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The NAT Gas Act has been introduced in the U.S. Senate, as S. 1408, sponsored by Senators Robert Menendez, D-NJ, and Orrin Hatch, R-UT. The Act provides incentives for increased use of vehicles powered by natural gas. It was previously introduced in the House as H.R. 1835. The Act increases the tax credit for purchasing natural gas vehicles and provides incentives for installation of natural gas fueling stations.

Freightliner, a large truck maker, announced its first natural gas-powered truck model. The company claims that the truck will save $6,000 per year in fuel and maintenance costs.

Clean Energy Fuels Corporation last week opened what it says is the world’s largest natural gas truck fueling station, in the Ports of Los Angeles and Long Beach, California.

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On April 2, Keith O. Rattie, CEO of Questar Corporation, gave a speech to students at Utah Valley University about global warming and U.S. energy policy.  The parts of the speech about global warming seek to raise questions about the science behind conclusions of the global warming trend. The most interesting parts of the speech, to me, concern U.S. energy policy.

Points made by Mr. Rattie:

  •   The stated U.S. energy policy goal is for an 80 percent reduction in CO2 emissions by 2050 – “80 by 50.” Rattie says that this goal is unattainable. According to him, the U.S. carbon footprint is about 20 tons per person per year. An 80 percent reduction would require that footprint to be reduced to 4 tons per person per year by 2050. But that does not take into account population growth. If projections for population increases in the U.S. are taken into account, 80-by-50 would require that the U.S. reduce its carbon emissions to 2 tons per person per year – a 90 percent reduction in per capita carbon footprint.

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A barrel of oil is a barrel of oil, but how much is an mcf of gas? Herein some basic facts about natural gas composition and measurement.

The first thing to remember: natural gas is measured by volume (cubic feet) but is sold based on its heating content (Btus).

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Environmental groups are debating whether to support the bill recently passed by the U.S. House of Representatives as the American Clean Energy and Security Act, in its present form. Principal criticisms are that it strips away some of the Clean Air Act authority to reduce coal pollution in new coal-fired power plants, it grants too muich money to carbon capture and sequestration projects, and its goals for near-term carbon dioxide emission reduction are too weak. Moveon.org has asked its members to vote on whether to support the bill in its current form.

A good summary of arguments pro and con can be found at the Yale Environment 360 website.

Meanwhile, even the Texas Legislature appears to have jumped on the renewable energy bandwagon. It passed two bills to encourage use of alternative fuels in fleet vehicles. Senate Bill 1759 creates a Clean Fleet Program that provides grants to fleet owners to replace their diesel vehicles with alternative-fuel vehicles. House Bill 432 amends the State’s Fleet Alternative Fuel Program to require that 50% of the state’s 27,000 fleet vehicles use clean alternative fuels 80% of the time, a requirement that will be phased in as state fleet vehicles come up for replacement. Law enforcement and emergency vehicles are exempt, and exemptions can be granted if the agency shows that it is not cost-effective to meet the requirements.

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Momentum appears to be gaining to increase use of compressed natural gas in vehicles in the U.S., both to decrease the nation’s dependence on foreign oil and as a “bridge fuel” to fight global warming.

  • Last Week, the Potential Gas Committee issued a report estimating that the toal U.S. natural gas resource base at year-end 2008 was 1,836 trillion cubic feet, an increase of 39% from its 2006 estimate. Most of this increase comes from newly discovered shale reservoirs. Boone Pickens said that the new estimate “is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves.”
  • Boone Pickens’ energy plan includes greatly expanding the use of natural gas as fuel for transportation.
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Four legislators from Colorado, New York and Pennsylvania have introduced a bill making hydraulic fracturing subject to regulation by the Environmental Protection Agency under the Safe Water Drinking Act.  Dubbed the Fracturing Responsibility and Awareness of Chemicals Act, or FRAC Act (
FRAC Act.pdf), the bill would amend the Safe Drinking Water Act to require companies to disclose the chemicals they use in their fracturing processes. The press release (
Press Release FRAC Act.pdf) from the legislators states that “It’s time to fix an unfortunate chapter in the Bush administration’s energy policy and close the ‘Halliburton loophole’ that has enabled energy companies to pump enormous amounts of toxins, such as benzene and toluene, into the ground that then jeopardize the quality of our drinking water.” (Benzene and toluene are not additives to frac fluid.)

