Transcripts For CSPAN Washington This Week 20150518

Wait for the change, we are experimenting and reaching out. We also know that our brands are really, really powerful. They can live in the traditional sense but also in the nontraditional sense in different ways. We have branded educational experiences with different learning, we have international brands. It is a whole ecosystem that is going to have to support the economic evolution of our business. Peter you worked with barry. Is he about as sanguine as you are about leaving . Kerry you can see more services under more sound legal footing from the get go, but the Consumer Experience is about multi device, multiformat multibusiness model, we have all seen videos of that today and it is an undeniable fact. Peter it is all great for me as a consumer, but challenging for both of you. Kerry but that is true of every change about the disruption of social media, the suit the consumer had to run in advance nancy it is great to be trying these new things. Peter as a music refugee, the pace at which the Video Industry has been embracing and experimenting with these things, i think it is going to be a lot more interesting. Peter things might be rough but they are not as bad as the Music Industry . Nancy, kerry, thank you so much. [applause] announcer next, a discussion on the method of Oil Extraction hydraulic cracking. The conduct of members of the secret service. After that, q and eight with canadian astronaut. Tomorrow, Human Rights Watch presents a new report on retaliation against victims of Sexual Assault in the military. That is live on cspan2 at 10 00 a. M. Eastern time. The new congressional directory is a handy guide to the 114th congress with color photos of every senator and house member plus bio and Contact Information and twitter handles. Also, district maps. A foldout map of capitol hill. And a look at congressional committees, the president s cabinet, federal agencies, and state government. Order your copy today. It is 13. 95 plus shipping and handling. The cspan online store. As hes been. Org. On monday, the Atlantic Council hosted a discussion on u. S. Natural Gas Production and hydraulic fracturing activities known as fracking. They also assessed the impact of low oil prices. And the prospect of Natural Gas Drilling around the world. This is about an hour and 25 minutes. Director morningstar i wish you all a good afternoon and welcome to the Atlantic Council. I am dick morningstar, the founding director of the center. I am also glad to see the chairman of our Advisory Group and our moderator today, cynthia quarterman. So, we are very pleased to see you all here today. And todays discussion will focus on how Energy Prices politics, geology, and Environmental Concerns have affected and continue to affect fracking in the United States and the potential for fracking to succeed in other places like europe, mexico, argentina, china, and other places. We do have an outstanding panel of experts today to discuss these important issues. The discussion will be moderated by one of our own very distinguished senior fellows who, again, who david brought cynthia quarterman. Cynthia most recently served this is always a tongue twister for me for some reason most recently served as the administrator of the u. S. Department of transportations pipeline and Hazardous Materials safety administration. And cynthia has been a key policymaker in Energy Development safety and transportation since the beginning of the Clinton Administration and we are pleased to have her knowledge and expertise here at the Atlantic Council. And todays expert panelists i think biographies were available outside, right . Yeah. So, you have the biographies. I will briefly introduce our panelists to include subash chandra, managing director and senior Equity Analyst at guggenheim partners. Mr. Chandra had the foresight to recognize frackings huge potential early on and at one point advised 90 of the Companies Involved in the industry. I guess i could ask how Many Companies were involved in the industry at that time, but i wont. One in 7 8 out of two of them. And dr. Terry engelder, who is a professor of geosciences at penn state and a geologist who originally estimated the potential gas reserves in pennsylvania, which first set off the shale boom. He has also taught at texas a and m. He has a whole host of credentials that you can see in his biography. And finally, we have russell gold, who is a Senior Energy reporter at the wall street journal, who has been reporting on fracking since day one. He recently published a book specifically on this topic and it is titled the boom how fracking ignited the American Energy revolution and changed the world. And for the audience and those watching the live webcast, you may also contribute to the conversation on twitter by utilizing acenergy. And so, help me extend a warm welcome to cynthia and all of our panelists. Cynthia will say a few words and then we will begin the panel discussion. Thank you. [applause] ms. Quarterman i want to say thank you for being here this afternoon. I think this will be an interesting panel. We just came from lunch where we had lots of interesting conversation about what is happening with respect to fracking in the United States. These gentlemen also have an International Perspective and we are going to push them to answer some of that. I am going to start right out with dr. Engelder, who is known at least in pennsylvania as the father of fracking because of his work figuring out how much gas there was in the marcellus shale. Dr. Engelder was also in 2011 noted as one of the top thinkers in the Foreign Policy magazine on this issue. Why dont you tell us how you got into this, terry . Dr. Engelder thank you, cynthia. Let me point out i am always embarrassed with this title, the father of fracking in pennsylvania. I have a written statement i would like to put forward as a disclaimer. Before that, whenever making an appearance i always pass around a notebook in which i have the audience enter their name, alma mater, or affiliation. I will just pass this down. This is the disclaimer. I will read it, although i dislike read text, but in this case it is so important i will disclaim it by reading. Anyway it is flattering to have people think i might be the father of fracking, but it is a title that i dont deserve. In reality, i am a very small gear in a very large motor, the motor that supplies energy to the human economy. My research on shale gas, of 40 years culminated in reserves calculations, for the Worlds Largest unconventional field the appalachian basin in 2008. This research garnered International Attention following a 2007 press release from range resources, the Company Responsible for pioneering the discovery wells in the marcellus shale. I asked their head of Public Affairs to write a statement concerning what i actually did and his statement was my work had a level of independent credibility that was lacking or understated at the time. Bearing in mind this was late 2007, before the boom russell gold is going to talk about. For prospective, industry suggest the volume of technically recoverable gas distributed through several layers in the