Drilling for Wattenberg Oil is Not Profitable

Introduction

Hydraulically fractured oil and gas wells pose significant risks to public health, property values, and quality of life (1), especially in urban proximity to houses, schools, businesses, and recreational areas. Because Colorado’s oil and gas policy largely overlooks these risks, many environmental costs are, by default, paid by the public.

Industry promotions vastly overstate the public benefits from oil and gas development. Indeed, Wall Street’s speculations, such as manipulations via derivatives and the flipping of properties might even attract investment to unprofitable drilling.

Why Drill at a Loss?

1. Industry Operators hope to sell natural gas in Asian and European markets at 3 to 5 times the domestic price according to a US Energy Department Report (2).

2. Operators hope to profit from eager investors enticed by EBITDA (dot.com bubble) accounting: Earnings before Interest, Taxes, Depreciation, and Accretion. Cash flow can be more attractive than profit for ‘engineered’ investments (3).

3. Natural gas liquids (NGLs) may reach profitability as new means of export diminish domestic supply, thus increase energy prices. The resulting adverse effect on our economy and the ‘unpatriotic’ selling off of our vaunted ‘energy independence’ is not a concern of big oil.

4. Chesapeake Energy, for example, has used the bundling and flipping of leases (even to China) as a coping strategy more profitable than drilling.

5. Operators hope to consolidate their positions before fracking’s (hydraulic fracturing’s) downsides (including adverse health effects, climate change, property devaluations, renewable energy retardation, and water destructions) become fully known.

6. Recall that during the housing bubble many subprime mortgages were unsound, but as part of a bundle they were all conveniently rated AAA, thus qualified as ‘mortgage-backed securities’—a Wall St manipulation that was ultimately redeemed as profitable by betting against them. Speculation is part of any ‘market’, but many of the costs of oil’s harms have been market-externalized by, among other things, cost-free environmental damages, accelerated depreciation, side bets (derivatives), and hedging.

The Wattenberg ‘play’ (primarily in Weld County) can proceed as long as speculative drilling receipts meet the company’s debt obligation. Consider, however, an operator with $100 million in venture debt at 10 % interest and an income of only $10 million per year from overlapping productions on 10 wells. Such an Operator could not meet its debt obligation of about $10 million every 6 months (5-year amortization schedule). Accordingly, they might redouble their drilling s through Ponzi-like financial schemes simply to achieve investor-expected production levels. ‘Big Jake’ well strikes that might establish fiscal stability are highly unlikely for Operators in the Wattenberg.

Oil boosters insist, ‘The Industry wouldn’t drill if it wasn’t economic”—as though fracking’s solvency was only about ‘drilling for product’ and not about investor gambling, lease flipping, and hype—known as, financial engineering. It is noteworthy that informed publics reject the economics of residential drilling; when allowed a vote.

Decision makers become fully anchored in the Industry’s point of view long before any public inputs are scheduled. Brazenly, the Industry denies legitimacy to resident’s concerns, and has even filed documents with the COGCC looking for their support of that undemocratic position (4). Process should, however, show full and early public involvement during the researching/balancing of overall costs/benefits for fracking’s broadly consequential development.

Lease signers may not know that The Wattenberg’s royalty incomes typically drop-off (deplete) by 80-90% in the first year and how property devaluations may be involved; or that local fracking doesn’t yield pure oil, rather NGLs (natural gas liquids) that require separation. Area oil wells may be called ‘gas wells’ simply because their gas to oil ratio is 1000 or higher. Yet, only a well’s oil fraction is relevant for an Operator’s income. Local drilling for natural gas is unprofitable. Oversupply has kept the well-head (hub-minus-transportation) price at or below breakeven ($4/Mcf) since late 2008 (see Appendix I). Accordingly, the share of ‘gas drilling’ has fallen off precipitously in recent years (Appendix II). Currently, a well’s gas fraction is more profitably flared (burned off), than cleaned up, transported, and sold. Also, because NGL ‘oil’ has only about 60% of regular crude’s energy content, it is lower priced (5).

Today’s fracking is not ‘your father’s drilling’. It is very different in consequences, production, and scale. No wonder controversy surrounds state approval of the industry’s one-sided economic warrants, for example, their neglect of the people’s right to decide on health and safety issues.

