By Kensie Hamilton
Energy is at a cross roads around the world for many reasons. Whether it is because of EPA regulations, political pressure or environmental concerns, West Virginia’s fossil fuels are definitely creating a lot of buzz and attracting national media attention. As champions of the State of West Virginia and five individuals who want nothing more than to see her succeed, the partners of Executive Ink are proud to share with its readers the insight of three of the most knowledgeable professionals within West Virginia’s energy industry today.
Jim Crews, the president of the West Virginia Oil and Natural Gas Association and Mike McCown, the president of the Independent Oil and Gas Association of West Virginia, took the time to answer some questions about the oil and natural gas sector while Gary White, the president of the West Virginia Coal Association, offered some knowledge and foresight for the future of West Virginia’s coal.
We asked these three energy industry gurus a variety of questions, inquiring about the biggest challenges to their industry and what each industry is doing to prepare us for future energy demands. White discussed the challenges of post-mine land use planning while Crews and McCown shared with us their insights regarding forced pooling and hydraulic fracing in the oil and gas industry.
It’s an exciting—albeit challenging—time for West Virginia energy, and here we explore some of the most pressing issues with three industry leaders.
Jim Crews
managing director of Supply and Origination, NiSource Midstream Services and president, West Virginia Oil and Natural Gas Association
WVE: What do you see as the biggest challenge facing the oil and natural gas industry?
JC: The biggest challenge is in education and the misinformation in the general public. Society’s advancement in communication technology has resulted in around-the-clock news and information cycles, and although communication is good if it contains factual information, much of what is distributed about the oil and gas industry is negative and purposely deceptive. As such, we are in constant reactive mode and we simply don’t have the resources to respond to all forms of misinformation.
WVE: What do you think the oil and natural gas industry will look like in 10 years?
JC: There will be more and more merger and acquisition activity in all aspects of the industry as the supply of natural gas exceeds demand and we face downward pressure on pricing. Producers will be forced to merge to squeeze out inefficiencies. Multinational energy companies will also buy into the basin to gain valuable technology that they can emulate around the world. As a country, we will be less dependent on foreign sources of energy, and manufacturing will return to capitalize on cheap and abundant supplies of energy with possibly more electricity being generated by natural gas.
WVE: What is West Virginia’s oil and natural gas industry doing to ensure that we are ready to meet future energy demands?
JC: As an industry, we are working with banks and financiers to raise enormous sums of capital that will be necessary to support all aspects of the industry. We are working with various other trade organizations to ensure that industry and manufacturing are aware of the potential that we see in the resources. Additionally, we are working with regulators and legislators to ensure that we have laws in place that ensure that the industry matures in a safe and efficient manner and that the public infrastructure that is necessary to support this industry is properly funded.
Although we are excited about the role of natural gas in the future, we believe that it will be necessary to use all sources of energy to meet the world’s growing demands, especially in the developing countries of China, India and Brazil. The demand on the world’s energy resources is overwhelming—currently 25 percent of energy goes to computers and communication. Just imagine the energy that will be required if every household in the world has access to refrigeration, not to mention if those same households are fortunate enough to purchase a car.
WVE: What is your position on forced pooling?
JC: I think it is important to support forced pooling because it is the keystone to maximizing the natural gas resource and it promotes the fairest, safest and most efficient means of producing gas from unconventional reservoirs such as the Marcellus Shale. Ohio and Kentucky already have pooling statutes in place, and West Virginia already allows pooling of deep wells, coalbed methane wells and enhanced recovery wells. Other producing states that are promoting development of their shales, including Louisiana, Texas and Oklahoma, also have pooling statutes on the books. Several states allow unitization as a method of putting tracts of land together which for all intents and purposes is a form of pooling under another name.
Unconventional reservoirs are drilled on pads where as many as eight wells are situated on a single pad usually using a footprint of 300 feet by 400 feet. This eight-well pad can drain the same acreage that previously required nearly 30 conventional vertical wells.
Another reason for a pooling statute is to be able to produce on tracts where heirs are not able to be located. Under the current West Virginia statute, each heir must be in agreement before mineral extraction can begin. We advocate that if a threshold number of approximately 75 percent of the heirs can be located, then a tract could be leased with any proceeds placed into escrow for the heirs that have not been located.
Unlocking the shale gas available in this country is key to offsetting our need for imported energy, which is a goal we have talked about for decades, and forced pooling will help us achieve that.
WVE: Are there any cutting-edge replacements for water fracing?
