February 2012 Industry Digest

SANTA FE, N.M.–New Mexico’s legislators returned to the statehouse for their even-year 30-day session in January, and the focus was state finances, reports the New Mexico Oil & Gas Association.

Director of Communications Wally Drangmeister says state law limited the session, scheduled to end Feb. 16, to budget, appropriations and revenue bills, bills drawn pursuant to special messages of the governor, and bills of the last previous regular session vetoed by the governor. “The number of bills introduced was relatively low with only a few that could have a direct impact on the state’s oil and gas industry,” he reported in late January.

Drangmeister says the association was opposing two bills dealing with extraction taxes.

A portion of one of them, HB 142, introduced by Representative Brian Egolf Jr., D-Santa Fe, would cap the amount the state’s Taxation and Revenue Department could deduct for the oil and gas severance tax, school tax and ad valorem production tax when determining the taxable value of products to 25 percent of the value of transporting or processing products severed from the production unit, the state’s legislative website says.

HB 142 also would increase the emergency school tax rate on oil, carbon dioxide, helium and nonhydrocarbon gases from 3.15 percent to 4.0 percent, Drangmeister points out, and would eliminate lower tax rates when commodity prices dropped below a set threshold.

HB 174, sponsored by Representative Eleanor Chavez, D-Bernalillo, would cut by 10 percent, deductions of certain oil, natural gas and mineral taxes, the legislative website reports. It also would increase the percentage used on oil and other liquid hydrocarbons removed from natural gas from 3.15 percent to 3.46 percent, and would reduce allowable federal, state or Indian royalty deductions from 100 percent to 90 percent.

Also on the legislative agenda were bills that sought to change reporting requirements for Internal Revenue Service Form 1099, covering income other than wages, salaries and tips, for New Mexico entities, NMOGA notes.

Drangmeister says NMOGA encouraged passage of two bills introduced by Senator Timothy Jennings, D-Roswell, which were intended to streamline 1099 reporting requirements that had become problematic. SB 169 would end the requirement to withhold taxes from oil and gas proceeds paid to entities with New Mexico addresses, while SB 169 would exempt insurance companies from withholding provisions in the Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act, he says.

Several other business-friendly bills were under consideration, Drangmeister reports. They included measures dealing with corporate income taxes and general business-related bills.

HAMBURG, N.Y.–On top of anti-industry actions coming from state legislators and regulators, even upstate New York’s mild winter weather is hurting the state’s oil and gas activities.

A proposal to give local municipalities increased authority to zone certain oil and gas activities is under consideration again in the New York State Assembly, while the 40,000 comments submitted to the Department of Environmental Conservation on its Marcellus Shale supplemental generic environmental impact statement is causing delays in resuming state permitting.

“Throw $2.30 gas into the mix, and it does not look very good for development in New York,” asserts Brad Gill, executive director of the Independent Oil & Gas Association of New York. “And it has been the warmest winter in recent memory.”

State Senator James Seward, R-Oneonta, is reintroducing the home rule legislation he sponsored last year. According to the New York Senate website, S 5830, introduced in June 2011, sought to authorize local governments to enact and enforce laws governing oil and gas operations, including giving them authority over setbacks, transportation routes and zoning.

Gill reports the Assembly is likely to approve the measure, while its fate is less certain in the Senate.

When he discussed the home rule bill with Seward, Gill reports the senator made it clear he thought he was acting in the best interests of his constituents. “He said he heard a lot more from the ‘anti’ crowd than he did from the oil and gas side,” Gill says. “The industry is able to get its message out, and that message is truthful about safe industry practices. But legislators listen to their constituents, many of whom are misguided.”

Gill warns he has heard reports that state legislators also are considering extending the state’s drilling moratorium until 2013. “It seems like anti-industry legislation keeps surfacing. We are hoping the Senate will kill this, but I am increasingly convinced that Senate action should not be something we can hang our hat on,” he says.

IOGA continues to work with national and regional groups such as the American Petroleum Institute, America’s Natural Gas Alliance and the Marcellus Shale Coalition on various public education projects, Gill reports.

On the regulatory front, IOGA NY is monitoring several issues, Gill says. The U.S. Environmental Protection Agency is pushing the New York DEC to set limits on radioactive materials allegedly found in waste water from hydraulically fractured wells, he says. According to news reports, the DEC’s review found produced water sent to public treatment plants did not contain significant amounts of naturally occurring radioactive materials, but EPA claims data from Pennsylvania wells show elevated NORM levels.

DEC had scheduled an advisory panel meeting to talk about the SGEIS in late January, but Gill says it was cancelled at the last minute, with the department saying it was devoting all its time and staff to processing the more than 40,000 responses received during the public comment period.

