API Blogger Conference Call: Hydraulic Fracturing - 3.25.10

8/9/2019 API Blogger Conference Call: Hydraulic Fracturing - 3.25.10

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API

BLOGGER CONFERENCE CALL

MODERATOR:Jane Van Ryan, API

SPEAKERS:

Sara Banaszak, Senior Economist, APIJohn Felmy, Chief Economist, API

Stephanie Meadows, Senior Policy Advisor, APIErik Milito, Group Director, Upstream/Industry Operations, API

Richard Ranger, Senior Policy Advisor, APIAndy Radford, Senior Policy Advisor, API

Thursday, March 25, 2010

Transcript by

Federal News Service

Washington, D.C.


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Bloggers on the call included Bear from The Absurd Report, Bob McCarty from Bob

McCarty Writes, Brian Westenhaus from New Energy and Fuel, Carter Wood from

Shopfloor.org, Dave Summers from Bit Tooth Energy, Gail Tverberg from The Oil Drum, Geoff

Styles from Energy Outlook, Jazz Shaw from The Moderate Voice, Jim Hoeft from Bearing Drift,

Lee Doren from Right Wing News, Michelle Hopkins from Analysis Online, Merv Benson fromPrairie Pundit, Rich Trzupek from Big Journalism, Tim Hurst from Ecopolitology

00:15 JANE VAN RYAN: Well, welcome, everybody. Why dont we get started? Ihave a whole lot of people around the table here with me today who are happy to answer yourquestions about horizontal drilling, hydraulic fracturing and whats happening in various shaleplays today that indeed could have a huge impact on natural gas supplies in the United States andindeed around the world.

But before we get started, what I need to do is basically(inaudible, background noise)and find out whos on the call with us. One other thing I would like to say is that if youre not

answeringplanning to ask a question, please put your phone on mute. I sent out directions onhow to do that. What you have to do is hit *6, then you can un-mute it by hitting #6. And alsothank you for those of who have submitted questions in advance. Well try to get to those todayas well.

So(inaudible, background noise)know how we do this; many of you have been onthese conference calls in the past. (Inaudible, background noise)were going to take the roll,going to have you all who are on the line with us. You know that everything is being recorded.We will release a recording and a transcript online so you can look at quotes, gather moreinformation. Ill try to get that posted as early as tomorrow afternoon at some point.

And because I know we have quite a few people that expressed an interest in this, Imgoing to ask you to try to keep your questions fairly short and to the point so everybody has anopportunity to ask a question. So lets get started. Who do we have on the phone with us today?

01:49 BOB MCCARTY: Bob McCarty at bobmccarty.com.

01:52 MS. VAN RYAN: Great. Welcome Bob.

01:55 LEE DOREN: Lee Doren.

01:56 MS. VAN RYAN: Good. Thanks, Lee.

01:58 MICHELLE HOPKINS: Michelle Hopkins from Plano, Texas.

02:01 MS. VAN RYAN: Good. Thanks, Michelle.

02:03 RICH TRZUPEK: Rich Trzupek with Big Journalism.

02:04 MS. VAN RYAN: Wonderful. Okay, who else?


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02:06 MERV BENSON: Merv Benson.

02:07 GAIL TVERBERG: This is Gail Tverberg.

02:07 JIM HOEFT: Jim Hoeft.

02:09 MS. VAN RYAN: Okay, Im getting you all. Ive got Jim. Ive got Merv. Ivegot Gail. Okay.

02:17 GEOFF STYLES: Geoff Styles, Energy Outlook.

02:18 MS. VAN RYAN: Wonderful, Geoff. Im glad you could join us. I know it waskind of hard for your schedule.

02:23 MR. STYLES: Thank you.

02:24 MS. VAN RYAN: And who else do we have?

02:24 BRIAN WESTENHAUS: Brian Westenhaus with New Energy and Fuel.

02:27 MS. VAN RYAN: Great. Thanks, Brian.

02:29 JAZZ SHAW: Jazz Shaw with George Phillips campaign.

02:31 MS. VAN RYAN: Wonderful. Thanks, Jazz. Who else?

02:36 CARTER WOOD: Youve got Carter from the NAM.

02:37 MS. VAN RYAN: Good, Carter. And are we missing anybody?

02:42 TIM HURST: Tim Hurst from Ecopolitology.

02:44 MS. VAN RYAN: Good, Tim. Thats wonderful. Im glad you could join us.Anybody else? Okay, well lets get started. We do not have any opening statements for youtoday. In fact, we just want to launch into the questions. So who would like to go first?

03:08 MS. TVERBERG: This is Gail. I was going to ask about what happened with allof these fluids? Ive heard something about flow back. Does all of it stay underground? Doessome of it come back?

03:24 STEPHANIE MEADOWS: Flow back of the water?

03:27 MS. VAN RYAN: Please identify yourself.


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03:27 MS. MEADOWS: Im sorry. This is Stephanie Meadows. I work onenvironmental issues here at API. The flow back is the water that comes back up after thefracturing process has been initiated. And yes, theres a percentage of it thats recovered thatcomes back out of the ground. And some of the water stays within the well actually for a periodof time. Could be a couple days. Could be several months. Sometimes longer than that. And

will come up intermittently throughout the process of the life of the well. But the typical

04:02 MS. TVERBERG: Does it only come up there?

04:04 MS. MEADOWS: Im sorry?

04:06 MS. TVERBERG: Does it only come up in the well? Or can it come up throughfractures farther away, you know, and have dissolved minerals or who knows whatever happensto be in the ground located near the well?

04:22 MS. MEADOWS: No. It comes up throughback up through the well or will

stay underground in the geologic formation. It does not come back up through the fractures.And there is a percentage recovery. I mean, just to be clear here. Its not 100 percent recoveryeach time. It can be over time. But I think the average recovery rate is somewheredependingon which shale formation youre speaking of its somewhere between 30 and 70 percent.

