Challenge the workforce to come up with better ways to develop oil and natural gas fields and it will deliver, the head honchos of Southwestern Energy Co. and Pioneer Natural Resources Co. said Wednesday.
Southwestern CEO Steve Mueller shared a stage in Denver with Pioneer CEO Scott Sheffield at the Rocky Mountain Energy Summit, sponsored by the Colorado Oil & Gas Association. Southwestern, one of the largest gas producers in the Lower 48 states, remains 100% devoted to onshore gas development; it's No. 1 development is the Fayetteville Shale. Pioneer, a former global operator, has a foothold in oily and gassy basins across the country and today is one of the biggest producers in the Permian Basin.
Sheffield and Mueller disagree, for instance, about whether liquefied natural gas (LNG) exports actually should be done. However, they agree on a lot of things, especially about how to succeed in a volatile commodity world. Take, for instance, their relentless focus to find new ways to develop resources in an environmentally sound way.
"A few years ago we challenged a group of engineers and technical people in our organization to solve some problems," said Mueller. The first challenge was to find a way to reduce freshwater use at drilling sites. Southwestern has a target to be "net freshwater neutral" by 2016. Another was to reduce greenhouse gases by cutting methane emissions from the wells. Mueller said the estimates are of 3-6% of gas being wasted. "I'm not sure what the right numbers are. Even if they are, we have a plan to get below 1%."
Pioneer recently announced that it would receive effluent from two cities in Texas that it would use in the Permian operations.
"Looking out 10 years at Pioneer, we expect to be running 100 rigs in the basin; that's what we expect to do in the next 10 years," said Sheffield. However, it's going to take "a lot of water," he said. "Three years ago, we started to identify water as big issues," recognizing that there were drought conditions in some areas in which it operated, including West Texas.
"We put a team on looking at brackish water zones and we found tremendous opportunities...We've made tremendous progress." Odessa, TX, officials have signed an agreement to provide Pioneer with effluent water, and the company has a verbal agreement with city officials in Midland, TX. The agreements would provide one-third to half of the water use for drilling sites over the next decade. Effluent is compatible for hydraulic fracturing (fracking) jobs. "We anticipate reducing our freshwater needs significantly" over the next few years, Sheffield said.
Some parts of the country have plenty of water, but Southwestern is trying to squeeze out anything not required. For instance, it is developing a coalbed methane project in Colorado's San Juan Basin. Equipment is still there that was used by a former operator, and there are wells. "We're working on getting the equipment certified to use frack water," Mueller said. "We won’t use any freshwater at all..."
At a well site in the Marcellus Shale, Southwestern also has experimented with mine water effluent. "We reuse all the water we have, but it's not quite enough," said Mueller. "We are trying to figure out how to get it from other sources." The reduction in freshwater use saved the Houston producer $3-4 million in 2013. It also built a purification plant to process produced water.
"When you look at any wells we drill in any part of the country, a significant cost is water," he said. "If we can move less water, use less water, the economics are better."
The CEOs agree that there's more gas being produced in the country than it can use. However, they differ on how to profit from the excess.
"We need to get LNG moving," said Sheffield. He said the sanctions against Russia won't work as long as the country and Iran are allowed to export "freely" to other countries that haven't sanctioned them. Pioneer last week exported its first shipment of condensate produced from the Eagle Ford Shale after receiving approval from the Commerce Department (see Shale Daily, July 29;June 25). It also is exporting 250,000 b/d through Canada, which sells the condensate to Europe.
About a year ago, said Sheffield, Pioneer put a team together to "educate" Congress and the Obama administration about its concerns on the rising amount of sweet, crude oil that was coming from the Bakken and Eagle Ford shales, as well as the Niobrara formation and the Permian. An "archaic law" enacted in 1975 banned crude oil exports, but it didn't ban "products," he said. "We export 4 million b/d of products now...Under than 1975 definition, crude oil is defined as if natural gas is not in the reservoir."
Also, if the liquids are run through a distillation process, the product would be suitable for export, Pioneer claimed. "We actually have stabilizers that run $6.5-10 million each, which changed the form of condensate significantly...We made the filing and asked if it could be considered as a 'product,' and [Commerce] agreed...
"Meanwhile, we're still working on a bigger picture, educating Congress and the Obama administration," as well as the Energy Information Administration about the benefits of exports.
The hollow argument is that there are worries that exports would impact the price of gasoline. But Sheffield said the price of gasoline is set by the world market. "If we can export crude to the world market...we actually might soften gasoline prices." Pioneer is continuing its mission to lift the export bans, which Sheffield said he hoped would happen by 2017.
Mueller is less enthusiastic about exports, particularly LNG. About 32 Bcf/d is waterborne today worldwide, and by 2020, up to 50 Bcf/d of exports could be on the water. The United States has high/low scenarios on the amount of LNG it estimates could be exported. "But even if you take the low side, 5-6 Bcf/d, in today's 32 Bcf/d market, in the near future we could capture 20% of the market," he said.
"LNG exports will go slower than people think," he said. "In the future, there are two things you have to think about on LNG exports. I'm more on the side that it will be lower than higher...The reason we have the boom in the country today is we pay $4.00/Mcf and the rest of the world pays $9.00-10.00 or more." If world manufacturers continue to bring their industries here, "they save $5.00 minimum...
"The world is coming to our doorstep...Colorado needs to figure out how to get the world to come to its doorstep...not mine in Houston or in Pennsylvania. The demand in natural gas is almost all in the Mid-Atlantic and in the southern part of the United States. There is very little demand in the western part of the country," with few people and less energy-intensive enterprises.
"Ultimately, the sort of mess in the Marcellus with the differentials will come down," said Mueller. Instead of pushing gas overseas, "we need to bring more industry in this [Colorado's] direction...When you start looking at the biggest resource in the West, it's natural gas, not oil. That should be the long-term focus."