While some in the anti-development community could hail this postponement as a victory, Gill says DEC Commissioner Joe Martens emphasized the department was trying to minimize distractions so it could move the permitting process ahead in a timely manner. There are almost 50 permit applications from IOGA NY member companies waiting to be processed, he adds.

WEXFORD, PA.–Pennsylvania lawmakers gave overwhelming approval in late 2011 to a pair of safety-related bills aimed at shale gas activity, the Pennsylvania Independent Oil & Gas Association reports. One authorizes the state to apply federal pipeline safety standards to nonutility gathering lines, and the other requires operators of unconventional wells to provide emergency responders with global positioning satellite coordinates of well sites and access roads.

PIOGA says the pipeline bill was signed into law on Dec. 22 and the Public Utility Commission was moving quickly to implement it. PIOGA says it expects the well-location measure to receive the governor’s approval as well. The association supported both bills in their final forms.

Under Act 127 of 2011, the PUC will supervise and regulate the safety of intrastate pipelines that are not regulated as public utilities or by the Federal government. PIOGA explains that the law came about because of concerns about shale-gas gathering and midstream lines that were larger in diameter and carried higher pressures than typical gathering lines, and in response to highly publicized pipeline incidents in Pennsylvania and elsewhere.

Operators of gathering lines carrying Marcellus and other shale gas in Pennsylvania’s most rural areas may be required only to register their lines with the PUC and to pay a fee to be part of the registry. PIOGA reports the association is assisting members in identifying whether the law applies to them. The organization also is developing comments in response to proposed rules.

The emergency location legislation, SB 995, specifies operators of unconventional wells must provide the coordinates of their well pads and access road entrances to the Pennsylvania Emergency Management Agency, the Department of Environmental Protection, and to county emergency response agencies, PIOGA says.

The association says the legislation requires the entrance to a well site be marked with a sign showing the address of the site, the coordinates, and an emergency contact number for the operator. Operators also will be required to file an emergency response plan covering each well.

The initial version of the legislation covered all oil and gas wells, but once amended, the measure passed the Senate unanimously and with only one opposing vote in the House, according to PIOGA.

WASHINGTON–U.S. Congressman Dennis Kucinich, D-Oh., is proposing a windfall tax on crude oil and natural gas sales that exceed “a reasonable profit.”

Claiming that “oil companies are making record profits gouging their customers,” Kucinich introduced HR 3784, the Gas Price Spike Act of 2012, on Jan. 18. According to the federal government’s legislative website, HR 3784 would impose an excise tax on the sale of “any fuel which is a product of crude oil or natural gas” of:

• 50 percent if the profit on the sale is between 100 and 102 percent of the “reasonable profit;”
• 75 percent on sales between 102 and 105 percent of the reasonable profit; and
• 100 percent on sales greater than 105 percent of the reasonable profit.

The bill would establish a Reasonable Profits Board composed of three presidential appointees to determine what constitutes a reasonable profit.

The California Independent Petroleum Association points out that HR 3784 provides no guidance for how the board would determine what constituted a reasonable profit. The association also notes that, unlike other bills establishing advisory boards, the Reasonable Profits Board would not include any nominees by Congress, and the legislation would exclude industry representatives or anyone who has a financial interest in a business for which reasonable profits are determined by the board.

Proceeds from the tax, according to the legislative website, would be used to provide tax credits ranging from $3,000 to $6,000 for individuals who purchased ultraefficient passenger vehicles, and to make grants to the operators of mass transit system to reduce fares.

Cosponsoring HR 3784 are Democrats John Conyers Jr. of Michigan, Bob Filner of California, Marcia Fudge of Ohio, Jim Langevin of Rhode Island, and Lynn Woolsey of California.

BISMARK, N.D.–The language of the Migratory Bird Treaty Act prohibiting the “taking” of migratory birds does not bar the incidental or unintended effect of causing bird deaths, a U.S. District judge has reaffirmed in a North Dakota case.

Citing several earlier decisions, Judge Daniel Hovland, ruling in a case before the U.S. District Court for the District of North Dakota, Northwest Division, dismissed misdemeanor violations against three oil and gas companies.

According to court documents, the U.S. Fish & Wildlife Service had charged seven companies operating in North Dakota’s Williston Basin with violating the treaty after its agents found two or three migratory birds dead on or near company-operated facilities. Three companies entered plea agreements while the government dismissed the case against one defendant.

Charged with Class B misdemeanors were Continental Resources Inc. (for one bird), Brigham Oil & Gas LP (two birds) and Newfield Production Co. (four birds), court documents report.

Hovland ruled that the government’s case was based on too expansive an interpretation of the Migratory Bird Treaty Act. He says USFWS seeks to have the words “take” and “kill” encompass not only physical activity directed against the birds, but also habitat modification and other impacts arising from lawful commercial activities. Other courts have determined such a broad interpretation would stretch the 1918 act far beyond the bounds of reason, Hovland holds.

