FUELING CONVERSATIONS. An educational resource for discussions about the oil and gas industry

Transcription

1 FUELING CONVERSATIONS An educational resource for discussions about the oil and gas industry

2 Fueling Conversations Table of Contents Section 1: Introduction 5 Section 2: About SM Energy 9 Section 3: Hydraulic Fracturing 13 Section 4: Water 21 Section 5: Environment 27 Section 6: Regulatory Compliance 33 Section 7: Economic Impact 37 Section 8: Oil and Gas in Everyday Life 41 Section 9: Resources

3 1 Introduction: What should I do with this information? Introduction This book was created as an educational tool and resource guide to provide you and your colleagues with relevant and factual information about the energy industry. We encourage you to use this information to respond to questions and have conversations with co-workers, family members, friends and neighbors about our industry. You can make a difference! 4 5

4 1 Introduction What can I do to help? Be Informed In order to become an advocate for the industry, it is important to be knowledgeable on the subject. We hope this resource will be a good place to start. Reading articles and reputable blogs and websites will help you understand the industry. You will then be equipped to correct misinformation from unreliable or inaccurate publications. Communicate with Local Officials Before you can actively engage in the political process, you need to know your elected officials. Communicating your concerns to elected officials will help affect change and influence his or her voting and decision making. Vote Voting is one of the most powerful ways to communicate with your elected officials. By voting, you are making the ultimate statement and taking the opportunity to express your opposition to or support of a specific official and his or her policies and actions. Before casting your ballot in local, state or federal elections, make sure you have all the facts. Visit your candidate s forums and websites and other resources to find reliable information regarding his or her views on key issues. Then decide for yourself and make your voice heard by voting. Speak Up Lots of people are talking, but few are discussing accurate information about the issues facing the industry. Pass along this toolkit and allow it to educate others. Being proactive in conversations will help dispel misinformation about the industry and help educate others about the facts. Seek Opportunities Look for opportunities to be heard, such as neighborhood associations and church groups. Encourage friends and family members to do the same and find venues where they can share this message. If you have teenagers or college-age children, educate them and ask them to share this information on college campuses and other appropriate platforms. I ve been with SM Energy for nearly three decades, and have seen firsthand that this is a company with strong values. I m honored to have grown my career here, and am proud that my son has chosen to start his career with SM Energy, as well. Marilee Day, Planning Systems and Data Alignment Manager 6 7

5 2 About SM Energy SM Energy, founded in 1908, is a company with a longstanding principled approach to doing business. Our company values drive our behavior building open, honest and transparent relationships with our stakeholders. As an independent exploration and production company with operations across North America, it is our above-ground assets our people who set us apart from other companies. About SM Energy We are passionate about what we do and committed to doing our jobs the right way. That means we focus on operating every job site safely and in a manner that respects the environment and minimizes our footprint. We treat people the way we want to be treated fairly, and with respect. We, at SM Energy, are proud to contribute to the revitalization of the oil and gas industry and the expanding supply of crude oil and natural gas, which is reviving the United States economy and making this country more energy independent. We take our role in this very seriously. We strongly believe our values, commitment to excellence, flexibility and experience give us the edge, and the resilience to continue our long-term success as a strategic player in the energy industry. 8 9

6 10 Mission Values Community Involvement Our mission is to create shareholder value by capturing and developing resource plays in onshore North America. We accomplish this by establishing and actively maintaining relationships with all stakeholders built on trust and open dialogue and by ensuring that our values drive our behavior. At SM Energy we take very seriously the manner in which we conduct our business. We strive to be recognized as an employer, partner and customer of choice, and to: conduct our business with only the highest ethical standards promote the health and safety of everyone working at our facilities protect the environment support the communities where we live, work and operate provide a rewarding and productive work experience for our employees We, at SM Energy, are dedicated to enriching the communities where our employees live, work, and operate. We believe that when our communities thrive, so does our business. In honoring this core value, our employees are passionate about serving their communities. Giving back both personally and financially is an integral part of how we do business. Having been affiliated with SM Energy for nearly 50 years, I have seen decades worth of solid leadership and meaningful values that only continue to strengthen as the company grows. Bill Lagos, SM Energy retiree Fast Facts About SM Energy founded in 1908 became a public company in 1992 traded on the NYSE (symbol: SM) since 2002 formerly known as: St. Mary Land and Exploration Company name changed to SM Energy in 2010 headquartered in Denver, CO more than 800 employees operating out of four regions with regional offices in: Billings, MT; Houston, TX; Midland, TX; Tulsa, OK market capitalization of $5.6 billion as of year end 2013 Billings Denver Permian (Wolfcamp) (Bone Springs) Williston (Bakken) (Three Forks) Powder River (Frontier) (Shannon) (Sussex) Tulsa Midland (Woodbine) South Texas (Eagle Ford) (Haynesville) 2 SM Energy Arkoma (Woodford) Houston 11

