Texas Oil and Gas Attorney Blog

A Houston company, Crimson Exploration Inc., has provided an update on its successful operations in east Texas, including Woodbine, Eagle Ford and other programs. This is important information for the growth of the oil and gas industry in Texas, a crucial component to economic growth and energy independence.

Crimson has 18,500 acres in the Woodbine section that cover three areas the company refers to as Force, Iola-Grimes, and Chalktown. In these areas, the company has been developing the Woodbine, and production tests have confirmed the oil potential in all three areas. Crimson has identified 115 potential drilling locations. Assuming the average output is an ultimate recovery of 400,000 BOE (barrell of of oil equivalent) per location, with 90% oil and natural gas liquids, total net potential exceeds 34 million BOE. That is five times the average for Crimson in 2011.In the Force area, in Madison County, 50 wells have completed since January 2009 using modern horizontal drilling and fracture simulation completion techniques. These wells have had initial rates of 600 b/d of oil. The first two producing Crimson wells initially averaged over 900 b/d of oil, and the area is considered substantially derisked. In Crimson’s first horizontal Woodbine well in this area, the well produced 128,000 barrels in its first four months.

Crimson has 5,100 net acres in the Chalktown area in Madison County as well. It is testing the Lewisville sand, a lower Woodbine objective that has produced vertical wells in the area. One of the wells there is producing extraneous water, possibly from a natural fracture. The company is working to shut off the source of the water to better test the oil potential.

Another study, entitled “Review of EPA Hydraulic Fracturing Study Plan“, is questioning the validity of the Environmental Protection Agency’s (EPA) data on hydraulic fracturing (“fracing”) and drinking water. The impact of fracing on drinking water has been a hot political topic for a while now, and more and more scientific studies are showing that the EPA’s data is either overblown or just plain wrong.

The Battelle Memorial Institute, a non-profit science and technology research and development organization, released a study recently concluding that the EPA did not define important quality requirements in its study process. The EPA used its discretionary authority to broaden its study significantly beyond what Congress requested in fiscal year 2010, which was originally only to include fracing and drinking water. Instead the EPA reached beyond, encompassing numerous peripheral elements related to oil and gas exploration and production activity, including various upstream and downstream stages of the water life cycle, site preparation and development, and standard oil and gas production and other industrial activities. The Battelle study stated that a broader study increases complexity and risk. Battelle warned that ambitious schedules, driven by various 2012 reporting goals, could make data collection and analysis less robust and thus scientific conclusions less sound. It also noted that site data collected during 2006 to 2010 could become obsolete by the time the EPA issues its final report in 2014.

The Battelle study was commissioned by the American Petroleum Institute (API) and America’s Natural Gas Alliance (ANGA) due to concerns about the direction of the EPA study. Stephanie Meadows, API upstream policy senior advisor, said, “Battelle’s analysis of the plan for EPA’s study reinforces many of our previously stated concerns about the study and raises new ones. It finds deficiencies in the rigor, funding, focus and stakeholder inclusiveness of the plan.” She told reporters that API and ANGA intend for Battelle’s report to help EPA produce “the most scientifically sound study possible” and hopes that this study can encourage the EPA to make sure their final report is done right.

The pace of oil and gas pipeline construction in Texas has increased enormously. As a Texas pipeline attorney, I regularly get calls from folks who ask me why they should go to the expense of having an attorney review their pipeline easement before they sign it. Here are the reasons why I believe that consulting an attorney is important:

1. The law in Texas regarding compensation for pipelines has been evolving. There is now greater recognition of what are called “remainder damages”, that is, compensation for the effect that installation of the pipeline and any surface equipment has on the market value of the rest of your property. Only by having a Texas pipeline attorney review the application of the current law to your specific situation will you know if you are entitled to these additional damages.

2. It is important to know whether the pipeline for the easement you’re being offered is a “common carrier” or not. A common carrier pipeline is a pipeline that carries oil or gas for third parties for hire. The law now requires that the pipeline company proves that they are a common carrier. If they are a common carrier, and can prove it, they will have the power of eminent domain (also called condemnation) if you cannot agree on easement terms with them. If they are not a common carrier, they cannot use condemnation and your bargaining position with them is much different.

