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Big news this week about the Environmental Protection Agency’s new proposed regulations to limit emissions of methane and volatile organic compounds (VOCs) from oil and gas drilling, operating, compression and processing facilities. EPA’s proposed new rules can be viewed here. Among other things, the proposed regs would require operators to use “green completion” technology in drilling and completing wells, to reduce emissions of natural gas during those operations. The proposed rules would apply only to “new sources” of emissions, not existing facilities.

Representative Lamar Smith, R-San Antonio, called the proposed rules “yet another example of the Obama administration’s war on American energy jobs.”  Barry Russell, CEO of the Independent Petroleum Association of America, said the proposed rules would cause “unnecessary costs and added uncertainty” that would “inflict more pain on the men and women who work in the oil and gas industry at a time when market forces are already creating economic challenges.” Environmentalists praised the proposed regulations, but said that EPA needs to begin regulating emissions from existing facilities.

VOCs are carbon-based molecules that evaporate at ordinary temperatures and pressures, and are emitted into the air during oil and gas production, gathering, transportation and processing activities. They include  benzene, ethylbenzene, and n-hexane, which are harmful to human health. VOCs and methane are also powerful greenhouse gases, contributing to global warming according to scientific consensus.

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Chesapeake is spending a lot of money on lawyers.

Dan McDonald, a Fort Worth attorney, has filed some 250 cases against Chesapeake contending that it is underpaying its royalty owners. Companies affiliated with former House of Representatives Speaker Tom Craddick have now been added to McDonald’s client list. So many cases have been filed against it in Texas that Chesapeake asked the cases to be granted multidistrict litigation status, so that one judge could control pretrial discovery and motions and settings. Two judges have been appointed for that purpose, one for McDonald’s cases and another for cases brought by other attorneys. Chesapeake is settling cases as fast as it can.

Most of the claims against Chesapeake arise from its structure for selling gas. Chesapeake sells its gas at the wellhead to its wholly owned subsidiary Chesapeake Energy Marketing. Chesapeake Energy Marketing arranges for the gathering of the gas and delivery to central sales points, and pays Chesapeake for the gas based on a weighted average price of all sales at those central gathering points, less costs of compression, gathering, treating and transportation, and less a “marketing fee” charged by Chesapeake Energy Marketing. The costs incurred between the wellhead and the point of delivery to the purchaser were formerly incurred by another Chesapeake affiliate, Access Midstream. Chesapeake spun off its gathering systems into a separate company a few years ago, and as part of that deal it guaranteed a minimum rate of return on those gathering systems to the new spin-off company, thereby receiving a premium price in the market for the new company’s shares. Chesapeake pays royalties based on the new price it receives from Chesapeake Energy Marketing, after deduction of post-production costs and marketing fees. McDonald says that these “costs” are “sham sales” and “fraudulent transactions.”

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The Oklahoma Corporation Commission, the regulator of oil and gas in Oklahoma, has directed operators of 23 injection wells in a designated area to reduce rates of injection by 38% by October 2, 2015. The order covers a 15-mile-by-40-mile “area of interest,” stretching northwest from the outskirts of Oklahoma City. The Commission’s letter may be viewed here: Oklahoma Corp Commn quake letter

Earthquakes in Oklahoma have increased from 2 in 2012 to 359 in 2014; so far in 2015, 253 quakes have been detected.

Dana Murphy, one of the three elected members of the Corporation Commission, said “This is an issue completely outside the scope of the experience of not only this agency, but all our partner agencies and stakeholders, as well. There was a time when the scientific, legal, policy and other concerns related to this issue had to first be carefully researched and debated in order to provide a valid framework for such action. That time is over.”

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The rights of local municipalities to regulate or ban drilling activity within their jurisdictions has been a hot topic over the last few years in several states, especially Pennsylvania, Texas and Colorado. Shale development has been intense in all three states, but their reactions to urban drilling regulation have differed markedly.

In Colorado, voters threatened to force a ballot initiative to ban hydraulic fracturing in the state. In response, the governor cobbled together a compromise that included the appointment of a task force to examine the impact of drilling on urban environments and make recommendations. That task force, the Colorado Oil and Gas Task Force, issued nine recommendations in February of this year. They make for interesting reading.

The Colorado Oil and Gas Conservation Commission has been conducting hearings across the state on two of the Task Force recommendations, both of which would require the COGCC to implement regulations. Both of the recommendations would increase municipalities’ participation in the permitting process for wells within their jurisdictions. Recommendation #17 would require companies planning “Large Scale Oil and Gas Facilities” to consult with local governments to try to reach agreement on the siting of those facilities and to engage in mediation if the parties are unable to reach agreement. Recommendation #20 would require companies to provide local governments a five-year plan for their drilling and development within their jurisdictions, to allow the municipalities to include those plans in the municipalities’ own long-range plans.

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The EPA this week published a “proposed framework” for a new voluntary program for the oil and gas sector to reduce methane emissions – the “Natural Gas STAR Methane Challenge Program.” It is part of the administration’s continuing effort to reduce emissions of methane, a powerful greenhouse gas. The proposal can be found here.

I’m no expert on air emissions standards. As a citizen reading the proposal, I was struck by the increasing intensity of efforts to address emissions of methane and volatile organic compounds in the oil and gas sector.

In 1993, EPA created its Natural Gas STAR Program, a voluntary program in which oil and gas companies could commit to identify opportunities in their companies to reduce methane emissions and report on their progress. According to the EPA, Gas STAR partner companies have reported methane emission reductions of more than one trillion cubic feet through 2013.

