Texas Attorney Blog

The EPA has once again overestimated the amount of pollution that comes from an oil and gas source -- with potentially grave consequences for the industry. This time, the EPA has overestimated the amount of methane gas that comes from shale gas wells. A new report from the IHS Cambridge Energy Research Associates has found that the EPA’s estimates were based on too small a sample of wells, and on a method that did not conform to industry practices.

Because methane is highly flammable, those who drill new shale gas wells make every effort to minimize the emissions. This includes several methods for capturing and relieving gas, such as installing a blowout preventer at the surface.

The report found that rather than base its methane emissions estimates on gas that escaped to the surface, the EPA based them on what was captured. The report noted that if methane emissions were really as high as the EPA supposed, there would be extremely hazardous conditions at the well site. It would be be “unwise” for the EPA to use its methane estimates for the basis of new policy. Furthermore, EPA proposals for more regulation of hydraulically fractured gas wells are already part of industry standards.

How did this come about? The EPA based its 2010 revised estimates on too small a sample -- specifically, two workshop presentations based on just four projects in Wyoming, New Mexico, Texas, and Oklahoma. The presentations described the amounts of methane captured during “green completions” of natural gas wells. Green completions are meant to capture as much methane as possible before it reaches the surface while the well is completed. Therefore, it seems absurd to use it as a basis for estimating methane gas emissions. Yet for some reason, the EPA assumed that the wells that captured this amount methane were an exception, and that every other well must release the methane into the atmosphere because their states do not specifically regulate gas emission. In fact, IHS CERA director Surya Rajan stated that it is “common industry practice… to capture gas for sale as soon as it is technically feasible.”

Rajan further noted that gas that can’t be sold “is flared rather than vented for safety reasons.” The EPA’s estimates assume that the gas is never flared -- that it is simply released. IHS CERA did a revised calculation that took into account that gas well drillers were professionals who knew what they were doing. It found that only 18% of methane gas produced in 2010 came from new wells. Even if the methane gas produced during the 10-day flowback (completion) procedure were vented from every well, it still would produce two-thirds less than EPA estimate.

This is all too common: federal regulators get involved in a situation that they know too little about and threaten to make it worse under the guise of “improvement.” For instance, the EPA ignores the fact that states can and do regulate emissions without their help: Texas has passed new regulations for monitoring emissions this past year. If the EPA does not respond to industry concerns, we could be looking at new regulations that not only don’t address any real problems, but make daily operations more difficult for gas well drillers. That means more unnecessary delays, money wasted and higher prices for gas. As a Texas oil and gas attorney, I find this extremely troubling.

As is no doubt true of most Texas oil and gas attorneys, I’m always interested in reading about new developments in the oil and gas industry, although they often seem to attract more than their share of political wrangling. Of course, energy independence is a hot-button issue these days (see our recent post on the topic). Unfortunately, political posturing often gets in the way of common sense solutions to this pressing problem.

I was reminded of how politics is the enemy of practicality when I read an interview with Harold Hamm, CEO of Continental Resources in the Wall Street Journal recently. Continental Resources is the 14th largest oil company in the United States. Mr. Hamm is the man who discovered the Bakken oil fields in Montana and North Dakota, which he claims holds 24 billion barrels of oil, and that has already helped make America the world’s third largest oil producer. Mr. Hamm believes that energy independence is within our grasp.

New technological advances are helping the industry grow by leaps and bounds. Horizontal drilling allows economical access to oil reserves that would not have been possible in the past. It has done for oil production what fracing has done for natural gas. Mr. Hamm believes that America’s oil production and reserves will triple in the next five years, which will have a broad impact on the economy. There are 10 million royalty owners today who are earning money from the oil located beneath their land. These royalty owners are not the millionaire Wall Street investors that Obama is so fond of bashing, these are just folks, like you and me, using those royalties to pay help pay bills and to save for retirement.

But instead of investing and promoting the resurgence of this industry, which could create an untold number of good, well-paying American jobs, politics has once again interfered. Obama instead chooses to spend billions of taxpayer dollars on subsidies to companies touting green energy, which supplies only 2.5% of America’s energy needs. These types of energy sources may be useful in the future, but they are not feasible alternatives in the short term. In fact, for a number of reasons, these sources will never provide more than a few percent of our energy needs, no matter how much they are subsidized. Notwithstanding the facts, the Department of Interior continues to delay drilling permits month after month, preventing energy production to meet our needs today, preventing the creation of American jobs, and preventing payment of huge royalties to local, state and the federal government that would help with the current debt crisis.

Please don't tell me that we need to subsidize these "green industries" to prevent pollution. Oil and gas companies spend billions of dollars every year to insure their operations do not polute and do not harm the environment. Those who say otherwise are, frankly, uninformed.

