While consumers benefit from energy independence and stable prices, some of the most vocal opposition to the industry comes from those who fear the new technologies that make price stability possible, according to a group of panelists from the public and private sectors that addressed the oil and gas industry at the recent Winter NAPE Business Conference in Houston.

It is a challenging time for the industry, and stakeholder interests often seem to be pitted against one another. Energy companies seek more netbacks from markets outside the country, while policy makers fear that selling in the global market could tighten domestic supply and send prices rising. Energy corporations seek new opportunities for growth, even as the din over environmental concerns grows louder.

These are some of the issues that the panelists – Christi Craddick, a Texas Railroad Commissioner, David Blackmon, the managing director at FTI Consulting, Matt Lepore from the Colorado Oil and Gas Conservation Commission and Don McClure, vice-president, government, stakeholder relations and legal at Encana Corporations Oil and Gas US Division – took on.

The State of Energy in Texas

Craddick led off by bringing attendees up to date with where the Texas oil and gas industry is. She noted that there is “a lot going on” in Texas in the oil and gas industry. The year 2013 ended with 829 active drilling rigs in the state, producing 1.8 million barrels of oil per day (bopd) and 21 billion cubic feet (Bcf) of natural gas per day.

For the state, about 30,000 drilling permits were issued, while 25,000 completion reports were issued, indicating a robust industry, Craddick said.

In the Barnett Shale, there were about 28 active drilling rigs that produce about 5 Bcf per day. About 320 permits were issued for the Barnett Shale in 2013, and little growth is expected until the price of natural gas moves higher, Craddick said.

“There was massive growth in the Eagle Ford Shale, with 229 rigs running,” Craddick said. “In 2008, there were 26 drilling permits issued in the Eagle Ford. Last year, that number jumped up to 4,100.”

The rigs are estimated to have produced more than 650,000 bopd in that area of the state in 2013, and just over 3 Bcf of natural gas, Craddick said, adding that the growth was fueled by horizontal drilling and hydraulic fracturing.

Craddick noted that in the Permian Basin, the number of horizontal wells in September 2013 finally caught up to the number of vertical wells, since “horizontal wells were late to the Permian Basin.” However, in the Permian Basin, there are “about 10 to 14 plays,” compared to one in the Eagle Ford. That illustrates the potential still remaining in the Permian Basin.

There were 400 rigs running in the Permian at the end of 2012, which is almost half of the total for Texas. The number of rigs in Texas is almost half of the total for the country, Craddick noted. So, nearly one-quarter of the nation’s active rigs are in the Permian Basin.

About 2 years ago, rules were issued for frack fluids in the state, making Texas one of the first states in the country to do so. There are also new “Rule 13” casing and cementing rules that were put in place, as well, and the cost of doing business will therefore be greater, Craddick said.

Another issue for hydraulic fracturing in Texas relates to the increased seismic activity that appears to be related to the injection of waste water from fracking being injected into underground disposal sites, Craddick noted, adding that water in many areas of the state is in tight supply because of recent droughts. To assess the link between the disposal of fracking waste water and seismic activity, the commission is in the process of hiring a seismologist to study the seismic activity in the state.

Another panelist from Texas, Blackmon, agreed with Craddick about the “great things in the state” being done by the oil and gas industry. In mid-2009, 20 percent of total U.S. oil production was in Texas; by December 2013, the figure had nearly doubled to 36 percent, Blackmon said. Between May 2011 and October 2013, daily production in Texas doubled because of the development of the Eagle Ford Shale and the rapid increase in drilling in the Permian Basin, Blackmon said.

“If we were a country, it would be the ninth-largest oil-producing nation on the earth [and] we would be the third-largest natural gas producing country on the face of the earth, behind the United States and Russia.”

“The results of all this have been an incredible increase in tax collections and economic impacts in this state that have frankly been unprecedented in the state’s history, Blackmon noted, adding that the oil and gas industry, through taxes, has turned severe budget shortfalls that were exacerbated by the recession into a budget surplus of $3 billion.”

Blackmon said that the oil and gas industry is vitally important not only to Texas, but also to the country. However, there are challenges from the political left and environmental activists that severely threaten the industry. Droughts and water issues are the largest current issue confronting the oil and gas industry in Texas due to recent droughts and the lack of large bodies of water near fracking areas. The link between water disposal and seismic activity are problematic, but Blackmon said technology would likely allow the industry to move away from using fresh water, and to frack with brackish water in the future.