7 3 Hydraulic Fracturing The Path to Energy Independence Hydraulic fracturing is an important and common practice that is used to stimulate the production of hydrocarbons from tight formations. SM Energy leverages hydraulic fracturing techniques and technology in many of its operations as a highly effective, efficient and environmentally safe way to extract resources. Hydraulic fracturing has been used in the oil and gas industry since the 1940s, and has been employed in more than a million wells to date. This technology provides access to otherwise inaccessible natural gas and oil deposits present in shale and other tightly compacted formations. This technology has allowed the United States to move towards energy independence and surpass Russia as the #1 oil and natural gas producing nation in the world. Hydraulic Fracturing This process is a safe, environmentally sound and proven technology

8 Hydraulic Fracturing Process Hydraulic fracturing involves pumping a mixture of mostly water, sand and a relatively small proportion of special purpose chemical additives into deep underground rock formations. Pumping this mixture at high pressures creates a network of hairline fractures (less than 1mm wide and more than 400 feet from the horizontal well bore) within the rock to permit the extraction of oil and natural gas. Wells are typically drilled to depths between 4,000 and 14,000 feet, which are far below groundwater aquifers that generally occur at depths of less than 500 feet. Get to Know Fracturing Fluid Get to Know Get to Know Fracturing Fracturing Fluid Fluid Get to Know Fracturing Fluid Get to Know Fracturing Fluid The fluid from the hydraulic fracturing process is nearly 99.5 percent water and sand. The other.5 percent is comprised of additives which can also be found in common household items: Get to Know Fracturing Fluid 3 Hydraulic Fracturing.5% chemical additives Protection Fracturing Fluids To add an extra measure of safety for groundwater protection, multiple steel casings are inserted deep into the ground and then fully cemented into the wellbore. The casings, cement mixture, exact placement specifications and entire cementing process is governed by state regulations and industry standards. The steel casing protects aquifers (permeable rock that contains or transmits groundwater) from coming into contact with any material inside the wellbore, while the cement provides an additional protective barrier. More than 99 percent of the typical fracturing fluid mixture is water and sand. The rest is a blend of highly diluted special-purpose chemicals that are frequently used in common consumer products. The most common is a gel made from the guar bean, which is commonly used in municipal water treatment processes and also in the food industry to thicken processed foods such as ketchup and ice cream. A Bean that Turns Water into Gel Powder made from the bean of the relatively unknown plant grown in India and Pakistan can quickly turn water into a very thick gel. The beans are typically used to thicken sauces and processed foods such as ice cream and ketchup. Now, exploration and production companies and their contractors who need high-viscosity water to extract oil and natural gas from tight rock formations are buying up guar beans. Get to Know Fracturing Fluid Source: API Sodium Chloride Table salt Guar Gum Used in ice cream Sodium/Potassium Carbonate Used in detergent.5% Ethylene Glycol Used in household cleaners Borate Salts Used in cosmetics Isopropanol Used in deodorant 9.5% sand 90% water