Officialdom simply presumes (seemingly immune to evidence-based input) that fracking’s relatively new, experimental, and scaled-up techniques are, on balance, laudable breakthroughs in development. Such presumptive, summary conclusions turn solely on industry claims (per their well-funded and effective public relations programs)—not a wise way to make policy. The industry’s actual history is an economically unbalanced one of ‘boom and bust’.

The most recent, extensively done professional study on fracking is The New York Compendium, Dec 2014 (Note 1). It concluded: “…fracking poses significant threats to air, water, health, public safety, and long-term economic vitality”. Because 96% of the relevant, peer-reviewed scientific research found fracking to be a health and safety threat, NY State now accepts a moratorium as, “ …the only appropriate and ethical course of action while scientific and medical knowledge on the impacts of fracking continue to emerge.”

Accordingly, it is unconscionable to subject whole cities to health, safety and welfare threats. It is not reassuring that Colorado’s Oil and Gas Commission (COGCC) pledges protections. Fracking’s threat is especially egregious if it accommodates a doubling down on billionaire-level speculations that involve ever increasing scales of operation, unknown impacts, and known health risks.

All the above is especially relevant since Climate Change policy requires a rapid movement away from fossil fuels.

Depletion Economics

The following graph characterizes a typical time-based decline in production for shale oil wells.

Final Draft_m178dc417

Since production drops off quickly during the first units of time, the amount produced during the early units of time (area under first part of curve) approximately equals the amount produced during all the subsequent time units (area under rest of the curve).

A simple well-depletion model is

y = a/x

where y represents the barrels of oil produced per month, x represents the corresponding, month numbers, and a is the depletion parameter determined by graphical fit to the data pairs (as read from Monthly Well Production spreadsheets). The amount A of oil produced over the time period from xo to x is:

A = ∫y dx = ∫a/x dx = a ln (x/x0)

The next chart represents empirical production for a particular Wattenberg Field well named Qualls #3D-28H. Data pairs are from the Colorado Oil and Gas Commission’s (COGCC’s) monthly production records as reported by the well Operators, themselves. The pre-stable production contributions A1 (those before the depletion model applies) are simply added to the modeled production as follows

A = A1 + a ln (x/x1) (I)

Empirical Analysis of Area Wells

This representative oil well, near Longmont, Colorado is analyzed to demonstrate the method/model used. Comparisons of productions and related incomes for all area wells below are based on this model/method.

Final Draft_4d254214

http://cogcc.state.co.us/cogis/FacilityDetail.asp?facid=12337259&TYPE=WELL

Click the live link for this ‘Qualls well’, then click ‘well name’ on the displayed Scout card. The resulting COGIS-Monthly Well Production spread sheet shows the barrels (bbls) of oil produced in column 9 (black print).

The red line is a graphical fit to the depletion model y = a/x. It applies from month 3 to month 12. The graph’s first two points (402, 1) and (8957, 2) shows pre-stable production. Thus,

A1 = [402 + 8957] bbl = 9359 bbl a = 28,000 bbl l = 4400 ft

where l is the horizontal drill length. The fitted depletion equation can now be used to mathematically project productions, dollar incomes, depletion ratios, and percentages.

A second representative production graph (Greeley, Colorado area) follows. Its pre-stable production, A1 = 2928 bbls, is noted, but not graphed.


Final Draft_58775578

http://cogcc.state.co.us/cogis/FacilityDetail.asp?facid=12334525&TYPE=WELL

A1 = 2928 bbl a = 18,000 l = 4249 ft

Oil depletion curves that are symmetric to the x- and y-axis can be fitted to the simple hyperbolic model sufficiently for a general analysis. Hundreds of wells in the Wattenberg Oil Field (north of Denver, CO) were analyzed. Better-than-average wells mostly fell near the production range of the Eifert example. Both wells (above) showed hyperbolic depletion, and (as shown below) proved sub-economic, if drilled at current costs/prices.
Productions

The expected ‘Qualls’ production A for a 3-yr lease calculated from equation (I) is:

A(3) = 9359 bbl + 28,000 bbl [ln(36/3)] = 78, 900 bbl (3 yr)

Numerical calculations of the natural ln function in equation (I) determine A(x) for each duration x. For 5- and 10-year productions,

A(5) = 9359 bbl + 28,000 bbl [ln(60/3)] = 93, 359 bbl (5 yr)

A(10) = 113, 000 bbl (10 yr)

Since it is the logarithm of x that appears in the model, A does not change dramatically with x—even with a doubling in time, say, from 5 to 10 years. Note how this well’s monthly production has fallen from 9039 to 1631 bbls; decreased by 82% in just 9 months.