appalachian basin, including marsalis and the utica is comparable in size to the northfield, which is the Worlds Largest conventional gas field. To me, uncle sam is the father of fracking, under the leadership of president jimmy under the leadership of president jimmy carter, the Energy Administration started the egsp project. It provided funds to a number of scientists in government industry, and academia for the explicit purpose of discovering how to tap the vast reserves of north american gas shale. Bear in mind, carter was president in the 1970s, so this has been going on for a long time. I would suggest, cynthia, to you and others, a government scientist who might be called the father of fracking is al yost of the International Energy technology company. There are several industry folks who might also deserve this title, the father of fracking. This would include ken nulty of amoco, and then of course there is George Mitchell, whose Company Mitchell energy was the first to do fracking in the 1990s and another who was the first to put a massive hydraulic fracture all of these are deserving. Academic types include my colleague from stanford and engineer steve olditch of texas a m. While it is not fair to include me in the list of potential candidates, you did ask me to explain myself, is that right . Ok. I was blessed by funds from uncle sam back in the 1970s. This was the same time George Mitchell was experimenting with gas shale in ohio, using government funds. From the eastern gas shales project. Then later, egsp funding to understand the state of stress of gas shale in the appalachian basin. That was a great experiment in the 1980s. I was a small part of shells venture, which was one of the first attempts of producing gas from the standard shale as we know it today. At penn state, i had graduate students this is very important. It was not the faculty members but the students. All of the students contributed significantly to our present understanding of gas and oil shale. We came to understand which natural fractures were driven by highpressure gas. We came to understand the rate of fracture grows, the timing of fracture growth, the distribution of fracture growth. All of these are important elements that make commercial Gas Production possible. And finally, and most importantly, none of these are the discoveries of one person. Ms. Quarterman thank you. I stand corrected on that. I understand also this and there is a woman involved, the geologists as well in the olden days . Dr. Engelder as a matter of fact, there were two or three names. Interestingly enough, when the new york state survey before it was called the survey decided to understand the Mineral Industries of new york state this would have been 1843. A geologist was responsible for that. He had just gotten married. I suppose his wife was looking for a honeymoon to go to europe, but rather, he said you are coming with me to map in western new york. Now she was a good artist and on her honeymoon, she drew pictures of these fractures and gas shales that remain seminal. It was later done by a cornell graduate student that still remain some of the seminal work in understanding fractures and gas shales, that allow you guys to do whatever you do. Ms. Quarterman thanks. Mr. Chandra, i understand how did you get involved in fracking . Mr. Chandra yes, my background is in securities and as were talking at lunch, we coincided when the gulf shale was done. That is when i got in the industry, when the gulf of mexico shale was where the hot ipos came from. That ended and one of the First Companies i found thereafter was Mitchell Energy, as referenced by terry. We kind of got tired of the gamblers ruin, and we saw some companies do very well and get bought out. Some companies absolutely disappeared. When i saw a Mitchell Energy here was a nonshort Company Growing sustainably every year vertical, not horizontal so i was very excited about that. But it was also a curse in another way. After seeing george and his company in the very early stage of the horizontal application of fracking, they sort of implied to me this would not work outside of their agency. I was too young to realize every company says that. [laughter] mr. Chandra so, i went for some time going, guys, this is just not going to work. And this cost me a couple of very, very good companies. And ideas along the way. 2005, as we were talking what was interesting, the fayetteville shale, the barnett was supposed to have unique characteristics that could not be replicated. As it happened in fayetteville they drilled two wells and those could not be replicated. What was exciting and got me involved with terry, appalachia as a landmass was multitude bigger than the fayetteville or the barnett, and today, for very different reasons, it has a very unique position in the u. S. As an exporter of gas and oil products, as a net exporter. Its a very exciting place to be. So, i went to the father of fracking ms. Quarterman he needs a new title. Mr. Chandra i believe it was Chesapeake Energy that bought a new position there. But it was tectonic lead different. Everything about it was different than the other planes. That is when i found terry and terry introduced me to a lot of work that i still cannot pronounce or understand. What was amazing, there was no book you could read. And the education now is very much real time. The primer is so historical. There is so little i know, every passing day. Yet, i feel that i know a lot since we had our chat. I met terry and terry really helped us. And terry with his pennsylvania experience, and also ohio and increasingly it will be west virginia. And the techniques they are using to exploit the rock are absolutely violent. You have wells that are capable of doing these astronomical rate in the gulf of mexico where things that could not happen are being experienced at a single well, per well in places like ohio, west virginia, and pennsylvania. Ms. Quarterman you said the primer had not been written . A great introduction for mr. Gold and his book. I understand this may be a little bit personal for you as well. For me, it is great to be on the end of asking you questions. Mr. Gold right. I will definitely get into the personal in a minute. My story is an example of how it is better to be lucky than smart. I was at the wall street journal looking for a beat. I joined the energy team coming up or any particularly good reason other than i was in texas and wanted to stay there. They assigned me to the smallest companies. These were companies that very few investors were really interested in, because everybody knew there was not much boiling oil and gas left in the United States. We were depleted and were importing. There was not that much money to be made. So, lets give it to the new guy. So, i start meeting with companies and one of the companies talks about the new drilling they are doing in around fort worth. I went to my first fracking job in 2003. We did not even call it a frack job back then. It was unconventional gas. I got in on it very early on just listening to companies talk about how they found a new way to drill lots of wells and get lots of gas. For several years, that is what i did. I