Texas Oil and Gas Attorney Blog

Texas tops the list of most attractive jurisdictions for petroleum exploration and production investment, while Oklahoma leads the world with the most desirable policy environment, according to the annual Global Petroleum Survey compiled by the Fraser Institute.

The survey attempts to provide information about perceptions affecting investment decisions, including those on tax rates, regulatory obligations, uncertainty over environmental and other administrative regulations, as well as concerns regarding political stability and the security of personnel and equipment. These perceptions were assessed via a survey evaluating 157 jurisdictions, and compiled into the Fraser Institute’s Policy Perception Index.

In order, the jurisdictions perceived as having the policy environment most favorable to petroleum exploration and production investment are Oklahoma, Mississippi, Saskatchewan, Texas, Arkansas, Kansas, Alabama, North Dakota, Manitoba, and the Netherlands/North Sea. The jurisdictions perceived as the worst for petroleum exploration and production investment are Russia (except Offshore Arctic, Offshore Sakhalin, and Eastern Siberia), Iraq, South Sudan, Russia/Eastern Siberia, Uzbekistan, Russia/Offshore Arctic, Bolivia, Iran, Ecuador, and Venezuela.

Late last year a pipeline explosion occurred in a west Texas liquified petroleum pipeline, near the small town of Milford in Ellis County, about 50 miles south of Dallas. Emergency officials had to evacuate some residents and students at a nearby school. The Texas Department of Transportation had to close U.S. Highway 77 and FM 308 near the fire site. The Environmental Protection Agency also sent a crew from their Dallas office.

The accident happened when a rig drilling crew accidentally punctured a 10 inch liquefied petroleum pipeline owned by Chevron in partnership with Atlas Pipeline Partners LP. The rupture created a large fire, which was allowed to burn out after about 24 hours. Employees on the rig were able to escape to safety.

The explosion occurred in part of a 2,700 mile West Texas LPG Pipeline, which extends from natural gas processing plants in west Texas and New Mexico to storage facilities in Mont Belvieu, Texas. There was a prior incident in September 2011, when a fire was ignited by a production pump, according to the U.S. Pipeline and Hazardous Materials Safety Administration. That incident caused more than $1.5 million in property damage and released more than 13,000 bbl in liquified petroleum. Readers may also recall the recent pipeline accident in Mayflower, Arkansas, when an ExxonMobil pipeline ruptured. PHMSA recently found that Exxon had violated nine pipeline safety regulations and was fined $2.6 million in civil penalties. The largest portion of the fine was due to ExxonMobil not following its own operations and maintenance procedures! ExxonMobil issued a statement saying it was disappointed a Notice of Probable Violations was issued but that it was working with PHMSA on investigating the rupture. My guess is that “disappointment” doesn’t begin to cover the feelings of the nearby residents whose homes and businesses were impacted by this rupture.

In Texas, a properly drafted oil and gas lease will prohibit the use of the landowner’s surface or ground water. The well driller or operater must bring in water from another source for fracing. Hydraulic fracturing, or fracing, of wells requires substantial amounts of water. About 20% of that water is recovered, but the recovered water often contains various chemicals (generally nontoxic) and other debris. Fracing water used to be considered waste and was put into injection wells deep underground. More recently, the oil and gas industry has come up with another solution that may benefit everyone: water recycling.

In a lot of areas, there have been droughts or there is a shortage of freshwater–including in Texas, where fracing accounts for 50% of water use in select locations. For this reason, interest in recycling the water used in fracing has been growing in the last few years. It is now seen as an economical, and more sustainable, option for the oil and gas industry. Halliburton, ExxonMobil, and XTO conducted a study on recycling recently and presented a paper showing savings of between $70,000 and $100,000 per well, with no loss of production. Walter Dale of Halliburton said: “It is a paradigm shift.”

There are different methods of recycling fracing water, but the goal is to reuse most of the water used in fracing instead of sending it away as waste. Water Rescue Services has a process that separates the water from the chemicals and other waste, taking the 5% that is waste to a dump but reusing 95% of the water. Pure Stream recycles water for use in an oil patch using a more expensive system that cleans water sufficiently that it can be returned to lakes or rivers or used for agriculture. In Texas, Fasken Oil and Ranch is attempting to use no freshwater at all in its fracing operations. By recycling water and using briny water from an aquifer, the company hopes to achieve this within six months.

The Energy Information Administration (EIA) recently predicted that natural gas heating for homes will cost 13% more this winter than last winter. The average price over the winter this year will be about $679 for a household, which is actually still lower than the previous five year average cost. The increase in demand this winter and resultant small increase in natural gas prices may help sustain natural gas production.

