Recently in Texas Railroad Commission Category

August 26, 2014

Flaring in the Eagle Ford

With increasing frequency, my landowner clients have complained about gas flaring, especially in the Eagle Ford Shale.  Landowners are beginning to insist that their leases require royalty payments on flared gas. Landowners also complain of the odors and noise from gas flares.

The San Antonio Express News has recently published a four-part series, Up in Flames,  on flaring in the Eagle Ford, after a year-long investigation. Among its findings:

  • Since 2009, flaring and venting of natural gas in Texas has surged by 400 percent to 33 billion cubic feet in 2012. Nearly 2/3 of the gas flared in 2012 came from the Eagle Ford.
  • Gas flared in the Eagle Ford resulted in more than 15,000 tons of volatile organic compounds and other contaminants into the atmosphere in 2012 -- more than was emitted by the six oil refineries in Corpus Christi.

Part Three of the Express News report focuses on the role played by the Texas Railroad Commission in regulation of gas flaring. Under RRC regulations, a company can flare gas for 10 days after a well is completed; after that, the company must apply for a permit if it flares more than 50,000 cubic feet of gas per day from the lease.  The Express News asked the RRC for records showing the 20 leases in the Eagle Ford with the most gas flared and vented in 2012, and for the permits allowing those companies to flare that gas. It turned out that seven of the 20 leases lacked the necessary flaring permits -- a fact that the RRC apparently had not noticed until the newspaper asked for the information.

The RRC's lack of enforcement of its own rules was a subject of criticism of the agency in the last Sunset Commission review of the RRC. The Sunset Commission report said that the RRC "pursues enforcement action in a very small percentage of the thousands of violations its inspectors identify each year.  Part of the reason for the large number of violations is that the commission's enforcement process is not structured to deter repeat violations. The commission also struggles to present a clear picture of its enforcement activities, frustrating the public."

RRC rules provide for a fine of up to $10,000 per day for flaring without a permit. After the Express News pointed out that seven of the 20 highest flaring leases in the Eagle Ford had no flaring permit, the RRC fined two of the companies more than $60,000 and is considering action against the others.

According to the report, the RRC could not point to a single instance when it denied a permit to flare gas -- sometimes for more than 180 days.

Most of the Eagle Ford production is oil -- some natural gas is produced with the oil, but with high oil prices and low gas prices, companies don't want to shut in wells until pipelines can be laid to gather the relatively small amounts of gas produced with the oil. So, the companies flare the gas. Burning the gas produces carbon dioxide, a greenhouse gas. If the gas is not burned completely, or if it is vented, methane and volatile organic compounds are released into the atmosphere.

Last year the RRC appointed an Eagle Ford Shale Task Force to identify and make recommendations to address issues resulting from exploration and production activities in the Eagle Ford play. One of its recommendations was to modernize state regulations, reduce waste of natural gas, and make flaring an "option of last resort." One of the commissioners, David Porter, said that he had "directed commission staff to apply a higher level of scrutiny to applications for flaring and venting operations and to shorten time frames for compliance when violations are reported."  No word yet from the Commission on how that "higher level of scrutiny" has affected flaring in the Eagle Ford.

Bottom line: operators will continue to flare gas as long as it is to their economic benefit to do so. The Railroad Commission will not deny permits to flare the gas. If landowners are able to require royalty payments on flared gas, the lessee's economic incentive to flare the gas will be reduced. Eventually, gas prices will rise, gathering lines will be installed, and flaring will decrease. Until then, flares continue to light up the night sky in South Texas.

July 29, 2014

Jimmy McAllen's Judgment Against Forest Oil Affirmed

Jimmy McAllen's battle against Forest Oil has moved one step closer to conclusion. Last week the Corpus Christi Court of Appeals affirmed an arbitration award of more than $20 million against Forest Oil for environmental and other damages to the McAllen Ranch and personal injuries to Mr. McAllen.

The fight began in 2004, when McAllen sued Forest. He claimed that Forest had buried mercury-contaminated iron sponge wood chips on the 27,000-acre McAllen Ranch. The wood chips are waste from Forest's gas plant on the Ranch. He also claimed that he had contracted cancer from pipe containing naturally occurring radioactive material (NORM) that Forest had given him to build pens on his Santillana Ranch.  The pens were built to house endangered rhinoceroses.  McAllen contracted cancer that required amputation of his leg.

