The Interstate Oil & Gas Compact Commission, an organization of industry regulators, industry professionals, and academics held their annual business meeting in Oklahoma City on May 6th – 8th. According to the discussions the major trends and issues being faced by the regulators in oil and gas producing states include the following: 1. Frac interference issues between horizontal wells and vertical wells remain an issue due to the massive and increasing size of hydraulic fracturing operations. In most cases such disputes are civil in nature since they involve monetary damages and are heard in district court, not before the regulatory agencies. Spacing and increased density questions have brought the issue before the regulatory agencies however. 2. Induced seismic events in Oklahoma appear to be lessening, both in number and in intensity. That said, induced seismic activity has increased in Kansas and Nebraska and in the Permian basin to a small extent. A study by the Nebraska regulator seems to indicate the activity is not oil and gas related in that state. 3. Produced water, and make up water needed for fracing, remains a focus. Recycling produced water for re-use, and ownership issues, remain on the front burner and will continue to be there for some time. Some wells today take 500,000 barrels of water to frac versus 15,000 a decade ago. The average tanker truck has 100 barrel capacity. 4. Drilling activity in most states was stable with the exception of Oklahoma, Texas, New Mexico and North Dakota which have seen a robust increase in activity. 5. Even with the drilling increases seen in some states, projected 2018 capital expenditures will be 45% below the 2014 peak level according to Core Laboratories. They forecast that domestically we will drill 18,000 fewer wells than in 2014 but will add around 1 million barrels per day to production. Efficiencies, technological advances, and the fact that many companies are drilling Tier 1 acreage explain how fewer wells can increase production.
6. Natural gas transportation, and marketing natural gas production that is associated with oil, remains a problem. Especially in the Permian basin. Natural gas pipeline build outs appear to have increased production in the Utica and Marcellus shale and helped Ohio, Pennsylvania, and West Virginia increase production. Natural gas prices remain weak. 7. Personnel needed by service and drilling companies remain in high demand. Unfortunately the number of applicants who fail the drug tests, or employees that only remain employed for a short-term basis, remain a major problem. As the industry continues to gear up personnel shortages will be an issue. Texas Railroad Commissioner Christian is involved in a program to attempt to address the workforce issue and provide viable jobs for those who have an interest. 8. Regulators are beginning to examine the use of drones for regulatory activities. North Dakota’s Oil & Gas Commission is the most active with six licensed drone operators. They use drones to check for ice jams and flooding in areas with production prone to flooding. They also inspect wells and pipelines using the technology. New York State also has a drone program they have undertaken, and along with Michigan they are examining potential uses. At the present time Oklahoma, Texas, Nebraska, Montana and Kansas do not have a drone program in place related to energy regulatory oversight. 9. Potential well plugging liability remains an issue in many states. Natural gas prices remain depressed and the concern is some natural gas wells should be plugged but are not, creating future problems and latent liabilities. 10. Dissolved minerals production, specifically lithium, could be a huge industry opportunity in Arkansas and Nevada. The issue of who owns the dissolved minerals remains a focus especially in oil producing areas. 11. A number of state and federal regulatory agencies indicated that they were short personnel due to retirements and budget shorfalls.
12. Natural gas storage regulations, federal versus state programs, are being implemented under the ‘Pipes Act’. Some uncertainty exists in some states as to whether the regulatory oversight should be at the federal or delegated state level. This topic is a focus of regulators after a massive gas storage leak in California several years ago. 13. Regulators and operators, when examining parent – child well problems (child well performance and reserves much lower than expected) will most likely ‘upsize’ well spacing restrictions as the extent of the modern frac job on underground formations is determined to be more extensive than many projected. 14. Lateral lengths are nearing maximum due to frictional forces, while perf clusters per stage are increasing. Projections by Core Labs are that perf cluster per stage might increase from 6 to 15, reducing the time and cost of completion. 15. Drilled and uncompleted (DUC) wells will likely increase due to the lack of completion crews and equipment availability (see recent Raymond James report on this issue). Many operators will delay completion until all the wells on a pad have been drilled to increase efficiency and cost effectiveness. Legal issues that arose in committee meetings include the following: 1. With fewer county newspapers to publish notice of spacing or pooling or other regulatory actions, can an agency publish notice on their official website? Would such publication be sufficient to meet publication notice requirements of the due process clause? Many applications require both personal and publication notice. Only publication notice is at issue with this inquiry. 2. A number of ‘interested parties’ have filed to participate in water injection permit hearings, and others. The interested parties add to workload burden and also slow the hearing and permitting process. Some have no property interest in the state, or are located a hundred miles away from the
proposed injection well. What is an ‘interested party’? Can they (or should they) be limited in their participation in hearings? Or otherwise limited to submitting written comments? Regulators indicate that a balance should exist between public participation and unnecessary utilization of scarce regulatory assets. 3. Produced water is an issue. Who owns the water produced under an oil and gas lease? Who can sell and who can receive proceeds is an issue that is not well resolved in most states. This issue continues to grow.