Published on:

The US Environmental Protection Agency has recently issued its report on greenhouse gas emissions under its Greenhouse Gas Reporting Program, which for the first time includes comprehensive reported emissions from the petroleum industry. The report covers 8,000 facilities in nine industry sectors for 2011, and total reported emissions were 3.3 billion metric tons of carbon dioxide equivalent (CO2e). Total reported emissions of CO2e from petroleum and natural gas systems were 225 million metric tons CO2e.

“CO2e” is a way to compare the global-warming potential of different greenhouse gases – their potential to trap heat in the atmosphere — by converting their emissions to the equivalent global-warming potential of carbon dioxide. Greenhouse gasses include carbon dioxide, methane (natural gas), nitrous oxide, and flourinated gases. Each of those gases has a CO2e. The CO2e of carbon dioxide is “1”. The CO2e of methane, the principal greenhouse gas emitted by the petroleum industry, is 19.1, meaning that one ton of methane has the same global-warming potential of 19.1 tons of CO2. (One ton of methane equals about 48,700 cubic feet.) The debate over whether natural gas is actually less harmful to the environment than coal involves, in part, the question whether the global-warming potential of methane leaked into the atmosphere offsets the fact that burning methane emits less carbon dioxide than burning coal. Because leaking one ton of methane has the same effect as emitting 19.1 tons of carbon dioxide, the facts concerning leaks of methane are important to that debate.

By far the largest industry sector accounting for total CO2e emissions is the power generation industry, which accounted for 67% of the total reported emissions in 2011. By contrast, the petroleum and natural gas system sector accounted for less than 7% of total emissions:

US CO2e emissions pie chart.JPG

EPA’s estimate of total U.S. greenhouse gas emissions from all sources (including, for example, vehicles and house furnaces) for 2011 is 6.822 billion metric tons CO2e.

Here is EPA’s summary of greenhouse gases from petroleum and natural gas systems in the U.S.:

EPA GHG Report Summary.JPG

Here is a breakdown by percentage of total:

GHG pie chart.JPG

 

“Petroleum and Natural Gas Systems” includes the entire path of oil and gas from production through distribution:

NG Systems illustration.JPG

 

 

Published on:

The Texas Supreme Court denied the LaSalle Pipeline’s petition for review in LaSalle Pipeline v. Donnell Lands, leaving the San Antonio Court of Appeals’ original opinion intact. See my discussion of the case here. The trial court awarded $468 per rod $28.36/foot) for an easement for a 16-inch pipeline. The Court of Appeals affirmed, finding sufficient evidence to support the award.

The Texas Railroad Commission denied the Texas Land and Mineral Owners’ Association’s petition for a rulemaking on the Commission’s policy regarding permits for “allocation wells.” See my prior posts here and here. In their discussion concerning the petition, the Commissioners agreed that allocation wells should be addressed by rule, but they concluded that there are presently too many pending rulemakings for the Commission staff to take on more at this time. The Klotzmans’ protest of EOG’s allocation well permit remains pending, awaiting a proposal for decision from the hearings examiners.

Published on:

The E&P industry is continuing to face public criticism of its use of fresh groundwater in fracing wells and its failure to disclose the chemicals added to frac water.

On February 5, the Investor Environmental Health Network (IEHN) issued a press release announcing that shareholders have filed resolutions with Cabot O&G, Chevron, Exxon Mobil, EOG Resources, ONEOK, Pioneer Natural Resources, Spectra Energy, Range Resources and Ulta Petroleum challenging the companies “to quantifiably measure and reduce environmental and societal impacts” of their exploration activities. The resolutions focus on water issues, asking the companies to disclose the amount and sources of water used, how they track and measure naturally occurring radioactive materials (NORM) in frac water, whether and to what extent the companies use closed-loop systems in handling frac water, and what efforts are being made to reduce the amount of fresh water used. Shareholder proposals were filed by Calver Investments, Green Century Capital Management, the New York City Office of the Comptroller, the New York State Common Retirement Fund, the Sisters of St. Francis of Philadelphia, and Trillium Asset Management. IEHN and the Interfaith Center on Corporate Responsibility published a report in 2011, “Extracting the Facts: an investor guide to disclosing risks from hydraulic fracturing,” intended to list and encourage best risk management practices by E&P companies, including reducing and disclosing all toxic chemicals, minimizing fresh water use by substituting non-potable sources, and using closed-loop systems to store waste waters.

