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On December 20, the Office of Inspector General of the Environmental Protection Agency issued its “Response to Congressional Inquiry Regarding the EPA’s Emergency Order to the Range Resources Gas Drilling Company.”  The report was requested by Congress as a result of an emergency order issued by the Dallas regional office of the EPA against Range Resources on December 7, 2010. That order required Range to take certain actions based on EPA’s finding that Range’s wells in the Barnett Shale were the likely source of contamination of water wells in Parker County.

I have written about Range’s saga before.  EPA sued Range to enforce its emergency order. Range disputed and fought the EPA order, suing in the U.S. Court of Appeals to get the order revoked. Range called a hearing before the Texas Railroad Commission (in which EPA did not participate), after which the RRC found that Range’s wells were not the source of the gas in the water wells. One of the well owners, the Lipskys, sued Range in state court for damages;  Range countersued, contending that the Lipskys had falsified evidence and defamed the company. The district court found that Lipsky had created a “deceptive video” that was “calculated to alarm the public into believing the water was burning.” The Lispkys have appealed to the Texas Supreme Court, where their case remainds pending.

Read more here: http://www.star-telegram.com/2012/02/17/3744111/owner-of-contaminated-water-well.html#storylink=cpy
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The Energy Information Administration has created a nifty website presenting energy information by state, with a great map interface. Here is the link to the Texas map:  http://www.eia.gov/state/?sid=TX  Click on “full screen,” then play with the different layers for the map. Under “layers/legend,” click on “views” and explore the different layers on the map.  You can also see how Texas ranks among states in crude oil, natural gas, electricity and total energy production (#1), and in per capita energy consumption (#6).  Texas also ranks #1 in carbon dioxide emissions.

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In November, Texas Monthly hosted a panel discussion at Rice University’s Baker Institute for public policy about the boom in shale oil development in the US. The panel members: Arthur E. Berman, a Sugar Land-based geologist; Scott W. Tinker, the director of the Bureau of Economic Geology at the University of Texas at Austin; and Kenneth Medlock III, an energy fellow at the Baker Institute. You can watch the panel discussion on Texas Monthly’s website, here. It’s worth an hour of your time. 

These guys know a lot about energy in general and oil and gas in particular. I have previously written about Arthur Berman, a “shale skeptic,” who has never believed that the shale boom would last. Scott Tinker is the narrator of the documentary “Switch,” an examination of the modern world’s thirst for and sources of energy.  In addition to the film, Dr. Tinker has created a website, http://www.switchenergyproject.com/, that provides additional short videos and other resources to further explore questions surrounding energy, including carbon capture, global warming, hydraulic fracturing, and alternative energy technologies. He interviews many world experts on global energy issues.  He is to my mind one of the most even-handed and level-headed thinkers and explainers of the complex issues surrounding energy issues.

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StateImpact Texas has published a series of good articles about the growing evidence that the huge quantities of wastewater being injected in the Barnett Shale field are causing earthquakes — some of sufficient intensity to cause significant damages. Lawsuits have been filed in Johnson County to recover for the damage.  StateImpact’s most recent article can be found here. Links to all of StateImpact’s articles on earthquakes caused by oil and gas activity are here.

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   Suppose that the fluids injected into a disposal well migrate beyond the boundary of the tract where the well is located; does that incursion of the injected fluids into and under the neighbor’s property constitute a trespass?  Until recently, this question had never been addressed by a Texas appellate court, and the assumption in the disposal industry was that such incursion was not actionable. The Beaumont Court of Appeals, in FPL Farming Ltd. (“FPL”) v. Environmental Processing Systems, L.C. (“EPS”), concluded that the neighbor does have a trespass claim. 

  The Beaumont Court of Appeals has issued two opinions in the case; the first was appealed to the Supreme Court which reversed and remanded to the Court of Appeals, and the second has also been appealed to the Supreme Court, where it is now pending. FPL Farming Ltd. v. Environmental Processing Systems, L.C., 305 S.W.3d 739 (Tex.App.-Beaumont), reversed and remanded 351 S.W.3d 306 (Tex. 2011), on remand 383 S.W.3d 274 (Tex.App.-Beaumont May 24, 2012, pet. filed 1/18/13).  

  The facts in FPL are these:  EPS operates an injection well for non-hazardous waste on land adjacent to the land owned by FPL. FPL previously objected to an amendment of EPS’s permit that increased the rate and volumes allowed to be injected. The Austin Court of Appeals affirmed the permit amendment over FPL’s objections, ruling that “the amended permits do not impair FPL’s existing or intended use of the deep subsurface.” FPL Farming Ltd. v. Tex. Natural Res. Conservation Comm’n, 2003 WL 247183 (Austin 2003, pet. denied).

