Tag Archive | oil and gas development

Fracking Crossroads

It’s been awhile since we visited fracking.  As a reminder, fracking is injecting high pressure fluids into rock to break open fractures for oil and/or gas to migrate into the well; however, the term has been converted in popular culture to more or less be synonymous with oil and gas development in general. This misappropriation has largely been because of renewed oil and gas development fueled by the application of horizontal drilling into “tight” source rocks that have to be fracked to produce petroleum. (“Tight” formations are usually the source rock of petroleum but lack the porosity for the fluids or gas to migrate into a traditional reservoir; these are usually shales). You could just as well call it “horizontal drilling” as “fracking” and remain exactly as accurate.

GG has argued that fracking (senso stricto) itself isn’t nearly the problem; most of the complaints really come from having industrial activities (with associated noise and air pollution) near residential areas along with occasional failures of the packing of the well that can release drilling fluids or produced water into shallow aquifers. The other hazard that developed is the huge increase in produced fluids (the foul waters that accompany oil and gas development) that are usually disposed in injection wells, which has led in some places to pretty considerable increases in earthquakes, most notably in Oklahoma.

But as more and more operations are active, we’re seeing more incidents of the rarer side effects of fracking itself, in this case earthquakes generated by fracking activities. The most recent case is in England, where the sole fracking operation in the country now is at a standstill after producing a M2.9 earthquake.  Although it isn’t entirely clear whether there is a separate injection well in this system, it does seem from the reports online that this was caused directly by fracking. Following fracking induced events in Canada, Ohio, and Oklahoma, it seems that this worry can’t be entirely anticipated but can be managed by being ready to stop. In England, though, this might mean the end of attempts to use fracking to develop tight oil and gas in that country.

In the U.S., several Democratic candidates have called for an end to fracking, generally with little clarity of what exactly that might mean.  For instance, Elizabeth Warren tweeted out that she would “ban fracking- everywhere” on her first day in office (um, no, not a power the president has).  However, fracking is not mentioned at all on her rather meaty website, suggesting that her program might be a bit more nuanced than her tweet, but the rationale for at least some of the candidates is to end oil and gas development as a means of addressing climate change, which is a more scientifically literate reason for opposing all new development.

But one should be careful in these matters.  While we certainly need to leave a lot of carbon in the ground (barring a major success in CO2 scrubbing from the atmosphere), one would want to make sure that, say, banning fracking in areas where the technique is well developed not lead to new conventional development in fields presently untouched.

The British experience, though, is suggesting that exporting the U.S.’s success in tight oil and gas development might not go as smoothly as many in industry had hoped. Whether that is a good or bad thing depends on your perspective.

Reaping Restraint

GG has written a few times about the state of oil and gas regulations here in Colorado. A lot of that is now changing as Senate Bill 181 has passed the Colorado Legislature and heading for the governor’s desk, where it is expected to be signed.

As is typical these days, the public debate was overheated.  Claims that passing this legislation would end petroleum development and cripple the Colorado economy were broadcast in commercials, while some advocates felt that the bill didn’t go far enough and were upset when amendments loosened some of the language of the original bill. Others felt that this was overturning the voters’ rejection of proposition 112 last fall (e.g., comments here). Votes in the legislature were along party lines.

So is this the death knell of oil and gas in Colorado? Best to see what passed rather than rely on public pronouncements. So let’s look at what is in here.

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War on Science: Ostrich Edition

A disaster has befallen a major city.  Scientists offer to shift planned research to help understand the extent of the disaster and perhaps help guide remedial efforts with more concrete information. You head a government agency asked to allow this scientific research.  What do you say?

If you work in the current administration, you say “no.”

The particulars, as outlined in a Los Angeles Times story, are that NASA was getting ready to run a calibration flight of a pollution-sensing aircraft as floods hit Houston. The scientists were eager to shift from their original test flight to a flight over Houston, but somehow the EPA as asked if this was OK. They said thanks but no thanks, we have this with a few ground crews. NASA higher ups decided not to cross the EPA and so the flight never happened.