04:53 RICHARD RANGER: This is Richard Ranger. Gail, to follow up on Stephaniescomment. The reason the water does not come up through the fractures is that first, the fracturenetwork around a wellbore is a matter of several feet. It doesnt extend that far. Second, thefracturing occurs at depth, you know, in the objective formation for gas production, thatformation is under pressure and the weak link, if you will, is the wellbore. And thats how thegas flows.

The shale itselfthe shale is typically bounded by impermeable rock layers at somepoint. So thats why were very confident in saying that the water that is either injected in thecourse of fracturing or that may exist in formation, which sometimes is the case, is producedtothe extent it is producedthrough the wellbore.

05:54 MS. TVERBERG: Okay. Thank you.

05:57 MS. VAN RYAN: Who else would like to ask a question? In that case, sincenobody is speaking up, Ill

06:06 MR. WOOD: This is Carter from the NAM. I have written quite a bit about theBakken Formation and the use of technology there. And I wondered if you could just give me abrief kind of rundown of the distinctions between hydrofracking and horizontal drilling withnatural gas and oil orif there is a distinction.

06:26 MR. RANGER: Carterwell, I guesscould I take that one?

06:29 MS. VAN RYAN: Sure, Richard. Of course.


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06:31 MR. RANGER: Carter, this is Richard Ranger again. And Ive been out to NorthDakota and have actually attended a workshop out in Williston on the Bakken. From thestandpoint of technology, from the standpoint of method, its really the same whether theobjective shale formation is producing natural gas or, as is in the case of Bakken, crude oil.

What they do in the Bakkenthe Bakken formation, which is very extensivea shaleformation that has been estimated to occupy an area roughly the extent of the state of WestVirginia in western North Dakota, parts of Montana, parts of Saskatchewanis at about 10,000feet below the surface of the earth and ranges about 30 feet in thickness or 30 feet in verticalwidth.

And they had drilled through the Bakken and had encountered through their well logsinformation that showed that there was oil, but they really never had a method of producing itbecause of the tight shale and the lack of a space for the oil molecules to move. What they do isthey drill a 10,000-foot vertical well. Then, with a motorized drill bit, they essentially turn the

drill bit 90 degrees and drill horizontal tails that run from a mile to as much as two miles inlength.

And it is along those horizontal tails, which are navigated within the Bakken Formation,that they then, upon completion of drilling to the total measured depthmeaning out to the two-mile distance or one-mile distance as the case might bethat is when they remove the drillingequipment and install the series of tools that enable the companies to hydraulically fracture atintervals along that horizontal extension of the well. And it is through those intervals that the oilmolecules move and the oil is produced from the Bakken well.

08:40 MS. VAN RYAN: Any follow-up questions, Carter?

08:43 MR. WOOD: So is there the same level of horizontal drilling with natural gas oris that a much simplerdown and then you hydrofrack?

08:54 MR. RANGER: There is both. Its Richard again. There is both horizontal anddirectional drilling. Increasingly, horizontal drilling, because with a lot of the shales, what youneed to optimize the value from your hydraulic fracture operation is well exposure or wellencounter with your objective formation. So it stands to reasonthe analogy I like to usenotbeing a driller, by the way, I was a land man and a permitter:

Picture a chocolate layer cake. Picture being the 7-year-old kid more interested in thefrosting than in the cake. If you stuck a straw vertically through the cake, youd only encounterlittle bits of the frosting layers between the layers of cake. If you were to stick that strawhorizontally between the layers, you could remove quite a bit of frosting before your mothercaught you.

And so that technique is essentially similar with natural gas and withas it is with oil.The length of the horizontal portion of the well the orientation of that portion of the well


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varies with the geology and varies with what the engineers and geologists expect is needed tomost effectively produce gas through that particular well from that particular formation.

10:16 MS. VAN RYAN: Anyone else have a question?

10:18 MR. SHAW: Yeah. Just one quick one. This is Jazz again, Jane. As recently asthis week, I was watching Maurice Hinchey, whos only of several members of Congress, cameout on TV on CNBC and kept repeating these claims that there are quote, multiple instances ofgroundwater contamination from hydrofracking for natural gas even though the host had statedright up front that they had investigated and couldnt find any.

Is there any good resource you could point us to online that has some sort of record of theinvestigations of alleged groundwater contamination where they were disproven as I keephearing theyve almost entirely been disproven, but the story keeps getting repeated by a numberof people including members of Congress. And it would be good to have some referencematerial to point to in rebuttal of that.

11:14 MS. MEADOWS: Jazz, this is Stephanie Meadows again. Yeah, actually I have apiece of paper thatand I dont know how to get this information to them, but Jane will do that.

11:22 MS. VAN RYAN: Ill do that. Ill send it.

11:23 MS. MEADOWS: But we have a list of the different studies that have been donewith regard to hydraulic fracturing where they has not yet been a connection made betweenhydraulic fracturing operations and any contamination incidents. So hopefully in some of thetheres links attached to that. One of them is a PDF study that was just done over the summer byEPA as a matter of fact.

And unfortunately I dont know how to get that I went on their site. That link is notavailable. But somehow well make sure you get a copy of that study as well. And that was asort of cursory incident review that they had done over the summer and still could not make thatdirect link in conclusion of that report. So well get the list to you.

12:07 MR. SHAW: Thatd be great. Thanks. Because Im running a candidatewhosup against the guy who keeps saying this on the stump over and over and over again. And itwould be nice to have some hard facts to be able to come up in the debates and just say, no,youre wrong. (Chuckles.)

12:20 MS. MEADOWS: Understand.

12:22 DAVE SUMMERS: This is Dave Summers at Bit Tooth.