Forest responded that McAllen was bound by a prior settlement agreement that required him to arbitrate any claims arising out of Forest's operations on his ranch.  McAllen opposed arbitration. The trial court denied Forest's motion to require arbitration, and the Corpus Christi Court of Appeals affirmed. Forest appealed to the Texas Supreme Court, which held that McAllen was bound by the arbitration agreement. Forest Oil v. McAllen, 268 S.W.3d 51 (Tex. 2008).

So the parties arbitrated McAllen's claims before three arbitrators, one chosen by McAllen, one by Forest, and the third chosen by the other two.  Forest chose Daryl Bristow, McAllen chose Donato Ramos, and the third arbitrator was Clayton Hoover. The arbitration hearing lasted for 17 days.  The arbitrators issued a split decision, with Bristow dissenting. The arbitration award gave $15 million to McAllen for the reduced value of the McAllen Ranch resulting from Forest's contamination of the ranch, and $500,000 to Jimmy McAllen for his personal injuries. The panel also awarded $500,000 in exemplary damages and $5 million in attorneys' fees. Bristow dissented, based on his conclusion that the award interfered with the Texas Railroad Commission's jurisdiction to regulate remediation of hazardous waste associated with oil and gas production.

McAllen filed a motion in the trial court to confirm the arbitration award, which the trial court granted. Forest then appealed to the Court of Appeals in Corpus Christi.

Texas courts favor arbitration of disputes, so it is difficult to overturn an arbitration award. A court's review of arbitration awards is very limited.

The Court of Appeals first held that the award did not interfere with the Railroad Commission's jurisdiction over oil field contamination. The court made reference to sections 85.321 and 322 of Texas Natural Resources Code, the first of which expressly grants a private cause of action for damages for violation of Texas conservation laws, and the second of which provides that nothing in the law governing Railroad Commission jurisdiction "shall impair or abridge or delay a cause of action for damages or other relief that an owner of land .... may have or assert against any party violating any rule or order of the commission or any judgment under this chapter."

Forest also argued that the award should be vacated because of the "evident partiality" of Donato Ramos, the arbitrator chosen by McAllen. An arbitration award may be overturned if an arbitrator fails to disclose to the parties known facts that "might, to an objective observer, create a reasonable impression of the arbitrator's partiality." In other words, it is not the partiality per se that is objectionable, but the arbitrator's failure to disclose facts that might show his partiality. Forest said that Ramos failed to disclose that McAllen had proposed Ramos as a mediator in another suit brought by McAllen against Chevron. Evidence in the case indicated that Ramos was never told that he had been proposed as a mediator in that other litigation.  Because there was evidence that Ramos never knew he was being proposed as a mediator, the Court of Appeals held that Forest had not shown grounds for overturning the arbitration -- Ramos could not fail to disclose something that he never knew. The Court of Appeals distinguished a recent Texas Supreme Court case that did overturn an arbitration award on the same grounds, Tenaska Energy v. Ponderosa Pine Energy,  2014 WL 2139215. In that case, the arbitrator failed to disclose the full extent of his business relationship with a party's attorneys in the case.

There is some irony in Forest's complaints about the arbitration award in light of its insistence that McAllen's claims had to be resolved by arbitration. One of Forest's arguments for overturning the award was that McAllen's expert-testimony evidence of damages to the ranch would not have been admissible testimony in a trial court. The Court of Appeals cited the Texas Supreme Court's conclusion that an arbitration award need not be based on admissible evidence. "For efficiency's sake, arbitration proceedings are often informal; procedural rules are relaxed, rules of evidence are not followed, and no record is made." Nafta Traders v. Quinn, 339 S.W.3d 84, 101 (Texas 2011).

Forest is sure to seek review by the Texas Supreme Court. So Jimmy McAllen's ten-year fight with Forest is not quite over yet. 

July 23, 2014

Texas Railroad Commission Proposes New Rule on Authority of Pipelines to Condemn Private Property

The Texas Railroad Commission has published a proposed rule that will change how pipelines are classified as "common carriers" and "gas utilities." That classification determines whether pipelines can exercise the power of eminent domain -- the power to condemn rights-of-way for pipelines.

