New Year Brings Opportunities and Obstacles for Industry

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IPAA President & CEO Barry Russell’s reflects on the opportunities and challenges of the year ahead:

“As 2013 begins, IPAA is optimistic that the great benefits of natural gas and oil development are gaining traction with leaders in Washington. Despite political gridlock that Washington seems to be characterized by these days, leaders on both sides of the aisle are recognizing that energy development environmental protection can and do work together to the benefit of the American people. IPAA has had several productive meetings with Congressional leadership and the White House on how development of oil and natural gas resources, particularly from shale, is boosting jobs, government revenue, and economic growth all across the nation. Below are some of the issues that IPAA will be working with Congress and the administration on.

TAXES.         

“Although major bills will likely be stymied in Congress, IPAA’s major area of legislative concern is taxes. Although comprehensive tax reform may not be undertaken immediately, tax policy will inevitably be in the spotlight. The call to end industry’s provisions of intangible drilling costs and percentage depletion and the passive loss exclusion will inevitably resurface. This is a dangerous political rallying cry that ignores the enormous risk that independent producers face in exploring for energy and threatens the continued investment in America’s vibrant and growing energy sector. IPAA continues to educate lawmakers and their staff on why these provisions are in the tax code. We will continue to warn against the unintended consequences that eliminating these provisions would have on future oil and natural gas production.

REGULATION.

“Due to the standstill in Congress, environmental issues will be addressed by regulations.  In fact, the legislative gridlock could embolden the Obama administration’s agencies to take major steps to federalize oil and natural gas regulation, with particular focus on hydraulic fracturing. Traditionally, the states have had jurisdiction of energy regulation and, time and time again, have proved themselves more than capable of doing so. From the EPA’s proposed national source performance standards to BLM’s drilling regulations to EPA’s regulatory guidance and studies on hydraulic fracturing rules, IPAA will be keeping a close watch on the administration’s actions in regard to oil and natural gas development.

ESA.

“In particular, the Endangered Species Act, which the anti-development activists use to try to shut down development of all kinds, is a top priority for IPAA in 2013. Specifically, IPAA will be pushing back against the listing of the Lesser Prairie Chicken. A listing could threaten oil and natural gas production in resource-rich states, states which have already made special conservation coalitions to protect this species.”

 

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.

Senate Hearing on Shale Gas Subcommittee

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A couple of weeks ago, I blogged about the discussion of the Secretary Energy Advisory Board’s (SEAB) Shale Gas Subcommittee Report at the Center for International and Strategic Studies (CSIS). On Tuesday, I attended the Senate Energy and Natural Resources Committee’s hearing on the 90-day report.

The panelists, who were part of the Shale Gas Subcommittee appointed by the Department of Energy, were made up of Dr. Daniel Yergin (shown above), Dr. Stephen Holditch, Dr. Mark Zoback, and Ms. Kathleen McGinty. These panelists were experts in their field – and Ms. McGinty was a former Pennsylvania Department of Environmental Protection secretary. The panel discussed that amazing benefits of shale gas and unanimously supported a common-sense approach to the environmental issues surrounding shale gas development.

For example, Dr. Yergin—author of the new best-selling, critically acclaimed book “The Quest: Energy, Security, and the Remaking of the Modern World” cited that shale gas accounts for 30 percent of total natural gas production – and he noted that that number is only slated to grow. He discussed the amazing benefits of shale gas development—several hundred thousand jobs, lower energy bills, and billions in economic revenue.

Dr. Stephen Holditch emphasized that the fluid in hydraulic fracturing is 99.5 percent water and that the chemicals that make up the 0.5 percent can be found in common household items. He stated that there is “absolutely no evidence hydraulic fractures can grow from miles below the surface to the fresh water aquifers.”

Of course, all agreed that the process must be regulated safely and soundly. The panel unanimously supported a common-sense approach to the environmental issues surrounding shale gas development. They praised state regulatory regimes like STRONGER (State Review of Oil and Natural Gas Environmental Regulations) and joint industry efforts like FracFocus. They emphasized the regional differences between shale plays which give states the best ability to regulate the industry. Yergin emphasized that a federal regulatory superstructure on top of the already successful state superstructure would hinder investment and actually remove the process from the local communities.

The Senators, on the whole, agreed. Senator Lisa Murkowski touted the “game-changing technology” that has enabled this development and agreed that the United States shouldn’t “try to apply a one-size-fits-all” approach to shale gas extraction.  Senator John Hoeven, also a former governor of North Dakota and therefore quite familiar with shale gas development, said that the U.S. needs to regulate hydraulic fracturing “in a way that empowers the state and the industry to move forward.” The main stickler in the bunch was Senator Al Franken, who suggested that instead of the government, the industry should pay to regulate itself. Needless to say, if this ever was the case, folks like Franken would say that the industry had cozied up to the regulators and perhaps even that the industry was buying the regulators off.

Overall, the hearing was a successful dialogue regarding the issues confronting both the industry and regulators. Above all, it’s essential that state regulators and the industry need to go out and speak to local communities to discuss not only the economic benefits of shale gas development but also the environmental impacts. The public has an absolute right to know what’s going on in their communities.

