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Commodities on 10-20-16

West Texas Intermediate Crude
Cushing Spot:     $50.65 per Bbl
Natural Gas
Henry Hub Spot: 
$3.09 per mmbtu
Baker-Hughes Texas Rig Count
as of 10-21-2016:          254 Rigs





    Current Texas Oil & Gas Industry Statistics

» This past August there were 660 drilling permits issued statewide by the Texas Railroad Commission. By comparison there were 864 drilling permits issued by the Commission during August 2015. July 2016 crude oil production from Texas averaged 2.43 million barrels per day, down from the 2.45 million barrel per day average of July 2015 (these figures do not include condensate from gas wells). Natural gas production from Texas wells averaged 19.71 Billion cubic feet per day in July 2016. That’s down from the July 2015 gas production average of 21.18 Bcf per day (these figures include casinghead gas production volumes). These preliminary figures are based on oil and gas production volumes reported by operators and will be updated by the Texas Railroad Commission as late and corrected production reports are filed. Over the last 12 months, total Texas reported production was 1.011 billion barrels of oil and 8.4 trillion cubic feet of natural gas. Texas production in July 2016 came from 183,260 oil wells and 92,238 natural gas wells.

    Court Rules Against Oil & Gas Operator in Sales Tax Case

» The Texas Supreme Court recently ruled against Southwest Royalties, who was seeking to have the equipment and services its purchased to drill for and produce oil and gas within Texas exempt from sales tax requirements. Southwest had filed for a rebate of those sales taxes claiming they fell into the category of certain manufacturing equipment, which is exempt from state sales tax requirements. If the Supreme Court had ruled in Southwest’s favor, the Texas Comptroller had estimated that the oil and gas industry would have been eligible for $4.4 billion in sales tax refunds.

    Second SMU/UT Study Points to Link Between Quakes, O&G Activity

» Researchers at the University of Texas and Southern Methodist University have once again released a report linking oil and gas operations to increasing numbers of small magnitude earthquakes across the state. The most recent study concludes that earthquakes triggered by oil and gas industry activity have been occurring as far back as 1925 and the number of earthquakes with a magnitude of 3 or greater have increased since 2008 from about 2 per year to 12 per year. The study stopped short of identifying any specific industry practice that could be targeted for regulatory action in curtailing induced seismic activity.

    Pioneer Suspends Drilling in Eagle Ford

» Pioneer Natural Resources has announced that is pulling its remaining fleet of drilling rigs out of the Eagle Ford Shale producing trend in South Texas. Pioneer had been one of the most active drillers in the Eagle Ford trend over the past several years. The announcement was made recently when the company reported that it will reduce its drilling activity by 50 percent. Pioneer will remain active in the Permian Basin of West Texas with 12 active rigs operating in that region by the summer of this year.

    RRC Adopts New Rules for Unconventional Fields

» The Texas Railroad Commission has adopted new rules regarding unconventional oil and gas fields that become effective in February. The revisions will codify many of the special well spacing regulations for horizontal wells that operators have been enacting over the decade - but have been doing so on a field by field basis. The proposed rule changes will allow complex special provisions to be approved for fields that are designated as unconventional fracture treated fields – which are oil and gas reservoirs that require horizontal drilling and fracing in order for oil or gas to be produced in paying quantities. The provisions are designed to increase the amount of horizontal laterals that can legally be drilled within thick shale formations and allow longer horizontal wells to be drilled on leases while still being in compliance with spacing and density rules.

    Interim Charges Assigned to Natural Resources Committee

» Lt. Governor Dan Patrick recently issued an interim charge for the state Senate’s Natural Resources Committee – to study new mandates from the EPA and their impacts on the Texas Economy. The Committee will also investigates the state’s permitting processes with respect to the energy and environmental side and determine if those processes could be made more competitive and business friendly. Lastly, the issue of theft in the oil field, an issue that was addressed in the most recent legislative session with harsher criminal penalties proposed, will also be investigated. Any recommendations arising from these interim charges could not be acted upon until 2017, the next time that the legislature is in session.