JC: I would view water or hydraulic fracturing as cutting-edge even though as an industry we have been safely implementing this technology since World War II. Some have experimented with using propane, nitrogen, carbon dioxide or other foams, but the problem with those technologies is that they are expensive and only water is incompressible. As such, every pound of force that you apply to water through a pump is distributed one for one to the reservoir rock. No other fluid or gas has that physical property, which makes them less effective in breaking the rock.
As far as cost, availability and physical characteristics are concerned, water is the only fluid to effectively fracture the rock. The challenge is removing the reservoir materials from the used frac water and re-using it in the subsequent well. I believe that ultimately one-third of the frac water will remain in the reservoir, one-third will be processed on the surface for re-use and one-third will make up the water that will be required for the subsequent well. Additionally, 99.5 percent is water and sand with 0.5 percent of chemicals that are common in household products we use every day.
WVE: Is Utica Shale a play in West Virginia?
JC: The Utica Shale is a play in West Virginia, although it will be more predominant in Ohio, Western Pennsylvania, Western New York and Canada. In West Virginia, its extent is limited to the northern portion of the state; however, there are other shales in West Virginia such as the Huron and Rhinestreet that are available for exploration, including all of the sandstone and limestone formations that were previously drilled using inefficient vertical technology.
WVE: Is there anything else you would like to add?
JC: We anxiously look forward to the future prospects that we have in West Virginia and the nation as a whole and we applaud publications like yours that allow us to present our case for the industry in a clear, concise and factual manner.
Mike McCown
vice president, Northeast of Gastar Exploration and president, Independent Oil and Gas Association of West Virginia
WVE: What do you see as the biggest challenge facing the oil and natural gas industry?
MM: The natural gas industry makes it possible for 35,000 West Virginians to have jobs. Our industry pays out nearly $760 million in salaries each year and more than $170 million in West Virginia taxes. Natural gas is the cleanest of all fossil fuels and we have an abundance of natural gas reserves, more than 6 trillion cubic feet, right here in West Virginia.
Natural gas is cheaper, safer and has much less impact on the environment than any other energy source. However, many people do not understand the benefits of natural gas, and there are a lot of misperceptions in the general public. Our biggest challenge is to make sure we do a better job of providing factual information to all audiences, including our elected officials, regarding the truths about our industry.
WVE: What do you think the oil and natural gas industry will look like in 10 years?
MM: The major oil and gas companies will continue to return to the United States and pursue natural gas development from unconventional reservoirs. With major companies focusing on the U.S., we will continue to see more acquisitions and resulting consolidations. Additionally, dramatic technological innovations in the next 10 years could change the industry, just as horizontal drilling technology has changed it in the past 10 years.
WVE: What is West Virginia’s oil and natural gas industry doing to ensure that we are ready to meet the future energy demand?
MM: We are working tirelessly to develop America’s cleanest, most cost-effective fuel source—natural gas. We are also working to educate lawmakers and the public to assure that unneeded regulation does not limit the growth potential of our industry. We are very supportive of state and federal regulations, but they must be reasonable in nature and cannot drive an industry out of business.
WVE: What is your position on forced pooling?
MM: Forced pooling, if implemented properly, will allow the most efficient recovery of oil and natural gas reserves. A drilling unit can still be developed, even if there is a small percentage of the lessors unwilling to participate or if a lease owner cannot be determined. Disagreements are resolved by the Conservation Commission, a professional impartial panel appointed by the state. Forced pooling would optimize profits for the operator, maximize royalties for the lessor and maximize taxes generated for the state.
WVE: Are there any cutting-edge replacements for hydraulic fracing?
MM: Alternatives to water, such as carbon dioxide or nitrogen, are very expensive and would require infrastructure construction for widespread utilization. There is a misconception concerning the water used in fracing operations. Much larger volumes are used than in the past, and as a result, formations such as the Marcellus Shale can be efficiently developed. However, the volume of water used by the oil and gas industry is a fraction of the water used by other industries, such as power plants or golf courses.
WVE: Why do you think natural gas and coal companies are merging or expanding their operations to explore both types of fossil fuels?
MM: Historically, coal and natural gas companies have owned all mineral right assets due to lease positions. While the technology employed to produce natural gas and coal is totally different, the benefit of having both energy sources can be advantageous and economical.
WVE: Is there anything else you would like to add?
MM: The oil and gas industry has been a vital part of our state for many years. Currently, 53 of West Virginia’s 55 counties have natural gas operations. Our industry is one of the only leading growth industries in our state. With the development of the Marcellus Shale resource, the industry has a bright and exciting future for decades. Due to this resource, just in the last few years, billions of dollars have been invested in the Mountain State. We need to continue to support an industry that supports West Virginia.