Last week, New York Comptroller Thomas DiNapoly announced that the state’s pension fund had reached an agreement with Cabot O&G to disclose its practices for minimizing the use of toxic chemicals in frac fluids. DiNapoli withdrew his shareholder proposal submitted for Cabot’s upcoming proxy statement. DeNapoli has negotiated similar agreements with Hess, Range Resources and SM Energy.

Halliburton, which provides frac fluids for the industry, has developed a “green” frac fluid called CleanStim that uses only food-industry additives. Halliburton production manager Nicholas Gardiner said that Halliburton has developed a chemistry-scoring system for fracfluids, with lower scores being better. CleanStim has a zero score, he said, but is “relatively more expensive” than many traditional fracking fluids. Terry Engelder, a geologist at Penn State, said: “Eventually industry would like to end up with a mix of just water, sand, and food-grade additives. Companies are learning to deal with fewer and fewer additives.”

The Texas House Energy Resources Committee held a hearing last week about fracing and water use. Industry spokesmen testified that they are using more brackish water and reusing flowback frac water; recycling water; and covering their retention ponds that store fresh water to limit evaporation. A spokesman for Fountain Quail Water Management said that 900 million gallons of flowback water have been recycled back to freswater in the Barnett Shale over the past nine years. He also announced formation of the Texas Water Recycling Association. A Devon Energy spokesman saidd that Devon had recycled about 700 million gallons of frac water since 2005. He said it costs 50 to 75% more than disposing of the water by injection. NBC News reported on a new water desalination technology that can clean up brackish water so that it can be used in fracing.

Meanwhile, Texas’ law on disclosure of chemicals in frac fluds has come under criticism because of its trade-secret “loophole.” A Bloomberg report said a sample of frac fluid disclosures from 370 wells reported in August 2012 showed that Baker Hughes averaged 9.1 non-disclosed ingredients per well, Halliburton averaged 9.3, and Superior Well Services averaged 32.5. Lon Burnam, the Democratic state legislator who co-authored the law, said that “this disclosure bill has a hole big enough to drive a truck through.”

 

On another topic: a final good-bye to Aubrey McClendon, who has resigned from Chesapeake, the company he founded. He receives a nice parting gift of $45.2 million over the next four years and $33.5 million in restricted stock. He was previously removed as Chairman of the Board because of heavy criticism of alleged conflicts of interest and the company’s poor market performance. It will be interesting to see how Chesapeake survives without him. While much of the criticism of his tenure is undoubtedly deserved, his huge contribution to the natural gas boom of the last ten years should not be forgotten.

Published on:

The Texas Supreme Court has agreed to hear arguments in a case that could have important implications for landowners and oil and gas exploration companies: Merriman v. XTO Energy, No. 11-0494. Merriman’s attorneys are asking the Court to reverse the 10th Circuit Court of Appeals, at Waco, which they contend has consistently mis-interpreted the Supreme Court’s rulings on the accommodation doctrine.

