Articles Posted in Oil and Gas News

Another new oil pipeline is being laid in the Delaware Basin in Texas, which is part of the greater Permian Basin in west Texas. According to Benjamin Shattuck, an analyst with energy research firm Wood Mackenzie, “(t)he Permian is one of the most exciting areas in the lower 48 states right now.”

Western Refining Inc. has announced plans to build 40 miles of pipeline for light crude oil and condensate from the region. Western Refining is a refining and marketing company with headquarters in El Paso, Texas. Western has refineries in El Paso and in Gallup, New Mexico with a combined capacity of 153,000 barrels per day. These refineries primarily process sweet crude oil and are in a good position to buy crude at a discount from Delaware Basin producers.

The new 40 mile pipeline in the Delaware Basin will connect with the Mason Station crude oil facility in Reeves County, Texas owned by a sister company, Western Refining Logistics LP with a new facility at Wink Station in Winkler County, Texas. From Wink Station, the crude oil and condensate will be sent through other currently existing pipelines for delivery to the market. Mason Station was built last year as part of Western Refining’s expansion plans and was the first phase of its Delaware Basin Crude Oil Gathering System.

This blog previously addressed the serious issues presented with the use of water by the oil and gas industry , especially where the water is used for drilling and fracing in drought affected states. It has become an especially pronounced issue in the western states, like Texas, that have both significant oil and gas reserves and a limited water supply. A report from Wood Mackenzie Ltd., using data and analysis from the World Resources Institute (WRI) and published late last year, determined that almost all forms of energy production and power generation are dependent on water, although the impact differs depending on type of energy being produced and the location. The report indicated that the oil and gas industry is expected to use technology to mitigate water-related risks as water supplies become more scarce. The report found that some companies are able to mitigate some water risks by understanding their specific water requirements, identifying the water risk involved and developing a clean water strategy.

The World Resources Institute publishes an Aqueduct Risk Atlas which surveys water risk in the most active energy producing regions of the world. Among the regions found to have the highest water risk were U.S. shale gas plays, coal production (particularly in China), and crude oil production in the Middle East. In the U.S., more than half of the shale plays and gas reserves are in areas of mid to high-level water stress, where the oil and gas industry must compete with agriculture and other industries for water. This is true in Texas for the Eagle Ford Shale play.

The Wood Mackenzie report noted however that hydraulic fracturing requires large amounts of water only for a short period of time, and the rest of the time individual wells do not require a high volume of water. This means that shale gas drillers actually use a smaller percentage of water than many other industries. Still, the report notes, “These short but intense demands add up and can threaten to displace other water users. Over time, freshwater availability in shale development areas could decline as demand from homes and farms starts competing with hydraulic fracturing operations.”

A day-long conference at George Mason University titled “Old Fuels, New Technology, and Market Dynamics” was held at the Arlington, Virginia campus last week. It was put on by the Law and Economics Center, which is part of the law school.

Rapid growth in the U.S. oil and gas industry, particularly due to hydraulic fracturing and other unconventional oil and gas production, has intensified the discussion on government regulation at all levels. Some speakers noted that states, rather than either federal or local governments, are the best qualified to regulate hydraulic fracturing. One speaker in a panel, Michael L. Krancer, from the Philadelphia law firm Blank Rome LLP and former head of Pennsylvania’s Department of Environmental Protection, said that “(t)here’s no convincing basis for the federal government coming in and trying to regulate fracing. But it’s not a Republican or Democratic issue. Folks of all political stripes are getting involved.”

Mr. Krancer noted that the U.S. Environmental Protection Agency spent millions of dollars investigated drinking water in Dimock, Pennsylvania, Pavillion, Wyoming, and Parker County, Texas, and found no contamination that could be traced to nearby fracing wells. He also noted that state regulation of the oil and gas industry is working well so far, particularly with the State Review of Oil and Natural Gas Environmental Regulations (Stronger) where various stakeholders, including representatives from industry and environmental groups, review waste management programs.

More Texas oil and gas companies are expanding. In January 2014 Brenham Oil and Gas Inc. announced the purchase of a 100% and 74% revenue interest in the 332 acre Inez field prospect. This prospect is located in Victoria County, Texas. Brenham plans to drill a well to regain the potential of the Yegua, where a well was originally drilled in 1990 by Ken Petroleum Corp. Reserves in the well are estimated at four bcf of gas and 160,000 bbl of condensate. In the new well, Brenham plans to explore several intervals in the Jackson shale to conduct a petrophysical study. Brenham believes it can drill three to four new wells on the Inez lease.

