Articles Posted in Texas Railroad Commission

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A great article appears in the March Section Report of the Oil, Gas and Energy Resources Law section report, by Jacqueline Weaver, Professor Emeritus, University of Houston Law Center: “The Railroad Commission’s New Duties to Keep Texans Warm: Winter Storm Uri Forces Change.” Here are some excerpts:

The throughput of dry gas production from Permian Basin processing plants dropped 85% from early February to February 18, [2021] and two-thirds of the gas processing plants in the Permian Basin had outages. The natural gas industry blamed electricity suppliers for cutting off power to them when they most needed it; power generators blamed the gas industry for failing to supply gas to them. Many natural gas providers had not filed a short form with ERCOT, the grid operator for most of Texas, that would have exempted them from electric outages during emergencies. The Railroad commission seemed unaware of this form and exemption process. Clearly, the natural gas and electricity sectors needed to communicate and coordinate more closely. In the ERCOT system, natural gas provides about half of all electricity generation.

According to an FERC-NERC Staff Report on Storm Uri:

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Almost a year ago, a district court in Travis County ruled that the Texas Railroad Commission had violated Texas’ Administrative Procedure Act by issuing a well permit to Magnolia Oil & Gas after informally adopting rules for issuance of permits for allocation wells and “PSA” wells (production-sharing-agreement wells) without complying with the APA. On April 27, the Third Court of Appeals will hear oral argument in the appeal of that ruling by the Commission and Magnolia.

In addition to briefs by the parties, the court of appeals has received briefs from Texas Oil & Gas Association, Pioneer Natural Resources, and American Exploration and Production Council, all in support of the Commission’s appeal, and from Ron Beal, a professor emeritus at Baylor Law School, in support of Appellees.

The case is Railroad Commission of Texas and Magnolia Oil & Gas Operating LLC v. Elsie Opiela and Adrian Opiela, Jr., Case No. 03-21-00258-CV. Briefs can be viewed here. My firm represents the Opielas. You can read my previous post about the case here.

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I first wrote about earthquakes caused by injection wells in 2015. After earthquake events large enough to be felt in the Dallas-Fort Worth area, the Legislature funded a $4.4 million study by UT’s Bureau of Economic Geology to monitor quake activity in areas where disposal wells were active.  Because of quakes in Oklahoma, the Oklahoma Corporation Commission had already begun studying the connection. Up until that time the Railroad Commissioners refused to recognize a connection between quakes and oil and gas production or injection. At a RRC hearing asking XTO to show cause why its activity in Parker County were not being caused by its injection wells, XTO argued that the quakes were natural phenomena not cause by their injection activities despite a study from Southern Methodist University making that connection. Meanwhile, Oklahoma began slashing injection rates near seismic activity in that state. In 2016 the Dallas Morning News published an investigative report, “Seismic Denial? Why Texas Won’t admit Fracking Wastewater is Causing Earthquakes,” in which it said:

Not only has the Texas Railroad Commission consistently denied man-made earthquakes in the face of compelling science, it also worked overtime to protect the oil and gas industry from accountability for its role in an earthquake swarm that rattled Azle and Reno [in North Texas] in late 2013 and early 2014.

In 2017 UT’s BEG went live with its website TexNet, documenting seismic activity in the Texas. Here’s a snapshot for Culberson and Reeves Counties showing quakes since the beginning of 2021 (click on image to enlarge):

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Pending before the Texas Supreme Court is the petition for review of Ammonite Oil & Gas Corporation challenging the decision of the San Antonio Court of Appeals in Ammonite Oil and Gas Corp v. Railroad Comm’n of Texas, 2021 WL 4976324 (Oct. 27, 2021). The Court of Appeals upheld the RRC’s decision to deny Ammonite’s sixteen applications to force-pool portions of the Frio River into pooled units created by EOG for its horizontal wells in the Eagleville (Eagle Ford-1) Field in McMullen County. The application presents several interesting issues regarding the scope and interpretation of the MIPA.

The State of Texas owns the land within Texas riverbeds. Ammonite leased the oil and gas in the Frio River from the Texas General Land Office. Ammonite then made an offer to EOG to pool adjacent portions of the riverbed into sixteen existing EOG units along the river. (click on image to enlarge)EOG-AmmoniteAmmonite offered to sign an operating agreement with EOG providing for Ammonite to pay its share of costs related to wells in the pooled unit, based on its share of the acreage in the unit. It also offered a 10% “risk penalty.” Ammonite would agree that EOG could recover 110% of its already-incurred costs for wells on the unit before Ammonite would receive its share of revenues from the wells.

EOG rejected Ammonite’s offers and did not make any counteroffer.

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With the recent cold snap, we’re all remembering what we were doing last February when the lights went out.

Repercussions continue. As reported by Michell Ferman at Texas Tribune, Vistra corporation is in a dispute with Energy Transfer over its bill to Vistra for $21.6 million, for gas sold to Vistra during the freeze. Energy Transfer has threatened to cut off gas supplies to Vistra if it doesn’t pay, and Vistra has asked the Texas Railroad Commission to prevent that. Ferman writes:

During last year’s winter storm — which caused the near-total collapse of the state’s power grid, left millions without power for days and caused hundreds of deaths — Vistra spent approximately $1.5 billion for natural gas, ‘twice its planned natural gas cost to fuel its entire Texas fleet for a full year,’ the filing said. Vistra paid Energy Transfer more than $600 million during the storm, ‘which is more than 96% of all amounts invoiced by [Energy Transfer].’

