Legislation creating task force on drilling regulations advances

A bill creating a task force to evaluate the impacts of new drilling on existing wells, a topic that has horizontal and vertical drillers at odds, is moving to the Oklahoma Senate Appropriations Committee after winning unanimous approval from the Senate Energy Committee on Thursday.

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Cantrell: Good policy benefits all

Number four of the Rotary Club’s Four-Way Test – whether something is beneficial to all concerned – comes to mind when observing the ongoing dispute between a segment of the state’s oil and gas industry and the state’s county commissioners and municipal governments.

The Oklahoma Energy Producers Alliance, made up of small oil and gas producers across Oklahoma, respectfully disagrees with the state’s big oil and gas producers over House Bill 2150, which would strip virtually all authority of local and city governments over the oil and gas industry.

In our view, that is a serious overreach. The most egregious hypocrisy of this bill is that it hides the true intent behind the “rights of mineral owners.”

If enacted, this bill will create a backlash over time, harming our relationship with our fellow citizens.

The state’s oil and gas industry has enjoyed unusual support from the state’s elected officials. That support should be honored as a covenant with Oklahoma to always measure our political initiatives with the best interest of the citizens of Oklahoma in mind. If that unwritten covenant is not honored, our industry will inevitably suffer in the long run.

The horizontal frackers and their trade association maintain they should be allowed to use the county rights of way to lay “temporary lines” to transport water from location to location regardless of the authority of the state’s county commissioners. A recent state Supreme Court decision reaffirms that the “Oklahoma Corporation Commission has exclusive jurisdiction over oil and gas operations” – an assertion with which we largely agree.

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Proposed change in conservation rules cause concern among vertical well operators

Some vertical well operators are concerned about a proposed revision of oil and gas conservation rules determining the responsibility for environmental cleanup in cases involving horizontal drilling.

Leaders of the Oklahoma Energy Producers Alliance, which represents vertical producers, believe the revisions would unfairly favor horizontal drillers.

At the core of the issue is determining what party is responsible for environmental cleanup in cases when a horizontal well causes fracking fluid and sand to come up through an existing vertical wellbore.

“We need to come to a place where we have a good, reasonable solution so everyone’s interests can be met in a proper fashion,” said Dewey Bartlett, OEPA board chairman.

Devon Energy has proposed language to the corporation commission that would formally place the responsibility on wellbore operators, upon receipt of timely notice of hydraulic fracturing near its wellbore, to actions prior to and during fracturing operations to prevent an environmental impact.

Richard Parrish, an Oklahoma City-based attorney representing the OEPA, told members of the group during a meeting Friday that there have been several recent cases where horizontal hydraulic fracturing resulted in pollution through a producing wellbore and the corporation commission determined the vertical operator was responsible for cleanup.

“The horizontal operator is not being required to limit their frack or concern themselves or make sure the wells being fracked won’t cause purging,” Parrish said. “This is going to be a real problem around the state. We know of at least 47 incident reports of wells purging as a result of horizontal fracks.”

Members of the OEPA are trying to gather support in opposition of the pending revisions and are proposing an alternative revision stating that horizontal well operators giving notice of hydraulic fracturing operations should be required to take reasonable actions to prevent environmental impact.

“There is a need to find common ground for the benefit of Oklahoma,” Bartlett said. “Each one of us represents a company that has an owner and a lot of employees and their families. By us finding a common ground it means the breadwinners will be able to continue to support their family in a good way.”

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The Oil And Gas Situation: Key State Legislative Sessions Get Underway

David Blackmon | Forbes

With various state legislatures gearing up around the country, it is timely to take a look at how the oil and gas industry might be impacted in some of the key oil patch states. Two of the big ones – Texas and Oklahoma – are especially interesting for different reasons.

Oklahoma

This state’s legislative session will be interesting for entirely different reasons. Oklahoma has found itself in a chronic budget deficit situation since the oil price collapse took hold in 2015. Production and ad valorem taxes on the industry fund a sizable portion of the state’s government, and the industry’s level of activity also impacts the state’s income and sale tax collections, either positively or, as during the downturn, negatively.

