Bryan Shaw, Chariman of the Texas Commission on Environmental Quality, published a letter in the Fort Worth Star Telegram assuring Fort Worth that there was no immediate health risk from contamination of air caused by oil and gas activities in the region. Shaw assured residents that "the TCEQ can state, without hesitation, that benzene levels in Fort Worth pose no immediate health risk."
The TCEQ has taken extraordinary measures over the past several months to test air quality in and around Fort Worth after Al Amendariz, then an engineering professor at Southern Methodist University and now regional administrator for the Environmental Protection Agency, published a report that air emissions from oil and gas activity in the Barnett Shale play were significantly contributing to reduced air quality in the DFW area. The concerns were exacerbated by reports from the town of DISH, in Denton County, that air emissions from oil and gas facilities were causing health problems in that community.
The TCEQ has also come under more general criticism and scrutiny by the EPA since Armendariz's appointment. The EPA has contended that the TCEQ's air-permitting program violates federal law, and the EPA has threatened to take over the program from the TCEQ. The Texas Attorney General has filed a legal challenge to the EPA's efforts to pre-empt the State's permitting program. The TCEQ and the EPA are in discussions to try to resolve the dispute.
EOG Resources has filed an application with the Texas Railroad Commission proposing the adoption of temporary field rules for wells drilled in the Eagle Ford Shale in South Texas that could have a significant impact on thousands of oil and gas leases in the field. The application proposes to consolidate 27 designated fields that produce from the Eagle Ford Shale formation, and the proposed rules will replace any field rules previously adopted for those fields. The consolidated rules would apply to Eagle Ford Shale wells drilled in Railroad Commission of Texas Districts 1, 2 and 4. A copy of the notice of the Railroad Commission hearing for the adoption of the proposed rules may be found here: eagle ford field rules.pdf. The hearing is scheduled for June 25, 2010, at 9 am in the William B. Travis Sate Office Building, 1701 Congress Avenue, Austin. Persons wishing to participate in the hearing must file a notice of intent to appear at least five working days in advance of the hearing date and serve a copy of the notice on the applicant and any other parties of record. More information can be obtained by calling the Office of General Counsel of the Railroad Commission at 512-463-6848.
Field rules are adopted by the Railroad Commission to govern the spacing of wells in a field. They specify how far wells must be from each other, how far wells must be from the nearest lease line, and how much acreage must be assigned to a well in order to obtain a permit to drill a well. The acreage assigned to a proposed well is known as a "proration unit." Well spacing and density rules were developed by the Commission after it was given jurisdiction over oil and gas operations in Texas in the early days of the oil industry, principally because of unregulated drilling in the East Texas Field. Because of unregulated drilling in that field, wells were being drilled that were not necessary for the efficient development of the field, and oil prices plummeted. The Commission was also given authority to "prorate" production from a field -- that is, to limit production, and to allocate or "prorate" the specified limit of production from a field among the wells in a field. The stated purposes of spacing and density rules are to avoid waste and protect the correlative rights of producers in the field. Theoretically, field rules should designate a size for proration units that approximates the amount of acreage in the field that can be efficiently drained by a single well.
The field rules proposed by EOG would provide:
The Pennsylvania Department of Environmental Protection (PDEP) on Monday ordered EOG Resources to suspend all drilling operations in Pennsylvania pending investigation of an EOG well blowout on June 3 in Clearfield County, Pennsylvania. EOG had previously said it planned to drill 40 wells in the Marcellus Shale in 2010, and it not operates about 265 wells in Pennsylvania. The blowout shot gas and drilling mud and some 36,000 gallons of frac fluid 75 feet into the air. There was no fire, and no one was hurt. The PDEP banned EOG from drilling for up to seven days and from using hydraulic fracturing techniques for up to fourteen days. EOG said the blowout appears to have been caused by leaking seals in a blowout preventer.
PDEP also ordered C.C. Forbes, a unit of oilfield services contractor Forbes Energy Services, a Canada drilling company, to stop all work on Marcellus Shale wells. Forbes provided post-hydraulic fracturing services for EOG on the well that blew out. Forbes has idled to rigs in the Marcellus Shale.