If the federal government was allowed to use such an expansive interpretation, there would be unlimited potential for criminal charges involving bird deaths, including prosecuting those driving cars; flying airplanes; or owning farms, wind turbines or office buildings, the opinion asserts.

The reserve pits operated by the three defendants where the birds were found have little effect on bird habitat, except to attract occasional birds who mistake the pits for ponds or lakes, the decision states. As such, using them in oil development stands outside the reach of the Migratory Bird Treaty Act, Hovland says.

If Congress wants to criminalize commercial activities that incidentally injure migratory birds, it has the right to do so, but Hovland says it must do so in clear and certain language. He asserts current law is “vague and ambiguous as it relates to criminal sanctions for lawful, commercial activity that may indirectly injure or kill migratory birds.”

DENVER–The Colorado attorney general’s office, speaking on behalf of the Colorado Oil & Gas Conservation Commission, reports informing El Paso County, Co., that some of its proposed drilling regulations have to give way to state rules.

According to news reports, the county sought to impose regulations when Ultra Petroleum unveiled plans to drill in the city of Colorado Springs and on other sites across eastern El Paso County.

The COGCC doesn’t object to some of the proposed regulations, such as those dealing with transportation, transportation impact studies, maintenance, site access, fire protection and emergency management, the AG’s office states. However, it says many of the proposals conflict with rules issued by the COGCC, which the office asserts bears primary responsibility for responsible development of oil and gas resources.

What are unacceptable, the office says, are county regulations that:

Require a minimum setback of 500 feet for minor facilities, such as single well pads for exploratory drilling, and 500-foot or more setbacks, determined on a case-by-case basis, for major facilities such as a single well pad for production;

• Categorically ban excavated storage pits, which are allowed in appropriate circumstance under state law;
• Impose numerous technical requirements on groundwater resources that already are addressed by COGCC;
• Require applicants to consult with the Colorado Division of Parks and Wildlife to avoid or minimize impacts on wildlife and habitat; and
• Impose visual impact, noise emission and lighting standards.

Instead, the attorney general’s office suggests El Paso County consider using COGCC’s local governmental designee program, through which the state commission imposes permit-specific conditions of approval. County officials also could consider a memorandum of understanding, such as the one signed by Gunnison County and the COGCC, under which the commission will assign its facilities inspection function to the county, or work with the county to develop local rules through area-specific orders or geographic area plans, the AG office says.

BOISE, ID–Published reports indicate the Idaho House Resources and Conservation Committee has approved rules governing the oil and gas industry in the state.

According to media accounts, the rules take effect unless the full House and Senate vote to oppose them. They set a 15-day public comment period before the state can issue drilling or completion permits. They also ban pits in areas set aside to protect drinking water and require pit liners elsewhere, and establish financial assurance requirements of $10,000 a well, plus an additional dollar for every foot of well depth. Blanket bonds for as many as 30 wells would be available for $150,000.

The committee also sent to the floor bills setting fees for drilling and treatments, and to allocate more of the state’s 2.5 percent severance tax to the Oil & Gas Commission, press accounts say.

JACKSON, MS.–The deadline has expired for public comments concerning regulations the Mississippi Development Authority has drafted to govern offshore seismic surveying and mineral leasing in designated state waters. According to published reports, the MDA has said it is possible the state will hold a lease sale before the end of 2012, after which drilling could begin as soon as 2013.

“Offshore natural gas exploration and production will help us meet our nation’s energy needs while generating jobs and hundreds of millions of dollars in revenue for education and conservation in Mississippi,” says former Governor Haley Barbour. “We continue to operate in a tight budget climate, and the revenues that leasing and subsequent exploration and production would generate will help create a more prosperous future for Mississippi.”

The state mentions that some estimates suggest sizeable natural gas resources off Mississippi’s shores, and it also acknowledges that some oil resources might exist, noting that seismic activities will provide a better sense of the state’s offshore resources.

The state notes that offshore mineral leasing, exploration and production can take place only in certain areas approved by the Mississippi Legislature. In 2004, lawmakers restricted the leasable blocks to areas predominantly south of the barrier islands so production platforms would not be seen from the vast majority of coastal communities and would not obstruct scenic views from the mainland. Before 2004, the entire Mississippi Sound and all Mississippi state waters were open for offshore mineral leasing and exploration, the state notes, adding that the new rules place the vast majority of the Mississippi Sound off limits.

“Now is the time to look toward our future and join our neighboring states in leasing our offshore mineral rights to allow for the responsible production of our natural gas resources,” holds MDA Executive Director Leland Speed. “With these rules in place, Mississippi can begin to issue permits for offshore seismic surveying and to lease mineral rights in the approved areas, important first steps as we work to develop these natural resources and continue to pursue Mississippi’s economic development.”

