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A recent oil and gas pipeline rupture demonstrates how important it is to have an experienced pipeline attorney review the document to make sure your land is protected to the full extent of the law. In this case, a 24-inch crude oil pipeline owned by Plains All American Pipeline LP (PAA) ruptured on May 19, 2015 in Santa Barbara, California. The pipeline experienced an 82% wall thickness loss at the rupture site. An evaluation released on June 3, 2015 by the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) indicated that there was a 6-inch opening running the length of the relevant section of pipeline. Both near the rupture and in other sections of the pipeline, corrosion had reduced the thickness of the pipe to 0.0625 inch. The PHMSA says they have not not yet been able to determine the cause of failure, although it certainly sounds as though the thinning of the pipeline was the culprit.

Conflicting Reports

The results released by PHMSA conflict with a report released by PAA which stated that there was only a 45% wall thickness loss in the area of the pipe rupture. PHMSA ordered PAA to perform another study on the pipeline and the rupture area, and to repair the damaged portion of the pipeline. PHMSA had previously ordered an indefinite shutdown of the pipeline.

My readers know that I am generally supportive of oil and gas companies, although in my practice, I represent only Texas land, mineral and royalty owners. Smart development of Texas mineral resources has significant benefits for Texans and the country through cheaper fuel, energy independence, and economic growth. But this week, a proposed House bill in the Texas legislature that is undoubtedly sponsored by an oil company really makes me see red!

The bill that has angered me, and many other Texas residents, is House Bill 1496, now in the Land and Resources Management Committee. The bill would amend the Texas Government Code, Title 10 Subtitle A Sections 2007.002 and 2007.003. This portion of the Government Code regulates the taking of private property by government action, such as in the case of eminent domain for a public purpose (think of a county condemning property for a new road). The proposed amendment provides that ordinances or regulations by cities or counties that attempt to regulate oil and gas drilling and production within the city limits or county limits will be considered a government taking of a private property right.

On first blush, you may ask, why is that a problem? Consider this: There may be cities or counties within Texas that, from time to time, create restrictions so severe that all oil and gas drilling and production activity is effectively prohibited. However, most of the regulations I am aware of are eminently reasonable. For example, many city or county regulations prohibit oil wells and compressors in residential areas or next to schools. There are good reasons for this. The noise and smell of an actively pumping oil well with an above ground pump, or the noise and smell of a compressor used on a gas well (especially one without a hospital muffler), are substantial. No one could sleep or have any peace near these activities. Secondly, no matter how high the fencing around pumps and other oilfield equipment, they are going to be an attractive nuisance for kids and teenagers and serious injuries or death may result. Thirdly, the location of these activities near homes is going to result in a substantial decrease in the value of those properties. Finally, local cities and counties who have drilling and production activity in residential areas forced upon them are going to find that the diminished value of those homes is going to decrease their tax revenues at a time when they are already struggling.

In what may be unsettling news for Houston, Devon Energy Corporation is closing its Houston, Texas office and shifting operations to Oklahoma City, where it has its corporate headquarters. The Houston office has been in charge of operations in Texas, Louisiana, Ohio and Michigan.

There were an estimated 500 employees working at the Houston office. Some of those employees will be transferred to Oklahoma City, the rest will be offered severance packages. The process of layoffs and transfers is expected to be completed and the newly consolidated operations up and running by the end of the first quarter of 2013. According to paperwork filed with the Texas Workforce Commission, Devon planned to cut 53 positions the first two weeks of January 2013 and then continue layoffs through the end of March, 2013.

Devon stated it expects this move to save $80 million per year from administrative and personnel expenses. Conversely, the cost of the restructuring and reorganization will cost Devon $125 million. The company has had some problems recently, as Devon posted a net loss of $179 million in the quarter that ended on September 30, 2012. Most of that loss was due to $1.1 billion non-cash impairment charge. Devon indicated that this move will allow it to be more flexible and to quickly move its workforce to wherever it is most needed at any given time. Devon officials also expect the consolidation to increase efficiency by promoting increased sharing of best practices within the home office.

The American Petroleum Institute (API) has strongly, and rightly, criticized the Environmental Protection Agency (EPA) again over its rejection of petitions to waive requirements for cellulosic bio-fuels. These bio-fuels are created from plant matter instead of fossil fuels, and include corn-based ethanol. API joined with American Fuel & Petrochemical Manufacturers, Western States Petroleum Association, and Coffeyville (Kansas) Resources Refining & Marketing to file these petitions.

