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GasFrac’s president sees golden opportunity in waterless fracking in Ohio

By Tom Knox

Oil and gas companies want waterless fracking because it could work better than water fracking. Residents want waterless fracking because it saves millions of gallons of water and cuts down on transportation needed to truck used water away.

Add that to a failure of Ohio’s oil and gas companies to economically drill for oil in the northern and western part of the state’s Utica shale play, and Canadian company GasFrac Energy Services Inc. sees a golden opportunity, its president told me.

GasFrac has begun testing its first waterless fracking well in Tuscarawas County, as I reported last week.

“We think there’s a lot of work in Ohio and a lot of potential there,” said GasFrac president Jason Munro.

Munro couldn’t confirm that Houston-based EnerVest subsidiary EV Energy Partners LP (NASDAQ:EVEP) is the company working with the GasFrac on the test oil well, but its executives have made public comments alluding to the partnership. It’s one of the worst-keep secrets in the industry, one which EV executive chairman John Walker said could be its most valuable asset in the Utica.

GasFrac’s technique uses gelled propane instead of water in hydraulic fracturing. Munro said the technique could work in natural gas formations, but oil is the target. Drillers have had a hard time economically drilling for oil in Ohio; the process isn’t the same for extracting natural gas.

“The oil window in Utica appears to be water sensitive,” Munro said.

Fracking creates cracks in the shale formation to make it easier to bring oil out.

In the Utica oil window, shale captures and retains water when it’s used during fracking. It swells the formation, causing a blockage for the water and oil.

Propane is a gas and can come through those cracks easier, allowing the oil to flow more easily toward the surface.

“When you frack with water, you might get 8 (percent) to 40 percent of the water back,” Munro said. “With us, when fracking with hydrocarbon, you get 70 (percent) to 100 percent of the hydrocarbon back,” so it can be reused.

Concerns about water use will only grow. A Deloitte report on the topic found that Americans pay more for water than any other utility, and “shortages stemming from increased water competition and droughts” in many areas.

Researcher IHS Inc. found up to 10 percent of total capital expenditures can be attributable to a single shale well.

GasFrac has shaken up its management team – Munro joined the company this year – and is exploring selling or merging part or all of the Calgary, Alberta, company.

It lost $61 million (Canadian) in the first nine months of its latest fiscal year on sales of $31 million (Canadian).

The company has other businesses than waterless fracking, but a lot is riding on the test well. If the Ohio well is successful, “we’re talking different options than were presented before,” he said.

If it doesn’t do well?

“I certainly think the opportunity is a big one,” Munro said, but the company has a lot of options:“In my view, this won’t be our swan song if the well doesn’t work out.”

Editor’s note: Munro’s comment in an earlier version of this story confused some readers, so we paraphrased it for clarity.

Munro said the company is “cautiously optimistic” about the test well and is in talks with other area companies for potential partnerships. It should have some preliminary results on the well soon.

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Article Source: Knox, T. (2014). GasFrac’s president sees golden opportunity in waterless fracking in Ohio. Bizjournals.com. Retrieved from http://www.bizjournals.com/columbus/blog/2014/11/gasfrac-s-president-sees-golden-opportunity-in.html

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oil worker

Shale academy ready to graduate oil and gas workers

By Greta Mittereder

SALINEVILLE, Ohio (WKBN) – The Utica Shale Academy, located inside Southern Local Schools, held a special demonstration Tuesday for students and board members.

Austin Sadler, 17, is the only senior in the academy. He hasn’t wasted any time obtaining three certifications needed to get a job in the oil and gas industry after graduation.

Sadler said he has learned how to case a well, install pipe and tubing and understands how gas and oil is extracted from the ground. The first certification he received was for safety, called the Rig Pass.

“It allows me to be safely on any rig. I can be on a rig and know what I am doing and what not to do,” Sadler said.

Utica Shale Academy Director Eric Sampson said there are three certifications the students can receive. The Rig Pass, which is for safety; Drilling Instructors Training (DIT); and Well Controlled Certification.

“All of these are IDAC certified courses with the International Association of Drilling Contractors,” Sampson said.

