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State Representative Lon Burnam, Dem. Fort Worth, asked nine questions of the Texas Commission on Environmental Quality concerning its investigations of emissions of methane and volatile organic compounds from oil and gas operations in the Barnett Shale area and in Texas in general. Recent air quality tests by private companies for local towns in the Fort Worth area have created a stir and caused some to call for increased monitoring and additional testing of emissions from oil and gas operations. Rep. Burnam has also called for the City of Fort Worth to place a moratorium on issuing permits for drilling until additional testing has been done. A group of concerned citizens has formed the North Central Texas Communities Alliance, to press for a moratorium in the DFW area until environnmental and other concerns are addressed.

The TCEQ’s response to Rep. Burnam’s questions provides some interesting data.

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Twenty-two U.S. House Democrats from Texas, Louisiana, Oklahoma, New Mexico, Arkansas, Utah and Idaho delivered a letter to Environmental Protection Agency Director Lisa P. Jackson, cautioning the EPA to do a “reasonable and transparent study” of whether hydraulic fracturing of wells creates risks to drinking water. EPA is required to study whether hydraulic fracturing creates risks to underground sources of drinking water under the 2010 Appropriations Act for the Department of the Interior. The producing-states Congressmen want to be sure that the EPA’s study is scientific, systematic, transparent, accurate and valid.

The EPA conducted a similar study of fracing in 2004. That study was done to investigate whether hydraulic fracturing of wells completed in coalbed methane seams posed a risk to groundwater drinking supplies. The study was in response to alleged incidents of groundwater contamination and to a judgment of a U.S. Court that, because hydraulic fracturing of coalbeds to produce methane is a form of underground injection, the EPA is required to regulate it under Part C of the Safe Drinking Water Act. That Act requires states to regulate underground injection of fluids and to develop an Underground Injection Control Program approved by the EPA. The EPA’s 2004 study of fracturing of coalbed methane wells found no evidence that any water had been contaminated by fracing of wells or that fracing posed any risk to drinking water. That study was criticized by some, including scientists in the EPA. In 2005, Congress exempted hydraulic fracturing from coverage under the Safe Drinking Water Act, in part at least based on EPA’s 2004 study.

The requirement for a new EPA study of fracing in 2010 has been driven, in my opinion, by the development of the Marcellus Shale play in Pennsylvania and New York. New York has placed a moratorium on permits for wells and has published its own draft study of risks to surface and underground water supplies caused by drilling in the area of upstate New York that provides drinking water to New York City. That study is still subject to comment and revision and has caused much controversy in New York. The New York draft study likewise concludes that hydraulic fracturing poses no risk to drinking water if properly regulated. In a related development, a bill in Congress, the FRAC Act, proposes to require companies to disclose the chemical content of frac fluids.

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The International Energy Agency (IEA) issued a forecast of world energy consumption and use, and for the first time included a scenario projecting the impacts of taking steps to stabilize greenhouse gases in the atmosphere at about 450 parts per million by 2030. This “450 Secnario” would limit overall temperature increases to 2 degrees C., versus a rise in global temperature of as much as 6 degrees if no efforts to curb carbon dioxide are made. The report compares this 450 Scenario to its “reference scenario,” its projections of energy production, prices and consumption assuming no policy changes are enacted.

Its conclusions:

Under the reference scenario, oil prices would increase to $87/bbl in 2015, $100/bbl by 2020, and $115/bbl by 2030 (in 2008 dollars). Under the 450 Scenario, the oil price would level off at $90/bbl by 2020.

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I have recently received several inquiries about the rights of unleased mineral owners whose tract is included in the boundaries of a pooled unit. There seems to be some general miss-perception about this issue. 

A typical oil and gas pooling clause allows the lessee to combine separate tracts covered by separate oil and gas leases into a single pooled unit for purposes of exploration and production. This allows the lessee to treat the pooled unit as a single lease. Wells drilled anywhere on the pooled unit are considered to have been drilled on the leased premises covered by each separate lease in the pooled unit, and production from the pooled unit will keep the lease in force beyond its primary term, just as if the production were from each tract in the pooled unit. Production from wells on the pooled unit is allocated among the tracts in the unit, for purposes of paying royalty, on an acreage basis. If a tract in the unit comprises 25% of the total acreage in the pooled unit, then 25% of the unit production is allocated to that tract for royalty purposes, and the mineral owners in that tract receive their royalty on production from the pooled unit just as if 25% of the unit production were produced from the tract.