This is the second time PDEP has banned an operator from drilling wells in the Marcellus Shale. Previously, PDEP banned Cabot Oil and Gas from conducting hydraulic fracturing operations in Susquehanna County after three spills of a chemical used in hydraulic fracturing at Cabot wells. PDEP also fined Cabot $56,650 and ordered the company to submit a new Pollution Prevention and Contingency Plan and Control Disposal Plan for its wells.
The failure of EOG's blowout preventer is reminiscent of the environmental disaster now taking place in the Gulf of Mexico.
The Texas Department of State Health Services issued its report on results of blood and urine samples taken from 28 residents of the tiny town of Dish, in Denton County, Texas. The report concludes that there is no evidence from those tests that the residents have elevated levels of airborne toxins in their bodies.
As has been widely reported, the Mayor of Dish has been complaining that oil and gas operations around the town have resulted in exposure to airborne contaminants and health problems among citizens in the town. The town commissioned an air quality survey by a company named Wolf Eagle Environmental, which reported in December 2009 that the town "continues to show high levels of atmospheric VOCs known to have both carcinogenic and neurotoxin capabilities in concentrations that exceed TCEQ ESLs. High atmospheric concentractions of Methane were confirmed at various locations in both the August 2009 and December 2009 Air Quality Studies performed by Wolf Eagle." The town also conducted a health survey of its citizens, and the survey results were analyzed by Wilma Subra, a Louisiana chemist, for Earthworks' Oil and Gas Accountability Project. Ms. Subra's report concluded that a significant number of residents reported health effects associated with toxics measured in excess of TCEQ screening levels, and it recommended that the Texas Department of State Health Services (TxDSHS) test the blood of community members.
TxDSHS reported that, although elevated levels of volatile organic compounds were found in some of the blood samples, "the pattern of VOC values was not consistent with a community-wide exposure to airborne contaminants, such as those that might be associated with natural gas drilling operations," and could have come from other sources such as cigarette smoking, metal cleaners, degreaser and lubricants. TxDSHS also tested water samples from residents' homes and found one home with an elevated level of a chemical derived from chlorine added to drinking water. The TxDSHS report cautioned that its investigation was limited to a one-time sampling event, that VOC's stay in the body for only a short time, so the tests could reflect only recent exposures and not historical exposures.
Mayor Tillman, interviewed by the Fort Worth Star-Telegram, commented that he does not think the results of the tests should be taken to assume that drilling in the rest of the Barnett Shale is being conducted safely. "He is convinced that gas companies were severly polluting the air in Dish but cleaned up their act when they saw state regulators were starting to take an interest. "They've done something and I don't know what it is and I don't care,' Tillman said. 'All I care is the air is getting cleaner.'"
Gene Powell, Editor of the Powell Barnett Shale Newsletter, estimated that the tests conducted to investigate Mayor Tillman's complaints have cost the State $400,000, or $6,667 per resident.
Gasland is a film documentary about the dangers caused by hydraulic fracturing of gas wells being drilled in shale plays across the U.S. It won a Special Jury Prize at the Sundance Film Festival this year. It was filmed by Josh Fox, whose family owns land in Pennsylvania that is in the Marcellus Shale Play. Gasland is now being screened across the country.
Josh Fox was recently interviewed about his film on the PBS program NOW. The film asserts that frac'ing of wells has caused underground aquifers to be charged with methane in Pennsylvania and Colorado and poses severe risks of contamination to the water supply. Josh Fox notes that hydraulic fracturing is exempt from federal regulation, and he advocates for passage of the FRAC Act now before Congress that would give the EPA jurisdiction over hydraulic fracturing.
The comments about the NOW story posted on its website evidence the growing controversy over frac'ing.
News of "Super Extended Laterals" in Woodford Shale, and ConocoPhillips' First Well in Eagle Ford Shale
Newfield Exploration has reported that it is drilling horizontal wells with "super extended laterals" in the Woodford Shale in Oklahoma -- wells with laterals exceeding 5,000 feet. Newfield has so far drilled 14 super-extended lateral wells, with an average length of 9,000 feet. Those wells had an average gross initial production rate of approximately 9 MMcfe/day.
