Status of Oil and Gas Development in Alabama and Economic Benefits Nick Tew

Alabama State Geologist and Oil and Gas Supervisor

Geological Survey of Alabama and

State Oil and Gas Board of Alabama

2015 Alabama Mineral Institute The University of Alabama

College of Continuing Studies September 2, 2015

GSA & OGB Geological Survey of Alabama

• Established in 1848

• Natural resource investigation, characterization, and development

• Fossil-fuel Mineral, Nonfuel Mineral, Water, and Biological Resources

State Oil & Gas Board of Alabama

• Established in 1945, grew out of activities of GSA

• Three member appointed Board • Staff Director – State Geologist, serving as State Oil & Gas Supervisor

• Oil and Gas Conservation and Regulation

• Prevent waste of resources, protect correlative and coequal rights, protect ground

water

Geological Survey Camp, Wilcox Co., 1885

Survey Team, Gas Test Well, Mobile Co., 1902

OGB & GSA—A long legacy of service to Alabama & a long history of close cooperation & collaboration with UA

Alabama’s Fossil Fuel Energy Endowment

• Coal • Black Warrior Basin Coal Measures • Coastal Plain Lignites (low-rank coal)

• Oil

• Conventional • SW Alabama Oil and Condensate • Black Warrior Basin Oil

• Unconventional • Oil Sands of North Alabama

• Natural Gas • Conventional

• SW Alabama • Black Warrior Basin

• Unconventional • Coalbed Methane of Black Warrior Basin • Paleozoic Gas Shales of North Alabama

Geology of Alabama

Alabama’s Oil and Gas History • 1865- First exploratory wells, Lawrence County. • 1884- First exploratory well in southwest Alabama, Choctaw County. • 1902- First commercial production of natural gas, Madison County. • 1911- Alabama’s first oil and gas law. • 1944- Oil discovered at Gilbertown, Choctaw County. • 1945- State Oil and Gas Board established.

• 1955- Citronelle Field discovered.

• 1967- First Smackover discovery, Toxey.

• 1968- First Norphlet discovery, Flomaton.

• 1970- Carter sand discovery, Black Warrior Basin.

• 1979- Mobile Bay Norphlet discovery.

• 1980- First coalbed methane fields established.

• 1982- Offshore Miocene discovery.

• 1986- First Haynesville discovery, Monroe County.

• 1995- Little Cedar Creek Field established.

• 2007- First shale gas field established.

Significant Oil and Gas Activity Areas in Alabama

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Oil Condensate Gas

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571

432

376

206 211 157

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State of Alabama Oil and Gas Drilling Permits

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North Conventional

Coalbed Methane

Southwest Alabama

Stratigraphic Column for Northeastern Gulf of

Mexico Region (Mancini et al., 2001)

State O il and Gas Board of Alabama

State of Alabama Oil and Gas Boardlcc_brook

Every effort has been made to check the accuracy of the information presented; how ever, to verify that the information is current and accurate, or to obtain more detailed information, please consult the Survey's or Board's or iginal files.

April 10, 20150 1.5 mi

1:92,177

Little Cedar Creek & Brooklyn Fields Area

Little Cedar Creek Field

Brooklyn Field

Bailey’s Landing Field Smackover

Monroe County Ventex Operating Corporation

Offshore Alabama

Alabama’s Offshore Natural Gas First discovery--Lower Mobile Bay-

Mary Ann Field, 1979.

Jurassic Norphlet Formation sandstones below 20,000 feet (~6,100 meters).

Sandstone reservoirs deposited as

dunes in ancient desert.

Production commenced late 80s.

Ultimately determined to be a world-class natural gas accumulation with >6 Tcf OGIP.

Alabama’s Offshore Natural Gas

• Currently 12 producing fields in Alabama offshore. About 3.7 TCF of natural gas produced to date.

• Peak production of ~230 Bcf annually in 1998.

• In FY 2014, these fields produced

~72 billion cubic feet of natural gas.

• Primarily from deep Norphlet

reservoirs, smaller contribution from shallow Miocene reservoirs.