Colorado Production Rising, But Ballot Initiatives Threaten

Lepore discussed the recent rise in growth in oil and gas production in Colorado, noting that while the production figures between 2000 and 2010 inched up 5 percent, production figures have increased by 20 percent each year for 2011 and 2012, thanks to horizontal drilling and hydraulic fracturing. However, in Colorado, people are concerned about fracking, and they have taken their concerns to local government, not the state government.

In November, Lepore noted, there were ballot initiatives to ban or place a moratorium on fracking in four jurisdictions. A year earlier, one Colorado community passed a ban on fracking within its borders through a citizen’s initiative. Also, there has been talk of a statewide ban from a ballot initiative in 2014, he added.

While opinions about fracking remain worrying in Colorado, there have been areas of collaboration between industry and government that seem to be turning things around in some cases, Lepore said.

“Under our Oil and Gas Act, there is no question that local governments have some regulatory authority over oil and gas. They have regulatory authority over land-use aspects of oil and gas. The state has authority and primacy over the technical aspects of oil and gas development. The problem is that those boundaries aren’t always very clear,” Lepore said.

What seems to have helped in Colorado is a program started 20 years ago, whereby “the local government appoints a single person to be the point of contact with our agency. We use that point of contact to communicate a great deal of information about our drilling permits, and about the process,” Lepore explained. The agency empowers them to participate in the process, where they are representing local government. Out of the 64 jurisdictions, 56 are participating, and the remaining 8 that are not are areas where there is no oil or gas.

In this system the point person may comment on any pending oil and gas application for drilling permits in their jurisdiction. The point person is also empowered to ask the Colorado Oil and Gas Conservation Commission to consider special circumstances that permit special protections for environment, to extend the period of comment beyond the usual 20 days, and to ask the agency to bring in the Colorado Department of Public Health and Environment. Local governments also have the opportunity to participate actively in the permitting process, Lepore said.

Within the past 18 months, local governments have participated in the collaborative process to address concerns to their jurisdiction, including setbacks. The state has enforcement authority, which the local jurisdictions like, Lepore said. Local jurisdictions in Colorado can also have their own inspectors but cannot enforce authority.

An Industry Perspective from North of the Border

McClure noted that the regulatory environment can definitely impact a company’s strategy. And when the different players cannot come to an agreement, there is increased tension and a risk of conflict.

“Are we a net help or a net hurt? Regulation is a necessary piece of industry,” he said. “Americans are benefitting from the best kind of energy ever. That is domestic energy.”

The regulatory climate plays a major role in the industry, and the industry plays a major role in the overall economy, McClure said. The industry has contributed 1.7 million jobs across the country, and added $1,200 to every household in 2012. Next year, that figure will be $2,000, and it’s expected to increase in the coming years.

According to McClure, private enterprise grew jobs by 1 percent between 2007 and 2012, while oil and gas jobs grew by 40 percent during the same time period. Energy jobs made up 15 percent to 16 percent of the total increase in new jobs during the same time period.

“That’s why we’ve got to get this right.”

The future is uncertain, McClure said. Tensions and conflicts tend to arise when regulatory intensity is dialed up. This can even pit industry against industry, and result in a future increase of unintended consequences. These are even an increased risk of legal challenges.

“Particularly in a commodity-sensitive industry, a change in the compliance cost can drive some of these capital programs right off the threshold, and we can no longer do those in an economical fashion.”

One emerging regulatory challenge is the municipal ordinance consideration, where one particular town might be focused on “nuisance impacts,” such as dust, noise, traffic and roads. That can be escalated to a more complex discussion involving the zoning laws for industrial activity in a town, and that discussion can escalate to an outright ban.

“What happens in these particular cases is whether there is some cost or whether there are future capital allocations, and you have to reevaluate from a company perspective, and from a company strategy, if this is an area that you want to continue to produce capital,” McClure explained.

“At the end of the day, folks are looking for balance. If nobody is willing to change their mind on anything, and both come in dead-set on their positions, you get what I call a fatalistic approach. It’s doomed. If one party becomes balanced and the other party doesn’t, it ends in frustration on either side. The hope is that both come together, there is a proactive level of engagement, and you reach what I call smart regulation. Not perfect regulation, but smart regulation.”

– See more at: http://www.rigzone.com/news/oil_gas/a/131671/Energy_Panelists_Discuss_How_to_Sustain_Energy_Industry_for_Growth/?all=HG2#sthash.tjaiaI46.dpuf

16 Comments on "How to Sustain Energy Industry for Growth"

MSN fanboy on Tue, 18th Feb 2014 10:58 pm 



As it turns out (After reading and crunching the numbers) Renewables may not be sufficient to reproduce themselves on any large scale. Or a small scale. I was wrong.
Ever get the feeling since school you’ve been lied to about our economic paradigm.

