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the oil and gas regulatory report  --  Patrick C. Forbis - Editor & Publisher

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Commodities (2-11-2016)

West Texas Intermediate Crude
Cushing Spot: 
    $26.14 per Bbl
Natural Gas
Henry Hub Spot:
 $2.12 per mmbtu
Baker-Hughes Texas Rig Count:
as of 2-5-2016:     8 262 Rigs


-- Current Texas Oil & Gas Industry Statistics
This past December there were 727 drilling permits issued statewide by the Texas Railroad Commission. By comparison there were 1,506 drilling permits issued by the Commission during December 2014. November 2015 crude oil production from Texas averaged 2.36 million barrels per day, up from the 2.25 million barrel per day average of November 2014 (these figures do not include condensate from gas wells). Gas well gas production  from Texas averaged 19.88 Billion cubic feet per day in November 2015, that’s down from the November 2014 gas production average of 20.01 Bcf per day (these figures do not include casinghead gas). Over the last 12 months, total Texas reported production was 1.007 billion barrels of oil and 8.4 trillion cubic feet of natural gas. Texas production in November 2015 came from 183,882 oil wells and 90,345 natural gas wells.

-- Noble Acquisition of Rosetta Finalized
Stockholders of Rosetta Resources have agreed to the offer for the company to become a wholly owned subsidiary of Noble Energy Inc. The merger of the companies became effective July 20th. The acquisition of Rosetta by Noble allows Noble to become a player in the South Texas Eagle Ford Shale producing trend with 50,000 acre now under the company’s control. In the deal Noble also acquired about 50,000 net acres in the Permian Basin of West Texas.

-- RRC Joins Lawsuit Over EPA's Navigable Waters Proposal
The Texas Railroad Commission, which is the state’s regulatory agency over the oil and gas industry, recently joined a multi-agency and multi state lawsuit against the EPA’s proposed new rule interpretation of its jurisdiction over navigable waters. Railroad Commission Chairman David Porter called the proposal as a threat to private property rights in the state. The proposal would redefine a navigable water under the Clean Wear Act as any course where water could conceivably flow, including dry and intermittent creeks that drain into perennial bodies of water. That redefinition would expand the EPA and Army Corp of Engineers oversight powers. The EPA contends that the rule would further protect wetlands and streams from pollution and degradation. The Railroad Commission pointed out that should the proposal be enacted some water used by the oil and gas industry for shale drilling operations could be put under federal jurisdiction.

-- Milagro & Sabine File for Bankruptcy
Two more significant Texas producers have filed for bankruptcy protection - Milagro Oil & Gas and Sabine Oil and Gas. Sabine is a significant producer in the Eagle Ford Shale trend of south Texas and well as in East Texas’ Cotton Valley and Haynesville Shale producing areas. Milagro Oil & Gas’s Texas operations are primarily along the coast. The Houston Based company has interest in 1200 wells and has about 100 employees.

-- XTO & Enervest Address Alleged Link Between Disposal Wells & Quakes
Two companies operating disposal wells recently had an opportunity to defend their operations at show cause hearings called by the Texas Railroad Commission. Those wells had been linked by SMU researchers to a rash of minor earthquake events near the north Texas town of Azle. This past April the SMU study was published and proposed that disposal of brine water as well as production in the area caused very minor pressure increases in the Ellenburger Formation, which let to a critically stressed fault nearby to begin slipping & causing the tremors, some of which were felt by area residents At the recently held hearings the operators of the disposal wells, Enervest Operating and XTO Energy, spend about a combined 15 hours putting on evidence to show flaws in the SMU study and that the quakes started in deeper faults, two miles below the interval that is being used for salt water disposal, which let to the shallower fault in the disposal interval to begin slipping. Both XTO and Enervest pointed out that the SMU study did not take into consideration the evidence that the earthquake activity began in the deeper faults, then spread to the shallower one within the disposal interval. Both companies acknowledged at the hearings that oil and gas industry activities in some circumstances can cause seismic events, but in the case of the north Texas quakes, those events were likely naturally caused and started in the deeper faults. These hearings represented the first instances in the state’s history in which the regulatory agency required a company to prove that its activities were not leading to seismic activity.