12:24 MS. VAN RYAN: Sure, Dave. Go ahead.

12:26 MR. SUMMERS: And I think in the congressional testimony on hydrofracking,there was a statement by one of the state agencies that said that they werethey had actually


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written to the states where theyd heard that there were incidents and they got reports back that infact that thisthe reports werent true.

12:47 MS. MEADOWS: Im not sure if this is exactly the same example that you aremaking, but the Ground Water Protection Council has done some conversation with the state

agencies that they work with and have come to that conclusion, that they hadnt got reports backon any of the incidents that were reported were directly connected to hydraulic fracturing. And Ithink thats what youre making reference to.

13:09 MR. SUMMERS: Right.

13:10 MS. MEADOWS: That study is in actually in the list that Im talking about here.So well get that to you.

13:14 MS. VAN RYAN: When I send you the audio file and the transcript linktomorrow, I indeed will send you that document as well.

13:22 MR. RANGER: There have been reported spills at the surface or soilcontamination at the surface. And to the extent were aware were not excusing these, by thewaybut to the extent that were aware, each of these incidents is traceable to practicesfollowed or not followed on the surface, on improper connection of lines or pipes, improperhandling of fluids, leaks in tanks, that sort of thing. Things that occur at the surface. Not downin the formation. Not down in the wellbore.

And actually if I can add, one of the things we have been developingone of the thingsthat API does is we publish standards and guidelines documents. And so we have been workingat reexamining certain of those documents, in particular with respect to environmental practiceson drilling locations in order to provide better insurer guidance to industry. And like in manyAPI standards, these are sometimes used by state regulatory agencies as well as references fortheir own regulation.

14:51 MS. VAN RYAN: More questions?

14:54 MS. HOPKINS: This is Michelle. Is there some example you can give us toquantify the miniscule risk to the water supply in the publics mind? I like the chocolate cakeexample. Something on that order that would get people to understand some comparison ineveryday life of how small the actual risk actually is to the water supply given all the precautionsthat are taken and all of the regulations that are in place already?

15:24 MS. VAN RYAN: Hmm, dont know that theres a percentage or a number thatwe could give you right off hand, Michelle. You should have received, though, an illustration, agraphic, if you will, that we sent to you and everybody on the call.

15:34 MS. HOPKINS: Right, right.


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15:35 MS. VAN RYAN: Good, good. I think that certainly explains how the wells arespudded and how things are done with the casing and the cementing and so on. And its clearthat the fracking that occurs, occurs hundreds if not thousands of feet below the aquifer.

15:54 MS. HOPKINS: Its just that the critics, as the previous speaker mentioned, the

critics come out with this anecdotal supposed evidence of problems that have occurred withoutany context, really, and can make a couple of complaints, a few complaints sound like itssomething thats happening every day. And I just wondered if there is some way we can put thisin context. Any activity, any human activity involves risk. And we all assess the risk against thebenefits. But then this thing really gets legs in the media and people think there is a reallysignificant risk to them when nobody is really balancing that out for them.

16:36 MR. MILITO: This is Erik Milito here at API with our upstream department. Andwhat we have is our history in operations. And weve been engaging in hydraulic fracturingoperations for about 60 years. And it has been done in over a million wells. And there are noinstances of water contamination due to the use of hydraulic fracturing.

So that is what were providing to opponents. I have the evidence: Its our history ofgood stewardship and our experience with the practice. And it has been 60 years but it improveslike any other technology tremendously over that time.

17:21 MR. FELMY: So this is John Felmy. If you want to quantify that in a reallysimple way its called zero, zero divided by a million. Now, of course thats you know, thereis, as you said, there is no guarantee. But youre talking about zero divided by a million, okay?That is an extremely low number. And so if you want to quantify it in that way, its as close to itas what you can get.

17:42 MR. MILITO: And currently its estimated that 90 percent of natural gas wells aredrilled using hydraulic fracturing. And its hard to imagine that you wouldnt have a lot of bignews stories about these types of incidents occurring at the frequency that our opponents areclaiming when, in fact, there have been none and its just a routine safe practice and it has beenproven to be such.

18:15 MR. RANGER: One thing, toothis is Richard Rangerif I could add, there wasa July 2009 article in the Oil & Gas Journal that describes that I think because of these concernsand because of the publicity that various anecdotal stories have achieved, many operators arenow working proactively with state regulators in collecting water samples from public andprivate wells prior to commencing drilling and working through procedures to have independentanalyses of the quality of water in those wells really to establish a baseline.

18:56 This isnt a consistent practice yet, but it is something a number of operators aredoing more or less to ensure themselvesand I guess in the case of certain state regulatorstoaddress their concerns as well. But the record is what the record is and the measures taken reallyassure that this key component of activity to complete wells to be able to produce natural gas oroil from these tight shale formations happens thousands of feet below the surface of the Earth


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and it is insulated from the surface of the Earth by a wellbore that is encased in steel pipe andcemented to the rock layers through which it passes.

19:47 MR. TRZUPEK: Rich Trzupek, Big Journalism. Two questions for you: one,economic impact. If there were regulations in place that inhibited or slowed the ability to drill

the wells and frack for natural gas, have you guys done any studies to look at the economicimpact?

20:08 MS. BANASZAK: Yes, we do. Its on our Web site.

20:13 MS. VAN RYAN: This is Sara Banaszak, by the way. She is a senior economisthere at API.

20:18 MS. BANASZAK: The study was conducted for us by the consulting companycalled Global Insights. And they looked at several scenarios. One would be if we did nothydraulically fracture any wells going forward and what would be the impact to both production

and our economy if we chose that path.

20:37 So the impact turns out to be aboutgo ahead.