What is even more incredible than the misplaced subsidies is the length to which federal agencies go in harassing oil and gas companies. For example, the Justice Department has brought charges against Continental and six other oil companies for violating the Migratory Bird Act . The maximum penalty for each charge under this Act is six months in prison and a $15,000 fine. What was the heinous wrong that brought down the full force of the Justice Department on Mr. Hamm and his company? Well, a small bird, very common, and not an endangered species, was found dead in one of Continental’s oil pits in North Dakota. I love birds, and I believe that all life is sacred, but there is not even evidence that suggests the bird was killed by this pit.

This case seems even more far-fetched when one considers that some 440,000 birds die from the wind turbines every year, according to the American Bird Conservancy. So, you might ask, what is the Justice Department doing about this? Alas, wind energy is one of Obama's political pet-projects, and the investors and officers of a number of these companies are major Obama supporters. I can find no record of any prosecution based on this law against wind energy companies.

The way Obama rewards his supporters with our tax money, while punishing the industries and companies that create jobs, appears to be cynical, cold-blooded, Chicago-style thug politics at its worst. I only hope enough voters perceive the insanity of this behavior between now and election day.

There is a new arrow in the quiver of Texas oil and gas attorneys who represent land and mineral owners! Specifically, there are significant changes to the Texas eminent domain statutes, which went into effect on September 1, 2011. Oil and gas companies can still acquire easements across private property to build pipelines. If the pipeline is a private pipeline, the pipeline company must obtain the voluntary agreement of the property owner. If the pipeline is going to be a common carrier, and the pipeline company and property owner cannot agree on easement terms, the company can commence condemnation, or "eminent domain" proceedings, in which panels of commissioners appointed by a court decide the easement terms.

Another portion of the statute allows landowners to construct roads over the pipeline, although the pipeline company may still impose restrictions on things like the size and road material.

The new law applies to condemnation lawsuits initiated on or after September 1, 2011. These changes strengthen a landowner’s right to defend against eminent domain from both the government and private companies. One of the landmark changes to the eminent domain law is a new “bona fide offer” requirement, which means the purchasing entity must give a written offer for the property 30 days before the final offer is made. Additionally, a certified appraisal of the property in question must accompany the final offer, and that final offer must be of equal or greater value than the appraisal figure. The landowner now has 14 days to respond to the final purchase offer. The new law also allows landowners to obtain relevant information concerning the proposed easements from the potential purchasers.

Prior to the effective date of these new legal requirements, the number of condemnation proceedings surged in those areas of Texas that are experiencing increased oil and gas production. This has especially been the case in South Texas because of the Eagle Ford shale, where natural gas production nearly quadrupled and oil production increased tenfold between 2009 and 2010. According to an article in the Wall Street Journal, at least 184 lawsuits against landowners had been filed already between January and August 2011 in just four South Texas counties, compared to only 24 lawsuits in all of 2010. A district court judge in Lavaca County indicated that the number of lawsuits filed this year is “highly extraordinary.” That county alone registered 62 such lawsuits by August, 2011, compared with only 18 in all of 2010.

These pipeline cases are important to everyone involved, so there is incentive to make the process equitable and fair for all parties. Texas oil and gas companies employ thousands of workers and contribute to a healthy and growing economy. The boom in oil and gas production has also brought prosperity to many areas of Texas. However, it is equally important to consider the rights of private landowners whose property is affected by the pipelines.

It may take time to determine the total impact of revisions to Texas eminent domain law. Hopefully, the original purpose of the law will be fulfilled: giving landowners more knowledge and influence in negotiations with pipeline companies. These companies are going to face more significant hurdles in exercising their eminent domain rights than in the past, especially when this new eminent domain law is combined with the recent Texas Supreme Court decision in Denbury (read our recent blog entry on this case here). The Denbury decision essentially affirmed that there must be a reasonable probability that the pipeline will serve the public before a pipeline company can use eminent domain.

I was interested to read recently about a new crude oil pipeline to be built by Enterprise Products Partners LP and Enbridge Inc. All new projects like this have the potential to create jobs, maximize local productivity, and ensure that our state’s natural resources are utilized in safe, secure, and productive ways. This latest proposal is unique in that most of the largest new pipelines are designed to carry gas. This line would instead bring oil to the Gulf Coast from the Cushing, Oklahoma storage hub. According to the latest report on the project in the Oil & Gas Journal , under the current plan, a 800,000 barrel-a-day crude oil pipeline would be designed, built and operated to bring oil from Cushing to Enterprise’ Texas Gulf Coast refining complex. This would be the largest pipeline connecting the Oklahoma oil storage hub with Gulf Coast refiners.