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In response to substantial criticism of its original proposed rule, the Texas Railroad Commission has issued a final rule, 16 TAC Sec. 3.65, relating to designation of critical natural gas infrastructure. Well owners can no longer exempt their wells’ designation as critical infrastructure simply by filing a form and paying a $150 fee. The RRC will now itself classify gas wells, pipelines, gas plants and other natural gas facilities as critical based on its own criteria, and those facilities will be required to winterize. Gas supply facilities that require electricity to operate will be “critical customers” and are required to provide information to their electric suppliers.

The RRC will initiate a rulemaking later to adopt rules on what weatherization is required.

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Excellent article in the Texas Tribune about the failure of the Texas Legislature and regulators to require natural gas companies to winterize in the wake of February’s winter storm blackout. The Public Utility Commission did finally act to require utilities to use “best efforts” to winterize their plants, but the Railroad Commission has so far done nothing to force gas infrastructure companies to winterize.

A joint report by the North American Electric Reliability Corporation and the Federal Energy Regulatory Commission found that “87 percent of unplanned generation outages due to fuel issues were related to natural gas, predominantly related to production and processing issues, while 13 percent involved issues with other fuels such as coal or fuel oil.”

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According to an article in The Texas Tribune, senators on the Senate Business and Commerce Committee were frustrated that the Railroad Commission had not done more to require natural gas producers, processors and pipelines to winterize their systems. In a committee hearing on Tuesday, they castigated Commission Executive Director Wei Wang for not moving faster. They did not seem to realize that the Commission was following the timeline set out in Senate Bill 3, passed in the last regular session to address the power loss across the state last February.

As I’ve posted, the Commission has proposed a rule requiring the gas producers, processors and pipelines to designate whether they are critical infrastructure, but the statute allows the industry to opt out of that category if they want to, a loophole that seemed to surprise and frustrate the senators. Wang pointed out that the Commission’s proposed rule mirrors the language of Senate Bill 3, which seemed not to mollify the senators, who demanded immediate action from the Commission.

The statute provides that a committee will map out the state’s energy infrastructure by September 2022, after which the Commission will have 180 days to finalize weatherization rules, a timeline the senators also criticized.  As the Texas Tribune reported, “Energy experts said lawmakers have themselves to blame if they wanted the state’s natural gas infrastructure, which sends fuel to many of Texas’ largest power plants, to be weatherized quickly — or at all. ‘The Legislature left this loophole open,’ said Doug Lewin, an Austin-based energy and climate consultant.”

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Commission Shift, a non-profit advocacy organization formed “to hold the Railroad Commission of Texas accountable to its mission,” has issued a detailed report on conflicts of interest policies at the Texas Railroad Commission and the need for reform. The report examines Commissioner Christi Craddick’s ties to the industry regulated by the RRC. Future reports will focus on the other Commissioners.

Commission Shift previously issued a critique of the RRC’s annual monitoring and enforcement plan for FY 2022, and a report on the growing orphan well problem in Texas, “Unplugged and Abandoned.” House Bill 3973, passed in the last regular legislative session, created a committee to study abandoned wells.

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After the Texas freeze last February that resulted in loss of electric service to millions of Texans, the Texas Legislature passed laws requiring the Texas Railroad Commission and the Public Utility Commission of Texas to address the issues raised by the systems’ failures. One of those issues was the failure of natural gas supply to electric generators. Senate Bill 3 and House Bill 3648 require the RRC to collaborate with the PUC “to adopt rules to establish a process to designate certain natural gas facilities and entities associated with providing natural gas in this state as critical customers or critical gas suppliers during energy emergencies.” In response, the RRC has proposed a new rule, 16 TAC Section 3.65. The purpose of the new law is to let the PUC know what gas infrastructure is critical to continued delivery of gas to electric utilities during an electric supply crisis so that gas supply won’t be disrupted because gas suppliers don’t have the electricity necessary to operate their systems.

As explained in the RRC’s explanation of its proposed rule, the RRC proposes to designate all gas infrastructure as “critical.” The proposed rule therefor designates as critical gas suppliers and critical customers all wells producing gas and casinghead gas, gas processing plants, gas pipelines and facilities, compressor stations, local distribution company pipelines and facilities, gas storage facilities, natural gas liquids transportation and storage facilities, saltwater disposal facilities and pipelines, and “other facilities under the jurisdiction of the Commission the operation of which is necessary to operate any of the facilities” listed above. In its comments to the proposed rule the RRC explains that all of these facilities are “necessarily critical customers of electric entities during an energy emergency.”

The Commission chooses to include these facility types, located up and down the entire natural gas supply chain, because the statistics from Winter Storm Uri reveal that during the storm, every molecule of natural gas was important. … Each piece of the supply chain included in [the list of critical customers] contributes to the delivery of gas downstream. If one piece of the supply chain cannot operate, then the gas cannot be delivered for electric generation or other important uses. Further, daily gas production alone many not be adequate for peak demand during a weather emergency, which makes gas storage an important source of natural gas. Thus, natural gas storage facilities are included ….

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