Last week I learned that WellWiki.org was profiled in O’Reilly’s Oil, Gas and Data report. Written by Daniel Cowles, the O’Reilly report covers a variety of emerging technology disruptors. The report was handed out to attendees at the Strata + Hadoop World big data conference in London. Below is an excerpt…
According to an article in the New Republic, “The Amish Are Getting Fracked” by energy companies that exploit an Amish religious prohibition against lawsuits, especially companies involved in unconventional shale gas drilling and hydraulic fracturing.
Curious about these claims, I decided to do a bit of research. One of the books I read was The Amish by Donald B. Kraybill, Karen M. Johnson-Weiner, Steven M. Nolt (Johns Hopkins University Press, 2013). In turns out that, indeed, the Amish refuse “to initiate litigation or use the law aggressively to defend themselves” because they “view such as coercion, which violates the nonresistant teachings of Jesus to love enemies and avoid retaliation”; in most Amish communities “transgression of this deeply held belief will trigger excommunication” (Kraybill, Johnson-Weiner, & Nolt, 2013: 353).
In addition to confirming this tidbit, I found The Amish to be extensively researched and beautifully written. It offers a rare blend of detailed academic scholarship coupled with a compelling human narrative. The overall organization of the book is excellent, with a total of 22 chapters (!) organized into five major sections: roots; cultural context; social organization; external ties; and the future. The text is rich in detail, nuance and sophistication. The authors somehow manage to be exhaustive without appearing to have done violence to their topic, subjects and setting.
Academic readers are sure to revel in the endnotes. As just one example, consider Chapter 7 on “Symbols and Identity.” The third paragraph (p. 116) notes: “Amish cultural norms prescribe how to act toward and think about moral objects–material items, ideas and activities. Like other societies, the Amish distinguish between desirable or ‘clean’ moral objects and forbidden or ‘dirty’ ones. Boundaries and labels distinguish between things that purify the community and things that pollute it…” Of course, this sounds (to me) like something Mary Douglas might have written, especially her work on Purity and Danger, but also Natural Symbols, Risk and Blame, etc. And neatly tucked away in the endnotes (p. 435, en 1) we find the following: “Our analysis of distinctions in a group’s moral order rests on the classic work of Bourdieu, Distinction; Douglas, Purity and Danger; Wuthnow et al., Cultural Analysis; and Wuthnow, Meaning and Moral Order.”
In sum, Kraybill, Johnson-Weiner and Nolt have offered us a highly readable and thoroughly engaging lens into The Amish, and in doing so offer readers an opportunity to reflect on themselves and their own cultural milieu. What’s more, academics from diverse backgrounds will also see themselves in this book — including anthropology, culture studies, ethnography, geography, history, political science, psychology, religious studies, sociology, and many more I am sure.
According to SSRN, our paper — An Analysis of Unconventional Gas Well Reporting under Pennsylvania’s Act 13 of 2012 — is once again a top 10 download in several categories, including:
- Environmental Law & Policy eJournal Top Ten
- Political Economy: Development eJournal Top Ten
- Political Economy: Taxation, Subsidies, & Revenue eJournal Top Ten
- Social Responsibility of Business eJournals Top Ten
The paper was published in the December issue of Environmental Practice and analyzes the extent to which the Pennsylvania Department of Environmental Protection (DEP) complied with its reporting requirements under Act 13. Using publicly available data, we find that the DEP likely omitted between 15,300 and 25,100 unconventional gas wells from its Act 13 report. Left uncorrected, we estimate that Pennsylvania’s state, county, and municipal governments could forfeit fees of $205-$303 million in 2012 and up to $0.75-$1.85 billion cumulatively over the expected life of these wells. We propose the implementation of a relational database and geographic information system as a way for the DEP to fulfill its Act 13 obligations.
As I have delved deeper into Act 13 of 2012, I’ve realized that one critical question is: what counts as an unconventional gas well spud?
According to Act 13 an unconventional gas well fee is “imposed on every producer and shall apply to unconventional gas wells spud in this Commonwealth regardless of when spudding occurred. Unconventional gas wells spud before the fee is imposed shall be considered to be spud in the calendar year prior to the imposition of the fee… (Ch. 23 §2302(b)).”
The population of wells liable for these fees is circumscribed by three interdependent definitions (see Ch. 23 § 2301). First, a spud is “the actual start of drilling of an unconventional gas well.” Second, an unconventional gas well is “a bore hole drilled or being drilled for the purpose of or to be used for the production of natural gas from an unconventional formation.” Third, an unconventional formation is “a geological shale formation existing below the base of the Elk Sandstone or its geologic equivalent stratigraphic interval where natural gas generally cannot be produced at economic flow rates or in economic volumes except by vertical or horizontal well bores stimulated by hydraulic fracture treatments or by using multilateral well bores or other techniques to expose more of the formation to the well bore.”
Criterion 1: Formation Geology
One critical determinant of unconventional gas well fees is formation geology – wells spud in shale formations below the base of the Elk Sandstone or its stratigraphic equivalent. The Elk Sandstone is late Devonian-age, or more than 360 million years old (Ma) (Carter, 2007). Accordingly, shale formations older than the Elk Sandstone qualify as unconventional formations under Act 13. In Pennsylvania, at least 12 formations containing 19 different shale members meet this requirement according to recent subsurface nomenclature (see Table 1).