What happens, then, if the lessee has acquired oil and gas leases on only a portion of the minerals in a tract? Can the lessee include that tract in a pooled unit? If so, how are royalties paid to the owners of unleased minerals in that tract? Do the unleased mineral owners have the right to share in production from the pooled unit?

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A new website, Mineral Rights Forum, provides information and discussions about topics of interest to mineral owners. It is owned by Kenneth DuBose and is run by Peter Moorman.  Looks like it will be a good resource for mineral owners. It reports on a recent documentary, Split Estate, that investigates conflicts between surface owners who do not own the underlying minerals and oil and gas companies. It has been shown on Planet Green, an independent cable channel, and will be shown again in January. Here is the movie trailer. According to the Huffington Post, a representative of the Colorado Oil and Gas Commission, Kathy Hall, resigned recently after being shown in the movie saying that fracing fluid was harmless and she had had it in her mouth with no ill effects.

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In a recent Wall Stree Journal article, “America’s Natural Gas Revolution,” Daniel Yergin and Robert Ineson opine that gas produced from shale “is already changing the national energy dialogue and overall energy outlook in the U.S.–and could change the global natural gas balance.” Mr. Yergin is the author of “The Prize: the Epic Quest for Oil, Money, & Power” which won him a Pulitzer Prize.  He is now chairman of IHS CERA.  Mr. Ineson is senior director of global gas for IHS CERA.

Yergin and Ineson cite the following evidence for their thesis:

— Production of gas in the lower 48 states increased 15% from the beginning of 2007 to mid-2008 – an increase fueld mostly by shale gas discoveries, and an increase that is more than most other countries’ total gas production.

— Proven gas reserves have risen from 177 trillion cubic feet in 2000 to 245 trillion cubic feet in 2008, even though the U.S. produced nearly 165 Tcf during that time.

— “At current levels of demand, the U.S. has about 90 years of proven and potential supply — a number that is bound to go up as more and more shale gas is found.”

Most of this new gas comes from shale plays, beginning with the Barnett Shale in North Texas, and including the Haynesville (Louisiana and Texas), Fayetteville (Arkansas), Marcellus (Pennsylvania and New York), and most recently the Eagle Ford in South Texas. Shale gas is made possible by use of horizontal drilling technology and newly developed hydraulic fracturing completion techniques.

 

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President Obama has appointed Dr. Alfredo Amandariz as new Administrator of Regions 6 of the Environmental Protection Agency, encompassing Louisiana, Arkansas, New Mexico, Texas and Oklahoma. (See Dallas Morning News article) Dr. Amendariz, a professor of engineering at Southern Methodist University, raised controversy among natural gas producers in the Barnett Shale earlier this year by publishing a study of the effects of Barnett Shale drilling and production on pollution in the Dallas-Fot Worth metropolitan area.  See my earlier blog on Dr. Armendariz’s report.

In a related development, State Senator Wendy Davis, D-Fort Worth, has (for a second time) asked Lt. Governor Dewhurst to authorize a senate investigation of the environmental impacts of natural gas production in the Barnett Shale.  Preliminary results of testing conducted by the Texas Commission on Environmental Quality and a private study conducted by the Denton County town of DISH found elevated levels of benzene in the air near natural gas production facilities.  The TCEQ is conducting a third phase of air emissions tests in the area of the Barnett Shale, and expects to have a report by the end of the year. A fourth phase of the testing is scheduled for spring 2010. “We’ve had oil and gas development in Texas for a long time, but it was primarily in rurual areas,” said Tony Walker, director of TCEQ’s Dallas-Fort Worth Office. “Not it is in urban and in more populated areas. We’re studying every aspect of gas production. We will look at the drilling and frcing process, condensate tanks, compressor stations, gas lines, valves and allother possible sources of emissions.”

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The Energy Information Administration has issued rankings of states in production of oil, gas, coal, electricity generation, and energy consumption. Texas ranks prominently in most categories.

— Texas is first in total energy production, producing 10,997 trillion Btus of energy in 2006 (the most recent information available). Wyoming is second (mainly from coal production) with 10,062 trillion Btus. Texas produced 15.5% of all the energy produced in the nation.

— Texas is first in crude oil production, producing 32.77 million barrels in May 2009 (20% of the nation’s production), ahead of Alaska with 21 million barrels; and (by far) first in natural gas production, producing 6 trillion mcf in May 2009 (30% of the nation’s production), ahead of second-place Wyoming with 1.9 trillion mcf.

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