The state recounts that after the 2004 legislation that limited the leasable areas took effect, the State Mineral Leasing Office was moved from the Mississippi Department of Environmental Quality to MDA, and MDA was tasked with publishing rules and regulations related to permitting seismic surveying and mineral leasing in the approved areas.

The draft rules and regulations can be viewed at www.msenergyfuture.com.

SANTA FE, N.M.–The New Mexico Oil & Gas Association reports it has reached a partial agreement with the Navajo Nation over the Indian tribe’s proposal to enact its own Superfund statute.

The settlement, signed by NMOGA, the Colorado Oil & Gas Association and the Arizona Chamber of Commerce and Industry, lists the Navajo Nation’s agreements to limit the scope and application of the Navajo Nation Comprehensive Environmental Response, Compensation and Liability Act (NNCERCLA) regarding cleanup of hazardous waste sites on tribal lands.

The Navajo Nation enacted the act in March 2008, and NMOGA filed legal proceedings to preserve its right to challenge it in May 2010 (AOGR, February 2011, pg. 20). When efforts to persuade the Navajo Nation Council to repeal the act failed, the parties sought a compromise. The association reports the partial settlement agreement is the culmination of nine meetings between the Navajo Nation and the industry negotiating team.

One of the agreement’s provisions is that oil and gas companies must elect to opt-in to its provisions. NMOGA points out every member of its Legal Affairs Committee, including ConocoPhillps, Enterprise Products, BP and El Paso Natural Gas Co., have indicated they intend to ratify the agreement.

The agreement also states any tariff developed by the Navajo Nation during its terms will not apply to stored petroleum. Under a “gap filling policy” agreed to by all parties, the tribe will not apply NNCERCLA to spills or other cleanup responses at active oil or gas facilities addressed in compliance with federal laws.

Under the settlement agreement, the Navajo Nation Environmental Protection Agency (NNEPA) will:

• Delay for nine to 11 years calculating tariffs on oil and gas moved across tribal lands;
• Provide a prenotice draft on any proposed tariff regulation to the industry parties, and meet with them to discuss concerns before starting the rule-making process;
• Limit release reporting by excluding releases of natural gas and by using a variation of New Mexico’s release reporting forms;
• Use arbitration to resolve any disputes arising under the agreement if direct negotiations fail; and
• Agree to a five-year term for the settlement agreement from the effective date of the tariff, which it says is likely to be promulgated in the next three years.

NMOGA points out that while NNEPA will require all parties storing or transporting hazardous substances, including petroleum, to register with the agency, such registration will not constitute consent to Navajo Nation jurisdiction.

WEXFORD, PA.–The nexus at which the digital dimension intersects with the oil and gas industry is the subject of a new event, as the Pennsylvania Independent Oil & Gas Association, Ohio Oil & Gas Association, Independent Oil & Gas Association of New York and the Independent Oil and Gas Association of West Virginia have joined with The Energy Forum to present Digital Oil Patch-2012, April 16-18 at the Doubletree Hotel and Monroeville, Pa., Convention Center.

“PIOGA has long wanted to host a digital expo and conference,” says President and Executive Director Lou D’Amico. “However, with time and workload demands, it just wasn’t feasible.”

Recognizing The Energy Forum founder Neil Staley’s experience in organizing industry seminars and expositions throughout North America, D’Amico said he pitched Staley the concept as an event that would have broad regional attraction, and he suggested including OOGA, IOGA NY and IOGAWV as cohosts.

“Neil was willing not only to do the legwork for the event, but also was eager to support the efforts of the four associations in providing a valuable member service,” D’Amico says.

He adds that the associations will split the majority of the profit to help with their outreach programs.

PIOGA notes that the Monroeville Convention Center will house the trade show and exposition, while the conference will take place at the adjoining Doubletree Hotel. Those are the same Pittsburgh-area venues PIOGA uses for its annual Eastern Oil & Gas Conference and Trade Show, held in late August.

D’Amico emphasizes that Digital Oil Patch is not targeted at IT departments. “Instead, it is designed for engineers, geologists, managers and others who must decide on a daily basis what equipment and practices are best for a particular job, or which services or processes would be best utilized to favorably impact the bottom line, safety and efficiency of a project,” he says.

The event will provide ample opportunity to network as well as learn, D’Amico adds. He says the associations are expecting more than 1,000 attendees for the event. Additionally, the convention center can accommodate hundreds of exhibitors.

“We are confident this is going to be a great annual event,” D’Amico predicts.

For information, contact The Energy Forum at 281-656-2008 or visit www.DigitalOilPatch.com.