse effect by contributing to higher electricity costs or threatening reliability. States, not EPA, should have the last word with respect to the affordability and reliability of their electricity systems.

Of course, this legislation would effectively block the President’s Clean Power Plan, and it is therefore highly unlikely to be signed into law by the President.  Perhaps as a result, members largely used the hearing as an opportunity to criticize the proposed regulation.  Rep. Adam Kinzinger (R-IL), for example, wondered what a state would do if it was faced with price spikes or grid reliability problems.

3.  The Pope and Hollywood Go After Climate Change

This week, the President’s weekly address focused on climate change.  He mocked Republicans that point to local cold temperatures as evidence against global climate change.  He also bragged that the U.S. is using more clean energy than ever before.  It seemed he was counting natural gas as “clean energy,” but he did not say for sure.

Meanwhile, the Pope announced a meeting that will work towards his anticipated statement on climate change:

U.N. Secretary-General Ban Ki-moon will open a key Vatican meeting this month on Pope Francis’ highly anticipated teaching document on climate change.

The U.N. chief will join American economist Jeffrey Sachs and the pope’s top representative on the environment, Cardinal Peter Turkson, at the April 28 event in Rome. Turkson, head of the Pontifical Council for Justice and Peace, helped write the first draft of the pope’s encyclical on global warming and the environment, which is scheduled to be released in June or July.

And, finally, the comedy video website “Funny or Die” also released a video mocking Republicans that do not believe in climate change.  They used the President’s joke about politicians who see snow and use that as evidence against warming.

4.  University of Colorado Stays In Fossil Fuel Business

A growing number of universities are facing pressure to divest from fossil fuels.  As the New York Times reported last month:

Syracuse University is dropping all fossil fuel stocks from its endowment, the university announced on Tuesday.

At $1.2 billion, Syracuse’s is the largest endowment to divest entirely of fossil fuel stocks. (Stanford University last year pledged to drop coal stocks from its $21.4 billion endowment.)

Fossil Fuel supporters at the University of Colorado went proactive last week:

The board rejected calls for divestment in a 7-2 vote at Thursday’s meeting, citing state law and university policy that require the prudent and non-political investment of public funds. Minutes later, the board voted down a motion from Regent Linda Shoemaker to create a sustainable investment advisory committee.

Regent John Carson, who introduced the motion to reject fossil-fuel divestment, cited a board policy on investment that calls for “the principle of institutional neutrality on social and political matters.”… Fossil Free CU responded with a statement saying that “we expect better of our decision-makers.”

5.  The Marcellus Is a Great Place for Women (and Men) in the Industry (Starts at 20:50)

So far, the gas-focused Marcellus region is handling the oil price downturn much better than other oil-focused areas.

NPR had a great story on it last week:

Lower oil and natural gas prices have the petroleum industry laying off tens of thousands of workers. It looks like a decade-long trend of job growth in the U.S. oil business may end.

But there are parts of the country where those job numbers are still rising. Pennsylvania is one of them….

The latest figures show more than 31,000 people in the state have jobs related to extracting natural gas. That’s nearly double what it was five years ago. State officials say the rate of employment growth in the gas fields has slowed recently, but for now it’s still growing.

For anyone interested in learning more, a Pittsburg- based group called the Young Professional Women in Energy are hosting a “launch academy” on April 30-May 1.  Meagan Roppo, the group’s COO, explained that the event will teach potential job seekers about the fundamentals of the shale industry.  It will be hosted by CONSOL Energy and will feature Jim Ladee of Penn State and ShaleTEC and Dan Brockett of the Penn State Extension Marcellus Education Team.  The course will provide an overview of the industry and available opportunities, and it is open to all.  Meagan said the local economy has been impacted by the industry downturn, but she thinks it is a speed bump in the long term as natural gas production in the region is still rising and liquefied natural gas exports are on the horizon.

Interview with Jericho Oil CEO Allen Wilson (Starts at 29:28)

Allen has spent his career in finance, and has worked in a number of resource industries.  He is also active in gold mining, for example.  He started Jericho about five years ago as a way to break into the oil and gas business.  He wanted to focus on North America, and once he found a good project he began raising funds.  He was intrigued by the hydraulic fracturing and horizontal drilling going on in places like the Bakken, but he sought out opportunities with stronger immediate cash flow.  He eventually chose to go to work in Kansas.  The state is a strong producer with a stable regulatory scheme that offered immediate returns.

Jericho bought existing projects from several small producing companies in Kansas.  Jericho was able to put a central management behind a handful of operations within a tight radius to help them run more efficiently.  Since the company was investing in existing production and shallow wells, its risks were minimized.  It was then able to drill a series of inexpensive, short, vertical wells around their already-proven wells.  While the overall volumes from each well are smaller than most fracked wells, Jericho’s wells are much cheaper to drill.  The company is also expanding into Oklahoma.

All of Jericho’s wells are under 1,000 feet deep, and wells under 3,000 feet are considered “shallow” in the industry.  The drill rigs the company uses are inexpensive to operate, and Allen compared them to a rig for drilling water wells.  He said that while many modern wells cost millions to drill and complete, Jericho’s wells are completed for less than $40,000.  One important benefit is that a “dry hole” is not catastrophic for the company.  Allen believes his company’s approach to efficiently developing existing fields is innovative, even though each well is not necessarily using breakthrough technology.

Jericho typically spaces wells two acres apart, while its competitors often space wells 40 acres apart.  The company has found wells do not interfere with each other even that close, and the company will utilize water flooding to help increase production in the field.  Water flooding is a leading form of secondary recovery where water is injected into wells to increase production.  When Jericho moves into a field it will first examine the existing wells.  If the company has any concerns about an existing well, they will plug it and move on to other locations in the field.  Occasionally, the company will optimize an existing well.  In most cases, however, they would prefer to drill a well they know rather than rely on a well drilled by another company.

Allen says that Jericho is well positioned to deal with the current downturn in oil prices.  He believes that going in to producing fields to get existing production is a smart strategy.  Jericho is working in small communities that have existing infrastructure.  That means the local community is already comfortable with oil and gas operations and Jericho rarely finds barriers to entry.  Allen is focused on keeping costs low, aiming at $30 or less in costs per barrel.  He is confident that oil prices will eventually rise, but he believes they can make money at current prices.

If you are interested in learning more, please take a look at the company’s website: www.jerichooil.com.