Excellent investigative reporting by Texas Tribune on how the Texas Railroad Commission fails to enforce state and federal laws requiring restoration of coal mines. “Texas coal companies are leaving behind contaminated land. The state is letting them.” Mirrors my experience with trying to get the RRC to force E&P companies to clean up their messes. Also echoes similar problems with abandoned coal mines in West Virginia.
Much has been written lately about flares of natural gas in the Permian Basin. A website called Skytruth provides a helpful interactive map allowing amazing satellite views of flares over time. Here’s a snapshot of flares in the Permian (click on image to enlarge):
Since the beginning of the boom in the Permian, the Texas Railroad Commission has never denied an operator’s application for a permit to flare. With low gas prices and lack of pipeline capacity, operators have turned to flaring gas in order to produce oil.
Last month the Environmental Defense Fund released an analysis of NOAA satellite data estimating volumes of gas flared in the Permian Basin in 2017. Its findings: operators report half of the amount of gas actually flared.
104 Bcf of gas is enough to serve all needs of Texas’ seven largest cities – $322 million worth of gas. The State also does not collect severance tax on that gas.
Operators must obtain permits to flare gas and report volumes flared. The RRC has not denied any permits. Between 2016 and May 2018, the RRC issued more than 6,300 flaring permits in the Permian. Between 2008 and 2010, the RRC issued fewer than 600 flaring permits for all of the state.
EDF’s analysis also compared the top 15 oil producers in the Permian (click on image to enlarge):
The Texas Railroad Commission has issued its Monitoring and Enforcement Plan for fiscal year 2019. The plan was required by a 2017 law that directs the RRC to develop an annual plan to assess its use of resources to ensure public safety and minimize damage to the environment. It requires the RRC to track monitoring and enforcement activities. Highlights:
The RRC has 158 oil and gas field inspectors. They average more than 123,000 inspections each year and are expected to conduct 130,000 inspections in fiscal 2019.
The RRC Oil and Gas Division receives about 600 complaints each year, from operators, mineral owners, surface owners, government agencies and members of the public. According to the Plan, “the complainant receives written updates on the progress of the investigation and any related enforcement action. The complainant is also notified when the complaint is closed.”
An article on the front page of the Austin American-Statesman last Sunday caught my eye: “Regulators Passed on Pipeline Penalty,” by Asher Price. It’s not often that the Railroad Commission makes the front page. The article tells the story of a pipeline leak in Fayette County in 2014 and the Commission staff’s efforts to get its operator, DCP Midstream, to test for groundwater contamination.
According to the article, DCP didn’t initially report the pipeline leak to the RRC. Leaks are not required to be reported unless they exceed 5 barrels, and DCP claimed it initially thought the spill was not reportable. DCP later estimated the spill at 42 barrels.
The line was a natural gas gathering line, carrying gas and condensate. Condensate is a light, clear liquid, much like gasoline. It contains hazardous chemicals, in particular benzene. It easily percolates into soil and if it reaches groundwater the resulting contamination will make the water unusable.
My clients regularly complain of flares from wells on their property. Most leases don’t require royalty payments on flared gas, so their royalty is going up in smoke. Flares often don’t function properly, resulting in emissions of toxic gases. Flares make noise.
The Environmental Defense Fund recently released an excellent report on flaring in the Permian Basin, Permian-Flaring-Report-2017. EDF analyzed flaring and venting by 15 major producers in the Permian for the years 2014-2015. Here’s what they found (click on image to enlarge):
The Texas legislative session recently ended without any major reforms of the Texas Railroad Commission. Bills to reform the Commission failed in the previous two legislative sessions, after Sunset Commission reports recommending significant changes in the structure of the RRC. This session, the Legislature had no heart for tackling those reforms and instead gave the RRC renewed life through September 1, 2029.
The bill authorizing continuance of the RRC, HB 1818, includes a provision requiring the RRC to track its oil and gas monitoring and enforcement activities and publish an annual report on its website. But a bill (HB 247 by Anchia) to require the RRC to publish on its website details of violations and enforcement actions by operators, searchable by county, operator and well, failed to pass. As did a bill to change the RRC’s name to the Texas Energy Commission. Another bill by Anchia, HB 464, restricting the time periods when Commissioners could accept political contributions and prohibiting contributions by companies with contested cases before the RRC, also died. HB 567, which would have increased penalties for operator violations of RRC rules and required the RRC to allow public input on its penalty guidelines, failed to get out of committee.
