April 2017 Industry Digest

White House Requests Appeals Court Delay Acting On Fracture Rule

WASHINGTON–The Trump administration has asked a federal court to suspend any actions regarding a lawsuit opposing hydraulic fracturing regulations on federal and Indian lands issued under the Obama White House until it decides how to proceed. The legal action follows a request by the Bureau of Land Management to vacate the case because the agency says it plans to rescind the rule, court documents state.

BLM issued the fracture rule on March 20, 2015. It required well operators to disclose what chemicals were used in fracturing operations, and also set new well casing and wastewater storage requirements. Five days later, the Western Energy Alliance and Independent Petroleum Association of America joined Wyoming and Colorado in filing a lawsuit in federal court for the District of Wyoming. The parties were joined by North Dakota, Utah and the Ute Indian tribe.

District Judge Scott Skavdahl struck down the rule June 21. He found the Safe Drinking Water Act removed BLM authority to regulate hydraulic fracturing on public lands. The judge also suggested SDWA eliminated all federal authority over fracturing (AOGR, July 2016, pg. 38.)

According to court documents, in its appeal, BLM argued the district court misconstrued the rule-making authority in the Mineral Leasing Act and Federal Land Policy and Management Act, and also ignored a century of precedent and federal regulations. The appeal stated modern hydraulic fracturing operations simply were new versions of historically regulated well-stimulation techniques.

The case is State of Wyoming et al v. Jewell et al, case number 16-8068, in the U.S. Court of Appeals for the 10th Circuit.

In its March 15 filing, the government states the 2015 rule does not reflect the policies and priorities of the new administration, and that a notice in the Federal Register will be published within 90 days stating the White House’s intent to modify the rule.

“From the beginning, IPAA and the Alliance have maintained that the federal government’s attempt to regulate hydraulic fracturing is unnecessary, duplicative and would further drive independent producers from federal lands. IPAA recognizes that hydraulic fracturing is essential to the operations and livelihoods of our member companies. That is why this issue continues to be one of IPAA’s top priorities, and we will keep fighting the opposition every step of the way,” vows Barry Russell, IPAA president and chief executive officer.

Federal Court Rejects Tribes’ Bid To Stop Dakota Access Pipeline

WASHINGTON–A federal judge has turned away the latest attempt by two Indian tribes to block the Dakota Access Pipeline, rejecting a request for a preliminary injunction to stop construction.

The decision in Standing Rock Sioux Tribe and Cheyenne River Sioux Tribe v. U.S. Army Corps of Engineers and Dakota Access LLC opens the way for Dakota Access, a subsidiary of Energy Transfer Partners, to complete its nearly 1,200-mile long pipeline.

The legal action follows President Trump’s call for an expedited approval process and the Corps of Engineers’ issuing a permit on Feb. 8 that allows Dakota Access to drill under Lake Oahe. The lake is a federally regulated waterway between North and South Dakota, and the pipeline crossing is a half-mile north of the Standing Rock Reservation and 73 miles north of the Cheyenne River Reservation.

The two tribes requested the injunction in the U.S. District Court for the District of Columbia, claiming an active oil pipeline underneath the lake would cause irreparable harm to its members’ religious ceremonies, and violates the Religious Freedom Restoration Act (RFRA) of 1993, court documents state.

U.S. District Judge James Boasberg denied the motion, saying the requested relief is inappropriate because it is unlikely the tribes will succeed on the merits of the motion, and because of the legal doctrine of laches, where a party “sleeps on its rights” and fails to promptly move forward with enforcement of a legal right, the judge’s decision states.

Dakota Access requested a permanent easement at Lake Oahe in October 2014, and secured Corps approval for the pipeline placement in June 2015. Both tribes filed earlier lawsuits against the agency under several federal statutes, but Boasberg deems it significant that neither plaintiff asserted its rights under the RFRA.