The students have been working through modules and learning about the industry. Some of the work is done online and guest speakers are brought in to relay first-hand experiences from the field. Other work is supplemented with hands-on course material from the Ohio Oil and Gas Education Energy Program.

An advisory board will be set up to give the academy more insight into the oil and gas industry and prepare for changes in the job market.

“The advisory board is here to say here is what we have produced thus far. But as the job market evolves and different skills are needed, we want to make sure that our curriculum still matches the jobs that are available to the students,” said Chuck Kokiko, Jefferson County Educational Service Center.

Brian Logue, a representative for Express Energy, conducted a demonstration for the boards of Jefferson County EDs, which sponsors the academy, and the Southern Local Schools.

“He has set up rig tours for us. This is the third time he has come in to do a presentation to our students,” Sampson said.

Kokiko said the industry is still in the drilling stage and that will level off as gas companies reach production levels, but he says the ancillary and support jobs will be in the area indefinitely.

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Article Source: Mittereder, G. (2014). Shale academy ready to graduate oil and gas workers. wkbn.com. Retrieved from http://wkbn.com/2014/11/18/shale-academy-ready-to-graduate-oil-and-gas-workers/

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EV Energy Partners wants to sell off Utica assets in January

By Bob Downing

Texas-based EV Energy Partners is preparing to sell off its Utica shale assets in eastern Ohio in 2015, along with its interest in processing facilities.

There has been “enough drilling activity and consistent result to de-risk our assets and acreage,” said John Walker, the company’s executive chairman.

The value of the company’s Utica shale leases have grown significantly, he said in an earnings call with analysts and the media earlier this week.

The company intends to kick off a serious sale effort in January to sell off its joint venture acreage with Chesapeake Energy and Total SA in 10 Ohio counties, plus other leases held by the company, he said.

The company wants to sell about 120,000 acres within the 660,000-acre joint venture. That includes about 55,000 acres in Carroll County.

It also intends to seek a buyer for its 21 percent interest in Utica East Ohio that operates natural gas processing plants in Columbiana and Carroll counties and a liquids-separating plant in Harrison County.

Last month, EV Energy Partners sold its 9 percent interest in Ohio’s Cardinal Gas Services to two South Korean companies for $162 million.

EV Energy Partners, a publicly traded company that is part of privately held EnerVest Ltd., has said for some time that it intends to sell off Utica assets to monetize the holdings for its institutional investors. The company has been marketing about 335,000 acres in Ohio since 2013.

The EnerVest companies are one of Ohio’s largest oil and gas companies with 8,700 vertical wells in Ohio. They were the largest producer from traditional gas and oil wells in Ohio and generated 25 percent of Ohio’s natural gas prior to the Utica shale boom. They control about 900,000 acres in Ohio.

In other news, EV Energy Partners said production could begin in December on a much-watched Utica oil well in Tuscarawas County.

The company drilled the experimental well with eight other industry partners, Walker said.

“This is a test of what could be EnerVest and EVEP’s most valuable asset in the Utica,” he said.

Getting oil from the Utica shale has proven to be difficult for drillers, to date.

That well near Uhrichsville is being hydraulically fractured or fracked with liquid butane and mineral oil. That should be completed in two weeks.

“We’re excited but cautious as we are bringing new technology to bear in this process,” said company president and CEO Mark Houser. “We are in the middle of the completion operations and have completed five of the 20 (fracking) stages so far.”

A full review of the well will be offered in the next few months, he said.

The oil window covers all or parts of Portage, Stark, Trumbull, Tuscarawas, Holmes, Coshocton, Guernsey, Muskingum, Perry, Morgan, Athens, Vinton and Hocking counties.

EV Energy Partners is also getting about 80 barrels of oil per day plus natural gas from four Stark County horizontal wells that were drilled into the shallow Clinton sandstone. A fifth well is not yet in production.

Drilling each well costs about $2.6 million. Each well is projected to produce about 150,000 barrels of oil equivalents. The wells could generate 20 percent return on its investment at $80 per barrel for crude oil.

The company said the East Canton oil field where more than 4,000 wells have been drilled since 1947 has an estimated 1.5 billion barrels of oil and only 7 percent has been recovered.

The field in Stark, Carroll and Tuscarawas counties covers about 214,000 acres and EnerVest companies control half of it, the company said.

