The European Commission proposed rules amendments that would extend EU natural gas regulations to offshore pipelines. On its face, nothing particularly surprising. The changes clarify rules applications to all gas pipelines to and from third parties. But the regulatory move may be intended to halt an energy link between Russia and Germany, the Nord Stream 2 pipeline. The Baltic Sea Nord Stream 2 link would double the natural gas volume from Russia’s PAO Gazprom to Europe – via Germany. EU members are split on the issue, some opposing and some supporting (led of course by Germany). Under US law, the President may impose measures against Nord Stream 2 also. The first Nord Stream pipeline had – and does not now have – any international agreements governing its operations. Nord Stream 2 has a host of significant corporate supporters and investors. Political discomfort with the rising power of Russia may interfere; but is the effort against the pipeline enough, and in time? How strong will Moscow become, through supplying energy to Europe?
Bluff, Feint or Stumble?
Then-nominee for Secretary of State Rex Tillerson suggested the idea of blocking China’s access to the artificial islands China has recently built in the South China Sea. Not long after, then-President Elect Trump repeated his thought that the “One China” policy of the U.S. could be opened to negotiation. “One China” means the U.S. does not formally recognize Taiwan as a separate country. China responded to Mr. Tillerson’s comments with back-channel diplomatic expressions of concern. To Mr. Trump’s notion on “One China”, China’s foreign ministry responded overtly and publicly with “non-negotiable”. Hard to imagine a more focused reply. The rhetoric escalates.
Stay tuned. Is the U.S. administration bluffing, creating a diversion or just stumbling unawares into a diplomatic imbroglio? At the very least, they certainly have China’s attention.
Permian Bellwether
Oil field scuttlebut: rising prices charged by services firms. Drilling has ticked upward especially by shale companies. The Wall Street Journal on January 17 published a graph showing per-barrel breakeven price in five major fields at current oil field services pricing; at 15% increase; and at 30% increase. But the graph reveals something else noteworthy: the breakeven price for the Permian Basin is lower on all three scenarios.
If this tidbit is true then there is an encouraging corollary: perhaps the increased activity in shale drilling in the Permian is not just an isolated phenomenon, but rather a bellwether. Second corollary: leaseholders and drillers, get ready. Third corollary: service companies, don’t get too aggressive or too impatient about raising prices – supply and demand still walk in the oil patch.
GoPro Drone Recalled
On Tuesday, November 8, 2016 GoPro Inc. recalled its new Karma drone. Karma suffered production delays and faulty launches as it missed deadlines on the way to customers. Some of the drones lost power during flight, prompting GoPro’s recall. GoPro gave no explanation for the problem. GoPro stock declined after the recall, but the drone is a small portion of GoPro’s business. Cameras are the bread and butter; but GoPro previously announced that it’s new camera would be delayed. The delay may stretch into the holiday season. Camera problems may be the big reason for GoPro’s decline, but the drone recall compounds new product woes. Manufacturing drones is not as easy as it may seem.
I Was in the Oklahoma Earthquake
The morning of Saturday, September 3, the house shook at about 7:02 am.Earthquake, 5.6 magnitude on the Richter scale. The rumbling lasted for several seconds. I was in Tulsa and the epicenter was near Pawnee, about 56 miles away. In Tulsa the earthquake was notable; in Pawnee some buildings were damaged or even destroyed.
Some were quick to charge fracing as the causation culprit. The earthquake was felt over an area of several states, so many people involved and much attention. In fact the incidence of earthquakes in Oklahoma has reduced recently. So has the amount of wastewater injection into deep wells, and the location of the active injection wells. Oklahoma has always been seismically active. But this big one, occurring at this time, will spark anew the debate about fracking and wastewater disposal.
I was there. The ground shook. But the shake-up, economically and socially, from reduced oil and gas drilling and production in Oklahoma will dwarf even those tremors.
Scientific American article analyzes earthquakes and drilling
Anna Kuchment’s March 2016 article in Scientific American, “Drilling for Earthquakes”* analyzes the geophysical background connecting injection wells and seismic activity. She follows by critiquing the regulatory response. Ms Kuchment is a science writer for the Dallas Morning News. Her interest in the subject springs from her current writing. She connects the history of seismicity and deep injection wells with the current debate, adding detail not commonly considered. For that reason alone her article is worth reading. Charts, graphics and photos punctuate her discussion and accentuate the human and practical elements that her reporter’s eye finds. She is more interested in the regulatory response than in the issues of legal liability for earthquakes allegedly caused by injection wells, but private liability is never far from this discussion.
*The article is available on the Scientific American website, http://www.scientificamerican.com Various other bloggers have commented, see engineeringethicsblog.blogspot.com post of Monday, June 20, 2016.
Scottish Independence Weighs in on Hydraulic Fracturing Debate
Now the debate is getting serious: the integrity of Scotch Whiskey is at stake. Or so says a recent article in “The National”, a newspaper that asserts for an independent Scotland. As part of a wide-ranging criticism of hydraulic fracturing as a whole, and the recent decision of the North Yorkshire County Council to allow a well near the village of Kirby Misperton, the author raises the specter of water contamination by “released gas”. The water contaminated thus is the very water used to make whisky and the article notes the concern for “distilleries”, thereby implicating not just the public safety but the entirety of Scottish heritage. All blame laid on the Tories, who are in control nationally, and to the great regret of Scotland and Scots who, though they adopted their own moratorium on well drilling are still part of the nation so sadly controlled, and greater regret still because they had the opportunity in 2014 to take control of their own destiny but would not.
The National’s concerns are very real of course, and this article shows the tremendous global reach of the debate about hydraulic fracturing, a debate that flashes even before the first exploratory well is drilled.
Hydraulic Fracturing News
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.
Oklahoma Corporation Commission Restricts Disposal Wells
The Oklahoma Corporation Commission has regulatory jurisdiction over oil and gas activities in Oklahoma. The Commission has been challenged to regulate “fracking” wells but has declined. On Monday, March 7, however, the Commission restricted the disposal of wastes (primarily salt water) produced as a result or byproduct of drilling and production activities. The restriction covers two significant sized areas of the state. The Commission did not ban oil or gas production nor the disposal process; but the restrictions are significant enough that production activity will be curtailed.
Parties dispute whether “fracking” itself or the production of hydrocarbons cause earthquakes. The best evidence says that production does not cause, but also indicates that the deep injection of waste may migrate to the fault lines between geologic plates and increase the possibility that those plates slip against each other, causing earthquakes.
Regulating injection disposal wells will reduce the amount of production from fracking activities because fracking involves large amounts of water. Oklahoma’s economy is significantly dependent on oil and gas, but political and social pressure about earthquake activities has been mounting. Oklahoma is seismically active, even without fracking or disposal wells. If the earthquakes continue the political pressure will increase.
Construction Law – Termination for Convenience clauses are enforceable
Construction contracts often contain a clause allowing the owner to terminate “for convenience”, meaning without citing a particular reason. Contractors challenge “Termination for convenience” clauses and commentators and analysts cast doubt on validity and enforceability. Last year the Washington Court of Appeals upheld such a clause (SAK & Associates, Inc. v. Ferguson Construction, Inc., No. 72258-1-1, 2015 WL 4726912 (Wash. Ct. App. Aug. 10, 2015)). The contractor challenged the termination as lacking consideration; and as violating an implied covenant of fair dealing. The Court of Appeals rejected both arguments.
Owners are glad to have this precedent, even though the question is one of state law. Contract drafters must take great care in drafting these clauses nonetheless, especially in stipulating the settle-up consideration to be paid to the contractor.
Tim Howard Law 