Articles Posted in Energy and the Environment

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A lot has been written lately about the amount of groundwater being used for hydraulic fracturing in shale plays – particularly in the Eagle Ford Shale, and more recently in the Permian Basin. This raises the question whether — and to what extent — exploration companies’ water wells used in fracing are subject to regulation by groundwater districts in Texas. It turns out that this is not an easy question to answer.

I am indebted to Mary K. Sahs (Carls, McDonald & Dalrymple, LLP), an Austin attorney who specializes in water law and who has written an excellent paper, Frac Water – Regulation of Quantity and Quality, and Reporting by Texas Groundater Conservation Districts, for the State Bar conference “The Changing Face of Water Rights” held on February 23 of this year in San Antonio, for a thorough explanation of this subject. I have borrowed liberally from her work.

Groundwater conservation districts are governed by the Texas Water Code, Chapter 36, and by any special provision in the law that authorized creation of each district. Section 36.117 (b) (2) of the Water Code provides that the following are exempt from regulation:  “drilling a water well used solely to supply water for a rig that is actively engaged in drilling or exploration operations for an oil or gas well … located on the same lease or field associated with the drilling rig.” This has been referred to as the exemption for “rig supply wells.” Rig supply wells are still subject to any water well spacing rules imposed by the water district, and the district may require the well to be registered and may require it to be properly equipped and completed.

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Texas is in the middle of one of the most severe droughts in recorded history. The population of the state is growing rapidly, and projections are that such growth will continue. Much of Texas is arid semi-desert, with limited rainfall in normal years. Will water become the limiting factor in Texas’ growth?

With water so much on everyone’s minds, I thought it would be a good idea to review some basic facts about water. The following information is from a presentation made by Tom Mason, former General Manager of the Lower Colorado River Authority, who is now a shareholder at my firm, Graves Dougherty Hearon & Moody.

Water on earth:

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The U.S. Environmental Protection Agency has issued proposed rules to cut down on emissions of volatile organic compounds (VOCs) and methane from well drilling and production sites. The rules were issued pursuant to a settlement of a suit by environmental groups alleging that EPA was not enforcing air emissions laws against the E&P industry.

Among other things, the proposed rules would require installation of vapor recovery units on storage tanks at wellsites and other E&P facilities to prevent emission of VOCs. The EPA has calculated that the rules would cost the industry $754 million, but that the gas and condensate captured by the vapor recovery units would be sold for $783 million. The rules would apply to oil and gas wells, natural gas processing plants, compressor stations and pipelines.  Similar emissions control requirements have been recommended by the New York Department of Environmental Protection in its study of the impact of Marcellus Shale drilling in New York.

For more information about the proposal on EPA’s website, go here.

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The New York State Department of Environmental Conservation (DEC) has been engaged in a comprehensive review of the potential environmental impacts of development of the Marcellus Shale in New York since 2008. The DEC is the regulatory agency in New York responsible for issuing drilling permits and regulating oil and gas exploration and production. The DEC had previously studied the environmental impacts of hydraulic fracturing in 1992, at which time it issued a Generic Environmental Impact Statement recommending certain safeguards in that practice. In 2009, the DEC issued for public comment a “Draft Supplemental Generic Impact Statement” analyzing the impact of hydraulic fracturing of horizontal Marcellus wells. As a result of comments received, the DEC has issued a revision of that draft report, which will be finalized later this year and again issued for public comment. During this study, New York has imposed a moratorium on issuance of any permits for horizontal wells in the Marcellus Shale.

The Marcellus extends over a huge area from West
Virginia through Pennsylvania and covers a substantial part of New York
State. Potential Marcellus reserves in New York are huge, and
exploration companies have leased huge areas in New York for
exploration. New York landowners have watched impatiently as wells have
been drilled in Pennsylvania, while environmental activists in New York
have opposed any drilling in that state.

The most recent version of the New York DEC’s study
and recommendations is several hundred pages and provides a thorough
study of the potential impacts of drilling Marcellus wells on the
environment, including impacts on groundwater, surface water, air
quality and wildlife. The report proposes many revisions to DEC’s
existing regulations concerning the construction of well pads, the
drilling and casing of horizontal wells, the handling and disposal of
frac fluids and chemicals, the disposal of returned frac water and drill cuttings, the use of best available technology to reduce emissions from equipment during drilling and completion operations, and the protection of groundwater and surface water. The report discusses the current
state of technologies for use of fluids other than fresh water for
hydraulic fracturing and for the recycling of frac water. The authors
also discuss recent incidents in Pennsylvania of groundwater and surface water contamination from drillsites and their cause. There is a
comprehensive summary of the geology of shale formations and water
resources in New York.

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WSJ Weighs In On Fracing Controversy

The Wall Street Journal gives its opinion on the dangers of hydraulic fracturing, siding with the industry: “The shale gas and oil boom is the result of U.S. business innovation and risk-taking. If we let the fear of undocumented pollution kill this boom, we will deserve our fate as a second-class industrial power.”