After the Trump White House issued a presidential memorandum on Jan. 24 ordering government agencies to review and approve permits required to build the pipeline, the Cheyenne River Sioux sought a preliminary injunction under the RFRA, saying the mere existence of a crude oil pipeline under the lake will desecrate its waters and render them unsuitable for use in religious sacraments, court documents say. The court points out the tribes learned of the pipeline’s proposed route in October 2014, but waited until February 2017 to express their religious concerns.

Boasberg writes he agrees with the defendants that the tribes have failed to demonstrate a likelihood of success because their RFRA claim is barred by laches, and they have failed to show a substantial burden on their members’ religious exercise.

USFWS Opts To List Rusty Patch BeeDespite Groups’ Plea

WASHINGTON–Despite a plea for more time from six national associations–including two from the oil and gas industry–the Department of the Interior has listed the rusty patched bumble bee under the Endangered Species Act. According to the U.S. Fish & Wildlife Service website, the bee’s endangered classification took effect March 21.

The American Petroleum Institute and Independent Petroleum Association of America, along with CropLife America, National Association of Home Builders, National Cotton Council and Natural Rural Electric Cooperative Association, petitioned USFWS to extend the effective date of the final rule listing the bee as endangered until Jan. 11, 2018.

The Obama White House issued a final rule listing the bumble bee as endangered Jan. 11. The industry petition points out this was only seven weeks after the close of the public comment period that received nearly 93,000 responses. By rushing the listing decision, the industry groups assert, USFWS brushed aside hundreds of substantive comments and extensive information that undercut the agency’s overly simplistic analysis of complex biological issues.

According to the groups, the implications of a hasty listing decision are difficult to overstate. USFWS says the bee’s range spans 13 states, and its historical range covers an additional 15 states. The petition warns that the listing will affect virtually every industry operating within the species’ range.

“This is because, as USFWS has candidly acknowledged in discussions with petitioners, there is insufficient understanding of the rusty patch bumble bee’s biology to allow parties to reliably locate the bee’s underground nesting and hibernation sites, making it impossible to identify or evaluate the potential impacts of any given activity on the species,” it says.

Because USFWS made the decision to rush the deadline, agency biologists could not develop species survey procedures and the agency lacked time to coordinate regulatory strategies among its offices, the industry groups say. As a result, businesses and individuals cannot conduct activities within the bee’s extensive range without blindly risking a possible ESA violation, they assert.

Governors Association Urges Reforms for ESA To Bolster States’ Power

WASHINGTON–The National Governors Association says the Endangered Species Act requires reforms, arguing successful environmental protection and remediation efforts depend on state and local programs. According to an NGA formal policy position, the nation’s governors support ESA when it is applied prudently, and urge Congress to improve and renew the act.

According to NGA, state governments should play a significant role in recovering listed species. The group urges Congress to continue providing incentives and funding for ESA-related conservation and planning at state and local levels. States should be allowed a larger role in developing and implementing Section 4(d) rules and other mechanisms that promote species conservation, NGA says.

“When endorsed by appropriate federal authority, multistate conservation plans that address listing factors and species viability–with sufficient resources and regulatory mechanisms–should be encouraged to preclude the need for listings,” the governors suggest.

The NGA document also suggests ESA revisions should include:

  • Improved federal regulatory flexibility for prioritizing, reviewing and making decisions;
  • Requirements to strengthen ESA decisions’ scientific bases;
  • Clear recovery goals, and delisting or “downlisting” methodology for listed species, so recovered species can be removed from ESA protection when goals are met; and
  • Judicial review of rules delisting or downlisting species, to allow reasonable time for post-delisting or downlisting monitoring consistent with federal agency direction.

The governors also suggest defining, replacing or eliminating terms such as “foreseeable future” in the ESA.

“For example, climate change is increasingly being used as a determinant factor in the assessment of the need to list a species under the act,” NGA writes. “The ESA may not be equipped to address this potential global threat to species and habitat. The meaning of ‘foreseeable future’ with the use of climate modeling is still undefined for effective management decisions related to implementation of ESA.”