In 2011, the Texas Supreme Court held in Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC that the Railroad Commission's method of classifying pipelines as common carriers and gas utilities was not sufficient to grant them eminent domain authority. The court held that, in order for a pipeline to have condemnation powers, it must serve a "public purpose," and that in order for a pipeline to serve a public purpose, "a reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting gas for customers who will either retain ownership of their gas or sell it to parties other than the carrier." Once a landowner challenges its status as a common carrier, "the burden falls upon the pipeline company to establish its common-carrier bona fides if it wishes to exercise the power of eminent domain." The court held that the RRC's policy of classifying pipelines as common carriers or gas utilities based solely on the pipelines' checking of a box on a form filed with the RRC was not sufficient to establish the public purpose of the line. 

Since Denbury, the pipeline industry has struggled to find a way to efficiently establish pipelines' common-carrier status without having to litigate the issue with every landowner it wants to cross over. Initially the industry sought legislation authorizing the RRC to have one hearing to establish that a proposed new line will in fact qualify for common-carrier status. Under the bill, that determination would then be binding on all landowners whose property will be crossed by the pipeline. Those landowners would be given the opportunity to participate in the hearings; notice of the hearings would be given by publication in local newspapers. The Texas Farm Bureau, the forestry industry, and other landowner groups opposed the bill. Most major oil and gas associations favored the bill. The bill never made it out of committee.

The RRC's proposed rule essentially proposes to do the same thing that the failed bill did, with one big difference. Under the proposed rule, whenever a pipeline wants to build a new line it must file an application for a permit with the RRC. In that application, the pipeline must submit "a sworn statement from the pipeline applicant providing the operator's factual basis supporting the classification [as a common carrier or gas utility] and purpose being sought for the pipeline," and "documentation to provide support for the classification and purpose being sought for the pipeline." Once the application is complete, the RRC has 30 days to grant or deny the permit. If the permit is granted and the requested classification is approved, presumably the pipeline will have established its right to condemn right-of-way. At least that is what the pipeline industry is hoping.

The difference between the failed bill and the proposed rule is that no public notice of the permit application is given. Without public notice, there is no opportunity for those affected by the proposed pipeline to question the evidence submitted by the pipeline for the "public purpose" of the proposed line.

Comments on the rule must be submitted by August 25 to Rules Coordinator, Office of General Counsel, Railroad Commission of Texas, P.O. Box 12967, Austin, Texas 78711-2967.

July 2, 2014

Texas Railroad Commission's New GIS Viewer Up and Running

In the last legislative session, the Texas Legislature gave the Texas Railroad Commission money to upgrade its website. The RRC's new GIS Viewer is now available for use.  http://wwwgisp.rrc.state.tx.us/GISViewer2/  This map-based access to RRC information on wells, pipelines and records makes it much easier for the public to access RRC records.

One of its tasks that the RRC does well is provide easy access to its records. It has always been one of the most open and accessible regulatory agencies in the state, and it goes to great lengths to make its records easily available to the public. Its new GIS Viewer greatly enhances this capability.

There is as yet no tutorial on how to use the new Viewer, but if you play with it for a while, you will see how easy it is to use.  When you open it, you see a map of the State, with the RRC' district boundaries shown.

Viewer 1.JPG

You can select a county from the menu at the top of the page to zoom in on that county.

Viewer 2.JPG

 

Then use your mouse to navigate within the county and find the area you are interested in. When you zoom in far enough, you will see symbols for wells.

Viewer 3.JPG

 

Click on one of the well symbols, and you can access the information available for that well, including permits, completion reports, and well production, and images of all of the filings for that well.

Viewer 4.JPG

 

You can also use a well's API number to find the well. A well's API number is a unique number assigned to every oil and gas well in the U.S. A complete API number for the well identified above is 42-177-32136. On the Viewer, the first two numbers are not used, and the dash between 177 and 32136 is not used. To search for this well using its API number, type 17732136 in the search box in the upper right-hand corner of the Viewer.

Viewer 5.JPG

Press enter, and the map zooms to the well.

The map has different layers that can be turned on and off to view particular items. For example, below are the layers showing pipelines and land survey boundaries.

Viewer 6.JPG

 

Hover over a pipeline and you will see its operator and what commodity the pipeline is carrying.

The Viewer is still being enhanced, and additional data will be included.

The Commission is to be congratulated on its work in providing this valuable tool.

 

June 19, 2014

Concerns Continue of Water Well Contamination from Hydraulic Fracturing

Investigations continue in response to complaints of alleged contamination of water wells from drilling activity in the Barnett Shale.

In May, the Texas Railroad Commission issued a report of its investigation of complaints of well contamination by methane in Parker County. It concluded that "the evidence is insufficient to conclude that Barnett Shale production activities have caused or contributed to methane contamination in the aquifer beneath the neighborhood."