ConocoPhillips reported that it has completed the drilling of four horizontal wells in the Eagle Ford shale play, in its "liquids-rich" core. The first of these wells was put on production in March and flowed at an initial rate of 3.8 mmcf/day and 1,200 barrels/day of condensate.
All of the new shale gas production continues to put downward pressure on gas prices. Natural gas futures for June delivery fell 36.8 cents, or 8.5 percent on Thursday, April 29 on NYMEX. So far this year, natural gas futures have fallen 29 percent. The Energy Information Administration reported that the supply of gas in storage increased by 83 Bcf for the week ended April 30. Gas in storage is 315 Bcf above the 5-year average.
The Park Foundation has submitted a resolution for consideration at ExxonMobil's annual meeting urging ExxonMobil to prepare a report on the environmental impact of fracturing operations and what can be done to reduce or eliminate environmental hazards caused by hydraulic fracturing. The proposal, and ExxonMobil's response, provide a good summary of the state of the debate in the U.S. over potential environmental impacts of hydraulic fracturing. I have reproduced the entire statement from Exxon's proxy statement below.
An interesting case has recently been filed in Louisiana challenging the authority of the Louisiana Department of Conservation to approve pooled units containing multiple wells. In Gatti et al. vs. State of Louisiana, et al., Number 589350, Division 23, filed in the 19th Judicial District Court in East Baton Rouge Parish, the plaintiffs sued the State Department of Conservation and several operators in the Haynesville field, including Chesapake, Encana, Exco, Conoco Phillips, Petrohawk, SWEPI, EOG, Questar, Forest and XTO, claiming that the Department of Conservation was routinely allowing the drilling of "alternate unit wells" on previously established units, in violation of Louisiana law. A copy of the petition may be found here. Gatti v. St of Louisiana.pdf.
Louisiana has a forced-pooling statute that allows an operator to propose to the Department of Conservation a unit for a well which, if approved, forces all mineral owners in the unit to pool their interests for the drilling and production of that well. According to the plaintiffs, this statute only authorizes the Department to approve units large enough to cover an area drained by one well. The practice in Lousiana for the Cotton Valley and Haynesville fields is to obtain orders for 640-acre units, and later obtain approval to drill additoinal "alternate unit wells" on those units. The suit contends that this practice is unfair to the owners of minerals and royalties in the unit, and violates state law. The suit seeks certification of a class action on behalf of all owners of mineral rights in Haynesville Zone in Louisiana. It seeks a declaration that the Department has no authority to establish a unit having an area in excess of the area drainable by one well, and that any such unit is "null and void." The suit also seeks unspecified damages against the defendant companies.
An interesting article describing the history of forced pooling in Louisiana and arguing that multiple-well units are illegal may be found at fairdrilling.com.
I have written previously about the proceeding before the Texas Railroad Commission for adoption of field rules for the Carthage (Haynesville Shale) Field. In that proceeding, the applicants sought and obtained field rules establishing a standard proration unit of 640 acres for wells in the field, with "optional" 40-acre units. The examiners who heard the evidence opined that Devon had produced no evidence that a well in the field could drain 640 acres, and they recommended a 320-acre standard unit, but the Commissioners overruled them and agreed to Devon's request for 640-acre units.
It appears that in both Lousiana and Texas the regulators are going along with the fiction advocated by operators that wells in the Haynesville should be developed with 640-acre units, despite the fact that everyone knows the wells will in fact be drilled with 160 or 80-acre spacing. Everyone understands that this fiction is intended to accommodate the desires of the operators to construct larger units in order to (i) have more flexibility in how they space their wells and (ii) hold more acreage with a single well. I have sympathy with the first objective, but not with the second. It is impossible to drill wells with horizontal legs of 5,000 feet or more unless fairly large units are created. Conversely, it is unfair to the mineral owners in a large unit for their leases to be held by production from a single well in the unit where several wells are necessary to fully develop the reservoir under their lands.