The “accommodation doctrine” is a court-made doctrine relating to the mineral owner’s right to use the surface estate to drill for and produce minerals. The mineral estate is the “dominant estate,” meaning that the owner of the mineral estate has the right to use so much of the surface estate as is reasonably necessary for exploration and development of the minerals, without compensation to the surface owner for such use. (This includes the right to use groundwater for oil and gas operations, even though the groundwater belongs to the owner of the surface estate.) The Supreme Court has held that, notwithstanding the mineral owner’s right to use the surface, the mineral owner must under some circumstances “accommodate” the surface owner’s existing use of his land. The doctrine requires a balancing of the interests of the surface and mineral owner. In 1993, the Supreme Court said: “if the mineral owner has reasonable alternative uses of the surface, one of which permits the surface owner to continue to use the surface in the manner intended (especially when there is only one reasonable manner in which the surface may be used) and one of which would preclude that use by the surface owner, the mineral owner must use the alternative that allows continued use of the surface by the surface owner.” Tarrant County Water Control & Impr. Dist. No. 1 v. Haupt, Inc., 854 S.W.2d 909, 912 (Tex. 1993).

Homer Merriman, the plaintiff in this case, owns 40 acres in Limestone County. When he bought the land, the seller reserved the mineral estate and the land was then subject to an oil and gas lease. Merriman built his home on the land. Although he works full-time as a pharmacist, Merriman also runs cattle. He leases land in Limestone County for grazing, and once a year he uses his 40 acres to round up and work his cattle, with portable pens that are assembled for the operation and then taken down. The rest of the year he grazes cattle on the 40 acres, where he also lives.

In 2007, XTO Energy approached Merriman and told him it intended to drill a well on his tract. Merriman objected to the proposed well location, arguing that it would prevent him from using the 40 acres for his cattle working operations. XTO discussed with Merriman moving the location to the southewest corner of his tract, where Merriman said it would be acceptable, but XTO ultimately decided not to accommodate Merriman’s request. Merriman then sued XTO seeking an injunction to prevent the drilling of the well at its chosen location. Despite the suit, XTO drilled the well. The trial court granted summary judgment for XTO, and the Waco Court of Appeals affirmed, holding that Merriman “has alternative uses of his land that are not impracticable or unreasonable. Merriman further has alternative methods of conducting his cattle operation that are not impracticable or unreasonable.”

(The well XTO drilled on Mr. Merriman’s tract, the Beachcomber Unit 2 – 11 Well, is a Cotton Valley well located on a 703-acre pooled unit. It was the 10th well drilled on the unit. There are now 18 wells on the unit, including a horizontal well, all producing from the Cotton Valley formation. The 2-11 Well has to date produced almost 1 billion cubic feet of gas.)

Merriman’s lawyers argue that the Waco Court of Appeals has held Meriman to too-high a burden of proof. They say that Merriman didn’t have to prove that he had no other possible uses of his land, but only that the mineral owner’s proposed use would prevent him from continuing his current use of the property and that XTO had an alternative location that would allow his use to continue.

The Supreme Court last wrote about the accommodation doctrine in 1993. Since then, horizontal drilling has been developed and drilling has moved into more urbanized areas. Conflicts between surface and mineral owners’ rights to use land have increased. Merriman’s attorneys urged the court to take up his case both to straighten out this and prior opinions of the Waco Court of Appeals on the subject and to provide more certainty as to the meaning and application of the accommodation doctrine. It will be interesting to see if the Court decides to give Merriman another chance to prove his case, more than five years after he filed it.

Published on:

A client recently suggested that I should write about landfarming – the practice of disposing of drilling mud and cuttings by spreading it over land.

Drilling mud is the common term for the fluid used in the process of drilling a well. It is made up of a mixture of clay (bentonite) in a base of either water, diesel or mineral oil. It also contains an organic material such as lignite to stabilize the slurry and a material such as barite to increase its density. The drilling mud is circulated through the wellbore – pumped down the inside of the drill stem, through the drill bit, and up the outside or annulus of the hole as the well is being drilled. The drilling fluid carries the cuttings made by the drill bit back up and out of the hole, and it helps to cool the drill bit. The clay also coats the outside of the open hole to help seal off porous geologic strata. The drilling fluid is circulated through a pit or tank, where the cuttings settle out, and re-injected into the hole.  Usually an earthen “reserve pit” is constructed for this purpose.