Oil And Gas Contribute $34 Billion In N. Dakota

BISMARCK, N.D.–The oil and gas industry contributed $34.25 billion to North Dakota’s economy in 2015, despite struggling commodity prices, the North Dakota Petroleum Council reports.

NDPC says that is according to the preliminary findings of a study conducted by the North Dakota State University’s Department of Agribusiness and Applied Economics. It is the second highest contribution since 2005, when the first study was released, and was higher even than in 2011 when oil averaged above $87 a barrel, NDPC notes.

“This study confirms that the petroleum industry remains one of the largest basic-sector industries in North Dakota in both good years and bad,” comments co-author Dean Bangsund, a research scientist at NDSU. “Although the retraction in the markets caused undue hardships on the industry throughout 2015 and into 2016, the benefits to individuals, state and local governments, retailers, and all other economic sectors continued to be strong, which has reinforced the industry as a mainstay in North Dakota’s economy. This is especially true as oil production, versus oil field development, is increasing in relative economic importance.”

Because the industry relies on hundreds of contractors and subcontractors, NDPC points out, its economic contributions extend beyond the mining and extraction industries. According to the study, retail trade once again saw the largest impact, taking in $8.85 billion of the $34.25 billion total.

Households, or personal income, saw the second largest impact at $7.54 billion, and state and local governments rounded out the top three at $4.10 billion in royalties, taxes and other revenues from oil and gas, NDPC says.

“The industry has proven itself to be resilient in the face of downturns in the market,” remarks NDPC President Ron Ness. “Through continued innovation and development, the industry is able to do more with less, and has proven it can weather these downturns and come out even stronger.”

Among the study’s key findings, NDPC reports:

  • Direct impacts of the oil and gas industry in North Dakota in 2015 were $14.38 billion, and secondary impacts were $19.87 billion.
  • The oil and gas industry’s economic importance to the state includes direct employment of more than 48,300 full-time jobs and secondary employment of more than 23,980 full-time-equivalent jobs. The direct and indirect jobs supported by oil and gas accounted for 20 percent of all private employment in the state.
  • The industry paid nearly 30 percent of the state’s private salaries and wages, and accounted for a quarter of all private and public salaries and wages.

NDPC says it has commissioned the study each biennium since 2005. The 2015 study was conducted by Bangsund and Nancy Hodur, director for NDSU’s Center for Social Research. NDPC says the two surveyed companies engaged in exploration and development, extraction and production, transportation, and processing of crude oil and natural gas.

Louisiana Agency Asks 5th Circuit To Review Coastal Damage Suit

NEW ORLEANS–The Southeast Louisiana Flood Protection Authority–East is asking the full 5th District Court of Appeals to review its lawsuit alleging 97 oil and gas companies damaged coastal wetlands. The filing comes two weeks after a three-judge panel ruled against the agency, the Louisiana Oil & Gas Association says.

The agency filed in state court in July 2013 alleging oil and gas company activities had damaged coastal wetlands wetlands in St. Bernard and Plaquemines parishes. U.S. District Judge Nanette Jolivette Brown dismissed the case, Board of Commissioners of SLFPA-E v. Tennessee Gas Pipeline Company LLC et al, in 2015, ruling no federal or state law supported SLFPA-E’s legal arguments holding the companies responsible (AOGR, March 2015, pg. 16).

In a judgment issued March 3, the three judges upheld Brown’s dismissal. Media reports indicate lawyers for SLFPA-E have asked the full 5th Circuit to hear the case, arguing Louisiana has a right to seek compensation for levee damage under the federal Rivers and Harbors Act of 1899.

The lawyers also contend the case should be heard by state judges, a point Brown rejected. Appeals court documents state the three-judge panel concluded three of SLFPA-E’s claims raise federal issues: negligence and nuisance claims, which involve three federal statutes, and a third-party breach of contract claim, which purportedly is based on permits issued under federal laws.

