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From Marcellus Drilling News

Yesterday Gulfport Energy Corporation reported astonishing production results for it’s Utica Shale well Shugert 1-1H (in the town of Kirkwood, Belmont County, Ohio). The well tested at an initial rate of 20 million cubic feet of natural gas per day (Mmcf/d). It also produced an initial 144 barrels of condensate per day, and 2,002 barrels of natural gas liquids per day.

Previously, MDN reported another Gulfport Utica well (the Wagner 1-H) had become the “alpha dog” by overtaking the famed Chesapeake Buell well—and the Wagner well was flowing at “just” 14 Mmcf/d and producing 1,881 barrels of NGLs (see this MDN story). What do we call this new well: The King? (We’re running out of metaphors!) The new Shugert 1-1H well by Gulfport is, to MDN’s knowledge, the single largest producing well in the Utica Shale.

Gulfport expects to have another Utica well, the Boy Scout 1-33H in Harrison County (near the Wagner well), online by mid-November. We can’t wait to see those numbers.

From Gulfport’s operational update released yesterday:

Utica Shale

  • Gulfport’s Shugert 1-1H tested at a peak rate of 20.0 million cubic feet ("MMCF") per day of natural gas, 144 barrels of condensate per day, and 2,002 barrels of natural gas liquids ("NGLs") per day assuming full ethane recovery and a natural gas shrink of 17%, or 4,913 barrels of oil equivalent ("BOE") per day.

Gulfport’s Shugert 1-1H well was recently brought online from its resting period. When the test began the wellhead shut in casing pressure ("SICP") was 5,200 psi. The well was flow tested for 32 hours at a maximum rate of 20.0 MMCF per day of natural gas and 144 barrels of condensate per day on a 26/64" choke and a flowing casing pressure ("FCP") of 4,840 psi. Subsequent to the test, the 14 hour SICP was 5,300 psi. Based upon composition analysis, the gas being produced is 1,204 BTU rich gas. Assuming full ethane recovery, the composition above is expected to produce an additional 100 barrels of NGLs per MMCF of natural gas and result in a natural gas shrink of 17%. In ethane rejection mode, the composition is expected to yield 40 barrels of NGLs per MMCF of natural gas and result in a natural gas shrink of 9%. Gulfport currently anticipates it will begin flowing the Shugert 1-1H into a sales pipeline by early December.

Oil Sand Update

Grizzly Oil Sands ("Grizzly"), a company in which Gulfport owns a 24.9% interest, has recently closed on a $125 million revolving credit facility ("facility"), of which $75 million is initially available for borrowing. The facility will be available for funding additional infrastructure relating to the Algar Lake project and other future development projects. In connection with the facility, Gulfport entered into an agreement with Grizzly in which Gulfport committed to make monthly payments from October 2012 to May 2013 in the aggregate amount of approximately $8.5 million to fund the construction and development of the Algar Lake facility. Gulfport also agreed to fund its share of cost overruns in the excess of $2 million.

Guidance

Gulfport reaffirms its 2012 guidance and continues to estimate 2012 production to be in the range 2.9 million to 3.1 million BOE. Third quarter 2012 production is currently estimated to be in the range of 6,950 to 7,050 BOE per day. Production results during the third quarter were adversely impacted by the shut in and evacuation of West Cote Blanche Bay during Hurricane Isaac and regulatory delays associated with initial midstream infrastructure build out in the Utica Shale. Gulfport currently anticipates the Boy Scout 1-33H to begin flowing into a sales pipeline by mid-November, and expects to have six additional wells brought online by the end of December. Gulfport estimates its exit rate on daily production at the end of 2012 to be in the range of 13,000 to 13,500 BOE per day.

Gulfport currently expects capital expenditures for 2013 to be in the range of $365 million to $375 million, excluding potential capital expenditures relating to Grizzly Oil Sands. However, if Gulfport completes the previously announced contribution of its Permian Basin oil and natural gas interests to Diamondback Energy Inc. ("Diamondback Energy"), in connection with its proposed initial public offering, Gulfport currently estimates that its 2013 capital expenditures would be reduced to a range of $317 million to $327 million, excluding potential capital expenditures relating to Grizzly Oil Sands.*