20:43 MR. MILITO: No fracking I think it gets up to 60 percent production loss and thenits well over 2 million, close to 3 million jobs. Is that correct?

20:55 MS. BANASZAK: Correct. Unfortunately, we dont have the study right in frontof us so were going to have to

21:01 MR. MILITO: I thought it was 2.8 million jobs in the peak year in terms of notbeing able to use hydraulic fracturing at all. And then, as you get different levels of restriction,the impact goes down but its still a significant impact on natural gas production domesticallyand GDP and jobs.

21:20 MS. BANASZAK: The GDP impact, the impact on our economy amountsin theworst years, if you chose that pathto over 100 billion GDP, more than half a percentagebecause youre talking about removing a huge amount of energy from our economy.

21:34 MR. TRZUPEK: Sure. And an increase in natural gas prices as well, obviously.

21:40 MS. BANASZAK: Rightthe approach taken in that was sort of to model theimpact if you remove that energy source.

21:49 MR. TRZUPEK: Okay.

21:51 MS. VAN RYAN: One clarification: We cant predict price, just so you know.Were a trade association. Were precluded by law from talking about prices individually. So,just so you know, thats a question we cant really give you a definitive answer to.


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22:05 MR. TRZUPEK: Well, then, I wont be able to make my investment correctly.(Laughter.)

22:11 MS. BANASZAK: We cant help you there, no.

22:13 MR. TRZUPEK: The second question is, you know, I always find it comfortspeople who dont know if I had a comparison that I can say, its just like this other thing thatweve been doing. And what occurred to me is, you know, obviously there is a lot of natural gasstorage fields in very deep aquifers that have been running for years.

And it seems to me that the issueswhich would all be surface issues, as one of you guyssaid, you know, in terms of handling the gas and dehydrating it and handling the liquidswouldbe pretty much the same with fracking as with existing storage field operations. Is that awouldyou say thats a legitimate analogy to make?

22:55 MR. FELMY: Well, this is John. Given that most of the gas storage in the United

States is in Western Pennsylvania, Western New York, in depleted oil reservoirs, yeah, yourestoring a gas in a reservoir so you have to maintain structural integrity. Youve got to clearlyhave the site(inaudible, audio interference)so you dont have escapes. Its going to changeas you draw that gas out and put it back in, draw it in.

23:22 So it is somewhat of a comparison, but the fracturing process that youre talkingabout is fluid whereas in terms of gas storage its natural gas. So youve got that. But youreputting things in the ground, clearly, at the same time.

23:35 MR. TRZUPEK: Okay.

23:36 MR. RANGER: I think one of the things, tooand I dont know if this is exactlyresponsive to your questionbut many in the public just assume that there is thisyou know,there are a bunch of cowboy drilling operators that are out roaming the country with largevehicles and they see a place they want to drill and they drill. Whereas the drilling operation,from really cradle to grave, its very closely regulated at a state level by state agencies thatthemselves have trained professionals with engineering and/or geological backgrounds, technicalbackgrounds, who have the professional expertise and the capability to evaluate the well designplan, the well engineering plan that is submitted for permit approval by the operating companyand have the ability to come out and to inspect those drilling operations to assure theirconformity with the plan thats put forward.

There are pretty considerable sanctions that incur if a company is violating the terms ofits permit. Not only that, there is knowledge transfer really across thefrom industry to theagencies and back and from the state agencies among themselves through a couple oforganizations, notably the Interstate Oil and Gas Compact Commission so that experiences thatare developed in a particular state(inaudible, audio interference)longer history or a morerecent history of, say, shale gas drilling activitylets take Texas for example, the Barnett shalearound Fort Worth.


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Well, then thats experience that can be transferred from the regulatory and oversightperspective to states like, say, West Virginia and Pennsylvania where that drilling may havebecome a more recent phenomenon.

So the activity, the drilling activity that the oil and gasthe companies in the oil and gas

industry undertake is very closely watched at the state level by people who are accountable to thepublic.

25:42 MR. BENSON: This is Merv Benson. Im not sure that we have people here whocan talk to the politics of this but it seems to me that the scary thing to many of the people in thepolitical arena is that were going to have all of this cheap gas out there which affects theirability to push alternative energies.

26:05 Have you all seen anything that would support that proposition?

26:14 MS. VAN RYAN: Merv, can you repeat the question? Im not sure people could

hear it very well here. Or I could repeat it for you. It really is a political question. Merv says heis concerned that its possible that politicians might be worried about having so much natural gasbecause, as the price drops, it could indeed make it more difficult for them to push a renewableagenda. Is that a fair way of describing it, Merv?

26:42 MR. BENSON: Thats exactly what I said.

26:45 MR. FELMY: This is John Felmy. If I could just give a couple of thoughts onthat. I mean, first of all, lets be very clear: Natural gas is not going away as a use. No matterwhat, it is not going away and so we might as well produce it here.

26:56 Were going to continue to generate power from natural gas; were going tocontinue to heat our homes with natural gas. And there is not going to be a substitute in terms ofeconomics for that in the future. Were going to continue to use it for petrochemical feedstocks.

27:10 So, yes, the relative cost may affect alternatives, but, remember, those alternatives,for the most part, arent going to displace gas because you those alternatives are electricity.And you also have to remember that if youre going to use a lot of alternatives whether it besolar, wind, geothermal, other types of alternativesyoure going to need natural gas as abackup because those are intermittent energy sources and they will not exist in a moderneconomy, a modern, stable grid without natural gas as a backupbecause it happens to be themost cost effective way to be able to cycle in and out.

27:48 And so, yes, I see your point in terms of the dollars per BTU. But the fact of thematter is, they are completely compatible.

27:56 The other issue is, remember, if were talking about building windmills and solarpanels, they use natural gas as a feedstock into the plastic and the resin materials also. So I seethis as completely compatible if you look at it in a broader context.


