September Issue

 

August was a good month for opponents to President Obama's energy, environment, health and tax policies.

 

As members of Congress returned home, they heard plenty from their constituents.

 

More than 3,500 people attended the Energy Citizens rally in Houston on August 18 to stop the climate change bill. Speakers at the "sold out" rally pointed out that raising taxes and the price of energy in today's economy is a bad idea.

 

Next, The Wall Street Journal ran a story on Augst 13 about the creator of the cap-and-trade theory, and how he has become a critic of the program. Reporter Jon Hilsenrath caught up with economist Thomas Crocker, who came up with the idea when he was a graduate student at the University of Wisconsin in the 1960s.

 

With all the issues in Washington making headlines every day, the Alliance has stayed very busy keeping tabs on the measures affecting our industry. However, we're also aware of things happening in Texas politics. We've got a political game of musical chairs taking place in the governor's office that may well impact a U.S. Senate seat and several other statewide offices, including the Railroad Commission. We also have increasing urbanization of our state which most certainly will shift the legislative focus a little with every bi-annual session.

 

The Alliance Austin office, headed by Bill Stevens, is monitoring all the developments and Bill also administers the Texas Alliance Oil & Gas Political Action Committee. This PAC contributes to the campaigns of candidates for state offices that support oil industry.

 

Clearly, keeping our state laws and business climate friendly to the energy industry is a cause woth promoting. Your financial support to the PAC will pay dividends and help keep the politics in Texas from becoming like Washington.

Three separate and comprehensive studies of the American Clean Energy Act (ACESA), H.R. 2454, also known as the Waxman-Markey bill, and also called the cap-and-trade bill. All three studies point out that ACESA will increase the cost of energy and have detrimental effects on the economy.

 

The studies were conducted by the Washington, D.C. think tank, the Heritage Foundation; the National Association of Manufacturers; and the Energy Information Administration.

Congress returns from its summer break on September 8 to a full and very contentious agenda. As it was before recess, health care reform will continue to consume most of the legislative oxygen. August was a tough month for Members of Congress. Both sides of the aisle heard plenty of concern from constituents about the disturbing fiscal state of our national affairs. According to most polls, the blame game that has been running rampant in Congress is being met by constituents saying, "I don't care whose fault it is. What are you doing to help fix it? These and other concerns point toward little activity on the energy front for the rest of the year.

 

Since normal appropriations work must be completed by October 1 to avoid a continuing resolution, we expect that activity to take up all of September, and health care will probably extend until Christmas. President Obama's address to a Joint Sessin of Congress on September 9 should clarify his position on health care reform and thus allowing the debate to move forward, past the current focus on various components of the six different bills that are circulating. I hope the President will join the Blue Dogs in saying quite clearly that under our current economic challenges we cannot spend more money at this time for ANY purpose. A health care plan introduced by Senators Wyden (D-OR) and Bennet (R-UT) and Representative Cooper (D-TN) that covers all the uninsured and does not increase the budget deficit should get a more serious look by our elected officials. What will it take? A lot of heavy lifting by Congressional and Presidential leadership. Let's hope we get both!

 

The Texas Alliance Oil & Gas PAC is entering its third election cycle since its founding in 2005 and is anticipating substantial, continued growth in dollars and number of contributors.

 

"The PAC is another working tool for Alliance members, their employees and families in maintaining a viable oil and gas industry in Texas and in establishing the credibility of the Texas Alliance of Energy Producers in the regulatory and legislative arenas of Texas state government," remarks Robert Eagle of Abilene, the PAC Chairman.

 

In the 2007-2008 cycle, the PAC distributed more than $60,000 to 48 Texas elected officials with contributions from 132 Alliance members.

 

The Federal Energy Regulatory Commission has issued notices of proposed rulemaking regarding the reporting requirements of intrastate pipelines that provide interstate services under Section 311 of the Natural Gas Policy Act.

 

The regulations would not require Section 311 and Hinshaw pipelines to report as much information as interstate pipelines, but it does require reporting of more information than currently mandated for intrastate pipelines. Currently, they are not required to include in their transportation transaction reports the rates charged under each contract, the duration of the contract, the receipt and delivery points and zones or segments covered by each contract, whether the contract includes special terms and conditions, and whether there is an affiliate relationship between the pipeline and the shipper.

 

Instead, the intrastate and Hinshaw pipelines' annual reports are required to include only the name of the shipper receiving the service, the type of service performed, the total volumes transported for the shipper and the total revenues received from the shipper.

The Al-Qaeda terroist organization has vowed to avenge the deaths of Muslims in the Chinese province of Xinjiang by targeting Beijing's extensive workforce and projects around the globe, including its oil and gas interests, according to a private intelligence report.

 

"Muslims worldwide have reacted angrily to the situation in Xinjiang, demonstrated for example by protests in Jakarta," said London-based risk analyst Stirling Assynt in a report for its clients.

 

Stirling noted that the first militant group to formally react to the news of violence against Muslim Uighurs is al-Qaeda's Algerian offshoot, al-Qaeda in the Islamic Maghreb (AQIM), which also has a presence in Mauritania, Niger, and Mali.

The public Utility Commission, the Railroad Commission of Texas and the Texas Commission on Environmental Quality will take part in a joint meeting to discuss the ramifications of "climate change" legislation pending in Congress on September 22 in the Capitol Annex Auditorium in Austin. The meeting was proposed by PUC Chairman Barry Smitherman to consider the potential impact to Texas From proposed federal climate change legislation. H.R. 2454, referred to as the Waxman-Markey bill passed the U.S. House of Representatives by a vote of 219-212 on June 26, 2009.