The basis for the petitions was simple and logical-the bio-fuels required by the EPA do not exist or are not available commercially. This latest rejection by the EPA was announced on May 22, 2012. In denying the petitions, the EPA said, “In all cases, the objections raised in the petition either were or could have been raised during the comment period on the proposed rule, or are not of central relevance to the outcome of the rule because they do not provide substantial support for the argument that the Renewable Fuel Standard program should be revised as suggested by petitioners.” The Renewable Fuel Standard is a yearly standard mandated under the Clean Air Act, but is supposed to depend on the volume of cellulosic bio-fuels available.That is not what is happening. Bob Greco, API’s downstream and industry operations director, said shortly after the rejection that “EPA’s mandate is out of touch with reality and forces refiners to pay a penalty for not using imaginary bio fuels. EPA’s unrealistic mandate is effectively an added tax on making gasoline.” That is borne out by what has happened already. In 2011, fuel companies paid the Treasury about $6.8 million in penalties because of this bio-fuel requirement. That was after the EPA rejected API’s petition on the impossibility of 2011’s bio-fuel requirement, as well. The unjust cycle continues. Mr. Greco called it “regulatory absurdity and bad public policy.”

People who are aware of this issue, including folks in the American oil and gas industry, are incredulous at the continuing requirements. The president of the National Petrochemicals and Refiners Association told the New York Times that the 2011 bio-fuel requirement “belies logic” and the 2012 numbers make even less sense. The reporter on that piece, Matthew Wald, characterized the problem as “what happens when the federal government really, really wants something that technology is not ready to provide.”

Texas oil and gas operators have, in some ways, born the brunt of the misguided and ill-informed policies towards the energy industry of the Obama administration and the EPA. Plaintiff’s Exhibit Number 1: In 2010, a senior Environmental Protection Agency official, Alfredo Juan “Al” Armendariz, who was in charge of the federal region of the EPA that includes Texas, in a speech in Dish, Texas, compared EPA policy to the Roman policy of crucifying troublemakers. This part of the speech was captured by an audience member and uploaded to YouTube. Specifically, “Al” said of the Romans: “They’d go into a little Turkish town somewhere, they’d find the first five guys they saw, and they would crucify them. And then you know that town was really easy to manage for the next few years.” He compared this to the EPA’s policies of hitting a few oil companies as hard as possible to deter other energy companies from pursuing disfavored strategies.Mr. Armendariz was appointed by President Obama in late 2009 to head the EPA’s Region Six, which includes the states of Louisiana, Arkansas, New Mexico, Texas and Oklahoma, as well as 66 Tribal Nations, according to an EPA press release at the time. Regional Administrators, like Mr. Armendariz, are supposed to promote state and local environmental protection efforts and liaise with state and local governments.

Ultimately, poor Al resigned over the furor his remarks caused. Shortly after these remarks, Oklahoma Senator James Inhofe took the Senate floor and announced an investigation into how Mr. Armendariz had been blocking hydraulic fracturing, or fracing. The Senator specifically cited the case of Range Resources as an example of this bullying “crucifixion” policy. The EPA faxed a letter in December 2010 to the company telling them an “imminent and substantial endangerment” to public drinking water had occurred in Parker County, Texas, arising from Range Resources operations. The EPA, outrageously, threatened the company with fines of up to $50,000 a day. Eventually this case went to court and, after more than a year, the EPA finally realized it had no evidence and the case was dismissed in April 2012.

Senator Inhofe has continued to lead the way on this scandal, and issued a statement saying, in part, “After his revelation that EPA’s ‘general philosophy’ is to ‘crucify’ oil and gas companies, it was only right for Administrator Armendariz to resign… – but his resignation in no way solves the problem of President Obama and his EPA’s crucifixion philosophy.”

Washington has been telling Texas small business, including Texas oil and gas companies, how they should be run for a long time. For a few moments, Texas businesses had a chance to tell Washington what to do, and the overriding message was: stop meddling.Over 30 small Texas business owners met with Republican Congressman Pete Olson to discuss ways in which the federal government could help small businesses create jobs. Most businesses were in the manufacturing, chemical, and oil and gas industries. They complained about the federal government’s heavy hand, especially as represented by the Environmental Protection Agency. One businessman scoffed at the idea that growing levels of carbon dioxide contributed to global warming; instead, he believed that higher levels of carbon dioxide were a natural byproduct of warming.

Mainly, the group of business owners wanted the federal government to use regulation as a force of good, not to hamper small businesses. “They’re like police who just want to getcha,” a businessman complained about the federal regulatory agencies. In particular, the business owners requested that Washington require foreign companies to comply with the same regulations that American businesses comply with, or face higher import duties. They also requested that the federal government stop the process of bundling that results in larger companies being favored for contracts over smaller companies.

Business owners also had a long list of regulations that they wanted cut back or removed altogether. This included repealing the Dodd-Frank Act that purports to reform Wall Street, reducing the power of the Food and Drug Administration, creating sunset provisions on certain taxes and agencies, speeding the process for drilling permits, and reducing the amount of time and effort it takes to complete an Environmental Impact Statement, or eliminate it altogether.

“The jobs are there,” Congressman Olson claimed, “we just need to get the government off the private sector’s back” and allow them to come out. One businessman remarked that due to oppressive government regulations, he had to lay off several employees and move their jobs overseas.
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President Obama would have us believe that he considered everything when he came up with his latest plan to create jobs. Yet he ignored a plan that could create 1.4 million more jobs and $803 billion in revenue. According to a the Wood Mackenzie Study, funded by the American Petroleum Institute (API), the United States could increase oil production by 10 million b/d of oil equivalent, create 1.4 million jobs, and generate more than $803 billion by 2030, if we just developed existing resources within the country.