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28:15 MR. HURST: This is Tim Hurst. I have a question aboutlast week EPAannounced a plan to spend about $2 million on studying the health and environmental impacts offracking. I was hoping thatI was wondering if API had taken any sort of official position onthat.

28:36 MS. MEADOWS: This is Stephanie Meadows again. Yes, actually, during thatdebate on the Hill, we heard that there was going to be a study. And so the hope was that thestudyif, in fact, it did take placeeven though I think our thought had been, a study hasalready been performed. But, nonetheless, that process has moved forward and Im makingreference to the 2004 EPA study.

But now that its moving forward and there was an announcement last week that theScience Advisory Board is holding their first public hearing on thiscertainly API wants to beinvolved. Well be making a statement on whichever day that they permit the oral statements tobe made, probably going to be the seventhand hopefully have a well-engaged processthroughout the whole study period.

We would like to work with them, and EPA has made it clear that stakeholders have anintegral part in all of this. So its our expectation that we will be working hand in glove withthem from start to finish on that study.

29:42 MS. TVERBERG: This is Gail. I was going to ask about the water thats used inthis process. Does it come from municipal sources? Or, where does it come from?

29:54 MS. MEADOWS: Gail, its Stephanie again. It just sort of depends on thelocation of where the well is being drilled. It could come from municipal sources; it could comefrom surface-water sources or other groundwater sources. It just depends on where you are andwhat water resources are available. And those are things that need to be worked out when theoperator comes into a certain area and has conversations with the water authorities of thoselocalities and states.

30:26 MR. RANGER: Gail, this is Richard again. There was an article in the Oil & GasJournal last year that said that the amount of water to produce 1 million BTUs of natural gas isabout 10 percent of the amount of water required to produce the same million BTUs of coal andone-tenth of 1 percent of the water that it takes to produce that amount of energy in ethanol. Soyes, water is consumed and used in connection with drilling and hydraulically fracturing a deepshale gas well. For a 7,000 to 10,000-foot well, that volume has been estimated at around 3million gallons of water for the drilling and fracturing processes together. Thats the amount ofwater used by a typical golf course in one week, irrigating a 5-acre cornfield for one season orused by a large municipal water district of, say, 8 million people in four minutes.

31:54 MS. MEADOWS: Id also like to point out that somebody had alreadymentioned hereas the technologies are used more and more, theyre improved upon. And withregard to water as a resource there is great improvement going on with the reuse and recycling ofwater from one operating site to another. Certainly, that was not something that was done quiteas extensively years ago but water is a commodity thats hard to come by in certain areas so they


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have to make certain that theyre taking care of it and that companies are finding that this reuseand recycling is something that they can take advantage of more and more.

The water-management issues that were talking about are going to be incorporated intoone of the guidance documents. I think Richard made reference to the series of recommended

practices and industry guidance documents that API works on. Were putting a series of thosetogether on hydraulic fracturing.

I would welcome you all to visit our Web site where these will be as theyre madeavailableavailable for free to the general public but theyre really intended for industryoperators but certainly were not making a secret of them. And you will easily find them thereand download them for your own use. Theres four in the set, two of which are finished. Watermanagement and service environmental consideration should be done shortly.

33:17 MS. TVERBERG: Thank you.

33:21 MR. SHAW: Has anybody heard anything about any advances? This is slightlyafield but two years ago, we attended the International Automotive Show in New York with theAmerican Automotive Alliance and they were talking up a lot of work that was going on incompressed natural gasCNGin terms of the general consumer fleet for cars, research anddevelopment work. I havent heard a thing about that since, in terms of another way to utilizethis resource to get us off of foreign oil. Have there been any advances there? Anything newthat we can use?

33:55 MS. VAN RYAN: They asked, whos asking the question?

33:57 MR. SHAW: That was Jazz again, sorry.

33:58 MS. VAN RYAN: Oh, okay, Jazz. Thank you.

34:01 MR. FELMY: Jazz, this is John Felmy. Of course, the developments in Detroithave been a challenge over the last couple years, given the landscape that the car companies havehad to deal with. I have seen some continued developments ofbecause Ive been to aconferenceon, for example, propane use in vehicles. Thats been changing.

I think that virtually everybody concedes that natural gas can play a growing role in termsof the transportation fleet, particularly with fleet vehicles such as the vans and buseslike,Super Shuttle, which I believe has been using natural gas for a long time; heavy trucks, thatsMr. Pickenss proposal in terms of using natural gas as a vehicle fuel for that particular segment.

The challenge for the individual car segment is one of, first of all, conversion costsbecause Ive heard conversion costs of five, six, $7,000 to convert an existing vehicle to naturalgas although there is some uncertainty of that because until you do a lot of vehicles, you reallydont know what the cost would be.


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And then the issue is the refueling capabilities: How would you refuel those cars in termsof compressed gas and so on because clearly if its compressed gas, filling it in your home wouldbe a real challenge even if you had gas, and gas doesnt exist everywhere. So I think thats along way of getting to I think this is another opportunity in terms of a new market for natural gas.Its, indeed, very helpful given the relative price of natural gas versus oil and so on. But right

now, we have to deal with the really stark point that we have 250 million cars and trucks in thiscountry that run on oil and so until you have turnovers of the fleet, until you move to two typesof fuel, its going to be incremental. But it is a new market and to the extent its economic, wedlike to see it expand.

36:01 MR. SHAW: Thanks.

36:06: MR. HURST: This is Tim Hurst again. In terms of either the EPAs plans or theiractual study that they are going to conduct or the frack act which is introduced into Congress,Im curious how either the API or some of your constituents feel about sort of, I guess, divulgingwhat is in the actual chemical makeup of the fracking compound.

