Oil and Gas Lawyer Blog

The Texas Railroad Commission this week approved publication of proposed rules establishing guidelines for admistrative penalties for violations of Commission rules related to pipeline safety, LP gas, CNG and LNG safety, oil and gas operations, and underground damage prevention. The proposed rules will be published February 10, and the comment period ends at noon on Monday, March 12. I encourage anyone who is interested in how the Commission enforces its rules to submit comments. To submit comments online, go to

http://www.rrc.state.tx.us/rules/proposed.php 

and look for proposed rule 3.107.

The RRC was reviewed by the Sunset Commission in the last legislative session. The Sunset Commission report criticized the RRC for not assessing enough fines. Among the Sunset Commission's findings:

- RRC inspectors conducted more than 128,000 inspections in FY 2009, finding more than 80,000 violations. The field staff forwarded less than 4 percent of those violations to the central office for enforcement action. (In contrast, the TCEQ forwarded about 20 percent of its more than 11,000 violations for enforcement action in the same year.) The RRC issued 379 penalties, assessing more than $2 million in fines.

- In FY 2009, the RRC found more than 18,000 water protection violations. it took enforcement action on less than 1 percent of those violations, about 150.

- The RRC received 681 complaints related to oil and gas production in FY 2009, and found 1,997 violations based on those complaints. But those complaints resulted in only 91 enforcement actions.

The report concludes that the RRC does not make enough use of penalties for violations: "The efficient and fair use of penalties plays a key role in deterring and punishing violators, and thus increases compliance. The Commission and its field staff go to great lengths to ensure complaince through monitoring and inspections; however, the Commission takes relatively few enforcement actions, resulting in a lack of deterrence for future non-compliance."

The report notes that complaints of limited enforcement action taken by the RRC are not new. The issue was raised in the 2001 Sunset review of the RRC. The report notes that oil and gas drilling has moved into urban areas and is having greater potential impact on underground water resources, which will result in greater scrutiny for the industry and RRC enforcement. "A lack of consistent enforcement can contribute to a public perception that the Commission is not willing to take strong enforcement action."

The report also criticized the RRC for not adequately tracking violations, so that it is unable to determine when repeat violators deserve harsher penalties.

To force the RRC to increase its enforcement activities, the report recommended that

• The RRC be required to develop, by rule, an enforcement policy to guide staff in evaluating and ranking violations.
• The RRC be required to deveop and adopt a rule establishing penalty guidelines, assigning penalties to different violations based on their risk and severity.
• Hearings on enforcement actions should be conducted before the State's independent State Office of Admistrative Hearings, rather than before administrative law judges that are employees of the RRC.
• The RRC be directed to establish a method of tracking violations and enforcement actions and develop a clear and consistent method for analyzing violation data and trends.
• The RRC be directed to publish additional complaint and enforcement data on its website.

The Legislature did not act on any of the Sunset Commission's recommendations; instead, it postponed any action on the recommendations to the next legislative session.

The proposed rules now being published are in response to the Sunset Commission's proposals. Notwithstanding the Sunset Commission's criticism that the RRC does not make enough use of penalties as a deterrent to violations, however, the proposed rules provide that the RRC Commision's policy on violations is unchanged. It says that the proposed guidelines are

a formal restatement of the penalty guidlines that have been used for many years. Significantly, the rule expressly states that the Commission favors a compliance-based approach to enforcement, with safety and environmental protection being the favored outcomes of any enforcement action. Encouraging operators to take appropriate voluntary corrective and future protective actions once a violation has occurred is an effective component of the enforcement process. Deterrence of violations through penalty assessments is also a necessary and effective component of the enforcement process.

The RRC's "compliance-based approach to enforcement" in practice means that the RRC does not fine an operator when a violation has occurred, as long as the operator cooperates in correcting the violation. In my experience, this means that operators don't have to worry about being fined because the RRC will simply notify them of the violation and they can then fix the problem. The proposed rules ignore the Sunset Commission's recommendation that the RRC increase its use of penalty assessments as a deterrent to violations, thus increasing compliance.

The Texas Supreme Court has reversed a decision of the Austin Court of Appeals holding that the Texas Railroad Commission must consider traffic issues in deciding whether to issue a permit for an injection well to Pioneer Exploration, Ltd. in Wise County. In its decision, the Court held that, in considering whether issuance of the permit was "in the public interest," the RRC need not consider the adverse impact on roads and traffic caused by truck traffic to and from the injection well.