Another key component in sustaining natural gas production is innovation. Even with lower prices, innovation can continue to drive the natural gas boom in the United States. This was the topic for discussion at the Decision Strategies Oilfield Breakfast Forum, which occurred in October 2013 in Houston, Texas. Steven Mueller, president and CEO of Southwestern Energy, said the industry is still in its early stages of learning, specifically on unconventional plays. He noted that in these unconventional plays, the U.S. “has a national treasure with long-term, low-price implications.” He also noted that, while it is a learning process, gas projects are the largest they’ve been in a century and are more efficient than ever. Gas industry strategies themselves are helping push gas prices down, and also make the price of gas less volatile.

James W. Wicklund, managing director of energy research, at Credit Suisse LLC, said: “We are not only awash in gas; we are awash in cheap gas.” Another speaker at the Houston Forum, Matt Fox, an executive vice president at ConocoPhillips, discussed his company’s strategy for innovation, saying “(p)ick a core strategy, carry contingent elements for strategic flexibility, and monitor scenario signposts.” The CEO of Huisman Equipment, Joop Roodenburg, also highlighted the importance of collaboration to overcome a divergence in priorities among various players, like offshore drillers, drilling contractors, and suppliers. The divergence, in his mind, suppressed innovation.

A recent study by a reputable organization recently concluded that transporting oil by pipeline is safer than any other transportation method, to the extent that if opposition to pipelines causes oil to be transported by less safe methods, the risk of oil spills increases!

The study, entitled “Intermodal Safety in the Transport of Oil”, was conducted by theb Fraser Institute, based in Calgary, Canada. The authors were Diana Furchtgott-Roth from the Manhattan Institute and Kenneth P. Green, a senior director of the Fraser Institute.

There are about 825,000 kilometers of pipeline in Canada and 4.2 million kilometers in the United States. However, as the authors note, the rising production of oil and gas in North America is outpacing the capacity of the pipeline infrastructure, and so more oil is being shipped by rail and other non-pipeline methods. When transporting oil by road, the risk of a spill is almost 20 incidents per billion ton-miles. By rail, the risk is slightly more than two incidents per billion ton-miles. Contrast this with transport by pipeline, which has a risk of less than 0.6 incident per billion ton-miles.

The government shutdown is now old news. But it’s still interesting to consider how it may have effected the Texas and U.S. oil and gas industry.

There are plenty of agencies that effect the oil and gas industry, which is heavily regulated by the federal government. One agency that is actually quite useful is the Energy Information Administration, which does a great job of collecting data. Their website is informative and useful for the industry. Unfortunately, during the shutdown, the EIA furloughed its employees and stopped reporting data.

That temporary loss of the EIA may have been the only meaningful casualty of the shutdown, however. During the shutdown, the Bureau of Safety and Environmental Enforcement was tasked with providing any necessary storm updates for the Gulf of Mexico as it would impact the energy industry. This agency, part of the U.S. Department of the Interior, continued to issue drilling permits for offshore drilling and continued their inspection process for offshore oil and gas operations.

If you listen to the media and popular culture, carbon dioxide is a dangerous chemical compound that will poison the planet. But as we have seen with the rhetoric surrounding the hot topic issue of hydraulic fracturing for gas and oil wells in Texas and in the United States generally, this perception of carbon dioxide as a poisonous planet killer is way overblown.

There was a thought provoking article last year in the Wall Street Journal about this issue, written by physicist William Happer, currently a professor at Princeton University, and a former astronaut, U.S. Senator and geologist Harrison H. Schmitt, who is also a professor of engineering at the University of Wisconsin-Madison. These scientists wrote in defense of carbon dioxide, making the case that by historical standards the current carbon dioxide levels in the Earth’s atmosphere are actually quite low, and that higher carbon dioxide levels could actually make agriculture more productive. Crops like wheat, rice, soybeans, and cotton evolved during periods of much higher carbon dioxide levels, and as carbon dioxide levels rise these types of plants could become more efficient. Commercial greenhouses already create conditions of high carbon dioxide levels to grow plants inside, showing the practical value for food production.

These two scientists are not alone. A paper entitled “Science or Science Fiction? Professionals’ Discursive Construction of Climate Changes” discussed a survey of scientists that reflected broad skepticism that climate change is a man-made or even human-influenced phenomenon. The survey included 1,077 geoscientists and engineers and was published in November 2012 in the peer-reviewed journal Organizational Studies. Almost all of those surveyed, 99.4%, agreed that the climate is changing. However, only 36% believe that this climate change is not normal in nature and that humans are the only or primary cause of the change. The rest believe that either the climate change is a natural cycle and humans have little impact, noting that the climate has shifted greatly in the past–warming to get us out of the Ice Age for example–or that the changing climate is some combination of human impact and also a natural occurrence, with varying opinions about the seriousness of a changing climate to the planet. This survey and the article about it are particularly interesting because it reported the actual opinion of real scientists. These results are hard to dispute as biased.