It says it has identified 70 potential drilling sites and that number could grow if the wells are successful, Houser said.

The company is “very pleased” with the initial Clinton results, he said.

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Article Source: Downing, B. (2014). EV Energy Partners wants to sell off Utica assets in January. Ohio.com. Retrieved from http://www.ohio.com/blogs/drilling/ohio-utica-shale-1.291290/ev-energy-partners-wants-to-sell-off-utica-assets-in-january-1.540174

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Oil pipeline

Mineral rights, royalties flowing to Western Pa. charities

By Katelyn Ferral

Some universities and charities don’t need a gas well in their backyards to be enriched by the Marcellus shale frenzy.

Contributions of mineral rights and royalty checks are flowing in from landowners who are sitting on fortunes because of the gas boom.

Penn State University said it has received five to 10 gifts of royalty income or bonuses from gas drilling. West Virginia University has received about 24 donations of oil and mineral rights. And the University of Pittsburgh is weighing its first such donation.

Charitable donations of complex assets, such as collectibles, real estate, royalties and mineral rights, are not uncommon. When these assets appreciate significantly, their owners may consider donating them, not just to share the wealth and be altruistic but for tax advantages.

Researchers who track philanthropy say there are no statistics that measure gifts of mineral rights and royalties, but Michael Hoffman, a charitable planning consultant with Fidelity Charitable based in Pittsburgh, said there is growing interest from potential donors.

“Definitely, there’s a lot of discussion. We see a definite increase of inquiries in that area,” Hoffman said.

Penn State said it received its first such donation in 2008, which tracks the boom in the state’s gas drilling industry. Although the university’s mineral rights and royalties donations have dwindled since 2012, when gas prices bottomed out, the class of charitable gifts under which they fall (noncash complex assets) has been growing.

The number of people reporting noncash donations to the Internal Revenue Service increased 21 percent from 2006 to 2011, the most recent year available. At Fidelity Charitable, one of the biggest operators of donor-advised charitable funds, noncash complex assets accounted for 17 percent of the gifts it handled in 2013, up from 3 percent in 2009, spokeswoman Kim Judecki said.

Universities in Texas and Oklahoma, situated amid drilling for decades, have benefited from mineral and oil rights donations for years. Now, gas drilling in Appalachia is bringing this potential windfall to Pennsylvania schools.

“This is an opportunity for Pennsylvania colleges to have kind of an unusual revenue stream,” said Betsy Suppes, a geologist based in Johnstown, who has consulted nonprofits and universities on mineral rights gifts since 2002.

Receiving mineral rights as a donation can be more burden than benefit for some nonprofits because they require a lengthy and costly vetting process before they can be accepted. But institutions and groups say they are expecting such gifts to increase with growing gas production in the Marcellus and Utica shales.

“We anticipate if the price of gas goes back up, there will be more drilling and also more gifts,” said Mike Dagenhart, assistant vice president in the Office of Gift Planning at Penn State.

Penn State is trying to make the process easy for potential donors. The university has staff that is dedicated to vetting such gifts and advising people who want to donate. It is petitioning the IRS to streamline forms to make it easier for donors to assign a percentage of their royalty interest to a charity or university, Dagenhart said.

Penn State officials are working with Tom Hoffman, an Erie attorney who advises clients on royalty and land rights gifts, to coordinate with charities and gas companies on mineral rights donations.

Hoffman advises clients on how to donate mineral rights and royalties so they’re taxed at the lowest rate. Donating can help lower the overall value on an estate that’s taxed when it is inherited. He is spearheading an initiative to ask landowners with gas money to consider donating a percentage to charities and universities.

“We’re trying to help charities create the thought that if you have shale energy you should leave a legacy so that when all the energy is out of the ground there’s a legacy for future generations,” Hoffman said.

The University of Pittsburgh has not received a mineral rights gift yet, but one such gift is currently being vetted with a donor, said Albert Novak, vice chancellor for Institutional Advancement.

“We’re a long way from getting that done, there’s just so much due diligence around a gift,” he said.

Due diligence includes such things as verifying mineral rights leases, reviewing land records and performing environmental assessments.