covered and wrote about the companies, and what i saw something very significant in the United States, and then one day, i got a call from my parents. My mother, specifically. They are philadelphians, but they have 100 acres in northcentral pennsylvania. A place to get away on the weekend. She said to me, we got a strange call from a Company Called chesapeake. They want to inquire about leasing my land. That caught me by surprise. I should have known about this. At the time there was a little drilling going on. But this was clear across a pennsylvania. So, i had to go back and start learning about why chesapeake was leasing so far across pennsylvania, and i did. And that really got me onto the second stage of learning about fracking, what was going on, and it really brought me into these questions of, should we be doing this . Because thats the question my mother asked me. Should we sign release . And how can you get the benefit of all of this oil and gas and minimize the risk and inconvenience, the downsides to it . These are very important questions. I will posit that i do not think those questions happen answered in the United States yet. I think we are still grappling with it in texas and texas is about to pass a law looking at that very issue. Who should be regulating it . The states or the cities . Thats important, because one of the questions i know were going to get to is, why hasnt shale taken off outside the United States question mark its transformative in the United States and county, but outside the United States, it really has barely started. I think the answer is, as much as the United States has struggled with these questions we had one thing going for us. We had incentive. Americans and the United States, we own our own mineral rights. When chesapeake wants to come in drill 100 acres of land, they will make an offer and they will make an offer that is sweet enough, hopefully, to overcome the inconvenience of having trucks driving all across your property for the next few months. Outside the United States, that is not the case. As much as we are struggling in the United States with how to balance these questions, i think outside the United States is even more difficult because that has not been fully addressed. By a large the governments of states only mineral rights. When you go into a community and say we want to drill wells here, youre not also bringing large checks as they do and the United States. These are the topics i wrote about in my book. I wrote about terry. I wrote about all these different people who created this technology and the questions we struggle with today. I see this as one of the most important questions we are addressing in the United States, clearly in energy, and ill these questions we talk about and talk about our washington experts, we allow oil exports, keystone xl, these are all questions set in motion by fracking and this and normas production of oil and gas that comes from essentially an oil field technique that has been around and one day in the late 1990s someone modified it slightly and changed the game. Ms. Quarterman let me put it to you directly. The title of the panel is can fracking survive . The price of gas is 2. 50. If you look back to july, prices were a lot different last year. Even lower recently. Under those circumstances, we have already seen rate counts going rig counts going down. Notices of job losses. Can fracking survive . And if so, which companies will be able to sell at the end . I can probably answer the last part first. The best rock. An enormous change is happening right now as we speak. I think the productivity of shale oil was a hugely underestimated. Three years ago, i remember clients asking, the same thing that happened to gas, which is fallen precipitously from a six dollar to 10 range. Is that about to happen in the world of oil . There is no way to tell. We understand that the oil molecule is a lot bigger. Terry can quantify, it is a lot bigger than the gas molecule. What the world now understands the u. S. Can grow at a rate of one million to 1. 5 Million Barrels per day. They have made room for that. The irony is, if we were to express it this way ok, so the u. S. Oil, every last darrell barrel is profitable and sold at 90, one hundred dollars, each marginal barrel made a profit, which is just fantastic. So, well, demand must have just been great. You look at the numbers. Demand was not good at all. What happened was the Global Forces allowed u. S. Oil to have a place in the world at a rate of growth that they been decided, ultimately, looking at what was going on saying, well we are down at 32 market share. They can keep growing at this rate. This is not just a little bubble. So, what have they decided . Last november we will not allow it. We are going to defend our market share. We had a report on it today, previewing the opec report. That is a seachange. We had an industry that immediately cap to gap did not displace. So, when you have a business where every item you sell marginally is profitable, what do you do . You hire people. You feed into that business. So, what we have built in a new environment where that one million, 1. 5 Million Barrels will not be allowed, so to speak, too much excess capacity. That exists in terms of land. A lot of land will basically be returned back to the leasehold or not to be drilled again. You have way too much in capital. You do not lever a business where your revenues are in flux as ours are, where the risks are where our czar. So it will come out of talent and services. These services you have already seen. What they do not want to do, the hardwon talent in these organizations with hugely capable people they want to retain these people, but that is probably the next phase. We are about to enter a phase where that excess capacity is resized. And the new place of u. S. Oil will not be 1. 5 Million Barrels, 2 Million Barrels. It may be a fraction of it. My point of view is kind of backwards. It all depends on oil prices. No, oil prices is a signal. It conveys its intent to the producer. And the producer says, at 45, we are done. We will start back when we are closer to 70. We will probably not be near 70 or 75 anytime soon. That will then sustain growth of above one Million Barrels. We have an analyst in the Washington Research group at guggenheim in d. C. She covers iran and the hot topics. Iran is a hot topic, of course. Who is going to cover those barrels next year . We will resize the entire sector. I did want to answer the last question first though. What it means to me is what we are already seeing as, it is like an earthquake center. You have the fringes, the French Companies that are stressed, if not the French Companies that are stressed, if not on the verge of bankruptcy. The fringe companies. There will be to do things. The price of oil and then it will be the differential. It will be the cost of getting that barrel to the enduser. Places that have been a huge Success Story it is suffering a horrible differential. People say, well, its 70 oil, you have to take 15 off the top for the cost of getting it to sale at 70. They are not getting 70. It was to be closer to the markets, closer to the refining