Powell Shale Digest Issues Report on Eagle Ford

The Digest reported on wells drilled so far in Eagle Ford fields in Texas. Enough information is now publicly available to begin to see where the play is headed, and where it’s most successful.

Powell Eagle Ford Map.jpg

The counties with highest oil and gas production are Dimmit, Karnes, Webb and La Salle. The counties with the best results per well are Karnes and DeWitt:

Powell Oil Prod.jpg

Powell Gas Prod.jpg

Baker Hughes’ oil rig count reached 1,000 for the first time since it began tracking oil and gas rigs separately in 1987. 843 oil and gas rigs are currently located in Texas. 

 

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A study group sponsored by the Massachusetts Institute of Technology has issued a report, The Future of Natural Gas, the fourth in a series of MIT multidisciplinary reports examinging the role of various energy sources and the effects of carbon dioxide emissions restraints.  The full 170-page report can be found here. The report analyzes the relative carbon footprint of natural gas compared to other fuels and the environmental impact of the development of shale gas reserves, among other topics. Here are some excerpts:

Major conclusions of the report:

  • “There are abundant supplies of natural gas in the world, and many
    of these supplies can be developed and produced at relatively low cost.”
  • “The role of natural gas in the world is likely to continue to
    expand under almost all circumstances, as a result of its availability,
    its utility and its comparatively low cost.”
  • Natural gas is “one of the most cost-effective means by which to maintain energy supplies while reducing CO2 emissions.”

Regarding gas’s carbon footprint, the report concludes that “Among
the fossil fuels, it has the lowest carbon intensity, emitting less CO2
per unit of energy generated than other fossil fuels. It burns cleanly
and efficiently, with very few non-carbon emissions. Unlike oil, natural gas generally requires limited processing to prepare it for end use.”

Regarding potential natural gas supply:

  • “The mean projection of [worldwide] remaining recoverable resource
    [of natural gas] in this report is 16,200 Tcf, 150 times current annual
    global natural gas consumption …. Of the mean projection,
    approximately 9,000 Tcf could be developed economically with a natural
    gas price at or below $4/Million British Thermal units (MMBtu) at the
    export point.”
  • “The mean projection of recoverable shale gas resource in this
    report is approximately 640 Tcf, with low and high projections of 420
    Tcf and 870 Tcf, respectively. Of the mean projection, approximately 400 Tcf could be economically developed with a natural gas price at or
    below $6/MMBtu at the wellhead.”

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Fracking has become more and more a topic in the general media and part of the state and federal environmental energy agenda, with new stories appearing daily. A sample:

Secretary of Energy Steveb Chu has appointed an advisory panel, officially called the Secretary of Energy Advisory Board’s subcommittee on natural gas, to study the environmental issues around hydraulic fracturing and shale gas production.  Members of the subcommittee are John Deutch, former head of the CIA during the Clinton administration, in the Department of Energy during the Carter administration, now a professor at MIT, and former board member of Schlumberger, Ltd.; Daniel Yergin, IHS Cambridge Energy Research Associates Chairman; Susan Tierney, Chair of the board of the Energy Foundation; Stephen Holditch, chair of the Department of Petroleum Engineering at Texas A&M; Fred Krupp, President of Environmental Defense Fund; Kathleen McGinty, former head of Pennsylvania’s Department of Environmental Protection; and Mark Zoback, geophysics professor at Stanford University. Steven Chu, Secretary of Energy, has charged the subcommittee to make recommendations on ways to improve safety of fracking in 90 days, and offer advice to other agencies within six months on how they can better protect the environment from shale gas drilling.  http://thehill.com/blogs/e2-wire/677-e2-wire/164057-overnight-energy-fracking . Beginnings of the subcommittee’s work have not shown promise: at the first meeting of the committee, Dusty Horwitt of the Environmental Working Group said its chairman John Deutch should resign because of his former ties to Schlumberger and Cheniere Energy. On the other side, Republicans including Darrel Issa (R-Calif), chair of the House Oversight and Government Reform Committee, have said that Chu’s subcommittee is composed primarily of Democratic appointees hostile to drilling interests. 

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Researchers at the Nicholas School of the Environment at Duke University have written an article published in the Proceedings of the National Academy of Sciences titled “Methane contamination of drinking water accompanying gas-well drilling and hydraulic fracturing,” which finds “systematic evidence for methane contamination of drinking water associated with shale-gas extraction” in the Marcellus Shale in Pennsylvania and New York. The article has already elicited a strong response from the industry. To my knowledge, this is the first scientifically based study finding a correllation between the drilling of shale wells and the contamination of aquifers.

 

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The April issue of Discover, published by Kalmbach Publishing Co., contains an article on the potential environmental effects of hydraulic fracturing in gas shales, “Fracking Nation,” by Linda Marsa. Much of the article simply repeats allegations being made by environmental groups and landowners of alleged groundwater contamination by shale wells. But the article mentions four newer topics and recent allegations being made by opponents of shale gas development:

 

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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.

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John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
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