Table 1. Shale Formations in Pennsylvania Below the Elk Sandstone
Source: Gehman et al., 2012
Criterion 2: Well Timing
The second determinant of unconventional gas well fees is well timing – any unconventional well spud regardless of when spudding occurred. Devonion-age shales have been spud in Pennsylvania since at least 1860, the year after the famous Drake well. Since the 1880s, formations older than Upper Devonian-age have been drilled, with at least 36 wells drilled to the Marcellus Formation or deeper before 1930 (Fettke, 1950).
For instance, in 1889 the Presque Isle Natural Gas Company drilled a well to the Trenton Limestone (i.e., penetrated all 12 formations listed in Table 1). Starting in 1930, exploration of formations older than Upper Devonian grew dramatically, with 559 such wells drilled from 1930-1949 and another 1,391 drilled from 1950-1959 (Fettke, 1950, 1956; Lytle et al., 1961). Thus, Act 13 requires that fees be imposed on unconventional gas wells drilled, even as far back as 1860, with a subset of these wells more visible and prevalent from 1930 onward.
Criterion 3: Spud Interval
The final determinant of unconventional gas well fees is spudding – the start of unconventional gas well drilling. In the oil and gas industry spudding is clearly differentiated from completion and production, both of which are activities that can only occur, if at all, after spudding. Indeed, not all spud wells are completed or placed in production.
By anchoring its definition of an unconventional well on spudding, Act 13 requires that unconventional gas wells be identified without reference to completion or production activities – as wells may never undergo such activities. But in that case, how does one differentiate unconventional and conventional wells, as both are essentially identical at the start of drilling?
Option 1 is to differentiate between two spud dates – the start of surface drilling and the start of subsurface unconventional shale drilling. Thus, unless and until a well penetrates a shale formation below the Elk Sandstone or its stratigraphic equivalent it would not qualify as an unconventional gas well spud. Although Act 13 does not explicitly distinguish between surface and subsurface drilling, this distinction is implicit in the Pennsylvania Department of Environmental Protection’s (DEP) (2012a) interpretation of Act 13:
An unconventional gas well is a well that is drilled into an unconventional formation, which is defined as a geologic shale formation below the base of the Elk Sandstone or its geologic equivalent where natural gas generally cannot be produced except by horizontal or vertical well bores stimulated by hydraulic fracturing.
In other words, once a well is drilled into a shale formation below the Elk Sandstone it counts as an unconventional gas well. Because one or more unconventional shales (i.e., formations 1 through 3 in Table 1) occur throughout the areal extent of Pennsylvania’s extant oil and gas production, the population of wells liable for unconventional gas well fees under this interpretation would minimally include any wells that penetrate the Tully Formation, as there is no way to reach this formation without first going through (i.e., spudding) an unconventional shale. By way of example, all 1,986 deep wells known to have been drilled before 1960 would owe unconventional gas well fees under this interpretation, plus any similar wells drilled since then. Additionally, any wells spud in the three formations described above would be liable for fees, whether or not they reached the Tully Formation.
Option 2 is to only count wells as unconventional spuds if the formation targeted for production is an unconventional formation. In other words, spudding an unconventional shale formation en route to a deeper formation would not automatically result in unconventional well fees. Instead, only in cases where the intended production formation contained shale would the well be liable for unconventional gas well fees. Under this interpretation any wells ultimately spud in any of the 12 formations listed in Table 1 would owe unconventional gas well fees.
Finally, for analysis purposes only, Option 3 would entail counting wells that have been spud and completed in an unconventional shale formation. This is a far more stringent standard than Act 13 requires, and thus, violates its requirements. Nonetheless, such an approach may be analytically useful in establishing the minimum number of unconventional well spuds that any complete analysis would have to exceed to be credible. Said another way, any report from the DEP to the Pennsylvania Public Utility Commission (PUC) with less than this number of wells is necessarily deficient.
Together these three criteria – geological age, well timing, and spud interval – determine the population of wells subject to unconventional gas well fees under Act 13 of 2012. The scope of these requirements can be visualized by constructing a matrix of the 12 formations by the 152 years (1860-2011) over which unconventional gas exploration in Pennsylvania has potentially occurred, resulting in a total of 1,824 formation-years.
In sum, it is not possible to calculate the total unconventional gas well fees due under Act 13 without first determining the number of unconventional wells spud in each and every one of these 1,824 formation-years. Obviously, the results of this calculation are likely to vary considerably depending on which of the three spud interpretations is utilized.
 Under Act 13 the PUC is responsible for determining the fee an operator owes based on several factors, including whether the well is vertical or horizontal, the average annual price of natural gas, the age of the well, and potentially, the urban consumer price index if the number of wells drilled in the current exceeds the number drilled in the preceding year.
 This nomenclature was not necessarily operant historically, as a result, any analysis must also consider alternative designations for these formations over time. For instance, the Medina Group (Carter, 2007) was known as the Albion Formation (e.g., see Fettke, 1950) until as late as 1995 (Ryder, 2004).
 It is worth noting that already by the middle of 1954, hydraulic fracturing was “used extensively” in Pennsylvania, including in wells to the Oriskany and Medina Formations, among others (Moore, 1955).
In August 2001, Great Lakes Energy Partners LLC (now Range Resources Appalachia) drilled two wells in Crawford County, Pennsylvania, both of which penetrated the Rhinestreet shale — the W. Stein No. 2 well and the S. Preston No. 8 well.
Both of these wells appear to meet the definition of an unconventional well as stipulated by Act 13. But as of April 2, 2012, neither of them were included on the Pennsylvania Department of Environmental Protection’s Pennsylvania Public Utility Commission Act 13 Unconventional Wells Spud Report. In fact, despite the apparent history of unconventional well drilling in Crawford County, not a single well from Crawford County is included on the list of unconventional wells.
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).