Nobody knows what might have turned up–maybe nothing.  Maybe major pollution sources that were unrecognized on the ground. But why not do this? Frankly, it is hard to see the answer being anything but “what we don’t know we can’t penalize or correct,” and the most likely folks facing penalties or corrective action would be in the oil and gas and chemical industries.  After all, if there were no measurements of, say, a release of volatilized hydrochloric acid, then residents who had developed nasty respiratory symptoms would probably be unable to sue responsible companies.

The Times piece has inspired a Congressional inquiry, but that will mainly be a game of seeing whose ass was least covered. The mindset of “the less we know, the better” is foolish and dangerous. And, down the road, the backlash might be far more damaging, as the oil and gas industry in Colorado has been learning. Faced with community opposition to some development plans, industry has largely followed a policy of opposing any intrusion on their plans. They are now faced with a bill in the Colorado Legislature that would give local governments the ability to limit drilling, would increase forced pooling requirements from a single mineral rights holder to 50% of those holding rights, would require public disclosure of where critical infrastructure is, and would require pressure testing of abandoned lines. While the fate of this bill is uncertain, that it has reached the floor of the state senate is a major step up from the past when similar legislation never got a hearing.

Each time industry tries to cover its failures, that Green New Deal currently being vilified gets a bit closer to being something Americans will come to demand. Opponents might want to defang such desires by behaving as though they care about knowing the risks citizens face both day-to-day and during disasters; asking for less information is not that behavior.

Forced Pooling note

Just a quick pointer to a real rarity–an op-ed on oil and gas development that seems firmly based on fact.  The Boulder Daily Camera weighed in on the rather ridiculous forced pooling laws in Colorado (the next time some oil and gas advocate claims that Colorado is the strictest state in the country for development, remind them about Colorado’s forced pooling laws, which are the nation’s loosest). As a quick reminder, forced pooling means that your minerals can be developed against your wishes; GG discussed this at somewhat greater length awhile back.  In some states it takes 50% or more of the rights holders to trigger this.  In Colorado, it is a single rights holder. In some areas, oil companies have canvased neighborhoods looking for one resident willing to sign over development rights, which would unlock the whole area.

Is Oklahoma Now OK?

Its been quite awhile since we checked in on the seismicity in Oklahoma.  As we’ll see, on the whole the news is good, but there are a couple of things worth watching…

First, the number of quakes has steadily dwindled…

OK_EQs_2015-2018

This is what you’d hope to see with decreases in wastewater injection.  Some of this is regulatory, but a big piece is because the low price of oil made the more water-rich (an thus injection-heavy) fields less attractive.

If instead we look at seismic moment, things are somewhat less clear:

OK_EQ_Moment_15-18

Now first off you see the big drop in increase of seismic moment starting in late 2016; that rate has continued to the end of 2018 (the red curve is new since the last post). But curiously it hasn’t dropped: the M4.6 in April of 2018 offsets the seemingly slowing rate since then–a straight line from the end of 2016 through early 2018 projects right to where the cumulative seismic moment stood at the end of 2018. At present it seems the moment release rate is pretty constant. For this to coexist with a decreasing number of earthquakes means that earthquakes are getting larger even as they are less frequent.

What this means is that while things are a lot better, they might not be improving as much as you could hope.

If you want to see some reporting on how others view this, Tulsa World had a good end-of-year review. The data used here is from the USGS’s earthquake catalog.

A Peek At Risks

High Country News has a pretty in-depth article online about a couple specific oil/gas fires and explosions in Colorado and just how severe these can be; it includes audio clips from firefighter communications and is built on interviews with workers and firefighters involved. While one event (the exploded Firestone house) got considerable media attention, the other was dismissed as a small, well-controlled fire that injured an employee. See if you agree after reading how it all went down. It is an indictment of the contention of the industry that they are “good neighbors” as the industry is unquestionably a dangerous one for its workers and arguably a significant risk for its neighbors.

Does this potentially influence Colorado voters? We shall see as the politics of industry rights vs. community safety take center stage.

Reap or Sow?

Well, election season is upon us and as sometimes happens, frustration with legislative gridlock has produced initiatives that probably are less than ideal solutions to problems.