Continue reading "Texas Supreme Court Rules Against Citizens Complaining of Injection Well" »

The EPA has issued its draft plan to study the impacts of hydraulic fracturing on drinking water in the U.S. Two state regulatory authorities have absolved frac'ed wells from responsibility for contaminating drinking water in Colorado and Texas. Maryland's top einvornmental regulator urged lawmakers to impose a two-year moratorium on frac'ing, as Maryland's legislature considers additional laws to regulate the practice. Meanwhile, the boom in shale gas drilling continues.

 

Continue reading "More About Hydraulic Fracturing in the News" »

Here is the closing statement of Range Resources filed with the Texas Railroad Commission after its hearing on complaints that Range's Barnett Shale wells in Parker County have contaminated groundwater.  It provides a good summary of the events to date and the evidence produced at the hearing.  Range Production Company Closing Statement.pdf

Here is a link to a summary of the Range dispute prepared by Gene Powell, Editor of the Powell Barnett Shale Newsletter.

The three current Texas Railroad Commissioners and the new incoming Commissioner David Porter all testified before the Texas Sunset Advisory Commission earlier this month, defending the RRC against criticism in the Sunset Commission staff report. The three commissioners are elected by Texas voters, and a position on the commission is often viewed as a steping-stone to higher office.  Two current commission members, Michael Williams and Elizabeth Ames Jones, both considered running for U.S. Senate when Kay Bailey Hutchinson indicated she would step down to run for Texas Governor. State Senator John Whitmire, a member of the Sunset Commission, said that their running for U.S. Senate conflicted with their duties to the Railroad Commission. "You're running for office, but while you're doing that and regulating and making decisions, you're running and actually raising money from the folks that you are regulating." The criticism mirrors the Sunset staff report, which recommends changing the law to have the RRC run by a five-member appointed board. (For my summary of the Sunset staff report recommendations, go here.) Commissioners Victor Carrillo and Michael Williams said they would support a single elected RRC to replace the three-member commission but would oppose a five-member appointed board. Commissioner Jones said she supported the current three-commissioner governance structure.

The Sunset Advisory Commission is composed of ten members: four members of the Texas House of Representatives, four Texas senators, and two private citizens:

Senate Members:

• Glenn Hegar, Jr., Chair
• Juan "Chuy" Hinojosa
• Joan Huffman
• Robert Nichols
• John Whitmire
• Charles McMahen, Public Member

House Members:

• Dennis Bonnen, Vice Chair
• Rafael Anchia
• Byron Cook
• Linda Harper-Brown
• Larry Taylor
• Lamont Jefferson, Public Member

The Sunset Commission will vote on recommendations for legislation to continue and reform the Railroad Commission at its next meeting on Wednesday, January 12.

Range Resources has written to Al Armendariz in EPA's Dallas office again asserting that it is not responsible for the groundwater contamination in Parker County.  Range's letter can be viewed here:  12-27 Armendariz letter.pdf  For my previous posts on this controversy, go here and here.

Range met with EPA staff on December 15, and it says that, as a result of the meeting, Range and EPA agree that "hydraulic fracturing in the Barnett Shale cannot be the cause of natural gas occurring in the domestic water wells identified by the EPA."  Range also made clear in the letter that, while it was complying with the requirements of EPA's order, it did not believe that the EPA had authority to issue its order, since Range was not responsible for the pollution and the order was issued "without any prior notice or opportunity for Range to present important objective facts."

The Dallas Office of the Environmental Protection Agency issued the following press release today:

The U.S. Environmental Protection Agency (EPA) has ordered a natural gas company in Forth Worth Texas to take immediate action to protect homeowners living near one of their drilling operations who have complained about flammable and bubbling drinking water coming out of their tap. EPA testing has confirmed that extremely high levels of methane in their water pose an imminent and substantial risk of explosion or fire. EPA has also found other contaminants including benzene, which can cause cancer, in their drinking water.

EPA has determined that natural gas drilling near the homes by Range Resources in Parker County, Texas has caused or contributed to the contamination of at least two residential drinking water wells. Therefore, today, EPA has ordered the company to step in immediately to stop the contamination, provide drinking water and provide methane gas monitors to the homeowners. EPA has issued an imminent and substantial endangerment order under Section 1431 of the Safe Drinking Water Act. Parker County is located west of Fort Worth, Texas.

In late August, EPA received a citizen's complaint regarding concerns with a private drinking water well. During the inspector's follow-up inquiry, EPA learned that the homeowner had previously complained to the Texas Railroad Commission as well as the company, but their concerns were not adequately addressed by the State or the company. EPA then conducted an on-site inspection of the private drinking water well with the homeowner and a neighboring residence, and returned to collect both water and gas samples. These samples were sent to an EPA certified laboratory for analysis. The data was received in late November 2010 and was carefully reviewed by EPA scientists. The EPA scientists have conducted isotopic fingerprint analysis and concluded the source of the drinking water well contamination to closely match that from Range Resources' natural gas production well.