Alabama’s Offshore Fields

50 47 43 42 43 37 44 38 38 49

118 117 115 113 110 104 98

93 86 79

155 150

135 129

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78 72

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Fiscal Year

State of Alabama Natural Gas Production by Well Type

Offshore Coalbed Other

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1987 1992 1997 2002 2007 2012

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Alabama Offshore Gas Production

Miocene

Norphlet

Cumulative Total in TCF

Alabama’s Offshore Natural Gas

• Production in natural decline; characteristic of maturing fields.

• Hopeful of continued development.

• Optimal development--additional recovery of approximately >1 TCF of natural gas through ~2032.

Ensco jack-up on ExxonMobil AL Block 115 well, Spring 2009.

Black Warrior Basin

Sources: Esri, HERE, DeLorme, TomTom, Intermap, increment P Corp., GEBCO, USGS, FAO, NPS , NRCAN, GeoBase, IGN, Kadaster NL, Ordnance Survey, Esri

Japan, METI, Esri China (Hong Kong), swisstopo, MapmyIndia, © OpenStreetMap contributors, and the G IS User Community, State Oil and Gas Board of Alabama

State of Alabama Oil and Gas Board

Every effort has been made to check the accuracy of the information presented; how ever, to verify that the information is current and accurate, or to obtain more detailed information, please consult the Survey's or Board's or iginal files.

April 10, 20150 0.55 mi

1:30,000

Chicken Swamp Branch Field Pottsville “A” sand

Cumulative 2007-2014 571,302 barrels

Unconventional Hydrocarbon Development in Alabama

• Coalbed methane production for over 30 years

• The CBM industry started in Alabama

• First comprehensive CBM legal & regulatory framework

• Lessons learned that can be applied to shale gas development

• Shale gas development

• Conasauga Fm. Development

• Big Canoe Creek Field (2005)

• Mississippian and Devonian shales

• Future potential

• Mississippian Oil Sands (?)

Coalbed Methane in Alabama • Degasification experiments for mine safety began in the mid-

1970s.

• Commercial production began in 1980.

• Currently close to 5,000 active wells in 20 fields.

• Annual gas production between 105 and 121 Bcf for the last 20 years.

• Over 2.5 Tcf cumulative gas production. • Over 1.7 billion barrels of water produced.

50 47 43 42 43 37 44 38 38 49

118 117 115 113 110 104 98

93 86 79

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78 72

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State of Alabama Natural Gas Production by Well Type

Offshore Coalbed Other

Alabama CBM Fields

Black Warrior Basin Coal

Stratigraphy

CBM Wells in Alabama

• Relatively shallow (<5000 ft.).

• Majority are vertical wellbores, typically encountering several coal groups/seams.

• Coal seams are hydraulically fractured, typically several fracture stimulations per well.

• Average about 100 Mcf of natural gas per day.

481

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64 50 81

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State of Alabama Oil and Gas Drilling Permits

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North Conventional

Coalbed Methane

Shale Gas in Alabama

Big Canoe Creek Field area, St. Clair County, Alabama

Devonian Chattanooga Shale disconformably overlying Silurian Red Mountain Formation, northeastern Alabama

U.S. SHALE PLAYS

Areas of Shale Gas Potential in Alabama

The Alabama Experience

• Shale Gas Wells

• >50 Drilled

• None currently producing

• Lessons learned • Technology and approaches from successful shale plays not

necessarily transferrable

• Significant influence of natural gas market conditions

• Paleozoic Shale Gas Potential

• Conasauga Fm. (Cambrian)

• Devonian shales

• Floyd/Neal Shale (Mississippian)

PLAY CONCEPTS

APPALACHIAN ACTIVITY

ALABAMA THRUST BELT

Thomas and Bayona (2005)

CONASAUGA SHALE

GAS-IN-PLACE

625 Tcf 84% in free state

101 Tcf 60% in

adsorbed state

52.4 Tcf

48.2 Tcf

NEAL SHALE GAS-IN-PLACE

DEVONIAN SHALE

GAS-IN-PLACE

95 Tcf 60% in

adsorbed state

11.9 Tcf

10.5 Tcf

34.3 Tcf

Alabama’s Oil Sands • Significant accumulations exist in Mississippian rocks of

northwestern Alabama.