Before the election, the House of Representatives passed sweeping energy legislation, including HR 4480, in an attempt to facilitate the development of the oil and gas industry. The bill passed by 248 to 163 and its sponsor, Representative Cory Gardner of Colorado, urged the Senate to take up this bill promptly, for the good of the American economy.

Included in the package of seven bills the House passed, all directed at oil and gas development in the Western US and on federal lands, there are provisions requiring the Secretary of Energy to have a plan for leasing federal land, directing the Secretary of the Interior to offer previously unavailable land as at least 25% of the annually nominated total, and requiring analysis of impacts of certain Environmental Protection Agency (EPA) rules on gas, diesel, and natural gas prices. Other included bills would require the Secretaries of the Interior and Agriculture to have a new federal onshore energy production strategy every four years to guide leasing plans, the Secretary of the Interior to hold at least one lease or sale per year in the National Petroleum Reserve-Alaska, and allow the Secretary of the Interior to hold oil and gas lease sales online.

Republican members of the House pointed out that while gas prices may be going down a bit, they are still double what they were in January 2009. The bills are intended to alleviate the devastating impact of government regulations on job creation and gas prices for the American consumer. Democrats and some radical environmentalist allies, of course, see it differently and have been complaining about the bill’s theoretical and speculative environmental impact. The Democrats also tried to attach amendments to the various bills to preserve major regulatory provisions, fully fund the Commodities Futures Trading Commission, and require federal oil and gas lessees to more diligently develop their holdings. These amendments were voted down.

There is now even more evidence that the Environmental Protection Agency (EPA) is using politics, and not science, in opposing hydraulic fracturing and the oil and gas industry. A recent survey and report entitled “Characterizing Pivotal Sources of Methane Emissions from Unconventional Natural Gas Production“, done by the American Petroleum Institute and America’s Natural Gas Alliance (ANGA) reached a few interesting conclusions, especially for those of us skeptical of the EPA’s stance on hydraulic fracturing. The survey found that the methane emissions levels from fracing in the US were 50% lower than the EPA estimated in its 2011 emissions inventory. Between 2010 and 2011, this new study found the natural gas industry emitted 4.4 million tons of methane gas, compared to the EPA’s estimate of 8.7 million tons. This is an important distinction because methane can be a potent pollutant.

There is little to dispute in this extensive and thorough new survey and report, which studied 91,000 wells operated by more than 20 companies over a vast geographical area. It represents nearly one-fifth of all US oil wells (18.8 % to be precise). The survey examined ten times more dates than those used in the EPA’s study on methane emissions. This survey and report show even more drastic differences in numbers in specific areas. For example, venting of methane into the air during liquid unloading was 86% less and emissions from well workovers were 72% less than indicated in the EPA report.

Howard Feldman, API’s regulatory and scientific affairs director, mentioned earlier this month that, “The industry is voluntarily reducing its environmental footprint and not waiting for regulatory mandates or incentives to continue to make progress. The technology and equipment used to reduce emissions were created by the industry, and companies are already implementing those technologies in locations where it is most effective. By January of 2015, all wells are required to include reduced emissions completions, which will further ensure emission reductions.” Mr. Feldmen said there are no plans to challenge the EPA’s emission standards in court, and added he hopes the agency will look at the industry report’s findings and reassess its regulations.

In great news for the Texas oil and gas industry, as well as the Texas economy, drilling at the Eagle Ford Shale, a band of rock in south Texas containing a mixture of light, sweet crude oil, natural gas, and high quality condensates, may outpace last year’s boom. UK based research company GlobalData, issued a report earlier this year indicating that production will increase in 2012.

The report confirms there has been explosive growth in oil and gas activity in this area of south Texas. This was already apparent last year, when production of crude oil, natural gas and natural gas liquids tripled compared to 2010. Combined liquids production is estimated to have increased by an even greater factor, from 10.8 million barrels of oil equivalent in 2010 to 57.5 million barrels of oil equivalent in 2011, an increase of 432%.

This data confirms other reports and evidence that drilling has shifted away from natural gas and towards the more lucrative crude oil and condensates, largely as a result in the drastic decrease in North American gas prices. Regardless of this shift in focus, natural gas continues to play a significant role in Eagle Ford drilling. The GlobalData report states that combined liquids and gas production was at 105 million barrels of oil equivalent in 2011. Only five years earlier the output was 200,000 million barrels of oil equivalent. By the end of the current year, the company expects the production to have doubled from last year, to 207.3 million barrels of oil equivalent.