If the proposal continues as planned, the 36-in. OD Wrangler Pipeline will begin at the Enbridge Cushing terminal and then extend 500 miles south along pipeline corridors ending in southeast Harris County at Enterprise’s ECHO oil storage terminal. All told, the new crude oil pipeline would provide access to refineries in Texas City, Baytown, and along the Houston Ship Channel. The pipeline is set to accommodate a variety of grades and oil sources. In addition to the main pipeline, the joint project plans also include the creation of an 85 mile line to the Beaumont/Port Arthur refining center. On top of that, additional storage necessary for the operations of the new pipeline will be built and housed at Enterprise’s ECHO site in Harris County, Texas.

The two companies announced a binding open commitment for available capacity on the new pipeline which ran from October 3rd and ended last Wednesday. Depending on the timing of required regulatory approvals and commitments from interested shippers, the companies hope to design, build, and begin operating the new line in less than two years. Under the current proposal, the line would enter service in mid-2013.

Observers note that this line would be the latest entrant into the race to be the first to supply Texas and surrounding areas with crude oil from Cushing. The line will likely compete with a planned pipeline from TransCanada Corp. which would provide 500,000 b/d, as well as the Magellan Midstream Partners’ Longhorn pipeline, which would bypass Cushing and deliver oil from fields in west Texas.

This latest agreement is essentially a combination of separate projects that Enterprise and Enbridge had made previously, but that had stalled. Earlier this year Enterprise had reached an agreement with Energy Transfer Partners LP to build a 400,000 b/d oil pipeline from Cushing to Houston. That announcement was made in April, 2011, but was eventually cancelled in the summer because of insufficient shipper interest. A few months before that, Enbridge has announced its own Monarch project designed to move light oil from Cushing to Houston at 370,000 b/d, expandable up to 480,000 b/d. However, the Wrangler pipeline could replace the Monarch pipeline as a route for delivering the crude oil to Houston.

As a Texas oil and gas attorney, I have followed with great interest the tumultuous relationship that seems to perpetually exist between Texas and its landowners on one hand, and the United States Environmental Protection Agency (EPA) on the other. Unfortunately, some misguided policymakers are under the mistaken notion that the EPA is working to protect the environment, and that the efforts of Texas and other states to fight those federal regulations are misguided. That oversimplification could not be further from the truth.

As Texas Comptroller Susan Combs explained in a recent editorial published in the Star Telegram, Texans are committed to the well-being of their air, land, and water. If legitimate steps need to be taken to protect the long-term well-being of our resources, Texans have and will continue to be the first to step up and take action. Unfortunately, many of the EPA’s latest regulations and requirements passed in the name of environmental protection actually protect next to nothing, and have no scientific basis whatsoever, yet come with very significant detrimental consequences for Texas residents.

As Combs notes, “private landowners are the best stewards of their own property.” She goes on to say that the EPA continues to ignore the knowledge and reasonableness of our private property owners when making arbitrary decisions that have effects on their land and lives. Even more troubling, at times the Agency seems to specifically target Texas in ways that defy common sense and scientific reality. For example, Combs discussed the EPA’s new “cross-states” air pollution rule. The new regulation will disproportionately affects Texans. The measure targets nitrogen oxide and sulfur dioxide. Texas plants produce roughly eleven percent of the sulfur dioxide targeted by the regulation, yet, inexplicably, Texas is being ordered to absorb a quarter of the reductions—more than double its actual share.

Anyone who understands the energy industry in our state understands the significant impacts the regulation will have. The state’s largest power generator, Luminant, explained that the rule will eliminate 500 Texas jobs as two generating units are being idled and three ignite mine operations halted. In addition, the Electric Reliability Council of Texas reported that the rule may increase electricity rates for consumers, because the state’s generation capacity will be reduced in the peak load months of summer.

Considering the consequences of these regulations, particularly in light of the already tough economic circumstances, one would expect the regulations to be based on some scientific evidence and enacted only after input from those affected. Unfortunately, neither is true. As the Texas Commission on Environmental Quality explained, the EPA’s own forecasting models did not reveal that these emissions had any significant impact on other states. On top of that, Texas wasn’t even included in the new requirements until the final version of the rule was adopted, meaning that no one from the state had the opportunity to provide comment or feedback on the regulations while they were being discussed.

Other examples of EPA overreach abound. Proposed EPA jurisdiction expansions may allow the agency to control isolated wetlands, streams, and other purely local pools of water such as stock tanks. The EPA has not produced a single scientific reason why the expansion is necessary. Yet, the action would place many Texas construction projects in jeopardy. The uncertainty, time delays, and other permitting challenges foisted upon residents by federal bureaucracies will have ramifications throughout the state.

As a Texas oil and gas attorney who works with landowners on a variety of issues, I am well aware of the systemic problems unnecessarily faced by local residents because of misguided EPA conduct. As Comptroller Combs explains in her editorial, it is important for all Texans to remain aware of these developments and to make their voices heard on a national level.

See Our Related Blog Posts:

EPA Proposal to Extend Its Regulatory Authority May Adversely Affect Texas Ranchers

Additional Offshore Workplace Safety Regulations Proposed by DOI & BOEMRE