9 A Few Weeks of Work Creates Decades of Energy The drilling and hydraulic fracturing techniques used to access oil and natural gas trapped in shale rock only accounts for a tiny fraction of the lifespan of a typical well. 1 Site Preparation 7-14 days depending on pad size On site: construct roads to the well site clear the surface for the well pad average pad space is 5 acres 2 Drilling 5-10 days for vertical wells days for horizontal wells On site: secure drill rig use fresh water and bentonite clay to drill the well install casing and cement conduct pressure testing and logging remove drilling equipment 3 4 Hydraulic Fracturing 2-10 days On site: hydraulic fracturing crews pump mixture of pressurized water, sand and a specifically formulated fracturing compound into each well crews remove pumps and trucks Production and Reclamation up to 40 years production On site: restore surfaces not used for operations back to original conditions ongoing facility operations and monitoring Benefits 3 Hydraulic Fracturing Hydraulic fracturing has not only allowed the United States to access previously unreachable energy resources, it has also significantly decreased the amount of surface area impacted in the drilling process. The average well site today is 30 percent smaller than it was in 1970, and an average well can now access up to 60 times more below-ground area than previously possible. I m fortunate to work for a company that values its employees and their contributions. SM Energy views each employee as an asset. Tina Benedict, Sr. Lease Analyst 16 Source: oilandnaturalgasofcolorado.com 17

10 3 Hydraulic Fracturing Well Construction Oil and natural gas wells are constructed to provide a shield between energy production and the environment. To help ensure safety, these wells are constructed with multiple layers of steel piping, called casing, that is cemented into place. Preparation for Drilling These layers of steel and cement create an effective barrier between energy production and underground water supplies. Before a company drills a well, geologists and engineers study the size, structure and thickness of the rock formations to scientifically determine how and where drilling should take place. Producers must obtain information Keeping on the Water depth and Safe location of all freshwater zones to ensure that protections are in place. Producers About 10 inches of concrete must file for all necessary state, federal, and local permits. Producers then have the opportunity to engage nearby residents and local governments and steel to share layers information shield and listen to and address concerns prior to beginning operations. underground aquifiers. 1,000 ft 2,000 ft Keeping Water Safe Concrete and steel layers, approximately 10 inches thick, shield underground aquifers. Lifespan of a Drilling Project Bringing a well into production requires multiple stages including transporting equipment, well pad construction, and completion. The drilling rig and related equipment are only placed on the site temporarily and are removed when the well is finished. Once completed, the production area is approximately 125 feet by 425 feet and all of the surrounding A land typical is then well returned reaches to pre-drilling 6,000 feet or conditions and the landscape is reclaimed. more The well below that remains the surface can now that s produce for as long as 40 years. farther than a mile. Horizontal drilling can help these wells stretch several thousand feet through shale buried deep below. 3,000 ft 4,000 ft Below the Surface A typical well reaches 6,000 feet or more below the surface that is farther than a mile or 20 Statues of Liberty stacked on top of one another. Horizontal drilling can help these wells stretch several thousand feet through shale buried deep below. 20x It s very clear that relationships matter to SM Energy. The transparency and ease of communication we are able to have with them says a lot about the way they do business. Keeping Water Safe David and Virginia Ceynar, Dustin and Sara Ceynar, About 10 inches of concrete Landowners and steel layers shield underground aquifiers. 5,000 ft 6,000 ft Shale Fractures Hairline fractures reach into the rock deep below the surface, allowing natural gas to be drawn to the well head

11 4 Water Water is vital to everything. Its management and protection is essential to our industry and our communities. The primary use for water in modern oil and natural gas development is in the drilling and completion phases. During drilling, water is used to cool the drill bit and provide a mechanism to bring drill cuttings to the surface. Water is also used for hydraulic fracturing, which pumps water down the wellbore under high pressure to create hairline fractures (usually no more than 400 feet long) so that oil and natural gas can be extracted. Water 20 21