The Wood Mackenzie study was presented at an energy jobs summit in Washington, D.C. The study considered two different scenarios, the Current Path Case Production — what the job situation would be if the government continued on its current path — and Development Policy Case. Under the Development Policy Case, the study claimed that a jobs and revenue boon could result if the government opened up federal areas that were currently off-limits to drilling, such as the Eastern Gulf of Mexico, parts of the Rockies, and the Alaskan National Wildlife Refuge (ANWR); if it lifted a drilling moratorium in the state of New York; if more offshore drilling were allowed in the Gulf of Mexico; if the Keystone XL pipeline and other pipelines from Canada to the U.S. are approved; and if regulation of shale is done predominantly at the state level.

If the U.S. follows these steps, oil production would increase 76% over 2010 levels. For every job created directly for energy production, several more would be created indirectly, from revenue spent by the newly employed. Revenue would reach $36 billion by 2015.

All industry in Texas, not just the oil and gas industry, could be harmed by new ozone regulations proposed by the EPA. If there were recognizable health benefits, they would probably be worth it. In fact, the EPA has been trying to sell its new, tighter ozone standards based on its claims that they would provide substantial health benefits. However, the American Petroleum Institute, in a recent study entitled Summary and Critique of the Benefits Estimates in the RIA for the Ozone NAAQS Reconsideration, has found that the EPA has misrepresented the benefits of EPA’s proposed new ozone standards.The EPA’s figures are based on escalating benefits due to ozone-related mortality, even though the EPA has found no causal link between ozone levels and mortality. The result could be that industries are forced to make changes to produce less ozone, while the savings that they produce would never materialize.

The EPA seeks to tighten regulations that were put in place under President Bush in 2008. It claims that while the cost would be $90 billion per year, the costs would be offset by $100 billion per year in savings from medical expenses and missed workdays. However, the API study found that ozone benefits alone do not produce these savings. The EPA’s “savings” are based in part on cuts in soot pollution that may occur because of the new regulations. The problem with this is that soot pollution has nothing to do with ozone pollution. The API declares that, overall, the EPA’s plan for tightening standards is “out-of-cycle, not supported by science, and would have devastating economic consequences.” What’s more, the EPA has no idea how the new standards would be met, but one guarantee is that they would have a heavy impact on business, especially large businesses. Khary Cauthen, API’s government affairs director, predicts that “operations would close and business moved elsewhere. This isn’t a recipe on how to rebuild an economy.”

These findings throw a wrench in President Obama’s plans to tighten environmental regulations. While normally, the Clean Air Act requires the EPA to review regulations every five years, the administration claims that the standards need to be tightened sooner because the Bush administration ignored the EPA scientific panel’s recommendations. Yet by ignoring the five-year standard, the administration risks catching businesses off guard, which would make it even harder for them to meet the new stringent standards. Khary Cauthen believes that the president should pull the new regulations and wait until 2013 before making any changes. Obama has claimed that he wants regulations based on “science, not politics,” and that he would weigh the costs on businesses and local communities before enacting a rule. The API findings ought to give him plenty of reasons to rethink the new regulations, unless the president believes no other scientists besides the pseudo-scientists at the EPA are credible. There is mounting evidence that this is exactly what he believes.

I was interested to read recently about a new crude oil pipeline to be built by Enterprise Products Partners LP and Enbridge Inc. All new projects like this have the potential to create jobs, maximize local productivity, and ensure that our state’s natural resources are utilized in safe, secure, and productive ways. This latest proposal is unique in that most of the largest new pipelines are designed to carry gas. This line would instead bring oil to the Gulf Coast from the Cushing, Oklahoma storage hub. According to the latest report on the project in the Oil & Gas Journal , under the current plan, a 800,000 barrel-a-day crude oil pipeline would be designed, built and operated to bring oil from Cushing to Enterprise’ Texas Gulf Coast refining complex. This would be the largest pipeline connecting the Oklahoma oil storage hub with Gulf Coast refiners.

If the proposal continues as planned, the 36-in. OD Wrangler Pipeline will begin at the Enbridge Cushing terminal and then extend 500 miles south along pipeline corridors ending in southeast Harris County at Enterprise’s ECHO oil storage terminal. All told, the new crude oil pipeline would provide access to refineries in Texas City, Baytown, and along the Houston Ship Channel. The pipeline is set to accommodate a variety of grades and oil sources. In addition to the main pipeline, the joint project plans also include the creation of an 85 mile line to the Beaumont/Port Arthur refining center. On top of that, additional storage necessary for the operations of the new pipeline will be built and housed at Enterprise’s ECHO site in Harris County, Texas.

The two companies announced a binding open commitment for available capacity on the new pipeline which ran from October 3rd and ended last Wednesday. Depending on the timing of required regulatory approvals and commitments from interested shippers, the companies hope to design, build, and begin operating the new line in less than two years. Under the current proposal, the line would enter service in mid-2013.