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Year in Review

I started writing this blog in February 2009. This is my 136th post. It’s been fun. I had no idea I could find enough topics to write about, but material has not been a problem. A lot has changed in the oil and gas industry in the last three years. The development of unconventional shale plays. The BP oil spill in the Gulf. Falling gas prices. Rising oil prices. The “fracing controversy.”

All of this news pales in comparison to my personal year-end tragedy: My secretary of 27 years is retiring.

I have looked back on my posts from the last year, and here are some parting thoughts for 2011:

Range Resources’ fight with landowners in Parker County over alleged contamination of groundwater continues. The fight began in 2010 when the EPA issued an “emergency order” against Range, alleging that its Barnett Shale wells had charged landowners’ groundwater supply with methane. Range has fought back fiercely. It appealed the EPA’s order to the 5th Circuit court of appeals, and it called a Railroad Commission hearing, at which it presented extensive evidence showing that its wells were not the source of the methane in the landowners’ water. The EPA and the landowners declined to participate in that hearing. Instead, the EPA filed suit in federal court to enforce its order. That court has stayed EPA’s action until the 5th Circuit issues its opinion. The landowners also brought suit against Range in state court. Range filed a counterclaim, also suing the landowners’ consultant Alisa Rich, alleging a conspiracy between the landowners, Rich and the EPA, and seeking damages for civil conspiracy and defamation.

Range’s fight is one chapter in the larger controversy over hydraulic fracturing that continues to occupy the media. Most recently, the EPA issued a report concluding, after extensive study and testing of groundwater around Pavillion, Wyoming, that fracing is “likely” the cause of contaminated local water supplies. Every major media outlet picked up the story. Just Google Pavillion Wyoming to see the media frenzy. Encana, an operator in the Pavillion field, called for an independent review of the EP’s findings and labelled the agency’s report “irresponsible.” The American Petroleum Institute and Wyoming regulators have also questioned the study’s scientific soundness.

The EPA is continuing with its ponderous design of a study of fracing, mandated by Congress. Results of its study are not expected until 2013. The State of New York, which has imposed a moratorium on fracing, issued a draft environmental impact statement that contains a remarkably thorough study of alleged incidents of groundwater contamination and detailed recommendations of best practices to reduce risks to groundwater. Major studies have been done by several universities, including Duke and MIT, and the University of Texas is proposing its own study. The Department of Energy appointed an advisory panel to study the issue.

Meanwhile, the media continues its frenzied coverage of the “fracing controversy.” A so-called documentary on the issue, Gasland, was even nominated for an Oscar.

The Texas Leglisature passed legislation requiring oil companies to post on the internet the chemical content of their frac fluid. The RRC has proposed rules implementing the new law. Similar legislation has been passed or is pending in other states.

The EPA has also issued proposed regulations to reduce emissions of contaminants into the air at all oil and gas facility sites, viewed by the industry as an attempt by EPA to extend is regulation of the industry.

The huge increase in gas supplies resulting from the shale boom has cause gas prices to decline further and companies to shift their exploration budgets to oil shale plays, including the Eagle Ford and the Barnett Shale oil “window” in Texas and the Bakken in North Dakota. Rigs drilling gas wells in Texas declined from 941 to 820 this year, and rigs drilling oil wells increased from 756 to 1,196. There are now 240 rigs drilling in the Eagle Ford alone. Meanwhile, the gas price has dropped to around $3.00/mmBtu, whereas the oil price has moved between $85 and $100/bbl.

The Texas Supreme Court issued several opinions of importance to royalty owners this year: In Shell v. Ross, BP v. Marshall, and Samson Lone Star v. Hooksthe court threw out landowners’ jury verdicts against oil companies based on statutes of limitation. In FPL Farming v. Environmental Processing Systems, the court held that injection well operators could be held liable for subsurface trespass.  In Leslie v. Veteran’s Land Board, the court appeared to reverse its prior rulings that the holder of executive rights has no duty to lease.  And in Texas Rice Land Partners v. Denbury Green Pipeline, the court said that pipeline companies must prove that they are in fact common carriers in order to exercise condemnation powers.

Meanwhile, oil companies keep leasing and drilling. The demand for energy will not soon abate. A happy new year to all.


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