For more information, Energy in Depth has a fantastic roundup of quotes from the hearing.

IPAA Launches New Regulatory Compliance Tool for PA Operators

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A nice pitch from EID Marcellus, and a practical heads up on our new compliance tool…

The Independent Petroleum Association of America (IPAA) — founders of the EID program back in 2009 — announced this week  the creation of a new regulatory compliance system to help Marcellus  operators better understand and ultimately meet and exceed the regulatory rules as they exist in the Commonwealth.  The asset, developed by experts with decades of experience in Pennsylvania, will assist operators in navigating the state’s complex regulatory system, which includes eight different agencies implementing regulations based on more than 100 different state and federal statutes, some of which can be found here.  The new tool will be critical in helping operators continue their trend of producing fewer violations, safer operations, and greater efficiency in developing resources from shale.

Read on, here…

Green Fallout

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A few weeks ago, Washington political world was a-buzz with the news that President Obama decided to back off an EPA rule to tighten Bush-era ozone standards due to the enormous burden it would put on businesses. This was an absolute win for the industry, but a blow to Lisa Jackson, the head of the Environmental Protection Agency, who has been crusading for this rule since she became head of the EPA in 2009. She went so far to say that the current ozone standards were not “legally defensible.”

Following the announcement, many inside the Beltway questioned Lisa Jackson’s tenure at EPA. However, she publicly and respectfully agreed to stand behind President Obama’s decision, making  it clear that she would not be leaving.  In the weeks following, Obama has made inroads to mend fences with environmental groups. In a press release, he suggested that backing off the job-killing ozone rule was an exception and wrote, “Work is already under way to update a 2006 review of the science that will result in the reconsideration of the ozone standard in 2013.” In other words, “we’ll pick this up later.”

Whether or not President Obama has made personal promises to Ms. Jackson to more harshly regulate the oil and natural gas industry in order to make up politically for backing off the EPA ozone rule, one thing is apparent: In recent weeks, Obama has amped up his anti-industry sentiment in his pitch for jobs.

Right now part of his jobs plan is calling for repealing the “tax loopholes” on oil and natural gas. In reality, these investment-encouraging provisions are applied to all industries. Repealing these provisions is not only counterproductive to job creation, but actually destructive as it would cost thousands of jobs and particularly devastate the smaller independent companies. Please read the IPAA tax structure analysis to learn how repealing the historic provisions will cost the country.

President Obama is nervous about the vocal environmentalists. What Obama should be most concerned with is job creation. In fact, the oil and natural gas industry is one of the only industries currently creating a large amount of well-paying jobs in spite of economic turmoil.  But for radical environmentalists, the fact that the nation is facing an economic crisis is not paramount. Despite the fact that the oil and natural gas industry overall has an extremely safe track record, these environmentalists believe quelling industry and development is a absolute moral issue. In reality, the moral issue is putting Americans back to work. Millions of families are struggling. People are taking jobs that they are overqualified for. Companies, burdened by regulations, are forced to lay off workers or close up shop completely.

President Obama is seeking to appease the environmental wing through hurting the oil and natural gas industry. It’s clear that overhauling the tax provisions for the industry would be the ultimate trophy for environmentalists. For the sake of job creation, economic growth, and energy security—lawmakers, the public, and industry must fight to ensure that they do not succeed.

Lee Fuller Testifies on George Washington Forest Regulations

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On Friday, Lee Fuller, Vice President of Government Relations at IPAA, testified before the House Natural Resources and Agriculture Committees regarding proposed regulations on the George Washington (GW) National Forest. The regulation option addressed at the hearing would prohibit horizontal drilling and associated hydraulic fracturing in the forest due to “water concerns.” One of these concerns includes the fear propagated by anti-industry groups that hydraulic fracturing could poison the water supply. No such case has ever been recorded.

The Forest Service and the Bureau of Land Management (BLM) also claimed that the water used in horizontal drilling would take away from the water needed by the forest. However, as Fuller pointed out, horizontal drilling and hydraulic fracturing have “allow[ed] for prolific development” in natural gas production. In fact, horizontal drilling actually decreases the amount of vertical wells that need to be drilled, decreasing the amount of water used in production overall.

On the other side, Natural Resources Defense Council’s (NRDC) Amy Mall praised the “caution” of the administration. She repeated that there is “limited scientific knowledge” and that “many uncertainties remain” about the effects of horizontal drilling on the environment. In response, Congressman Fleming of Louisiana pointed out that because of horizontal drilling’s huge economic benefits and the absence of environmental harm, the burden is then on environmental groups to give evidence to the contrary.

The committees relied on Fuller’s background as a petroleum engineer to explain the technology behind horizontal drilling. He refuted claims that hydraulic fracturing leads to methane contamination in drinking water. Fuller explained that although methane contamination can occur naturally (non-oil and gas sources) or from wells, there has been no case of contamination occurring from the process of hydraulic fracturing. He reminded the committees that there is “always going to be skepticism” about new technologies, but the industry’s technical guidance standards and the state’s regulations sufficiently address environmental safety concerns.