As many Texas oil and gas lease owners know, fracing creates new channels in rock that can increase extraction rates for the recovery of fossil fuels. However, some claim that the process contaminates groundwater or risks air quality. The traditional process works by pumping fracturing fluid into the well-bore at a sufficient rate to increase down-hole pressure. But a new technology is on the horizon to achieve the same results without using water. This new process is only a few years old and was largely invented by Robert Lestz, the chief technology officer at GasFrac Energy Services Inc.

The Process & Benefits

Waterless fracing works with almost the same process as traditional methods, but it replaces the traditional mixture of water, sand, and chemicals with a thick gel made from propane. The company claims this petroleum gel is as natural to a well as soil is to the earth. This gel is called “liquefied propane gas,” or LPG for short. LPG has the added advantage of reverting to vapor while still underground, and it therefore returns to the surface in a recoverable form. Also, unlike water-based methods, LPG does not carry chemicals used in drilling back to the surface. In that way it requires less post-job cleanup and almost no flaring. Another benefit of this new technology is that it is more efficient, because the fracturing fluid can be recovered and re-used or re-sold, saving the oil and gas producer substantial expenses.

With all the news about the false controversy involving hydraulic fracturing, the Railroad Commission of Texas is pre-emptively addressing concerns about another important issue for the Texas oil and gas industry–natural gas flares. Commissioner David Porter announced that the Eagle Ford Task Force will study the issue of whether Texas’s regulations on flaring and ventilation need to be updated.

Gas flares are generally associated with a booming industry where the production is outstripping the infrastructure capacity, especially in terms of pipelines. In high producing areas, like the Eagle Ford Shale, drilling and first production is reached weeks before pipeline companies get natural gas infrastructure such as pipelines into the area. Oil can be moved by truck, but natural gas needs pipelines. In general, the use of gas flares as a safety valve is not used in an abusive fashion, because it is in the oil and gas companies’ interest not to waste gas. But Mr. Porter still wants to ensure that everyone is complying with the current regulations on flaring and venting.

This issue of gas flares is tied to the debate on hydraulic fracturing, as the Eagle Ford Task Force was also commissioned to look into issues of how hydraulic fracturing affects groundwater. The Task Force is branching into this new area, with its main concern being the effect of gas flares on air quality. At Eagle Ford, there is concern that the San Antonio metro might exceed federal limits on ozone emission standards. The Texas Railroad Commission intends to work with other state agencies to streamline the air pollution rules in Texas and also to make monitoring and reporting on air emissions easier.

In April 2012, President Obama signed an executive order creating a six person committee to coordinate efforts among three government agencies to research the risks and benefits of unconventional oil and gas production. The committee is composed of two members each from the Department of Energy, the Environmental Protection Agency, and the US Geological Survey, which is part of the Department of the Interior. It was set up to use each agency’s particular competencies to address concerns about unconventional technologies and shale development and to make sure the industry properly mitigates any risks involved. The first meeting of the group was in May 2012. The overall goal of the committee is to develop a research plan for prudent development of U.S. oil and gas reserves.

The Energy Department representative who is up heading the committee, Christopher Smith, the Deputy Assistant Secretary for Oil and Natural Gas, in May 2012 told a breakfast meeting hosted by the Chamber of Commerce in Fort Worth, Texas, that he believes shale drilling can be done safely. He later toured the manufacturing facility of FTS International, formerly called Frac Tech, which makes equipment for hydraulic fracturing-the “controversial” technology involved in getting oil and gas from shale. Mr. Smith is a Fort Worth native who graduated from Southwest High School in 1986 and is also a graduate of both West Point and Cambridge University.

This was Mr. Smith’s second visit to the Fort Worth area in his official capacity since his appointment at the Department of Energy in 2009. Two years ago he was in Fort Worth with a Chinese delegation in the US to learn more about hydraulic fracturing. At the time, Mr. Smith told the Chinese that the Barnett Shale is ground zero for learning about shale oil and gas development, because “they can see the benefits, but also the ways the City has worked with some of the environmental concerns.”