• Largest accumulations in Hartselle Sandstone.

• Previous studies indicate up to 7.5 billion barrels of oil in surface, near-surface, and subsurface accumulations (Wilson, 1987).

• Accumulations and characteristics highly variable, both stratigraphically and laterally.

• Alabama Oil Sands Program at GSA and OGB.

• Private sector interest high and exploration underway. THIS WAS TRUE AT $100 OIL!!! NOT SO TRUE TODAY!

Alabama Oil Sands – Characterization of Hartselle

7.5 billion barrels speculated in subsurface (~350 million barrels at <50 feet depth)

Beach-barrier model

Issues with Oil & Gas Development

• Environmental Considerations • Water Use & Availability

• Produced Water Management

• Frac Fluid Components

• Regulatory Considerations • Well Types, Construction, & Spacing

• Competing or Overlapping Agency Jurisdictions

• Competing Land Uses

Drill Site in Area of Cultivation Tuscaloosa County, Alabama

Vicinity of Brookwood, Alabama

Regulatory Adaptability

• Environmental Considerations • Water Use & Availability – Best Management Practices

• Frac Operations Approval & Disclosure

• Produced Water Use & Disposal Options

• Regulatory Considerations • Alternative Well Types, Construction, & Spacing

• Interagency Coordination

• Regulatory Flexibility

Regulatory Framework

• O&G Statutes, with Legislative amendments as needed & necessary

• Regulations, with Administrative amendments & waivers as appropriate

• Special Field Rules for each new field established

• Interagency Coordination

• Interaction with, and assistance from, national associations of states • Interstate Oil & Gas Compact Commission • Ground Water Protection Council

The Alabama Oil & Gas “Goldbook”

http://iogcc.org

http://gwpc.org

Oil and Gas and Alabama’s Economy

Value of Oil and Gas Activity • Annual resource value = ~$1-2 billion at prevailing prices.

• Does not take into account jobs provided, goods & services consumed, royalty payments to mineral owners, taxes paid, or other multipliers.

Government Entity FY 2013 FY 2014

County: (Million Dollars) (Million Dollars)

Conecuh 10.278 9.814

Escambia 4.866 4.323

Mobile 4.396 4.063

Tuscaloosa 2.281 2.530

Others 4.955 4.795

State:

State Docks 9.500 9.500

General Fund 48.565 47.586

Total 84.841 83.839

Comptroller's Office - Alabama Dept. of Finance

Value of Oil and Gas Activity

Severance Tax Distribution to Counties

97

126

99

137

79 65

82 84 87 85

36

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40

55

32

20

30 28 29 28

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State of Alabama Oil & Gas Severance Tax

Production Tax

Privilege Tax

108 114 125 133 128 101 99 94 73 69

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245

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169

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79 84

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27

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Revenues Generated From Alabama Offshore Production

Sev. Tax

Fed. Royalty

State Royalty

Investment Income

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State of Alabama Oil & Gas Trust Fund

Investment IncomeOil & Gas ProceedsTrust Fund Balance

REVENUE ABSTRACTALABAMA DEPARTMENT OF REVENUE

Month of March 2015

Fiscal Year: 1 October 2014 - 30 September 2015

Comparative Statement of Gross Tax Collections for the Month Source: Financial Operations

and Fiscal Periods Indicated. revenue.alabama.gov

Title of Tax March March % FYTD FYTD % FYTD Refunds FYTD Refunds % FYTD Net FYTD Net %

2015 2014 Change 2014-15 2013-14 Change 2014-15 2013-14 Change 2014-15 2013-14 Change

Bulk Storage Withdrawal Fee . . . . . . . . . . 2,701,614.73 2,750,334.81 (1.77) 18,031,241.06 17,367,447.68 3.82 177,991.98 148,677.60 19.72 17,853,249.08 17,218,770.08 3.68

Business Privilege Tax . . . . . . . . . . . . . . 72,235,861.79 66,356,901.19 8.86 91,814,824.56 83,224,030.84 10.32 11,152,510.49 8,296,243.67 34.43 80,662,314.07 74,927,787.17 7.65