But how to receive and benefit from such gifts are new to institutions in Pennsylvania — and donors, too, Novak said.

“I suspect as more and more citizens, especially in the Marcellus shale area, come to benefit from these types of earnings that that’s going to factor in other philanthropic plans too,” Novak said.

Many universities and nonprofits say they don’t have the staff or money to thoroughly investigate the land rights and want to avoid any potential controversy associated with the shale drilling industry.

“Oftentimes, we want to sell that as soon as possible,” said Dan Clare, director of communications at Disabled American Veterans (DAV), a national charity that helps veterans receive their benefits and has an office in Pittsburgh. The group has received mineral rights in the past but no longer holds any and is not seeking them.

Both the Washington County Community Foundation and Community Foundation of Greene County, based in counties that have seen an influx of gas drilling, say they’ve received or are promised gifts from wills either from mineral rights or royalties.

“The big change is people making charitable contribution to us, and we know that their revenue has been increased because of the industry,” said Betsie Trew, president of the Washington County Community Foundation.

Both groups say they are seeing the most donations coming from people who have lived in the counties for years, not from big gas companies.

Officials from the universities, nonprofits and foundations said donors nearly always want to remain anonymous.

At the Community Foundation of Greene County, Executive Director Bettie Stammerjohn has her staff looking into how the group should approach mineral land rights should they be donated. The group has received royalty payments, and some donors have promised their gas money once it’s paid out, she said.

“We’re starting to see a little bit more of that in Greene County,” Stammerjohn said. “We saw some initially and that kind of dried up, and I think that was from the initial signing bonuses. It took a while for some of the wealth to come into play.”

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Article Source: Ferral, K. (2014). Mineral rights, royalties flowing to Western Pa. charities. Triblive.com. Retrieved from http://triblive.com/business/headlines/7003166-74/rights-mineral-gas#axzz3I0zVPWXw

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Shale Revolution Not So Simple

The United States is enjoying an oil boom whose real extent is still largely underestimated. In just few years, the country may become the world’s top oil producer, mainly due to the unlocking of its huge shale-oil resources.

Whereas a shale revolution (both for oil and natural gas) is unlikely in the rest of world, due the some unique factors that characterizes the U.S. oil and gas patch, global oil-production capacity is also growing much faster than demand.

The interconnections between these two phenomena might have deep, paradoxical and almost unnoticed consequences for the world oil market and the U.S. energy security.

Big boom theory

On the basis of my analysis of more than four thousand oil wells in the United States, I estimated that even with a steady decline of crude-oil prices (from $85 per barrel in 2013 to $65 per barrel in 2017), the United States could be producing 5 million barrels per day of shale and tight oil by 2017. With the present output of 1.5 million barrels per day, that would more than triple the current production.

More than 90 percent of such production will come from just three large shale/tight-oil formations: Bakken-Three Forks (North Dakota), Eagle Ford (Texas) and Permian Basin (Texas). Along with the increasing production of natural-gas liquids (NGLs), and a relatively flat production of conventional oil and biofuels—both considered as part of the overall oil production in most statistical sources—the United States could become the top oil producer in the world by 2017, with an overall oil production of about 16 million barrels per day, and a sheer crude-oil production of about 11 million barrels per day.

Reinforcing this prospect is the resilience of U.S. conventional-oil production too. In fact, thanks to the extensive application of advanced technology to mature and once declining U.S. conventional oilfields, U.S. conventional-oil production is also doing better than generally expected. So far, among the fourteen main oil-producing states/areas of the United States, ten have already witnessed a reverse of their declining oil production.

Yet the driving force behind the U.S. oil boom, that is its huge shale-oil potential, depends crucially on the U.S. oil industry’s ability to bring on line an astonishing number of wells each year.

In fact, the extremely low porosity of shale-reservoir rocks limits the recoverability of oil from one single well. On average each loses 50 percent of its output after twelve months of activity. To offset this dramatic decline of the production and get an higher production, an oil company must thus drill an ever-increasing number of wells.

For example, in December 2012 it was necessary to bring ninety new wells on stream each month to maintain the production rate at Bakken-Three Forks (so far, the largest shale-oil play in the United States)—770,000 barrels per day. But as production grows in North Dakota, the number of wells also must grow exponentially.