But Parker County resident Steve Lipsky, who's complaint at the RRC caused it to conduct its new study, continues his battle with Range Resources, arguing that its wells are responsible for the methane in his water well.  Two other scientists who have reviewed the RRC test data concluded that the gas in Lipsky's water is definitely the result of fracking operations.

Lipsky's battle with Range continues in the Texas Supreme Court, where Lipsky and Range have both filed petitions for writs of mandamus. Lipsky has asked the court to dismiss Range's claims against Lipsky for defamation and business disparagement. Range accused Lipsky and his expert Alisa Rich of fabricating evidence in Lipsky's suit for damages for contaminating his well.  Range asks the court to reinstate its claims that Lipsky and his wife and Rich conspired to fabricate evidence to defame the company. The court has not yet ruled on the petitions.

Meanwhile, the University of Texas at Arlington, along with UT's Bureau of Economic Geology, are conducting a study of 550 water wells in North and West Texas, including baseline testing of wells in Nolan County using samples taken before commencement of drilling in that county, to investigate the impact of drilling and disposal operations over time. Some states, including Pennsylvania -- but not Texas -- require drillers to test nearby water wells before drilling to provide baseline data on groundwater.

April 14, 2014

Earthquakes in Ohio Linked to Hydraulic Fracturing Activity

The Ohio Department of Natural Resources has imposed rules on exploration companies requiring seismic monitoring around new well sites near fault lines and quake epicenters in the Utica Shale.  According to the Columbus Dispatch, the rules require monitors at new drill sites located within 3 miles of known fault lines or areas that have experienced an earthquake greater than magnitude 2.0. Monitors cost about $20,000 each, and as many as five are needed at each well. "ODNR officials said if monitors at drilling sites detect even a magnitude 1.0 quake, fracking will immediately stop and an investigation will start. If fracking is blamed, a moratorium would be instituted 3 miles around the epicenter," according to the article. Earlier earthquake activity near Youngstown, Ohio was attributed to an injection well, which was shut down by Ohio DNR.

Earthquakes in Oklahoma and North Texas in the Barnett Shale, and more recently in the Eagle Ford in South Texas, have been linked to injection wells, but not to hydraulic fracturing. The Texas Railroad Commission has hired a seismologist to study the matter but has not imposed any new regulations on injection wells.

October 15, 2013

Motion for Rehearing filed in Klotzman v. EOG Allocation Well Permit Dispute

For those of you following the Klotzman proceeding at the Texas Railroad Commission, you can read the Klotzman Motion for rehearing here.  #02-0278952 Klotzman Motion for Rehearing.PDF
October 14, 2013

Texas PACs Giving in Energy Sector

Texans for Public Justice, www.tpj.org, issued its report on 2012 Election Cycle Spending by Texas political action committees.  You can see it here. Some highlights:

Of the $70 million spent by Texas business PACs in 2011-12, $11.9 million, or 9%, was spent by PACs devoted to energy and natural resources issues/candidates. Here are the top spenders:

Energy PACs.JPG

The above figures represent spending by these PACs both in-state and out-of-state.

Energy Future Holdings is the successor to TXU Corp., acquired by EFH in a $45 billion leveraged buyout. EFH, now threatened with bankruptcy, is one of the state's largest electricity generators. The five EFH PACs spent more than $750,000. 

Valero Energy's PAC spent $729,000 of its $2 million in Texas and was a larger supporter of Senator Ted Cruz. ConocoPhillips' PAC spent $221,000 in Texas and gave large sums to Texas Railroad Commissioners.

Lawyer and lobbyist PACs were also big spenders:

Lawyer PACs.JPG

In 2010, Public Citizen issued a report on political contributions to Texas Railroad Commissioners. It found that total funds raised by commissioners increased from $511,000 in 2000 to $3.5 million in 2007-2008. Industry donors increased from $230,000 in 2000 to more than $2.1 million in 2008:

RRC contributions.JPG

Contributions to sitting commissioners increased substantially in 2006 and 2008 election cycles:

contributions to sitting commissioners.JPG

Public Citizens' conclusions:

  • Most of the increase in funding of commission races is driven by industry and those who have an economic interest in the decisions made by the commission.
  • Increased spending by large donors is likely putting pressure on smaller, independent operators to contribute.
  • Fundraising rarely ceases, except just after an election.