-- UT-Arlington Study Raises Contamination Questions in Barnett Shale Trend
A study conducted by UT-Arlington researchers has reported widespread groundwater contamination in the most prolific shale gas producing region of the state – the Barnett Shale trend in north Texas. This study comes on the heals of a comprehensive report from the EPA which found no widespread links between fracing operations and groundwater pollution. The UT Arlington study did not link the elevated levels of pollutants sampled from 550 water wells in the Barnett Shale trend to oil and gas industry activity, but did note that the chemicals that showed up at elevated levels in the water are the same chemicals used in oil & gas drilling and fracing operations. Industry advocates were quick to point out that study did not present any findings regarding the causation behind the presence of these chemicals -- and that the ground water was not sampled randomly - instead focusing on areas very close to certain oil & gas well sites. The study has been accepted by the American Chemical Society for publication in the Environmental Science and Technology Journal.

-- RRC Approves New Rules Regarding Metering Devices & Completion Reports
The Texas Railroad Commission approved new rules  that would extend the time well operators have to file well completion reports to 150 days. Historically, by rule operators have had 30 days after completion of a well to file a completion report. The Commission also approved rules allowing companies to use coreolis meters, turbine meters or other natural gas measuring devices that meet industry standards without having to seek administrative rule exceptions from the Commission. Such alternative metering devices have become very common in the state’s Eagle Ford shale producing region, which spurred the Commission to modernize its rules regarding acceptable natural gas metering devices.

-- Quicksilver Files for Bankruptcy Protection
Quicksilver Resources has filed for bankruptcy protection. The company was one of the more active players in the Barnett Shale gas boom around the Fort Worth area when slick water frac’ing technology really began to allow the drilling boom to take off. As of 2014 the company still had interested in over 143,000 acres in the Barnett Shale as well as 198,000 acres across various portions of West Texas. The Fort Worth based company also has extensive operations within Canada and as of a year ago had 338 employees in North America. Quicksilver’s Canadian subsidiaries are not included in the bankruptcy filings.

-- New Law Limiting Urban Drilling Ordinances Goes Into Effect
Texas Governor Greg Abbot has signed into law the crown jewel from oil and natural gas industry’s wish list for this year’s legislative session – a bill that limits the authority of cities to enact harsh restrictions on oil and gas industry activity. The legislation goes into effect immediately. The new law prohibits city governments from passing ordinances restricting oil and gas operations that occur in the subsurface, such as fracking, as well as any ordinances deemed to be commercially unreasonable. Most of the opposition to the bill came from the area were urban drilling has been ongoing for over a decade, the Barnett Shale producing area within the Dallas-Fort Worth area. Local residents in that area’s neighborhoods have been the most vocal over recent years about the inequities that naturally arise from the state’s long held legal doctrine that the interests of the mineral estate take precedent over the interests of the surface estate. Because of this doctrine it has been the municipalities and their local leaders that have been the most receptive to their concerns and frustrations over urban drilling and one of the most active operators in the DFW area, Chesapeake Energy.

-- Record Level of Taxes & Royalties Paid by Industry in 2014
According to the Texas Oil & Gas Association – the oil and gas industry in Texas paid a record 15.7 billion dollars in state and local taxes and royalties during last year. TxOGA’s numbers show that that figure is more than double the amount of taxes and royalties paid by the state’s oil and gas industry during 2010. Oil and gas royalties from State owned lands, also go towards the Permanent School Fund, which helps pay for education in the state. That Fund, worth $37.7 billion, recently became the largest education endowment in the country.

-- EPA Sets Timeline for Emissions Rulemaking
The EPA recently announced plans to craft a proposed rule by this summer that would impose further air emission restrictions under the Clean Air Act. The goal would be to have a finalized rule in place by 2016. The target of the rulemaking is methane emissions and volatile organic compound releases from the oil and gas sector, such as releases from compressors, well completions, leaks, liquid unloading and pneumatic devices. The EPA reported that during 2012 about 30 percent of methane emissions came from the oil and gas industry. The EPA also pointed out that while methane emissions from the industry have declined 16 percent since 199ent over the next 10 years due to the overall growth of the industry. The rulemaking will be designed to cut methane emissions from oil and gas industry sources by up to 45 percent by 2025.

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  Patrick C. Forbis
   Oil Industry Consultant on        
   Compliance and Regulatory Affairs

   Editor & Publisher
Texas Drilling Observer

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   Capitol Station
   Austin, Texas
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