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Thursday, 12/27/2012 11:07:12 AM

Thursday, December 27, 2012 11:07:12 AM

Post# of 29204
No mention in Capstone in the following article that covers much of the E&P of natural gas.

By DANIEL GILBERT WSJ 12/25/12

Drillers Shift to Use of Natural Gas

Energy companies that want Americans to embrace the use of inexpensive natural gas are beginning to lead by example.

The three biggest providers of oil-field services in North America—Schlumberger Ltd., SLB -0.74% Halliburton Co. HAL -0.58% and Baker Hughes Inc. BHI -0.82% —are spending millions of dollars to retrofit pumps and drilling-rig engines to run on natural gas instead of diesel fuel.
[image] Bloomberg News

A Halliburton natural-gas drill in Colorado last year. The company is retrofitting gear to run on natural gas.

Oil and gas producers such as Apache Corp. APA -0.73% and Chesapeake Energy Corp. CHK -1.49% are driving the shift. After years of promoting the wider use of natural gas as a cleaner, cheaper alternative to petroleum-based fuels, the companies are concluding that natural-gas prices will stay low for years to come, allowing them to save money by substituting it for diesel in their own operations.

Converting to natural-gas-powered equipment has also become more feasible, now that manufacturers such as Caterpillar Inc. CAT -0.40% have devised better technology to run heavy equipment with the fuel.

"We're starting to think about how we as an industry can do this," said Mike Bahorich, Apache's chief technology officer.

In partnerships with both Schlumberger and Halliburton, Apache is converting pumps that blast water, sand and chemicals deep underground to break up rocks and allow oil and gas to flow out—a process known as hydraulic fracturing, or fracking. The retrofitted pumps use an engine add-on manufactured by Caterpillar that displaces as much as 70% of the diesel with natural gas.

Xstrata Says Cost Of Mine to Climb

Apache said its initiatives, in Oklahoma and Texas, will be the first to fracture wells using entire fleets of pumps converted to run on natural gas. The company estimates the shift will lower fuel costs for the jobs by approximately 40%, and could reduce its tab for drilling and fracking, estimated at more than $100 million in 2013, if expanded to other locations.

The boom in natural-gas production has far exceeded demand for the fuel, pushing prices to nearly the lowest levels in a decade. That has taken a toll on the balance sheets of gas producers and their contractors, forcing them to dial back drilling and look for other ways to reduce costs.

"We're trying to make the extraction of gas here commercially viable in a cheap gas environment," said Marc Edwards, a senior vice president at Halliburton, which is investing about $100 million in 2013 to convert its pumps, trucks and other equipment to run on natural gas. "If we can do that and our competitors struggle, then it creates a bigger market for our products and services."

The number of rigs drilling for gas in the U.S. last week had tumbled about 50% from a year earlier to 429, a level not seen since 1999, according to Baker Hughes data. The technology to convert diesel engines to run on natural gas has existed for years, but there hasn't been much demand for it until now.

Chad Peterson, a vice president in Schlumberger's pumping division, said that all of the company's new pumps would be able to run on natural gas.

"This is the direction we need to move in,"
he said. "We just never had this much gas before."

In late November, Baker Hughes fractured a well in South Texas for Cheyenne Petroleum Co., a small producer, using three pumps converted to run on natural gas. The new pumps reduced diesel consumption by 65% without a loss of horsepower, Baker Hughes said.

Royal Dutch Shell RDSB.LN +0.29% PLC is working with Green Field Energy Services, which employs a kind of pump that is powered by a turbine and uses 100% natural gas. The companies are preparing to fracture a well in South Texas that will use four of Green Field's gas-powered pumps.

Chesapeake, the country's second-biggest gas producer after Exxon Mobil Corp., XOM -1.06% is converting equipment as diverse as pickups, heavy-duty trucks, drilling rigs and fracking pumps to run on natural gas. The company estimates the conversions will cost about $250 million, but that it will quickly recoup its investment from lower fuel costs.

Even if the energy industry embraces the technology, the process is likely to be gradual. Despite the abundance of natural gas, it must be processed, then liquefied or compressed before it can be used to feed into engines. Many drilling locations don't have access to natural gas suitable for engines.

Caterpillar, though, is already looking at opportunities beyond the U.S., as energy companies step up their hunt for oil and gas in shale formations around the world.

"We see this trend moving out of North America and toward a more global market," said Joel Feucht, the general manager for gas engines at Caterpillar.

"Investing in it makes a lot of sense," he added.

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