Developments from several places, all relevant to the industry in general and the producers and transporters of reserves based on directional drilling and enhanced recovery.

EPA ACTION IN THE US:  The United States Environmental Protection Agency (“USEPA”) adopted final rules regarding methane and volatile organic compound (“VOC”) emissions from oil and natural gas production.  These rules have been pending but now that they are final, producers must prepare to adapt.  Notably, these rules cover only new or modified sources of production, not existing production.  The rules build on and modify rules previously in place.  See EPA, EPA’s Actions to Reduce Methane Emissions from the Oil and Natural Gas Industry: Final Rules and Draft Information Collection Request (“Overview Fact Sheet”) at 1, https://www3.epa.gov/airquality/oilandgas/may2016/nsps-overview-fs.pdf.  One of the rules alters USEPA’s basis for “single source determinations”.

But there was also a draft “Information Collection Request” for the oil and gas industry, requiring extensive reporting and data.  The purpose is to gather data from existing oil and natural gas production sources in order to prepare a methane rule applying to existing sources, and designed to reduce methane.

Proceeding with the proposed rules to final, and proposing new data gathering and initiative for existing wells, will introduce new costs onto an already stressed industry and overly high cost structure.  Producers have been more successful than expected in lowering production costs and drilling costs in the face of the price decline, but just when you thought progress was being made, an external factor intervenes.

TEXAS, NEW STUDY:  a new academic study regarding Texas seismicity (May 18, 2016) concludes that oil and gas activity has been causing earthquakes in Texas for many years, perhaps as early as 1925.  Six researchers from The University of Texas at Austin and Southern Methodist University prepared the study.  A geophysicist at Stanford University praised the study to InsideClimateNews but a spokesperson for the Texas Railroad Commission (the state body in Texas charged with regulating the oil and gas industry) called the basis of the study “subjective in nature”.  The Texas Railroad Commission has done several things suggesting that they are paying more attention to the issue, but have not found a causal link or promulgated any moratoria or regulations.  See insideclimatenews.org , “Oil and Gas Quakes Have Long Been Shaking Texas, New Research Finds”, by Zahra Hirji, May 17, 2016.  See “A Historical Review of Induced Earthquakes in Texas”, srl.geoscienceworld.org , for the Seismological Research Letter publication (abstract available online without charge).

ENGLAND TEST ALLOWED TO PROCEED:  observers and analysts will differ about the significance of this action, but it is worth noting.  The North Yorkshire County Council gave local approval for a test hydraulic fracturing procedure on a well in Kirby Misperton.  This is the first hydraulic fracturing in England in five years.  The permission granted by the Council also allows production (if the company finds paying quantities) for nine years. The site has produced gas for about 20 years; the well in question was drilled about three years ago.  National policy favors hydraulic fracturing and increased production; the company obtained necessary permits and reviews; but the council action stands as the only active approval in England at the moment.  Some expect many applications now to be filed and many to be pursued much as this one was asserted.  One wonders if the economics bear that much activity, but clearly this approval is a watershed of sorts.  The council vote was 7-4 (all 11 members voting); the council majority is Conservative.  Local protest and organized objection was vocal and constant and promises to continue.  The national government cites the need for energy security; job creation; and local development.  Opposition demands that the beauty of the region be preserved.  Third Energy, owner of the producing wells and applicant for the new, claims both can be done.

See dailymail.co.uk for Tuesday, May 24, 2016.