Drilling advances

Huddled within the Apennines mountain range, and surrounded by the Tyrrhenian, Ionian and Adriatic Seas, the Basilicata region of the Italian peninsula is a postcard of rolling olive groves and medieval villages. It also is home to Eni’s eight-year-old Val’d Agri, Europe’s largest onshore oil development, and the centerpiece of a territory with untapped reserves so abundant that it has come to be known as the Texas of Italy.

However, despite its potential oil wealth, Basilicata remains an impoverished region, having caught the brunt of the devastating recession that has gripped most of Europe. The region’s unemployment rate is said to be approaching 15%, and, with no active industry to speak of, the job prospects don’t appear to be getting any brighter.  Yet, for years, local officials have refused to issue new drilling rights or take any other measure to encourage production that could help feed starving town coffers. Along with complaints that their region, to date, has not received a fair share of the petroleum take, the local powers-that-be have also bowed to fears that new drilling would harm the environment and tourism.

However, according to the Jan. 13 issue of the Wall Street Journal (WSJ), national and local politicos are doing an about face. With treasuries drained, and the Italian government promising the locals a bigger cut, Basilicata’s civic leaders are now welcoming state-owned Eni, and international operators, with open arms, in the hope of drilling and producing their way out of the economic doldrums. 

According to the WSJ, Italy, which  holds Europe’s third-largest reserve base behind the UK and Norwegian sectors of the North Sea, hopes to double annual production—the Basilicata region figures prominently in that objective. Despite the still-loud environmental protests, Eni and Shell have received development drilling permits to escalate Val’d Agri production from its current 85,000 bopd, while a Total SA, Shell and Mitsui & Co. consortium is investing more than $2 billion to develop the neighboring Tempa Rosa heavy oil field, which is expected to begin production by 2016, at an initial capacity of 55,000 boed. Plans also are underway to open the offshore for leasing.

Example worth heeding. There’s a lesson to be learned here that the Basilicata leaders’ counterparts on either side of the U.S. would do well to heed. Take California, which sits on what has been assessed as the nation’s largest onshore oil reserves, yet getting approval for a new drilling permit has proven to be a taxing and drawn-out exercise.  The geological complexity of the prodigious Monterey/Santos shale notwithstanding, stiff environmental opposition is largely credited with keeping most of the estimated 15.4 billion bbl of technically recoverable reserves off-limits. This, in a state that continues to import much of its oil and where, in recent years, municipal bankruptcy lawyers have done a brisk business.

Move across the country to New York and we see the same situation, if not more so. Though it resides along the fairway of the prolific Marcellus/Utica shale play, New York, led by Gov. Andrew Cuomo, has decided the state is better off without the economic bounties the play is funneling into the bank accounts of Pennsylvania, West Virginia and Ohio. New York is now in the sixth year of a misguided fracing moratorium.

Misguided, because one of the leading voices in the campaign to keep rigs, and frac crews, out of the state has been industry expert Yoko Ono, whose only claim to eminence is that she was married to the late, great John Lennon. Apparently, Cuomo and his legions have fallen in lockstep with Ono’s silly “fracing kills” battle cry. However, I do not recall having ever heard Ono express any similar outrage when the Upper Big Branch coal mine exploded in West Virginia, four years ago, killing 29 miners.

Cuomo’s refusal to even discuss relaxing the moratorium is having economic fallouts, beyond the lost production revenue. The Associated Press reported on Dec. 29 that many operators have decided that they can no longer afford to sit idly by and wait for legislators to come to their senses—they have, instead, decided to take their operations, and their jobs, elsewhere. Brad Gill, president of the Independent Oil and Gas Association of New York, told the AP that its membership had dropped some 20% over the past year. This, despite a state-produced commercial, airing in Texas and elsewhere, touting New York as a cozy, tax-friendly place to do business.

Earlier this month, New York unveiled its long-term energy plan that focuses on the increased use of renewable energy, and, get this, expanding consumption of gas to reduce emissions. Yet, there was no mention in the proposal to lift the ban on fracing that would drive that expansion. Good luck with that one.

The good governor and his cohorts, however, may be getting some push back, courtesy of Mother Nature. New York and much of the eastern U.S. have shivered in near-record low temperatures for much of the winter, creating a gas shortage and driving up heating costs. Not surprisingly, the U.S. Energy Information Administration said the gas price spikes haven’t been nearly as acute in neighboring Pennsylvania.

“There’s no reason why New York cannot be enjoying or benefitting from the economic advantages that the State of Pennsylvania is reaping as a result of the safe, responsible production of natural gas, other than keeping Yoko Ono from screaming at the top of her lungs in a microphone,” Thomas Pyle, president of the Institute for Energy Research, told the conservative Washington Free Beacon website. He went on to label the convergence of record low temperatures and higher natural gas prices as “a teachable moment.”

Indeed, it is.