IPAA’s Bruce Vincent on Fox Business Network

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Yesterday, IPAA’s immediate past chairman and Swift Energy president Bruce Vincent appeared on Fox Business Network’s ‘After the Bell’ to discuss the critical and growing role that job-creating American oil and natural gas production continues to play in driving economic growth while also strengthening our nation’s security. Vincent notes that at current rates, forecasts show that by 2017, the United States can be the world’s largest oil producing, making America “less dependent on foreign sources, which actually enhances national security as well.”

Bruce said it better than I can, so without further ado, here is the video below.

EPA Looms Over Bakken Momentum

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Leave it to the EPA to create a catch in the amazing oil boom in the Bakken play in North Dakota that’s helping to give the United States the inherent power that comes with energy production.

The EPA is trying to regulate hydraulic fracturing under the Safe Drinking Water Act (SDWA). The agency is currently developing guidance for hydraulic fracturing permitting under the SDWA’s Underground Injection Control program. There are a number of fundamental errors with this approach.

  1. Hydraulic fracturing has been successfully regulated under the careful watch of state regulators for decades. STRONGER, the State Review of Oil and Natural Gas Environmental Regulations, demonstrates the working relationship between state regulators and industry. FracFocus is another state-based initiative. It is online chemical registry website where production companies list their hydraulic fracturing fluids.
  2. This is outside of the scope of the SDWA. Passed in 1974, the SDWA never intended to apply to well completion fluids. According to the EPA, the UIC “regulates the subsurface emplacement of fluid” but hydraulic fracturing fluid is part of the well completion fluid. In other words, it comes out and does not stay in. In the 1990s, environmental groups brought their case to court to change the scope of the legislation to regulate the industry. The 2005 amendment, coined by environmentalists as the “Halliburton loophole” is not a loophole at all, but simply a clarification of the legislation, which brought the scope back to the legislation’s purpose.
  3. Although the EPA must acknowledge that hydraulic fracturing is excluded from the SDWA, which was clarified in the Energy Policy Act of 2005, the EPA seeks to do this by the SDWA’s authority to regulate diesel fuel. However, this interpretation is ridiculously broad.  This sweeping interpretation would include any kind of oil – including canola oil – if it has the same characteristics as diesel, according to Lynn Helms, the director of North Dakota’s Department of Mineral Resources. The actual amount of diesel fuel in the hydraulic fracturing fluid is miniscule – around .088 percent of the fracturing fluid. That amounts to 4,400 gallons in 5 million gallons of fracking fluid. However, this small amount is a necessary component. In the harsh winters, it keeps the liquid from freezing.

The North Dakota energy boom- which also is proving to be an enormous economic boom providing thousands of well-paying jobs in North Dakota -  is in grave danger.

Essentially, the EPA would pull rank – taking away the primacy of the states to regulate hydraulic fracturing if the state regulatory programs did not comply with new federal rules. This would create massive uncertainty. The industry would essentially be frozen, unable to continue with new production as the state scrambled to iron out this process.  Lynn Helms said, “I believe it will be stopped cold for 12 to 24 months. The best case is 15 months and that’s only if we red-lighted everything else and got nothing else done.” The precedent is Alabama – the industry never fully recovered when the EPA pulled rank on that state.

Lee Fuller, IPAA’s Vice President of Government Relations agreed. He voiced his concerns that these efforts are “part of a larger effort by the agency to bring virtually all fracking operations in the country under its authority.” He believes it’s key to narrowly define the definition of diesel fuel in the Safe Drinking Water Act.

This halt in production would devastate North Dakota’s amazing job growth, eliminate investments in the American economy, and create massive uncertainty that our nation cannot afford right now. This is a serious issue – the EPA was designed to protect our nation—not be an unnecessary job-killer and a true threat to our nation’s energy security.

Oil & Gas Oasis at IPAA Annual Meeting

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Last week, IPAA held its Annual Meeting in La Quinta, California, in the desert oasis of Palm Springs. The sheer number of Annual Meetings IPAA has had – this is the 82nd – confirms the status of IPAA as a true institution. This meeting was one of goodbyes and hellos as its the end of Chairman Bruce Vincent’s term.

In the past three years, former Chairman Bruce Vincent made quite a splash in Washington, the industry, and in media outlets across the country. From newspapers to television to Congress he proclaimed the amazing benefits of American oil and natural gas and championed America’s independents. Bruce had an interesting three years to lead the industry. He confidently steered us through the storm of the Macondo incident and boldly charged on in the sunny skies of the amazing independents-driven shale revolution.