The actual content of drilling mud varies with conditions in the hole and the formations being drilled. In the Eagle Ford, for example, water-based mud is typically used for the vertical section of the hole, and oil-based mud is used for the horizontal section.

After drilling is completed, the drilling mud and cuttings in the reserve pit must be disposed of. These wastes are exempt from federal regulation, and state regulations vary. Landfarming of water-based mud is a generally accepted method of disposing of the contents of the reserve pit in most states.

In Texas, oil and gas exploration and production is regulated by the Texas Railroad Commission, and its rules regarding disposal of drilling fluids are at 16 Texas Aministrative Code Section 3.8, commonly called Rule 8, or “The Pit Rule.” That rule defines “landfarming” as “a waste management practice in which oil and gas wastes are mixed with or applied to the land surface in such a manner that the waste will not migrate off the landfarmed area.”

In general, Rule 8 allows wastes remaining in reserve pits to be disposed of either by burial on-site or by landfarming on-site. But the rule requires the consent of the surface owner for landfarming:

RRC Rule 8 (16 TAC, Part 1, Sec. 3.8):

(3) Authorized disposal methods.

    (C) Low chloride drilling fluid. A person may, without a permit, dispose of the following oil and gas wastes by landfarming, provided the wastes are disposed of on the same lease where they are generated, and provided the person has the written permission of the surface owner of the tract where landfarming will occur: water base drilling fluids with a chloride concentration of 3,000 milligrams per liter (mg/liter) or less; drill cuttings, sands, and silts obtained while using water base drilling fluids with a chloride concentration of 3,000 mg/liter or less; and wash water used for cleaning drill pipe and other equipment at the well site.

    (D) Other drilling fluid. A person may, without a permit, dispose of the following oil and gas wastes by burial, provided the wastes are disposed of at the same well site where they are generated: water base drilling fluid which had a chloride concentration in excess of 3,000 mg/liter but which have been dewatered; drill cuttings, sands, and silts obtained while using oil base drilling fluids or water base drilling fluids with a chloride concentration in excess of 3,000 mg/liter; and those drilling fluids and wastes allowed to be landfarmed without a permit.

First, the RRC does not require a permit for on-lease disposal of water-based drilling fluids. If the waste is to be disposed of by burial, the drilling fluids must be “dewatered” before burial. The rule defines “dewatering” as “to remove free water.”

Second, if the operator wants to dispose of water-based drilling mud by landfarming on the lease, it must have the permission of the landowner, and the fluids must have a chloride (salt) content of less than 3,000 mg/l.

There are also commercial landfarming operations that take spent drilling mud and dispose of it for operators. Those operations do require a permit from the RRC, and many such permits have been granted. A list of recent permits can be found here. he RRC has specific requirements for such permits, including testing the soil and the drilling fluid for chloride content and heavy metals. A recent story about a criminal investigation of such a commercial operation raises questions about how well the RRC regulates such sites.

Note that disposal of reserve pit contents by burial does not require consent of the surface owner. Unless the oil and gas lease prohibits disposal by burial, the operator will be able to bury the pit contents over the objection of the surface owner. If the mineral owner also owns the surface estate, the lessee may seek to negotiate the right to landfarm pit contents in the lease itself. If the surface owner does not own any minerals, the operator may offer to compensate the surface owner for the right to landfarm pit contents.

Texas A&M’s AgriLife Extension Service has published a good summary of the risks and hazards of landfarming pit wastes, which can be found here. Among A&M’s conclusions:

- Oil may be contained in water-based drilling mud, part of the materials produced during the drilling operations. Excess amounts of oil  – in excess of 1% of the volume of the waste disposed of – are generally toxic to plants.

- Chlorides (salts) in drilling fluid can be detrimental to soils. Soil is generally considered salt-affected or “saline” when the electrical conductivity of the saturated paste extract exceeds 4 millimhos per centimeter.

- Drilling fluids can also contain boron, arsenic, barium, chromium, copper, lead, nickel and other heavy metals that can be harmful in certain concentrations.