Late last year, FieldPoint Petroleum Corp. and Riley Exploration Group signed a joint exploration agreement to horizontally drill in the Serbin field, which is 50 miles east of Austin, Texas. The Serbin field lies in Lee County and Bastrop County. FieldPoint will have a 25% interest and Riley a 75%. The two companies will pool their lease interests and drill 12 new horizontal wells in 2014. FieldPoint already has a working interest in 72 producing oil and gas wells in this field.

All of this has been continued good news on the growth of the oil and gas industry in our state. Last year at the annual meeting of the Permian Basin Petroleum Association, the Speaker of the Texas House of Representatives, Joe Straus, said, “Every Texan should be grateful for the success of the state’s oil and gas industry. Every child in public school, every family that visits a state park, every business that transports personnel or equipment over roads.” He credited much of Texas’ successful economy and job creation to the oil and gas industry. Speaker Straus noted that all the success and booming economy had created some challenges. In the last decade, Texas’ population has grown by 6 million people, enough people to fill a whole other city the size of Houston.

Areas of Texas and the western states where much of the U.S. oil and gas potential is located have been hit by drought in recent years, causing worries about water supplies and the use of water in hydraulic fracturing. Fracing takes a lot of water! But Apache Corporation has created a system to frac in the Wolfcamp shale in west Texas without using fresh water. This is an important shale area: just a few months ago Scott Sheffield, the CEO of Pioneer Natural Resources Co., said: “The Wolfcamp could possibly become the largest oil and gas discovery in the world.”

This new approach couldn’t come at a better time, since Texas has been in a drought since 2010 and in November 2013 Texas voters approved Proposition 6, which allocates $2 billion from the Economic Stabilization Fund to the new Texas Water Implementation Fund.

Apache is working with a closed loop system that only uses brackish and recycled water in the Barnhart project area in Irion County. This water is taken from the Santa Rosa Formation in the Dockum Aquifer and treated to remove substances that could damage pipelines and pumping equipment. The treated water is then stored in retention ponds and then can be pumped directly into drilling sites in the area. There is a significant amount of water that returns to the surface after fracing. The U.S. Environmental Protection Agency estimates between 10% to 70% of the injected water, depending on the geologic formation, is returned to the surface. Reusing water that is produced and recovered from fracing conserves fresh water for drinking and agricultural use, and it also saves Apache money since they don’t have to haul water in and out. That in turn reduces wear on local roads, and eliminates the need for a used water disposal facility. Greg Hicks, Apache’s production engineer manager, said: “It’s a win-win situation for the environment and us.”

As I’ve discussed before, oil and gas drilling and production benefits Texas mineral owners, but also has a positive impact on the economy as a whole, especially in energy producing states like Texas. There are countless examples in recent years verifying that impact. For example, recently the Manhattan Institute published a report written by Mark P. Mills, a Senior Fellow and founder and CEO of Digital Power Group, entitled, “Where the Jobs Are: Small Businesses Unleash Energy Employment Boom”.

This report indicates that the energy boom, fueled by oil and gas drilling and production, is creating jobs at a faster rate than the economy overall and producing enough wealth by itself to stop a slide back into recession. The report notes that more than 400,000 jobs have been created in the oil and gas sector since 2003. Another two million indirect jobs have been created as well, in transportation, construction and information services in the new shale boom. Oil and gas jobs have grown by 40% since the recession. Other related sectors, like chemical production, manufacturing, steel production, and textiles have also been revitalized due to lower energy costs. In states with oil and gas resources, job creation has greatly outpaced the national average.

While this information is great news, the Manhattan Institute report highlights two key features of the growth that have not been publicized much so far. First, the new jobs are in diverse geographic areas. Sixteen different states have 150,000 or more direct oil and gas jobs. In addition, most of the new jobs aren’t for large oil companies or big multinationals but rather for small businesses. The average oil and gas industry employer has less than 15 employees. These small and medium size oil and gas companies are helping increase jobs not only in direct oil production, but across the economy. These jobs in oil and gas and related industries are also mostly middle-class jobs, not part time or low wage work. Another important point is that this growth reduces the U.S. trade deficit, which is a drag on the economy. Oil and gas produced domestically means less foreign oil and gas is imported, which lowers our trade deficit.

In my law practice, I represent only Texas royalty owners, mineral owners and surface owners, and I do not ever represent oil companies. It is important for both my clients and I to have access to accurate facts, and not emotional arguments, when trying to make the best decisions for a client’s property. For that reason, I do pay attention to what oil companies have to say about their operations. From time to time, we might actually learn something!

