By: Andy Maslowski
July/August 2010

You can still find some friendly oil and gas communities underneath the spacious skies and above the fruited plains of America. Yes, they’re still out there!

Where are they? Places like Houston, Midland, Odessa, Tulsa, Shreveport, Oklahoma City and Bakersfield come to mind. Even small towns like Kilgore, Wichita Falls, Pampa, El Reno, Hobbs, Farmington, Rock Springs, Gillette, Williston, Hays, Natchez or Indiana (the town in Pennsylvania) join the group.

The target on the back of the American oil and gas industry jest gets bigger and bigger.

Then there are the capital cities in the oil and gas producing states. Cities like Austin, Denver, Santa Fe, Baton Rouge or Sacramento. In them, anti-oil and gas sentiment often seems to raise its ugly head. Beware what happens there, especially within their legislative chambers!

Regulations

Regulators regulate — that’s what they do. Although, it seems none do it better (or more often) than those employed by the U.S. federal government. There are literally hundreds of federal bureaus and agencies under the 20 or so main cabinet positions of the executive branch. Just about each one has something to watch over — some special interest group, industry or other government entity.

Admittedly, many regulations have improved the safety, health and lives of the average American. But there are two sides to every issue — at least two sides. At some point, regulatory compliance, taxes, licensing and fees, workers’ compensation and health insurance, penalties and fines disrupt the ability of a business or self-employed worker to stay afloat.

The oil and gas industry faces this delicate balancing act every day. New challenges regarding who, what, where, why and how we conduct our businesses has many companies fighting for survival. And what would happen if the private sector ceases to exist? Who or what will the regulators regulate then?

Like the federal government, many states are now way over their heads in debt or face an uncertain, budgetary future. Some states and municipal governments are also looking at the oil and gas sector to be their cash cow in whatever form that may reveal itself.

In Texas, the main issues which affect the oil and gas industry are state taxes, local property taxes, Railroad Commission of Texas (RRC) funding, the Oilfield Clean-Up Fund, eminent domain, water and environmental protection, pipeline licensing and local ordinance authority. As a result, the Texas Independent Producers & Royalty Owners Association (TIPRO) said this year’s November elections take on new significance.

“As the political landscape changes, so must TIPRO’s efforts,” explained Rich Varela, executive vice president in a TIPRO news release. “We will go through the process of educating new legislative members and Railroad Commissioners as soon as we have a final count on all the changes.”

Elections have consequences in all states. In Texas, new legislation could mean several changes for the oil and gas industry regarding the protection of ground and surface water, and the safety and health of people living and working near oil wells and pipelines.

New shale rules
At least 10 states have formulated or are formulating changes concerning oil and gas drilling and production for the various shale plays across the land. Nothing attracts attention like success, and people are coming out of the woodwork to get in on the shale activity. And this doesn’t include all the new folks joining the oil and gas community looking for honest work.

Who are these people? Legislators (in some camps called tax collectors), environmentalists, lawyers, local government officials, neighbors and other concerned citizens. What do they want? That varies from area to area, but some common themes revolve around higher severance taxes, frac water use and disposal, emissions and air pollution, pipeline construction and complete drilling bans. Here are a few examples:
• A number of municipalities within the successful Barnett Shale play in Texas have enacted their own ordinances to address various concerns of the local population. And individuals and neighborhood coalitions have filed lawsuits when they feel their legal rights have been violated. The state’s RRC is quick to point out that “the Railroad Commission does not have jurisdiction over roads, traffic, noise, odors, leases, pipeline easements or royalty payments.”
• The Mid-Continent Oil & Gas Association of Oklahoma reported new rules governing the Woodford Shale have been enacted for frac water usage and disposal. Use of surface water and ground water requires a permit application to the Oklahoma Water Resources Board. For oilfield purposes, this usually is for a provisional, temporary 90-day permit. Disposal, treatment and reuse of post-frac produced water are primarily overseen by the Oklahoma Corporation Commission.
• The Pennsylvania Department of Environmental Protection (DEP) is calling for companies drilling in the Marcellus Shale to follow proper well construction procedures to help prevent gas migration problems that endanger public health or threaten residential water supplies. With that in mind, “Chapter 78 revisions” are intended to update existing requirements for drilling, casing, cementing, testing, monitoring and plugging. For example, the revised plugging standards require operators to plug wells through the producing formation rather than setting the cement plug immediately above the formation. The DEP said this practice “will better ensure that any residual gas or oil does not somehow channel through the plug as the cement is setting.”
• Some Congressmen are still itching for the U.S. Environmental Protection Agency to regulate hydraulic fracturing under the Safe Drinking Water Act. However, this practice has been exempted a few times, lastly in 2005. Still, because most shale production depends on the practice, it has once again emerged as an issue in Congress. So that’s one more thing to monitor on the federal level.

California
The California Independent Petroleum Association continues to stalwartly follow legislative initiatives within the California State Legislature. It has to in order to survive. The Golden State has a very strong anti-oil contingency.

In recent years, all kinds of bills have been introduced regarding air pollution and emissions reduction, so-called greenhouse gases and cap and trade (see Well Servicing, May/June 2009, “Regional Report: California”). But also on the agenda during the last session were bills calling for an offshore drilling moratorium, a new monitoring program for oil and gas production operations and, of course, higher severance taxes. The nation’s largest state is deeply in debt and could use another billion dollars or so. One recent bill would have placed a 10 percent severance tax on oil and gas production. Luckily it was not voted on by the whole Legislature. Will it appear again next year? Probably.

All our states are dependent on others. But California is blessed with plenty of its own natural resources it refuses to fully develop. It’s hard to understand, but it’s a situation happening in other places too. Political and environmental pressures seem to trump the desire to feed the need for local resource development, employment, investment, taxation, and the like.

Louisiana
Some tragedies call for faster responses by state authorities. When Louisiana was hit hard by the Deepwater Horizon rig disaster in April and subsequent oil spill in the Gulf, the state’s Governor Bobby Jindal authorized the state to execute emergency contracts with dredging companies to protect Louisiana’s coast.
The Louisiana petroleum industry has been devastated by the tragedy and oil spill. The Macondo well blowout and spill in the Gulf was a horrible accident in human, ecological and technological terms. It also focuses new attention of our love-hate relationship with petroleum.
Louisiana is not California. But in the wake of the oil storm, will more of its offshore prospects in the OCS be placed off limits, or will environmentalists move in and try to curtail oil and gas drilling, like they have in California? Only time will tell.