centers. We have Companies Like Newfield Exploration and there was an acquisition this morning of one company wanting eagleford and buying another coming for that reason. Ms. Quarterman great. Russell, is the boom now bust . Mr. Gold i dont think so. We have seen a huge number of drilling rigs decommissioned. A lot of people laid off. But we have also seen production remaining fairly steady. We have not seen a huge dropoff in production. We will not grow this year. We will probably shrink a little. We were sticky coming down. One of the reasons is this is a really immature industry, in the sense that it is just learning how to do this. If learning it is learning to make more wells for less money to drill more with fewer rigs. A lot of the shedding that is going on is Just Companies getting smarter. The era of rapid, relentless growth, i think, is clearly over. Theres no question in my mind about that. But i do not see any signal the production will drop off. In that sense, no, we are not going through a bust. However, there are a number of companies wall street is very generous funding these companies. There are a lot of management teams that went out and bought i will be generous sub optimal rock. They just did not spend their money very well. Those companies will be bust. They will not be able to survive. So, we are going to see a lot of that. Im actually surprised weve not seen more already. But the expectation is the second half of this year, they will have companies headed toward fire sales. However, the era of the u. S. As a major whaling gas producer that oil and gas producer that is not going away anytime soon. Ms. Quarterman terry, i know that you have strong opinions. Have they squashed the shell revolution in your view . Dr. Engelder absolutely not. The point that russell just made, there is oil of available at every incremental increase in the price of a barrel that is there and waiting for small, incremental changes. I think the other point that russell made is the u. S. Right now has oil and gas wells while they may have rapid early declines, the history is a long period of production. So, the capital that was spent earlier on is betting on these long tails and the long tails of these wells will sustain this level of production from american wells, and these are unlike conventional wells, where once a conventional well declines, it really goes off the books in terms of production. They have tight gas and tight oil wells will not show that particular characteristic. We have had some experience in the appalachian ace in basin where some of these wells were drilled for 40 years. And the fracking experience we have is now only 10 to 15 years in the United States. We looked at barnett to see how these were doing. Right now a lot of these wells are being refractured, and that appears to turn on more gas to extend the life of these wells. They last a long time. At a very low rate relative to the initial production. My bet is the tail will do very well. Ms. Quarterman so, subash, what is your view on whether fracking will take off anywhere outside of the United States given the price in the current environment . Mr. Chandra they are trying. I think the view that there was only one barnett was true. There was only one barnett only one barnett, only one fayetteville. All of these rocks have very unique characteristics that, i agree, we have only begun to understand. Just on the prior question where i think of how our industry has changed, we have spent 130 of cash flow. That has been funded by wall street, if you want to call it that, but by investors. I think were going to a cash flow neutral world. This is the First Time Since the shell revolution in the u. S. Where we will enforce cash flow neutral growth. I do think the shale sector in the u. S. Has changed. In terms of what these companies are going to do that applies to these other countries, they will put a lot more effort into understanding the rock that they have. One of the problems is this big data set has not existed until very, very recently. And there are so many parameters on the rock that are visible at a microscopic level that you have to make sure that you have the same variables at two levels, that they do not vary one bit. We have seen wells within one square mile of each other in the very same rock. So, industry will spend a lot more time with the place that they have to understand why these variances exist. Before we take off internationally, i think we have taken this of you with this view with brute force if we put xthousand pounds of water in, lets put more. If it is 10 stages, lets do 40. It has all been about brute force. What this will force is more datagathering, big data gathering, and what we will find is there will be things that work very well that explains the variances. Before we make these mistakes i should not say mistakes. It is all part of the process. Before we go internationally, we need to solve the brute force aspect. Frankly i do not think they have the equipment. I think we really need to refine the science here and understand. So, internationally, there are a lot of things. The incentives here existed. I think before it really takes off, those incentives have to exist elsewhere. A lot of the deals i think companies are getting to figure it out are just not very good. I do not think i see anything remotely paralleling what we had here. I think russia, in terms of shale oil, russia was bigger than we were. And venezuela and im sorry, argentina. That is slightly below that. Was algeria there yeah, so, anyway, these were a few of the hotspots. I have not seen one project really take off. Ms. Quarterman terry, talking a little bit about geology outside of the United States, you have been traveling around the world talking about geology and Marsalis Marcella shale. Do you know of any place where this could develop quickly . Dr. Engelder no, i do not know a place where it could develop quickly. Let me follow up on what subash said here. Two drills could be drilled and perform 100 differently. This is where the science will come in. Each well is fractured and stages. What that means is, if you have a lateral that is fractured by 1000 feet, each stage is only a couple of hundred, 300 feet. If there are 15 stages in one well, only two or three or four stages are real money stages. A lot of these scientific breakthrough will be drilling the well and understanding where you put your money, what three or four stages are really critical. And that gets back to the question of where are the fractures question mark the fractures can vary from one vacation one location to the next. To answer your question, cynthia, there are a lot of parameters that really matter and make a big difference. For example, china early on was believed to have a fairly decent resource in gas shales, but the chinese gas shales are different from the marcellus. The chinese gas shales, some of them, are fluvial effluvial. Both produce shale. Both produce gas in the shale, but the marine marcellus has proven that are then the shale better than the shale in china. There are different parameters. Almost all of them have to be perfectly aligned for gas shales to work. Some gas