The large and scarcely populated territories of North Dakota and Texas are capable of sustaining such ever-increasing drilling intensity for many years to come, to over one hundred thousand active shale-oil wells—as against around ten thousand to date.

Nevertheless, the sheer number of productive wells required in shale production is unprecedented and, from an environmental perspective, will probably represent a major obstacle to the expansion of shale activity even in the United States. Apart from Texas, North Dakota and a bunch of additional states with vast territory, scarce populations and a long history of drilling intensity, the rest of the country likely will not embrace the “drill or die” logic.

Shale boom won’t be global

Whereas drilling intensity won’t prevent the United States from becoming the largest oil producer globally in just few years, it will likely prove a daunting obstacle for the rest of the world—for several reasons.

First, the United States holds more than 60 percent of the world’s drilling rigs, and 95 percent of these are capable of performing horizontal drilling—which, together with hydraulic fracturing (fracking), is crucial to unlock shale production. No other country or area in the world has even a fraction of such “drilling power,” which takes several years to build up. For example, all across Europe (excluding Russia) there are no more than 130 drilling rigs (as against 180 in North Dakota alone), and only one-third of them are capable of doing horizontal drilling.

Moreover, no other country has ever experienced even a fraction of the drilling intensity that has characterized the U.S. oil and gas history.

Consider: in 2012 the United States completed 45,468 oil and gas wells (and brought 28,354 of them on line). Excluding Canada, the rest of the world completed only 3,921 wells, and brought only a fraction of them on line. To my knowledge, Saudi Arabia brings on line no more than two hundred wells per year.

Other factors will contribute to prevent the development of shale resources in the rest of the world.

One is the absence of private mineral rights in most countries. In the United States, landowners also own the resources under the ground—and have a very strong incentive to lease those rights; in the rest of the world, such resources usually belong to the state, so that landowners usually get nothing from drilling on their lands but the damage brought about by such activity.

 

Also absent outside North America are independent oil companies with a guerrilla-like mindset, a crucial aspect of the U.S. boom. Until now, the development of shale resources has not proved to be Big Oil’s strength—since shale oil requires companies capable of operating on a micro scale, pursuing a number of micro-objectives and leveraging short-term opportunities. Only the United States (and partly Canada) possesses a plethora of such aggressive companies. It is no accident that they have been, and still are, the protagonists of the shale revolution.

Finally, we even don’t know with any reasonable approximation either the real size of the shale formations in the world, or the costs to develop them. The problem is that the geology of the United States is by far the best known, explored and assessed, whereas for most countries shale deposits are a matter of pure speculation.

A geopolitical paradox

Huge as it may be, U.S. crude-production potential is still insufficient to allow for the much-sought-after U.S. crude-oil independence—the only missing point in the overall equation of U.S. energy independence.

In fact, the country is already largely self-sufficient in terms of all other primary-energy sources (coal, nuclear, natural gas, NGLs, etc.), while it still imports about 8 million barrels per day of crude oil to make up for its daily consumption of more than 15 million barrels.

True, the amount of crude oil imported each day by the United States has plummeted steadily from its peak in 2007 (when it reached more than 10 million barrels), and it will probably be less than 50 percent of consumption by the end of 2013. However, even in the most favorable scenario I outlined above, 25 percent of U.S. crude-oil requirements will have to be imported in the future.

This implies that if the United States wants to target the highest degree of oil security, it should rely not only on an increase of its domestic crude-oil production, but also on energy-efficiency measures that could curtail crude-oil consumption.

A lower rate of U.S. crude-oil imports might have paradoxical consequences for U.S. energy security. In fact, in case of a drop in oil prices, the most endangered foreign sources would be countries traditionally considered to be “safe”—like Canada and Venezuela, whose crude is particularly expensive. Whatever the case, for these two countries, and for Mexico as well, the resurgence of U.S. oil production means the need to find new reliable markets for their crude.

In turn, if they succeed in shifting from the United States, this will make them less dependent on the U.S. oil market, while making America a bit more vulnerable in the future to an oil crisis.

