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

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 West Texas Intermediate Crude
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 Texas Rotary Rig Count: Baker-Hughes
 (as of 4-11-2014):      884 Rigs


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-- Current Texas Oil & Gas Industry Statistics
This past February there were 1,682 drilling permits issued statewide by the Texas Railroad Commission. By comparison there were 1,744 drilling permits issued by the Commission during February 2013. January 2014 crude oil production from Texas averaged 1.92 million barrels per day, up from the 1.42 million barrel per day average of January 2013 (these figures do not include condensate from gas wells). Gas well gas production  from Texas was 589.7 Billion cubic feet of gas in January 2014, that’s up from the January 2013 gas production total of 532.7 Bcf (these figures do not include casinghead gas). Over the last 12 months, total Texas reported production was 724 million barrels of oil and 7.8 trillion cubic feet of natural gas. Texas production in January 2014 came from 161,533 oil wells and 92,269 natural gas wells.

Texas natural gas storage reported to the Commission for February 2014 was 175,146,849 MCF compared to 316,329,677 MCF in February 2013. The March 2014 gas storage estimate is 147,019,152 MCF. The Texas Railroad Commission’s Oil and Gas Division set initial April 2014 natural gas production allowables for prorated fields in the state to meet market demand of 7,979,774 MCF. In setting the initial April 2014 allowables, the Commission used historical production figures from previous months, producers’ demand forecasts for the coming month, and adjusted the figures based on well capability. These initial allowables will be adjusted after actual production for April 2014 is reported.

-- EPA Report Questions Validity of Range Resources Water Testing Data

Responding to a Congressional Inquiry, the Environmental Protection Agency has issued a report stating that the agency acted appropriately when it issued an emergency order against Range Resources for alleged fresh water contamination due to oil and gas activities in North Texas. This action has occurred over a year after the EPA dropped its investigation and two years after the Texas Railroad Commission determined that the alleged contamination in Parker County was due to naturally occurring methane gas in the aquifer and not frac’ing or improperly cased natural gas wells.  More significantly, the newly released EPA report recommends that the agency resume its investigation in Parker County and work with the Railroad Commission to ensure that appropriate action is taken. The EPA report also states that the continual testing of several wells by Range Resources over the past year showed no evidence of widespread contamination in the area, but the EPA is now questioning the data provided by Range.

-- Estancia Oil & Gas Seeks Approval of Spraberry Waterflood Unit
At a Texas Railroad Commission hearing held on January 13th, Estancia Oil & Gas requested unitization and secondary recovery authority for its proposed Jo-Mill West Unit in the Jo-Mill (Spraberry) Field in Dawson County. The proposed unit would combine the four leases operated by Estancia in the field, encompassing approximately 1,200 acres. Chevron USA, which operates the offsetting Jo-Mill Unit, declined offers to participate in the unit. The proposed unit area has cumulatively produced 1.13 million barrels of oil and has 141,000 barrels of remaining primary reserves. Assuming a 0.75 secondary/primary recovery ratio Estancia estimated that waterflooding the Spraberry within the proposed Jo-Mill West Unit will generate 967,000 barrels of secondary reserves. Estancia considers that a conservative figure since other waterflood units in the field have realized secondary/primary ratios between 0.75 and 1.25. The projected net profit from the Jo-Mill West waterflood project is $31.2 million.

-- Azle Citizens Concerned About Seismic Activity Confront Regulators
In January a group of concerned citizens traveled from Azle Texas to voice their concerns before the Texas Railroad Commission regarding recent seismic activity in the area –events that the Azle residents believe could be linked to fracing in the area or high volume disposal wells. Commissioners told the concerned citizens and the Azle mayor, that the agency was doing its part to investigate the seismic events, but that so far they had no evidence that could link oil and gas industry activities to the minor earthquakes. Earlier in the month the Commission announced plans to hire a staff seismologist to gather evidence and data regarding any possible link between oil and gas activities and seismic events. Also in January a State Legislative Committee announced plans to appoint a subcommittee to study any connection between earthquake activity in North Texas and natural gas production.

-- Texas Segment of Keystone Pipeline Open for Business
TransCanada is reporting that as of January 22nd, the company is shipping crude oil through the Texas portion of the controversial Keystone Pipeline – The Texas segment of the line cost 2.3 billion dollars and is now being used to transport crude from the Cushing hub in Oklahoma to refineries near Beaumont. Construction of this 487 mile 36-inch segment of pipeline involved 4,844 workers. The pipeline has the potential to transport up to 830,000 barrels of oil per day to the Texas coast.