The following open letter to Gov. Cuomo is written by attorney Christopher Denton from Elmira, NY.
An Open Letter to the Governor of the State of New York
Dear Governor Cuomo:
At the time of your election New York State was the laughing stock of the country, a poster child for dysfunction, incompetence, and corruption. One governor resigned in disgrace. His successor, a man of good intentions but without real executive experience, failed to lead. The budget was a standing joke and the foxes ran the hen house. Nothing was “getting done”. The legislature acted like a rewrite of Lord of the Flies, and the Press felt that every day they won the lottery. All this was fodder for the entertainment industry, who had a field day with all the free material for their scripts.
In all this time the farmers (the owners of the oil and gas) in upstate New York State took it on the chin without any complaints, organized themselves into landowner groups, educated and trained themselves, asked not for a single handout, and weathered storms of oil and gas politics while struggling to survive this Second Great Depression. Yet in all of this, these families persisted, worked the land, and scrimped to pay their taxes and their mortgages.
The landowner leases, which initially were rejected by the oil and gas companies, included base line testing of all water, complete disclosure of all chemicals used on site (including fracking chemicals), closed loop drilling, no open pits, no onsite disposal of wastes, spill management plans, storm runoff plans, and detailed restoration and reclamation requirements supported by a bond. These requirements did not exist in the regulations; they now appear in the Draft SGEIS. The landowner coalitions by refusing to lease under environmental terms which did not protect their land and by refusing to lease under economic terms which did not reflect the true value of their resources, have kept over 800,000 acres from being leased. Without a lease there is no drilling or fracking. In areas where there are no coalitions, nearly whole counties have been leased. The coalitions have kept large parts of upstate from becoming a subsidiary of the oil and gas industry.
The irony is that for this self-reliant character, that for this sense of responsibility, and that for this sense of community, the farmers and landowners are not respected by the environmentalists, the oil and gas companies, or the executive branch of New York State. The environmentalists want to prevent all development of the farmers’ oil and gas, the oil and gas industry wants the oil and gas cheap without protections, and the executive branch wants to wait until elections, again.
The executive branch, by refusing to set deadlines, risks the consequences of Parkinson’s law: that work expands to meet the time allotted, especially in a bureaucracy. The consequences are manifold: important questions are never answered; important decisions are never made; a culture of procrastination triumphs; and leadership and confidence in our leaders can irrevocably break down, returning New York to its former dysfunctional state.
However, for the landowners, there is a greater and more invidious consequence – that the governor does not see that the farmers are in fact the Dutch boy with his finger in the dike. If the regulations are delayed too long, the patience and fortitude of the farmers will not be enough, and the economics of foreclosure and bankruptcy will assume control. At that point the coalitions will begin to unravel, and the oil and gas companies will achieve their goal of signing desperate farmers at cheap rates and without environmental protections in the leases. The leases will be long enough to allow the companies to out wait the environmentalists and the politicians.
At that point the culture of upstate will be governed by industry officials of out-of-state oil and gas companies. The profits of oil and gas will exit the state instead of remaining within it as bonuses and good paying royalties. All 800,000 acres currently protected and loved by landowners and which are unleased will become leased at rates and terms which do not benefit New York as a whole and the farmers and landowners will have been marginalized, all because New York failed at leadership, again.
Leadership means making hard decisions, timely setting down fair rules, and then abiding by them. Leadership and certainty in the rules are all that the coalitions require of the executive branch.
By setting a real deadline, the governor can issue final regulations, preserve the culture of upstate New York, prevent farmers and landowners from being swallowed by the Second Great Depression, and rebuild the economy of New York State.
Respectfully,
Christopher Denton, Esq.
Co-Founder of the Landowner Coalition Movement in New York State

Dear Friends and Natural Gas Supporters,

To help you combat anti-gas activists attempts to initiate natural gas bans or moratoriums in your town we have summarized the importance of the recent decision by a NY Supreme Court Judge to invalidate the City of Binghamton's ill conceived and unjustly executed moratorium on Natural Gas. Please share this with your fellow supporters. More importantly please print copies and deliver them to your town boards while politely pointing out that in light of the decision any attempts to initiate bans or moratoriums are likely to be expensive and questionable efforts.

For those of you inclined to dive deeper into matters a copy of the full decision is also attached. For a legal decision it is not to heavy of a read! This information and more related to fighting town bans and moratoriums is on the JLCNY website (http://www.jlcny.org/site/index.php/town-resolutions-efforts-and-landowner-info) under our Hot Topics Section. Check it out!

Finally, another lawsuit has been filed in NY against a town that issued a ban. We'll send you an update as we learn more about this lawsuit.


Binghamton Moratorium Decision 101312.pdf


KMBT22220121002150758.pdf



Warm Regards,
Dan Fitzsimmons, President
Joint Landowners Coalition of New York, Inc.
Written by The Associated Press

PITTSBURGH — The Kremlin is watching, European nations are rebelling, and some suspect Moscow is secretly bankrolling a campaign to derail the West’s strategic plans.