The Railroad Commission has been up for review by the Texas Sunset Commission in the last two sessions of the Texas Legislature, and both times the legislature failed to enact any of the recommendations of the Sunset Commission --- save one. In 2012, the legislature passed a bill requiring commissioners to resign if they decide to run for another elective office.  Governor Rick Perry vetoed that bill.  Among the Sunset Commission's recommendations was that the commission should levy more fines for violation of commission rules.  In the first quarter of 2013, the commission issued almost 14,000 notices of violations; it collected less than $200,000 in fines.

July 18, 2013

Final Report of Sunset Advisory Commission on Results of Recommendations on Texas Railroad Commission

The Sunset Commission's final report on the results of its recommendations for reform of the Texas Railroad Commission can be found here. The report's summary:

Summary of Final Results

S.B. 212 Nichols (D. Bonnen) -- Not Enacted

For the second consecutive legislative session the Railroad Commission's Sunset bill failed passage. Initially reviewed in 2011, the Railroad Commission's Sunset bill did not pass and the 82nd Legislature continued the Railroad Commission under Sunset review for another two years.1 In 2013, the Sunset Commission again found a need for the functions of the Railroad Commission. However, with the significant and ongoing boom in oil and gas production, the Sunset Commission concluded having a more transparent and objective regulator was more important than ever. To address these concerns, the Sunset Commission recommended changing the agency's name, limiting when Commissioners could solicit and receive campaign contributions, and requiring the automatic resignation of a Commissioner running for another elected office. The Sunset Commission also recommended several funding changes, including eliminating the statutory cap on the Oil and Gas Regulation and Cleanup Fund and creating a new pipeline permit fee to help support the agency's pipeline safety program.

The Sunset recommendations were incorporated into Senate Bill 212. The Senate passed this bill intact, but ultimately the bill was left pending in the House Energy Resources Committee.

Although the agency's Sunset bill failed passage for a second time, the 83rd Legislature did address a key Sunset Commission concern in other legislation by increasing, rather than eliminating, the cap on the Oil and Gas Regulation and Cleanup Fund. The Legislature also continued the agency for four years, subject to Sunset review again in 2017. One provision -- requiring the automatic resignation of a Commissioner running for another elected office -- was adopted by the Legislature in S.B. 219, the Ethics Commission Sunset bill, that was later vetoed by the Governor.

The following material summarizes Sunset recommendations adopted in other legislation and management actions directed to the agency that do not require statutory changes.

Continues the Railroad Commission for four years until 2017; requires the Sunset review to include an assessment of other state agencies that are able to perform the Railroad Commission's functions; and requires the Railroad Commission to pay all costs of the review. (H.B. 1675)

Ethics

Directs the Commission to review its recusal policy, and revise as necessary to ensure
Commissioner's awareness of, and compliance with, these requirements. (management action- non statutory)

Funding Cap

Increases the statutory cap on the Oil and Gas Regulation and Cleanup Fund from $20 million to $30 million, and increases the Fund's floor from $10 million to $25 million. (H.B. 3309)

Mineral and Land Owner Rights

Directs the Commission to study the use and development of telecommunication technology designed to increase the transparency of, and the public's participation in, agency hearing processes and better protect the rights of mineral owners and land owners in the state of Texas. (management action - nonstatutory)

Directs the Commission to develop a fee schedule for increased charges associated with re-filing previously withdrawn applications for forced pooling or field spacing exceptions. (management action - nonstatutory)

 

Once again, almost all of the Sunset Commission's recommendations were not adopted, even though comments received were almost uniformly favorable. The only significant legislation that did pass was a requirement that commissioners resign to run for another office - a bill vetoed by the Governor.

July 1, 2013

Inside Story on Failure of Pipeline Bills in Texas Legislature

Colleen Schreiber has written an excellent article in the June 13 edition of Livestock Weekly, "Landowners Hold Off Oil and Gas Lobby on Common Carrier Bills," describing the blow-by-blow negotiations and lobbying in the pipeline industry's efforts to "solve" the problems created by the Texas Supreme Court's decision in Tex. Rice Land Partners, Ltd. v. Denbury Green Pipeline-Tex., LLC, 363 S.W.3d 192, 198 (Tex. 2012).

Lined up on one side:  pipeline lobbyists supporting bills by Rep. Tryon Lewis, R. Odessa, in the House, and Robert Duncan, R. Lubbock, in the Senate, including the powerful Koch brothers, owners of Koch Enterprises.