Accordingly, the field Operator’s royalties and debt payments can be met only by bringing new well productions online every month or two. Otherwise, speculators notice the Operator’s inability to maintain expected production levels (returns) and invest elsewhere. Newly producing wells must also compensate for any unexpected breaks or lapses in returns. The result is the so-called ‘Red Queen Syndrome’: drilling ever more wells to stay in the same place. Such an operational model is clearly unstable—subject to negative feedback effects from even small disruptions.

Drilling’s Costs and Income

The profitability of drilling depends on the difference between Income and Cost. The cost per foot of completing a horizontal well is between $1000 and $1500. The so-called Katz study (6) empirically found a cost of at least $1500/ft for well completions in the Marcellus Shale. For Wattenberg completions, the cost figure is about $1100/ft—evidenced from Tekton Windsor’s 2013 experience (7) with its Rancho Water Valley Pad. This $1100/ft cost includes acquisition, leasing, site prep, drilling/fracking costs, and production/gathering as in the Katz study. Dollar calculations are for oil only, since a Wattenberg well’s gas fractions make only small contributors to income (discussed below).

Income i for Wattenberg wells can now be determined from equation (I), where p is oil’s current price per bbl.

i = pA = p [A1 + a ln (x/x1)] (II)

Income – Cost = Profit. Calculations must be done individually for large numbers of wells in the area to understand the Wattenberg’s oil-economics. An individual data set for each well is required to establish its A1, a, and x / x1 in equation II. That means ‘data mining’ from each well’s Monthly Well Production spread sheet.

A generic method for determining income is developed below. It is more direct and sophisticated in approach. For horizontal well lengths l, the ratio a/l proves relatively constant over the Wattenberg. This fact suggests comparisons of costs per foot to incomes per foot, rather than simple costs to incomes. The average value of a/l (determined from hundreds of calculations on specific Wattenberg wells) is:

a/l = 4.16 bbls/ft

For an average Wattenberg well the income per unit length becomes,

i/l = (pA)/l = p [A1/l + a/l ln (x/x1)]

i/l ≃ p(4.16 bbl/ft) ln (x/x1) (III)

where the pre-stable contribution from the term p [A1/l ] can be omitted since only approximate magnitudes are being compared (the term makes only about a 10% contribution). Since no quantities relating to any specific well now remain, equation III becomes generic. A cost/income comparison for a generic Wattenberg well is now possible. For p = $50/bbl, x1 = 2 mo (1-month stabilization), and lease durations of 3 and 5 years, the generic income per unit length yields,

i/l ≃ $50/bbl (4.16 bbl/ft) ln(36/2) = $601/ft 3 yrs

i/l ≃ $707/ft 5 yrs

Clearly, these 3 and 5 year well incomes are insufficient to recover the well’s $1100/ft completion cost (even with a 10% add-back from omitted pre-stable income).

Average Wattenberg wells are simply not profitable at ‘$50 oil’. Indeed, an oil price of $78/bbl is necessary to break even on cost/income for a 5-year lease.

i/l ≃ $78/bbl (4.16 bbl/ft) ln(60/2) = $1103/ft

Compare the above generic well income to that for the better-than-average-producing ‘Eifert’ Well (above) based on equation (I):

i/l = $50[2928 bbl + 18000 bbl ln(18)]/4249 ft = $647/ft 3 yrs

i/l = $50[2928 bbl + 18000 bbl ln(30)]/4249 ft = $755/ft 5 yrs

These nongeneric, individual calculations compare favorably to those calculated for a generic Wattenberg well (equation III), thereby confirming that method’s efficacy for estimating average well incomes.

For the high-producing ‘Qualls’ well, the nongeneric result is

i/l = $50 (93,359)/4400 ft = $1061/ft 5 yrs

where the 93,359bbl figure is A(5) from the ‘Qualls’ production calculation above.