-- Jones Expands Presence in Anadarko Basin

Jones Energy recently announced that the company has expanded its presence in the Anadarko Basin of the northeastern Texas Panhandle and Western Oklahoma with the acquisition of 26,000 additional acres of leasehold. This acreage is productive in the Cleveland and Marmaton reservoirs, has an estimated 225 new drilling locations, and has proved reserves of 14.3 million barrels of oil equivalent. Jones Energy is one of the most active oil and gas well operators in the Perryton Area and has been active in the region for over 25 years, drilling over 300 horizontal wells. Jones reported that its recent acquisition will bring the company’s identified Cleveland drilling locations to over 680, providing over seven years of drilling in the Cleveland Reservoir alone with its current pace of eight rigs.

-- Devon Acquires Geosouthern Assets in Eagle Ford Trend
Devon Energy announced that the company has struck a deal to acquire the assets held by Geosouthern Energy within the Eagle Ford Shale trend of south Texas for 6 billion dollars in cash. The assets being acquired by Devon are in DeWitt and Lavaca Counties and encompass 82,000 acres, which Devon figures contains at least 1,200 undrilled locations. The properties currently produce 53,000 barrels of oil equivalent per day and contain an estimated 400 million barrels of oil equivalent in recoverable reserves. Devon reported that it will finance the 6 billion dollar transaction with existing cash on hand and borrowings.

-- U.S.F.W.S. Endorses Conservation Plan for Lesser Prairie Chicken
The U.S. Fish and Wildlife Service recently endorsed a conservation plan for the Lesser Prairie Chicken that was put together by a five state group, including Texas. The Federal Agency has not yet issued a final decision on its proposal to classify the Prairie Chicken as a threatened species. If the Fish & Wildlife Service approves a threatened classification, ranching, agricultural and oil and gas activities would be impacted within the prairie chicken’s habitat, which includes the northeastern Texas Panhandle. The agency’s endorsement of the five state conservation plan does not mean that the prairie chicken will not likely be listed under the Endangered Species Act, but it does now present a less restrictive alternative to protect the prairie chicken’s habitat.

-- Field Rule Changes Approved in Panhandle West Gas Field
The Texas Railroad Commissioners have voted two to one to approve field rule changes in the West Panhandle Gas Field, which covers 1.2 million acres in seven counties in the Texas Panhandle. The approved field rule changes reduce the minimum amount of acreage required to be held by gas wells from 640 acres to 160 acres, meaning that four times the amount of wells can now be drilled and produced within the field. Of the nearly one hundred and fifty companies that operate wells in the West Panhandle Field, only two filed formal objections to the field rule changes, ConocoPhillips Company and Travelers Oil Company.

-- RRC Issues Decision on Allocation Wells
The Texas Railroad Commission has deferred to the courts the future of its policies regarding horizontal wells drilled across multiple leases that do not provide for authority to pool. As part of a contested Railroad Commission hearing held in December of last year, a group of landowners protested the drilling permit for a planned horizontal well that would cross multiple leases, despite the absence of pooling authority in the leases or a production sharing agreement between the mineral owners. The Hearings Examiners sided with the protestants and recommended that the drilling permit be denied due to the lack of pooling authority, a decision which cast serious doubts regarding the future of the Commission permitting such horizontal wells. With the Commissioners rejecting the Examiners’ recommendation, the issue will likely be decided by the courts.

-- Midstates Acquires Acreage in Anadarko Basin

Midstates Petroleum announced this week that it has agreed to buy Anadarko Basin producing properties in the Northeastern Texas Panhandle and western Oklahoma for $620 million in cash. The acreage acquired by Midstates covers 140,000 net acres and roughly 280 producing wells. Midstates believes that the properties, which currently produce about 8,000 barrels of oil equivalent per day, contain more than 700 potential locations for new horizontal wells, which would target the Cleveland, Marmaton, Cottage Grove and Tonkawa Formations. The properties were acquired from Panther Energy, Red Willow Mid-Continent and Linn Energy Holdings.

All 'Headlines' above are copyrighted by Patrick C. Forbis and cannot be distributed without written consent from the Texas Drilling Observer.

   Patrick C. Forbis
   - Oil Industry Consultant on Regulatory Affairs -
   Editor & Publisher - Texas Drilling Observer
   The Oil & Gas Regulatory Report
   & Statewide Regional Reporting Service
   Texas Drilling Observer
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   Capitol Station
   Austin, Texas
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