An energy lobbying group, Energy in Depth, has denounced the bill as an “unnecessary financial burden” on the industry which could result in more than half of U.S. oil wells and one-third of gas wells being closed, and reduction in natural gas production of up to 245 billion cubic feet per year.

 

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The Texas Supreme Court has been asked to review a case decided by the Eastland Court of Appeals, Lesley v. Veterans Land Board, that raises important questions about the duty of a mineral owner to owners of non-executive mineral interests. If the Court decides to take the case, the outcome could have important implications for future development of mineral interests in urbanized areas of Texas.

The important facts in Lesley are as follows:

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A study (

Armendariz Study.pdf) published last February by Al Armendariz, an engineering professor at Southern Methodist University, concluded that gas drilling in the Barnett Shale contributes about as much air pollution to the D-FW area as emissions from cars and trucks. Dr. Armendariz’s study was financed by the Environmental Defense Fund. Dr. Armendariz concluded that in the nine counties included in the D-FW metroplex area, gas drilling produced about 112 tons per day of pollution, compared with 120 tons per day from vehicle traffic. Dr. Armendariz suggested that pollution from drilling activities could be greatly reduced by requiring vapor recovery units on tank batteries and “green completions” of wells to prevent gas from being vented when a well is being completed.

Representatives of the industry quickly refuted Dr. Armendariz’s conclusions, arguing that his facts were all wrong. 

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As landowners have become more sophisticated in their negotiations of oil and gas leases, they have begun to insist on the inclusion of a “continuous operations” or “continuous drilling” clause in their leases. The idea behind such clause is that the lessee should have a reasonable time to fully develop the leased premises, after which the lessee should release that portion of the leased premises not necessary for the production of the wells it has drilled.

There is no “standard form” of continuous operations clause. Generally, a continous operations provision should address the following:

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The Texas Railroad Commission handed down an interesting order last August that may have broad application for operators’ use of Texas’ Mineral Interest Pooling Act to force unleased mineral owners into pooled units. In Docket No. 09-0252375, Finley Resources applied under the MIPA to form a pooled unit in the Barnett Shale consisting of 96.32 acres, for the drilling of a horizontal well. The proposed unit is in an urbanized area with numerous lots, and Finley was evidently unable to get all lot owners to sign leases. A plat of the proposed unit is shown below. As can be seen from the plat, there are a lot of unleased lots (the white spaces) in the proposed unit.

 

 

Finley Unit.JPG 

Under the MIPA, the operator seeking to form the unit must make a “good faith offer” to unleased owners before filing an MIPA application to force them into the unit. Finley offered the unleased lot owners the right to receive a 1/5th royalty and a 4/5ths working interest, which means that 45ths of those owners’ share of production from the well would bear its share of the drilling and operating costs of the well. After studying the matter for a year, the Railroad Commission approved Finley’s application. One unusual aspect of the order is that the unleased owners suffer no “risk penalty.” In most MIPA applications, a party who has refused to join the unit voluntarily must bear its share of the drilling costs plus a “risk penalty,” not to exceed 100% of the drilling and completion costs, before participating in revenues from the well. The Commission’s order in Finley allows the unleased owners to participate in revenues as a working interest owner once the operator has recovered 100% of drilling and completion costs, with no “risk penalty.”

 

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Contact Information
John McFarland
 Graves, Dougherty, Hearon & Moody, P.C.
401 Congress Avenue, Suite 2700
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Phone: 512-480-5618
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