shales appeared to have too much water in the matrix to allow the kind of Gas Production they really like. So, that has been a bit of a disappointment. We have a suspicion that may be we have a suspicion that may be the shale under the paris basin, which is different in age and depositional setting than the shale than me poland and ukraine and let the french have elected to take a path on the paris basin. And then we have a basin in england were the British Government under cameron as realist of the local people are going to participate in this have realized the local if the local people are going to participate in this they have to realize this. This is younger than the mercellus marcellus, older than the paris basin. All of these things need to be sorted out. It is true that the gas shales and the United States that seem to work are the large marine gas shales. The barnett, the fayetteville, the marcellus, the eagleford the haynesville. Each one of those armor rain shales and they seem to have the best set each one of those are marine shales and they seem to have the best set of characteristics. Ms. Quarterman russell, we started not just talking about geologys, but in terminal and other issues. Can you expand on that . Mr. Gold sure. Let me go of something terry said about the paris basin. We do not really know. As we have not drilled many wells. One thing that struck me, the number of wells drilled in the United States is in order of magnitude different than wells drilled elsewhere. When we Start Talking about shales in poland and france the only way you can determine whether the shales will produce oil and gas is to drill wells. It just does not been done outside the United States. It will take time to drill wells, to take core samples, to collect data. Getting back to the environmental questions, china is said to have a large gas shale deposit. The problem was, one of their big deposits was in a very arid region. The other was in a part of the country with a population densities similar to new jersey. Neither made a lot of sense to drill. On one hand you are trying to drill in a place that is dry and needs lots of water, lots of liquid to drill the well and theres a lot of demand for that water. Then you go to a place with the population density and it was very difficult to drill there. We did not get all of the details you would in the United States, but there were a number of protests as rigs were set up, there were a lot of local protests saying what is going on and how are we going to be compensated for this . And that potentially slow the chinese growth of shale, even though arguably china would be an extraordinary beneficiary. They are importing in a normas numbers and its no secret they have large in enormous numbers and its no sigrid they have large environmental problems. So, these are issues that we just have not resolved. The shale that seems to be moving the quickest internationally we mentioned a couple of times, in argentina we just happened to be lucky that it is in a fairly remote area that has a history of mining and there is sufficient water there. Once again, you happen to have found a place with the right conditions, beneficial conditions for going forward. Those are few and far between. I will come back to this issue. What really made shale take off in the United States is the fact that you had companies and landmen going across pennsylvania and texas handing out large checks. 10,000, 25,000 an acre and, by the way, you will get an eighth of the royalties on any gas that comes out of this. Companies had to do that. I do not believe that there are any other countries, or if there are it is escaping me, that have private ownership of mineral rights. What does the state do . There has not been a good answer for that. Ms. Quarterman your book does a great job of talking about the positives and negatives of fracking. Assuming another country decides to move forward with fracking beyond argentina, what are some of the Lessons Learned based on the experience in the United States . Mr. Gold i think there has been several. First of all, one of the problems we have had is we will start drilling for oil and gas in an area and all of a sudden there will be disputes about how will this impact the quality of water, the quality of air . One of the Lessons Learned, and they are doing this to an extent in pennsylvania, measure the quality of water before you start drilling. Measure the quality of air. Then you develop a fairly large environmental database about the quality of water and air in the countryside, which is not a bad thing to have. Better data, better understanding, first and foremost. A lesson that certainly the federal government learned, it is very difficult to have one Government Agency that is both promoting the development of resource and attempting to regulate it as well. One of the things the government did after offshore, deepwater horizon, was split that into two groups. We have not seen the states do that very well. Have one government body charged with, you know, leasing and getting interest and getting exxon and other companies to come in, and another one charged with protecting the quality of water. And a final point, well construction. Well boring, integrity is very important. Make sure you are building wells well and they are going to survive for 20, 30, 40, 50 years. Because that is how we talk about fracking and the problems associated with fracking. Most are associated with well integrity. If you can build a well right, if you can get the cementing and the steel right, you are not going to have those problems. Ms. Quarterman terry, i know you wrote something very recently about the missteps in pennsylvania, in response to international bans on fracking in romania, france, and other places. What are those missteps . Dr. Engelder russell has mentioned a couple of them. In order of importance, i think, one of the failures of pennsylvania was to understand the industry, how important it was to measure the quality of water in individual wells. They misunderstood that that baseline chemistry had to be established in every well. If you did it in one well in 10, that proof do not be good enough. In pennsylvania there are no standards for what are wells. And it is known that 10 of water wells would not pass epa standards. So, as russell has mentioned water well standards. Also, well construction. These are drilled by one more than one company. A production stream passed down through several thousand feet. This is at the time that industry came, where we realized the extent to which this 3000, 4000 foot interval was gas charged. Other gas from other layers. That came into this open wellbore, went up several thousand feet, went into groundwater. The other issues industry made, i think, a fundamental error in a law that is past known as the halliburton loophole, in which the additives that were put into fracking were held in secret, and of course any time you keep it in secret that creates public distrust. That was remedied very, very by a website. Early on in pennsylvania a lot of water was dropped down a well, and we have known as geologists for the better part of half a century, if you put a certain