Northwest Resident on Tue, 18th Feb 2014 11:02 pm 



This article reminds me of how the Nazi generals were busy in their bunker in Berlin as the Russians closed in, plotting out defensive and offensive strategies on a detailed map, planning moves with German infantry and artillery units that no longer existed, making calls and issuing orders to commanders in the field that were already encircled and their troops slaughtered. In other words, just business as usual, no sense whatsoever of the approaching doom, just totally insulated from reality.

Northwest Resident on Tue, 18th Feb 2014 11:05 pm 



Congratulations MSN fanboy. Like I said, stick around, keep an open mind, you’ll do well here. Facing doom straight in the face and stiffening up one’s spine to accept the reality is exactly what we need more people to be doing. Welcome to the club.

DC on Tue, 18th Feb 2014 11:23 pm 



NW, Hitler was the only one pushing non-existent formations around-not his generals and their subordinates.They all knew better. But they also knew they only acceptable course of action was to go along, to humor the ‘boss’ as it were…

Davy, Hermann, MO on Wed, 19th Feb 2014 12:19 am 



@Rock – So how was the food? I imagine you were there. Anyway, the article sounded like a prep rally and a brag session. Yet, guys, these folks are highly important if we are looking to a gentle ride down the energy gradient. If you want a “Thelma and Louise trip” then lets just eliminate “ALL” ENVIRONMENTALLY DAMAGING fossil fuels. This way we can make it quick.

Makati1 on Wed, 19th Feb 2014 1:20 am 



Davy, there is not likely to be a ‘gentle ride down’. Not a chance in 1,000. Any blip in current events could be the next big step down, or it could be the one that takes humanity over the cliff. We took 200+ years to get to this plateau but it will not take even a small fraction of that time to take it all away. We are too interconnected, too ‘globalized’, too BAU.

Northwest Resident on Wed, 19th Feb 2014 1:43 am 



DC, in the historical account I’m familiar with, at least some of those top generals were as deluded as Hitler, though you are correct, most of them were just playing along because they had no choice. The point remains the same, and the analogy still applies.

Davy, Hermann, MO on Wed, 19th Feb 2014 2:32 am 



@Makati – unfortunately I think you are correct. The ride up was relatively stable, gentle, and long. Growth is generally logical and rational. Growth is a building process. Contraction is a demolition process. Things get wacked from the system leaving the remaining system unstable and vulnerable. Chaos enters the equation leaving dysfunction. Yet, how do we gauge time in these instances. How long will it take to make that fall to a collapsed landing. We know how bad we as humans are on projecting or predicting. We tend to be impatient and expect things to happen quicker than they do or we get complacent and feel things will be alright longer then they are. As a species I do not see a very good evolution for life in a complex interconnected global system. I think we were made for hunting and gathering and jumped into AG then into industrial way too quick. This is especially true for the ecosystem we have destroyed. We are just beyond our capacity as a species for what we are doing now with globalism.

andya on Wed, 19th Feb 2014 3:09 am 



TL:DR that title made me laugh though.

rockman on Wed, 19th Feb 2014 1:37 pm 



Davey – “So how was the food? I imagine you were there”. No, I let my two cohorts go wander around there but mostly to look for drilling deals. And if I had gone I certain would have passed on those BS sessions. LOL. As you now know I’ve been doing this for almost four decades and I’ve had enough smoke blown up my ass to fill the Hindenburg. Pretty much the same reason I haven’t gone to a geologic society luncheon in many years…BS and over cooked chicken are a really bad combo. LOL. It also makes my boss a tad nervous when we get around industry power brokers. I don’t go out of my way to be opinionated and occasionally crude (pun intended) just on sites like this. It’s pretty much how I am. IOW they don’t really like me talking to anyone for fear of my expressing exactly how I feel.

Davy, Hermann, MO on Wed, 19th Feb 2014 3:39 pm 



@Rock – reminds me of my days at the domestic and international pipeline conventions. The golf and the drinking were legendary. It was fun for the young man that I was then. I agree with your view of over cooked chicken. I guess it is all part of getting from there to here for a young man to an old man. You have to go up the ropes unless of course you got a silver spoon up your ass then you skip to the top. Yet, some day you have to pay the piper. I have not found free lunches that last forever!