It’s not some Cold War movie; it’s about the U.S. boom in natural gas drilling, and the political implications are enormous.
Like falling dominoes, the drilling process called hydraulic fracturing, or fracking, is shaking up world energy markets from Washington to Moscow to Beijing. Some predict what was once unthinkable: that the U.S. won’t need to import natural gas in the near future, and that Russia could be the big loser.
“This is where everything is being turned on its head,” said Fiona Hill, an expert on Russia at the Brookings Institution, a think tank in Washington. “Their days of dominating the European gas markets are gone.”
Any nations that trade in energy could potentially gain or lose.
Harvard University’s Kennedy School of Government concluded in a report this summer that “the relative fortunes of the United States, Russia, and China — and their ability to exert influence in the world — are tied in no small measure to global gas developments.”
The story began to unfold a few years ago, as advances in drilling opened up vast reserves of gas buried in deep shale rock, such as the Marcellus formation in Pennsylvania and the Barnett, in Texas.
Experts had been predicting that the U.S. was running out of natural gas, but then shale gas began to flood the market, and prices plunged.
Russia had been exporting vast quantities to Europe and other countries for about $10 per unit, but the current price in the U.S. is now about $3 for the same quantity. That kind of math got the attention of energy companies, and politicians, around the world.
Some European governments began to envision a future with less Russian natural gas. In 2009, Russia had cut off gas shipments via Ukraine for nearly two weeks amid a price and payment dispute, and more than 15 European countries were sent scrambling to find alternative sources of energy.
The financial stakes are huge. Russia’s Gazprom energy corporation, which is state-controlled, had $44 billion in profits last year. Gazprom, based in Moscow, is the world’s largest producer of natural gas and exports much of it to other countries.
But last month Gazprom halted plans to develop a new arctic gas field, saying it couldn’t justify the investment now, and its most recent financial report showed profits had dropped by almost 25 percent.
The U.S. presidential campaigns have already addressed the strategic potential.
A campaign position paper for Republican Mitt Romney said he “will pursue policies that work to decrease the reliance of European nations on Russian sources of energy.”
In early September, President Barack Obama said the U.S. could “develop a hundred-year supply of natural gas that’s right beneath our feet,” which would “cut our oil imports in half by 2020 and support more than 600,000 new jobs in natural gas alone.”
Poland’s Ministry of the Environment wrote in a statement to The Associated Press that “an increased production of natural gas from shale formations in Europe will limit the import via pipelines from Algeria and Russia.”
The issue has reached the highest levels of the Kremlin, too.
Hill, of the Brookings think tank, heard President Vladimir Putin speak in late 2011 at a Moscow gathering of academics and media. She said in a blog post that “the only time I thought that he became truly engaged was when he wanted to explain to us how dangerous fracking was.”
But one top Gazprom executive said shale gas will actually help the country in the long run. Sergei Komlev, the head of export contracts and pricing, acknowledged the recent disruptions but predicted that the U.S. fuels wouldn’t make their way to Europe on any important scale.
“Although we heard that the motive of these activities was to decrease dependence of certain countries on Gazprom gas, the end results of these efforts will be utterly favorable to us,” Komlev wrote in an email to the AP. “The reason for remaining tranquil is that we do not expect the currently abnormally low prices in the USA to last for long.”
In other words, if the marketplace for natural gas expands, Russia will have even more potential customers because it has tremendous reserves.
Komlev even thanked the U.S. for taking the role of “shale gas global lobbyist” and said Gazprom believes natural gas is more environmentally friendly than other fossil fuels.
“Gazprom group generally views shale gas as a great gift to the industry,” he wrote. When natural gas prices rise, “it will make the U.S. plans to become a major gas exporter questionable.”
Whether exports happen involves a dizzying mix of math, politics and marketplaces, along with the fact that U.S. natural gas companies — and their shareholders — want prices to rise, too.
James Diemer, an executive vice president for Pace Global, an international consulting company based in Virginia, believes that shale gas costs more to extract than the current market price. Pace, which recently released a report called “Shale Gas: The Numbers vs. The Hype,” has been studying shale gas for Gazprom and other clients.
“The capital will stop flowing” to U.S. shale gas, and the price will go up, Diemer predicted. He would not divulge the kind of work Pace is doing for Gazprom. Pace is owned by Siemens, a German company.
Pace’s work for Gazprom has raised some eyebrows in Washington, and Hill noted that industry watchers in Europe already believe Russia is bankrolling environmental groups that are loudly opposing plans for fracking in Europe, which could cut down on Russia’s natural gas market.
“I’ve heard a lot of rumors that the Russians were funding this. I have no proof whatsoever,” she said, noting that many critics give the rumors credence because Gazprom owns media companies throughout Russia and Europe that have run stories examining the environmental risks of fracking.
Gazprom dismissed such conspiracy theories, saying that “nothing could be more out of touch with Gazprom’s inherent interests,” because the shale boom promotes gas as an abundant, affordable energy source.
Many U.S. media outlets, including the AP, have run stories about shale gas and the environment. Regulators contend that overall, water and air pollution problems are rare, but environmental groups and some scientists say there hasn’t been enough research.
U.S. energy companies are eager to export natural gas products. The issue is sensitive enough that the Obama administration has delayed a decision on export permits until after the election. In April, the Sierra Club sued to block one plan for exports, saying it would drive up the cost of domestic natural gas and lead to environmental damage.
But just the potential for exports could allow others to seek lower prices from Russia, said Kenneth Medlock III of the James Baker Institute for Public Policy at Rice University in Houston.
“It changes the position at the bargaining table for everybody,” Medlock said. “You stack all that up, and you start to realize, ‘Wow.’”
There’s one enormous unknown with the shale gas bounty in the U.S., Hill said. Unlike in Russia and some other countries, neither the government nor any one private company can really control or direct it.
“The question is, can the U.S. do what the Russians do, which is use this as a political tool?” she said.

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