Business plan and structure
This document contains confidential information. It is disclosed to you for informational purposes only. Its contents shall remain the property of THE NOW CORPORATION and shall be returned to THE NOW CORPORATION when requested.
This is a business plan and does not imply an offering of securities.
Table of Contents
1. Executive Summary 1
Business Opportunity
Product/Service Description
Current Business Position
Financial Potential
The Request
2. Company Background 7
Business Description
Company History
Current Position and Business Objectives
Ownership
3. Products 12
Product Overview
Competitive Analysis
Suppliers and Inventory
Research and Development
4. The Industry, Competition and Market 24
Industry Definition
Primary Competitors
Market Size
Market Growth
Customer Profile
5. Marketing Plan 38
Competitive Advantage
Pricing
Distribution Channels
Promotional Plan
Feedback
6. Operating Plan 60
Location
Facility
Operating Equipment
Suppliers and Vendors
Personnel Plan
General Operations
7. Management, Organization and Ownership 94
Management/Principals
Organizational Structure
Professional Consultants
Ownership and Boards
8. Goals and Strategies 96
Business Goals
Keys to Success
Future Plans
9. Financial Assumptions 97
Assumptions
10. Appendix 100
Income Projection
1. Executive Summary
THE NOW CORPORATION: is a publicly trading company listed on the Pink Sheets Market Platform at www.otcmarkets.com under the symbol "NWPN" was first incorporated in 1993, has changed names at least four times, was once a fully reporting company up to 2001 and the Board Of Directors filed a FORM 15 with the Securities Exchange Commission (SEC) allowing the company to be able to stop filing reports with the SEC.
In March 2013 a new Board of Directors have changed the direction of the company to the oil and gas sector.
The Company signed an Agreement with Drake Gold-OTC Markets- "DKGR" to rework 147 wells on a lease owned by Drake know as the RENSMA LEASE, anticipated cost per well to bring the oil to the surface averaging one barrel of oil per day for each well reworked is $10,000.00.
The Management has calculated once twelve wells are reworked and producing the one barrel of oil per day, will generate enough cash flow from these twelve wells to have the revenue reinvested into the next well until the final 147 wells are reworked and each producing, giving the company a 147 BOPD with a cash flow of over $400,000 poer month.
1.1 Business Opportunity
The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 147 oil and gas wells with an option to acquire an additional 40 oil and gas well locations for drilling and completion in Venango County, Pennsylvania.
There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the147 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 147 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 147 oil and gas well locations, that the Company will be profitable.
The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada. There is no assurance that we will be successful in raising the necessary funds to acquire any of producing oil and gas properties.
1.2 Product/Service Description
STRATEGY
We aspire to be an independent oil and gas company in North America and to provide our shareholders with returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flows, earnings, production and establish reserves. We will do this by:
1.Generating cash flow
2.Securing financing to acquire our planned acquisitions
3.Exercising capital discipline
4.Ensuring financial strength
5.Investing in oil and gas properties with strong full-cycle margins.
OVERVIEW
The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 147 oil and gas wells with an option to acquire an additional 40 oil and gas well locations for drilling and completion in Venango County, Pennsylvania. There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 147 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.
The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada. There is no assurance that we will be successful in raising the necessary funds to acquire any of producing oil and gas properties.
The implementation of our business plan will require significant capital. We do not have this capital and as a result, we will require additional financing to acquire and develop our leasehold obligations. We may use debt or equity to fund our ongoing operations. There can be no assurance that any financing will be available, and if available, will be on terms and conditions acceptable to the Company. If we rely on equity financing, our shareholders will experience significant dilution. If we rely on debt financing, we may not be able to satisfy our debt obligations.
1.3 Current Business Position
Identification of leasehold interests
The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.
The Company may acquire the leaseholds in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.
A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.
The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.
It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.
Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.
When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.
Depending upon jurisdiction of the leasehold, the state can force a "pooling" of the oil and gas interests of a landowner with the interests of other landowners where the size or condition of lands does not allow the neighbor to find a drill site while respecting distance limits from property lines. A mineral owner has five options in the context of forced pooling. They can:
1.Lease their mineral interest.
2.Sell their mineral interest.
3.Participate materially in the development of the gas field.
4.Be a non-consenting owner.
5.Protest forced pooling
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
MISSION STATEMENT
·To become a leader in providing energy, through acquisition and diversification.
·To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.
·To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.
1.4 Financial Potential
Under current SEC standards, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that have been field-tested and have demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
In order to establish reasonable certainty with respect to our leases, we would have to employ technologies that have been demonstrated to yield results with consistency and repeatability. The technical data used in the estimation of proved reserves include, but are not limited to, electrical logs, radioactivity logs, core analyses, geologic maps and available downhole and production data, seismic data and well test data. Generally, oil and gas reserves are estimated using, as appropriate, one or more of these available methods: production decline curve analysis, analogy to similar reservoirs or volumetric calculations. Reserves attributable to producing wells with sufficient production history are estimated using appropriate decline curves or other performance relationships. Reserves attributable to producing wells with limited production history and for undeveloped locations are estimated using performance from analogous wells in the surrounding area and technical data to assess the reservoir continuity. In some instances, particularly in connection with exploratory discoveries, analogous performance data is not available, requiring us to rely primarily on volumetric calculations to determine reserve quantities. Volumetric calculations are primarily based on data derived from geologic-based seismic interpretation, open-hole logs, and completion flow data. When using production decline curve analysis or analogy to estimate proved reserves, they would be limited to estimates to the quantities of oil and gas derived through volumetric calculations.
The accuracy of any reserve estimate is a function of the quality of available geological, geophysical, engineering, and economic data, the precision of the engineering and geological interpretation and judgment. The estimates of reserves and future cash flows are based on various assumptions and are inherently imprecise. Even though these estimates may be reasonable and logical, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. Also, the use of a discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which the oil and natural gas industry in general are subject.
The potential is to have 147 wells producing one barrel of oil per well per day (minimum) estimating 147 BOPD or $400,000 per month or $4.8 million per year on these 147 wells.
1.5 The Request
Our business is capital intensive. Our ability to grow is dependent upon favorably obtaining outside capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve profitability this could cause any equity investment in the Company to become worthless.
We have no ongoing revenues to satisfy our ongoing liabilities. Our auditors have issued a going concern opinion. Unless we secure equity, debt financing or Joint Venture partners, of which there can be no assurance, or identify a profitable acquisition candidate, we will not be able to continue any operations.
Plan of Operation For Fiscal Year 2013
We will attempt to continue to source equity or debt financing, or Joint Venture partners for our operating costs and for our oil and gas well drilling programs or attempt to identify a profitable acquisition candidate. Our REF agreement with Diesel Enterprises Inc LLC for $190,000.00 payable to The Now Corporation starting October 15th 2013 at $10,550.00 per month for 18 months equalling a payout of $190,000.
This will take time to become effective. There is no guarantee that the Company will be successful in receiving all payments from Diesel and if this fails Diesel will transfer 1.9 milliion free trading shares from Diesel to The Now Corporation. We have had discussions with several companies and individuals for funding and/or Joint Ventures. However, we have not come to terms with any company or individual as of September 30, 2013. We will attempt to finance our operating expenses with additional debt or through equity financing.
The Company is planning a S-1 Registration Statement to register shares and file an offering of $500,000 or more where shares purchased through this offering will be free trading shares immediately.
2. Company Background
On April 12, 2004, Para Mas acquired the assets and business operations now belonging to NOW as further described in this prospectus under the business description of NOW. Those business operations represented a business that Mr. Whiting had been developing for five years under other names such as AmeriGroup and Itzyourmall. Since April 12, 2004, Mr. Whiting has put forth diligent effort in his capacity as the CEO of Para Mas to enable the common shares of Para Mas to trade on the over the counter market in the United States so that the common shares held by the shareholders of Para Mas would represent a liquid investment and so Para Mas shareholders could market their shares if they ever so desired. However, a trading market for the Para Mas shares has not developed to date. On or about December 1, 2006, Para Mas sold its assets and business operations to NOW, a corporation in which Mr. Whiting is the majority shareholder. The purpose for the sale is that Mr. Whiting believes there is a better opportunity for NOW to obtain a trading market for its common shares than for Para Mas to obtain a trading market for its common shares. The sale price for the assets was $10,000,000. This amount was Mr. Whiting’s good faith estimate of the value of thoseassets based upon his believe in the value of the assets and the future earning capacity of those assets. NOW gave Para Mas its note for $10,000,000 as consideration for the assets.
Mr. Whiting has been the primary developer of our business since its inception in 1999. He is an entrepreneur having both a legal and a management background. Mr. Whiting graduated from BYU Law School with a Master in Public Administration in 1988. Mr. Whiting served as Associate Legislative Counsel from 1988 to 1990. As Associate Legislative Counsel, Mr. Whiting assisted the Utah State Legislature in legal research and in drafting language for roposed bills during the legislative sessions. He also served as counsel to the Administrative Rules Review Committee which met when the Legislature was not in session. The Administrative Rules Review Committee was a Legislative oversight committee that oversaw the Administrative Rulemaking process for the state of Utah. Mr. Whiting got the idea to create a CD-ROM law disc while serving at the Utah State Legislature, which eventually led to the creation of the NOW loyalty-rewards discount card program. Mr. Whiting’s main duties involved legal research. His research was done without the aid of computer assisted research. When Mr. Whiting approached his employer about subscribing to an on-line computer assisted research service, he was told that it was too expensive. It was then that Mr. Whiting decided he would create an affordably priced CD-ROM product. He resigned as Associate Legislative Counsel and formed a scanning company called MobileScan which was his primary business pursuit from 1994 to 1998. He had three objectives: first, he wanted to create a low priced product; second, he wanted to create a product with a better interface and more user friendly to the end-user; and third, he wanted to help drive customers to the users of his product. To achieve the third objective, he created a savings mall where he would advertise attorneys using his CD-ROM product. All that was required was that they needed to offer some sort of a discount on their services. This savings mall was originally called Amerigroupmall.com, but evolved into the NOW concept after several years of selling and analyzing the market. Mr. Whiting also currently has other business pursuits including real estate development and serving as CEO of an internet game development company.
As of September 30th 2013 the debt his been writen off to zero.
2.1 Business Description
We are an independent oil and natural gas development and production company. Our basic business model is to increase shareholder value by finding and developing oil and gas production through the development activities, which include drilling offset oil and gas wells and re-entering oil and gas wells, that have historical oil and gas production or are currently producing oil and gas, and selling the production from these, worked over wells at a profit. To be successful, we must, over time, need to complete our goal of raising sufficient funds to drill offset wells or complete development programs over the next year and then sell the resulting production at a price that is sufficient to cover our operating expenses, administrative costs and interest expense, plus offer us a return on our capital investment.
NATURE OF BUSINESS
The Company is engaged primarily in the acquisition, work-over development, and production of oil and gas properties. Such activities are concentrated in North American onshore, primarily in the United States in the State of Pennsylvania. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. We will be scouting for additional properties in and around Texas, Oklahoma, Pennsylvania, Kansas and in Canada.
OIL AND GAS DEVELOPMENT - WORKOVER PROGRAM
The Company’s development - workover program consists of re-entering or completing a workover on an oil or gas well that has a historical evidence of oil or gas production or that is currently producing oil and gas at a fractional output compared to when the oil and gas wells first came into production. Workover activities include one or more of a variety of remedial operations on a producing well or inactive well to try to increase production. All costs of a workover are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.
Our common stock is quoted on the OTC Markets ("OTCBB") under the symbol "NWPN." The shares of our common stock which maybe registered are being offering for sale by the Selling Stockholder at prices established on the OTCBB during the term of this offering. On September 30th , 2013, the closing bid price of our common stock was $0.045 per share on the OTC Pink Sheets. These prices will fluctuate based on the demand for our common stock.
2.2 Company History
ASSET PURCHASE:
On December 1, 2006 the company purchased 100% of the business operating assets of Para Mas Internet, Inc., (Para Mas) a Nevada corporation in exchange for a $10,000,000 promissory note.
The Company has recorded the assets purchased in excess of the note as contributed capital. A summary of the calculated value the company placed on the purchased assets and a detailed description of the methodology used in their valuation follows: Office Supplies $ 2,444 Furniture and Equipment 87,273 Web-Site Development 531,624 Co-Branders 351,560 Listers 6,650,000 Member List 367,720 Territories 2,336,717Total $10,327,338.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock, par value $0.001 and on December 31, 2006 prior to its reorganization on July 31, 2006 had 354,360 shares issued and outstanding. On July 31, 2006, the Eight Judicial District Court of Clark County, Nevada appointed a custodian and directed that 200,000,000 shares be issued as controlling interest. On November 21, 2006 the Company executed a 1:1000 reverse stock split in anticipation of its sale. All share amounts herein are adjusted to give effect to the stock split. On December 7, 2006 the Company issued 300,000,000 common shares to its founder on a promissory note and accordingly recorded as a subscription receivable of $300,000. On December 18, 2006 the Company issued 5,000,000 common shares in a 504 offering for a subscription receivable of $1,000,000.
2.3 Current Position and Business Objectives
The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.
The Company may acquire the leaseholds in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.
A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.
The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.
It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.
Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.
When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
MISSION STATEMENT
·To become a leader in providing energy, through acquisition and diversification.
·To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.
·To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.
2.4 Ownership
THE COMPANY CONSISITS OF:
Shares Issued and oustanding: 305,554,735 513 shareholders
Management, Insiders: 219,271,735 25 shareholders
Restricted Shares: 300,554,000
Free trading shares on the street (Tradable) 5,000,000
3.4 Research and Development
The Pennsylvania oil rush was a boom in petroleum production which occurred in northwestern Pennsylvania from 1859 to the early 1870s. It was the first oil boom in the United States.By the end of 1859 wells sprouted throughout the oil country. Those pioneer wells produced about 4,500 barrels that year. In 1860 wells in northwestern Pennsylvania produced several hundred thousand barrels and by 1862 production reached three million barrels. The nation’s oil bonanza had begun, and huge fortunes would soon be made.
But not by Colonel Drake. He failed to act quickly to control production and he had not bought much land in the area. In 1860 the Seneca Oil Company severed its connection to Drake, paying him $1,000 for the use of his name on oil barrels.
By the end of the Civil War Drake had lost all his money and his health. He moved first to Vermont and then to New Jersey because he thought the sea might improve his health. In the late 1860s old acquaintances from the oil industry raised $4,000 for Drake. In 1873 the Pennsylvania legislature allotted Drake $1,500 annually. In November 1880, after years of bad health and constant pain, Drake died poor and a pensioner, never having benefitted from “discovering” oil in Titusville, Pennsylvania, on August 27, 1859.
Swelling production of Pennsylvania oil led to a rapid drop in price, which drove many producers out of business but which also drove consumers away from other sources of illumination, allowing Pennsylvania oil to corner the market.
The cycle of boom and bust plagued Pennsylvania oil production until John D. Rockefeller organized Standard Oil and imposed order on the industry in the 1870s. In the next decade Thomas Edison’s light bulb and electrification would replace kerosene, threatening the dominance of oil. The petroleum industry would be saved, in turn, by the coming of the automobile and the need for gasoline, which would be supplied by other areas of production, particularly Texas, and then foreign sources. But in the latter part of the 19th century, Pennsylvania oil dominated the market, pointing the way to America’s eventual reliance on petroleum.
Critical Issues Facing the USA:
There are several critical issues facing this country concerning our ENERGY NEEDS.
Issue Number One:
America needs more production from its domestic oil and gas reserves in order to forestall additional increases in, and further reliance on, dependence on foreign oil and gas imports. Imported oil now is over 60% of our daily use in this country.
Issue Number Two:
America's 650,000 oil and gas "stripper wells" represent the fastest and most dependable source to increase production. On average, they produce over 25% of the oil (29% in 2001!) and 8% of the natural gas used daily in this country.
Issue Number Three:
There is a huge amount of "sour" natural gas that can be produced and treated to produce a higher quality natural gas. "Sour gas" is so called because it contains hydrogen sulfide. Sour gas is present in four large oil and natural gas formations in Texas. Approximately 13% of all natural gas reserves in the U.S. may be prone to hydrogen sulfide contamination. The demand for increased production for this abundant sour gas will grow significantly in the future.