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When exploration began in the Marcellus Shale in Pennsylvania, it was the wild west transported to the east. Speculators sprung up and bought oil and gas leases with the expectation of selling them for a profit. The forms of oil and gas leases I saw being used in Pennsylvania were the worst I have seen in my career. Speculators paid for leases with 90-day drafts, hoping they could find a buyer for the leases in time to pay the bonuses.

But landowners soon caught on. They organized themselves, creating informal associations in geographic areas to negotiate leases as a group. The associations hired competent counsel. Large blocks of land were offered to multiple companies, forcing companies to bid against each other. Landowners educated themselves and realized that there was power in numbers.

Texas landowners, on the other hand, are an independent lot. They don’t like to give up their autonomy. They don’t like sharing their lease terms with other landowners. Every landowner thinks his lease form is the best. Landowners don’t like regulatory authorities telling them what they can and can’t do. One riot, one ranger.

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Here is an excellent article by Michael Levy, senior fellow for energy and the environment at the Council on Foreign Relations: “Fracking and the Climate Debate,” published in the journal Democracy. A well-reasoned and balanced summary of the debates over the role of natural gas in our energy future and its potential impact on our climate. Lengthy, but well worth reading.

Levy gives a good history of recent remarkable changes in the roles of coal and natural gas in US energy:

Between 1999 and 2005, the United States had added the equivalent of 200 nuclear power plants’ worth of natural gas-fueled electricity plants, even as U.S. coal-fired capacity actually fell. But by 2007, with natural gas prices rising, the U.S. government predicted a reversal: Over the next two decades, coal-fired power plants would be built at a furious pace, while natural gas would stagnate. This would be disastrous for U.S. greenhouse gas emissions: By 2030, it was predicted, the fleet of coal-fired power plants would belch three billion tons of carbon dioxide into the atmosphere each year, massively raising U.S. greenhouse gas emissions. …

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Representative Drew Darby, Chair of the Texas House Committee on Energy Resources, wrote the members of the committee to ask their input on issues that should be addressed by the committee during the interim between legislative sessions. A copy of the letter can be viewed here: Darby letter.

Of the 33 energy-related bills referred to the committee, it reported 22 favorably, nine were passed by the legislature, and two of those were vetoed by the governor – so seven became law. They are described in Darby’s letter.

Darby mentions two issues he believes should be suggested to the Speaker of the House as “Interim Charges” for the committee to study:  allocation wells and oil equipment theft. The legislature passed House Bill 3291, which would have increased penalties for oil-field theft, but the governor vetoed it, declaring it “overly broad.” Darby also reminds the committee that the Texas Sunset Commission will be reviewing the Texas Railroad Commission during the interim, and he expects the Sunset report to be a “significant focus of the Committee next session.”

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Residents of DISH, Texas were awarded a victory by the Amarillo Court of Appeals in their long-running fight with pipeline companies. Sciscoe et al. v. Enbridge Gathering (North Texas), L.P., et al., No. 07-13-00391-CV. In an opinion issued on June 1, the court held that the plaintiffs are entitled to a trial on their claims that the pipelines’ gathering and compression facilities caused damages to their properties from noise and emissions that constituted trespass and nuisance.

DISH residents have fought the pipeline companies for years. The companies constructed several compressors and a metering station just outside the town between 2005 and 2009. Residents began to complain of excessive noise and offensive odors and said they suffered adverse health effects. In 2008, the residents complained to the Texas Commission on Environmental Quality, which conducted monitoring in 2009 and 2010 and concluded that emissions from the compressors “would not be expected to cause short-term adverse health effects, adverse vegetative effects, or odors.” The Texas Department of State Health Services performed medical tests on 28 DISH residents for exposure to chemicals, and tested tap water; it found no evidence of exposure to chemicals. Those findings were contradicted by tests conducted by Plaintiffs’ expert, Wolf Eagle Environmental, which found that Plaintiffs were exposed to harmful emissions of benzene, xylene, ethyl benzene, toluene and other harmful chemicals.

Finally, 18  DISH residents sued the pipelines in 2001 for damages, alleging nuisance and trespass. The town of DISH also filed suit, seeking damages for the loss of tax revenue resulting from reduced property values caused by the compressor station.

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Energywire has been following the political implications of the University of Oklahoma’s study of the causes behind the huge increase in earthquakes in Oklahoma, and OU’s relationship with Harold Hamm, CEO of Continental Resources. In a recent investigative article, Energywire reported that “University of Oklahoma officials were seeking a $25 million donation from billionaire oilman Harold Hamm last year, records show, at a time when scientists at the school were formulating the state’s position on oil drilling and earthquakes.” OU initially “came up with a position that squared with Hamm’s, saying most of the hundreds of earthquakes rattling the state are natural and not caused by the oil industry.” Hamm turned down the donation request, and OU’s Geological Survey subsequently changed its position and now says that most earthquakes in Oklahoma are “very likely” triggered by oil and gas activities.

Earthquakes in Oklahoma have increased from 20 with a magnitude of 3.0 or greater in 2009 to 585 in 2014, and Oklahoma is now expected to have more than 800 such quakes this year.

OU’s president, David Boren, a former senator, serves with Hamm on Continental’s board of directors and according to Energywire has received $1.6 million from the company since 2009. Hamm has pressured OU to avoid linking quakes to injection of produced water in Oklahoma.

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