On the other side:  Texas and Southwestern Cattle Raisers Association, Texas Farm Bureau, Texas Land and Mineral Owners' Association, the Bass family, and plaintiffs' lawyers.

Ultimately, all bills failed. The pipeline industry asked the Governor to add their issue to the special session but, so far at least, pipelines have been overshadowed by abortion bills and financing of higher education projects.

In Denbury, the Supreme Court surprised the pipeline industry by holding that they actually have to prove their proposed line will be a "common carrier" before they can use the power of eminent domain to condemn right-of-way. This left the pipelines, in their view, subject to interminable delays and suits by landowners unhappy with the pipeline routes, the terms of their proposed easements and the compensation being offered.

To "fix" the problem, the pipelines proposed that a pipeline's common-carrier status be determined once for each pipeline, at a hearing held before the Texas Railroad Commission. Landowner lobbyists agreed to negotiate and agreed to consider the concept of a single hearing that would determine common-carrier status for a pipeline; but they wanted the hearing to be before the State Office of Administrative Hearings (SOAH), rather than the RRC; they wanted to be sure all landowners likely to be affected got notice of the hearing; and they wanted strict standards to determine whether a pipeline qualifies as a common carrier. In the end, the biggest sticking point was whether the hearings would be before the RRC or SOAH. Pipelines obviously favored the RRC; the landowners, believing that the RRC would not protect their interests, favored SOAH.  (Most administrative hearings related to state agencies in Texas are held before administrative judges at SOAH. The RRC is one of the few agencies that has kept the right to have hearings before its own administrative judges, called hearings examiners.)

A bill might have been hammered out, but late in the game plaintiffs' lawyers, led by Wayne Reaud, a lawyer who made a fortune suing tobacco companies, weighed in and refused to compromise. Reaud at the time was fighting a condemnation action brought by CrossTex for a pipeline that would cross lands he owns in Jefferson County. Reaud claimed that CrossTex should not have the right to survey on his land until it proved that it is a common carrier. He sought and obtained a temporary injunction to keep CrossTex off his property. CrossTex appealed that injunction to the 9th Court of Appeals in Beaumont, and the appeal was pending when the pipeline bills were being considered. (The Beaumont court has since issued its opinion affirming the trial court's decision to grant the injunction. The opinion can be viewed here.) The end result was that the pipeline bills died in committee and never came up for a vote in either the Senate or the House.

Underlying the debate over the pipeline legislation is the perception by those representing landowners' interests that the RRC is not the place to have hearings on the qualifications of pipelines to exercise eminent domain, and the insistence by the pipeline interests that the RRC be the judge. The RRC has jurisdiction to enforce other laws affecting landowners' interests, and their experience has been that the RRC is not an agency friendly to landowners' complaints.

June 17, 2013

Energy Lobbyists Big Spenders in Texas Legislature

Terrence Henry, a writer for StateImpact Texas, has written a recent article, "Why Oil and Gas Lobbyists Were Big Spenders in Texas." He analyzes two reports on spending on lobbyists and campaigns compiled by Texans for Public Justice. Lobbyists for energy and natural resources companies spent between $31.4 million and $62.5 million on lobbyists during the most recent legislative session, according to the report, 19% of the total of between $155 million and $328 million spent on the session. Incredible numbers. There are no limits on such spending in Texas.

Texas Railroad Commissioners were big beneficiaries of both campaign contributions and lobbying by oil and gas interests. Sunset-recommended reforms of the Commission, opposed by the Commissioners, failed to pass once again. The only RRC-related reform that did pass (but which the Governor has vetoed) was a requirement that a commissioner resign if he/she decides to run for another office.  Andrew Wheat, a researcher at Texans for Public Justice, says that's because the oil and gas industry supported that measure:  "The [oil and gas industry] is interested in paying their bills while they're commissioners. But they don't want to pony up huge amounts of money every time one of these people wants to run for higher office."

One important bill supported by the energy industry did not pass. It would have limited public participation in hearings at the Texas Commission on Environmental Quality in applications for emissions permits. The bill was opposed by communities and environmental groups. And pipeline companies' bills to make it easier for them to exercise the power of eminent domain to condemn pipeline easements also failed to pass.

 

June 3, 2013

Railroad Commission Skates Sunset Review - Again

The session is over, and the Texas legislature has failed once again to pass sunset legislation for the Texas Railroad Commission. The legislature instead authorized continuation of the RRC for another four years, with sunset review to be repeated in the 2017 legislative session.

