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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Oklahoma’s Future Rests in the Hands of Two Very Different Oil Billionaires

Ben Steverman | Bloomberg

Hailing from opposite ends of the ideological spectrum, George Kaiser and Harold Hamm have each invested heavily in the Sooner State.

George Kaiser, a 76-year-old Oklahoma banker and oilman giving away almost his entire $10.5 billion fortune, wants higher taxes on his own industry. He’s bankrolling trendy neighborhoods in Tulsa, an early-childhood education program and a movement toward criminal-justice reform. Kaiser says his priority is to wean the state’s economy from “cyclical, commodity-based industry.”

Harold Hamm, founder of Oklahoma City oil-and-gas giant Continental Resources Inc., has fought to keep things as they are: lean budgets, lax environmental regulations and low fossil-fuel levies. With a net worth of $13.8 billion according to the Bloomberg Billionaires Index, he funds the state’s most conservative politicians while arguing for higher taxes on wind turbines sprouting on the rolling hills. Hamm, 72, has promised to donate most of his money to “causes that will enable people with ambition and tenacity to achieve their goals.” So far that’s included millions for research on what he calls the “American energy renaissance”—a doubling of oil production since 2011.

“You couldn’t find anybody more different than those two guys,” said Mike Cantrell, a former Continental Resources executive who is president of the Oklahoma Energy Producers Alliance, a group of small oil companies that campaigned for higher taxes to fund education. “They both care a great deal about Oklahoma, and both are tough and brilliant businessmen.”

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Oil, gas associations consider merging organizations, message

Jack Money | NewsOK

More than one election is planned in Oklahoma next week.

On Tuesday and Wednesday, fewer than 2,000 members of the Oklahoma Independent Petroleum Association will consider whether to combine their organization with the Oklahoma Oil and Gas Association.

Together, the groups would represent more than 1,000 upstream and midstream companies that operate in Oklahoma’s oil and natural gas fields.

Backers of the proposal, already approved by both organizations’ boards, say the combination would strengthen and unify their message that the industry is important to the state and its economy.

Cody Bannister, the OIPA’s communications vice president, said it has about 2,000 members who represent 1,200 public and private oil and gas companies “actively investing capital in Oklahoma today.”

Chad Warmington, president of the Oklahoma Oil and Gas Association, said his organization has 80 larger active upstream and midstream companies, plus refiners, as members.

Both Warmington and Bannister said many companies belong to both, and added that both have been pursuing similar agendas on behalf of their members, especially recently. Both groups have sought support for updated drilling and completion procedures, including longer laterals. They also have opposed oil and natural gas tax increases and challenged subsidies for wind energy production.

Both organizations also have long histories.

The OIPA, meanwhile, was formed in 1955.

Read More.

 

Lunch & Learns Attract Huge Crowds

In an effort to increase awareness of OEPA and our mission of protecting the small conventional vertical producers and royalty owners, we have been offering a series of Lunch & Learn’s throughout the state in 2018.

These luncheons bring together oil and gas producers, vendors and interest holders for a unique experience where they have the opportunity to network and hear how OEPA is advocating for their rights at the state capitol, the commission and in the courts.

During each luncheon, guests enjoy casual networking time, a seated lunch and a short presentation about OEPA’s mission and progress from board members and legislators.

Since the program’s inception in early 2018, OEPA has hosted Lunch & Learn’s in 6 cities: Ardmore, Cleveland, Duncan, Oklahoma City, Seminole, and Tulsa with over 350 in total attendance. These numbers tell us that there are hundreds of producers around the state who are looking for someone to appreciate the problems they are facing.

At our luncheon in Ardmore at the end of August, over 75 attendees listened as a panel of lawyers and engineers provided their expertise and advice on always being proactive when dealing with any horizontal drilling activity. Sample letters were provided to send out to horizontal drillers when a vertical well owner receives notice of a horizontal completion to be installed near their well. See the letters here.

At our September Duncan lunch, our message was delivered perfectly by the legislators attending, stating that if you want representation at the capitol, you need to join OEPA. We had over 50 attendees, including numerous OCC District Field Staff. We were once again reminded that OEPA is the new voice of vertical producers in Oklahoma.

We have upcoming Lunch & Learn’s scheduled in Oklahoma City, Ada and Tulsa. Watch our website and your inbox for more information! We hope you will join us soon!

If you would like to help host a Lunch & Learn in your area, please call us at 580-332-8659 

 

     

 

Vertical oil well owners gain knowledge on an increasingly horizontal well-driven market

Drew Butler | The Daily Ardmoreite

 

On Friday, the Oklahoma Energy Producers Alliance put together a free luncheon to help vertical well owners protect their interests when damaged by horizontal wells. After lunch was served a panel discussion took place with lawyers and engineers providing their expertise and advice.

“The horizontal universe began 10 to 15 years ago and we’ve all been playing catch up to the reality of these very successful wells,” OEPA Chairman Dewey Bartlett said. “Unfortunately, it has been to the detriment of our friends, neighbors, and companies. Our livelihoods depend on our companies being vital. They also depend on our companies not being taken advantage of by those with very expensive lawyers and a regulatory environment that has yet to react to the reality of the horizontal universe.”