    Craddick Meets with Energy Delegation from Mexico

» Texas Railroad Commissioner Christi Craddick met with a delegation of energy officials from Mexico recently to discuss regulatory issues concerning development of oil and gas shale formations. Craddick stated that the Railroad Commission is a ready source of expertise on the oversight of shale development and is a natural partner for Mexico to coordinate with since the state’s most active shale play – the Eagle Ford – extends well into Mexico. According to Rigzone News, The Eagle Ford Shale in Mexico’s Burgos Basin contains an estimated 343 trillion cubic feet of recoverable natural gas, which is about two thirds of Mexico’s recoverable shale gas resources. Mexico’s energy agencies are currently working on contractual terms for an upcoming auction of contracts to sell to the private sector for development of the country’s shale resources. The sale is expected to include some of Mexico’s Eagle Ford Assets.

    RRC Adopts New Fee for GAU Letter Filings

» In January the Texas Railroad Commission approved a new filing fee for groundwater protection determination letters, also commonly known as water-board letters. These letters are issued by the Commission to show for each well where the base of usable quality water lies and where companies must set surface casing while drilling a new well. Operators must obtain waterboard letters for new drills, mechanical integrity or fluid level testing, well plugging and for injection and disposal well applications. The new fee will be $250 per application, which based on current activity – will generate about $300,000 of additional revenue per month for the agency.

    RRC Welcomes New Executive Director

» The Texas Railroad Commission, which oversees the state’s oil and gas industry, has appointed a new executive director. Kim Corley, who retired from Shell Oil earlier this year and has over 30 years of experience in the energy industry, was given the position at an annual salary of $180,000 – that’s higher than the individual salaries of the agency’s three elected Commissioners. The Executive Director Position at the Railroad Commission oversees the agency’s various departments and many of the day to day operations of the Commission. Prior to her work at Shell, Corley held various positions at Kinder Morgan Energy, El Paso Corp and Tenneco Energy. Corley earned her undergraduate degree from Sam Houston State University and a Masters degree from Rice University.

    RRC Joins Lawsuit Over EPA's Navigable Waters Proposal

The Texas Railroad Commission, which is the state’s regulatory agency over the oil and gas industry, recently joined a multi-agency and multi state lawsuit against the EPA’s proposed new rule interpretation of its jurisdiction over navigable waters. Railroad Commission Chairman David Porter called the proposal as a threat to private property rights in the state. The proposal would redefine a navigable water under the Clean Wear Act as any course where water could conceivably flow, including dry and intermittent creeks that drain into perennial bodies of water. That redefinition would expand the EPA and Army Corp of Engineers oversight powers. The EPA contends that the rule would further protect wetlands and streams from pollution and degradation. The Railroad Commission pointed out that should the proposal be enacted some water used by the oil and gas industry for shale drilling operations could be put under federal jurisdiction.

    UT-Arlington Study Raises Contamination Questions in Barnett Shale Trend
» A study conducted by UT-Arlington researchers has reported widespread groundwater contamination in the most prolific shale gas producing region of the state – the Barnett Shale trend in north Texas. This study comes on the heals of a comprehensive report from the EPA which found no widespread links between fracing operations and groundwater pollution. The UT Arlington study did not link the elevated levels of pollutants sampled from 550 water wells in the Barnett Shale trend to oil and gas industry activity, but did note that the chemicals that showed up at elevated levels in the water are the same chemicals used in oil & gas drilling and fracing operations. Industry advocates were quick to point out that study did not present any findings regarding the causation behind the presence of these chemicals -- and that the ground water was not sampled randomly - instead focusing on areas very close to certain oil & gas well sites. The study has been accepted by the American Chemical Society for publication in the Environmental Science and Technology Journal.

  Patrick C. Forbis
   Oil Industry Consultant on        
   Compliance & Regulatory Affairs

   Editor & Publisher
Texas Drilling Observer

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