The New York Times reported recently that the number of mobile or “walking” drilling rigs in operation now exceeds the number of conventional rigs, by 650 to 500. “Pad drilling” — the drilling of multiple wells from a single pad site — has now become the norm in unconventional plays, and these walking rigs make drilling from a single pad site more economical and efficient. Moving a rig to a new location now takes a matter of hours instead of days. The new rigs cost up to $20 million. The increased effeciency of these rigs has actually reduced the rig count while increasing the number of wells drilled, and has caused the Energy Information Administration to develop a new rig-efficiency measure. The combination of walking rigs and multi-well drillsites results in significant reductions in drilling costs. Continental Resources, the largest player in the Bakken, says it now can drill 14 wells from a single pad.
EIA’s new Drilling Productivity Report shows how the new technology has affected production in the major shale plays. Here is its graph for the Eagle Ford:
Here is an annual comparison for several shale plays:
Not necessarily good news for drilling companies, but good news for exploration companies and royalty owners.
Recent news relating to oil and gas exploration and development in Texas:
Dune Sagebrush Lizard — Good article on efforts of industry and State regulators to avoid problems raised by possible listing of the Dune Sagebrush Lizard under the Endangered Species Act. Here is a map of the lizard’s habitat – right in the middle of the Permian Basin.
Earthquakes in the Oil Patch — Earthquakes in and around Azle, in the Barnett Shale, have caused quite a stir. Here’s a good article from the San Antonio News. Everyone seems to agree that the quakes are caused by injection wells, except the Texas Railroad Commission, which until recently called the connection “hypothetical”. After one of the Commissioners, David Porter, faced angry homeowners at a town hall meeting in Azle, he called for the RRC to hire its own seismologist. Azle residents are planning a bus trip to Austin to attend the next RRC conference in protest.
Open Position on Railroad Commission Draws Seven Candidates — They are Ray Keller, Stefani Carter, Becky Berger, Malachi Boyuls, Wayne Christian, Ryan Sitton, and Joe Pool Jr. Few landowners realize how important the Commissioners are to their interests, and landowners should pay attention to the race. The Commission is often a springboard to running for higher office. Barry Smitherman, currently a commissioner, is running for Texas Attorney General. The race is mostly funded by the oil and gas industry and its lobbyists.
- Most Texans (70%) believe global warming is happening. Relatively few (14%) believe it is not.
- Fewer than half of Texans (44%) believe that if global warming is happening, it is caused mostly by human activities. By contrast, 31% believe it is caused mostly by natural changes in the environment, while 11% believe it is a combination of the two causes.
- Texans think global warming is important and are worried about it. About three in four (73%) say the issue of global warming is at least somewhat important to them personally. About half (54%) are at least somewhat worried about it.
- Though virtually all climate scientists agree human-caused global warming is happening, many Texans, like most Americans, are unaware of this fact. Nearly half (47%) believe that “there is a lot of disagreement among scientists” about whether or not global warming is happening. Fewer(43%) believe most scientists think that global warming is happening.
- Among those who believe global warming is happening, solid majorities believe it is currently having a large or moderate influence on the severity of heat waves (84%), drought (80%), and wildfires (72%) in Texas.
- Among Texans who believe global warming is happening, large majorities expect to see a myriad of negative effects over the next 50 years. Nearly all anticipate more heat waves (95%) and increased drought and water shortages (92%) in Texas due to global warming. More than eight in ten believe Texas will experience worse storms, hurricanes, or tornadoes (87%), declining numbers of fish and native wildlife (86%), and increased allergies, asthma, infectious diseases, or other health problems (85%) due to global warming.
- More than half of Texans say that more should be done about global warming at all levels of government–from Congress (62%) and President Obama (57%), to Governor Perry (59%) and Texas’s state legislature (56%), to local government officials (60%). However, even larger numbers of Texans believe that citizens themselves (69%) and corporations and industry (68%) should be doing more to address climate change.
- Over half of Texans (55%) say the United States should reduce greenhouse gas emissions regardless of whether or not other countries do the same.
- Many Texans believe that individual action, and especially collective action, can be effective in addressing global warming. Among those who believe global warming is happening, most (89%) say their own actions would reduce their personal contribution to global warming at least a little.
- Virtually all Texans who believe global warming is happening say that if the same actions were taken by most people in the U.S. (96%) or around the world (96%), it would reduce global warming a little, some, or a lot. A majority of Texans (58%) say that President Obama is very or somewhat believable when speaking about energy- and climate-related issues. Half (50%) say Governor Rick Perry is very or somewhat believable regarding the same issues and four in ten (43%) say he is not very or not at all believable. Fewer than half of Texans say that either Senator Ted Cruz (46%) or Senator JohnCornyn (44%) is believable regarding energy and climate issues.
