How Many Unconventional Wells Not Reported?

In a series of previous posts, I identified early Marcellus shale completions by various operators in Erie and Washington Counties, early Rhinestreet shale completions by Wainoco Oil and Gas Company (now HollyFrontier Corporation) in Crawford County and early Rhinestreet shale completions by Great Lakes Energy Partners (now Range Resources) in Crawford County.

Although these wells appear to meet the definition of an unconventional well under Act 13, CHAPTER 23 § 2302, as of April 2, 2012, none were reported by the Pennsylvania Department of Environmental Protection to the Pennsylvania Public Utility Commission as liable for impact fees, an apparent violation of Act 13.

In an effort to begin documenting these missing “legacy” wells in a more systematic and structured fashion I have started a small spreadsheet. To date, I have identified more than 200 legacy wells that likely meet Act 13’s definition of an unconventional well, all drilled prior to Range Resource’s “discovery” of the Marcellus shale in 2003-2005. If you are interested, I have posted these to a Google Spreadsheet.

Assuming the wells in question were vertical and not horizontal, these numbers, if correct, imply about $1.7 million in under-reported impact fees. If I were an elected official in one of the affected counties or municipalities (e.g., Crawford, Erie), this is something I would probably want to look into a bit more closely.

Early Rhinestreet Shale Completions

In an earlier post I described some examples of Marcellus wells drilled in Pennsylvania during the early 1980s, and speculated that these wells may be liable for impact fees under Act 13.

In particular, the language of Act 13, CHAPTER 23 § 2302, is quite unambiguous. Regardless of when spudding occurs, an impact fee is to be imposed on every producer of unconventional gas wells, which the Act defines as wells targeting “a geological shale formation existing below the base of the Elk Sandstone or its geologic equivalent stratigraphic interval…”

Considering the potential magnitude of the impact fees related to such “legacy” unconventional wells, yesterday I inquired about this issue with a Deputy Counsel at the Pennsylvania Public Utility Commission. He concurred with my interpretation of Act 13 — any wells targeting shale formations stratigraphically below the Elk Sandstone are liable for impact fees, regardless of when they were drilled — and indicated he would bring the matter to the attention of the Commission at its next meeting.

The Marcellus is not the only unconventional shale formation that oil and gas companies have targeted in Pennsylvania. The Rhinestreet shale is also stratigraphically below the base of the Elk Sandstone. An early example of such a well is the L. B. Southwick No. 1 well. This well was part of a larger project funded by the Department of Energy and the Morgantown Energy Technology Center, and contracted to BDM Corporation. Located in Rome Township, Crawford County, Pennsylvania, the Southwick No. 1 well was drilled in July 1985 by the Wainoco Oil and Gas Company, and the Rhinestreet interval was stimulated in February 1986. During this same time period, Wainoco drilled at least 105 other wells to the Rhinestreet Formation, though how many of these wells may have specifically targeted shales below the Elk Sandstone is not discussed.

Note: Wainoco Oil and Gas Company was incorporated in 1949, and changed its name to Frontier Oil Corporation in 1998. In 2011, Holly Corporation and Frontier Oil Corporation completed a merger of equals, at which point the combined company was renamed HollyFrontier Corporation (NYSE: HFC).