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?
oil and gas
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.
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.
Texas: permit survives a fracking challenge
The Texas Railroad Commission examined evidence of local seismic activity and issued a proposal for decision on September 10 stating that the evidence did not support a conclusion of causation of the seismic events by Enervest Operating Company Briar Lease Well No. 1. The proposed decision is similar to a one issued August 31 for West Lake SWD Well No. 1 which concerned a wastewater injection well. At least in the context of a decision to revoke a well permit the Railroad Commission will examine specific evidence about specific wells rather than broader “study” conclusions or scholarly data collections. No doubt there will be more contests on the issue of causation and what must be shown to support the charges that link fracking to seismic events. The finding for Enervest in the recommendation was that the evidence to date is “not sufficient to reach a conclusion”. Enervest keeps its permit.
Oklahoma allows private cause of action for alleged “fracking earthquakes”
The Oklahoma Supreme Court on June 30 ruled that private parties may bring tort lawsuits alleging damages caused by fracking. Ladra v. New Dominion, LLC (2015 OK 53, not yet published). Plaintiff Sandra Ladra was a resident of Prague, Oklahoma and was injured in the “Prague Earthquake” of November 5, 2011 – 5.0 magnitude. Her home suffered extensive damage. Her lawsuit was dismissed on jurisdictional grounds early in the proceeding, the district court holding that the Oklahoma Corporation Commission has exclusive jurisdiction over oil and gas related matters. She appealed on a point of error. The Supreme Court reversed the district court, holding that private tort actions are exclusively within the jurisdiction of the district courts, even if those actions involve damages allegedly directly caused by oil and gas operations. Plaintiff in this case alleged that fracking by a number of companies in the area around Prague caused the earthquake. The Court remanded for further proceedings. In a footnote, the Court stated that the Court was not deciding whether or not the plaintiff’s complaint was sufficient to state a claim. Plaintiff must show causation of the earthquake by fracking and then the actions of the various defendants in the fracking operations. The case is significant in this: the doors to the district courts in Oklahoma are now open to plaintiffs alleging damages from earth movement and further alleging that the earth movement is caused by fracking. The incidence of earthquakes in Oklahoma has greatly increased in recent years; will these lawsuits increase accordingly?
Tim Howard Law 