Northwest Resident on Wed, 19th Feb 2014 3:45 pm 



hey rockman — No doubt, you are a loose cannon on an already-sinking ship. Last thing “the industry” wants is to have to deal with you firing off volleys of hard, cold truth. And you reinforce my impression of this article — just a bunch of BAU goings-on, oblivious to the gathering storm. But I wonder, how many of the industry honchos and their staff attending this event are also well aware of the impending crises, but they go about their business like actors on a stage, playing their roles, saying their lines, playing their roles? Events like this get a lot of press coverage and it is important that everybody plays their part to prop up that illusion of BAU forever.

rockman on Wed, 19th Feb 2014 6:02 pm 



NR – I know of no one in the patch that isn’t as fully aware of the predicament as I am. I’m pretty sure most of the Big Oil spin doctors are well aware too. Remember one of the rules in counterintelligence is to under the situation better than your “enemy”. If you don’t know the facts clearly how can you spin properly?

Which is the main reason you don’t see a lot of hands on sites like this. For most it would be like you getting engaged in a lengthy discussion about whether the sun will rise tomorrow…why waste the time? If I weren’t trapped in a chair for 22 hours a day I probably would spend much time here. LOL.

Davy, Hermann, MO on Wed, 19th Feb 2014 7:12 pm 



@N/R – my family is a “5 % ers or so”. Not the really big guys 1% ers but good enough to have a regional punch. I declined the money but I still get to ride their coat tails. I took a buyout and retired to the farm. I was always a black sheep fringe type. Dad said the Jesuits ruined me. Anyway, I am new to this blog but not the site. I followed TOD from its beginnings. I am just not the type to blog much to strangers. Lately I am doing allot here because I feel the “time” is close for a shift of some kind. I want to talk to likeminded people and get any education I can. I was sending a bi-weekly blog to friends and family. What I found is this stuff does not interest them. They only understand some of it. They are too absorbed in the liberal/conservative MSM issues. I have conservative family and liberal and conservative friends. Early on it was even worse there was no interest and I was considered borderline crazy type. I was a bit militant in the beginning thinking I could change things. I think after 10 years I gave up. I try to make small incremental changes with those around me. When in a conversation I will throw in a Yea, But this kind of thing. I don’t hang around the big shots anymore like @Rock. My baby brother does is the big shot now and hangs with the big boys. He is the big CEO of the family business. He has 2 corporate jets and 60 foot fishing boat etc. et all. He listens to me some and has told me when the SHTF he is heading to my farm with his family. My parents agree with some of this stuff but they say good luck with it “we will be gone in a few years”. They have a beach front place in Bahamas. I am really worried about the younger generation or “generation“LOST” people. Hell, they are the future but they have no future. It seems to me they don’t want one either. Generalizing of course. I guess can you blame them society has fined tuned its ability to brainwash with the current generation being their finest creation. I hope as the false profits and fake photo shopped advertisements of the good life fail the test of time they will take a stand!

Northwest Resident on Wed, 19th Feb 2014 8:21 pm 



Davy — “…too absorbed in the liberal/conservative MSM issues.” That was me for a long time. But like I mentioned in another post, I stepped outside of that bubble and took a good look. From my point of view, TPTB are PURPOSELY creating political frictions and divides in this country to keep Americans fighting amongst each other, absorbed in “political issues” instead of the real problems we face. Reason: To keep us distracted, of course, from the real problems we face. If all or most Americans stepped out of that bubble for a while and took a good look, there would be a lot of very shocked people, which TPTB don’t want. Between conservatives and liberals — I know a lot of conservatives and we get along just fine as long as we don’t discuss the hot issues of the day. We all have much more in common than we have differences. But they keep us divided to keep us distracted, and that’s just the way it is. — What is needed to bring out the best in our youth — my 14 year old son included — is to get them off of their computers, video games and IPods (addictions) and put them into a hard struggle for survival. It is only under intense pressures sometimes that the best in humanity rises to the surface. I have a feeling that they’ll all get their chance in the not too distant future.

Northwest Resident on Wed, 19th Feb 2014 8:25 pm 



rockman — Don’t get me wrong, but for my part, I guess that I’m glad that you’re trapped in that chair for 22 hours a day — from a purely selfish point of view. You’re a great teacher, and chock full of valuable information that isn’t easy to come by these days. I think you’ll be rewarded for your efforts someday — perhaps not until you make it to that big oil patch in the sky where every hole drilled produces a gusher — but someday. My personal thanks to you for being here. Oh, and I’m glad you’re a real hard-ass too — I like that in a guy.