Issue Number Four:
Natural gas is the fuel of choice for the future. Yet, trillions of cubic feet of gas in Texas alone could be lost through well-abandonment by 2010 if someone, does not acquire and restore marginal gas wells. This is a huge resource; it should not be wasted.
The cumulative impact of stripper well production plays a significant role in the U.S. economy. In the last ten years, 4.3 billion barrels of oil equivalent has been achieved from these marginal producers. By contrast, the stripper wells abandoned and lost during this same time cost more than 22,000 jobs and $4 billion in economic activity. Most people do not know that you can't just turn an oil well on and off . One-sixth of our natural gas production comes from associated oil production. If you lose one, you lose the other. In the last ten years, over 175,000 oil and gas wells have been abandoned or plugged. The American oil and gas industry has a vital interest in maintaining and enhancing the production of these stripper wells. To that end, the industry and the Department of Energy have a number of studies under way at universities and laboratories around the country. Here in Texas, the Southwest Research Institute in San Antonio and the Petroleum Engineering Departments at the University of Houston and Texas A&M University all have received DOE grants for studies of enhanced oil and gas recovery methods. Louisiana State University and the University of Oklahoma have also received major grants to study enhanced oil and gas recovery. These are important matters for our domestic energy industry and our national welfare.
Nearly two out of every three barrels of oil ever discovered in the United States still remain trapped underground after conventional recovery operations. This staggering amount of remaining oil-approximately 200 billion barrels-can be one of America's best hopes for greater energy security.
4. The Industry, Competition and Market
Critical Issues Facing the USA:
There are several critical issues facing this country concerning our ENERGY NEEDS.
Issue Number One: America needs more production from its domestic oil and gas reserves in order to forestall additional increases in, and further reliance on, dependence on foreign oil and gas imports. Imported oil now is over 60% of our daily use in this country.
Issue Number Two: America's 650,000 oil and gas "stripper wells" represent the fastest and most dependable source to increase production. On average, they produce over 25% of the oil (29% in 2001!) and 8% of the natural gas used daily in this country.
Issue Number Three: There is a huge amount of "sour" natural gas that can be produced and treated to produce a higher quality natural gas. "Sour gas" is so called because it contains hydrogen sulfide. Sour gas is present in four large oil and natural gas formations in Texas. Approximately 13% of all natural gas reserves in the U.S. may be prone to hydrogen sulfide contamination. The demand for increased production for this abundant sour gas will grow significantly in the future.
Issue Number Four: Natural gas is the fuel of choice for the future. Yet, trillions of cubic feet of gas in Texas alone could be lost through well-abandonment by 2010 if someone, does not acquire and restore marginal gas wells. This is a huge resource; it should not be wasted.
STRIPPER WELLS: WHY BOTHER?
American energy is increasingly supplied by what we call marginal oil and natural gas wells, also known as "stripper wells" (wells that produce less than 15 barrels of oil per day or less than 60 thousand cubic feet of natural gas per day).
Each barrel of oil and each MCF of gas produced domestically adds to the economic vitality of the United States, reduces energy dependency and keeps dollars from flowing abroad. It also produces considerable tax revenue to states, counties and localities. In 2001, production from stripper wells had a market value of $12.7 billion.
There remain some 300 billion barrels of oil in the United States today. If only 10% of this oil could be recovered through new recovery methods, such as the ones AEDC offers, it would make a huge difference to this country. For example, even the most aggressive estimates of the oil in the Artic Wildlife Refuge are about 10 billion barrels. And, if we started drilling today, we would not see any oil for almost 10 years. Stripper wells, by contrast, already exist, have proven production histories, production equipment, and transportation facilities in place. Why wouldn't you elect to exploit that capability now?
Twenty-eight (28) states have stripper oil wells. Texas, Oklahoma, Kansas and Ohio are the four with the largest number. Texas, alone, has slightly over 126,000 stripper oil wells.
Twenty-eight (28) states have stripper gas wells. West Virginia, Pennsylvania, Ohio and Texas are the four with the largest number. West Virginia has over 36,000 such wells; Texas has over 29,000 stripper gas wells. In 2004, Texas totals over 14,000 abandoned, orphan wells according to the Texas Railroad Commission published report.
The cumulative impact of stripper well production plays a significant role in the U.S. economy. In the last ten years, 4.3 billion barrels of oil equivalent has been achieved from these marginal producers. By contrast, the stripper wells abandoned and lost during this same time cost more than 22,000 jobs and $4 billion in economic activity.
Most people do not know that you can't just turn an oil well on and off . One-sixth of our natural gas production comes from associated oil production. If you lose one, you lose the other. In the last ten years, over 175,000 oil and gas wells have been abandoned or plugged.
The American oil and gas industry has a vital interest in maintaining and enhancing the production of these stripper wells. To that end, the industry and the Department of Energy have a number of studies under way at universities and laboratories around the country. Here in Texas, the Southwest Research Institute in San Antonio and the Petroleum Engineering Departments at the University of Houston and Texas A&M University all have received DOE grants for studies of enhanced oil and gas recovery methods. Louisiana State University and the University of Oklahoma have also received major grants to study enhanced oil and gas recovery. These are important matters for our domestic energy industry and our national welfare.
Nearly two out of every three barrels of oil ever discovered in the United States still remain trapped underground after conventional recovery operations. This staggering amount of remaining oil-approximately 200 billion barrels-can be one of America's best hopes for greater energy security.
OIL CITY, Pa. -- The deep gas play may be ramping up Pennsylvania's historic oil and gas patch, but it is putting a big hit on the traditional shallow oil drilling and production sprinkled profusely throughout the northwestern counties.
"The Marcellus and Utica shale drilling is affecting shallow oil operators," said Ray Stiglitz, owner of Allegheny Well Services Inc. and a longtime oilman. "The question is: why not more oil drilling when PennGrade is nearly at $100 a barrel? There are a lot of reasons and they involve what is happening because of the deep gas drilling."
Repercussions from the shift to deep gas recovery are threatening the state's crude oil industry.
Rapidly increasing supply and well service prices, scarcity of materials, waning interest in oil drilling, difficulty in signing oil leases, onerous new regulations and more are whipsawing oil drillers and producers.
In turn, oil production is down, and that is hurting the region's two leading refiners that rely on western Pennsylvania crude oil.
"The numbers for oil drilling are down," said Craig Lobins, district manager of the Department of Environmental Protection's oil and gas management office in Meadville. "It's a big drop in 2011 from the previous year."
In 2007, there were 1,733 oil drilling permits issued for the four leading oil production counties -- Venango, Warren, Forest and McKean. While that total spurted to 1,817 in 2008 when oil hit record high prices at $138-plus a barrel, it fell to 1,092 for 2011.Overall, the northern DEP office issued 4,221 oil and gas drilling permits for 27 northern counties in 2011, down considerably from the 4,683 in 2010."But 60 percent of those permits were for the deeper shale gas and that just keeps climbing. That is a significant shift away from oil," said Lobins.Just three years earlier, the deep gas play accounted for about 5 percent of all permits issued.
As the Marcellus and Utica shale play sizzles up the oil and gas patch, the old-time petroleum industry is getting a bum's rush, said Gary Hovis, an oil producer from Kennerdell.
"We'll be losing producers and drillers here soon," said Hovis, whose 20 producing oil wells in the southern part of the county include one drilled in 1880.
A long oil heritage: Pennsylvania, birthplace of the petroleum industry thanks to Col. Edwin Drake's fortuitious 1859 well near Titusville, has 19,000-plus oil wells in production. Those shallow wells plugged nearly 4 million barrels of crude oil into the marketplace last year.
In sharp contrast to deeper oil wells in the Oklahoma and Texas fields, Pennsylvania's wells are classified as stripper wells, or shallow wells that are marginal producers and eke out 10 barrels of oil or less a day. The average stripper well in Pennsylvania yields less than half a barrel (0.43) of oil a day, or about 18 gallons of crude oil.
Still, at today's going rate of nearly $100 a 42-gallon barrel, there's money to be made in conventional oil production that typically features a mom-and-pop operation going back two or three generations.
The enterprise, though, has been turned topsy-turvey because of the deep shale gas industry that has drawn in global, mega-energy companies intent on tapping hugely prolific natural gas tucked inside rock strata ten-times deeper than Pennsylvania's conventional oil sands.
In reaction to what it sees as a regulation over-reach and a desertion in the oil trade's ranks, the Pennsylvania Independent Petroleum Producers (PIPP) is back at beating the drums. The trade group of about 250 independent producers was formed in in 1984 in Oil City in vigorous opposition to the controversial Act 223, the Oil and Gas Act of 1984, that laid out strict and comprehensive regulations for the state's oil and gas industry. Its overtures led to several easements and modifications of the legislation.
Today, PIPP is again raising issues it believes must be resolved if the shallow oil industry is to survive the deep gas rush, said Hovis, president of the trade group. PIPP members have met frequently with industry people, elected officials and representatives from the Pennsylvania Department of Environmental Protection that oversees oil and gas operations. The gist of the talks has been an insistence by oil drillers and producers that newer and tighter regulations adopted in light of the Marcellus and Utica shale surge ought to be different for shallow oil.
"Those associated costs to comply mean we are just coasting along with old production. We are not in the same category as the deep gas because our volume is so low, the wells are shallow, the production water so much less and on and on," said Hovis.
There are charges that DEP inspectors, their ranks significantly expanded last year to handle an anticipated surge in deep gas drilling, are drawing a bead on oil producers because "they aren't busy enough with Marcellus," said Glenn Weaver, a longtime oil driller and producer from Franklin. Weaver's cache of wells numbers about 70 in Venango County.
"They hired a lot of manpower in preparation for Marcellus and Utica. They has not jumped up like they thought so they are out looking for problems so they can issue fines and pay for their department," insisted Weaver. "I've punched holes in the ground for 50 years but maybe, no more."There is a copious amount of anecdotal information as to oilmen's insuations that they are being harassed by inspectors. One driller said a five-gallon can filled with lubes to service a well was accidentally tipped over at a well site. As the driller cleaned it up, a DEP inspector fined him $5,000 on the spot. Another producer who said he was fined for "brine dripping off a collection tank"said the inspector saw it on one day and returned the next day with a violation notice, a move the oilman though ran counter "to protecting the environment, which is what they are supposed to do, by letting it drip another day."For Stiglitz, the suggestion that the shallow oil industry is somehow complicit in environmental infractions doesn't sit well.
"A lot of this has to do with a fear factor. We are law-abiding, tax-paying citizens but we are looking over our shoulder all the time. What's coming next down the pike? Will we be viewed as outlaws? As a contributing memer of society, this is an awful way to live," said Stiglitz.
While their objections are pointed, their campaign to upend what they consider are onerous regulations prompted by a very different deep gas industry is civil, contends Hovis."We have a long history with oil and we want to keep it going. It's a business we enjoy, it's a way of life. And, it's in your blood," he said.
Thousands of wells
Pennsylvania, birthplace of the petroleum industry, has 19,000-plus stripper, or shallow, oil wells in production. Last year, those wells plugged nearly 4 million barrels of crude oil into the marketplace.
They are classified as stripper wells that are marginal producers and eke out 10 barrels or less of crude a day. Most of Pennsylvania’s crude comes from McKean, Warren, Forest and Venango counties.
There are more than 55,000 shallow natural gas wells that produce enough to satisfy 25 percent of the state’s annual demand. Those wells, too, are shallow and marginal producers.
In contrast, the wells drilled over the past decade into the Marcellus and Utica shales are deeper, more prolific and more problematic since they require millions of gallons of water for fracking. The flowback fluids, or brine, contain drilling chemicals and are substantially more copious than what flows from shallow wells.
‘One size doesn’t fit all’
Despite the differences, the state regulations on the oil and gas industry make little distinction between shallow and deep operations, said Hovis. That is creating an onerous situation for marginal well operations that have less volume and create less production water.
A delegation of PIPP members met with state energy officials in Harrisburg earlier this year to argue their case that “one size doesn’t fit all,” Hovis said. The visit didn’t yield any solution, he added.
This past summer, Gov. Tom Corbett also dodged the question of whether new drilling and production regulations were unduly hard on and not applicable to shallow oil and gas production. He told an audience he would have “to find out exactly what’s going on there.”
The new regulation, one that would sharply restrict discharge limits for chloride, would upend the usual treatment methods provided by brine disposal plants such as the Franklin brine plant, a facility Hovis said is “essential for the survival” of shallow oil and gas production but will have to close if the new chloride-reduction regulation is approved.
The alternative of injecting brine into disposal wells is not realistic because Pennsylvania’s geology does not meet injection well specifications, Hovis said.
The new restrictions will spell the end of shallow production because the industry will have no acceptable method of brine disposal, he insisted.
4.1 Industry Definition
Governmental Regulations:
The oil and natural gas industry is subject to various types of regulation throughout the world. Laws, rules, regulations, and other policy implementations affecting the oil and natural gas industry have been pervasive and are under constant review for amendment or expansion. Pursuant to public policy changes, numerous government agencies have issued extensive laws and regulations binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, affect profitability. Because public policy changes affecting the oil and natural gas industry are commonplace and because existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations. However, we do not expect that any of these laws and regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size and financial strength.
Environmental:
Our operations are subject to the usual hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. In addition, the presence of unanticipated pressures or irregularities in formations, miscalculations, or accidents may cause our drilling activities to be unsuccessful and result in a total loss of our investment. We do not maintain insurance of the various types to cover our operations with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event, the risks of which are not covered by insurance, could have a material adverse effect on our financial condition and results of operations. We cannot give any assurances that we will be able to obtain adequate insurance in the future at rates we consider reasonable.
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
When the well is no longer considered productive, the Company is required to plug the well under the direction of the Division of Oil and Gas inspector for the State. This involves placing cement plugs at various depths to isolate producing intervals, protect fresh water aquifers and coal seams. The site is reclaimed and vegetation is established to prevent erosion from the well site. After all wells on a lease are plugged, the lease is terminated and returned to the mineral owner.
After completion and testing of a workover well or an offset well, the well is put into production. As in the case of oil, the oil is pumped into a 100 BBL or 200 BBL tank(s). The pumper inspects the well on a daily or regular routine basis and monitors the production of oil. As the tank(s) nears capacity, the pumper will make arrangements for pickup of the oil for delivery to the Purchaser. The cost of hauling the oil to the refinery varies by distance from the well to the refinery and can range from $3 to $6 per BBL. The cost of the freight charge is borne by the Company. Oil collected or shipped during the month is paid by the Purchaser in the following month. The price paid for the produced oil is based on the average monthly market price.
4.2 Primary Competitors
Industry Competition For Leases, Materials, People and Capital Can Be Significant
Strong competition exists in all sectors of the oil and gas industry. We compete with other independent oil and gas companies for the acquisition of oil and gas leases and properties. Most of these entities have significantly greater assets and name recognition. We also compete for the equipment and personnel required to explore, develop and operate properties.
Competition is also prevalent in the marketing of oil and gas. Typically, during times of high or rising commodity prices, drilling and operating costs will also increase. Higher prices will also generally increase the costs of properties available for acquisition. Certain of our competitors have financial and other resources substantially larger than ours.
They also may have established strategic long-term positions and relationships in areas in which we may seek new entry. As a consequence, we may be at a competitive disadvantage in the acquisition of oil and gas leases and properties. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and gas production, such as changing worldwide price and production levels, the cost and availability of alternative fuels, and the application of government regulations.
We will hire third party companies to undertake our development programs.
We will have to hire employees or retain independent companies to oversee or perform our development operations. We currently do not have sufficient funds for either. As such, even with exploitable deposits of oil or gas, we may not be able to develop our leasehold interests.
Our organization is subject to extensive and complex, federal and state laws and regulations. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders.
4.3 Market Size
Environmental matters and costs can be significant.
As an operator of oil and gas properties, we are subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from our operations in affected areas. Any future environmental costs of fulfilling our commitments to the environment are uncertain and will be governed by several factors, including future changes to regulatory requirements. There is no assurance that changes in or additions to public policy regarding the protection of the environment will not have a significant impact on our operations and profitability.
We have no history as a company engaged in oil and gas development or exploration.