The primary advice was to always be proactive when dealing with any horizontal drilling that will be taking place near a vertical well you either own or operate. The panel agreed taking this step prevents potentially prolonged and costly legal activity.

“Try to be proactive and deal with the horizontal driller,” said panel member Jim Marshall. “They don’t want to damage your well, but I think everyone would like to have this negotiated beforehand rather than after the fact.”

Panel member Andrew Jackson provided some sample letters to send out to horizontal drillers when a vertical well owner receives notice of a horizontal completion to be installed near their well. These letters put the operator on notice of your interest.

“Part of that is how to prepare for the offset frack, what kind of cost you expect to recover, and how to keep you notified if something does happen.” He recommends sending out a certified letter to guarantee the recipient knows what your expectations are.

OEPA Regulatory Affairs Chairman Tom Dunlap closed the meeting by pointing out the situation wasn’t entirely negative.

“We’re there with the industry, it’s going to go forward, and we’re a part of it,” Dunlap said. “The horizontal drilling and the fracking for that drilling is good. We get more recovery so there is a major positive. Look what’s going on nationally and internationally. The country is doing well with all of this new stuff. We just have to think proactive on how to make this work. Just know what you’ve got and how to play your cards.”

 

http://www.ardmoreite.com/news/20180831/vertical-oil-well-owners-gain-knowledge-on-increasingly-horizontal-well-driven-market

Point of View: The rest of the story about fracking

The Oklahoman

Op-ed by Mike Cantrell, OEPA President

 

Let’s be clear, horizontal well drilling and fracking have been an economic boon for Oklahoma. It has provided a much-needed lifeline to the oil and gas industry and the Oklahoma economy over the last decade. No reasonable person can be against it as long as it is done responsibly and regulated properly.

Unfortunately, we are attempting to regulate horizontal drilling and fracking with rules and procedures developed for the vertical well universe. This must change. One of the unintended consequences of this activity that has received much attention is earthquakes. Fracking of horizontal wells has been tied to as many as 300 localized earthquakes in the past several years.

However, other unintended consequences haven’t received much-needed attention. The livelihoods of many Oklahoma families are being destroyed almost daily due to fracking of horizontal wells. Most horizontal wells are completed with a high-volume and high-pressure hydraulic fracturing procedure involving the injection of 4 million to 5 million barrels of water and chemicals and 4 million to 5 million pounds of sand injected at over 10,000 psi of pressure. Further, in the past year alone, the fracking of horizontal wells has been linked to 30-plus pollution incidents.

The fracking of horizontal wells has adversely impacted vertical wells as far as 1 1/2 to 2 miles away. This has occurred to hundreds if not thousands of vertical wells. A study commissioned by the Oklahoma Energy Producers Alliance found that, in Kingfisher County alone, more than 400 vertical wells were adversely impacted by horizontal well fracking over a two-year period. This represents a major loss of income from these vertical wells often owned by Oklahoma families and family owned small producers who have lived in our state for generations, which includes many OEPA members.

The livelihoods of many Oklahoma families are being destroyed daily by horizontal fracking. The Oklahoma Corporation Commission needs to be as vigilant in protecting the rights of vertical well owners and producers who have been here for generations, have found the oil and gas, and are producing it profitably, as they are aggressive in permitting this destruction by protecting horizontal well drillers.

Cantrell is president of the Oklahoma Energy Producers Alliance, an association composed of companies, operators, leasehold owners and royalty owners concerned with protecting the rights of conventional vertical oil and gas well producers.

https://newsok.com/article/5606608/point-of-view-the-rest-of-the-story-about-fracking

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

Inaugural Annual Meeting Huge Success!

The 2018 OEPA Inaugural Annual Meeting was a huge success and exceeded all expectations, according to President Mike Cantrell and Chairman Dewey Bartlett, Jr. “The response from independent producers and vendors alike was simply overwhelming”, said President Mike Cantrell. “When you start something new like this, it’s like taking the risk of drilling a dry hole, you just don’t know what you are going to get until you put the bit in the ground.”
The day-long event took place on June 1st at the Will Rogers Theater in Oklahoma City and featured speakers and panelists on a variety of topics important to small vertical well producers in Oklahoma. Speakers consisted of Corporation Commissioner Dana Murphy, Senator Greg Treat, Senator James Leewright, Representative Kyle Hilbert, Representative Kevin Wallace, Tim Baker, Tim Munson, and more. Over 15 Oklahoma legislators attended to network and learn more about our issues.
Moderator & Representative Zack Taylor said he has never seen such a crowd of small producers so attentive and packed into every session. ” It was incredible to look out into the crowd and see over 150 attendees, of which 90% were actual producers,” said Taylor. “I have never been to an oil and gas conference with this many attendees participating in each session.”
The room was also filled with exhibit booths of sponsors and vendors of the industry. Mickey Raney, Impact Energy, said, “Thank you for all the work and effort of putting the OEPA annual meeting together. It was well done and the panels and speakers were very informative. It also was held in Oklahoma and I felt like I was actually with the group that had independent producers interest in mind. We look forward to sponsoring again next year.”