The Bureau of Land Management has signed a settlement agreement in which it agreed to "suspend" oil and gas leases covering BLM lands in Montana until it has completed a review of the effect of oil and gas development on greenhouse gas emissions.
The settlement was entered in Montana Environmental Information Center, et al. v. United States Bureau of Land Management, Case No. 08-178-M-DWM, in the U.S. District Court for the District of Montana, Missoula Division, on March 11, 2010. The case was brought by citizens groups who contended that federal law required the BLM to consider the cumulative impacts of oil and gas development on the environment, and specifically the greenhouse gas emissions caused by oil and gas well drilling and production, before granting oil and gas leases on lands in Montana.
The plaintiffs' petition contains some interesting facts:
The State of Montana published a Greenhouse Gas Emissions Inventory and Reference Case Projections 1990-2020G, in 2007; it estimated that oil and gas operations in Montana released 4.7 million metric tons of CO2 or its equivalent in 2005, more than 12% of the state's total GHG emissions.
According to the Inventory of U.S. GHG Gases and Sink: 1990-2006, by the Environmental Protection Agency, oil and gas systems are the largest human-made source of methane emissions and account for 24% of methane emissions in the U.S. - 2% of the U.S.'s total GHG emissions. (Methane - natural gas - has 21 times the global warming impact of carbon dioxide.)
The EPA has a program called the Natural Gas STAR Program, designed to encourage oil and gas companies to voluntarily reduce their GHG emissions by following GHG reduction technologies and practices. EPA reported that industry partners in its STAR Program achieved GHG emission reductions totaling 92.3 billion cubic feet. This is equivalent to the annual greenhouse gas emissions from approximately 6.8 million passenger vehicles.
Companies producing oil and gas have reported success in utilizing a number of methane reduction measures, including replacement of high-bleed pneumatic controllers with low-bleed pneumatics, installing plunger lifts, using "green" completions (not venting gas produced during completion operations), replacing gas-actuated pumps with solar electric pumps, and utilizing vapor recovery units (devices that capture vapor emitted from storage tanks and recycle it back into the production stream), and conducting regular inspections of facilities to identify and reduce fugitive leaks from valves, flanges and other connectors.
We may expect that federal agencies like the BLM and the Minerals Management Service, who are responsible for leasing of federal lands, will move toward imposing requirements on oil and gas operators to reduce their GHG emissions by using best available technologies like those enumerated in the plaintiffs' petition in this case. Those same technologies could be used to reduce emissions in and around the Barnett Shale, where residents are increasingly complaining about emissions from oil and gas compressors and other facilities.
The Wall Street Journal reported today that the Energy Information Administration will revise the way it estimates U.S. natural gas supplies, after concluding that its current method significantly over-estimates supply. An analysis has concluded that there are discrepancies of as much as 12% between the total gas supply (gas produced or imported) and gas demand (gas consumed or stored). In December, the EIA reported gas supply at 87.8 bcf/day and total demand of 80 bcf/day. The high estimates for supply may have unnecessarily depressed prices.
The EIA requires the nation's largest producers to file a monthly report, Form 914, to report production; based on that report and its models, EIA estimates production by smaller producers. EIA has been less able to account for smaller companies' production, and it is believed that this is in part a result of shale development and other advances in technology.
Strauss Charges Texas Legislature to Look at Local Ordinances Governing Surface Use in Barnett Shale
Speaker of the House Joe Strauss has charged the House Committee on Energy Resources as follows for the next legislative session:
"Survey current local ordinances governing surface use of property in oil and gas development. Recommend changes, if any, to the authority of the Railroad Commission to regulate the operation of oil and gas industries in urban areas of the state, particularly the Barnett Shale."