We have no history of earnings or cash flow from oil and gas operations. If we are able to proceed to production, commercial viability will be affected by factors that are beyond our control such as the particular attributes of the deposit, the fluctuation in the prices of oil and gas, the cost of construction and operating an oil or gas well, prices, and refining facilities, the availability of economic sources for energy, government regulations including regulations relating to prices, royalties, restrictions on production, quotas on exploration, as the costs of protection of the environment.
If our exploration costs are higher than anticipated, then our profitability will be adversely affected.
We are currently proceeding with development and/or exploration of our leasehold interests on the basis of estimated development/exploration costs. If our development/exploration costs are greater than anticipated we may be forced to terminate our operations until such time as we generate additional revenues to fund our operations. Factors that could cause development/exploration costs to increase are adverse weather conditions, difficult terrain, unknown or unexpected results when we re-enter a well, increased government regulation and shortages of qualified personnel.
We face many operating hazards.
The development and operation of an oil or gas well involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include, among other things, ground fall, flooding, environmental hazards, and the discharge of toxic chemicals, explosions and other accidents. Such occurrences may result in work stoppages, delays in production, increased production costs, damage to or destruction of mines and other producing facilities, injury or loss of life, damage to property, environmental damage, and possible legal liability for such damages.
There may be insufficient oil and gas reserves to develop any of our properties and our estimates may be inaccurate.
There is no certainty that any expenditures made in the development/exploration of any properties will result in discoveries of commercially recoverable quantities of oil or gas. Most development/exploration projects do not result in the discovery of commercially extractable deposits of oil or gas and no assurance can be given that any particular level of recovery will in fact be realized or that any identified leasehold interest will ever qualify as a commercially developed. Estimates of reserves, deposits, and production costs can also be affected by such factors as environmental regulations and requirements, weather, unexpected or unknown results when we re-enter a well, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, and work interruptions.
Short term factors relating to reserves, such as the need for orderly development of the wells may also have an adverse effect on our development/exploration, drilling and on the results of operations. There can be no assurance the production of insignificant amounts of oil can be duplicated in a larger exploration program. Material changes in estimated reserves, development/drilling costs may affect the economic viability of any project.
United States Market
The United States relied on net imports (imports minus exports) for about 40% of the petroleum (crude oil and petroleum products) that the United States consumed in 2012. Just over half of these imports came from the Western Hemisphere. The United States dependence on foreign petroleum has declined since peaking in 2005.
The United States consumed 18.6 million barrels per day (MMbd) of petroleum products during 2012, making the United States the world's largest petroleum consumer. The United States was third in crude oil production at 6.5 MMbd. Crude oil alone, however, does not constitute all U.S. petroleum supplies. Significant gains occur because crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and the United States have other sources of liquid fuel, including biofuels. These additional supplies totaled 4.8 MMbd in 2012.
The United States imported 11.0 MMbd of crude oil and refined petroleum products in 2012. The United States also exported 3.2 MMbd of crude oil and petroleum products, so the United States net imports (imports minus exports) equaled 7.4 MMbd.[1]
In 2012, the United States imported 2.1 MMbd of petroleum products such as gasoline, diesel fuel, heating oil, jet fuel, and other products while exporting 3.1 MMbd of products, making the United States a net exporter of petroleum products.[1]
Top sources of net crude oil and petroleum product imports
·Canada (28%)[1]
·Saudi Arabia (13%)[1]
·Mexico (10%)[1]
·Venezuela (9%)[1]
·Russia (5%)[1]
[1] Source EIA, link (current August 24, 2013): http://www.eia.gov/energy_in_brief/article/foreign_oil_dependence.cfm
Crude oil imports from the top five foreign suppliers to the United States—which in 2012 were Canada, Saudi Arabia, Mexico, Venezuela, and Iraq, in that order—accounted for almost 72% of total U.S. net crude oil imports, the highest proportion since 1997. The import share of the top five suppliers increased by 8 percentage points over the past three years despite a decline in total U.S. import volumes as the United States reduced its total crude oil imports in response to higher domestic oil production.[2]
U.S. net crude oil imports from the five countries averaged almost 6.1 million barrels per day (bbl/d) in 2012, even as total U.S. crude oil imports fell to their lowest level since 1997. Crude oil from the five countries accounted for a bigger share of overall U.S. net crude oil imports in 2012 than in previous years, at almost 72%, according to EIA's Petroleum Supply Monthly report. That share is up from around 64% in 2009, when the economic recession resulted in declining U.S. crude oil demand, and the highest share since reaching almost 73% in 1997. During 2012, Iraq replaced Nigeria as the fifth-largest supplier of U.S. crude oil imports.
Highlights from the major crude oil supplying countries to the United States in 2012 included:
·Canada - Crude oil imports by the United States averaged a record 2.4 million bbl/d, up 8% from their 2011 level.
·Saudi Arabia - Crude oil imports averaged almost 1.4 million bbl/d, up 14% from their 2011 level, and were the highest since 2008.
·Mexico - Crude oil imports of 972,000 bbl/d were down almost 12%, and fell below 1 million bbl/day for the first time since 1994, reflecting the steady decline in Mexico's crude oil production.
·Venezuela - Crude oil imports rose 4% to 906,000 bbl/d, the first increase since 2007. Venezuela's state oil company sent more crude to U.S. refineries, which exported more gasoline and other petroleum products back to Venezuela.
·Iraq. Crude oil imports of 474,000 bbl/d were up slightly more than 3% from 2011, moving Iraq ahead of Nigeria as the fifth-largest oil supplier to the United States for the first time since 1999. Iraq's crude oil production in the second half of last year topped 3 million bbl/d for first time since the end of the Gulf War in 1990.
·Nigeria - Crude oil imports of 405,000 bbl/d were down 42% from the year before and the lowest since 1985. Growing domestic production of light sweet crude oil of similar quality to Nigerian crude and lower demand for light sweet crude from United States East Coast refineries contributed to the decline.
U.S. - production of liquid fuels (mostly oil) will increase for the next 29 years by 108.11% of 2011 production levels by 2040 peaking by year 2020 with an annual production of 7.47 million barrels per day, an increase of 131.7% compared to 2011 domestic crude oil production, according to the Energy Information Administration (EIA)
Projected crude oil production in the United States ranges from 6 to 8 million barrels per day (bbl/d) over the next 30 years in the Annual Energy Outlook 2013 (AEO2013) Reference case projection. However, under greater supply assumptions, crude oil production is sustained at a higher level of about 10 million bbl/d between 2020 and 2040
In this higher resource scenario, total U.S. liquid fuels production (which includes crude oil, natural gas liquids (NGL), refinery gains, biofuels, and other liquid fuels) increases to more than 18 million bbl/d in 2040, compared to 12 million bbl/d in the Reference case. That level of domestic production reduces net imports to 7% or less of total demand compared to 40% in 2012. Production projections inevitably reflect many uncertainties regarding the actual level of crude oil resources available, the difficulty or ease in extracting them, and the evolution of the technologies (and associated costs) used to recover them.
The EIA developed a High Oil and Gas Resource case as part of the AEO2013 to examine the effects of higher domestic production on energy demand, imports, and prices. This alternative case presents a scenario in which U.S. crude oil production continues to expand after 2020, driven primarily by tight oil production. This increased production results from assumed greater technically recoverable tight oil resources, as well as undiscovered resources in Alaska and the offshore Lower 48 states. In addition, the maximum penetration rate for gas-to-liquids (GTL) is increased and kerogen (oil shale) is assumed to begin development. In the High Oil and Gas Resource case, NGL production increases from 2.2 million bbl/d in 2011 to 5.0 million bbl/d in 2040, compared to just under 3 million bb/d in 2040 in the Reference case. GTL output reaches about 0.6 million bbl/d, compared to about 0.2 million bbl/d in the Reference case.
Estimates of technically recoverable resources from the rapidly developing tight oil formations are particularly uncertain and change over time as new information is gained through drilling, production, and technology experimentation. Projections embody many assumptions that might not prove to be valid over the long term and over all tight and shale formations. In the High Oil and Gas Resource case, the tight oil resources are increased by changing the estimated ultimate recovery (EUR) per well and assuming closer well spacing.
4.4 Market Growth
US Oil And Gas Industry Employment Growing Much Faster Than Total Private Sector Employment
From the start of 2007 through the end of 2012, total U.S. private sector employment increased by more than one million jobs, about 1%. Over the same period, the oil and natural gas industry increased by more than 162,000 jobs, a 40% increase.[6]
4.5 Customer Profile
US East Coast oil refineries enjoy a stirring comeback:
Alarm bells rang along the US Eastern Seaboard not too long ago that the region would face fuel shortages due to refinery closures in the region, but the dynamics changed with the entrance of some new players as well as domestic crude supply via rail from the Bakken Shale play.
The region is study in contrasts in a matter of a few short years. A couple of years ago, it seemed three major plants might close: the then Sunoco-owned refineries in Marcus Hook and Philadelphia, Pennsylvania, and the then ConocoPhillips-owned Trainer, Pennsylvania, refinery. All that came amid Hess and partner PDVSA initially scaling back operations of the Hovensa refinery on St. Croix, which exported to the US Atlantic Coast, to 350,000 b/d in 2011 before shutting it in January 2012.
The US Energy Information Administration focused on the potential problem in an initial report in late 2011 that was updated in the spring of last year. One thrust was EIA noting that if the Philadelphia, Marcus Hook and Trainer plants went offline, that would result in the loss of 50% of East Coast refining capacity (as of August 2011).
But, Philadelphia Energy Solutions now runs the 330,000 b/d Philadelphia refinery while a subsidiary of Delta Airlines runs the 185,000 b/d Trainer refinery, having bought it in June 2012 to recalibrate the plant to produce more jet fuel. Trainer also supplies refined products to Phillips 66 and BP. The 175,000 b/d Marcus Hook refinery was idled at the end of 2011 and now serves as a Sunoco Logistics tank farm storing gasoline and middle distillates.
While some refineries have stopped producing fuel in the region — Hess’ 70,000 FCC plant in Port Reading, New Jersey, Sunoco’s 140,000 b/d Eagle Point refinery in Westville, N.J., and the then Western Refining-owned 128,000 b/d Yorktown, Virginia, refinery (all three now serve as terminals) — the net result has hardly been devastating, given that the two Philly biggies stayed online.
The oil refinery in Trainer, Pennsylvania, that closed down nearly one year ago will restart later this month under the new ownership of Delta Air Lines, according to Reuters.
The 185,000 Trainer oil refinery had been forced to close after the previous owners, BP and Phillips 66, failed to find any interested buyers. However, a major effort to save the refinery led to a deal that made Delta the first American airline to own its own jet fuel refining plant.
The airline planned to spend around $100 million to upgrade the facility's jet fuel production capacity to around 52,000 barrels per day, but Monroe Energy, which will operate the plant, has worked out a deal to exchange its gasoline production for jet fuel from BP and Phillips 66. In all, Delta's investment is expected to save the company roughly $300 million each year in fuel costs.
"Monroe Energy is in the process of restart right now, and is on track to begin producing jet fuel at full capacity by the end of the month," said Trebor Banstetter, a spokesman for the airline.
The Associated Press reports that the a key factor in bringing the oil refinery back online is the plan to ship in crude oil from North Dakota's Bakken shale play at much lower prices that the Brent-indexed crude it used previously.
Welcome to American Refining Group, Inc.
Our unique facility is situated on approximately 131 acres in Bradford, Pennsylvania, the heart of McKean County and the birthplace of the U.S. domestic oil industry more than 100 years ago. Our refinery has a rated capacity of 10,000 barrels per day and processes 100% Pennsylvania Grade Crude purchased from sources in Pennsylvania, Ohio, New York and West Virginia.
ARG stocks are converted into high quality waxes, lubricant base oils, gasoline and fuels, as well as a wide variety of specialty products. ARG’s state-of-the-art blending and packaging facilities have the capability of producing a full spectrum of finished lubricant products which can be delivered in bulk by rail and truck, and are available in a broad range of package sizes. Our total commitment to quality is proven through our packaging plant and refinery being ISO 9001:2008 certified.
5. Marketing Plan
We apply modern production theory and technology to remediate wells that are either non-producing or are marginally producing.
StrandedWells drilled during the boom of the 1980’s have been ‘left behind’
These neglected assets are The Now Corporation opportunityNew theory and technology enables these stranded reserves to be produced with minimal cost.
By using modern technology such as the GasGun™ we are able to significantly boost the production of these fields economically.
The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East.
Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007.[1] The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value.
Governments such as the United States government provide a heavy public subsidy to petroleum companies, with major tax breaks at virtually every stage of oil exploration and extraction, including for the costs of oil field leases and drilling equipment.
An oil well is a general term for any boring through the Earth's surface that is designed to find and acquire petroleum oil hydrocarbons. Usually some natural gas is produced along with the oil. A well that is designed to produce mainly or only gas may be termed a gas well.
Usually attached to the oil derrick is the Oil well Dog House where the decisions are made for actions taken on the rig floor. Newer oil wells have hydraulic feet that are called Walking Rigs that allow for the rig to move several yards on its own without taking the derrick apart. This saves time as dual laterals can be drilled.
The production stage is the most important stage of a well's life, when the oil and gas are produced. By this time, the oil rigs and workover rigs used to drill and complete the well have moved off the wellbore, and the top is usually outfitted with a collection of valves called a Christmas tree or production tree. These valves regulate pressures, control flows, and allow access to the wellbore in case further completion work is needed. From the outlet valve of the production tree, the flow can be connected to a distribution network of pipelines and tanks to supply the product to refineries, natural gas compressor stations, or oil export terminals.
As long as the pressure in the reservoir remains high enough, the production tree is all that is required to produce the well. If the pressure depletes and it is considered economically viable, an artificial lift method mentioned in the completions section can be employed.
Workovers are often necessary in older wells, which may need smaller diameter tubing, scale or paraffin removal, acid matrix jobs, or completing new zones of interest in a shallower reservoir. Such remedial work can be performed using workover rigs – also known as pulling units, completion rigs or "service rigs" – to pull and replace tubing, or by the use of well intervention techniques utilizing coiled tubing. Depending on the type of lift system and wellhead a rod rig or flushby can be used to change a pump without pulling the tubing.
Enhanced recovery methods such as water flooding, steam flooding, or CO2 flooding may be used to increase reservoir pressure and provide a "sweep" effect to push hydrocarbons out of the reservoir. Such methods require the use of injection wells (often chosen from old production wells in a carefully determined pattern), and are used when facing problems with reservoir pressure depletion, high oil viscosity, or can even be employed early in a field's life. In certain cases – depending on the reservoir's geomechanics – reservoir engineers may determine that ultimate recoverable oil may be increased by applying a waterflooding strategy early in the field's development rather than later. Such enhanced recovery techniques are often called "tertiary recovery".
A report published by the American Petroleum Institute showed a decline in crude oil inventories of 2.6 million barrels with a fall of 900,000 barrels in gasoline supplies and a decline of 700,000 barrels in distillate supplies. Meanwhile, commercial crude inventories have fallen by 2.8 million barrels with the total U.S. commercial crude inventory of 364.2 million barrels. In the previous week, crude oil inventories fell 6.90 million to 367.00 million barrels. The fall in crude supplies is attributed to reduction from Canada as well as increased demand from the WP Whiting Indiana Plant that restarted work. In spite of the drop in the crude stock piles, the inventories are at more than comfortable levels and so is the gasoline supply.
WTI crude price at Brent price levels
For the week that went by, crude imports averaged 327,000 barrels a day up by more than 8 million barrels a day. On the other hand, refineries, for the above period, were reportedly running at 92.3 % of capacity with daily input of sixteen million barrels per day. At least for the domestic refining sector in the US, the present is the best time. One reason for the- recent- narrow price difference between WTI and Brent crude oil prices.
Elsewhere, China's manufacturing has reported an eleven month low this month. Analysts fear of a slowdown in Chinese economy with lesser demand for oil. So the latest weak manufacturing data from the Asian Giant is all it prevents the investors from going hunky-dory over the prices. As if they aren't already high, even with record oil production in the US.
What guarantees the minimum price of oil (and gas)? Surprisingly it's not production costs. Indeed.