UT Concludes that Fracing Reduces Water Use. Researchers at the University of Texas have concluded that hydraulic fracturing actually reduces the amount of water used, by making it easier for generators to switch from coal plants to gas-fired plants, which use less water. “The bottom line is that hydraulic fracturing, by boosting natural gas production and moving the state from water-intensive coal technologies, makes our electric power system more drought resilient,” said Bridget Scanlon, senior research scientist at the University of Texas’s Bureau of Economic Geology and the lead author on the study. Meanwhile, a report from the San Antonio Express News says that water use for fracing in the Eagle Ford Shale has greatly exceeded expectations; between 2011 and 2013, operators at 3,500 Eagle Ford wells reported using nearly 44,000 acre-feet of water — more than 153,000 San Antonio residents would use on one year.
Micro-Windmills May One Day Power Your Smart Phone. This from Forbes. Here’s a photo:
The Klotzman mineral owners have appealed the Texas Railroad Commission’s order granting EOG a permit to drill an “allocation well” on their land. A copy of the petition can be viewed here: Klotzman Petition.pdf. Our firm represents the Klotzmans. For my previous posts about allocation wells and the Klotzman case, search for “allocation well” in the site’s search engine.
The San Antonio Court of Appeals recently decided a case illustrating the new kinds of issues that can arise from the drilling of horizontal wells.
In Springer Ranch v. Jones, Alice Burkholder owned a ranch, 8,545 acres in La Salle and Webb Counties. She signed a single oil and gas lease on the ranch in 1956 that has been maintained by produciton. When she died, Alice left the ranch to her husband for life, and thereafter in three separate tracts to her three children. In effect, by her will she partitioned the ranch, surface and minerals, into three tracts, subject to the oil and gas lease. Alice’s husband died in 1990, and thereafter the three children signed a contract agreeing on how royalties on production from the lease should be divided among them. The contract provided that all royalties under the lease “shall be paid to the owner of the surface estate on which such well or wells are situated, without reference to any production unit on which such well or wells are located.”
The lessee drilled a horizontal well located partly on one of the ranch tracts, now owned by Springer Ranch, and partly under a different tract now owned by Rosalie Sullivan. The surface location of the well was on the Springer Ranch tract. Springer Ranch argued that, because the surface location was “situated on” its property, it should receive all royalties from the well. Rosalie Sullivan argued that royalties from the well should be allocated between the two tracts based on each tract’s part of the productive lateral of the well. The trial court agreed with Ms. Sullivan, and the court of appeals affirmed. It construed the parties’ agreement to to allocate royalties on the basis of the percentage of the productive interval of the wellbore on each party’s tract, not on the basis of the well’s surface location.
Springer Ranch challenged the formula adopted by the trial court for allocating production between the two tracts. That formula was proposed by Ms. Sullivan’s expert, who measured the total length of the wellbore from its first to last take point and the portion of that length on each tract. Springer Ranch argued that the formula should be based on the entire length of the wellbore on each tract, and not just the productive portions. The court of appeals disagreed. It noted that Springer Ranch did not offer any evidence of any other basis for determining how much production was obtained from the parts of the well on each tract, and that the testimony supporting Ms. Sullivan’s allocation method was sufficient evidence to support the trial court’s judgment.
This kind of situation often arises where a portion of a tract subject to a lease is burdened by a non-participating royalty interest. If a well drilled on the lease is partly located on the tract burdened by the NPRI, there must be some method of allocating production to the NPRI tract for purposes of paying royalties. Most operators use the method adopted by the court in the Springer Ranch case, although I have seen no case law approving such a method. Note that the Springer Ranch case is based on the parties’ express agreement as to how production should be allocated. In most cases, there will be no express agreement.
It should also be noted that the Springer Ranch case has nothing to do with the “allocation well” controversy, which arises when an operator drills a horizontal well crossing from one lease to another without pooling the two leases together. In Springer Ranch, there was no dispute that the lessee had the right to drill the well.
Data from the Energy Information Administration shows that Texas’ oil production is now the highest it’s been in thirty years. Texas crude production is now approaching 3 million barrels/day, a rate not seen since the 1960’s.
Below are EIA graphs showing production of oil from the Eagle Ford and the Permian Basin. It appears that Eagle Ford production rates will soon surpass production from the Permian.