12 4 Water Drinking Water Drinking water aquifers (permeable rock containing groundwater) are typically around 500 feet beneath the earth s surface. The oil and natural gas bearing rock formations that are targeted for production are located between 4,000 and 14,000 feet below the surface. Production areas are often separated from drinking/groundwater by a mile or more of solid, impermeable rock. Recycling Water In some instances, the water used in hydraulic fracturing can be recycled. Both flowback and produced water can be recycled for use in future operations. The water must be treated to render it reusable. The treatment process involves removing metals, suspended solids, bacteria, and iron sulfides. Water Amount The amount of water used in hydraulic fracturing (particularly in shale gas formations) may appear substantial (135 billion gallons a year in the United States), but it is significantly less than other water uses such as: This natural barrier helps prevent hydraulic fracturing fluids from accessing potable water supplies. Along with the natural barrier and multiple layers of steel piping, called casing, that is cemented into place, there are numerous other protective measures. These include liners under well pads, rubber composite mats under rigs, storage tanks with secondary containment measures and additional barriers to control and redirect any potential runoff at the site. Operating personnel are also trained in the safe and proper transfer and containment of all fluids and materials. agriculture (32,850 billion gallons a year) public supply (44,000 billion gallons a year) mining (4,000 billion gallons a year) Water Sources Sources of water used in hydraulic fracturing are regulated by multiple local, state and federal agencies. These sources vary by asset and include: leased or purchased from municipalities transferred or leased as water rights, such as agricultural water rights river basin or non-tributary groundwater produced water (non-tributary) 22 It s important that our industry realizes that we have a social contract with not only our stakeholders, but also with energy consumers across the country. SM Energy s integrity assures that we ll perform at the highest standards and always do the right thing. Ryan Sullivan, Sr. Operations Engineer 23

13 Water Use All shale gas wells drilled and completed in the U.S. in 2011 consumed a combined total of approximately 135 billion gallons of water. That s only 0.3 percent of total U.S. freshwater consumption. A typical hydraulic fracturing job requires about four million gallons of water, spread out over several days. Compare that to: Water use per industry: 7.5% Industrial 85% Agriculture 7.5% All Other: Recreation Large Industry Thermoelectric Power Hydraulic Fracturing Snow Making Coal, Natural Gas, Uranium and Solar Development 4 Water Source: Anardarko Toolkit per: Colorado Oil & Gas Conservation Commission 2010 In 2015, the COGCC projects that water usage related to hydraulic fracturing is expected to be slightly more than one-tenth of 1% of total water used. Water use per industry: Water use per industry: 7.5% Industrial 7.5% Industrial 85% Agriculture 85% Agriculture All other industries 7.5%: All other industries 7.5%: Recreation Large Recreation Industry Thermoelectric Large Industry Power Hydraulic Thermoelectric Fracturing Power Snow Hydraulic Making Fracturing Coal, Snow Natural Making Gas, Uranium & Coal, Solar Natural Development Gas, Uranium & Solar Development Four million gallons is about 1.3 percent of the amount of water used in car washes every day. Corn farmers use about the same amount on 7.5 acres in a season. New York City consumes four million gallons of water every 6 minutes. Just one of the 15,889 golf courses across the United States uses four million gallons of water in less than one summer month. 24 Source: Energyindepth.org 25

14 5 Environment When you look at the big picture, hydraulic fracturing has the potential to benefit the environment by limiting the surface area of drilling pads and providing a cleaner fuel source that reduces air emissions. Natural gas produces fewer carbon emissions than all other traditional fuel sources. In fact, we could reduce total air pollution by nearly 30 percent if we expanded the use of natural gas fueled vehicles. In addition, hydraulic fracturing combined with horizontal drilling limits land disturbance by allowing multiple wells to be located in a single location. And, after the well is completed, the surrounding land is returned to pre-drilling conditions and the landscape is reclaimed Environment

15 Air Air emissions from production activities are carefully monitored, managed and reported in accordance with all applicable regulations. Any emissions from oil and gas activity must remain within prescribed state and federal limits to ensure the health and safety of local communities. Natural gas is considered a clean-burning fuel because of its comparatively low emissions of carbon dioxide, sulfur oxides, and nitrogen oxides. The industry has made considerable strides in reducing emissions through voluntary measures, and is working with the EPA to define New Source Performance Standards (NSPS) that will give rise to additional reductions by requiring measures like green completion techniques. These are methods that minimize the amount of natural gas and oil vapors released into the environment when a well is producing during the completion phase. Fewer Emissions with Natural Gas Natural Gas... 5 Environment > Reduces CO 2 Emissions 50% > Reduces NO x Emissions 80% > Virtually Eliminates SO 2 Emissions 99.96% > Virtually Eliminates Particulate Emissions 99.74% > Completely Eliminates Mercury Emissions 100% Our leadership drives us to be best-in-class for health, safety and environmental performance; to optimize use of resources; and to establish positive, long-lasting relationships within the communities where we operate. Shawna Bonini Sr. Production Engineer Convert one heavy-duty waste truck from diesel to natural gas and take the equivalent of 325 vehicles worth of emissions off the road Source: Anadarko Toolkit. Percentages reflect the reduction of emissions when compared to current practices