Obviously, drilling for oil is pricey. Expensive labor, swelling cost of inputs like diesel fuel, chemicals and steel have all, in various degrees, increased the cost of exploration and production. The supplies from unconventional sources are also expensive. Furthermore, with stringent environmental norms in place, oil companies are forced to shell out more to keep their licenses. According to a research report published last year by Bernstein Research the cost of production in the most expensive (marginal cost of supply) new field has shot up to $92 per barrel, quickly nearing $ 100 per barrel-excusing OPEC and former Soviet Union. In simple economic terms, higher oil prices lure the companies to spend humongous resources on exploration and drilling. If the prices fall below a certain range, it becomes unviable for oil companies to spend energy on future explorations.
Indeed, like bees complaining of honey, oil and gas companies shout of the need to have oil prices between $80 - $85 a barrel for sustained exploration and development. Of course, it's the higher oil prices, as the popular justification goes, that permit oil companies to explore oil sands and shale and recover the higher production cost. And, we are talking about billions of dollars as investment, as profit. Counter intuitive? Well, what about the existing wells? Got you! Don't existing wells produce oil too? In other words, we aren't talking about wells that don't exist, are we? Reel or real? Ans: Real. Productive wells on large reserves continue to process oil and gas. What about them?
Except, we are back to the question: why not lower oil prices? The answer lies in a bunch of reasons, the biggest being the price of political stability.
Drilling activity should remain strong in the US and Canada in 2012 after substantial year-to-year gains in 2011. OGJ looks for a 4% increase in total drilling in the US and an 11.5% hike in Canada in 2012. Operators in the US are for the most part maximizing efforts in plays for oil and wet gas and relaxing capital spending in dry gas areas. Horizontal drilling and hydraulic fracturing continue to be the primary drivers. Shale plays are at the fore of unconventional activity, while low-permeability plays encompass large areas in Texas, Oklahoma, and other states. Few companies had announced 2012 capital spending plans by the time of this writing in mid-December 2011.
The history of the petroleum industry in the United States goes back to the early 19th century, although the indigenous peoples, like many ancient societies, have used petroleum seeps since prehistoric times; where found, these seeps signaled the growth of the industry from the earliest discoveries to the more recent. Petroleum became a major industry following the oil discovery at Oil Creek Pennsylvania in 1859. For much of the 19th and 20th centuries, the US was the largest oil producing country in the world; it is now the 3rd largest. However, the International Energy Agency projected that, due to the recent tight oil boom, the U.S. will surpass both Saudi Arabia and Russia and become the worlds largest oil producer circa 2017-2020. During the oil spike of 2007-08, energy independence returned to the forefront of American politics for the first time since the 1973 oil embargo. One of the critical differences between the United States and other industrialized countries such as Japan or Germany is the U.S. sits upon substantial oil deposits. Six decades ago, the U.S. was a net exporter of oil. While even maximum exploitation of American oil resources could never meet the country's huge demand, there are some benefits to be had in relying more on domestic resources.
THE NOW CORPORATION IS IN PENNSYLVANIA WHERE ONE OF THE BIGGEST PLAYS EXISTS AND NEEDS PROMOTION:
The Marcellus Formation is a black shale that may contain limestone beds and concentrations of iron pyrite (FeS2) and siderite (FeCO3).[7] Its sedimentary structure, or bedding, is moderately well developed. Like most shales, it tends to split easily along the bedding plane, a property known as fissility.[7] Lighter colored shales in the upper portion of the formation tend to split into small thin-edged fragments after exposure.[8] These fragments may have rust stains from exposure of pyrite to air, and tiny gypsum (CaSO4·2H2O) crystals from the reaction between pyrite and limestone particles.[8] Fresh exposures of the pyriteiferous shale may develop the secondary mineralization of orange limonite (FeO(OH)·nH2O), and the pale yellow efflorescence or bloom of sulfur, associated with acid rock drainage.
Maximum thickness of the Marcellus ranges from 270 m (890 ft) in New Jersey,[1] to 12 m (40 ft) in Canada.[25] In West Virginia, the Marcellus Formation is as much as 60 m (200 ft) thick.[68] In extreme eastern Pennsylvania, it is 240 m (790 ft) thick,[39] thinning to the west, becoming only 15 m (49 ft) thick along the Ohio River, and only a few feet in Licking County, Ohio.[4] The thinning, or stratigraphic convergence, from east to west is caused by decreasing grain size in the clastic deposits, which entered the basin from the east.[83] The beds finally "pinch out" westward because deposition was limited by the Cincinnati Arch,[45][92] the bulge that formed the west shore of the basin. Where the formation is relatively thick, it is divided into several members, and as the formation continues to thicken to the east, these members are further divided. Some workers chose to classify the Marcellus as a subgroup, and classify some of the members as separate formations.
Natural Gas
Main article: Marcellus natural gas trend
The Marcellus natural gas trend, which encompasses 104,000 square miles and stretches across Pennsylvania and West Virginia, and into southeast Ohio and upstate New York, is the largest source of natural gas in the United States, and production was still growing rapidly in 2013. The Marcellus is an example of shale gas, natural gas trapped in low-permeability shale, and requires the well completion method of hydraulic fracturing to allow the gas to flow to the well bore. The surge in drilling activity in the Marcellus Shale since 2008 has generated both economic benefits and considerable controversy.
5.1 Competitive Advantage
The SWC is an industry-driven consortium that is focused on the development, demonstration, and deployment of new technologies needed to improve the production performance of natural gas and petroleum stripper wells. SWC is comprised of natural gas and petroleum producers, service companies, industry consultants, universities, and industrial trade organizations. The Strategic Center for Natural Gas and the New York State Energy Research and Development Authority provide base funding and guidance to the consortium. By pooling financial and human resources, the SWC membership can economically develop technologies that will extend the life and production of the nation's stripper wells.
Formation
SWC was established on September 30, 2000 through a cooperative agreement between the U.S. Department of Energy (DOE) and The Pennsylvania State University. This agreement provides approximately $3M of base funding over a three year period. The agreement provides Penn State the overarching management responsibilities for the consortium.
Organizational Structure
SWC is industry-driven and is tailored to meet the needs of its members. Active industrial participation and leadership is key to making the consortium a success. The SWC has a Constitution and Bylaws under which the consortium will be governed to operate. Each SWC member appoints one representative to a Technical Advisory Committee. The Technical Advisory Committee is responsible for steering the technical direction of the consortium and is responsible for electing a seven-member Executive Council. The Executive Council is responsible for selecting proposed research projects that will lead to improving natural gas/ petroleum production from stripper wells. The process of having industry develop, review, and select projects for funding will ensure that the consortium conducts research that is relevant and timely to the natural gas and petroleum industry.
Technology Development
Research will be conducted in three broad areas: reservoir remediation, wellbore clean-up, and surface system optimization. Research outside of these three areas may be considered pending approval of the program sponsors. Specific research projects will be developed by the membership using a standardized proposal template. Proposal submission is limited to full members of the consortium. Collaboration between full members is encouraged. Projects will be funded on an annual basis. Each proposal is required to provide a minimum of 30% cost share which is to be provided by the project participants. Cost share may be in the form of cash and/or in-kind support. The use of Federal funds for cost share is prohibited. Intellectual property provisions will follow Penn State's Cooperative Agreement with DOE.
Successful Oil and Gas Technology Transfer Program Extended to 2015
Long-Term Success of Stripper Well Consortium Supports Small Oil and Gas Producers
Washington, D.C. – The Stripper Well Consortium (SWC) – a program that has successfully provided and transferred technological advances to small, independent oil and gas operators over the past nine years – has been extended to 2015 by the U.S. Department of Energy (DOE). An industry-driven consortium initiated in 2000, SWC’s goal is to keep "stripper wells" productive in an environmentally safe manner, maximizing the recovery of domestic hydrocarbon resources. The consortium is managed and administered by The Pennsylvania State University on behalf of DOE; the Office of Fossil Energy’s (FE) National Energy Technology Laboratory (NETL) and the New York State Energy Research and Development Authority provide base funding and technical guidance to the program. Stripper wells produce less than 10 barrels of oil or 60,000 cubic feet of natural gas per day. More than 396,000 stripper oil wells account for nearly 800,000 barrels of oil per day, or about 10 percent of the lower-48 production, and more than 322,000 stripper natural gas wells account for over 1.7 trillion cubic feet of annual natural gas production, or 9 percent of the natural gas produced in the lower 48. Once a well is plugged and abandoned, the reserves left behind are "lost forever" since it is typically uneconomical to drill another well to recover these abandoned reserves. Every dollar of stripper oil and natural gas production creates roughly one dollar of economic activity and nearly 10 jobs result from every million dollars of stripper well oil and natural gas produced. Nearly 100 projects have been funded since the initiation of the consortium, which consists of small domestic oil and natural gas producers, as well as service and supply companies, trade associations, industry consultants, technology entrepreneurs, and academia. The successful development and commercialization of many of these projects provided the incentive for DOE to continue program funding.
Several of the successes include:
The Gas Operated Automatic Lift (GOAL) PetroPump developed by Brandywine Energy & Development Company. The pump removes fluid from the wellbore more consistently than currently available plunger lift systems. Test results on wells in New York showed a 1.5 to 2.3-time increase in gas yield using the GOAL PetroPump over other casing plunger- type tools. The tool is inexpensive to operate because it requires no external energy source and limited manpower.
The Vortex Flow Tools LLC vortex flow unit works similar to a tornado, using produced natural gas to accelerate the water velocity, reduce friction, and assist in lifting and removing fluids. The results of using the flow unit are increased production while reducing the amount of down-time due to water in gas gathering and flow lines. Over 200 Vortex surface tools have been installed in gas-gatherin and production lines across theUnited States.
Pumping Solutions, Inc. (now part of Smith Lift LLC) has developed a new hydraulic diaphragm submersible pump to continuously clean stripper wells. The pump has been proven to be tolerant of coal and sand fines at higher concentrations than traditional systems. Among other features, it pumps gas/liquid mixtures, can be pumped dry without damage (within motor limits), maintains a constant output with depth, and has been shown to be highly efficient with reduced electric costs.
Tubel Technologies, Inc. developed three technologies for stripper wells. The first was a low-cost, real-time, down-hole wireless gauge. The gauge primarily measures temperature and pressure, but other parameters can also be measured. The wireless feature of the system eliminates the need for cables, clamps, and splices within the wellbore, thus significantly lowering cost and time for system deployment. The second technology was a plunger lift optimization process, which provides the operator information related to the performance of DOE - Fossil Energy Techline: http://fossil.energy.gov/news/techlines/2010/PrintVersion_1_38...
the plunger, identifying wells where the plunger is not operating optimally. The third technology is an upgrade of the second whereby the information captured at the wellhead is transmitted wirelessly to a control room at a remote location. This allows the operator to monitor hundreds of wells from a single location and could identify potential well and plunger lift problems fairly quickly to correct problems with minimum production loses.
Pre-Pump-Off Controls, a set of technologies developed by Oil Well Sentry, Inc., eliminates fluid level issues in beam-pumped wells. The system monitors the amount of fluid in the barrel pump at the bottom of the well and shuts off the beam pump motor or engine when the well is "pumped off." Use of the system has significantly increased production while decreasing motor/engine energy
consumption by 30 percent.
One out of every six barrels of crude oil produced in the United Statescomes from a marginal well - a well whose production has slowed to 10 to 15 barrels a day or less. Over 78 percent of the total number of U.S.oil wells are now classified as marginal wells. There are over 400,000 ofthese wells in the United States, and together they produce nearly 900thousand barrels of oil per day, 15 percent of U.S. production.
Many of these wells are marginally economic and at risk of beingprematurely abandoned. When world oil prices were in the low teens inthe late 1990s, the oil that flowed from marginal wells often cost moreto produce than the price it brought on the market. From 1994 to 2003,approximately 142,000 marginal wells were plugged andabandoned, costing the U.S. more than $3.0 billion in lost oil revenue at the EIA 2003 average world oil price.
When marginal wells are prematurely abandoned, significant quantitiesof oil remain behind. A common misperception is that oil left behindremains readily available for production when oil prices rise again. In
most instances, this is not the case, leaving our nation more dependenton foreign oil imports, even though prices have now recovered andreached record highs in 2004.
When marginal fields are abandoned, the surface infrastructure - the pumps, piping, storage vessels, and other processing equipment - is removed and the lease forfeited. Since much of this equipment wasprobably installed over many years, replacing it over a short periodshould oil prices jump upward, is enormously expensive. Oil prices wouldhave to rise several times higher than their historic highs - and mostimportantly, stay at elevated levels for many years - before there wouldbe sufficient economic justification to bring many marginal fields backinto production. As a result, once a marginal field abandoned, the oilthat remains behind is often lost forever. The costs of re-drilling aplugged well may be as much as or more than drilling a new well.
Estimates are that the marginal wells plugged and abandoned between 1994 and 2003 represented 110 million barrels of crude oil that was still in the ground.
The IOGCC defines a marginal (stripper) well as a well the produces 10 barrels of oil or 60 Mcf of natural gas per day or less. Generally, these wells started their productive life producing much greater volumes using natural pressure. Over time, the pressure decreases and production drops. That is not to say that the reservoirs which feed the wells are necessarily depleted. It has been estimated that in many cases marginal wells may be accessing a reservoir which stills holds two-thirds of its potential value.
Pennsylvania has a long history of producing natural gas from a large number of conventional shallow low-production wells, principally for domestic household use. Only Texas has more currently active wells.[1] Pennsylvania ranks 15th in natural gas production among U.S. states, and it is the largest producer without a severance tax.
The advancement of drilling technology and water treatment has strengthened the economic viability and long-term return on investment of extracting natural gas from the Marcellus Shale formation. Marcellus Shale is a unit of marine sedimentary rock found in eastern North America. It extends throughout much of the Appalachian Basin extending across West Virginia; western Ohio; western, central, and northeastern Pennsylvania; southwestern New York; and small portions of Virginia and Maryland.[2] The shale contains largely untapped natural gas reserves that, according to several studies, could conservatively supply U.S. consumption for nearly two decades.[3] The Marcellus Shale formation is estimated to be 10 times larger than the Barnett Shale formation in Texas and is attracting attention from major Texas-based natural gas production companies and big oil companies.
This is a business plan and does not imply an offering of securities.
Table of Contents
1. Executive Summary 1
Business Opportunity
Product/Service Description
Current Business Position
Financial Potential
The Request
2. Company Background 7
Business Description
Company History
Current Position and Business Objectives
Ownership
3. Products 12
Product Overview
Competitive Analysis
Suppliers and Inventory
Research and Development
4. The Industry, Competition and Market 24
Industry Definition
Primary Competitors
Market Size
Market Growth
Customer Profile
5. Marketing Plan 38
Competitive Advantage
Pricing
Distribution Channels
Promotional Plan
Feedback
6. Operating Plan 60
Location
Facility
Operating Equipment
Suppliers and Vendors
Personnel Plan
General Operations
7. Management, Organization and Ownership 94
Management/Principals
Organizational Structure
Professional Consultants
Ownership and Boards
8. Goals and Strategies 96
Business Goals
Keys to Success
Future Plans
9. Financial Assumptions 97
Assumptions
10. Appendix 100
Income Projection
1. Executive Summary
THE NOW CORPORATION: is a publicly trading company listed on the Pink Sheets Market Platform at www.otcmarkets.com under the symbol "NWPN" was first incorporated in 1993, has changed names at least four times, was once a fully reporting company up to 2001 and the Board Of Directors filed a FORM 15 with the Securities Exchange Commission (SEC) allowing the company to be able to stop filing reports with the SEC.
In March 2013 a new Board of Directors have changed the direction of the company to the oil and gas sector.
The Company signed an Agreement with Drake Gold-OTC Markets- "DKGR" to rework 147 wells on a lease owned by Drake know as the RENSMA LEASE, anticipated cost per well to bring the oil to the surface averaging one barrel of oil per day for each well reworked is $10,000.00.
The Management has calculated once twelve wells are reworked and producing the one barrel of oil per day, will generate enough cash flow from these twelve wells to have the revenue reinvested into the next well until the final 147 wells are reworked and each producing, giving the company a 147 BOPD with a cash flow of over $400,000 poer month.
1.1 Business Opportunity
The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 147 oil and gas wells with an option to acquire an additional 40 oil and gas well locations for drilling and completion in Venango County, Pennsylvania.
