Big Oil and Gas industry writing down billions in U.S. shale gas assets

Big Oil and Gas industry writing down billions in U.S. shale gas assets by Robert Magyar, July 29, 2012, Examiner
On Friday shale gas driller Encana Corporation, the largest natural gas company of Canada announced it had written down more than $1.7 billion in shale gas assets on its books, the majority from its U.S. shale gas operations as it posted its ominous 2nd quarter operating results. Encana Chief Executive Officer Randy Eresman went on record saying to expect his company to have to take additional shale gas asset write downs in the near future. … Encana Corporation is also the focus of a U.S. Department of Justice price collusion investigation regarding the allegation it has conspired with Chesapeake Energy to fix prices for shale gas land lease agreements with state of Michigan landowners. The investigation is ongoing. … As the drilling boom took off unabated and natural gas began appearing into storage, the price the market was willing to pay for it declined month by month. This was perhaps the best true “free market” signal to the industry which it continued to ignore until market prices all but collapsed. Left out of such supply discussions are what appears to be the significantly higher extraction costs for shale gas when compared to conventional drilling into large pockets of natural gas. The costs for the armies of men, machines, water tankers, pumpers and frack operations along with all the diesel fuel required to drive all this heavy metal in out of the hills and mountains of Pennsylvania day in and day out has been quietly taking its toll in the form of high extraction costs. … Frack water tailing pond construction and related disposals costs are significant and in constant need to maintain the integrity of such ponds while trucking out the toxic frack water for disposal. … Perhaps the most baffling issue which receives little public attention remains the strange and unusual production output curves of a typical shale gas well. It’s now been extensively documented shale gas wells produce their greatest output of gas product within their first 12 to 24 months of operation and then begin rapidly and aggressively declining. … More now believe it’s to mandate the use of natural gas by electric utilities and for U.S. industrial transportation in order to drive demand and raise natural gas pricing even though the industry’s central promise to the country was cheap and abundant natural gas through hydraulic fracking. … Many in the electric utility industry refer to natural gas as the ‘crack cocaine of the power industry’. According to leaked industry emails as published by The New York Times, one energy company official stated this fear when he said, “They get you hooked and then they raise the price.”

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