Thereve been claims to their sort of proprietary protection up until now. Is thatsomething thats going to be coming out or are they going to stick by the this is proprietary, wecant divulge (inaudible, cross talk)?

36:52: MR. MILITO: This is Erik Milito again. What Id like to first point out is thatthis is somewhat of a red herring because companies do disclose to the constituents of what is inthe frack fluids. You go to the service-and-supply companies and they put it on their Web sites.The information is locatedat the well locations onsite. And there are states who have takenmeasures to put regulations in places to, you know, require that the information be madeavailable.

So API and our member companies agree that state regulation is appropriate, and asneeded, states are able to collect the information. The rub is this is a business. And thesecompanies do invest millions of dollars in research and development to put together frackingfluids to make the technology better so that we can release the gas through the hydraulicfracturing process. And so there is proprietary information.

And the way we provide the analogy, its like buying a can of Coke. You look at theback of a can of Cokeor, the side of a can of Coke because its a cylinder, youll see what theingredients are but you remember back in the day, when they went about the whole newCoke/old Coke thing, the big thing in the news was keeping that secret formula confidential.And thats all were looking to do, is keep it proprietary.

And the way we found the balance is to look at what Colorado has done, where thatformula that really is the intellectual property and the business product and proprietaryinformation of those companies stays confidential and proprietary, and its provided as neededon an emergency basis to state and emergency responders.


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So when were looking at it, were trying to make sure that there is the balance so that thepublic understands whats in frack fluids but the companies are able to protect their businessproduct.

39:02: MR. SHAW: What its worth, if you go to for one examplethis is Jazz again

in case its helpful, if you go to the Pennsylvania Department of Energy and Transportation siteI dont have the URL right in front of me do a quick search on that and it is state law there;they have a full list of all the chemicals that are used that anybody can see that theyve beenusing for years. The only thing they dont provide is the actual ratios and the amounts which is,as the last speaker said, kind of a secret formula. They didnt want to give that away to theircompetition but just to find out what the chemicals are that are involved, those have been madepublic.

39:38: MS. VAN RYAN: And this is Jane. Im going to send you a link tomorrow whenI send you the audio file and the transcript link that will take you to a chart that I discovered thismorning with Richards help that really lists a lot ofthe chemicals that are used in the fracking

fluids. And I was particularly struck when I looked at the chart today by the fact that 99.51percent of the fracking fluids consist of water and sand because you need the sand as a proppant;something to prop open those fractures. I think youll find that document very helpful, too, andIll be sure you get that tomorrow.

40:18: MR. HURST: Can I just follow up really quick? Would API then support the sortofthe Colorado model, lets call it, on a national scale?

40:27: MR. MILITO: Well, I mean, thatwe support the Colorado model at the statelevel. It gets a little more complicated when youre getting the federal government involvedbecause all these activities are best regulated at the state level and I think Richard, who has hadexperience as a company person at the state level, can explain why, but there are a lot ofvariables that make it such that you cant have a one-size-fits-all across the board for all statesthrough federal legislation.

And that even goes to the disclosure requirements because when these companies aresubmitting their well-management plans, when theyre working with the state officials, thatinformation is provided at the state level. And Id like to turn it over to Richard because he cantalk about the different variables that make it difficult to have a one-size-fits-all approach.

41:16: MR. RANGER: I guess a couple of things. First, the states are considering eachothers examples and each others precedents. The state of New York in the supplementalenvironmental document that was prepared by the New York Department of EnvironmentalConservation last year listed a considerable number of compounds that were identified assuitable for use in the state of New York, and really followed an approach very similar to that,that the state of Colorado adopted a year earlier, which is that the formulationwhich is whathas been cited as the concern of some, meaning the specific mixwould be available in theevent of an incident to state regulatory officials and to public health officials to address potentialconcerns that might arise from that incident.


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People say, well, boy, that really sounds like a lot of concern over the specifics of theseformulations. But the art of the servicethe providing of the fracking fluid really has to do inthe precision of the formulation offered by the company that is mixing these chemicals in this99-percent water solutionaqueous solutionto address the geochemistry of the formationthats being drilled into, its specific physical properties and so forth.

And that gets to be an area of professional judgment, the application of technology, and Iguess the example I didanother food analogy, itd be this. Popeyes, Kentucky Fried, youknow, theres a number of outfits that sell fried chicken. Each of us knows that the fried chickentastes different if you go fast food fried chickenwhich maybe not everybody here does. Butyou know, there are a lot things that are in recipes that you have the same dish at a differentrestaurant and it tastes different because of the precise mix that the chef is offering.

Well, in a manner of speaking, though a lot less tasty, thats really whats being providedas a service, as an area of expertise by the company that is handling the hydraulic fracturingwell-completion operation for its client oil company or gas company. And its that you know,

they want to be able to preserve the commercial value of that effort because thats the servicethey supply; thats really the expertise that they offer.

44:04: MR. STYLES: This is Geoff Styles. Ive got a question on a related topic to that.When I posted on this subject a couple of weeks ago, I got a lot of comments and questionsconcerning the use of diesel and attempting to link that to reports of benzene contamination andthings like that. That latter point didnt make any sense to me from my refinery background butcould you comment on how diesel comes into this process and whether its use actuallyintroduces anything to the environment that isnt already found in the hydrocarbons in theformations theyre drilling into?

44:44: MR. RANGER: Geoff, this is Richard again. Diesel is used in some wellcompletion operations. It has to do with whether the use of diesel, as opposed to a water-basedcompletion fluid is more appropriate for the formation, just owing to, again, the geochemistryand physical properties of the rocks through which youre moving.

Typically where diesel is used is not as a fracturing fluid, but as the basis for drilling muddrilling muds, which are the substances that lubricate the bit. The circulation of the drillingmud removes the rock cuttings that the bit makes as it moves through the earth, brings those rockcuttings to the surfacealso, cools the drilling operation, cools the drilling bit.