There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the147 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 147 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 147 oil and gas well locations, that the Company will be profitable.
The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada. There is no assurance that we will be successful in raising the necessary funds to acquire any of producing oil and gas properties.
1.2 Product/Service Description
STRATEGY
We aspire to be an independent oil and gas company in North America and to provide our shareholders with returns over the long-term. To achieve this, we strive to optimize our capital investments to maximize growth in cash flows, earnings, production and establish reserves. We will do this by:
1.Generating cash flow
2.Securing financing to acquire our planned acquisitions
3.Exercising capital discipline
4.Ensuring financial strength
5.Investing in oil and gas properties with strong full-cycle margins.
OVERVIEW
The Company is engaged primarily in the acquisition of producing or near producing oil and gas properties and the development of these oil and gas properties. The Company acquired oil and gas properties that allow it to drill and complete 147 oil and gas wells with an option to acquire an additional 40 oil and gas well locations for drilling and completion in Venango County, Pennsylvania. There is no assurance that we will be successful in raising the necessary funds to drill and complete one or more of the 147 oil and gas well locations; there are no assurances that if we are successful in raising the necessary funds to drill and complete one or more of the 30 oil and gas well locations that they will produce oil and gas. There are no assurances that should oil and gas will be produced from one or more of the 30 oil and gas well locations, that the Company will be profitable.
The Company plans to acquire additional producing or near producing oil and gas properties that will provide cash flow and an upside for future development. Such activities are concentrated in North America onshore, primarily in the United States. We are currently scouting and evaluating properties in Texas, Oklahoma, Pennsylvania, Kansas and in Canada. There is no assurance that we will be successful in raising the necessary funds to acquire any of producing oil and gas properties.
The implementation of our business plan will require significant capital. We do not have this capital and as a result, we will require additional financing to acquire and develop our leasehold obligations. We may use debt or equity to fund our ongoing operations. There can be no assurance that any financing will be available, and if available, will be on terms and conditions acceptable to the Company. If we rely on equity financing, our shareholders will experience significant dilution. If we rely on debt financing, we may not be able to satisfy our debt obligations.
1.3 Current Business Position
Identification of leasehold interests
The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.
The Company may acquire the leaseholds in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.
A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.
The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.
It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.
Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.
When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.
Depending upon jurisdiction of the leasehold, the state can force a "pooling" of the oil and gas interests of a landowner with the interests of other landowners where the size or condition of lands does not allow the neighbor to find a drill site while respecting distance limits from property lines. A mineral owner has five options in the context of forced pooling. They can:
1.Lease their mineral interest.
2.Sell their mineral interest.
3.Participate materially in the development of the gas field.
4.Be a non-consenting owner.
5.Protest forced pooling
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
MISSION STATEMENT
·To become a leader in providing energy, through acquisition and diversification.
·To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.
·To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.
1.4 Financial Potential
Under current SEC standards, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that have been field-tested and have demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
In order to establish reasonable certainty with respect to our leases, we would have to employ technologies that have been demonstrated to yield results with consistency and repeatability. The technical data used in the estimation of proved reserves include, but are not limited to, electrical logs, radioactivity logs, core analyses, geologic maps and available downhole and production data, seismic data and well test data. Generally, oil and gas reserves are estimated using, as appropriate, one or more of these available methods: production decline curve analysis, analogy to similar reservoirs or volumetric calculations. Reserves attributable to producing wells with sufficient production history are estimated using appropriate decline curves or other performance relationships. Reserves attributable to producing wells with limited production history and for undeveloped locations are estimated using performance from analogous wells in the surrounding area and technical data to assess the reservoir continuity. In some instances, particularly in connection with exploratory discoveries, analogous performance data is not available, requiring us to rely primarily on volumetric calculations to determine reserve quantities. Volumetric calculations are primarily based on data derived from geologic-based seismic interpretation, open-hole logs, and completion flow data. When using production decline curve analysis or analogy to estimate proved reserves, they would be limited to estimates to the quantities of oil and gas derived through volumetric calculations.
The accuracy of any reserve estimate is a function of the quality of available geological, geophysical, engineering, and economic data, the precision of the engineering and geological interpretation and judgment. The estimates of reserves and future cash flows are based on various assumptions and are inherently imprecise. Even though these estimates may be reasonable and logical, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. Also, the use of a discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which the oil and natural gas industry in general are subject.
The potential is to have 147 wells producing one barrel of oil per well per day (minimum) estimating 147 BOPD or $400,000 per month or $4.8 million per year on these 147 wells.
1.5 The Request
Our business is capital intensive. Our ability to grow is dependent upon favorably obtaining outside capital and generating cash flows from operating activities necessary to fund our investment activities. There is no assurance that we will be able to achieve profitability. Since our future operations will continue to be dependent on successful development activities and our ability to seek and secure capital from external sources, should we be unable to achieve profitability this could cause any equity investment in the Company to become worthless.
We have no ongoing revenues to satisfy our ongoing liabilities. Our auditors have issued a going concern opinion. Unless we secure equity, debt financing or Joint Venture partners, of which there can be no assurance, or identify a profitable acquisition candidate, we will not be able to continue any operations.
Plan of Operation For Fiscal Year 2013
We will attempt to continue to source equity or debt financing, or Joint Venture partners for our operating costs and for our oil and gas well drilling programs or attempt to identify a profitable acquisition candidate. Our REF agreement with Diesel Enterprises Inc LLC for $190,000.00 payable to The Now Corporation starting October 15th 2013 at $10,550.00 per month for 18 months equalling a payout of $190,000.
This will take time to become effective. There is no guarantee that the Company will be successful in receiving all payments from Diesel and if this fails Diesel will transfer 1.9 milliion free trading shares from Diesel to The Now Corporation. We have had discussions with several companies and individuals for funding and/or Joint Ventures. However, we have not come to terms with any company or individual as of September 30, 2013. We will attempt to finance our operating expenses with additional debt or through equity financing.
The Company is planning a S-1 Registration Statement to register shares and file an offering of $500,000 or more where shares purchased through this offering will be free trading shares immediately.
2. Company Background
On April 12, 2004, Para Mas acquired the assets and business operations now belonging to NOW as further described in this prospectus under the business description of NOW. Those business operations represented a business that Mr. Whiting had been developing for five years under other names such as AmeriGroup and Itzyourmall. Since April 12, 2004, Mr. Whiting has put forth diligent effort in his capacity as the CEO of Para Mas to enable the common shares of Para Mas to trade on the over the counter market in the United States so that the common shares held by the shareholders of Para Mas would represent a liquid investment and so Para Mas shareholders could market their shares if they ever so desired. However, a trading market for the Para Mas shares has not developed to date. On or about December 1, 2006, Para Mas sold its assets and business operations to NOW, a corporation in which Mr. Whiting is the majority shareholder. The purpose for the sale is that Mr. Whiting believes there is a better opportunity for NOW to obtain a trading market for its common shares than for Para Mas to obtain a trading market for its common shares. The sale price for the assets was $10,000,000. This amount was Mr. Whiting’s good faith estimate of the value of thoseassets based upon his believe in the value of the assets and the future earning capacity of those assets. NOW gave Para Mas its note for $10,000,000 as consideration for the assets.
Mr. Whiting has been the primary developer of our business since its inception in 1999. He is an entrepreneur having both a legal and a management background. Mr. Whiting graduated from BYU Law School with a Master in Public Administration in 1988. Mr. Whiting served as Associate Legislative Counsel from 1988 to 1990. As Associate Legislative Counsel, Mr. Whiting assisted the Utah State Legislature in legal research and in drafting language for roposed bills during the legislative sessions. He also served as counsel to the Administrative Rules Review Committee which met when the Legislature was not in session. The Administrative Rules Review Committee was a Legislative oversight committee that oversaw the Administrative Rulemaking process for the state of Utah. Mr. Whiting got the idea to create a CD-ROM law disc while serving at the Utah State Legislature, which eventually led to the creation of the NOW loyalty-rewards discount card program. Mr. Whiting’s main duties involved legal research. His research was done without the aid of computer assisted research. When Mr. Whiting approached his employer about subscribing to an on-line computer assisted research service, he was told that it was too expensive. It was then that Mr. Whiting decided he would create an affordably priced CD-ROM product. He resigned as Associate Legislative Counsel and formed a scanning company called MobileScan which was his primary business pursuit from 1994 to 1998. He had three objectives: first, he wanted to create a low priced product; second, he wanted to create a product with a better interface and more user friendly to the end-user; and third, he wanted to help drive customers to the users of his product. To achieve the third objective, he created a savings mall where he would advertise attorneys using his CD-ROM product. All that was required was that they needed to offer some sort of a discount on their services. This savings mall was originally called Amerigroupmall.com, but evolved into the NOW concept after several years of selling and analyzing the market. Mr. Whiting also currently has other business pursuits including real estate development and serving as CEO of an internet game development company.
As of September 30th 2013 the debt his been writen off to zero.
2.1 Business Description
We are an independent oil and natural gas development and production company. Our basic business model is to increase shareholder value by finding and developing oil and gas production through the development activities, which include drilling offset oil and gas wells and re-entering oil and gas wells, that have historical oil and gas production or are currently producing oil and gas, and selling the production from these, worked over wells at a profit. To be successful, we must, over time, need to complete our goal of raising sufficient funds to drill offset wells or complete development programs over the next year and then sell the resulting production at a price that is sufficient to cover our operating expenses, administrative costs and interest expense, plus offer us a return on our capital investment.
NATURE OF BUSINESS
The Company is engaged primarily in the acquisition, work-over development, and production of oil and gas properties. Such activities are concentrated in North American onshore, primarily in the United States in the State of Pennsylvania. The Company plans to acquire producing or near producing oil and gas properties that will provide cash flow and an upside for future development. We will be scouting for additional properties in and around Texas, Oklahoma, Pennsylvania, Kansas and in Canada.
OIL AND GAS DEVELOPMENT - WORKOVER PROGRAM
The Company’s development - workover program consists of re-entering or completing a workover on an oil or gas well that has a historical evidence of oil or gas production or that is currently producing oil and gas at a fractional output compared to when the oil and gas wells first came into production. Workover activities include one or more of a variety of remedial operations on a producing well or inactive well to try to increase production. All costs of a workover are capitalized and amortized (depletion) on a per-unit of barrel equivalent of production.
Our common stock is quoted on the OTC Markets ("OTCBB") under the symbol "NWPN." The shares of our common stock which maybe registered are being offering for sale by the Selling Stockholder at prices established on the OTCBB during the term of this offering. On September 30th , 2013, the closing bid price of our common stock was $0.045 per share on the OTC Pink Sheets. These prices will fluctuate based on the demand for our common stock.
2.2 Company History
ASSET PURCHASE:
On December 1, 2006 the company purchased 100% of the business operating assets of Para Mas Internet, Inc., (Para Mas) a Nevada corporation in exchange for a $10,000,000 promissory note.
The Company has recorded the assets purchased in excess of the note as contributed capital. A summary of the calculated value the company placed on the purchased assets and a detailed description of the methodology used in their valuation follows: Office Supplies $ 2,444 Furniture and Equipment 87,273 Web-Site Development 531,624 Co-Branders 351,560 Listers 6,650,000 Member List 367,720 Territories 2,336,717Total $10,327,338.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock, par value $0.001 and on December 31, 2006 prior to its reorganization on July 31, 2006 had 354,360 shares issued and outstanding. On July 31, 2006, the Eight Judicial District Court of Clark County, Nevada appointed a custodian and directed that 200,000,000 shares be issued as controlling interest. On November 21, 2006 the Company executed a 1:1000 reverse stock split in anticipation of its sale. All share amounts herein are adjusted to give effect to the stock split. On December 7, 2006 the Company issued 300,000,000 common shares to its founder on a promissory note and accordingly recorded as a subscription receivable of $300,000. On December 18, 2006 the Company issued 5,000,000 common shares in a 504 offering for a subscription receivable of $1,000,000.
2.3 Current Position and Business Objectives
The Company plans to acquire producing or near producing leaseholds that will provide cash flow and an upside for future development. However, it is unlikely that we will be able to exploit these leaseholds without a significant capital infusion.
The Company may acquire the leaseholds in consideration for cash or shares of the company or a combination of cash and shares of the Company and may include an Overriding Royalty. Typical Overriding Royalty’s range from 2.5% to as much as 25% depending upon the current production on the leaseholds and the potential for Oil and Gas production.
A typical leasehold grants the Company the exclusive right to explore the land (“Property”) covered by the Oil and Gas Lease by geophysical and other methods, and to operate same for and produce there from all naturally-occurring oil, gas, casing-head gas or gasoline, gas condensate and/or all other liquid or gaseous hydrocarbons and other marketable or non-marketable substances produced therewith ("Oil and Gas"); and the exclusive right to inject gas, water, brine and other fluids into subsurface strata; and rights of way and easements for laying pipelines, telephone, telegraph and power lines, and the right to erect or install power stations, compressor stations, roadways, storage tanks or other storage facilities, separators and any fixtures and other structures thereon for producing, treating, processing, maintaining, storing and caring for the oil and gas; and oil and gas from other properties and any and all other rights and privileges necessary, incident to, or convenient for the economical operation of the Property and other lands for the production of Oil and Gas, and the injecting of gas, water, brine and other fluids into subsurface strata.
The Company may, at any time and from time-to-time pool all or part of the Property with other properties to create one or more drilling units. The production of Oil or Gas from such a pooled unit is generally treated as though the production occurred from a well on the Property, except the Lessor shall be entitled to royalty only on its pro-rata share of such production.
It is intended that the leasehold also include all lands and interests of the Lessor, which are contiguous to or in the vicinity of the Property.
Usually the leasehold will remain in force for a term of one year from the date executed and for as long thereafter as Oil and/or Gas is produced from the Property, or as long as operations for drilling are continued or as long as operations are continued for injection of gas, water, brine and other fluids into subsurface strata.
When a well is worked over or offset well drilled, an access road is constructed to the well site or upgraded. This results in surface damages that the surface owner is compensated for the loss of property. Timber may also be cut down during construction, the Company may cut and stack the timber at a location convenient for the surface owner to sell or a value may be assessed on the timber and the surface owner compensated.
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
MISSION STATEMENT
·To become a leader in providing energy, through acquisition and diversification.
·To acquire working interest positions and mineral rights leases for the purposes of oil and gas development and production using new technologies, advanced drilling and completion methods and invest in known, producing properties and surrounding areas.
·To be aggressive in gaining interest positions in leases and existing producing properties that will produce desirable returns, utilize leading technologies, utilize methods to maximize exploration and production results while providing Return On Investment.
2.4 Ownership
THE COMPANY CONSISITS OF:
Shares Issued and oustanding: 305,554,735 513 shareholders
Management, Insiders: 219,271,735 25 shareholders
Restricted Shares: 300,554,000
Free trading shares on the street (Tradable) 5,000,000
3.4 Research and Development
The Pennsylvania oil rush was a boom in petroleum production which occurred in northwestern Pennsylvania from 1859 to the early 1870s. It was the first oil boom in the United States.By the end of 1859 wells sprouted throughout the oil country. Those pioneer wells produced about 4,500 barrels that year. In 1860 wells in northwestern Pennsylvania produced several hundred thousand barrels and by 1862 production reached three million barrels. The nation’s oil bonanza had begun, and huge fortunes would soon be made.
But not by Colonel Drake. He failed to act quickly to control production and he had not bought much land in the area. In 1860 the Seneca Oil Company severed its connection to Drake, paying him $1,000 for the use of his name on oil barrels.
By the end of the Civil War Drake had lost all his money and his health. He moved first to Vermont and then to New Jersey because he thought the sea might improve his health. In the late 1860s old acquaintances from the oil industry raised $4,000 for Drake. In 1873 the Pennsylvania legislature allotted Drake $1,500 annually. In November 1880, after years of bad health and constant pain, Drake died poor and a pensioner, never having benefitted from “discovering” oil in Titusville, Pennsylvania, on August 27, 1859.
Swelling production of Pennsylvania oil led to a rapid drop in price, which drove many producers out of business but which also drove consumers away from other sources of illumination, allowing Pennsylvania oil to corner the market.