Under Texas sunset act, every state agency must go through a comprehensive review of its functions and performance every twelve years by the Sunset Advisory Commission, a 12-member commission appointed by the Lieutenant Governor and the Speaker of the House. The RRC underwent sunset review in 2010; the report of the Sunset Advisory Commission at that time criticized the agency for failing to vigorously enforce its rules and assess penalties for rule violations, and recommended structural reforms of the agency, including replacement of the three elected commissioners with a single appointed commissioner.  But the legislature failed to pass any legislation recommended by the Commission, instead requiring that sunset review be repeated for its 2013 session.

The 2012 Sunset Commission report no longer recommended replacing the three elected commissioners with an appointed commissioner. Instead, it recommended ethics reforms, including limiting the time when commissioners could solicit campaign contributions and prohibiting commissioners from accepting contributions from any company with a contested case pending before the RRC. It also required a commissioner running for a different elective office to resign from the RRC. The commissioners vigorously opposed these recommendations and the legislation introduced to enact the reforms.

The legislation continuing the RRC does provide that the next sunset review of the RRC must consider how to dismantle the agency and assign its responsibilities to other state agencies if sunset legislation fails to pass again in four years.

Rep. Dennis Bonnen, R-Angleton, author of the interim legislation continuing the RRC, expressed his frustration at the failure of the process: "I don't see how they can go through a third time -- through sunset and no bill passes -- and we continue that agency. You just can't keep doing that. We need to have the opportunity to have a strategic, orderly plan to dismantle the agency if that's the choice they make. It's the obvious thing to do." Bonnen blamed the agency's commissioners for the failure. "I'll be candid. All of he commissioners were against any changes for ethics. I think that's one of our biggest obstacles. The industry's afraid to agree with the legislators on any policy changes we're making because they don't want to offend the Railroad Commissioners. It's a very bad situation."

Rep. Bonnen claims that Commissioner Barry Smitherman plans to run for Attorney General in 2014, a claim that Smitherman does not deny or confirm. But Smitherman expressed his relief that the RRC won't have to go through sunset review for another four years.

Meanwhile, the RRC finally passed its overhaul of oil and gas well construction rules, Statewide Rule 13, a rulemaking that has been in the works for many months. Industry and environmental advocates -- in particular the Environmental Defense Fund -- worked together on the rule changes, and both expressed satisfication with the result.  Scott Anderson, senior policy advisor at EDF, said that "the rule marks a huge turning point in state regulation of the safety and environmental integrity of oil and gas wells. Texas has moved back into the leadership position on regulation of oil and gas well construction. Agencies around the country, including the federal Bureau of Land Management, are likely to learn a lot from studying these rules as well as similar rules adopted last year in Ohio." But Anderson cautioned that one big improvement is still ndeed. "For reasons we don't understand, the commission is allowing operators to leave less space around the pipes in the lower parts of wells than experts recommend. Having enough space around these pipes is important in order to get adequate cement jobs, which are needed both for economic reasons and in order to protect the environment. EDF hopes the commission will revisit this issue in the future."

The new rules don't become effective until January 1, 2014.

February 4, 2013

Landfarming - What is it, and should I allow it on my land?

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.

January 14, 2013

More About Allocation Wells

In a prior post, I wrote about a new development at the Texas Railroad Commission: granting permits for "allocation wells" - horizontal wells drilled across lease lines without pooling the leases. Since I wrote that post, our firm was retained to represent the parties protesting EOG Resources' application for a permit for an allocation well. A hearing on the application was held at the RRC on December 3. In addition to EOG and the protestants, Devon Energy appeared at the hearing supporting EOG, and the Texas General Land Office appeared opposing allocation wells on State-owned minerals. All parties have now submitted closing statements and responses, which can be viewed below:

Klotzman Closing Statement.pdf

EOG Closing Statement.pdf

Devon Closing Statement.pdf

GLO Closing Statement.pdf

Klotzman et al Response to Closing Statements.PDF

EOG Reply Closing Statement.pdf

Devon Reply Closing Statement.pdf

Our firm was also retained by the Texas Land and Mineral Owners' Association and several mineral owners to file a petition for rulemaking with the RRC, asking the RRC to address the issue of allocation wells by commencing a rulemaking proceeding. The RRC has not yet responded. The petition can be viewed here: Rulemaking Petition.pdf

 

November 17, 2012

Sunset Advisory Commission Issues Report on Texas Railroad Commission

Texas' Sunset Advisory Commission has issued its recommendations for changes at the Texas Railroad Commission. The report can be found here.