A&M recommends that any agreement to allow landfarming should specify testing protocols for possible harmful elements, both in the soil and in the drilling fluids, by a qualified professional; specification of the proper rate of application, and possibly requirements for application of soil amendments to promote treatment of the waste; requirements for mixing the waste into the soil; and requirements for re-seeding and reclamation when the landfarming is complete, possibly with a required bond to assure performance.

Published on:

FrackNation is a documentary by Phelim McAleer and Ann McElhinney, journalists from Ireland, in response to Josh Fox’s Gasland. It recently premiered in several locations and now can be seen on Mark Cuban’s cable channel AXS. I watched it this week, and it can be seen again on AXS February 2 at 2:30 pm Eastern time. It is worth watching and has received favorable reviews.

fracknation_1-420x620.jpg

 

McAleer and McElhinney have previously done documentaries on global warming (Not Evil Just Wrong) and gold mining in Romania (Mine Your Own Business) that challenge conventional wisdom on environmental topics. McAleer got the idea for this new film when he confronted Josh Fox at a press conference in Chicago about scenes in Gasland showing tap water being lit on fire. McAleer pointed out that natural gas has been in well water long before the boom in hydraulic fracturing in Pennsylvania.

McAleer and McElhinney got their funding from Kickstarter, where 3,305 backers donated $212,000 to back the movie. (They’re all listed in the movie credits.)

Kyle Smith of the New York Post writes that “McAleer, a whimsical Irish journalist with a pleasingly avuncular air, explains in a robustly entertaining and informative doc how Fox was wrong to imply fracking is unregulated and proves methane has been in some drinking water since long before fracking.” Kevin Begos writes in USA Today that the film “discredits some of the most extreme anti-fracking rhetoric,” but “it also sometimes goes too far in dismissing legitimate concerns.”  The New York Times writes that the film is “no tossed-off, pro-business pamphlet”, and that it is “methodically researched and assembled” and “provocative.” Grover Norquist wrote on the Huffington Post that Fracknation “eviscerates Gasland’s credibility and makes clear that its director knowingly lied again and again.”

One of the most interesting segments of the film is a discussion about the role of popular media in the debate over the safety of oil and gas drilling and its effect on the environment. Mainstream media are justly criticized, in my opinion, for failing to adequately investigate claims made by radical groups on both sides of the debate before giving them credence by including their views in their publications. Josh Fox has made a business out of his movie and has become a media celebrity. His film was nominated for an academy award, and he has appeared with Hollywood celebrities. Fox is now working on a sequel for HBO, Gasland 2. In part as a result of this media frenzy, a moratorium was imposed on hydraulic fracturing in the State of New York. It is impossible for the general public to separate fact from fiction. Where is Walter Cronkite when we need him? The whole debate is in dire need of serious investigative journalism – but that costs money, and it doesn’t sell adds.

 

Published on:

The University of Texas’ Burear of Economic Geology has issued a draft report updating an earlier report on water use by the oil and gas industry in Texas. Among its conclusions: Movement of shale plays into oil-rich areas of the Eagle Ford and West Texas’s Permian Basin have resulted in increased use of brackish water for frac’ing, improvement in reuse technologies, and lower fresh water consumption, but also more demand on groundwater in regions of South and West Texas.

Some excerpts:

In the Eagle Ford, although the number of wells completed has increased rapidly, the intensity of water us (gallons per foot of completed interval) has decreased almost in half in four years. The report attributes this decreas in intensity to higher use of “gel” fracs that can carry proppant with much less water. Water use is significantly higher in the down-dip gas window of the play (as high as 1400 gal/ft) vs. the oil window (800 gal/ft). Here are graphs from the draft report about the Eagle Ford’s water use:

EF # of wells.jpg

EF total water use.jpg

EF HZ setion length.jpg

EF Mgal per well.jpg

EF water intensity.jpg

EF proppant loading.jpg

 

Here are some other interesting statistics and projections from the draft report:

Estimated percentages of recycling / reused and brackish water use in principal areas in 2011:

Table percent of water use.JPG

Estimated groundwater / surface water split (does not include recycling / reuse):

grounwater-surface water split.JPG

 

Summary of projected water use by mining industry in Texas:

Mining Water Use Projections.JPG

 

Historical water use in Texas – all categories — 2001-2010:

Historical Water Use (all categories).JPG

 

Published on:

News items of interest:

The University of Pennsylvania’s Center of Excllence in Environmental Toxicology has organized a group of researchers from UPa, Columbia, Johns Hopkins and the University of North Carolina to study whether the drilling in the Marcellus Shale play is hazardous to human health.

http://green.blogs.nytimes.com/2013/01/21/taking-a-harder-look-at-fracking-and-health/ 

Here is a recent presentation by one of UPa’s professors, Trevor M. Penning, on public health issues of hydraulic fracturing:

http://www.med.upenn.edu/ceet/documents_user/MarcellusShale_Penning3.pdf

A report by the New York Health Department, leaked to the New York Times, says that hydraulic fracturing can be conducted safely.

http://www.nytimes.com/2013/01/03/nyregion/hydrofracking-safe-says-ny-health-dept-analysis.html?hp&_r=1&

Here is a report by StateImpact Texas on recent earthquakes in the Barnett Shale, possibly caused by injection wells:

http://stateimpact.npr.org/texas/2013/01/18/oil-and-gas-related-earthquakes-texas-regulators-speak-no-evil/ 

The City of Fort Worth has now banned new disposal wells within its city limits.

New “sand plant” in San Antonio – U.S. Silica Holdings and BNSF announced construction of a plant near San Antonio that can store and deliver 15,000 tons of sand to the Eagle Ford. The sand will come from U.S. Silica’s mine in Ottawa, Illinois.

http://stateimpact.npr.org/texas/2013/01/18/oil-and-gas-related-earthquakes-texas-regulators-speak-no-evil/

Colorado recently adopted rules requiring operators to test groundwater before and after drilling. The rules require operators to test up to four water wells within one-half mile of a well prior to drilling, one year after drilling, and again six years after drilling.

 http://cogcc.state.co.us/RR_HF2012/Groundwater/COGCC_APPROVES_PIONEERING_NEW_GROUNDWATER_PROTECTIONS.pdf

The State of Alaska also recently issued proposed new rules regulating hydraulic fracturing:

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6970099

The Federal Advisory Committee established by the U.S. Department of Commerce in December 2010, has issued a new draft report warning of the consequences of global warming. The report says that strong scientific evidence has been produced sthat human activities, especially the burning of fossil fuels, are primarily responsible for climate change, and that climate change, if not dealt with, will increase health problems, wildfires, exreme weather conditions, and human welfare in general.

http://green.blogs.nytimes.com/2013/01/14/an-alarm-in-the-offing-on-climate-change/

Congress renewed the wind energy industry’s tax credit for another year. Notably, the extension applies to any project commenced during 2013, instead of projects completed by year-end. Wind energy was the largest source of new capacity for electric generation in the U.S. last year.  at 3:11 pm on Christmas day, wind power supplied nearly 26% of electricity demand in the area served by the Electric Reliability Council of Texas.

http://www.star-telegram.com/2013/01/02/4520113/tax-credit-may-breathe-life-into.html

A good article about drilling in an urban environment, in the unincorporated community of Gardendale, Texas, near Midland:

http://www.guardian.co.uk/environment/2012/dec/31/fracking-in-towns-texas-oil

A good article about air monitoring equipment installed in the Barnett Shale by the Texas Commission on Environmental Quality:

http://www.star-telegram.com/2012/12/21/4502934/in-barnett-shale-monitors-make.html

Reuters calls Chesapeake’s future “murky”:

http://business.financialpost.com/2012/12/27/chesapeake-endures-rocky-year/?__lsa=8071-a840

 

Contact Information