Bruce has an unparalleled depth of knowledge of policy issues which he communicates sharply and succinctly. In his farewell address, he summed up the policy environment that the industry finds itself in. He said, “The oil and gas industry is part of the solution. We can’t let Washington make us part of the problem.” Here at IPAA, we can truly say it was a pleasure and a privilege working with Bruce and the independent industry will be forever indebted.

At the Board meeting, IPAA elected Virginia “Gigi” Lazenby, CEO and 100 percent shareholder of Bretagne LLC, to be the new chairman. Gigi had previously served as vice chairman with immediate past chairman Bruce Vincent. The Board also elected Mike Watford, CEO of Ultra Petroleum, to be Vice Chairman. The team of Gigi and Mike truly displays the diversity of the independent oil and gas industry. Gigi is the founder of a very small oil and gas production company in Kentucky, and Mike is the CEO of a huge E&P company in Houston. Thus, they can bring two completely different voices to Washington on how regulations affect the independent producer. 

In her acceptance speech, Chairman Lazenby discussed the three themes of “People, Performance, and Politics” for success in the policy world. In particular she highlighted the role of the IPAA Wildcatters Fund, the largest oil and gas association political action committee in the United States. At a time when the Obama administration has been particularly harmful to the industry (see Keystone, offshore plan), it’s more important than ever to elect policymakers who understand the prominent role the industry plays in boosting the economy, creating jobs, and bolstering our energy security.

Gigi also discussed how her lifelong experience in the industry through the good times and bad times has given her a “great education” that enabled her to start her own company—Bretagne, LLC in 1988. She quipped “As the saying goes, ‘the strongest steel is tempered closest to the flame.’ I am proud to be IPAA’s Steel Magnolia!”

A couple more meeting highlights: Former IPAA Chairman Mike Linn won the 2011 Chief Roughneck Award, there was great dialogue with industry leaders on the importance of community engagement, and we had a popular International Committee meeting complete with Australian food, wine, and a even an Aussie industry leader. Also, a few of the staff had the opportunity to explore the canyons on the outskirts of Palm Springs in a jeep!

The greatest part was interacting with our members — the oil and natural gas wildcatters. The people in this industry are the reason why we, as IPAA staff, come to work– to fight for the flourishing of the independent industry. It was especially great for me, at my first meeting, to meet  the people I’ve heard so much about over the past couple months. I want to give a huge thanks to the IPAA meetings department for their hard work in making these meetings so successful. Finally, we are excited to work with Gigi and Mike in the coming years.

Given the politics in Washington, it will definitely be a wild ride.

Great News for Louisiana

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Did you hear? Louisiana has some big news—news that is far bigger than LSU’s victory over Alabama this weekend. Okay, well maybe not far bigger for hardcore Tiger fans. In fact, LSU is featured in the good news.

Last week, former Louisiana State economics professor Loren Scott released a study which demonstrated how critical the oil and gas industry is to Louisiana’s economy. Every single parish in Louisiana has workers employed by the industry. Including production offshore from the Outer Continental Shelf, the state of Louisiana ranks #1 in oil production and #3 in gas production. Scott’s study showed that “the three sections of the oil and gas industry provided 310,217 jobs, generated more than $16.1 billion in household earnings and supported $77.3 billion in sales by Louisiana firms in 2009.”

However, Scott cautioned that these economic gains are not without serious risks from Washington. Specifically, the Obama administration threatens this growth by attacking the industry in its plan for jobs. Scott warned that this “very mobile industry…can go away” if penalized through tax hikes and burdensome regulations.

Today, Mark Kaiser and Yunke Yu—also hailing from LSU—published a detailed article in Oil and Gas Journal which discussed the impact of the Haynesville Shale on Louisiana natural gas production:

“Conventional oil and gas production in Louisiana has been in steady decline for 4 decades, but in recent years, new technology and innovation has opened up a new resource play in the Haynesville shale that is expected to play an important role in the state for many years. In the past 5 years, shale gas has reversed Louisiana’s gas production decline and promises significant growth potential in the future.”

Kaiser notes that the Haynesville shale play, discovered in the past decade, has estimated technically recoverable reserves of 73 to 289 TCF, making the region one of the largest shale plays in the US. This new technology is a combination of hydraulic fracturing and horizontal drilling – technologies that have been around for decades but utilized now in a new way.

The combined technologies of hydraulic fracturing and horizontal drilling are the key to this access – and are also under attack by environmental groups. Unleashing these technologies is key to protecting and increasing the economic gains from oil and natural gas in Louisiana.

Administration Extends Deep-Water Leases

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On Monday, the Department of Interior announced that it will extend nearly 1400 deep-water oil and gas drilling leases in order to make up for the Administration’s moratorium and the subsequent permitting delays.