The cycle of boom and bust plagued Pennsylvania oil production until John D. Rockefeller organized Standard Oil and imposed order on the industry in the 1870s. In the next decade Thomas Edison’s light bulb and electrification would replace kerosene, threatening the dominance of oil. The petroleum industry would be saved, in turn, by the coming of the automobile and the need for gasoline, which would be supplied by other areas of production, particularly Texas, and then foreign sources. But in the latter part of the 19th century, Pennsylvania oil dominated the market, pointing the way to America’s eventual reliance on petroleum.
Critical Issues Facing the USA:
There are several critical issues facing this country concerning our ENERGY NEEDS.
Issue Number One:
America needs more production from its domestic oil and gas reserves in order to forestall additional increases in, and further reliance on, dependence on foreign oil and gas imports. Imported oil now is over 60% of our daily use in this country.
Issue Number Two:
America's 650,000 oil and gas "stripper wells" represent the fastest and most dependable source to increase production. On average, they produce over 25% of the oil (29% in 2001!) and 8% of the natural gas used daily in this country.
Issue Number Three:
There is a huge amount of "sour" natural gas that can be produced and treated to produce a higher quality natural gas. "Sour gas" is so called because it contains hydrogen sulfide. Sour gas is present in four large oil and natural gas formations in Texas. Approximately 13% of all natural gas reserves in the U.S. may be prone to hydrogen sulfide contamination. The demand for increased production for this abundant sour gas will grow significantly in the future.
Issue Number Four:
Natural gas is the fuel of choice for the future. Yet, trillions of cubic feet of gas in Texas alone could be lost through well-abandonment by 2010 if someone, does not acquire and restore marginal gas wells. This is a huge resource; it should not be wasted.
The cumulative impact of stripper well production plays a significant role in the U.S. economy. In the last ten years, 4.3 billion barrels of oil equivalent has been achieved from these marginal producers. By contrast, the stripper wells abandoned and lost during this same time cost more than 22,000 jobs and $4 billion in economic activity. Most people do not know that you can't just turn an oil well on and off . One-sixth of our natural gas production comes from associated oil production. If you lose one, you lose the other. In the last ten years, over 175,000 oil and gas wells have been abandoned or plugged. The American oil and gas industry has a vital interest in maintaining and enhancing the production of these stripper wells. To that end, the industry and the Department of Energy have a number of studies under way at universities and laboratories around the country. Here in Texas, the Southwest Research Institute in San Antonio and the Petroleum Engineering Departments at the University of Houston and Texas A&M University all have received DOE grants for studies of enhanced oil and gas recovery methods. Louisiana State University and the University of Oklahoma have also received major grants to study enhanced oil and gas recovery. These are important matters for our domestic energy industry and our national welfare.
Nearly two out of every three barrels of oil ever discovered in the United States still remain trapped underground after conventional recovery operations. This staggering amount of remaining oil-approximately 200 billion barrels-can be one of America's best hopes for greater energy security.
4. The Industry, Competition and Market
Critical Issues Facing the USA:
There are several critical issues facing this country concerning our ENERGY NEEDS.
Issue Number One: America needs more production from its domestic oil and gas reserves in order to forestall additional increases in, and further reliance on, dependence on foreign oil and gas imports. Imported oil now is over 60% of our daily use in this country.
Issue Number Two: America's 650,000 oil and gas "stripper wells" represent the fastest and most dependable source to increase production. On average, they produce over 25% of the oil (29% in 2001!) and 8% of the natural gas used daily in this country.
Issue Number Three: There is a huge amount of "sour" natural gas that can be produced and treated to produce a higher quality natural gas. "Sour gas" is so called because it contains hydrogen sulfide. Sour gas is present in four large oil and natural gas formations in Texas. Approximately 13% of all natural gas reserves in the U.S. may be prone to hydrogen sulfide contamination. The demand for increased production for this abundant sour gas will grow significantly in the future.
Issue Number Four: Natural gas is the fuel of choice for the future. Yet, trillions of cubic feet of gas in Texas alone could be lost through well-abandonment by 2010 if someone, does not acquire and restore marginal gas wells. This is a huge resource; it should not be wasted.
STRIPPER WELLS: WHY BOTHER?
American energy is increasingly supplied by what we call marginal oil and natural gas wells, also known as "stripper wells" (wells that produce less than 15 barrels of oil per day or less than 60 thousand cubic feet of natural gas per day).
Each barrel of oil and each MCF of gas produced domestically adds to the economic vitality of the United States, reduces energy dependency and keeps dollars from flowing abroad. It also produces considerable tax revenue to states, counties and localities. In 2001, production from stripper wells had a market value of $12.7 billion.
There remain some 300 billion barrels of oil in the United States today. If only 10% of this oil could be recovered through new recovery methods, such as the ones AEDC offers, it would make a huge difference to this country. For example, even the most aggressive estimates of the oil in the Artic Wildlife Refuge are about 10 billion barrels. And, if we started drilling today, we would not see any oil for almost 10 years. Stripper wells, by contrast, already exist, have proven production histories, production equipment, and transportation facilities in place. Why wouldn't you elect to exploit that capability now?
Twenty-eight (28) states have stripper oil wells. Texas, Oklahoma, Kansas and Ohio are the four with the largest number. Texas, alone, has slightly over 126,000 stripper oil wells.
Twenty-eight (28) states have stripper gas wells. West Virginia, Pennsylvania, Ohio and Texas are the four with the largest number. West Virginia has over 36,000 such wells; Texas has over 29,000 stripper gas wells. In 2004, Texas totals over 14,000 abandoned, orphan wells according to the Texas Railroad Commission published report.
The cumulative impact of stripper well production plays a significant role in the U.S. economy. In the last ten years, 4.3 billion barrels of oil equivalent has been achieved from these marginal producers. By contrast, the stripper wells abandoned and lost during this same time cost more than 22,000 jobs and $4 billion in economic activity.
Most people do not know that you can't just turn an oil well on and off . One-sixth of our natural gas production comes from associated oil production. If you lose one, you lose the other. In the last ten years, over 175,000 oil and gas wells have been abandoned or plugged.
The American oil and gas industry has a vital interest in maintaining and enhancing the production of these stripper wells. To that end, the industry and the Department of Energy have a number of studies under way at universities and laboratories around the country. Here in Texas, the Southwest Research Institute in San Antonio and the Petroleum Engineering Departments at the University of Houston and Texas A&M University all have received DOE grants for studies of enhanced oil and gas recovery methods. Louisiana State University and the University of Oklahoma have also received major grants to study enhanced oil and gas recovery. These are important matters for our domestic energy industry and our national welfare.
Nearly two out of every three barrels of oil ever discovered in the United States still remain trapped underground after conventional recovery operations. This staggering amount of remaining oil-approximately 200 billion barrels-can be one of America's best hopes for greater energy security.
OIL CITY, Pa. -- The deep gas play may be ramping up Pennsylvania's historic oil and gas patch, but it is putting a big hit on the traditional shallow oil drilling and production sprinkled profusely throughout the northwestern counties.
"The Marcellus and Utica shale drilling is affecting shallow oil operators," said Ray Stiglitz, owner of Allegheny Well Services Inc. and a longtime oilman. "The question is: why not more oil drilling when PennGrade is nearly at $100 a barrel? There are a lot of reasons and they involve what is happening because of the deep gas drilling."
Repercussions from the shift to deep gas recovery are threatening the state's crude oil industry.
Rapidly increasing supply and well service prices, scarcity of materials, waning interest in oil drilling, difficulty in signing oil leases, onerous new regulations and more are whipsawing oil drillers and producers.
In turn, oil production is down, and that is hurting the region's two leading refiners that rely on western Pennsylvania crude oil.
"The numbers for oil drilling are down," said Craig Lobins, district manager of the Department of Environmental Protection's oil and gas management office in Meadville. "It's a big drop in 2011 from the previous year."
In 2007, there were 1,733 oil drilling permits issued for the four leading oil production counties -- Venango, Warren, Forest and McKean. While that total spurted to 1,817 in 2008 when oil hit record high prices at $138-plus a barrel, it fell to 1,092 for 2011.Overall, the northern DEP office issued 4,221 oil and gas drilling permits for 27 northern counties in 2011, down considerably from the 4,683 in 2010."But 60 percent of those permits were for the deeper shale gas and that just keeps climbing. That is a significant shift away from oil," said Lobins.Just three years earlier, the deep gas play accounted for about 5 percent of all permits issued.
As the Marcellus and Utica shale play sizzles up the oil and gas patch, the old-time petroleum industry is getting a bum's rush, said Gary Hovis, an oil producer from Kennerdell.
"We'll be losing producers and drillers here soon," said Hovis, whose 20 producing oil wells in the southern part of the county include one drilled in 1880.
A long oil heritage: Pennsylvania, birthplace of the petroleum industry thanks to Col. Edwin Drake's fortuitious 1859 well near Titusville, has 19,000-plus oil wells in production. Those shallow wells plugged nearly 4 million barrels of crude oil into the marketplace last year.
In sharp contrast to deeper oil wells in the Oklahoma and Texas fields, Pennsylvania's wells are classified as stripper wells, or shallow wells that are marginal producers and eke out 10 barrels of oil or less a day. The average stripper well in Pennsylvania yields less than half a barrel (0.43) of oil a day, or about 18 gallons of crude oil.
Still, at today's going rate of nearly $100 a 42-gallon barrel, there's money to be made in conventional oil production that typically features a mom-and-pop operation going back two or three generations.
The enterprise, though, has been turned topsy-turvey because of the deep shale gas industry that has drawn in global, mega-energy companies intent on tapping hugely prolific natural gas tucked inside rock strata ten-times deeper than Pennsylvania's conventional oil sands.
In reaction to what it sees as a regulation over-reach and a desertion in the oil trade's ranks, the Pennsylvania Independent Petroleum Producers (PIPP) is back at beating the drums. The trade group of about 250 independent producers was formed in in 1984 in Oil City in vigorous opposition to the controversial Act 223, the Oil and Gas Act of 1984, that laid out strict and comprehensive regulations for the state's oil and gas industry. Its overtures led to several easements and modifications of the legislation.
Today, PIPP is again raising issues it believes must be resolved if the shallow oil industry is to survive the deep gas rush, said Hovis, president of the trade group. PIPP members have met frequently with industry people, elected officials and representatives from the Pennsylvania Department of Environmental Protection that oversees oil and gas operations. The gist of the talks has been an insistence by oil drillers and producers that newer and tighter regulations adopted in light of the Marcellus and Utica shale surge ought to be different for shallow oil.
"Those associated costs to comply mean we are just coasting along with old production. We are not in the same category as the deep gas because our volume is so low, the wells are shallow, the production water so much less and on and on," said Hovis.
There are charges that DEP inspectors, their ranks significantly expanded last year to handle an anticipated surge in deep gas drilling, are drawing a bead on oil producers because "they aren't busy enough with Marcellus," said Glenn Weaver, a longtime oil driller and producer from Franklin. Weaver's cache of wells numbers about 70 in Venango County.
"They hired a lot of manpower in preparation for Marcellus and Utica. They has not jumped up like they thought so they are out looking for problems so they can issue fines and pay for their department," insisted Weaver. "I've punched holes in the ground for 50 years but maybe, no more."There is a copious amount of anecdotal information as to oilmen's insuations that they are being harassed by inspectors. One driller said a five-gallon can filled with lubes to service a well was accidentally tipped over at a well site. As the driller cleaned it up, a DEP inspector fined him $5,000 on the spot. Another producer who said he was fined for "brine dripping off a collection tank"said the inspector saw it on one day and returned the next day with a violation notice, a move the oilman though ran counter "to protecting the environment, which is what they are supposed to do, by letting it drip another day."For Stiglitz, the suggestion that the shallow oil industry is somehow complicit in environmental infractions doesn't sit well.
"A lot of this has to do with a fear factor. We are law-abiding, tax-paying citizens but we are looking over our shoulder all the time. What's coming next down the pike? Will we be viewed as outlaws? As a contributing memer of society, this is an awful way to live," said Stiglitz.
While their objections are pointed, their campaign to upend what they consider are onerous regulations prompted by a very different deep gas industry is civil, contends Hovis."We have a long history with oil and we want to keep it going. It's a business we enjoy, it's a way of life. And, it's in your blood," he said.
Thousands of wells
Pennsylvania, birthplace of the petroleum industry, has 19,000-plus stripper, or shallow, oil wells in production. Last year, those wells plugged nearly 4 million barrels of crude oil into the marketplace.
They are classified as stripper wells that are marginal producers and eke out 10 barrels or less of crude a day. Most of Pennsylvania’s crude comes from McKean, Warren, Forest and Venango counties.
There are more than 55,000 shallow natural gas wells that produce enough to satisfy 25 percent of the state’s annual demand. Those wells, too, are shallow and marginal producers.
In contrast, the wells drilled over the past decade into the Marcellus and Utica shales are deeper, more prolific and more problematic since they require millions of gallons of water for fracking. The flowback fluids, or brine, contain drilling chemicals and are substantially more copious than what flows from shallow wells.
‘One size doesn’t fit all’
Despite the differences, the state regulations on the oil and gas industry make little distinction between shallow and deep operations, said Hovis. That is creating an onerous situation for marginal well operations that have less volume and create less production water.
A delegation of PIPP members met with state energy officials in Harrisburg earlier this year to argue their case that “one size doesn’t fit all,” Hovis said. The visit didn’t yield any solution, he added.
This past summer, Gov. Tom Corbett also dodged the question of whether new drilling and production regulations were unduly hard on and not applicable to shallow oil and gas production. He told an audience he would have “to find out exactly what’s going on there.”
The new regulation, one that would sharply restrict discharge limits for chloride, would upend the usual treatment methods provided by brine disposal plants such as the Franklin brine plant, a facility Hovis said is “essential for the survival” of shallow oil and gas production but will have to close if the new chloride-reduction regulation is approved.
The alternative of injecting brine into disposal wells is not realistic because Pennsylvania’s geology does not meet injection well specifications, Hovis said.
The new restrictions will spell the end of shallow production because the industry will have no acceptable method of brine disposal, he insisted.
4.1 Industry Definition
Governmental Regulations:
The oil and natural gas industry is subject to various types of regulation throughout the world. Laws, rules, regulations, and other policy implementations affecting the oil and natural gas industry have been pervasive and are under constant review for amendment or expansion. Pursuant to public policy changes, numerous government agencies have issued extensive laws and regulations binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Such laws and regulations have a significant impact on oil and gas exploration, production and marketing and midstream activities. These laws and regulations increase the cost of doing business and, consequently, affect profitability. Because public policy changes affecting the oil and natural gas industry are commonplace and because existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations. However, we do not expect that any of these laws and regulations will affect our operations in a manner materially different than they would affect other oil and natural gas companies of similar size and financial strength.
Environmental:
Our operations are subject to the usual hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires and pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. In addition, the presence of unanticipated pressures or irregularities in formations, miscalculations, or accidents may cause our drilling activities to be unsuccessful and result in a total loss of our investment. We do not maintain insurance of the various types to cover our operations with policy limits and retention liability customary in the industry. The occurrence of a significant adverse event, the risks of which are not covered by insurance, could have a material adverse effect on our financial condition and results of operations. We cannot give any assurances that we will be able to obtain adequate insurance in the future at rates we consider reasonable.
A rework well or producing well requires maintenance by a company representative sometimes referred to as a “pumper” to insure the well(s) produce at their capacity and to monitor production. As per the terms of the lease, a gate may be installed by the well Operator to prohibit access to the Property by unauthorized personnel. The gate is typically locked and a key may be provided to the landowner. The well may require periodic maintenance by a service rig during the life of the well. Surface equipment includes a wellhead, gas meter, storage tank (for oil wells), separator, and pipeline. Lease is held-by-production during the life of the well(s).
When the well is no longer considered productive, the Company is required to plug the well under the direction of the Division of Oil and Gas inspector for the State. This involves placing cement plugs at various depths to isolate producing intervals, protect fresh water aquifers and coal seams. The site is reclaimed and vegetation is established to prevent erosion from the well site. After all wells on a lease are plugged, the lease is terminated and returned to the mineral owner.