The panel agreed with Brown on the oil and gas companies’ motion requesting the agency’s lawsuit be dismissed under the Federal Rule of Civil Procedure on the ground SLFPA-E’s complaint failed to offer viable causes of action against the defendants.

“This ruling is a step in the right direction, but we have many more miles to cover,” says Don Briggs, president of LOGA. “Divisive and unnecessary lawsuits, like the SLFPA-E’s and a multitude of other coastal lawsuits, are creating an unstable legal environment for the state and driving new oil and gas investments, jobs and tax revenues into neighboring states. I applaud the court of appeal’s decision, and we will fight to see that similar coastal lawsuits follow the same course of action.”

Oklahoma Revises Limit On Wastewater Disposal Into Arbuckle Formation

OKLAHOMA CITY–The Oklahoma Corporation Commission has adjusted its injection limits for wastewater disposal wells, saying it is changing its focus to limit future volumes.

OCC’s Oil and Gas Conservation Division (OGCD) issued a directive to well operators covering injection wells into the Arbuckle Formation within the state’s earthquake areas of interest (AOI)–those 21 counties designated by the OCC as needing additional regulatory oversight to minimize seismic events.

OGCD says the action is aimed at limiting future increases of disposed volumes into the Arbuckle within the AOI, while allowing operators with multiple Arbuckle disposal wells within the AOI more water management flexibility.

“The continued drop in earthquakes, as well as new data and input from the Oklahoma Geological Survey, have caused a change in our orientation from focusing on current disposal volumes within the AOI to looking ahead to try to ensure there isn’t a sudden, surprise jump in these disposal volumes,” says OGCD Director Tim Baker. “This directive includes not only those Arbuckle disposal wells within the AOI already restricted in volume, but also the few potentially high-volume disposal wells that previously were not under a volume reduction directive because there has been no seismicity in their area.”

Baker says the directive, which covers 654 Arbuckle disposal wells in the AOI, will not reduce current volumes but keep future volume increases in check. Several of those wells in the AOI could add more than 2 million barrels a day into the formation without the directive, he warns, adding those wells operate at a fraction of their permitted volumes. A new cap will be based on the last 30-day average of their disposal volumes.

“Other wells already are operating under a reduction directive with volumes that are lower than even those allowed,” Baker says. “We don’t want to see them jump drastically in one day, even if they are within their directive limits. So, they will have a cap to limit how much they can increase volume at once.”

Baker adds the directive allows operators more flexibility in handling their wastewater, with operators given a 30-day allowance for disposal volumes. Operators will be allowed, on a limited basis, to increase volumes in certain wells, and, if necessary, offset that with lower volumes in other disposal wells. He says an operator is not allowed to exceed the total disposal limit for all his wells.

The directive is available at www.occeweb.com under “Hot Topics.”

State Department Backs Enbridge Border Permit

WASHINGTON–Increasing the transportation capacity of an oil pipeline crossing the U.S.-Canadian border will not have significant negative environmental impacts, the U.S. State Department assesses. The ruling on the draft environmental impact statement is part of Enbridge Energy Partners’ plans for its Line 67 pipeline, formerly called the Alberta Clipper project.

Enbridge is seeking a presidential permit to authorize a capacity increase in the pipeline’s border segment from 500,000 barrels a day for heavy crude oil and other liquid hydrocarbons to 890,000 bbl/d, the State Department says. To support that expansion, Enbridge has installed or upgraded facilities at seven pump stations and added storage tanks at its terminal in Superior, Wi., the department notes.

According to the draft EIS, Enbridge interconnected Line 67 with Line 3, another company-owned pipeline lying in the same right-of-way, outside of the border segment on both sides of the border. Those interconnects allow Enbridge to use the increased pumping capacity throughout most of Line 67, while not increasing oil flow through the border segment, which is covered by the current Line 67 presidential permit.