Maureen Matsen, Virginia’s deputy director of natural resources, testified that the proposed ban would “harm Virginia, and Virginians, by burdening business and preventing job growth.” She agreed with Fuller that the ban is unjustified and “without any tangible benefit that we can see beyond what is already accomplished by our well-established regulation of natural gas development.”

Lee stated in his testimony that the proposed ban “presents a far larger issue—the reluctance of the current Administration to support the development of the full spectrum of American resources.”

To view a further breakdown of Amy Mall’s claims versus Lee Fuller’s claims, please see IPAA’s Friday Fact Check.

Newt: Remove EPA (“self-selected bureaucrats”), Increase domestic energy production

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Cut. It. Out. “For thirty years, we’ve had the worst possible domestic energy policy and it’s time we stopped it.”

Speaking yesterday at the Conservative Political Action Conference (CPAC) in Washington, former House Speaker Newt Gingrich called for an end to the Environmental Protection Agency (EPA) suggesting it be replaced by a Environmental Solutions Agency focusing on “science, technology, markets and incentives.”

Gingrich also insisted that lawmakers should pass energy legislation expanding American oil and natural gas production, saying that President Obama’s administration has been at “war” with American development of fossil fuel resources.

From The Hill:

“For thirty years, we’ve had the worst possible domestic energy policy in energy and it’s time we stopped it,” he said.

Citing the political unrest in Egypt, Gingrich said it is essential to expand domestic oil- and-gas drilling.

But EPA policy took the brunt of criticism during the potential GOP presidential contender’s speech. He proposed allowing states to determine whether to allow drilling off their coasts and pointed to a recent announcement by Shell to scrap drilling plans in Alaska this year, blaming the EPA for imposing too many regulatory burdens on the company.

“The EPA has refused to allow them to move forward, and they announced last week that they’re dropping it,” he said.

For the rest of The Hill coverage, continue here.

Landreth: EPA aggressively pursues gas contamination claim in Barnett Shale

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On Wednesday, IPAA Board member Bob Landreth had the following published in an editorial in the Midland-Reporter Telegram:

As you probably are aware, the U.S. Environmental Protection Agency and the State of Texas are embroiled in a controversy surrounding the state’s refusal to enforce new regulations stemming from the U.S. Supreme Court ruling that greenhouse gases are a pollutant and therefore subject to regulation under the Clean Air Act. EPA has intervened and effectively taken over TCEQ’s authority over approval of emissions permits for dozens of industrial facilities.

An interesting sidelight to this controversy is unfolding in a portion of the Barnett Shale play in southern Parker County, west of Fort Worth. There, EPA has accused Range Resources, a big operator in the Barnett, of contaminating at least two private fresh water wells with methane gas as a result of Range’s recent Barnett horizontal drilling activity in the immediate area. IPAA members may have read about this in IPAA’s weekly Energy in Depth newsletter. IPAA has been following this story closely because of implications that this alleged contamination is related to hydraulic fracturing of the Barnett shale during completion of Range’s wells. The following outline of events is based on IPAA’s investigation, my own research, and a conversation I had quite accidentally with someone on TCEQ’s technical staff in Austin with firsthand knowledge of the facts.

To read the full article, continue here.

EPA releases draft of fracking study plan…

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Yesterday, the EPA issued its draft plan explaining how the agency will proceed with its study to determine whether hydraulic fracturing is safe in regards to drinking water supplies…

From Reuters:

Congressman Ralph Hall, chairman of the House Committee on Science, Space and Technology, said in a statement that he would closely review the study because he felt fracking had been the subject of “misleading attacks”.

“Natural gas is a vital resource, and hydraulic fracturing is a well-established process that is enabling greatly increased production of clean, affordable energy,” he said.

The EPA’s science advisory board plans to review the draft on March 7 and 8, and the public will be able to comment on the plan during that time.

For the rest of the Reuters story, please read on, here.

Josh Fox, you know it’s true…

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This sort of thing can be avoided.

Yesterday, Energy In Depth (EID) sent a letter to the Academy of Motion Picture Arts and Sciences regarding the movie GasLand.

Or, as the New York Times covered it:

“The oil and gas industry doesn’t want a golden Oscar statuette to grace the mantel of “Gasland” filmmaker Josh Fox.

Fair enough, but not without reason…

The letter was sent because GasLand is a film that doesn’t actually meet the Academy’s description of a feature-length documentary – the category for which GasLand has been nominated.

According to the Academy’s website, a documentary must maintain an “emphasis … on fact and not on fiction.” EID, along with independent experts, film critics, environmental regulators, and elected officials from across the political spectrum have called attention to fact that GasLand is a work of “fundamentally dishonest” “hatched job.”

“The filmmaker alternates between misstating and outright ignoring basic and verifiable facts related to the impact of these activities on the health and welfare of humans, wildlife and the environment,” said Lee Fuller, executive director of EID, and IPAA vice president of government relations, in the letter.

EID has the rest of the story here.