Here in Colorado the issue is oil and gas development. Generous forced pooling rules, state control of drilling permits, and limitations on the ability of surface rights holders to prevent drilling have frustrated suburban dwellers who object to the various nuisances and impacts of a booming oil and gas industry. Attempts to limit development in town laws have been struck down by courts, and attempts to pass legislation have also failed. Compounding the insult has been the explosion of a house in Firestone because of a feeder line from a well that wasn’t properly shut off. So opponents have gone to the ballot box with an initiative that would force new oil and gas wells to be a half mile from any occupied dwelling or vulnerable areas like reservoirs and rivers and streams.  There is no opportunity for a surface rights owner to waive the setback, but this would be a statutory change and not a constitutional change.

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Mineral Eminence

One of the peculiarities of American law is that mineral rights tend to trump everything else. Basically, if somebody owns the mineral rights under your property, good luck keeping them off, as many owners of split estate surface rights have learned.

One irony is that this is not what some of the original court decisions favored. In a California Supreme Court decision in Biddle Boggs vs. Merced Mining Company, Justice Stephen Field (who would later be the longest serving member of the U.S. Supreme Court) wrote

There is something shocking to all our ideas of the rights of property in the proposition that one man may invade the possessions of another, dig up his fields and gardens, cut down his timber and occupy his land, under the pretense that he has reason to believe there is gold under the surface, or if existing, that he wishes to extract and remove it.

And with this, the court found that the surface rights prevented miners from entering John Fremont’s Mariposa Estate to seek and extract gold. (Only later did the courts decide that Fremont owned the gold under terms of his patent). But later decisions eventually upended this, giving the owner of mineral rights the opportunity–indeed, the right–to invade a surface right holder’s land to get at their minerals.

The result of the upper hand mineral rights holders have had has been that oil and gas developers have forced themselves on individuals and communities that are not welcoming their presence. Here in Colorado that has led to efforts from communities to ban development–efforts that have foundered on the supremacy of state law. So now the effort is to impose state-level restrictions on oil and gas development that would probably prevent development in nearly any city or town but would also restrict it in more rural areas where the rights are not split and the person occupying the house near the oil well is the one receiving the royalty checks every month.  The fight over this issue has led the oil and gas community to advance their own proposed amendment, one that would cripple everything from zoning laws to fire codes to noise ordinances. Just how this approach by both sides will play out remains to be seen, but it is clear that strong battle lines are drawn and there will be unintended casualties.

An alternative GG has never seen advanced is to use the eminent domain power of government to intervene in mineral development when it is contrary to the public interest. Eminent domain is not itself uncontroversial–while mainly used to do things like build a road, it has also been used to condemn an area to make way for new shopping centers, and so it is the bane of libertarians. But it is a well-known and well-established power in the U.S.  So why not use it for retiring mineral rights?

The first and most obvious answer is that the cost is too high. Most communities, and especially those with lower income residents, wouldn’t be able to afford the rights.  But maybe this isn’t as clear-cut as it seems. First, it isn’t the value of the oil or gas, it is the net value that should matter.  When it costs millions of dollars to sink holes in the ground, the return is relatively meager.  So meager, in fact, that many financial people are now viewing the oil and gas industry as one threatening to drown in red ink. When the federal government is getting about $450/acre for oil and gas leases, it would seem that the price of shutting down an oil play in a town could be pretty doable.

The second reservation may well be that eminent domain is limited to surface rights.  GG is not a land law attorney and so has no idea. But it might not be hard to change state law to allow it if indeed you can’t do it today.

A third reservation is that this wouldn’t stop imminent drilling. But that in fact can be stopped by municipal action–drillers have face moratoria as local governments have tried to settle on requirements regarding drilling in floodplains, near schools, etc. Simply putting a moratorium in place until an eminent domain purchase is concluded or denied would seem to be in line with current Colorado law.

In a sense the City of Longmont has kind of pursued this already, swapping rights in the city for income from rights the city holds elsewhere. As this included shutting down existing wells, it is a bit harder to relate to the question of using eminent domain, but the $3M price tag would seem to be higher than what would result from precluding drilling rather than shutting down existing and proposed wells.