Conclusion: Even for relatively high-producing Wattenberg wells such as Qualls #3D-28H, drilling for product is currently unprofitable. And this is the case even though taxes, royalties, separation, transportation, and capital costs have yet to be deducted (as in note 7) from its $50/bbl income. These costs can bring a well’s net income down considerably, perhaps halving the already deficient incomes per length in the above comparisons (by $37.5/bbl in the Tekton Windsor experience, note 7). One can scarcely find ‘economic’ wells in the entire Wattenberg Oil Field. Also, a 5-year lease on a well that devolves to stripper status in 3 years might not be contributing to an Operator’s income. Chesapeake Energy, even with its vertically integrated operations, had already given up on the basin entirely, citing unfavorable economics—even before the recent collapse in price (8).

The above method can be readily applied to other shale oil fields in the United States.

Since some wells produce significant amounts of gas, the income from the gas fraction needs resolution. COGIS-Monthly Well Production figures for gas in Mcuft (thousands of cubic feet) multiplied by the current price, yield income values that, at most, affect the well’s overall income in the second significant figure. Example: If the natural gas price is $3.5/Mcf, about 1/30 (in numerical magnitude) of the oil price at $105/bbl, the gas entry on the monthly production spread sheet would have to appear about 30 times larger than that sheet’s oil entry to significantly contribute to a well’s dollar yield.

Accidents and Irresponsible Development

According to local newspaper accounts Windsor, CO has experienced five major ‘fracking’ accidents in the last few years. No wonder residents are calling for more responsible development of the Wattenberg.

On 11 Feb 2013, PDC Energy’s Ochsner well (#50-44), about 4 miles north of downtown Windsor, spewed 84,000 gallons of flowback for 30 hours. Windsor-Severance Fire Rescue responded. Later, PDC’s workers wore hazmat suits during ‘cleanup’; aware that flowback fluids are so hazardous they require permanent disposal by deep-earth injection.

An industry spokesman assured the press, “It was no big deal”. Blowouts, in fact, are the most dangerous among drilling accidents. A blowout near Douglas Wyoming (25 Apr 2012), for example, prompted safety officials to evacuate a 2.5 mile radius. Windsor’s Town manager, Kelly Arnold, said, “No other spills [than Ochsner] have been reported near Windsor”. However, Operator Great Western had already spilled 8200 gal of fracking fluid on March 2011 near Windsor’s Pelican Lakes golf course.

A Rancher’s Exploration rig became unstable (5 May 2012) while drilling in a land fill near Windsor’s River West Subdivision and possibly contaminated groundwater. Mayor Vazquez commented, “There were some compliance issues.”

Near Windsor, and next to the Fox Ridge Subdivision of Severance, Residents complained (16 Jan2013) that Great Western drilling was shaking their walls and strange odors were causing headaches. Regulators found numerous problems. Valves, for example, were unable to control pressure without releasing noxious gasses into the air. Colorado’s Oil & Gas Association (COGA), an Industry Trade Group, commented, “There is no data showing harm to people.”

On 25 Jun 2014, Noble Energy discovered that a ruptured crude oil storage tank had leaked about 7,500 gal, polluting the Poudre River SE of Windsor. Spring floods had undercut a bank causing the tank to settle and loose containment. Town manager Kelly Arnold said, “…a slow leak, no risk, no harm.”

Windsor’s five serious accidents are not unusual. In many cases frack-releases are even state sanctioned. Colorado’s Spring Gulch Creek, for example, accepts about 300,000 gal of ‘treated’ drilling water per day from the Lone Pine Refinery under permit of the Health Dept. “It kills the quality of the creek”, said a rancher about a mile downstream (9).

In regard to Windsor’s ‘Rancher’s Exploration’ accident (above), both Larimer Co. and the COGCC thought it would be a safe drill, even though the landfill had already been cited in 1982 for ‘acutely hazardous waste’ and for chemicals leaching into a stream connecting to the Poudre River. A week after drilling was stopped, Ranchers declared, “Everything is perfect.” Three new drilling permits were subsequently granted for the property.

Kerr McGee’s Windsor wells (Kodak 43-45 and 34-42) operated from 2004-2011. Their ‘on-site disposal’ seems to have been into an adjacent industrial water-processing facility (ponds) which ultimately discharged into the Poudre River. Such facilities, of course, are not equipped to process hazardous waste.