After completion and testing of a workover well or an offset well, the well is put into production. As in the case of oil, the oil is pumped into a 100 BBL or 200 BBL tank(s). The pumper inspects the well on a daily or regular routine basis and monitors the production of oil. As the tank(s) nears capacity, the pumper will make arrangements for pickup of the oil for delivery to the Purchaser. The cost of hauling the oil to the refinery varies by distance from the well to the refinery and can range from $3 to $6 per BBL. The cost of the freight charge is borne by the Company. Oil collected or shipped during the month is paid by the Purchaser in the following month. The price paid for the produced oil is based on the average monthly market price.
4.2 Primary Competitors
Industry Competition For Leases, Materials, People and Capital Can Be Significant
Strong competition exists in all sectors of the oil and gas industry. We compete with other independent oil and gas companies for the acquisition of oil and gas leases and properties. Most of these entities have significantly greater assets and name recognition. We also compete for the equipment and personnel required to explore, develop and operate properties.
Competition is also prevalent in the marketing of oil and gas. Typically, during times of high or rising commodity prices, drilling and operating costs will also increase. Higher prices will also generally increase the costs of properties available for acquisition. Certain of our competitors have financial and other resources substantially larger than ours.
They also may have established strategic long-term positions and relationships in areas in which we may seek new entry. As a consequence, we may be at a competitive disadvantage in the acquisition of oil and gas leases and properties. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and gas production, such as changing worldwide price and production levels, the cost and availability of alternative fuels, and the application of government regulations.
We will hire third party companies to undertake our development programs.
We will have to hire employees or retain independent companies to oversee or perform our development operations. We currently do not have sufficient funds for either. As such, even with exploitable deposits of oil or gas, we may not be able to develop our leasehold interests.
Our organization is subject to extensive and complex, federal and state laws and regulations. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties or be subject to injunctions or cease and desist orders.
4.3 Market Size
Environmental matters and costs can be significant.
As an operator of oil and gas properties, we are subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from our operations in affected areas. Any future environmental costs of fulfilling our commitments to the environment are uncertain and will be governed by several factors, including future changes to regulatory requirements. There is no assurance that changes in or additions to public policy regarding the protection of the environment will not have a significant impact on our operations and profitability.
We have no history as a company engaged in oil and gas development or exploration.
We have no history of earnings or cash flow from oil and gas operations. If we are able to proceed to production, commercial viability will be affected by factors that are beyond our control such as the particular attributes of the deposit, the fluctuation in the prices of oil and gas, the cost of construction and operating an oil or gas well, prices, and refining facilities, the availability of economic sources for energy, government regulations including regulations relating to prices, royalties, restrictions on production, quotas on exploration, as the costs of protection of the environment.
If our exploration costs are higher than anticipated, then our profitability will be adversely affected.
We are currently proceeding with development and/or exploration of our leasehold interests on the basis of estimated development/exploration costs. If our development/exploration costs are greater than anticipated we may be forced to terminate our operations until such time as we generate additional revenues to fund our operations. Factors that could cause development/exploration costs to increase are adverse weather conditions, difficult terrain, unknown or unexpected results when we re-enter a well, increased government regulation and shortages of qualified personnel.
We face many operating hazards.
The development and operation of an oil or gas well involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. These risks include, among other things, ground fall, flooding, environmental hazards, and the discharge of toxic chemicals, explosions and other accidents. Such occurrences may result in work stoppages, delays in production, increased production costs, damage to or destruction of mines and other producing facilities, injury or loss of life, damage to property, environmental damage, and possible legal liability for such damages.
There may be insufficient oil and gas reserves to develop any of our properties and our estimates may be inaccurate.
There is no certainty that any expenditures made in the development/exploration of any properties will result in discoveries of commercially recoverable quantities of oil or gas. Most development/exploration projects do not result in the discovery of commercially extractable deposits of oil or gas and no assurance can be given that any particular level of recovery will in fact be realized or that any identified leasehold interest will ever qualify as a commercially developed. Estimates of reserves, deposits, and production costs can also be affected by such factors as environmental regulations and requirements, weather, unexpected or unknown results when we re-enter a well, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, and work interruptions.
Short term factors relating to reserves, such as the need for orderly development of the wells may also have an adverse effect on our development/exploration, drilling and on the results of operations. There can be no assurance the production of insignificant amounts of oil can be duplicated in a larger exploration program. Material changes in estimated reserves, development/drilling costs may affect the economic viability of any project.
United States Market
The United States relied on net imports (imports minus exports) for about 40% of the petroleum (crude oil and petroleum products) that the United States consumed in 2012. Just over half of these imports came from the Western Hemisphere. The United States dependence on foreign petroleum has declined since peaking in 2005.
The United States consumed 18.6 million barrels per day (MMbd) of petroleum products during 2012, making the United States the world's largest petroleum consumer. The United States was third in crude oil production at 6.5 MMbd. Crude oil alone, however, does not constitute all U.S. petroleum supplies. Significant gains occur because crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and the United States have other sources of liquid fuel, including biofuels. These additional supplies totaled 4.8 MMbd in 2012.
The United States imported 11.0 MMbd of crude oil and refined petroleum products in 2012. The United States also exported 3.2 MMbd of crude oil and petroleum products, so the United States net imports (imports minus exports) equaled 7.4 MMbd.[1]
In 2012, the United States imported 2.1 MMbd of petroleum products such as gasoline, diesel fuel, heating oil, jet fuel, and other products while exporting 3.1 MMbd of products, making the United States a net exporter of petroleum products.[1]
Top sources of net crude oil and petroleum product imports
·Canada (28%)[1]
·Saudi Arabia (13%)[1]
·Mexico (10%)[1]
·Venezuela (9%)[1]
·Russia (5%)[1]
[1] Source EIA, link (current August 24, 2013): http://www.eia.gov/energy_in_brief/article/foreign_oil_dependence.cfm
Crude oil imports from the top five foreign suppliers to the United States—which in 2012 were Canada, Saudi Arabia, Mexico, Venezuela, and Iraq, in that order—accounted for almost 72% of total U.S. net crude oil imports, the highest proportion since 1997. The import share of the top five suppliers increased by 8 percentage points over the past three years despite a decline in total U.S. import volumes as the United States reduced its total crude oil imports in response to higher domestic oil production.[2]
U.S. net crude oil imports from the five countries averaged almost 6.1 million barrels per day (bbl/d) in 2012, even as total U.S. crude oil imports fell to their lowest level since 1997. Crude oil from the five countries accounted for a bigger share of overall U.S. net crude oil imports in 2012 than in previous years, at almost 72%, according to EIA's Petroleum Supply Monthly report. That share is up from around 64% in 2009, when the economic recession resulted in declining U.S. crude oil demand, and the highest share since reaching almost 73% in 1997. During 2012, Iraq replaced Nigeria as the fifth-largest supplier of U.S. crude oil imports.
Highlights from the major crude oil supplying countries to the United States in 2012 included:
·Canada - Crude oil imports by the United States averaged a record 2.4 million bbl/d, up 8% from their 2011 level.
·Saudi Arabia - Crude oil imports averaged almost 1.4 million bbl/d, up 14% from their 2011 level, and were the highest since 2008.
·Mexico - Crude oil imports of 972,000 bbl/d were down almost 12%, and fell below 1 million bbl/day for the first time since 1994, reflecting the steady decline in Mexico's crude oil production.
·Venezuela - Crude oil imports rose 4% to 906,000 bbl/d, the first increase since 2007. Venezuela's state oil company sent more crude to U.S. refineries, which exported more gasoline and other petroleum products back to Venezuela.
·Iraq. Crude oil imports of 474,000 bbl/d were up slightly more than 3% from 2011, moving Iraq ahead of Nigeria as the fifth-largest oil supplier to the United States for the first time since 1999. Iraq's crude oil production in the second half of last year topped 3 million bbl/d for first time since the end of the Gulf War in 1990.
·Nigeria - Crude oil imports of 405,000 bbl/d were down 42% from the year before and the lowest since 1985. Growing domestic production of light sweet crude oil of similar quality to Nigerian crude and lower demand for light sweet crude from United States East Coast refineries contributed to the decline.
U.S. - production of liquid fuels (mostly oil) will increase for the next 29 years by 108.11% of 2011 production levels by 2040 peaking by year 2020 with an annual production of 7.47 million barrels per day, an increase of 131.7% compared to 2011 domestic crude oil production, according to the Energy Information Administration (EIA)
Projected crude oil production in the United States ranges from 6 to 8 million barrels per day (bbl/d) over the next 30 years in the Annual Energy Outlook 2013 (AEO2013) Reference case projection. However, under greater supply assumptions, crude oil production is sustained at a higher level of about 10 million bbl/d between 2020 and 2040
In this higher resource scenario, total U.S. liquid fuels production (which includes crude oil, natural gas liquids (NGL), refinery gains, biofuels, and other liquid fuels) increases to more than 18 million bbl/d in 2040, compared to 12 million bbl/d in the Reference case. That level of domestic production reduces net imports to 7% or less of total demand compared to 40% in 2012. Production projections inevitably reflect many uncertainties regarding the actual level of crude oil resources available, the difficulty or ease in extracting them, and the evolution of the technologies (and associated costs) used to recover them.
The EIA developed a High Oil and Gas Resource case as part of the AEO2013 to examine the effects of higher domestic production on energy demand, imports, and prices. This alternative case presents a scenario in which U.S. crude oil production continues to expand after 2020, driven primarily by tight oil production. This increased production results from assumed greater technically recoverable tight oil resources, as well as undiscovered resources in Alaska and the offshore Lower 48 states. In addition, the maximum penetration rate for gas-to-liquids (GTL) is increased and kerogen (oil shale) is assumed to begin development. In the High Oil and Gas Resource case, NGL production increases from 2.2 million bbl/d in 2011 to 5.0 million bbl/d in 2040, compared to just under 3 million bb/d in 2040 in the Reference case. GTL output reaches about 0.6 million bbl/d, compared to about 0.2 million bbl/d in the Reference case.
Estimates of technically recoverable resources from the rapidly developing tight oil formations are particularly uncertain and change over time as new information is gained through drilling, production, and technology experimentation. Projections embody many assumptions that might not prove to be valid over the long term and over all tight and shale formations. In the High Oil and Gas Resource case, the tight oil resources are increased by changing the estimated ultimate recovery (EUR) per well and assuming closer well spacing.
4.4 Market Growth
US Oil And Gas Industry Employment Growing Much Faster Than Total Private Sector Employment
From the start of 2007 through the end of 2012, total U.S. private sector employment increased by more than one million jobs, about 1%. Over the same period, the oil and natural gas industry increased by more than 162,000 jobs, a 40% increase.[6]
4.5 Customer Profile
US East Coast oil refineries enjoy a stirring comeback:
Alarm bells rang along the US Eastern Seaboard not too long ago that the region would face fuel shortages due to refinery closures in the region, but the dynamics changed with the entrance of some new players as well as domestic crude supply via rail from the Bakken Shale play.
The region is study in contrasts in a matter of a few short years. A couple of years ago, it seemed three major plants might close: the then Sunoco-owned refineries in Marcus Hook and Philadelphia, Pennsylvania, and the then ConocoPhillips-owned Trainer, Pennsylvania, refinery. All that came amid Hess and partner PDVSA initially scaling back operations of the Hovensa refinery on St. Croix, which exported to the US Atlantic Coast, to 350,000 b/d in 2011 before shutting it in January 2012.
The US Energy Information Administration focused on the potential problem in an initial report in late 2011 that was updated in the spring of last year. One thrust was EIA noting that if the Philadelphia, Marcus Hook and Trainer plants went offline, that would result in the loss of 50% of East Coast refining capacity (as of August 2011).
But, Philadelphia Energy Solutions now runs the 330,000 b/d Philadelphia refinery while a subsidiary of Delta Airlines runs the 185,000 b/d Trainer refinery, having bought it in June 2012 to recalibrate the plant to produce more jet fuel. Trainer also supplies refined products to Phillips 66 and BP. The 175,000 b/d Marcus Hook refinery was idled at the end of 2011 and now serves as a Sunoco Logistics tank farm storing gasoline and middle distillates.
While some refineries have stopped producing fuel in the region — Hess’ 70,000 FCC plant in Port Reading, New Jersey, Sunoco’s 140,000 b/d Eagle Point refinery in Westville, N.J., and the then Western Refining-owned 128,000 b/d Yorktown, Virginia, refinery (all three now serve as terminals) — the net result has hardly been devastating, given that the two Philly biggies stayed online.
The oil refinery in Trainer, Pennsylvania, that closed down nearly one year ago will restart later this month under the new ownership of Delta Air Lines, according to Reuters.
The 185,000 Trainer oil refinery had been forced to close after the previous owners, BP and Phillips 66, failed to find any interested buyers. However, a major effort to save the refinery led to a deal that made Delta the first American airline to own its own jet fuel refining plant.
The airline planned to spend around $100 million to upgrade the facility's jet fuel production capacity to around 52,000 barrels per day, but Monroe Energy, which will operate the plant, has worked out a deal to exchange its gasoline production for jet fuel from BP and Phillips 66. In all, Delta's investment is expected to save the company roughly $300 million each year in fuel costs.
"Monroe Energy is in the process of restart right now, and is on track to begin producing jet fuel at full capacity by the end of the month," said Trebor Banstetter, a spokesman for the airline.
The Associated Press reports that the a key factor in bringing the oil refinery back online is the plan to ship in crude oil from North Dakota's Bakken shale play at much lower prices that the Brent-indexed crude it used previously.
Welcome to American Refining Group, Inc.
Our unique facility is situated on approximately 131 acres in Bradford, Pennsylvania, the heart of McKean County and the birthplace of the U.S. domestic oil industry more than 100 years ago. Our refinery has a rated capacity of 10,000 barrels per day and processes 100% Pennsylvania Grade Crude purchased from sources in Pennsylvania, Ohio, New York and West Virginia.
ARG stocks are converted into high quality waxes, lubricant base oils, gasoline and fuels, as well as a wide variety of specialty products. ARG’s state-of-the-art blending and packaging facilities have the capability of producing a full spectrum of finished lubricant products which can be delivered in bulk by rail and truck, and are available in a broad range of package sizes. Our total commitment to quality is proven through our packaging plant and refinery being ISO 9001:2008 certified.
5. Marketing Plan
We apply modern production theory and technology to remediate wells that are either non-producing or are marginally producing.
StrandedWells drilled during the boom of the 1980’s have been ‘left behind’
These neglected assets are The Now Corporation opportunityNew theory and technology enables these stranded reserves to be produced with minimal cost.
By using modern technology such as the GasGun™ we are able to significantly boost the production of these fields economically.
The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East.
Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007.[1] The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value.
Governments such as the United States government provide a heavy public subsidy to petroleum companies, with major tax breaks at virtually every stage of oil exploration and extraction, including for the costs of oil field leases and drilling equipment.
An oil well is a general term for any boring through the Earth's surface that is designed to find and acquire petroleum oil hydrocarbons. Usually some natural gas is produced along with the oil. A well that is designed to produce mainly or only gas may be termed a gas well.
Usually attached to the oil derrick is the Oil well Dog House where the decisions are made for actions taken on the rig floor. Newer oil wells have hydraulic feet that are called Walking Rigs that allow for the rig to move several yards on its own without taking the derrick apart. This saves time as dual laterals can be drilled.
The production stage is the most important stage of a well's life, when the oil and gas are produced. By this time, the oil rigs and workover rigs used to drill and complete the well have moved off the wellbore, and the top is usually outfitted with a collection of valves called a Christmas tree or production tree. These valves regulate pressures, control flows, and allow access to the wellbore in case further completion work is needed. From the outlet valve of the production tree, the flow can be connected to a distribution network of pipelines and tanks to supply the product to refineries, natural gas compressor stations, or oil export terminals.
As long as the pressure in the reservoir remains high enough, the production tree is all that is required to produce the well. If the pressure depletes and it is considered economically viable, an artificial lift method mentioned in the completions section can be employed.
Workovers are often necessary in older wells, which may need smaller diameter tubing, scale or paraffin removal, acid matrix jobs, or completing new zones of interest in a shallower reservoir. Such remedial work can be performed using workover rigs – also known as pulling units, completion rigs or "service rigs" – to pull and replace tubing, or by the use of well intervention techniques utilizing coiled tubing. Depending on the type of lift system and wellhead a rod rig or flushby can be used to change a pump without pulling the tubing.