Odds are that the current scorched earth approaches both sides are taking will be rejected by voters.  Coloradans are unlikely to want to so greatly eliminate the ability of rural residents from cashing in on their good fortune, but they are also unlikely to approve of making it impossible for their city or town government from enforcing such basic rules as zoning laws or noise ordinances. Perhaps after the dust has settled interest will shift to other means of addressing the legitimate concerns of drilling neighbors.

The New Land Race

Occasionally stories are written about the conflict between suburbs in Colorado and the oil and gas industry.  What often eludes reporters, especially those from outside the area, is that the battle lines are not static but moving, and that acts to reinforce rather than temper the conflict.

Here’s the deal. One of the hotter oil and gas plays in the U.S. is the Watternberg field, a northeast trending belt of Denver Basin rocks cooked enough to yield both oil and gas. This field stretches from Boulder to the northeast, encompassing rapidly growing communities like Erie and Longmont and on out into the plains near Greeley. When first exploited in the twentieth century, the region was rural; Erie, for instance, was a shrinking coal mining town at that time with a population under 5% of its current population. Oil and gas wells were pretty widely placed but widespread.

What has happened this century has been to put a modern twist on an old conflict.  In the very early days of oil development, forests of oil derricks could be found in cities like Long Beach and Dallas. At that time there was no question that you’d drill for oil wherever it was. But today?

The state of Colorado regulates where operators can drill for oil and gas, but local communities regulate where you can build buildings. Since 2013, oil and gas wells have to be 500′ from an occupied building. Seeing development covering large areas in the southwestern Wattenberg field, companies have wanted to move quickly to drill before available lands are off limits.  This has led to a flurry of permit requests in these rapidly growing areas. Ironically, the efforts residents have made to preserve open space now boomerang as open space lands often offer locations where drilling is feasible; even when the government holds the mineral rights, Colorado pooling laws mean that a single mineral rights holder can force drilling in an area, and once that is approved, surface rights’ owners can not prevent drilling.

There is pressure on the other side, too. Surface land owners in these growing communities want to take advantage of the red-hot housing market in the region; construction is largely limited in the region by the availability of construction workers. Right now many communities allow new buildings to be placed much closer to existing wells–150 feet in the case of Firestone, where a house blew up awhile back. Some communities are considering larger setbacks, though this is typically expressed as an attempt to expand on the state’s rules on where new wells can be sunk rather than a limit on new construction. Nevertheless, developers and landowners don’t want to be caught having to leave open land because of an abundance of wells.

The result is an intense competition along the I-25 corridor north of Denver. You can find drill rigs seemingly a few feet from new houses in Erie, for instance, as the wells are being drilled as the houses are being constructed. As with any such race, the best solutions fall by the wayside. Given the need to move away from fossil fuels, leaving the oil and gas under the southwestern part of the field makes a lot of sense, both for locals and the global environment. Shifting to an emphasis on developing the rural, northeastern part of the field would seem a better outcome for all save the mineral rights holders in the southwestern part of the field.  And the reality is that for most of those folks, those rights are found money–until recently there wasn’t much value to those rights. [Congress never intended for mineral rights to go to homesteaders and the like, but that is another story].

Instead the only legal out is to buy your way out, which is what the city of Longmont decided to do. Or cover everything with houses, which seems to be some other cities’ approach….

Oily Pasts and Futures (book review)

Politics and industry make strange bedfellows.  Politics is often short-sighted, with most politicians locked in to the next election, or even the next round of polls, but multifaceted.  Industry, on the other hand, can look over longer timespans but is narrowly focused (“can” is not always “does”). You might hope that the pair could produce public policy that was both broad and longterm, but the reality seems to combine the worst characteristics of each.

Nowhere is this more evident than in peering into the future of oil. Mason Inman’s recent biography of M. King Hubbert, The Oracle of Oil (Amazon link), provides a nice reminder of this interaction from an earlier time. Hubbert’s views on oil, which were made with an eye towards a fully sustainable economy, conflicted with corporate and political motives. Corporations are in a specific business and like to hear that their future is bright, a disastrous approach when the future is changing (see Eastman Kodak’s fall as digital photography bankrupted their film business). Thus there is a tendency within a company to both develop rosy forecasts and believe them (the more pessimistic will tend to leave).  Politicians want happy news about tomorrow–Cassandras don’t tend to get elected. So what happens when unhappy predictions are made?

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