EPA has asked the company to conduct a full scale investigation. EPA is requiring Range Resources under this order to:

• Immediately deliver potable water to the two residences;
  
• Immediately sample soil gas around the residences;
  
• Immediately sample all nearby drinking water wells to determine the extent of aquifer contamination; and
  
• Provide methane gas monitors to alert homeowners of dangerous conditions in their houses.
  
• Develop a plan to remediate areas of the aquifer that have been contaminated.
  
• And, to investigate the structural integrity of its nearby natural gas well to determine if it is the source of contamination.

EPA has data showing the presence of natural gas at two wells. EPA is ordering Range to investigate other nearby properties to determine if their drinking water is at risk. EPA has been in contact with a rural water system operator approximately 1 mile away, and they are taking steps to test their water for natural gas constituents. Residents of other homes are advised to contact EPA immediately if their wells seize up or if their water begins to effervesce. EPA will contact nearby private well home owners to advise them of our actions and to let them know that we've required the company to test their wells.

The uncontrolled release of natural gas can be dangerous since it is odorless and flammable and it escapes facilities. Uncontrolled release of natural gas inside a building or home can cause a fire or explosion. Drinking water contaminated with natural gas impurities such as benzene is unhealthy.

EPA believes that natural gas plays a key role in our nation's clean energy future and the process known as hydraulic fracturing is one way of accessing that vital resource. However, we want to make sure natural gas development is safe. As we announced earlier this year, we are in the process of conducting a comprehensive study on the potential impact of hydraulic fracturing on drinking water.

In the meantime, EPA has made energy extraction sector compliance with environmental laws one of EPA's National Enforcement Initiatives for 2011 to 2013. The initiative focuses on areas of the country where energy extraction activities such as hydraulic fracturing are concentrated, and EPA's enforcement activities will vary with the type of activity and pollution problem presented.

To my knowledge, this is the first time the EPA has directly intervened in response to a complaint by landowners of groundwater contamination from horizontal shale wells. The EPA's press release emphasizes that the Texas Railroad Commission did "not adequately address" the landowners' complaints.

The EPA's letter to Plains Resources may be found here:  http://www.epa.gov/region6/6xa/pdf/range_letter.pdf 

The EPA's emergency order may be found here: http://www.epa.gov/region6/6xa/pdf/range_order.pdf 

The two Range wells are the Butler Unit 1H and the Teal Unit 1H, both Barnett Shale wells drilled in 2009. The owner of one water well first noticed gas in his water in late December 2009, about four months after the Range wells began producing.  One of the water wells lies about 120 feet in horizontal distance from the track of the Butler well bore, and the other about 470 feet from the Butler well bore.  The EPA did a chemical analysis of the gas found in one domestic water well and found that it was substantially likely that it came from one of the Range wells.

The EPA order says that it consulted with the Railroad Commission and shared its findings with the Commission, and that "appropriate State and local authorities have not taken sufficient action to address the endagerment described herein and do not intend to take such action at this time."  The EPA ordered Range to (1) provide replacement potable water supplies for the owners of the affected water wells, (2) install meters in the landowners' dwellings to detect gas, (3) provide EPA a list of all private water wells within 3,000 feet of the two Range wells along with a plan to sample the water in those wells, (4) submit a plan to conduct testing of soils and indoor air around the dwellings served by the water wells, and (5) submit a plan to identify the gas flow pathways to the aquifer, eliminate such flows, and remediate areas of the aquifer impacted by the gas flows into the aquifer.

Update:  Range Resources has denied that its wells have contaminated groundwater in Parker County.  "The investigation has revealed that methane in the water aquifer existed long before our activity and likely is naturally occurring migration from several shallow zones immediately below the water aquifer," the company said. Two producing Range natural gas wells in the area "are completed in the Barnett Shale formation, which is over a mile below the water zone." The Texas Railroad Commission has scheduled a hearing on the matter for January 10.  http://www.star-telegram.com/2010/12/08/2690723/range-resources-denies-epa-allegation.html 

 

Texas' Sunset Advisory Commission has issued its Staff Reports on review of three of the state's most important regulatory agencies: the Texas Railroad Commission (RRC), the Texas Commission on Environmental Quality (TCEQ), and the Public Utility Commission (PUC). These reports will frame the debate on legislation to renew the mandates of these regulatory bodies in the coming legislative session. Landowners should be aware of the Sunset Commission's recommendations and be prepared to weigh in on those issues that affect landowners' interests. Links to the full staff reports of the Sunset Commission can be found on the Commission's website at http://www.sunset.state.tx.us/ . Below is a summary of some key facts and recommendations on the RRC.