Clean Fracing Conference

Clearing, the process of hydraulic fracturing, or “fracing” as it is usually called, has been in the media quite a bit. A panel of public relations experts at the Petroleum Connection’s Clean Fracing Conference in Houston, Texas recently argued that the oil and gas industry needs to change the conversation on fracing. For those of us who have been working in this industry, this seems like an obvious statement, but one that badly needs attention. Up until now, critics have been allowed to define the conversation. This debate is particularly important for Texas mineral owners as well as operators since Texas is home to at least three major shale plays that make use of fracing for most wells.

Plains All American Pipeline LP, based in Houston, Texas, is planning to expand its pipeline system in the Permian Basin over the next four years. Parts of that expansion will happen in Texas. These projects bring more money and jobs and exemplify how our oil and gas industry continues to thrive. A healthy oil and gas sector means more royalties paid to Texas mineral owners.

The first of the four projects will be to add pumps to Plains existing 20″ Basin pipeline from Jal, New Mexico, to Wink, Texas. This will increase the pipeline’s capacity by 100,000 barrels per day. This first project will also include building a 40 mile long 12″ pipeline from Monahans to Crane, Texas, which will supply the Longhorn pipeline and the Cactus pipeline.

The second project is to build 62 mile, 16″ and 20″ pipelines with a 200,000 barrels per day capacity. This pipeline will go from the South Midland basin in Central Reagan and Central Upton counties in Texas to McCarney.

A new partnership has been formed in the energy industry that may benefit shale oil and gas drilling in Texas: the American Shale and Manufacturing Partnership. The member organizations include manufacturing, labor, environmental, academic, and business organizations. It was launched November 19, 2014 at the National Press Club in Washington, DC. The goal of the new group is a renaissance in American manufacturing, and to remind policymakers that hindering the development of shale oil and gas could hamper an already fragile economic recover in the United States.

Charles T. Drevna, president of the American Fuel and Petrochemical Manufacturers, a member of the new partnership, said: “The dream of bringing manufacturing back to the United States is very real, but it requires our government developing policies that encourage growth instead of putting regulatory barriers in the way.” Matthew Sanfilippo, senior executive director of research initiatives at Carnegie Mellon University’s College of Engineering, noted that new technologies and domestic energy options like shale gas can transform American manufacturing.

Shale gas has created 2.1 million American jobs already, and it is expected to create another 1.25 million in the next ten years. Tax revenue from the industry is also expected to total $2.5 trillion by 2035 according to the US Chamber of Commerce’s Institute for 21st Century Energy. These statistics demonstrate why shale gas is so critical for manufacturing, especially due to job creation. “It is critical that the opportunities created by gas are compounded to deliver a reconstruction of our manufacturing base that will produce good community-building jobs, reduce trade deficits, and enhance our nation’s competitiveness and security,” said Walter Wise from the International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers.

Over the past few months there have been letters going back and forth between the National Park Service Director Jonathan B. Jarvis and Representative Rob Bishop, the Chairman of the House Subcommittee on Public Lands and Environmental Regulation.

On September 6, 2013, Representative Bishop sent Director Jarvis a letter (that you can view here) in which he questioned comments made by the National Park Service to the Bureau of Land Management about well stimulation and hydraulic fracturing on Federal and Indian lands. In his letter, Representative Bishop questioned the scientific integrity of the sources and data upon which the comments of Director Jarvis were based. As authority for his comments, the Park Service Director used a New York Times opinion piece written by Anthony Ingraffea. Mr. Ingraffea wrote that shale gas is a gangplank to global warming because of alleged methane leaks. The section of the Park Service’s comments quoting Mr. Ingraffea stated that methane leakage rates were 2.3% to 17% of annual gas production and claimed to get these numbers from the National Oceanic and Atmospheric Administration. Representative Bishop’s letter questioned why the Park Service was relying on a reporter’s opinion as a source of data and requested a determination of the information’s accuracy.

On November 12, 2013, Director Jarvis wrote a letter in response (that you can read here) to these questions. Jarvis admitted including a quote from a New York Times Op-Ed was inappropriate and sources should have been peer-reviewed scientific studies. He wrote that the Park Service does not rely on opinion pieces in newspapers as a basis for decision making. He also admitted the comments the Park Service made to to BLM were not adequately reviewed before they were delivered. He said that no one from management looked at these comments and he claims they were erroneously uploaded onto regulations.gov, contrary to established protocol. Because of these issues, Director Jarvis withdrew the National Park Service comments.