A well named Altergott #1 just south of Windsor’s tree-branch-mulch piles and just north of Eastman Drive was abandoned in 1990. Its well shaft was cut off 4 ft below surface and a plate was placed over it. The contents of the well’s frack-fluid evaporation pit were filled over, but still show a clearly visible depression and white residue. Windsor has posted a ’Do not Enter’ sign for the area. About 60% of abandoned wells leak after 30 years according to a joint presentation by oil giants Schlumberger and Conoco Phillips (10).

A 1993 UNIOIL well (Macloughan #25-1) was drilled in the northern part of what is now Windsor’s Highpointe Subdivision. Before production was abandoned (13 Jun 2009) the well vented to atmosphere. Later, an open, concrete-pit evaporation disposal was permitted. No evidence of that well or pit can now be seen, although both still appear on COGCC maps.

Residents within a half mile of fracking operations are regularly exposed to air pollutants five times federal standards (11) and can expect respiratory and other health effects. The greatest impacts will occur during the well’s completion/flowback phase. A rule of thumb: Smelling strange?—danger range! Agencies do not measure emissions at individual wells during flowback—their time of peak air-quality impact. Colorado has only a handful of oil and gas inspectors for its 50,000 wells.

Carelessly approved, dangerous industrial developments in or near our residential areas are eroding property values, polluting water, soil, and air, and threatening long-term economic viability. Although citizens have repeatedly urged the Town Board to engage balanced development, Windsor’s ‘boom-bust’ oil emphasis has redoubled: GW RR’s oil-loading spur, Schlumberger’s oil-pump factory, and Cargill’s oil-steel products.

Such development is increasingly unnecessary (renewables are cost competitive), uneconomical (as investor gambling), a health and safety hazard (96% of peer-reviewed research), and a climate threat (due to escaped methane).

What is the actual dollar cost of such irresponsible development? Some consequences may be irremediable. Fracking’s costs should be quantified and subtracted from any income/benefit analyses. Profits should be discounted accordingly.

Lost Profits from Phantom Reserves

Moratoria on fracking have been unsuccessful because, under the broad aspects of state preemption, it is difficult to prevent companies from pursuing commercial objectives which the state regulates and permits. Under the Takings Clause of the Fifth Amendment, corporations (as persons) have the right to sue municipalities for their (claimed) loss in profits from undeveloped mineral rights resulting from municipally enacted stoppages in production (moratoria and so on).

However, Operators can’t claim interrupted production is a Takings without proving that production is profitable. Conversely, the effected public can show Takings of their life-essential air, water, health, public safety, and long-term economic vitality per the (above noted) scientific conclusions of the NY Compendium. Since Colorado courts have already ruled that for such conflicts the Takings argument is valid, it seems available to the public as a ‘health and safety protection’. Profits from regulation-free and, permit-free Operator activity, such as Ponzi-like investor schemes or lease speculation (flipping), are irrelevant to the meaning of ‘profits’ in any Takings sense.

A properly formed, scientifically-based, and successful stoppage of fracking could prevent the damages from 1000s of wells. It would also awaken residents to fracking’s health and safety hazards (especially those of toxic benzene); while debunking the notion that drilling for product is economic (worthwhile for the larger economy). And finally, it would make possible a pivot to cleaner, more sustainable and renewable energy development.

Fracking’s prospective literature talks of ‘net remaining’, ‘total proved’, and ‘total probable undeveloped reserves’. The issue here is whether such reserve oil in the ground can be economically produced using current technology. This Study shows it cannot, for Wattenberg drilling.

Reporters from Bloomberg News have shown that the entire shale oil boom likely was built on dubious assumptions (12). Operators, for example, sold the boom to investors via an attractive set of numbers, but reported much lower ones in their mandatory filings with the Securities Exchange Commission (SEC). In its public presentations, Pioneer’s ‘recoverable’ reserve estimate was 13 times higher, Rice Energy’s investor number was 27 times higher, and Goodrich Petroleum Corp touted 19 times their SEC estimate. SEC filings require ‘proved’ reserves (those economically recoverable at current prices and within the next five years). Over-estimated reserves are said to fall outside SEC oversight.

Now that shale oil is in a bear market, investors are not only complaining, but looking for scapegoats—finally realizing that production isn’t coming close to claims of ‘recoverable’ reserves. Pioneer (PXD), reportedly, has been citing increasing reserves to investors, although their ‘proved’ reserves (SEC) have been declining.

