Texas Oil and Gas Attorney Blog

Over the past few months there have been letters going back and forth between the National Park Service Director Jonathan B. Jarvis and Representative Rob Bishop, the Chairman of the House Subcommittee on Public Lands and Environmental Regulation.

On September 6, 2013, Representative Bishop sent Director Jarvis a letter (that you can view here) in which he questioned comments made by the National Park Service to the Bureau of Land Management about well stimulation and hydraulic fracturing on Federal and Indian lands. In his letter, Representative Bishop questioned the scientific integrity of the sources and data upon which the comments of Director Jarvis were based. As authority for his comments, the Park Service Director used a New York Times opinion piece written by Anthony Ingraffea. Mr. Ingraffea wrote that shale gas is a gangplank to global warming because of alleged methane leaks. The section of the Park Service’s comments quoting Mr. Ingraffea stated that methane leakage rates were 2.3% to 17% of annual gas production and claimed to get these numbers from the National Oceanic and Atmospheric Administration. Representative Bishop’s letter questioned why the Park Service was relying on a reporter’s opinion as a source of data and requested a determination of the information’s accuracy.

On November 12, 2013, Director Jarvis wrote a letter in response (that you can read here) to these questions. Jarvis admitted including a quote from a New York Times Op-Ed was inappropriate and sources should have been peer-reviewed scientific studies. He wrote that the Park Service does not rely on opinion pieces in newspapers as a basis for decision making. He also admitted the comments the Park Service made to to BLM were not adequately reviewed before they were delivered. He said that no one from management looked at these comments and he claims they were erroneously uploaded onto regulations.gov, contrary to established protocol. Because of these issues, Director Jarvis withdrew the National Park Service comments.

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.