However, things are looking somewhat better going into this year’s session, which convened on Tuesday. State Treasurer Randy McDaniel informed legislators on Wednesday that the state’s revenue collections for 2018 rose by 13%. Leading the way was the state’s gross production tax (GPT) on oil and natural gas, which was up by a whopping 84% year over year.

This is no surprise for a couple of reasons:

  1. The Oklahoma GPT is a price-sensitive tax, and crude prices rose substantially for most of 2018; and
  2. The legislature, in its ongoing efforts to balance the budget during the downturn, raised the rate of the tax significantly in both the 2017 and 2018 sessions.

Unfortunately for the industry, the recent pullback in both oil and natural gas prices is causing concern that state revenue from the industry could drop again in 2019. This is encouraging the the same groups and individuals who agitated in favor of raising rates the past few years to once again push legislators to raise them even higher this year. One such group is the Oklahoma Energy Producers Alliance (OEPA), a coalition that represents a small number of vertical-well producers who don’t drill many wells in the state.

Another vocal advocate for raising the GPT rates in recent years has been billionaire George Kaiser, one of the founders of the Kaiser Francis Oil Company that is based in Tulsa. Kaiser’s own investments are widely diverse and global, including investments in solar (his foundation held a $340 million stake in now-bankrupt solar panel manufacturer Solyndra) and an LNG company with both domestic and international operations headquartered in Texas called Excelerate Energy. Kaiser’s major investments in other states, countries and renewables, none of which bear any tax that corresponds to the Oklahoma GPT, make him seem an unlikely advocate for raising tax rates on Oklahoma producers. As a result, his vocal support for higher taxes caught many of his industry peers off-guard, and greatly complicated the issue for the industry’s advocacy groups.

While the prospect of oil and gas-related tax collections falling in 2019 is understandably concerning to the legislature, the members have a real balancing act to perform. Even with the higher oil price during 2018, the Baker Hughes rig count in the state’s prolific SCOOP/STACK play dropped by almost 20% as the GPT rates rose. This was a highly predictable outcome given that producers’ capital dollars will chase projects with the highest anticipated rate of return on investment.

It is no surprise that raising the rates each of the last two years has led to a lower horizontal rig count. These lower initial rates (they rise back to the standard 7% rate after an initial production period) were put in place to stimulate the drilling of horizontal wells and attract capital dollars into the state in the first place. A higher rate of tax equals a lower rate of return. It isn’t real complicated.

Incoming Governor Kevin Stitt gets it.  He warned lawmakers in December not to consider the stronger revenue situation as some sort of “blank check,” and encouraged them to conserve as much of the surplus as possible. “Obviously, if commodity prices go down, that’s the reason we need to have a very tight savings plan,” Stitt said.

Meanwhile, representatives of the oil and gas industry at large are expressing their own hopes for a “quiet” session after the wild ones they’ve been through the past two years. Chad Warmington, President of the industry trade association OKOGA-OIPA, told reporters on Monday that “Peace and quiet was on our Christmas wish list.”

It will be very interesting to see if his Christmas wish is fulfilled. Given the complexity of the issue, it doesn’t seem likely.

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Cantrell: Right-of-way disputes

Journal Record

Op-ed by Mike Cantrell, OEPA President

 

The Oklahoma Energy Producers Alliance supports the right of elected county commissioners to determine what is in the best interest of the residents in their respective counties when it comes to the use of the rights of way over which they have jurisdiction.

There is a dispute in Kingfisher County between horizontal oil and gas producers and the county’s commissioners regarding overlaying temporary produced water pipelines on top of the ground in the county road rights of way. The county commissioners determined that these lines constitute a safety hazard, damage both private and public property, exposing the county to potential liability, and must not be allowed.

The ability of companies to lay so-called temporary water lines in county rights of way is very beneficial to the companies needing to transport water from one location to another. But those benefits pale in comparison to the possibility of losing one Oklahoman’s life in an accident involving pipelines put on the surface of the right of ways of our county roads.

The OEPA has several members who reside or operate conventional vertical oil and gas wells in Kingfisher County. Our members are Oklahoma companies, operators, and leasehold and royalty owners concerned with protecting the rights of conventional vertical oil and gas well producers. Most of our members own their own companies and have lived and operated in Oklahoma for generations. While we vigorously support our members, we also support what is best for Oklahoma and its residents.