16 Reducing Surface Footprint 5 Environment Previous Well Spacing Consolidated Well Spacing Multi-Well Pads One of the greatest drilling developments of the last decade is the ability to drill multiple wells per drill pad (or multi-well pads). Traditionally, to drill a single well, Horizontal drilling and directional drilling allow drillers to consolidate gas wells onto one small pad site resulting in as much as a 90 percent reduction in overall surface presence. a company would use a pad or land site for each well drilled. The horizontal drilling process has advanced oil and gas development while significantly reducing land use and environmental impact by allowing for multiple well drilling from a single pad. By confining production to one pad site, companies are able to reduce the number of access roads and pipelines needed to service dozens of wells. Wells are initially drilled vertically from the surface but then branch out underground to tap the gasbearing rock deep below. Conventional vertical drilling requires many wells spaced out over a wide area to effectively produce oil or gas. It s been a pleasure doing business with a company that treats people fairly and with respect. Robert and Marlyn Enerson, Landowners 30 Source: API 31

17 6 Regulatory Compliance Regulatory Compliance The oil and natural gas industry maintains a steadfast commitment to safe and responsible operations to ensure that the public and the environment are protected. Robust state regulations governing hydraulic fracturing already exist where the industry operates. A comprehensive set of state, local and federal laws, in addition to well-defined rules and regulations, address nearly every aspect of exploration and production activity. Specifically, these laws, rules and regulations govern well design, water use, waste management and disposal, air emissions and surface impacts. They also address many other areas including health, safety, location, spacing and operation. State regulation of oil and gas activities pre-dates federal regulation, and is particularly important because it allows laws to be tailored to local concerns and public interests

18 Federal Regulations 6 Regulatory Compliance The following federal statutes and their supporting rules and regulations also serve to help protect environmental health and safety during oil and gas operations: Clean Water Act Safe Drinking Water Act Clean Air Act Emergency Planning and Community Right to Know Act regulates surface water discharge and storm-water run off regulates the disposal of fluid waste far underground sets rules for air emissions from storage tanks, engines, gas-processing equipment and other sources associated with drilling and production activities requires storage of regulated chemicals in certain quantities to be reported annually to local and state emergency responders Occupational Health and Safety Act Migratory Bird Treaty Act Bald and Golden Eagle Protection Act Endangered Species Act sets standards to help keep workers safe, including requiring Material Safety Data Sheets to be maintained and readily available onsite for any chemicals used by workers at that location sets rules for the protection of migratory birds protects our national symbol, the bald eagle designed to protect critically imperiled species from extinction 34 35

19 7 Economic Impact The economic impacts of developing shale gas resources are significant and revolutionary. With oil and natural gas production increasing in the United States, we have a tremendous opportunity to reduce our dependency on sources of energy from foreign nations and improve our balance of trade. The cascading impact of energy independence will touch every industry and affect all of our lives while securing a stable and reliable economy ultimately protecting the future of our nation. Economic Impact 36 37