Continue reading "Texas Sunset Commission Makes Recommendations on Review of Railroad Commission" »

EOG Resources has filed an application for designation of two new fields and for temporary field rules for oil wells in seven counties in South Texas (Eagle Ford proposed rules.pdf). Unlike its previous application, which sought to consolidate numerous Eagle Ford fields in Railroad Commission of Texas Districts 1, 2 and 4 and provide for temporary field rules for oil and gas, the new application seeks rules oil well rules only, for seven counties -- DeWitt, Karnes, Gonzales, Wilson, Atascosa, LaSalle and McMullen. EOG asks for expansion of the existing Eagleville (Eagle Ford) Field, renamed the Eagleville (Eagle Ford -2) Field for Karnes and DeWitt Counties, and a new Eagleville (Eagle Ford -2) Field for Gonzales, Wilson, Atascosa, LaSalle and McMullen Counties.

The proposed rules would provide for a minimum 330 feet from lease line spacing, no between-well spacing, and a minimum of 100 feet from lease line to the first and last take points in a horizontal well, a "box" rule, and a special rule for off-lease penetration of the producing formation.

The standard proration unit size for oil wells would be 80 acres, plus additional acreage for horizontal wells as allowed by RRC Rule 86. Under the proposed rules, an operator would be allowed to assign up to 360 acres to a horizontal well with a 5,000-foot lateral.

At the hearing today before the Texas Railroad Commission for consideration of EOG Resources' application for temporary field rules for a new field consolidating 27 existing fields in the Eagle Ford Shale in South Texas, the applicant EOG Resouces announced that it was withdrawing its application. (See my previous post on this application here.) EOG's lawyer said that the application was filed at the suggestion of Railroad Commission staff in order to have uniform rules for all wells drilled in the Eagle Ford, but because of the number of parties who had appeared in the hearing in opposition to the application, EOG would withdraw the application. He said that EOG plans to file a new application for temporary field rules for the Eagle Ford in eight counties where EOG has acreage: Gonzales, Wilson, Karnes, Atascosa, McMullen, La Salle, DeWitt, and Frio Counties. He said that the rules EOG would propose would apply to oil wells only, as EOG's acreage is in the oil window of the play. Other operators in the gas portion of the play are also expected to file additional applications for temporary field rules for gas wells.

An interesting article by Joe Carroll of Bloomberg News explores the problems faced by South Texas Ranchers seeking to require cleanup of old oilfield contamination. These problems are widespread in Texas and in my opinion the Texas Railroad Commission is ill equipped to address the problems.

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.

 

The Mayor of tiny Dish, Texas, north of Fort Worth, continues to stir up controversy with his claims of air pollution from oil and gas activities causing health concerns in his community. The mayor appeared at the RRC's January 12 open hearing. You can watch his testimony here (go to item 17 on the agenda). The mayor's appearance was prompted by an item placed on the agenda by Commissioner Michael Williams, which in turn had been prompted by a letter sent to the Commissioners by State Rep. Ron Burnam. Rep. Burnam's letter asked the RRC to place a moratorium on permits for wells in the Barnett Shale around Fort Worth until the Texas Commission on Environmental Quality (TCEQ) has finished its investigation of air quality in the area. In response, Commissioner Williams proposed that the Commissioners write a letter to the Texas Attorney General asking for a formal opinion whether the RRC has authority to issue such a moratorium. (Rep. Burnam has also asked the City of Fort Worth to issue a similar moratorium on well permits in the city limits.) I have written about the controversy concerning the town of Dish in a previous post.

Continue reading "Dish Mayor Calvin Tilman Testifies at Railroad Commission" »

Dish is a town of about 200 residents north of Fort Worth, Texas. The mayor and town council have recently become concerned about emissions from gas compressors in and around the town, from the Barnett Shale gas development. Large compressor stations are located near Dish; these stations have big internal combustion engines that compress gas to move it through gas transmission lines in the area. The town hired an environmental firm, Wolf Eagle Environmental, to conduct air quality tests and has complained to the Texas Commission on Environmental Quality. The small community has now become the focus of the larger debate over the impact of Barnett Shale wells on air quality in the Dallas-Fort Worth area and the impact of oil and gas drilling and production activity on the environment generally.

 

Continue reading "Tiny Town of Dish, Texas Stirs Up Hornet's Nest Over Air Pollution in Barnett Shale" »