In geopolitical terms, therefore, the paradox of growing U.S. oil security is that it risks negatively impacting traditionally safe Western Hemisphere exporters while providing expansion opportunities for other countries, such as China, seeking to step into large-producing countries.

At the same time, the decline of U.S. imports is already having an impact on the production of several African countries—such as Nigeria, Angola, Libya and Algeria—which will be forced to find new export markets too.

The Persian Gulf, the chief target of the “import-destruction” mantra of U.S. energy-independence advocates, could lose shares of the U.S. market as well, but that area has the flexibility to turn its exports to Asian markets to offset potential losses.

However, even for Persian Gulf countries—as much as for the whole of the Organization of Petroleum Exporting Countries (OPEC)—the consequences of U.S. oil boom could be relevant if combined with the general upward trend of global oil-production build-up that is advancing much faster than demand. And that could finally backfire against the United States as well.

World oil versus the U.S. oil boom?

By the end of this year, oil-production capacity (which includes crude oil, natural-gas liquids and biofuels) will probably surpass 97 million barrels per day, including a spare capacity (unused capacity) of more than 4 million barrels per day.

Conversely, oil demand is growing sluggishly, a consequence of the troubled global economic situation, the slowdown of China’s growth, the unsolved problems of the Eurozone, as well as the impact of energy-efficiency legislation across the world. For all these factors, it is unlikely that daily demand will exceed 90–91 million barrels in 2013. That will cause a widening gap between production capacity, actual production, and demand.

At the same time, the exploration and production spending spree of the oil and gas industry goes on, with investments that will continue to exceed $600 billion in 2013, or more than $2 trillion from 2010. High oil prices, the need of most companies and countries to replace their reserves, and the extensive application of new technologies to oil recovery, are the major factors driving this unprecedented investment cycle that is now in its fourth year, and it will have particularly strong consequences on new production in the next few years.

Not only the United States, but also the biggest oil producers such as Saudi Arabia and Russia, are continuing to increase their production capacity—defying the dire predictions of most pundits who deemed those countries destined to face an irreversible decline of their oil output.

In this framework of growing supply capacity and sluggish demand, the price of oil is not determined by the strict logic of supply and demand, but by the recurring fears of supply disruptions coming from the instability of several Arab and African countries.

Yet the problem remains.

Global oil-production capacity is growing much more rapidly than demand for oil, and in order to manage this imbalance OPEC is currently relying on two pillars: on the one hand, Saudi Arabia’s willingness not to inundate the market with its full production capacity—that is obliging the kingdom to preserve a spare capacity of more than 3 million barrels per day; on the other, Iran’s inability to export a sizable amount of its oil production potential—or more than 1 million barrels per day—due to international sanctions.

The coming years will show if OPEC possesses the ability to manage this imbalance, against African countries looking for new outlets for their oil, an Iraq struggling to become one of the world’s top producers, the great potential of the United States, Canada and other countries—and an oil demand still stagnating due to a global economic crisis which shows little prospect of improvement.

The U.S.-Saudi dance

Whatever OPEC, and Saudi Arabia in particular opt for, however, will impact also the U.S. oil boom.

Should Saudi Arabia decides for producing oil at full capacity in the short term, like the Kingdom did in 1986, the oil price will likely face an abrupt fall. In this case, U.S. shale-oil production also will be endangered, depending on the extent of the oil price decrease.

In fact, the full development of shale oil in the United States requires an oil price higher than $80 per barrel in the short term, and higher than $65 per barrel in the longer term (five years). Lower price levels would result in a dramatic drop in drilling intensity—and consequently in oil production.

By converse, if a political crisis should endanger the oil production of Saudi Arabia or another big oil producer in the short term, the oil price will skyrocket, no matter how much oil America could produce.

The last two scenarios suggest that, whatever the degree of energy independence the United States can achieve through the shale revolution, the country will always be dependent on what happens across the global oil market, and should align its foreign policy with this reality.

Leonardo Maugeri, Ph.D., is a Senior Associate at the Harvard Kennedy School, Belfer Center for Science and International Affairs, and a former top manager of the Italian oil & gas company Eni.

Image: Flickr/L.C. Nøttaasen. CC BY 2.0.

 

source-http://nationalinterest.org/commentary/shale-revolution-not-so-simple-8855?page=2

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