amount of water down a well, that will create earthquakes. And yet, it is an error that has been repeated. Incidentally in oklahoma, that is not a consequence of fracking. That is a production of oil with a very large water cut. It is being disposed off in massive amounts and we know that is going to cause earthquakes. Another issue when industry arrived, industry arrived from places like west texas where there were very few People Living and you did not have to build full wells. Arriving in pennsylvania you had to manage these wells. The First Holding tanks were nothing more than open pits in the ground lined with plastic, which tended to leak. Now industry is going to completely selfcontained systems. Another industry have it that created a lot of problems early on was the industry air drill. By air drilling the initial thousand feet, air drilling through the water table, that designed to put cuttings back up the bore hole where they could be recovered. But that pressure was leaking into the surrounding rock that had groundwater and that pushed a front of methane in front of it, pushed water toward peoples water wells and created a number of issues. If you are the owner of a private well that has been reasonably clean for years, and suddenly it starts to bubble with methane, you are going to raise cain. That is a list of the six mistakes industry made, all of which i think have been mitigated to a reasonable extent now. But those are the six that first caused an International Uproar and it will take industry a long time to deal with that. Ms. Quarterman do you have any lessons for investors in other countries . Mr. Chandra yes, a number of the lessons highlighted in various media forms, one of the countries that would have a huge benefit right now, a best practice from construction to procurement to mitigating truck traffic and how to dispose of water wells and make sure you are not in any local faults and things like that. There is so much. We have learned so much. Right now the transportation is the typical problem. I think any other country will be a huge beneficiary. Ms. Quarterman can we talk geopolitical for one second . There was a lot of talk when the ukranian crisis happened about potentially taking gas and liquefying it and sending it from exporting it throughout the u. S. There have been a lot of bills about crude and lng exports. Is that really feasible or not . Mr. Gold there is no reason technically you could not do that. Theres a large trader where you take a chemical it cool it down. The issue that came up around the ukranian crisis is one of timing. That was a crisis that was shortterm. L and g had asked working gas is and exporting gas is longer. If that is the direction the u. S. Policy once to go, there is no reason the u. S. Could not be a large exporter of gas. The other hiccup with that thinking is the u. S. Energy system isnt government controlled. The federal government may have had every reason to want to bring gas to ukraine at that point, but there is not a history of telling the gas stations where to direct their gas. We let the market do that. There are couple of changes that would be required to get to that point. Mr. Chandra when i think about some of the hurdles of oil now we are not the low cost producer. In shale gas, we are. We are at the low end of the spectrum. In oil, we can export. Gas companies have adjusted their capacity to this lower gas prices world. The Oil Producers are about to undergo a very traumatic few years and adjustment. I feel pretty good about it. Where i think the l and g game will change also a complete historical shift. The link to the oil price. I think we will see a delinking from crude. It will be a far more competitive situation when you dont have an oil price link providing an umbrella for these projects. That is a shift we are likely to see. Companies cant do this but countries can. They can definitely say we are not going to take that price. I think the u. S. Is very well situated. A lot of the gas coming out of the middle east is produced as a byproduct at no cost. The American Task show producers still have a cost and principle even if we were to liquefy this natural gas, we might be competing against a market where people can continually undercut what it is we tend to want to sell overseas. This history of the canadians who are trying to liquefy natural gas. They will have to be competing against gas out of the middle east that can undercut canadian gas. Quarterman we will open it to the floor for questions. Thank you. Please introduce yourself. I am a reporter with snl energy. Before i question, i first want to share the story i was at the first conference in expert in 2008. I watched all of these people leak out of the room when they heard the number and get all their telephones. Dr. , we have three plays in appalachia stacked. Do you have a number for how the total of all three of them . What the potential gas is there . Mr. Endgelder i am like a better who hit the jackpot once. Having said that, let me remind you that the appellation basin is the most amazing place in the world because bottom to top, we have the marsalis, and the original gas play in the appellation basin. I like to think in terms of this being a stack as six. You can let your imagination run wild in terms of what this will do. There have been very good i think you were counting that as the third level. There are some people that are happy with the outcomes. Let me remind you that when i was first called, we were looking at the five original range wells and the ip coming out of those wells went anywhere from 1. 4. The high one was 4. 7. At that point, 4 million cubic feet a day was judged as a great well. Now, 4 million is a failure. I think each one of those layers have come up to that 2008 standard but today, we have the utica from a range that holds the record at a flow rate of 59 million. It is a big number. Let me just say that i am content with 500 trillion cubic feet. This is technically recoverable. It has nothing to do with todays prices. Recently, the university of texas has run a study but they basically have stated we come up with the same number for the marsalis 500 trillion cubic feet of recoverable gas. I dont think we have to worry about running out of the stuff in the next 510 years. The stone age didnt come to an end because we ran out of stones. A followup question. Two years ago, the Gas Producers went and spent a year recovering and now they are producing more than ever. Is there a chance the oil guys will end up doing the same thing or are they operating in a different market . Mr. Chandra it is a different commodity. Their shale production is pretty flat. Physically impossible for an oil well. They did it through things like compression and maintenance and theyre not sure they can do it horizontally. When i think about oil wells which you dont add compressors. The refrack potential, i dont think will work. The other aspect is in terms of capital, the gas producer physically took a dollar and said i will spend . 70 of it in oil but put another . 