CMRS Wireless 911 Service Charge . 1,433,712.07 1,329,995.38 7.80 8,938,630.05 6,813,676.62 31.19 10,126.32 84.92 8,928,503.73 6,813,591.70 31.04

Coal Severance ($.135/Ton) . . . . . . . . . . 163,027.89 177,431.63 (8.12) 898,644.72 977,185.93 (8.04) 0.00 0.00 898,644.72 977,185.93 (8.04)

Coal Severance ($.20/Ton) . . . . . . . . . . . 241,522.86 262,639.43 (8.04) 1,307,388.78 1,436,447.88 (8.98) 0.00 0.00 1,307,388.78 1,436,447.88 (8.98)

Contractors' Gross Receipts . . . . . . . . . . 2,132,059.70 1,438,958.50 48.17 22,220,336.33 19,195,504.24 15.76 403.58 31,880.27 (98.73) 22,219,932.75 19,163,623.97 15.95

Deeds and Assignments . . . . . . . . . . . . 651,823.57 292,959.75 2,624,577.67 1,760,674.57 49.07 169,071.90 109,844.65 53.92 2,455,505.77 1,650,829.92 48.74

Dry Cleaning Registration Fee. . . . . . . . . . 15,601.89 13,599.43 14.72 105,199.15 147,901.87 (28.87) 0.00 0.00 105,199.15 147,901.87 (28.87)

Estate and Inheritance . . . . . . . . . . . . . . . 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Financial Institutions Excise . . . . . . . . . . 24,540,876.35 15,664,658.54 56.66 32,782,844.32 19,898,006.85 64.75 0.00 0.00 32,782,844.32 19,898,006.85 64.75

Forest Products Severance . . . . . . . . . . . 4,037.50 10,688.10 (62.22) 2,920,391.98 2,803,705.38 4.16 0.00 2,732.02 (100.00) 2,920,391.98 2,800,973.36 4.26

Freight Line R.R. Equipment . . . . . . . . . . 0.00 3.43 (100.00) 4,321,961.12 3,091,242.08 39.81 0.00 0.00 4,321,961.12 3,091,242.08 39.81

Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . .31,216,634.67 30,189,183.42 3.40 201,222,883.88 194,798,864.34 3.30 2,874,204.21 3,099,560.56 (7.27) 198,348,679.67 191,699,303.78 3.47

Gasoline (Aviation & Jet Fuel) . . . . . . . . . 165,358.59 170,674.42 (3.11) 1,135,187.51 1,221,284.27 (7.05) 386,467.53 592,623.65 (34.79) 748,719.98 628,660.62 19.10

Hazardous Waste . . . . . . . . . . . . . . . . . . 60,884.27 70,230.16 (13.31) 325,694.89 273,882.72 18.92 0.00 0.00 325,694.89 273,882.72 18.92

Hospital Assessment Fee . . . . . . . . . . . . . . . . . . 0.00 0.00 127,971,693.77 126,749,576.98 0.96 0.00 0.00 127,971,693.77 126,749,576.98 0.96

Hydro-Electric KWH . . . . . . . . . . . . . . . . . . 0.00 0.00 1,691,037.79 781,736.61 0.00 0.00 1,691,037.79 781,736.61

IFTA License Tax . . . . . . . . . . . . . . . . 1,595,453.21 1,363,543.19 17.01 3,567,912.91 4,680,812.30 (23.78) 0.00 0.00 3,567,912.91 4,680,812.30 (23.78)

Income Tax-Corporate*** . . . . . . . . . . . . . . . .72,047,772.30 63,898,292.62 12.75 272,644,652.10 185,232,085.41 47.19 35,922,502.26 56,367,110.86 (36.27) 236,722,149.84 128,864,974.55 83.70

Income Tax-Individual. . . . . . . . . . . . . 301,138,228.14 292,400,526.24 2.99 1,822,830,903.73 1,745,653,668.64 4.42 257,769,658.13 224,569,810.16 14.78 1,565,061,245.60 1,521,083,858.48 2.89