20 7 Economic Impact Job Creation Development of oil and natural gas shale resources supported more than 9.8 million Taxes Oil and natural gas companies paid $1.1 billion in revenues to state and local jobs and the number of direct and indirect jobs is constantly increasing. Affordable, governments, school districts and special districts in 2012, and more than domestic oil and natural gas is essential to rejuvenating the chemical, manufacturing $600 million in property taxes accounting for nearly 9 percent of all property and steel industries. The American Chemistry Council determined that a 25-percent taxes paid in increase in the supply of ethane (a liquid derived from shale gas) could add over 400,000 jobs across the economy, provide over $4.4 billion annually in federal, state and local tax revenue, and spur $16.2 billion in capital investment by the chemical industry. They also note that the relatively low price of ethane would give United States manufacturers an essential advantage over many global competitors. Similarly, the National Association of Manufacturers estimated that the high recovery of shale gas and lower natural gas prices will help United States manufacturers employ 1,000,000 workers by 2025, while lower feedstock and energy costs could help the manufacturing Taxes generated from oil and natural gas development support: public schools state recreational and wildlife resources road construction firefighter districts public safety agencies other public infrastructure sector reduce natural gas expenditures by as much as $11.6 billion by Economics Fourth Quarter 2013 Earnings by Industry (cents of net income per dollar of sales) Computers 19.9 Beverage & Tobacco 16.5 Electrical 12.0 Chemicals states have seen employment rise by 50% in the last decade from oil and natural gas activity $2.5 trillion in state and federal tax revenue expected by 2035 Effective Tax Rates Among Industries 44.6% Oil and Gas 37.7% Retail 34.9% Health Care Provider Services Machinery 9.4 Paper 9.4 All Manufacturing 8.6 Apparel &v Leather 7.6 Plastics 6.9 Motor Vehicles 6.6 Food 6..6 Oil & Natural Gas 6.3 Textiles million jobs supported by oil and natural gas industry $1,200 increase in household income due to lower natural gas prices $85 million generated daily from industry royalties, lease sales and taxes U.S. oil and natural gas companies pay considerably more to the federal government than the average manufacturing company. In 2012, the effective income tax rate for the oil and natural gas industry averaged 44.6% compared to 25.6% for other S&P industrial companies. 32.6% Utilities 25.6% Computers and Peripherals 23.1% Media 38 Iron & Steel 2.6 Sources: Based on company filings with the federal government as reported by U.S. Census Bureau for U.S. manufacturing industries and Standard & Poor s Research Insight for Oil and Natural Gas Source: Anadarko Toolkit 21.3% Pharmaceuticals 17.8% Insurance 15.8% Industrial Conglomerates 39

21 8 Oil and Gas in Everyday Life Oil and natural gas fuels our modern lives, allowing us a lifestyle that would not be possible without this resource. In fact, more than 6,000 products used in everyday life contain components made out of petroleumbased resources, such as plastic and rubber. Everyday Life 40 41

22 Without oil and gas, little league would not be the same. Missing: batting helmets catchers masks catchers pads grip tape cleats sunglasses home plate 42 Working in this industry really is a noble profession. With oil and gas comes transportation, manufacturing, power all those foundational things that keep society moving forward. Stephanie McCutcheon, Records and Information Management

23 Without oil and gas, little league would not be the same. Missing: batting helmets catchers masks catchers pads grip tape cleats sunglasses home plate Working in this industry really is a noble profession. With oil and gas comes transportation, manufacturing, power all those foundational things that keep society moving forward. Stephanie McCutcheon, Records and Information Management 44 45

24 Without oil and gas, home life would be much different. Missing: cell phones high chairs child s plate many countertops laptops eyeglass frames appliance components 46 SM Energy Company is full of people with incredibly high moral and ethical principles. Each employee is dedicated to supporting the communities where we live and work. Always following through on commitments is simply our way of doing business. Cade Campbell, Landman

25 Without oil and gas, home life would be much different. Missing: cell phones high chairs child s plate many countertops laptops eyeglass frames appliance components SM Energy Company is full of people with incredibly high moral and ethical principles. Each employee is dedicated to supporting the communities where we live and work. Always following through on commitments is simply our way of doing business. Cade Campbell, Landman 48 49

26 Without oil and gas, the operating room would be lacking. Missing: oxygen mask latex gloves equipment tubing many instrument components 50 Working at SM Energy I feel a great sense of satisfaction knowing that I am not only providing for the energy needs of my family and community, but also for fellow citizens across the country. Mark Millard, Sr. Geologist

27 Without oil and gas, the operating room would be lacking. Missing: oxygen mask latex gloves equipment tubing many instrument components Working at SM Energy I feel a great sense of satisfaction knowing that I am not only providing for the energy needs of my family and community, but also for fellow citizens across the country. Mark Millard, Sr. Geologist 52 53

28 9 Resources This toolkit is meant to serve as an introductory guide about the oil and gas industry. There are many great resources to deepen your understanding of hydraulic fracturing and the industry as a whole. API.org COGA.org CRED.org energy.gov energyfromshale.org energytaxfacts.com energytomorrow.org fracfocus.org oilandnaturalgasincolorado.com studyfracking.com energyindepth.org 54 55

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