It’s unfortunate that heavy-handed methods and misrepresentations are being put forth by certain facets of our industry to justify the need to use the rights of way to increase profits, without counterbalancing that against the interests and protection of the county and its residents. While the Oklahoma Corporation Commission has exclusive jurisdiction over oil and gas operations, that jurisdiction typically ends at the oil and gas lease line. We make no judgment on the practice of laying pipelines in county rights of ways. However, we do support the county commissioners’ right to decide how those areas are used.

Mike Cantrell is principal of Cantrell Investments LLC and serves as president for the Oklahoma Energy Producers Alliance.

http://journalrecord.com/2018/08/27/cantrell-right-of-way-disputes/

 

Letter to Kingfisher County Commissioners

Dear Commissioners:

On behalf of the Oklahoma Energy Producers Alliance (OEPA) we want to express our support of your right, as the duly elected County Commissioners of Kingfisher County, to determine what is in the best interest of the citizens and voters of Kingfisher County. As County Commissioners you have the authority and obligation to look out for your constituents, and to be good stewards of the land and roads in Kingfisher County.

The OEPA has a number of members who reside in or who operate conventional vertical oil and gas wells in Kingfisher County. OEPA members are Oklahoma oil and gas companies, leasehold owners and royalty owners concerned with protecting the rights of conventional vertical oil and gas well producers. Many of our members own their own companies and have lived and operated in Oklahoma for generations. As the representative of conventional vertical well operators, we support what is best for Oklahoma and its citizens.

Your considered and deliberative approach to reaching your decision regarding the use of county right of way for temporary oil field pipelines is to be commended. We admire your courage in taking on the proponents of using the right of way for their own private use exactly as they want to use it, and who will stop at nothing to get their way. It is unfortunate that heavy handed methods are being used and misrepresentations are being put forth by certain facets of our industry to justify the need to use the right of way to increase profits, without counterbalancing that against the interests and protection of the County and its citizens.

This note of encouragement assumes no position on the underlying issue, merely on your right to self-determination on how the roads in Kingfisher County should be used.

If we can be of assistance in this matter, please feel free to contact us.

Sincerely,

Dewey F. Bartlett, Chairman, OEPA

Mike Cantrell, Chairman, OEPA President, OEPA

Oklahoma Supreme Court Rules in Favor of Oil, Gas Tax Initiative

Supreme Court rules unanimously In favor of SQ 795.

OEPA has spearheaded and supports this intuitive petition to pay our teachers and bring tax fairness to all producers at 7%, which is lower than any other oil and gas producing state.

Read the article here 

 

Forced Poolings

Guest blog post by David Guest – OEPA Board member. He provides a good history of forced pooling (subsurface eminent domain) in Oklahoma. He also explains why it needs to remain just that – history.

 

When someone says “virtually all” that is an extremely large sample size. In fact, I operate vertical oil wells that were drilled over 65 years ago, and own royalty under vertical wells drilled over 80 years ago. These properties were spaced at the OCC but not force pooled. Force pooling was introduced by the municipality of OKC in 1929 as “block pooling”. In 1945 the Oklahoma state legislature created force pooling by statute. Most force poolings in the ’50’s, 60’s and 70’s were for only ONE targeted formation. So, there are thousands of producing wells which have never been force pooled. But in the late 70’s and into the 80’s, landmen and exploration companies began to utilize force pooling as a “land and title” tool rather than an exploration tool, as pooling was first intended. Oklahoma is the ONLY state with force pooling, which is private party eminent domain, covering mineral rights. Mineral owners are being short-changed on per acre bonus dollars by force pooling as pooling does not encourage free market conditions for leasing activities. The abolition of force pooling would not deny minerals owners their right to develop their asset… they can negotiate a lease with the exploration company(s). If no agreement can be reached, the exploration company can still drill the tract, the unleased mineral owner is just that… unleased, and has the redress of subsurface trespass. So, unit development is not impeded. Let us ponder this question: Why are per acre cash bonus prices paid in Texas so much higher than the bonus prices paid in Oklahoma?? Although the rock, multi-zone potential formations, are similar between the states?? Because Texas has no force pooling, which mandates exploration companies to be more aggressive in the prices paid for OGL’s. Oklahoma mineral owners should not be continuously cheated by the use of mineral eminent domain.