EIA also calculates changes in the initial productivity of new wells in each field, a measure of the improved efficiency of rigs in the field. The graphs below show that new wells in the Eagle Ford are improving substantially; not so in the Permian. IP rates of Eagle Ford wells are now substantially higher than in the Permian.
On December 20, the Office of Inspector General of the Environmental Protection Agency issued its “Response to Congressional Inquiry Regarding the EPA’s Emergency Order to the Range Resources Gas Drilling Company.” The report was requested by Congress as a result of an emergency order issued by the Dallas regional office of the EPA against Range Resources on December 7, 2010. That order required Range to take certain actions based on EPA’s finding that Range’s wells in the Barnett Shale were the likely source of contamination of water wells in Parker County.
I have written about Range’s saga before. EPA sued Range to enforce its emergency order. Range disputed and fought the EPA order, suing in the U.S. Court of Appeals to get the order revoked. Range called a hearing before the Texas Railroad Commission (in which EPA did not participate), after which the RRC found that Range’s wells were not the source of the gas in the water wells. One of the well owners, the Lipskys, sued Range in state court for damages; Range countersued, contending that the Lipskys had falsified evidence and defamed the company. The district court found that Lipsky had created a “deceptive video” that was “calculated to alarm the public into believing the water was burning.” The Lispkys have appealed to the Texas Supreme Court, where their case remainds pending.
The EPA and Range eventually settled their dispute, Range agreeing to conduct tests of 20 water wells in the area every 3 months for a year. Those tests showed no methane contamination of the water wells.
The Range-EPA fight led to the resignation of the Dallas regional admnistrator of the EPA, Dr. Al Armendariz, after he was videoed saying that, because of the limited number of staff in his office, his enforcment approach is to act like 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.” His actions were criticized in Congress, leading to a congressional request that the Office of Inspector General investigate EPA’s actions in the Range matter.
The OIG’s report vindicates EPA’s actions. If found that the EPA’s actions “conformed to agency guidlines, regulations and policy.” It also found that “the EPA lacks quality assurance information for the Range Resources’ sampling program, and questions remain about the contamination.”
A large part of the controversy concerned the EPA’s “isotopic fingerprinting and compositional analysis” of the gas in the Lipskys’ well, from which EPA concluded that the methane came from the Barnett Shale. In Parker County, the principal aquifer lies just above a shallow formation that contains methane, and water wells will become contaminated with that methane if they are drilled through the aquifer into the shallow gas sands. Range’s evidence at the RRC hearing showed that EPA’s “isotopic” analysis was flawed and that the gas in the Lipskys’ well was not from the Barnett Shale. Range’s evidence for the source of the gas is not mentioned in the OIG report.
Armendariz, now employed by Sierra Club, said that the OIG report is “complete and total vindication of the work we did at EPA.” Lipsky continues to believe that Range is responsible for contamination of his well: “The holding tanks [for well water] in people’s garages are going to explode and I don’t care where it’s coming from, someone is going to get killed,” he said.
The Energy Information Administration has created a nifty website presenting energy information by state, with a great map interface. Here is the link to the Texas map: http://www.eia.gov/state/?sid=TX Click on “full screen,” then play with the different layers for the map. Under “layers/legend,” click on “views” and explore the different layers on the map. You can also see how Texas ranks among states in crude oil, natural gas, electricity and total energy production (#1), and in per capita energy consumption (#6). Texas also ranks #1 in carbon dioxide emissions.
In November, Texas Monthly hosted a panel discussion at Rice University’s Baker Institute for public policy about the boom in shale oil development in the US. The panel members: Arthur E. Berman, a Sugar Land-based geologist; Scott W. Tinker, the director of the Bureau of Economic Geology at the University of Texas at Austin; and Kenneth Medlock III, an energy fellow at the Baker Institute. You can watch the panel discussion on Texas Monthly’s website, here. It’s worth an hour of your time.
These guys know a lot about energy in general and oil and gas in particular. I have previously written about Arthur Berman, a “shale skeptic,” who has never believed that the shale boom would last. Scott Tinker is the narrator of the documentary “Switch,” an examination of the modern world’s thirst for and sources of energy. In addition to the film, Dr. Tinker has created a website, http://www.switchenergyproject.com/, that provides additional short videos and other resources to further explore questions surrounding energy, including carbon capture, global warming, hydraulic fracturing, and alternative energy technologies. He interviews many world experts on global energy issues. He is to my mind one of the most even-handed and level-headed thinkers and explainers of the complex issues surrounding energy issues.