20 in gas and not tell you. What we are looking at now is that you dont have capital for gas producer and you dont have it for the oil producer. There is nowhere left to turn. It goes back to the original point what is the shape of the u. S. Curve . Second and third quarters will probably be troughs for u. S. Oil supply. In the fourth quarter, we will see. You see the decline rate mathematically defined. It should take less money to maintain your volume. The biggest change is my ability to outspend my cash flow. That is a much bigger shift. If i cannot spend 150 of my cash flow, i cannot deliver the growth i have had. I think we will see a single digit growth weight within cash flows in 2016. You can describe that how you will. It is certainly a lot different than the experience of the last five years. A question here. With oil and gas journal. I find it interesting no one has said much about transportation and you have a former director as your moderator. I happen to know because somebody in the federal Railway Administration told me i couple summers ago. I wonder at any of you would be willing to address the implications of transportation as they affect u. S. Access to global markets, particularly for crude oil. Ms. Quarterman that was on my list but we were running out of time. Mr. Gold crude by rail has been a subject near and dear to my heart. You just made the point that the new regulations have come out recently, requiring a whole new set of tanker cars empty phaseout of existing tanker cars over the next 57 years and the introduction of these new types of brakes. The industry said it will fight that. I am not sure how that will impact export levels primarily because really what the rail is driving is it is feeding these closed refineries, refineries that have existed for a long time. I think from what i have seen and expect to happen, i think this is a really important, open question. The bach in shelton north dakota went from something about 100,000 a day production to 1. 2. A tenfold increase. We didnt build pipelines to accommodate that. We figured out you can put it on train cars and we are moving an incredible amount of volume of crude. This is the modern equivalent of that and were putting on older tank cars, which grew in a show not to be up to snuff. We had a number of the romans involving both the older train cars and what the results are giant fireballs. The question has come up is we have had these accidents in places like castleton, north dakota. Last week, another in north dakota. Thank goodness, 27 people in the town. These train cars also going through chicago, philadelphia, albany. The government is asking how do we make this safer if we are going to be moving crude . I think it is an open question right now. You have an extraordinarily powerful entity involved. The rail industries. The Oil Industries dont want to lose 700,000 barrels a day production. There is an incredible regulatory clash going on right now in washington. Let me tell you it is fun to watch and report on. Ms. Quarterman it is so nice to have to hear you answer that question and not me. Mr. Chandra they are going to commit to new pipelines. If the global model is correct that we are single digit rate growth overall, the pipeline will be more than enough to satisfy future production. Some of the tier to rock out there will not produce any more anyway so you will not have that explosive rates. It is the east coast refineries and the west coast. Once they go west, they will have to move products via rail. Rail cars through our neighborhoods will shut you down. Congress will shut you down. Because youve got an awful lot of pissed off people and they would blow up. Theyre not happy. The other question is a technical question. Can you tell me what refrack means . Yes. As you are aware, when oil and gas are produced from gas shale, the gas shale itself is very impermable. And what makes production possible are hide rallic fractures in the gas shale. Its ex possible to fill the entire volume with fractures. So a refrack is basically a second stimulation of the reservoir with the hope that that second stimulation will put fractures, new volumes of rock that werent accessible with the first. [inaudible] no, its not the well has to be temporarily shut down while the rock is broken again. Thank you. The white house just gave a conditional approval for shell to drill oil and gas in the arctic and you emphasized on the lesson learned. How can it be applied in the oork tick if the drilling starts . Arctic . Is that for me . Ill take a crack at it. Weve had tremendous experience in the arctic to begin with. And anwar basically has about the same geeology as the geeology to the west. I think maybe the first lesson to learn here is that maintenance of the Alaska Pipeline is going to be incredibly important and the Alaska Pipeline is aging and british petroleum, for example, got into trouble because they didnt sufficiently maintain that pipeline. That wont happen if this new area of the arctic is opened. I think weve learned a lot about managing fluids that are produced with the oil and that would be how does one dispose of them. And incidently thats a nontrivial problem in a distant place like alaska. And i dont know what the answer is but i can imagine that these wells if this area is ever opened up, one of the first questions that the regulators will have is, how are you going to manage the waste waters . And i dont have an answer for that. There are a number of other issues including for example protecting the upper part of the wells with better casing and cement jobs. These are all lessons that are coming out of gas shales. Im sure there are others, too, but i am not prepared to address those. Thank you. A question one. Is it possible to convert the entire u. S. Truck fleet and for that matter the Railway System to be using compressed natural gas instead of oil . Instead of diesel . Given how low the price of gas is, once you do that, you make a huge difference to the entire demand for oil not just to the u. S. But for the whole world. Is this a potential game changer . The second question i have. You mentioned two problems. One was you said the ear theres not enough water. Then the problem of how do i dispose of the excess. These are two problems. One is the initial cracking the other is some ancient sea water blows back and dispose of it. I heard of a technique of people saying instead of initially injecting water we can inject natural gas liquids. That will frack it and that will then come back. Then theres no question youre almost recycling the same thing again and again. So why the need for large quantities of fresh water . Is that feasible . Well, all right. Youve asked two or three questions. Let me remind you that there is a man investor named t book pickens who was a smart investor until he got into the business of equities. He attempted something called the pickens plan. You may recall that the pickens plan was to build a lot of wind infrastructure and he put a lot of money into west texas wind farms. What he was doing was then hoping that natural gas could be used not for manufacturing electricity but for compressed natural gas vehicles. So it really is technically possible and in fact in pennsylvania one of the early hopes was that there would be a series of