This is clearly a welcome decision, considering the pain that the oil and gas industry is still feeling from the uncertainty following the moratorium. Unfortunately, the Administration did not include shallow-water leases in the extension, which were also severely impacted by the political and economic uncertainty.

Here’s the official IPAA press release:

“We applaud the Department of Interior’s decision yesterday to extend nearly 1400 deep-water oil and natural gas drilling leases. This action will help minimize the general uncertainty that has plagued the oil and natural gas industry since the painful five month deep-water moratorium.

“Unfortunately, shallow-water leases have not been included in this extension. These companies – often smaller, independent producers – have also been adversely affected by the moratorium and the permitting slow-down that followed. We believe it judicious to extend these leases as well.

“Although extending the deep-water leases is an important step to eliminating uncertainty, more needs to be done to promote the industry’s investment and increased economic activity in the Gulf. Therefore, we urge the administration to provide a stable business climate by opening additional offshore acreage for responsible development and developing a robust 2012-2017 five year plan.”

This either is a genuine olive branch to the offshore oil and gas industry in light of the economic hardship the people of the Gulf have faced since the moratorium. It also could be a move to the middle before election season kicks in high gear. Whatever it is, it’s welcome– and we’d like to see more policy moves to streamline the permitting process to promote Gulf development.

The Technology Behind the Frack

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Yesterday, the bipartisan Marcellus Shale Caucus held a hearing on the Hill which delved into the technology behind shale gas development. The two presenters represented the technical side of the industry: Dr. Peter Duncan, founder of MicroSeismic, Inc., and Rich Downey, Completions Manager of EOG Resources, a US independent producer.

Producers usually use the technology of microseismic monitoring on the first few wells on a given field in order to fully understand the structure and complexities of the shale rock. The purpose of microseismic monitoring is to give the engineers and geophysicists the exact location of where the fracture or a “fracjob” took in the shale rock. Dr. Duncan described the way microseismic monitoring works as a “stethoscope on the face of the earth.”

Essentially, the geophones, which are typically drilled vertically into the ground, pick up on the waves from the “pops” or breaks from the fractured shale, which release the same amount of energy as a person dropping a can of soda to the floor. Contrary to what enviros would have you fear, this is not the kind of energy that would conceivably cause an earthquake. Targeting these waves reveals exactly where the frack took place (See above picture).

As Rich Downey of EOG explained, companies use microseismic monitoring because the health of a well depends upon containing the fractures within the “zone of interest.”

Let me spell this out. There is no natural permeability in shale. Permeability (whether natural or man-made) is necessary for the extraction of oil and natural gas. Hydraulic fracturing, by blasting water, sand, and a small amount of chemicals into the rock, creates permeability in the rock.

Pressure is absolutely necessary. If the fractures creep even 50-100 feet outside of the zone of interest into a fault line or other point of weakness, which is less compact than the tight shale, the pressure will be lost and thus the chance for permeability and gas extraction will be lost. If the microseismic monitoring reveals the impacts of the fractures are outside of the zone of interest, the company would immediately shut down the fracjob. In other words, the well will be rendered useless.

When drilling opponents say that hydraulic fracturing causes groundwater contamination, it is clear they misunderstand — or misrepresent — the technology which proves otherwise. The horizontal drilling and hydraulic fracturing typically occurs 7000 feet below any viable groundwater. The frack occurs within 100 feet in the shale rock. As Downey demonstrated, the well will be ruined if the fractures extend even 50 feet outside of the zone of interest – let alone 7000 feet – the length of four and a half Empire State Buildings—above to the groundwater. Not to mention, the groundwater is additionally protected with cement casing.

The oil and gas industry has historically been reluctant to delve into the complicated technical prodcedures and explain them to the public. Clearly, it’s difficult. However, thankfully, the industry now recognizes their responsibility to educate the public on the safe practices of hydraulic fracturing and horizontal drilling. This Marcellus Shale Caucus briefing is a perfect example of the kind of education the industry should continue to focus on. After hearing these presentations, it’s impossible not to be floored by cutting-edge technology of the oil and natural gas industry. It truly reenforces the safety of the process. (After all, it’s in the industry’s interest for it to be safe and for their wells to be functioning.)It’s also hard not to question if the environmentalists have taken a second to learn about the technology behind shale gas development…or if they even want the public’s fears to be dispelled.

Too much is at stake for the country in terms of economic growth, energy security, and American jobs for the industry not to educate the public on this technology. The industry must get past the talking points and delve into the difficult geophysics and technology behind shale gas development in order to truly dispel the public’s fears. After all, if the oil and gas industry is successful — as Bloomberg noted today —”Shale Gas Reserves Could Reignite the U.S. Economy.”