Gary White
president, International Resource Partners and president, West Virginia Coal Association
WVE: What is the biggest challenge facing the coal industry?
GW: I think, unfortunately, that our industry continues to face the challenge of its image. We are a mysterious industry and people in the general public really do not understand our industry. As an industry, we have not done a very good job educating the public on not only how our industry operates but, perhaps more importantly, how each individual in the State of West Virginia benefits from our industry. I don’t think we have done a very good job of getting the general public to understand. For many years, we have had a very competitive position as a state for manufacturing and other heavy users of electricity because we are a very low-cost energy state. Our individual citizens have taken for granted that we are a very low-cost energy state, and now that things are changing, we are receiving a lot of negative reactions.
WVE: What will the coal industry look like in 10 years?
GW: When I look at my 40 years in this industry, I am able to see how innovative the coal industry is. Every time we have been faced with a major challenge that threatens the existence of our industry, the innovative people figure out a way to deal with whatever the issue is and emerge better on the other side. I think going forward you are going to see less large-scale surface mining and I think you will see more contour and high-wall mining used. I think that in underground mining you will see the pendulum swing more towards conventional continuous miner room and pillar mining as opposed to large-scale long-wall mining simply because the reserve blocks that are suitable for long-wall mining are becoming exhausted and they are not going to exist. I think technology is going to continue to advance and we are going to continue to be more efficient as well as safer. Based on my 40 years of experience, I have a lot of confidence in this industry’s ability to meet its challenges and continue to move forward.
WVE: What are the obstacles that come with post-mine land use planning?
GW: In the early days of surface mining—and particularly mountaintop mining—there was a lot of criticism because the land was not reforested. The fact of the matter is that the mining regulations required compaction of the material on the job to the point that it would not propagate nor would it sustain reforestation. In the early days, the regulatory process made reforestation for post-mine land use very difficult. There has been progress made on that, and the most significant progress has been actual industrial, residential and public beneficial development of post-mine sites. As with any reclaimed site, there are so many agencies involved that sometimes it is hard to get everyone moving in the same direction. If the regulatory and the political agencies can work together, great things can happen and the cost savings related to that coordination in conjunction with planning ahead is significant.
WVE: The permitting level for coal mining has encountered a significant drop since 2007 because of EPA regulations. What are the chances of seeing the permitting level return to where it was in 2007?
GW: I think those chances are very slim. I have been involved in the coal industry for the last 40 years, and in that time I have gone through a number of similar cycles. What I have learned over the years and what history would show is that it never goes back to where it was. It is a pendulum and it swings far right and far left. I think over the next 12 to 18 months we will see some relief in the permitting situation on the federal level where the problem is concentrated, but to think we will go back to where we were in terms of the permitting process would be a foolish assumption.
WVE: What is West Virginia’s coal industry doing to ensure that we are ready to meet future energy demands?
GW: I think that West Virginia is very well positioned to not only meet the future energy demands but to do it very economically while maintaining its position as a low-cost energy state, evident by looking at the long-term capacity of our coal industry and the long-term prospects for the natural gas industry. We are blessed as a state to have an abundance of natural resources, particularly if you look at the energy-related natural resources and our water resources. As a state we have to realize that we have an opportunity, given our geographical location, to be the top energy producing state of the East Coast, and I think good political leadership in Charleston can put us in an advantageous position to capitalize on that.
WVE: Why do you think natural gas and coal companies are merging or expanding their operations to explore both types of fossil fuels?
GW: It’s about energy. I think the world is realizing that energy is going to be worldwide and it is always going to be in strong demand. Wise business people see opportunities in the future and do what they can to get themselves organized to take advantage of those opportunities. It is a natural occurrence when there is a lot of focus on energy for energy companies to merge. With natural gas and coal, the nature of those businesses means that there has to be cohabitation. One of the motivating factors could be the idea that a company can be more successful with control over both sides of the equation.
WVE: Is there anything else you would like to add?
GW: I certainly appreciate that your magazine is focusing on this subject. I think it is very timely, and if you look at the challenges our nation is facing, I think that we all have to focus our attention on energy because it is going to be the driving force for the foreseeable future. The world is demanding a standard of living that we take for granted in West Virginia and the United States, and we are the envy of the world in that regard. For the populations worldwide to be satisfied, energy is going to be the driving force, and I think that West Virginia has a great opportunity to be an icon as a state in energy production.