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Lawsuits against Chesapeake Exploration for wrongfully deducting post-production costs from its gas royalty payments are hitting a boiling-point. Suits are being pursued against the company in every jurisdiction where it operates, including Texas, Arkansas, Lousiana, Kansas, Ohio, West Virginia, Oklahoma and Pennsylvania. Chesapeake has recently been much more aggressive in deducting post-production costs. In the Barnett Shale in North Texas, its post-production cost deductions have been as much as $.70 to $1.00 per mcf, and with such low gas prices, some royalty owners’ payments have been halved by such deductions. Chesapeake’s royalty payments in North Texas have reportedly been on a net price of as little as eleven cents per mcf, and as little as 11% of the price other producers have based their royalty payments on. A recent Bloomberg article summarizes Chesapeake’s royalty payment practices.

Chesapeake has settled some claims, including large royalty owner claims in Pennsylvania. Chesapeake’s marketing practices in Pennsylvania mirror those it uses in the Barnett Shale.  Last year, Chesapeake settled a claim brought by the Dallas-Fort Worth Airport for underpayment of royalties for $5 million. The Bass family in Fort Worth recently sued the company for wrongfully deducting post-production costs.

Chesapeake’s tactics for how it calculates its royalties cannot be understood without knowing something about how Texas courts have addressed deductibility of post-production costs. I have previously written three posts on this topic that can be seen here, here and here.

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WoodMackenzie has recently come out with its 2013 ranking of the world’s twenty largest oil companies, and their change in production over the last ten years:

Twenty Biggest Oil Companies3.JPG

(BOE is barrels of oil equivalent.)  As you can see, most are state-owned companies. Russia re-acquired its privately-owned companies. Saudi Arabia has increased its production 28% in the last 10 years.  Iran, despite the embargo, has increased its production by 24%, in part because of increased export of natural gas. Venezuela’s production has suffered from politicization of its national oil company. Shell’s efforts to increase production by acquiring a position in U.S. shale plays has not been successful. BP has sold off a substantial part of its production. China has invested big-time to fuel its economy. And the world economy has managed to survive $100 oil.  For comparison, the total world production in 2010 was about 137 BOE/day. These top twenty companies together produced about 60% of that total.

For a good article on these numbers, see Forbes’ article, The World’s Biggest Oil Companies – 2013, here.

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A group of environmentally conscious social and investor organizations has produced a report, Disclosing the Facts: Transparency and Risk in Hydrualic Fracturing Operations. The report grades companies on how well they report risks attendant to operations in the major US shale plays.

The report is a collaboration of four organizations: As You Sow, Boston Common Asset Management, Green Century Capital Management, Inc., and The Investor Environmental Health Network.  It was made possible by grants from several foundations, listed in the report.

The report assesses the public disclosures of 24 oil and gas companies on their quantitative reporting in five areas of environmental, social and governance metrics: toxic chemicals, water and waste management, air emissions, community impacts, and management accountability. Each company is graded on these metrics based on how well they measure and disclose, quantitatively, their performance in these areas. The grades are based solely on publicly available information provided by the companies. Example criteria:

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I have recently seen articles predicting the end of the shale boom, coming not only from those who have consistently predicted that shale production would never amount to anything, but also from respected sources whose predictions have previously proven accurate. A recent Houston Chronicle article quotes from a paper written by Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis, and Mahmoud El-Gamal of Rice University, saying that “The most likely scenario – absent war – is for oil prices to decline significantly.” A significant decline in oil prices would make many if not most wells shale wells now being drilled in the Eagle Ford and Permian areas of Texas uneconomical. Jaffe expects oil prices to decline in the next three to five years. “To hold up prices it would have to be a regime change in several countries that results in lasting civil wars with lots of infrastructure being blown up,” she said.

An article in Business Week says that the break-even price for profitability in the Cline Shale play of the Permian Basin is $96 per barrell; in the Eagle Ford, it’s $78/barrel, and in the Bakken, $84.  Here is one analyst’s prediction of future oil prices:

Business Week graph.JPG

Falling fuel demand is a big part of the prediction.  Jaffe believes demand will fall even with continued growth in China and other emerging nations. The average fuel economy for new vehicles in the US is up 4.7 mpg since October 2007. And Americans are driving less.  Lower-priced natural gas will replace some of the oil demand.  From the Energy Information Administration:

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John McFarland
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