It seems evident from this charge that operators in the Barnett Shale will be asking the Texas Legislature to curtail the authority of municipalities to issue drilling permits for areas within their jurisdiction, or at least to limit what conditions they can place in those permits. Drilling ordinances such as those in Fort Worth and surrounding cities are becoming quite sophisticated, and place significant conditions on the granting of permits, including distances from houses and other structures, sound limits, handling of frac water, produced water and other wastes, safety requirements, traffic, and damage to surrounding streets. The City of Grapevine has revised its drilling ordinance to require an 8-foot masonry wall around the wellsite and shrubbery between 3 and 5 feet high along the wall. The City of Flower Mound is considering revision of its drilling ordinance to require companies to report their airbrorne emissions and use vapor recovery technology. In some cases, municipal ordinances are so stringent that as a practical matter they prevent drilling within city limits. I expect that eventually constitutional takings claims will be made against cities whose restrictions prevent any mineral development within their limits.
If the Legislature restricts municipal permitting authority, it could enlarge the requirements that the Railroad Commission must impose, or at least consider, when granting permits in urban areas, to include environmental considerations. The Austin Court of Appeals recently held that the Commission must consider the impact of traffic when ruling on an application for a disposal well permit. The Commission has appealed that decision, and the Texas Supreme Court has agreed to consider the case. Texas Citizens for a Safe Future and Clean Water v. Railroad Commission of Texas, 254 S.W.3d 492 (Tex.App.-Austin 2007, review granted March 12, 2010). It appears that the Commission would not relish the idea of regulating issues of traffic, noise, safety and pollution issues in urban settings, in connection with applications for well permits.
In a previous post I reported on the application of Devon Energy asking the Texas Railroad Commission to include in the new Field Rules for the Carthage (Haynesville Shale) Field a provision allowing it to drill horizontal wells across lease or pooled unit boundaries. These new rules apply to wells drilled in the Haynesville and Bossier formations in Harrison, Nacogdoches, Panola, Shelby and Rusk Counties in East Texas. Devon asked that the rules provide what it calls a "default allocation method" for horizontal wells drilled across unit boundaries.The rule proposed by Devon reads as follows:
"Operators shall be permitted to drill and complete horizontal wells that traverse one or more units and/or leases as long as that operator has a lease or other mineral ownership right to produce from each such unit or lease. If such a well is not already subject to an agreement regarding the allocation of production, the following allocation formula will be presumed to constitute a fair and reasonable allocation of production from a well in this field and shall be utilized by the Commission in assigning acreage attributable to the separate units/leases traversed by the horizontal drainhole: an allocation of acreage and production to each of the units and/or leases traversed by and completed in the horizontal well based on the percent of said horizontal well from first take point to last take point that lies under each unit or lease."
The Commission concluded that it had no authority to adopt such a rule, because pooling is a contractual issue between private parties, and (except as provided in the Mineral Interest Pooling Act) the Commission has no right to impose allocations of production among different tracts penetrated by a horizontal well.
In its appeal, Devon argues that the Commission's refusal to adopt its proposed "allocation rule" is arbitrary and an abuse of its discretion, without a rational basis, discriminates against producers in the Carthage Field, and will result in the waste of oil and gas.
I believe that Devon has little chance of forcing the Commission to adopt its proposed "allocation rule." But if it is successful, it is certain that operators in the Barnett Shale and other shale fields now being developed in Texas will ask for a similar rule. Such a rule would have significant impacts on royalty owners and their rights to consent to pooling of their royalty interests.
Chesapeake Energy Corporation summarized its activities in the country's "Big 6" shale plays in its Operational Update issued on February 16. The report reveals the huge impact Chesapeake has had on shale plays from New York to South Texas.
Chesapeake is the eighth largest E&P company ranked by total assets according to the Oil & Gas Financial Journal, behind ExxonMobil, Chevron, ConocoPhillips, Anadarko, Marathon, Occidental and XTO Energy. It also ranks eighth in exploratory spending and market capitalization, and twelfth in total revenue. (Chesapeake's market cap is 18% of ExxonMobil's.) In 2009, Chesapeake drilled 1,148 gross operated wells, which it called "the industry's most active drilling program," spending $2.941 billion. Its leashold inventory at the end of 2009 was 13.7 million net acres.
Here are some highlights from Chesapeake's report: