3rd Quarter, 2010
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3rd Quarter, 2010 |
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Highlighting the Hydraulic Fracturing Debate
By Joe Blice, CPA, Audit Partner, DallasPrevious issues of our Energy Letter have discussed the debate that has developed concerning the long-used and approved hydraulic fracturing technique for producing oil and natural gas. Hydraulic fracturing, simply called fracing, is a method of stimulating production by opening new flow channels in the rock surrounding a production well. Under extremely high hydraulic pressure a fluid such as distillate, diesel fuel, crude oil, dilute hydrochloric acid, water or kerosene is pumped downward through the production tubing or drill pipe and forced out below. (Note: as a brief aside, Chesapeake Energy describes petroleum distillate as a friction reducer or a product used in cosmetics including hair, make-up, nail and skin products). The fracturing fluid also contains a granular substance (referred to as a proppant) which may be sand grains, aluminum pellets or other material that serves to keep the cracks open when the fracturing fluid is withdrawn after a fracturing treatment. Chesapeake notes that most fracing fluid is 99% water and sand. Explosives may also be used to fracture a formation since the explosion furnishes a source of high-pressure gas to force fluid into the formation and the creation of rubble simultaneously makes the use of proppants unnecessary. Read more >>> New Legislation - The American Jobs and Closing Tax Loopholes Act
By Shuja Akram, CPA, Tax Manager, HoustonMany oil and gas investments are what we would characterize as long-term investments. A property is developed and operated with the owner and investors looking to the continuing income steam for a return on their invested dollars. Typically, the company or individual that organizes the deal by bringing all of the parts together receives a "carried interest" as compensation. The carried interest, known as a promote or promoted interest in oil and gas parlance, is a financial interest in the long-term capital gain from a development granted to the developer or organizer by the other investors (typically, limited partners or joint owners). The carried interest compensates the promoter or organizer for the risks taken during development. Read more >>> Climate Legislation in Light of the Oil Spill
By Kenny Wilks, CPA, Senior Audit Manager, DallasThe President recently used the Gulf oil spill to stress the need for Congress to pass cap and trade or other climate legislation. The President referred specifically to the bill introduced by Senators Kerry and Lieberman, The American Power Act. The American Power Act includes in its goals amendments to the Clean Air Act to establish steadily declining limits on carbon emissions from the major economic sectors responsible for polluting; an auction system to permit companies to mitigate the effects of the new rules; and cost reduction mechanisms and market safeguards as well as encouraging investments in new technologies. Read more >>> Other Items of Interest
By Rich Schwartzenberger, Senior Manager, Business Advisory ServicesPrior to the oil spill much attention had been focused on apparently faulty data gathered by the U.S. Department of Energy's Energy Information Administration ("EIA"). The numbers this agency has been generating for years have been rough samples that overstate production and the gap between supply and demand. These figures have a huge impact on the price of production, especially natural gas. The EIA relied only on reports from Louisiana, New Mexico, Oklahoma, Texas, the Federal Gulf of Mexico and certain nation-wide numbers. However, EIA figures completely omitted states such as Arkansas (number eight in production), Pennsylvania (number sixteen), Colorado (number seven) and Utah (number nine). The figures, it appears, have artificially depressed the price of natural gas for quite some time. This problem also involves the Minerals Management Service, the agency that has been so heavily criticized in the oil spill disaster. Read more >>> |
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In this issue of Energy Insight, we take a look at how the debate over the safety of hydraulic fracturing is taking shape. Next, we look at new legislation surrounding the oil and gas industry, and what that means for long term investments. We also examine the legislation affecting the oil and gas industry in response to the Gulf oil spill, specifically The American Power Act. Finally, we briefly examine other items of interest, including the overstatement of production by the Energy Information Administration.