Enhanced recovery methods such as water flooding, steam flooding, or CO2 flooding may be used to increase reservoir pressure and provide a "sweep" effect to push hydrocarbons out of the reservoir. Such methods require the use of injection wells (often chosen from old production wells in a carefully determined pattern), and are used when facing problems with reservoir pressure depletion, high oil viscosity, or can even be employed early in a field's life. In certain cases – depending on the reservoir's geomechanics – reservoir engineers may determine that ultimate recoverable oil may be increased by applying a waterflooding strategy early in the field's development rather than later. Such enhanced recovery techniques are often called "tertiary recovery".
A report published by the American Petroleum Institute showed a decline in crude oil inventories of 2.6 million barrels with a fall of 900,000 barrels in gasoline supplies and a decline of 700,000 barrels in distillate supplies. Meanwhile, commercial crude inventories have fallen by 2.8 million barrels with the total U.S. commercial crude inventory of 364.2 million barrels. In the previous week, crude oil inventories fell 6.90 million to 367.00 million barrels. The fall in crude supplies is attributed to reduction from Canada as well as increased demand from the WP Whiting Indiana Plant that restarted work. In spite of the drop in the crude stock piles, the inventories are at more than comfortable levels and so is the gasoline supply.
WTI crude price at Brent price levels
For the week that went by, crude imports averaged 327,000 barrels a day up by more than 8 million barrels a day. On the other hand, refineries, for the above period, were reportedly running at 92.3 % of capacity with daily input of sixteen million barrels per day. At least for the domestic refining sector in the US, the present is the best time. One reason for the- recent- narrow price difference between WTI and Brent crude oil prices.
Elsewhere, China's manufacturing has reported an eleven month low this month. Analysts fear of a slowdown in Chinese economy with lesser demand for oil. So the latest weak manufacturing data from the Asian Giant is all it prevents the investors from going hunky-dory over the prices. As if they aren't already high, even with record oil production in the US.
What guarantees the minimum price of oil (and gas)? Surprisingly it's not production costs. Indeed.
Obviously, drilling for oil is pricey. Expensive labor, swelling cost of inputs like diesel fuel, chemicals and steel have all, in various degrees, increased the cost of exploration and production. The supplies from unconventional sources are also expensive. Furthermore, with stringent environmental norms in place, oil companies are forced to shell out more to keep their licenses. According to a research report published last year by Bernstein Research the cost of production in the most expensive (marginal cost of supply) new field has shot up to $92 per barrel, quickly nearing $ 100 per barrel-excusing OPEC and former Soviet Union. In simple economic terms, higher oil prices lure the companies to spend humongous resources on exploration and drilling. If the prices fall below a certain range, it becomes unviable for oil companies to spend energy on future explorations.
Indeed, like bees complaining of honey, oil and gas companies shout of the need to have oil prices between $80 - $85 a barrel for sustained exploration and development. Of course, it's the higher oil prices, as the popular justification goes, that permit oil companies to explore oil sands and shale and recover the higher production cost. And, we are talking about billions of dollars as investment, as profit. Counter intuitive? Well, what about the existing wells? Got you! Don't existing wells produce oil too? In other words, we aren't talking about wells that don't exist, are we? Reel or real? Ans: Real. Productive wells on large reserves continue to process oil and gas. What about them?
Except, we are back to the question: why not lower oil prices? The answer lies in a bunch of reasons, the biggest being the price of political stability.
Drilling activity should remain strong in the US and Canada in 2012 after substantial year-to-year gains in 2011. OGJ looks for a 4% increase in total drilling in the US and an 11.5% hike in Canada in 2012. Operators in the US are for the most part maximizing efforts in plays for oil and wet gas and relaxing capital spending in dry gas areas. Horizontal drilling and hydraulic fracturing continue to be the primary drivers. Shale plays are at the fore of unconventional activity, while low-permeability plays encompass large areas in Texas, Oklahoma, and other states. Few companies had announced 2012 capital spending plans by the time of this writing in mid-December 2011.
The history of the petroleum industry in the United States goes back to the early 19th century, although the indigenous peoples, like many ancient societies, have used petroleum seeps since prehistoric times; where found, these seeps signaled the growth of the industry from the earliest discoveries to the more recent. Petroleum became a major industry following the oil discovery at Oil Creek Pennsylvania in 1859. For much of the 19th and 20th centuries, the US was the largest oil producing country in the world; it is now the 3rd largest. However, the International Energy Agency projected that, due to the recent tight oil boom, the U.S. will surpass both Saudi Arabia and Russia and become the worlds largest oil producer circa 2017-2020. During the oil spike of 2007-08, energy independence returned to the forefront of American politics for the first time since the 1973 oil embargo. One of the critical differences between the United States and other industrialized countries such as Japan or Germany is the U.S. sits upon substantial oil deposits. Six decades ago, the U.S. was a net exporter of oil. While even maximum exploitation of American oil resources could never meet the country's huge demand, there are some benefits to be had in relying more on domestic resources.
THE NOW CORPORATION IS IN PENNSYLVANIA WHERE ONE OF THE BIGGEST PLAYS EXISTS AND NEEDS PROMOTION:
The Marcellus Formation is a black shale that may contain limestone beds and concentrations of iron pyrite (FeS2) and siderite (FeCO3).[7] Its sedimentary structure, or bedding, is moderately well developed. Like most shales, it tends to split easily along the bedding plane, a property known as fissility.[7] Lighter colored shales in the upper portion of the formation tend to split into small thin-edged fragments after exposure.[8] These fragments may have rust stains from exposure of pyrite to air, and tiny gypsum (CaSO4·2H2O) crystals from the reaction between pyrite and limestone particles.[8] Fresh exposures of the pyriteiferous shale may develop the secondary mineralization of orange limonite (FeO(OH)·nH2O), and the pale yellow efflorescence or bloom of sulfur, associated with acid rock drainage.
Maximum thickness of the Marcellus ranges from 270 m (890 ft) in New Jersey,[1] to 12 m (40 ft) in Canada.[25] In West Virginia, the Marcellus Formation is as much as 60 m (200 ft) thick.[68] In extreme eastern Pennsylvania, it is 240 m (790 ft) thick,[39] thinning to the west, becoming only 15 m (49 ft) thick along the Ohio River, and only a few feet in Licking County, Ohio.[4] The thinning, or stratigraphic convergence, from east to west is caused by decreasing grain size in the clastic deposits, which entered the basin from the east.[83] The beds finally "pinch out" westward because deposition was limited by the Cincinnati Arch,[45][92] the bulge that formed the west shore of the basin. Where the formation is relatively thick, it is divided into several members, and as the formation continues to thicken to the east, these members are further divided. Some workers chose to classify the Marcellus as a subgroup, and classify some of the members as separate formations.
Natural Gas
Main article: Marcellus natural gas trend
The Marcellus natural gas trend, which encompasses 104,000 square miles and stretches across Pennsylvania and West Virginia, and into southeast Ohio and upstate New York, is the largest source of natural gas in the United States, and production was still growing rapidly in 2013. The Marcellus is an example of shale gas, natural gas trapped in low-permeability shale, and requires the well completion method of hydraulic fracturing to allow the gas to flow to the well bore. The surge in drilling activity in the Marcellus Shale since 2008 has generated both economic benefits and considerable controversy.
5.1 Competitive Advantage
The SWC is an industry-driven consortium that is focused on the development, demonstration, and deployment of new technologies needed to improve the production performance of natural gas and petroleum stripper wells. SWC is comprised of natural gas and petroleum producers, service companies, industry consultants, universities, and industrial trade organizations. The Strategic Center for Natural Gas and the New York State Energy Research and Development Authority provide base funding and guidance to the consortium. By pooling financial and human resources, the SWC membership can economically develop technologies that will extend the life and production of the nation's stripper wells.
Formation
SWC was established on September 30, 2000 through a cooperative agreement between the U.S. Department of Energy (DOE) and The Pennsylvania State University. This agreement provides approximately $3M of base funding over a three year period. The agreement provides Penn State the overarching management responsibilities for the consortium.
Organizational Structure
SWC is industry-driven and is tailored to meet the needs of its members. Active industrial participation and leadership is key to making the consortium a success. The SWC has a Constitution and Bylaws under which the consortium will be governed to operate. Each SWC member appoints one representative to a Technical Advisory Committee. The Technical Advisory Committee is responsible for steering the technical direction of the consortium and is responsible for electing a seven-member Executive Council. The Executive Council is responsible for selecting proposed research projects that will lead to improving natural gas/ petroleum production from stripper wells. The process of having industry develop, review, and select projects for funding will ensure that the consortium conducts research that is relevant and timely to the natural gas and petroleum industry.
Technology Development
Research will be conducted in three broad areas: reservoir remediation, wellbore clean-up, and surface system optimization. Research outside of these three areas may be considered pending approval of the program sponsors. Specific research projects will be developed by the membership using a standardized proposal template. Proposal submission is limited to full members of the consortium. Collaboration between full members is encouraged. Projects will be funded on an annual basis. Each proposal is required to provide a minimum of 30% cost share which is to be provided by the project participants. Cost share may be in the form of cash and/or in-kind support. The use of Federal funds for cost share is prohibited. Intellectual property provisions will follow Penn State's Cooperative Agreement with DOE.
Successful Oil and Gas Technology Transfer Program Extended to 2015
Long-Term Success of Stripper Well Consortium Supports Small Oil and Gas Producers
Washington, D.C. – The Stripper Well Consortium (SWC) – a program that has successfully provided and transferred technological advances to small, independent oil and gas operators over the past nine years – has been extended to 2015 by the U.S. Department of Energy (DOE). An industry-driven consortium initiated in 2000, SWC’s goal is to keep "stripper wells" productive in an environmentally safe manner, maximizing the recovery of domestic hydrocarbon resources. The consortium is managed and administered by The Pennsylvania State University on behalf of DOE; the Office of Fossil Energy’s (FE) National Energy Technology Laboratory (NETL) and the New York State Energy Research and Development Authority provide base funding and technical guidance to the program. Stripper wells produce less than 10 barrels of oil or 60,000 cubic feet of natural gas per day. More than 396,000 stripper oil wells account for nearly 800,000 barrels of oil per day, or about 10 percent of the lower-48 production, and more than 322,000 stripper natural gas wells account for over 1.7 trillion cubic feet of annual natural gas production, or 9 percent of the natural gas produced in the lower 48. Once a well is plugged and abandoned, the reserves left behind are "lost forever" since it is typically uneconomical to drill another well to recover these abandoned reserves. Every dollar of stripper oil and natural gas production creates roughly one dollar of economic activity and nearly 10 jobs result from every million dollars of stripper well oil and natural gas produced. Nearly 100 projects have been funded since the initiation of the consortium, which consists of small domestic oil and natural gas producers, as well as service and supply companies, trade associations, industry consultants, technology entrepreneurs, and academia. The successful development and commercialization of many of these projects provided the incentive for DOE to continue program funding.
Several of the successes include:
The Gas Operated Automatic Lift (GOAL) PetroPump developed by Brandywine Energy & Development Company. The pump removes fluid from the wellbore more consistently than currently available plunger lift systems. Test results on wells in New York showed a 1.5 to 2.3-time increase in gas yield using the GOAL PetroPump over other casing plunger- type tools. The tool is inexpensive to operate because it requires no external energy source and limited manpower.
The Vortex Flow Tools LLC vortex flow unit works similar to a tornado, using produced natural gas to accelerate the water velocity, reduce friction, and assist in lifting and removing fluids. The results of using the flow unit are increased production while reducing the amount of down-time due to water in gas gathering and flow lines. Over 200 Vortex surface tools have been installed in gas-gatherin and production lines across theUnited States.
Pumping Solutions, Inc. (now part of Smith Lift LLC) has developed a new hydraulic diaphragm submersible pump to continuously clean stripper wells. The pump has been proven to be tolerant of coal and sand fines at higher concentrations than traditional systems. Among other features, it pumps gas/liquid mixtures, can be pumped dry without damage (within motor limits), maintains a constant output with depth, and has been shown to be highly efficient with reduced electric costs.
Tubel Technologies, Inc. developed three technologies for stripper wells. The first was a low-cost, real-time, down-hole wireless gauge. The gauge primarily measures temperature and pressure, but other parameters can also be measured. The wireless feature of the system eliminates the need for cables, clamps, and splices within the wellbore, thus significantly lowering cost and time for system deployment. The second technology was a plunger lift optimization process, which provides the operator information related to the performance of DOE - Fossil Energy Techline: http://fossil.energy.gov/news/techlines/2010/PrintVersion_1_38...
the plunger, identifying wells where the plunger is not operating optimally. The third technology is an upgrade of the second whereby the information captured at the wellhead is transmitted wirelessly to a control room at a remote location. This allows the operator to monitor hundreds of wells from a single location and could identify potential well and plunger lift problems fairly quickly to correct problems with minimum production loses.
Pre-Pump-Off Controls, a set of technologies developed by Oil Well Sentry, Inc., eliminates fluid level issues in beam-pumped wells. The system monitors the amount of fluid in the barrel pump at the bottom of the well and shuts off the beam pump motor or engine when the well is "pumped off." Use of the system has significantly increased production while decreasing motor/engine energy
consumption by 30 percent.
One out of every six barrels of crude oil produced in the United Statescomes from a marginal well - a well whose production has slowed to 10 to 15 barrels a day or less. Over 78 percent of the total number of U.S.oil wells are now classified as marginal wells. There are over 400,000 ofthese wells in the United States, and together they produce nearly 900thousand barrels of oil per day, 15 percent of U.S. production.
Many of these wells are marginally economic and at risk of beingprematurely abandoned. When world oil prices were in the low teens inthe late 1990s, the oil that flowed from marginal wells often cost moreto produce than the price it brought on the market. From 1994 to 2003,approximately 142,000 marginal wells were plugged andabandoned, costing the U.S. more than $3.0 billion in lost oil revenue at the EIA 2003 average world oil price.
When marginal wells are prematurely abandoned, significant quantitiesof oil remain behind. A common misperception is that oil left behindremains readily available for production when oil prices rise again. In
most instances, this is not the case, leaving our nation more dependenton foreign oil imports, even though prices have now recovered andreached record highs in 2004.
When marginal fields are abandoned, the surface infrastructure - the pumps, piping, storage vessels, and other processing equipment - is removed and the lease forfeited. Since much of this equipment wasprobably installed over many years, replacing it over a short periodshould oil prices jump upward, is enormously expensive. Oil prices wouldhave to rise several times higher than their historic highs - and mostimportantly, stay at elevated levels for many years - before there wouldbe sufficient economic justification to bring many marginal fields backinto production. As a result, once a marginal field abandoned, the oilthat remains behind is often lost forever. The costs of re-drilling aplugged well may be as much as or more than drilling a new well.
Estimates are that the marginal wells plugged and abandoned between 1994 and 2003 represented 110 million barrels of crude oil that was still in the ground.
The IOGCC defines a marginal (stripper) well as a well the produces 10 barrels of oil or 60 Mcf of natural gas per day or less. Generally, these wells started their productive life producing much greater volumes using natural pressure. Over time, the pressure decreases and production drops. That is not to say that the reservoirs which feed the wells are necessarily depleted. It has been estimated that in many cases marginal wells may be accessing a reservoir which stills holds two-thirds of its potential value.
Pennsylvania has a long history of producing natural gas from a large number of conventional shallow low-production wells, principally for domestic household use. Only Texas has more currently active wells.[1] Pennsylvania ranks 15th in natural gas production among U.S. states, and it is the largest producer without a severance tax.
The advancement of drilling technology and water treatment has strengthened the economic viability and long-term return on investment of extracting natural gas from the Marcellus Shale formation. Marcellus Shale is a unit of marine sedimentary rock found in eastern North America. It extends throughout much of the Appalachian Basin extending across West Virginia; western Ohio; western, central, and northeastern Pennsylvania; southwestern New York; and small portions of Virginia and Maryland.[2] The shale contains largely untapped natural gas reserves that, according to several studies, could conservatively supply U.S. consumption for nearly two decades.[3] The Marcellus Shale formation is estimated to be 10 times larger than the Barnett Shale formation in Texas and is attracting attention from major Texas-based natural gas production companies and big oil companies.