The Legislature’s budget bill includes an appropriation of $38.2 million from the state’s rainy day fund for plugging of orphaned oil and gas wells. The RRC website lists more than 5800 orphaned wells in Texas – wells for which no operator can be found who can be made responsible for plugging the well.
One of the complaints made against the Texas Railroad Commission in the current legislative session was that it provides very little information about its environmental compliance efforts in the oil field. The Commission provides little information about the number of violations, how they were resolved, the identity of the violators, the type of violations, or the location of the violations.
The Pennsylvania Department of Environmental Protection has issued its 2016 Oil and Gas Annual Report, an interactive report that provides detailed information about its regulation of the industry. Pennsylvania now produces more natural gas than any state except Texas, since development of the Marcellus Shale. The report provides is in electronic format, with geolocated data in GIS maps and in real time, based on the DEP’s daily electronic compliance tracking system. An interactive Report Viewer allows searching for violations by company, type, county, and date. Detailed information about each violation is provided.
In Texas, if a landowner files a complaint against an operator and wants to know what the RRC has done about it, the landowner must file an open records request with the RRC.
A report from Texans for Public Justice, Public Citizen and the Sierra Club Lone Star Chapter details the contributions made by the oil and gas industry to Texas legislatures’ campaign funds. You can find the report, Running on Hydrocarbons: Oil and Gas Funding to Every Texas Lawmaker, here: http://www.tpj.org/ No surprise. The Legislature finally passed the Texas Railroad Commission’s sunset bill, continuing the agency’s existence, after two failed attempts in prior legislative sessions. The bill contains no real reforms to how the RRC is run. There was not even any attempt to change its name.
Another report by the same group, Conflicted! Texas Railroad Commissioners ‘Self-Police” their Self-Interests, finds that 60% of Railroad Commissioners’ political contributions come from the industry. It details contributions to Commissioners by companies who had pending cases before the Commission at the time of their contributions.
Two recent appellate opinions illustrate why landowners and their counsel need to know the basic fundamentals of field rules and how they can affect provisions in oil and gas leases. I wrote about those cases in 2015. Both involve the interaction between field rules and lease provisions. ConocoPhillips Co. v. Vaquillas Unproven Minerals, Ltd., 2015 WL 4638272 (Tex.App.-San Antonio Aug. 5, 2015), was appealed to the Texas Supreme Court but settled before the court acted on ConocoPhillips’ petition. Endeavor Energy Resources, L.P. v. Discovery Operating, Inc., 448 S.W.3d 169 (Tex.App.-Eastland 2014), has been briefed on the merits and is awaiting the court’s decision on whether to grant review. You can read my summary of the two cases here.
The root of the issue is that oil and gas lease forms typically refer to and adopt field rules to regulate how large pooled units and earned acreage units can be. For example, a printed form oil and gas lease that has been commonly used in Texas for many years contains the following provision:
Lessee is hereby granted the right, at its option, to pool ur unitize any land covered by this lease with any other land covered by this lease, and/or with any other land, lease, or leases, as to any or all minerals or horizons, so as to establish units containing not more than 80 surface acres, plus 10% acreage tolerance; provided, however, units may be established … so as to contain not more than 640 acres plus 10% acreage tolerance, if limited to … gas, other than casinghead gas…. If larger units than any of those herein permitted, either at the time established, or after enlargement, are required under any governmental rule or order, for the drilling or operation of a well at a regular location, or for obtaining maximum allowable from any well to be drilled, drilling or already drilled any such unit may be established or enlarged to conform to the size required by such governmental order or rule.
To understand how the italicized sentence in this lease form works, one must know what governmental rules govern the size of units for drilling wells at a “regular” location, and for “obtaining maximum allowable” from a well. These regulations are included in “field rules” adopted by the Texas Railroad Commission. (Warning: this post is longer than usual, so be prepared.) Continue reading →