The pipeline runs from Canada, enters the United States in North Dakota, and runs across Minnesota before ending in Superior.

The State Department issued a presidential permit allowing Enbridge to construct and operate Line 67 in August 2009, the draft SEIS says. The company applied to expand the capacity of the border segment in November 2012, and amended that application in June 2014 to reflect the since-completed interconnections.

The public comment period for the draft EIS ended March 27. The State Department held its only public meeting on the permit application in Bemidji, Mn., in early March. It points out the SEIS does not approve or deny the permit application, but rather assesses potential environmental impacts that could result if the permit was approved.

Gas Storage Levels Decrease By 314 Bcf

WASHINGTON–Underground natural gas storage in the United States stood at 2.049 trillion cubic feet on March 24, 13.9 percent above the five year average, according to the U.S. Energy Information Administration. That was down 314 billion cubic feet from the 2.363 Tcf in storage on Feb. 24, which was 14.3 percent above the five-year average. The March 24 storage number was 423 Bcf less than a year ago, when gas storage stood at 2.472 Tcf.

According to EIA, gas storage in the East Region was 278 Bcf on March 24, 18.7 percent below the five-year average and 144 Bcf less than on Feb. 24, when storage stood at 422 Bcf, which was 2.8 percent below the five-year average. East Region gas storage on March 24 was 163 Bcf less than it was a year ago.

Gas storage in the Midwest Region stood at 486 Bcf on March 24, 27.2 percent above the five-year average, but 122 Bcf less than the 608 Bcf in storage on Feb. 24, which was 25.4 percent above the five year average. March 24 gas storage in the Midwest Region was 71 Bcf less than a year ago.

In the Mountain Region, EIA says, gas storage was 141 Bcf on March 24, 16.5 percent above the five-year average and 5 Bcf less than the 146 Bcf stored on Feb. 24, which was 10.6 percent above the five year average. Gas storage in the Mountain Region was 6 Bcf less than a year ago.

Gas storage in the Pacific Region was 212 Bcf on March 24, 6.6 percent below the five-year average and 7 Bcf more than the 205 Bcf stored on Feb. 24, which was 12.8 percent below the five-year average. Pacific Region gas storage on March 24 was down 50 Bcf from a year ago.

In the South-Central Region, gas storage levels on March 24 were 932 Bcf, 28.2 percent above the five-year average and down 50 Bcf from the 982 Bcf in storage on Feb. 24, which was 25.6 percent above the five-year average. The March 24 gas storage level for the South-Central Region was down 133 Bcf from a year ago.

February Oil Production Goes Over 9.0 MMbbl/d

WASHINGTON–At slightly more than 9.0 million barrels a day, U.S. crude oil production in February 2017 was up 0.7 percent from January, but was down 1.3 percent from February 2016, according to the American Petroleum Institute’s Monthly Statistical Report.

February’s crude oil production was the highest for any month since March 2016, API says, adding that year to date, 2017 production was down 1.9 percent from 2016.

At 3.4 MMbbl/d, API continues, natural gas liquids production in February was down 2.7 percent from January, but was up 2.9 percent from February 2016, and was 4.8 percent higher year to date than for the same period last year. API notes February’s NGL production was the highest February output on record.

The association points out that Baker-Hughes Inc. reported the average U.S. rig count for February was 744, up 56 from the 688 counted in January, and up 212 from the 532 counted in February 2016.

Crude oil stocks ended February at 526.3 million barrels–the highest February inventory level since 1930, API says. Crude stocks were up 5.4 percent from January, and were up 7.8 percent from February 2016.

API reports total petroleum deliveries in February moved up 0.1 percent from February 2016 to average 19.7 MMbbl/d, which the association says were the highest February deliveries since 2008. Compared with January, domestic petroleum demand increased 2.2 percent, and was up 0.7 year to date.