IRP Registration Fees . . . . . . . . . . . . 5,877,461.11 6,632,139.90 (11.38) 24,253,924.12 20,561,913.58 17.96 0.00 0.00 24,253,924.12 20,561,913.58 17.96

Lodgings . . . . . . . . . . . . . . . . . . . . . . . . . . 3,942,749.64 3,724,160.16 5.87 22,757,942.85 21,178,846.15 7.46 15,517.48 13,154.42 17.96 22,742,425.37 21,165,691.73 7.45

Medicaid Nursing Facility . . . . . . . . . . . . 8,605,067.78 8,545,364.89 0.70 51,869,490.72 51,136,995.95 1.43 0.00 21,414.97 (100.00) 51,869,490.72 51,115,580.98 1.47

Medicaid Pharm. Services . . . . . . . . . . . . 729,505.84 739,409.54 (1.34) 4,643,034.44 4,706,649.06 (1.35) 0.00 7,303.74 (100.00) 4,643,034.44 4,699,345.32 (1.20)

Miscellaneous Tags . . . . . . . . . . . . . . . . . 24,700.30 24,786.64 (0.35) 131,161.74 128,482.26 2.09 0.00 69.50 (100.00) 131,161.74 128,412.76 2.14

Miscellaneous Taxes* . . . . . . . . . . . . . . . . . 9,661.85 11,535.55 (16.24) 207,922.98 225,883.10 (7.95) 1,356.00 36,115.00 (96.25) 206,566.98 189,768.10 8.85

Mobile Telecom Tax . . . . . . . . . . . . . . . . . . . .4,763,051.55 6,333,380.49 (24.79) 29,777,197.42 37,295,312.89 (20.16) 64,382.74 75,950.28 (15.23) 29,712,814.68 37,219,362.61 (20.17)

Motor Fuels (Diesel) . . . . . . . . . . . . . . . . . 10,871,524.20 10,837,408.95 0.31 69,666,184.32 68,040,536.95 2.39 3,311,292.91 3,064,990.58 8.04 66,354,891.41 64,975,546.37 2.12

Motor Registration Reinstate fees. . . . 378,810.13 119,859.98 1,062,623.29 359,309.46 153.00 459.00 100.00 1,062,470.29 358,850.46

Motor Vehicle Title Fees . . . . . . . . . . . . . . 1,935,962.50 2,174,997.00 (10.99) 10,871,903.08 10,817,024.13 0.51 195.00 190.00 2.63 10,871,708.08 10,816,834.13 0.51

Motor Veh Salv Inspec Fees . . . . . . . . . 72,750.00 76,500.00 (4.90) 465,168.00 391,492.00 18.82 0.00 0.00 465,168.00 391,492.00 18.82

Oil & Gas Privilege (8%) . . . . . . . . . . . . . 3,481,100.63 6,629,109.53 (47.49) 32,020,811.75 42,544,626.74 (24.74) 1,310,575.19 1,160,443.28 12.94 30,710,236.56 41,384,183.46 (25.79)

Oil & Gas Production (2%) . . . . . . . . . . . . 1,391,213.00 2,437,925.64 (42.93) 10,917,110.99 13,640,883.75 (19.97) 545,350.84 387,325.59 40.80 10,371,760.15 13,253,558.16 (21.74)

Oil Lubricating . . . . . . . . . . . . . . . . . . . . . . 140,736.84 162,718.09 (13.51) 871,177.22 933,354.19 (6.66) 20,298.68 454.16 850,878.54 932,900.03 (8.79)

Oil Wholesale License . . . . . . . . . . . . . . . 2,046,057.90 104.86 10,517,197.96 8,243,092.45 27.59 24,794.62 29,977.36 (17.29) 10,492,403.34 8,213,115.09 27.75

Pari-Mutuel Pool . . . . . . . . . . . . . . . . . . . . 123,807.33 126,242.05 (1.93) 744,498.51 744,622.36 (0.02) 0.00 0.00 744,498.51 744,622.36 (0.02)