compressed natural gas stations built along the turnpike along i820 for just this particular i 0 for just this particular purpose. So yes it is technically possible. Now, let me address the second question which is why dont you use compressed natural gas to fracture wells . And i can think of two reasons why thats not very practical. One of which is i would not want to be around a drill rig when you were running very explosive materials at very High Pressure down a well bore. Thats incredibly dangerous. The beauty of using water is it doesnt blow up when its under High Pressure before it gets put down the well. The second reason for not doing that is that the fracture stimulation itself is only as good as the transfer of energy from the surface to the rock itself. And using natural gas for example, to fracture wells means that you spend a lot of energy compressing a very compressible fluid that will then expand on its own accord down the bore hole without transferring that energy into the rock itself so its a much less efficient way of breaking the rock apart. And in this business where every fracture really matters the more fracture you create the better off you are. And water allows this to happen because water is very incompressible. In other words, all of the energy you put in water in these surface halliburton pump trucks is then transferred to breaking the rock apart at depth. I would add two things. One on the use of gases. Its happened in canada and had some application, some success in canada. But in the u. S. The study so far suggests not only that its not working but theres no intermediate term view that it will work. And i just dont remember the technical issues but it could be the nature of the rock and the depth. And we just have a longer way to go to deliver that energy. I did study quite in depth on cng and lng. What would really change things is the consumer adoption of cng vehicles because we have a lot of things like sanitation trucks like 100 of them are running on cng. Theres a lot of commercial vehicles. Why . Because im refilling i need to know im coming back at the same time every time i cant be stuck out there running out of natural gas. But when we look at that, in the pickens plan, et cetera is you need to retro fit. I think it costs 50,000. It doesnt sound like much but that was going to come from the government and i dont think anything is going to come from the government so i think it just died its own death but. Really the Combustion Engine is Getting Better and better you dont need tax credits or handouts. Scommettively its fallen behind. So maybe the real test of it, of it will be a battery engine. But i just dont see the natural gas vehicle being a competitive in the future with gas. I want to thank you. This has been a very interesting panel. I was wondering if you could go back to the cameron government which one of their main planchingse was to go after their shale gas and whether they can do it, whether well be able to our Service Companies will be able to get business there is it the right kind of rock . I think thats a big issue. I dont know whether its the right kind of rock. I can tell you that there has been significant ant frack backlash there and but youre right. That the cameron government has been very enthusiastic about this has been pushing this and just got another five years. So i would certainly keep an eye on that. But theyre going to run into i think the same problems that everywhere else, which is how do you in order to accommodate the antifrack sentiment, how do you incentivize local communities to open their doors today. And i just i didnt seen any suggestions that get you there. So i think its really a financial inventive game at this point. Major problem thats found in the midland base yin which is the area from birmingham and manchester going east is that rock is very heavily faulted. Its much more complex rock than the mars sells. And also this is one of the primary problems in china. The density of the fault networks is made very clear because obviously they had a couple earth quakes that were set off by fracking but they had to deal with them. Its not entirely clear to me that this gas shale in england can be made economiccal, profitable given the complexity of the faulting in that area of england. I would like to ask a question for the whole panel but for mr. Engle burt if possible. For the huge enthusiasm the very beginning a few years ago regarding the shale gas coming from poland, ukraine romania. Unfortunately the work was stopped. From your perspective its a matter of, i dont know, profitability of the resources that are inside or its a matter of conjunction of the market or could be influnes some geopolitical issues in this regard. Well, in that ill answer the first part and then im going to pass this off to my colleagues. I just spent some time in a number of those countries. And the gas shales that were talking about in poland runs from poland through ukraine shows up in turkey. Its a gas shale thats sourced in an organic fossil. And if theres an analogy in america, it probably is the utica gas shale. It turns out that the major issue is the quality of the rock. It doesnt really matter what the politics are or what how the local people feel. If the quality of the rock is not there to make this work, the way that it has with marine shales like the mars less, then the rest of it doesnt matter. Now, im sure theres some politics going on in other things as well to make it tough. But the rock quality itself is disappointing. Im not an expert on Eastern Europe politics. But your point is absolutely right. The political discussion comes secondary to the rock. If the rock is no good or if there hasnt been discovered a way to make that rock work then the rest is a moot point. This is one of the things that is amazing about the antifracking revolution is that russell made this point earlier. Without testing the gas shale to know whether its worthwhile or not it seems to me a little bit nearsighted for a government just to say no were not going to look at all. The french for example really have a wonderful opportunity at least to test in the paris basin. The british ran into this situation in balkan south of london where a company was going to run drill a well. It was a vertical well just to test the rock. They werent even going to fracture that rock they were just going to drill to see what was there. And that got shut down. So its very difficult for the government to know what the path forward is without knowing whats there. Thats the first step. I think weve come to the end of our session here today. I want to thank very much our esteemed panelists who have come from texas, pennsylvania, new york to come and talk to us today. And to you folks for being engaged and asking great questions. We hope to come back and talk some time about liquefied natural gas and the effect of prices on that as well as discussing offshore some of the Global Offshore planned projects and how oil prices are affecting those in the future. Thank you very much. Captioning performed by the national captioning institute, which is responsible for its caption contents and accuracy. Visit ncicap. Org