Anyhow, in a number of cases around the country, diesel fluids are used for drillingmuds. Those are completely recycledin fact, thats one of diesels advantages, is its areusable material, whereas the water-based drilling mud solutions can break down over time.The use of diesel, or not, is another subject that is regulated by the state agencies that areoverseeing the particular drilling operation, and those are agencies who have staff who arefamiliar with the particular characteristics of the formations being drilled into.

But the idea that diesel is being used in, you know, move through the surface of the earthis, I think, again a misconception that has been spread. Where its chiefly used is in some


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drilling operations for drill lubrication. Those diesel fluids are recovered and theyre reused inother wells that are drilled in that same drilling program.

46:38: MR. STYLES: Thank you. And just to follow up, are there any statistics on thequantities of diesel used in that way?

46:47: MR. RANGER: The answer is, there probably is in some of the technicaljournals, Geoff. Im sorry, I dont know them. It would have to do with the volume of fluid thatyoud have in a wellbore at a given time. Im sorry I dont have that information.

47:02 MR. STYLES: Thank you.

47:07 MS. VAN RYAN: More questions? I have a couple that have been submitted.We could certainly do those, quickly, I think.

47:13 MS. HOPKINS: Jane, this is Michelle. I have a question on the state regulation,

the state oversight of these things.

47:18 MS. VAN RYAN: Yes

47:19 MS. HOPKINS: I was looking at some testimony from 2009, from theGroundwater Protection Council, in which they called for some benchmarking to point out thosepractices used by whatever states that are the best and should be recommended and looked at forother states, and so forth. Has anything been done in that regard, or do we have any feel forwetalked a little bit about Coloradobut the distinctions between the regulation done in the statesand how good it is?

47:50 MS. MEADOWS: You know, that was actually one of the recommendations thatthe GWPC put forward in that report, and I do not believe that they have done any follow-up onthat yet, although they were talking about a study that would look into that. So I just dont know.My sense is, we would have heard about it if that study had been initiated.

48:10 MS. HOPKINS: Okay, thank you.

48:13 MR. RANGER: That may be somethingthey have a Web site.

48:16 MS. MEADOWS: ExactlyI would just refer you to their Web site and see iftheres any discussion on the status of that.

48:21 MR. RANGER: GWPC.org, I think.

48:27 MS. VAN RYAN: A question that was submitted by one of the bloggers todayasks kind of an interesting approachabout an interesting approach to hydraulic fracturing. Asyou can see by the illustration that weve provided, what normally happens, or what oftenhappens, at least, is that youll have the wellbore go down vertically, go off horizontally andthen, at intervals, youll have fracking occur.


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The question thats been asked of everybody here in the room is, can you have fracturingthat takes place between two wellbores that are close enough to one another so that youreactually getting more out of the layerthe play areathan you might otherwise? Is that beingdone anywhere? And if its being done, how do you then determine how much oil or natural gas

is left in the formation?

49:21 MR. RADFORD: This is Andy Radford. You know, when they drill these wellsthese horizontal wellstheyll drill them out from a central location. And theyll go out indifferent directions, like the spokes on a wheel. And the wells are designed so that you donthave communication between the wells. And the fracturingthe fracture jobs are, you know,for the most part, computer-simulated before they even do the fracture, based on the knowledgegained of drilling previous wells and previous frack jobs.

So theyll simulate these fracturing jobs so they can determine where the fractures aregoing to go, and through the pressures and volumesthe pressures at which they pump the fluid

and then the volume of fluids, they can really tellyou know, these are highly controlledprocesses, and theyre done in real time from the during the operation. So they know wherethese fracks are going, and its a very controlled process.

50:23 MR. RANGER: And the well is really your unit of control.

50:25 MR. RADFORD: Yeah.

50:26 MR. RANGER: Its really important that you know what youre going to be ableto produce on a particular well.

50:30 MR. RADFORD: You dont want these wells and these fractures communicatingwith other wells. So theyre designed so they dont do that. That would not maximize yourproduction.

Youd lose your pressure control if you did that. And then, based on, you know, thevolumes of gas thatyou know, the production rates and the pressuresthey can then determineyou know, they had a sense of what was contained in that reservoir to start with, and based onthe volumes and pressures, they can determine how much has been produced and make anestimate of how much remains.

So itsa highly controlled and engineered process, and its designed so that these wellsare single units that dont communicate. Now, when you there are cases where we dosecondary, tertiary recovery operations, where you have injector wells that are designed to pushthe fluids to a producing well. But those are engineered in a different manner and its a differenttechnology thats used for that.

51:45 MS. TVERBERG: This is Gail. I think in Pennsylvania, and maybe in NewYork, too, there have been some very old wells that people have thought maybe were notproperly sealed. But it would sound like, from what youre saying, that anybody whos drilling a


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new well would certainly be on the lookout for any old, improperly sealed well that might be inits area nearby, you know, that you might get some backflow through.

52:13 MR. RADFORD: Yeah, thats contained in our recommended practice documenton, you know, good practices for hydraulic fracturing. You survey the area for abandoned wells,

because it may have been what we call orphan wells that were not abandoned properly and werenot sealed properly. So you need to know where those things are and

52:36 MR. RANGER: And make sure of those zones, and

52:37 MR. RADFORD: And make sure that you have good well integrity through thosezones and just, you know, do what you can to minimize anything involved with an old well.

52:51 MR. RANGER: Thats also subject, too, Gail, where the state agencies becomeinvolved in, you know, conversations with the drilling applicant. You know, they wontnecessarily be any more familiar with the details of the wells than will the applicant. I mean, you

take precautionswhat happens as a result of that dialogue between the company doing thedrilling and the regulating agency. The practices, or the approaches, are developed to ensure thatthere isnt migration or loss through those old wells.

