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In the later chapters of The Quest, Daniel Yergin summarizes the history of the internal combustion engine.  He begins by recounting a meeting of Henry Ford and Thomas Edison at a convention in August 1896, at which they sat together. Ford had just built his first gasoline-powered “quadricycle.”  He sketched out his design to Edison. Edison told him that the problem with electric-powered vehicles is that they “must keep near a power station.”  Edison told Ford to stick with the internal combustion engine.

The internal combustion engine was invented by Nikolaus Otto. His “Otto cycle” engine, developed in 1876, is still recognizable in our engines today: valves, a crankshaft, spark plugs, and a single cylinder.  Otto teamed with Karl Benz to produce automobiles, and Gottlieb Daimler was in close competition.  (In the twentieth century, the two companies merged, though Benz and Daimler never met each other.) By the 1890’s Daimler was distributing his cars in America.

Germany competed with France — with the French engineers Armand Peugeot and Louis Renault — for supremacy in the development of the automobile.  Britain was initially left behind because its railway industry, fearing competition, got Parliament to pass the Red Flag Acts that limited “road locomotives” to four miles an hour in the country and two miles an hour in cities — as well as requiring a man carrying a red flag to walk in front of road vehicles hauling multiple wagons.

At the turn of the last century, the internal combustion engine was well behind other technologies, including steam and electricity, in the auto industry.  In 1900, most of the 2,370 cars in New Yor City, Boston and Chicago were either seam cars like the Stanley Steamer or electrics. But electrics faced the problem of battery life — just as they do today. Edison worked on improving batteries, but in 1908 Ford introduced his first Motel T, priced at only $825. A few years later Ford introduced the assembly line, and the rest, as they say, is history. By 1910, the race between electric and gasoline was over.

The automobile also saved the oil industry. Until Americans fell in love with their car, gasoline was mostly a byproduct of the refining process, which produced kerosene for lighting. Just when electricity was spelling the end of the kerosene lamp, the automobile saved the day, opening a new market for the oil industry. The first gas staion, or “station for autoists,” opend in St. Louis in 1907. By the end of the 1920’s, there were hundres of thousands of gas stations. Americans were hitting the roads.

The internal combustion engine has dominated the transportation industry because, as Yergin says, “it turned out that gasoline was a very effective energy packet when poured into an internal combustion engine.” Ten gallons of the stuff could carry 2,000 pounds 100 or even 200 miles.

To understand the power of gasoline, a little basic chemistry is necessary. (A very little – as a lawyer, I’m skating close to the edge here.)

Gasoline is composed of different mixtures of hydrocarbons. Hydrocarbons are molecules that contain carbon and hydrogen atoms. The simplist hydrocarbon molecule is methane (the natural gas you burn in your stove), which contains one carbon and four hydrogen molecules – CH4. Ethane, also a gas, contains two carbon atoms and six hydrogen atoms – C2H6.  Propane contains three carbon atoms and eight hydrogen atoms– C3H8.  Butane contains four carbon atoms and ten hydrogen atoms – C4H10.  Methane, ethane, propane and butane are all gases at atmospheric pressures. But as the hydrocarbon chain becomes longer, it is easier to compress these gases into a liquid. Butane and Propane are sold by the gallon, under pressure. Methane requires much higher pressures to condense into a liquid, making it technologically more difficult to use it as a transportation fuel.

Pentanes, hexanes, heptanes and octanes are hydrocarbons with five, six, seven and eight carbon atoms. These hydrocarbons tend to be liquid at atmospheric temperatures and pressures.  They make up the components of gasoline.

When hydrocarbons ignite, the chemical reaction produces carbon dioxide, water, and energy. The formula for combustion of methane is CH4 + 2 O2 → CO2 + 2 H2O .  A methane molecule reacts with two oxygen molecules to produce a molecule of carbon dioxide and two molecules of water. In the process, energy is released.  The same basic chemistry results from the burning of gasoline in the internal combustion engine.

Competing technologies attempting to break into the transportation fuel economy — electric, hybrid, hydrogen, biofuels, natural gas — all have difficulty matching the efficiency and convenience of the internal combustion engine, because of the high energy content and convenience of gasoline. Despite huge investments and incentives by the auto industry and governments, no clear alternative to gasoline has yet emerged.  But Yergin believes that gasoline’s dominance may soon wane:

One way or the other, oil’s almost total domination over transportation will either be whittled away or more drastically reduced. …

[O]ne near certainty is that the transportation system of today will evolve significantly over the coming decades. Energy efficiency and lower emissions will continue to be major preoccupations. If issues of cost and complexity and scale can be conquered, the battery will begin to push aside oil as the motive force for some of the world’s automotive transportation. But the internal combustion engine is unlikely to be shunted aside easily. The new contest may, for some time, be less decisive than when Henry Ford used his Model T to engineer victory for the internal combustion engine against the electric car.

But the race has certainly begun. The outcome will do much to define our energy world in the decades ahead in terms of where we get our energy, how we use it, and who the winners will be. But it is much too soon for anyone to take a victory lap.

 

 

 

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Julia Trigg-Crawford, a landowner in Lamar County, has asked the Texas Supreme Court to hear her case arguing that TransCanada has no right to condemn her property for the Keystone XL Pipeline.  The Crawford Family Farm Partnership v. TransCanada Keystone Pipeline, L.P., No. 13-0866. Although other segments of the pipeline await federal approval, the segment from Oklahoma across Texas has now been completed and is in operation.  Crawford lost her case in the trial court and the Texarkana Court of Appeals, 409 S.W.3d 908, and has asked the Supreme Court to review the case. The Supreme Court asked TransCanada to reply to Crawford’s petition, and Texarkana filed its reply on February 6. 

Crawford’s argument is that Texas law does not grant eminent domain powers to interstate pipelines.  TransCanada argues that Crawford’s appeal presents the same issues as Rhinoceros Ventures Group, Inc. v. TransCanada Keystone Pipeline, L.P., 388 S.W.3d 305 (Tex. App.–Beaumont 2012, pet. denied), which the Supreme Court declined to review.

Crawford has become a symbol of opposition to the Keystone pipeline, drawing national attention to her cause.

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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:

EIA Eagle Ford Well Efficiency.JPG

Here is an annual comparison for several shale plays:

EIA Well Efficiency.JPG

 

Not necessarily good news for drilling companies, but good news for exploration companies and royalty owners.

 

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Recent news relating to oil and gas exploration and development in Texas:

Dune Sagebrush LizardGood 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.

What Do Texans Think About Global Warming?  A recent report by the Yale Project on Climate Change Communication reveals the results of a poll taken of Texans in 2013:

  • 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:

microwindmill-penny_web.jpg

 

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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.

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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.

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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.

Texas Oil Production.JPG

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.

Eagle Ford Oil Production.JPG

Permian Production.JPG

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.

Eagle Ford new well production per rig.JPG

Permian New Well Production Per Rig.JPG

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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.

Read more here: http://www.star-telegram.com/2012/02/17/3744111/owner-of-contaminated-water-well.html#storylink=cpy

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.

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