In the larger picture, shale oil reserves are a small fraction of those in the Middle East. Also, fracked wells are short-lived, many declining by 85% in the first year of production. Proved shale oil reserves represent less than 1.5 years’ worth of current US consumption (13).

Phantom reserves may have influenced lenders of capital where debt was being used to bridge cash short falls from production during development of lease acreages. Indeed, Operators have increased their borrowing by 55% since 2010 to almost $200 billion (14).

The issue of lost profits from undeveloped reserves provides an outstanding example of Industry’s manipulation of public information and trust with the help of an undiscerning press.

Concluding Thoughts

Consider the ‘mortgage-backed securities’ or ‘housing scandal’ of 2008. It had unrecognized, inherent instabilities due to ‘creative’ financial manipulations and hyped ratings that led to over-leveraging. The refusal of a single bank (BNP Paribis, France’s biggest bank) to further advance liquidity seems to have set-off the collapse (15). Oil Speculation’s viability (successful, bond-financed, wildcat drilling) similarly depends on creative financing, over-ratings and steadily rising prices. Oil’s manipulations, however, threaten even more severe, overall negative public consequences upon failure, since they carry the additional burden of irreversible environmental loss and adverse health consequences.

Changing public attitudes about the Tobacco industry (1960-1990s) closely parallel the ongoing reassessments of today’s Fracking Industry. Tobacco’s ‘big money’ once manipulated public opinion and scientific interest to a degree that kept decision makers from linking smoking to health effects. Finally, Surgeon General Luther Terry’s 1964 “Smoking and Health” Report (16) began a pivot in national awareness.

In reaction, the Tobacco Industry created a ‘Tobacco Institute’. It published a large number of ‘white papers’ to rebut scientific reports critical of tobacco’s health risks. It also developed an Industry Playbook for running misinformation campaigns and denying well-established scientific conclusions. Once perfected, that Playbook was used to mislead the public on the threats of pesticides, the ozone-hole, climate change, and finally fracking (17). The Tobacco Institute, however, was eventually forced (by state attorneys general) to take part in a Master Settlement Agreement (1998) that cost them $206 billion dollars for their culpability in creating a public health crisis.

New York State’s adoption of the Compendium marks today’s pivot on fracking’s health and safety. As in the Surgeon General’s1964 Report, no new science is offered by The Compendium. Instead, it gives a current, authoritative review of key, relevant scientific findings on fracking. A whopping 96% of the Compendium’s over 400 peer-reviewed papers indicate risks or adverse health outcomes due to fracking.

Waiting for definitive science (95% confidence levels, and so on) is a leftover ploy of the Tobacco Playbook. Scientific certainty implies a stasis that discounts evolution of findings and advancement. Indeed: “A demand for [absolute] scientific proof is always a formula for inaction and delay and usually the first reaction of the guilty…in fact, scientific proof has never been, is not, and should not be the basis for political and legal action”—tobacco company scientist S. J. Green, in a moment of private candor.

Acknowledgement

Special thanks to Nick Luca and Wes Wilson for their work and comments on the paper.

Endnotes

1. Concerned Health Professionals of New York, Compendium of…Risks and Harms of Fracking, 2nd Ed. 12/11/ 2014. See ‘Conclusions’ p. 103.
http://concernedhealthny.org/wp-content/uploads/2014/07/CHPNY-Fracking-Compendium.pdf
http://www.psehealthyenergy.org/data/Database_Analysis_FINAL2.pdf

2. Randy Leonard, U.S. Natural Gas Exports Could Change Market, Roll Call, 9/9/14 http://www.rollcall.com/news/us_natural_gas_exports_could_change_market-236112-1.html

3. Jeff Goodell, The Big Fracking Bubble the Scare Behind the Gas Boom. Rolling Stone. 1/03/2012
http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301

4. Bobby Magill, 3 Severance Families Say Their Walls Shake and Heads Ache From Oil and Gas Drilling. Windsor Beacon. 1/16/2013.
https://groups.google.com/forum/?fromgroups#!topic/southplatte/XHUjPVjvTo45.