53:28 MS. TVERBERG: Thanks.

53:29 MS. VAN RYAN: Any more questions? I have one more that was submitted tome, and Ill kind of its kind of long, so Ill give you just, kind of, the bottom line here. Howcan we give consumers a realistic context about the integrity of the cases that contain anyresidual fracking liquids? And what, if any, monitoring do states do now after the operation iscomplete to ENsure theres no migration of liquids from the cases over many years to come?

54:03 MR. RANGER: Youre saying complete, meaning at the end of production?

54:07 MS. VAN RYAN: Its not clear by the question that was submitted.

54:11 MR. RANGER: Well, Ill take that part of the answer, Jane. Rich again.Plugging and abandoning a well at the conclusion of its productive life is also an issue thatinvolves, you know, considerable experience. There are API standards that apply, and theresstate regulation that applies. So the intent behind completion in production is to assure, really,exactly the concern of that particular writer to you, which is to assure that whatever may bebelow the surface doesnt flow up through the wellbore to the surface and doesnt flow, youknow, through any weak spots that may exist into other strata.

So the well design and the well construction program is, itself, developed, reviewed andinspected to assure that it achieves those objectives through the productive life of the well. Andthen, at the time ofwhen the productive life is over, the proper plugging and abandoning isanother series of steps that are carefully followed to assure integrity through time.


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55:30 MR. RADFORD: There are techniques that companies can use to monitor theangular pressures on their wells, to see if theres any communication between the producing zoneand these other anyuli if you will. And you know, I think what theyre asking is, you know the way I could put it is, there is no requirement to drill monitoring wells around your well, butyou know, the historytheres no need to.

Weve had a long history of drilling wells and producing them using hydraulic fracturing,and weve had no need for that, since the states have not identified that as a problem. So theresno regulations on the books that you have to do this type of monitoring.

56:12 MR. RANGER: And there are steps that are taken at intervals in the drillingprocesscement bond logging isthats a technical term in the industry. But what that is, is ameans of measuring the integrity and the thoroughness, if you will, of the cementing jobthecement that is inserted or squeezed, in drilling parlance, between the casing pipe and thesurrounding rock. You know, are you sure youve got a completeyou dont just have a collararound there, but you have that drill pipe safely surrounded by cement? And theres a logging

process to verify that, and those logs are inspected.

56:50 MS. VAN RYAN: Any additional questions?

56:53 MS. TVERBERG: I was justthis is Gail againI was just going to ask, couldyou give me sort of an overview of where legislation is right now? That frack legislation thatwas introduced last yearis that dead, or is that going to be revived? I guess New York istheyre kind of generally looking at this, and theyre kind of in the midst of a long process. Isthat whats going on? I havent been following this quite as closely as, maybe, some othershave.

57:20 MR. MILITO: Well, as our friend, John Felmy, here, likes to say, he never putodds on Congress, and were not going to do that. (Laughter.) You know, it was introduced.We do have a lot of concerns about it because, you know, as weve stated, the states have andcontinue to regulate oil drilling activities and natural gas drilling activities as best as anybodycould. So its kind of a wait-and-see.

You know, we do have this study thats going to be commencing that was really done at acongressional request through the appropriations bill. So our hope would be that they wait to seehow things evolve with the study and then take things based upon, you know, the best availablescience and evidence that results from that.

58:06 MR. FELMY: In New York, the question is, theyre reviewing the comments the thousands of comments that they got, the hearings that they held, the testimony that theyheld. And from what I understand, having just been through Albany, theres no definite time, interms of when that EIS is going to be released. But until its released, basically, the industry is were waiting to move forward, which is really unfortunate, because this is the biggest economicopportunity these two states have had in 100 years.


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As a former dirt-poor country boy from Northern Pennsylvania, this is an opportunitythe first theyve had since the lumbering of the 1890s. And so hopefully, well see somemovement forward. Hopefully, we will not see some actions that really stymie what could be awonderful opportunity for jobs and revenue and economic development in an area that hasnt hadany for a very long time.

Its exciting to me, because I grew up in the 50s and 60s there watching seismic trucksgo up and down those river valleys. And I always wondered, what did they find? Did they findanything? Well, they did. But they couldnt develop it. And so this new technology is just agodsend for an area. It could generate 175,000 jobs for Pennsylvania, billions in revenue andtaxes. And the same is true with the developments, potentially, in the southern tier of New York.

So thats just a quick economic assessment of where we are. We talked a lot aboutchemicals. Lets not forget how this can really affect the folks who need it in that part of theworld.

59:41 MS. TVERBERG: Thank you.

59:42 MS. VAN RYAN: All right. Weve been going for an hour. Do we have anyadditional questions? If not, well close off for the day. I will be sending materials to you andlinks to you tomorrow. I think one thing I will add will be the Global Insights study.

01:00:02 MR. RANGER: You know, one thing that you might call their attention to,too, Jane, is the video that we have on our sitethe live video from different drilling operationsin Texas and Colorado.

01:00:20 MS. VAN RYAN: Indeedwe can do that.

01:00:22 MR. MILITO: And the link to Energy in Depth is very helpful. They have alot of materials there.

01:00:23 MS. VAN RYAN: Yes. In fact, thats where we found the chart earlier today,Erik. And Energy in Depth, in fact, could be a good resource for all of you. Its an excellentWeb site. Were not it isnt sponsored directly by API. Its got some great materials on it,however. So at any rate, thank you for joining us. Ill be sending you more materials tomorrow.And if you have any questions, send them to me by e-mail. Ill be happy to help. Thanks,everybody.

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API Blogger Conference Call: Hydraulic Fracturing - 3.25.10