The RRC was up for regular Sunset review in 2010, and the Sunset Commission issued a report recommending several changes then, including abolishing the three-member elected Commission and replacing it with a single appointed Commissioner. Largely due to debate over that recommendation, most of the Sunset Commission's 2010 recommendations were not enacted, and the Legislature told the Sunset Commission to issue a new report for its 2012 legislative session.

In its current report the Sunset Commission no longer recommends replacing the three elected Commissioners. It recommends changing the Commission's name to the Texas Energy Resources Commission; limiting the time when Commissioners can solicit campaign contributions and prohibiting a Commissioner from accepting contributions from any party with a contested case before the Commission; requiring a Commissioner running for another elected office to resign; and requiring the Commission to adopt a recusal policy rule.

Other proposed changes in the current report of interest to mineral owners include:

- removing the $20 million cap on the Oil and Gas Regulation Cleanup Fund, used to plug "orphaned" wells in Texas. There are an estimated 7,400 orphaned wells that remain unplugged. In fiscal 2012 the RRC plugged 764 orphaned wells.

- giving the RRC authority to impose a pipeline permit fee and to regulate the safety of interstate pipelines.

- requiring the RRC to develop an enforcement policy and penalty guidelines for oil and gas-related violations.

- requiring contested cases to be heard by administrative law judges at the State Office of Administrative Hearings, rather than by examiners who are members of the RRC staff.

In its discussion of the RRC's enforcement policy, the Sunset Commission reports that, since its 2010 Sunset review, the RRC has added 10 new full-time field inspectors (it now has 97 full-time inspectors and 55 additional staff that dedicate part of their time to field inspections). In fiscal 2012 the RRC conducted more than 118,000 inspections and found more than 55,000 violations; it issued 217 penalties and assessed more than $1.9 million in fines. The RRC also uses lease severance - revoking an operator's permit to sell production from a lease - as a method of enforcement. The RRC reported that the RRC issued 11,589 severance notices in fiscal 2012. In 63% of those cases where the RRC sent an operator a notice of severance, the violations were corrected after receiving the notice and an additional 22% of violations were corrected after the lease was severed; the remaining 15% were referred for enforcement action. The Sunset Commission notes that the RRC has adopted penalty guidelines by a new rule that assigns penalties based on the risk posed, the severity of the violation, and instances of repeat violations; and that the RRC is in the process of revising and "field testing" changes to its enforcement policies, requiring field personnel to refer all "major" violations for enforcement action even if the operator comes into compliance after the violation is found. The report says that "recent trend data does suggest an increase in the number of cases referred for enforcement." But the report notes that only 2% of the 55,000 violations were referred for enforcement in fiscal 2012. The report recommends that the Legislature require the RRC by statute to develop an overall enforcement policy that includes criteria for classifying violations and standards for which type of violations to forward for enforcement action.

I continue to believe that responsibility for enforcement of environmental laws related to the oil and gas industry should not reside in the same agency that enforces drilling and spacing regulations and is responsible for promoting development of oil and gas in the State. Moving contested cases to SOAH may help.

The RRC's reputation for enforcement was not helped by a recent report by StateImpact Texas of violations by a commercial disposal facility near Beaumont owned by Pemco Services . The Texas Environmental Enforcement Task Force, run out of the Travis County District Attorney's office, recently won a criminal conviction and a $1.35 million fine against Pemco for violation of its permit to dispose of drilling fluid by "landfarming". The facility was permitted by the RRC, but the RRC failed to require Pemco to comply with its permits for several years, according to the article. ""For over a decade the company was out of compliance with their permit and there was little done to regulate them," said Patricia Robertson, the task force's environmental crimes prosecutor." Pemco was pumping  unauthorized stormwater from the landfarm into Peveto Bayou, in voilation of the permit. The prosecutors alleged that, from 2002 to 2009, nearly 57 million gallons of drilling fluids were deposited on the landfarm in voilation of the permit, yet the RRC failed to take any enforcement action. RRC spokesperson Ramona Nye responded to a reporter's request for comment, saying that the RRC "tries to get voluntary compliance to correct violations 'before enforcement action is sought.'" Nye said that the RRC decided not to take enforcement action "as long as Pemco complied with Commission directives to stop accepting waste at the facility and to take actions necessary to close this site." Based on this report, it appears that the RRC still has work to do on its enforcement policy.