5. Richard A. Kerr, An Oil Gusher in the Offing, but Will it Be Enough? Science, 11/30/2012. Vol. 338 no. 6111 p. 1139. Natural Gas Liquids (NGLs) have only 60% the energy content of crude. 54% of NGLs go to petro-chemicals; only 17 % into needed portable gas for transportation. http://www.sciencemag.org/content/338/6111/1139.summary

6. William E. Hefley, et al. University of Pittsburgh, Katz Grad School of Business, The Economic Impact of the Value Chain of a Marcellus Shale Well. 8/2011. The $6 million figure is for vertically integrated Operators.
http://pasbdc.org/uploads/media_items/the-economic-impact-of-the-value-chain-of-amarcellus-shale-well-university-of-pittsburgh-joseph-m-katz-graduate-school-of-business-august-2011.original.pdf

7. http://institut-seltene-erden.org/deutsche-rohstoff-ag-anleihe-uber-eur-100-millionen-zur-finanzierung-des-horizontalbohrprogramms-von-tekton-energy/

http://www.goldinvest.de/index.php/deutsche-rohstoff-ag-tekton-energy-beginnt-horizontalbohrprogramm-27793

“Two horizontal wells were completed in April for $9 million with lateral lengths of 4,100 ft”. In other words, Tekton experienced a well-completion cost of $1100/ft.

Tekton (Windsor, CO) did not enthusiastically pursue its horizontal drilling since the laterals were only 4100 ft long compared to the ‘state of art’ average of about 7200 ft. Accordingly, Tekton’s stated cost, of $4.5 million each, agrees precisely [(4100/7200) x $6-8 million (Katz) = $4-5 million] with Pennsylvania costs.

“May production from the two wells averaged 1,288 BOEPD for a net income of $55,000/day—earnings before interest, taxes and depreciation.”

Tekton assumed a market (oil-hub) price of $82.49/bbl for its promotion—correct for that date. However, deductions from transportation to the hub, royalty obligations, taxes, and other costs apparently lowered Tekton’s net income to $45/bbl; an income reduction of $37.5/bbl. This is evident from Tekton’s own data: “$55,000/day” = ($45/bbl) x “1,228 bbl/day”.

8. Dow Jones News wire, Chesapeake Energy selling Half-million acres in Colorado, Wyoming. Denver Post. 5/26/2012.
http://www.denverpost.com/breakingnews/ci_20714526/chesapeake-energy-selling-half-million-acres-colorado-wyoming

9. Bruce Finley, EPA to assess oil spills’ damage to creek in North Park. Denver Post. 4/26/2012. http://www.denverpost.com/ci_20482178/epa-says-oil-spills-colorados-north-park-hurting

10. Claudio Bruffato, et. al., From Mud to Cement—Building Gas Wells. Il Field Review. Autumn 2003. http://www.slb.com/~/media/Files/resources/oilfield_review/ors03/aut03/p62_76.ashx

Tony Ingraffea, Physicians, Scientists and Engineers for Healthy Energy, Cornell University. Fluid Migration Mechanisms Due to Faulty Well Design and/or Construction: An Overview and Recent Experiences in the Pennsylvania Marcellus Play. October 2012. http://www.psehealthyenergy.org/data/PSE__CementFailureCausesRateAnalaysis_Oct_2012_Ingraffea.pdf

11. L.M. McKenzie, et al., Human Health Risk Assessment of Air Emissions from Development of Unconventional Natural Gas Resources. Sci Total Environ. 424:79-87. 5/1/2012.
http://www.ncbi.nlm.nih.gov/pubmed/22444058

12. Tyler Durdin, As Gas and Oil Development Enters A Bear Market, A Question Emerges:… Zero Hedge. 10/10/2014. http://www.google.com/search?ie=UTF-8&source=android-browser&hl=en-US&q=as+gas+and+oil+development+enters+a+bear+market

13. D. Dimick, How Long Can the US Oil Boom Last? National Geographic. Dec 2014. http://news.nationalgeographic.com/news/2014/12/141219-fracking-oil-supply-price-reserves-profits-environment/

14. Erin Ailworth, Russell Gold, Timothy Puko, Deep Debt Keeps Oil Firms Pumping. Wall Street Journal. 1/6/2015. http://www.wsj.com/articles/deep-debt-keeps-oil-firms-pumping-1420594436

15. John Cassidy, How Markets Fail, p. 301 Picador. 2009-10.

16. Surgeon General Luther Terry: 1964 Smoking and Health Report. http://profiles.nlm.nih.gov/ps/retrieve/Narrative/NN/p-nid/60

17. Naomi Oreskes, Merchants of Doubt. Bloomsbury Press. 2010.