Property Tax**. . . . . . . . . . . . . . . . . . . . . . 12,743,232.91 13,402,243.97 (4.92) 320,466,913.87 320,744,378.74 (0.09) 0.00 0.00 320,466,913.87 320,744,378.74 (0.09)

Rental or Leasing . . . . . . . . . . . . . . . . . . . 5,566,840.28 5,299,730.79 5.04 40,623,828.64 39,769,726.02 2.15 51,848.09 116,126.24 (55.35) 40,571,980.55 39,653,599.78 2.32

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168,212,474.72 168,581,888.10 (0.22) 1,047,381,802.60 1,008,379,002.54 3.87 6,732,035.44 1,515,176.84 1,040,649,767.16 1,006,863,825.70 3.36

Scrap Tire Environmental Fee. . . . . . . 324,098.22 340,621.85 (4.85) 1,776,169.06 1,844,050.55 (3.68) 0.00 2,098.24 (100.00) 1,776,169.06 1,841,952.31 (3.57)

Solid Waste Disposal Fee . . . . . . . . . 14,077.22 4,368.26 3,161,300.77 3,071,385.66 2.93 0.00 9,932.69 (100.00) 3,161,300.77 3,061,452.97 3.26

Store Licenses . . . . . . . . . . . . . . . . . . . . . 68,843.18 2,333.77 593,923.28 492,971.06 20.48 0.00 22.44 (100.00) 593,923.28 492,948.62 20.48

Tobacco Cigarette Tax. . . . . . . . . . . . . . . . . . .8,141,081.93 8,110,772.61 0.37 55,885,660.94 58,287,827.72 (4.12) 71,550.80 45,357.68 57.75 55,814,110.14 58,242,470.04 (4.17)

Tobacco OTP Tax. . . . . . . . . . . . . . . 741,749.17 644,123.73 15.16 4,267,292.66 5,239,667.80 (18.56) 57,799.13 400.00 4,209,493.53 5,239,267.80 (19.65)

TVA Electric . . . . . . . . . . . . . . . . . . . . . 8,382,304.00 8,662,010.16 (3.23) 52,722,347.24 54,606,510.55 (3.45) 0.00 0.00 52,722,347.24 54,606,510.55 (3.45)

Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,690,064.76 32,143,585.49 (23.19) 157,917,948.18 157,697,283.98 0.14 1,407,961.81 1,204,498.95 16.89 156,509,986.37 156,492,785.03 0.01

Utility Gross Receipts . . . . . . . . . . . . . . . . . 32,208,920.99 40,587,071.05 (20.64) 207,861,448.70 210,637,642.81 (1.32) 537,237.53 1,335,064.08 (59.76) 207,324,211.17 209,302,578.73 (0.95)

Utility License (2.2%) . . . . . . . . . . . . . . . . . 0.00 2,841.46 (100.00) 78,366,904.56 73,906,254.59 6.04 0.00 0.00 78,366,904.56 73,906,254.59 6.04

TOTAL . . . . . . . . . . . . . . . . . . . . . 815,832,317.51 802,747,854.75 1.63 4,859,158,896.21 4,631,733,462.25 4.91 322,615,285.66 302,245,093.40 6.74 4,536,543,610.55 4,329,488,368.85 4.78

*Miscellaneous Taxes Collected includes: Auto Dismantler Lic, Auto Reconditioner & Rebuilder Lic, Illegal Drugs, Motor Carrier Mileage, and Playing Cards.

**Property Tax as reported to the Comptroller; refunds made by local jurisdictions are not reported.

***Due to a one-time payment (64.4 million), Income tax - Corporate is reflecting a significant increase between FY14 and FY15

Summary • Alabama has a long and significant history of oil and gas

development and production.

• Alabama has a rich and diverse endowment of fossil fuel energy resources.

• We will see continued development of the resources that are under production today.

• There is significant opportunity for the development of new resources, especially unconventional reservoirs, but research and development are needed.

• Oil and Gas activities contribute significantly to Alabama’s economy.

Contact Information

Nick Tew

Geological Survey of Alabama & State Oil and Gas Board of Alabama

E-mail: ntew@gsa.state.al.us

Web: www.gsa.state.al.us or www.ogb.state.al.us