 

Since the passage of H.R. 2454, studies have highlighted the potential for large job losses, slower economic growth and rising energy prices if the bill were to pass the Senate and signed by President Obama. Although recent news accounts report that the bill has lost traction in the Senate as the administration focuses on other issues particularly health reform, the joint meeting presents an opportunity for the energy policy makers to hear from interested parties about the effect of the legislation as well as present a united response to the proposed act. Although the agenda is still being drafted, it is anticipated that the leaders of the three agnencies will hear from the Governor and key representatives from power, coal, and other segments of industry. The Texas Alliance will participate on a panel on the impact of the legislaton on independents and the oil and gas industry.

Refining margins in the US are likely to shrink in coming years because stricter fuel economy standards and rising mandates for blending ethanol and other biofuels will reduce gasoline demand, Deloitte, LLP said in a recent study.

 

Roger Ihne, a principal with Deloitte in Houston, wrote a study entitled "A Tsunami of Change Bearing Down on the Refining Industry." He spoke with reporters about his findings during a news briefing on July 9.

 

"Over 15-20 years, we can expect to see a reduction in gasoline demand," Ihne said. He estimates 1.5 million b/d of US refining capacity will shut down although he did not give a date for when he expects that to happen.

 

Texas Railroad Commissioners have announced that plugging activities for the state's abandoned oil and gas wells reached a milestone with the plugging of the 30,000th abandoned well.

 

Since 1984, the Commission has been plugging wells for which there is no responsible operator.

 

In 1991, the state Legislature created the Oil Field Cleanup Fund, which increased the financial ability of the Railraod Commission (RRC) to plug more abandoned oil and gas wells and to also clean up abandoned oil and gas well sites. Texas oil and gas operator's permitting and production fees go into the Oilfield cleanup Fund, which finances the plugging and cleanup of abandoned wells and sites.

 

Plugging abandoned wells eliminates the threat of pollution by preventing wells from acting as conduits to bring subsurface hydrocarbons or brine water to the surface or into underground aquifers. Plugged wells also prevent potential surface runoff into underground aquifers. Wells are plugged based on a priority system that takes into account potential environmental and public safety threats posed by individual wells.

Russia has signed a deal with Cuba to drill for oil in the waters off the island nation.

 

Russian Deputy Prime Minister Igor Sechin signed four contracts acquiring exploration rights in Cuba's economic zone in the Gulf of Mexico, Cuban state media reported.

 

Russia's Zarubezhneft oil concern will work along with the Cubapetroleo oil monopoly to search for oil and natural gas, according to the BBC.

 

The economic benefits of using compressed natural gas (CNG) as a transportation fuel have caught on with some independent oil and gas producers.

 

Chesapeake Energy, one of the nation's leading producers of natural gas, has been convinced of the value of CNG as a transportation fuel. It has built a fueling station near its headquarters in Oklahoma City, and it is converting its fleet of vehicles to CNG.

 

Chesapeake also held a Natural Gas Vehicle Summit in Oklahoma City on July 29 that brought together many large companies similar to Chesapeake in hopes of convincing them to convert their transportation fleets to CNG, to install CNG terminals for private and public use, and to get on the CNG bandwagon.

 

Texas Land Commissioner Jerry Patterson asked Texas Railroad Commissioners to hold hearings into Exxon-Mobil's sabotage of South Texas Wells and their fraudulent well-plugging reports.

 

"Exxon committed irrefutable, intentional and flagrant violations of state rules regulating the oilfield," Patterson said. "The Texas Railroad Commisson should act to enforce its own rules."

 

Patterson addressed the Railraod Commissoners at the beginning of their regularly scheduled meeting at 9:30 a.m. on August 18.

 

Pattersons's case against Exxon-Mobil centers on a dispute with the O'Connor family, a venerated Texas Dynasty with roots going back to the Republic. In the 1950s, Exxon-Mobil negotiated an oil lease with the O'Connors for their oil-rich expanse of land in Refugio County. When the relationship turned sour in the 1990s, Exxon-Mobil terminated the lease and plugged the wells. As per state rules, Exxon filed paperwork with the Railroad Commission outlining its well-plugging procedures and filed sworn affidavits as to the final condition of the wells. The O'Connor family soon learned those reports to the Railroad Commission were fraudulent, and they won their case in court all the way up to the Texas Supreme Court, which didn't rule on the merits of the case, but tossed it out because the O'Connor's had waited too long to file their grievances.

 

The RRC has set the case for hearing.

 

Ironically, the celebration of the 150th anniversary of the discovery of the first oil well began in Titusville, Pennsylvania as lawmakers in Washington try to put an end to "the tyranny of oil" by further restricting drilling in the U.S. it is even more bizarre that the U.S. government is prepared to loan Brazil $2 billion for oil exploration while trying to increase taxes on U.S. oil companies.

 

The oil boom began Aug. 27, 1859 when Colonel Edwin Laurentine Drake drilled the first commercial oil well in Titusville. The world changed from that moment on.

 

The well was drilled to 69 1/2 feet. Today, wells are drilled miles beneath the Earth in oceans that are thousands of feet deep.

 

Mike Nasi, Partner and Leader of Jackson Walker, L.L.P.'s Carbon Management Practice Group, addressed producers during the afternoon technical sessions of the Alliance's Abilene Membership Meeting on September 14 regarding the Texas approach to carbon capture, storage, and sequestration.

 

Nasi practices Energy and Environmental Regulatory Law, including air quality, underground injection well, and water-related issues.

 

Nasi addressed the carbon capture and storage (CCS) legislation (HB 469, HB 1796, and SB 1387) that passed the recent session and the rulemaking that is currently under way to implement that legislation. He also discussed these bills and other measures passed over the past two sessions that are designed to attract CCS projects to Texas, including large-scale enhanced oil recovery (EOR) projects using man-made CO2.

 

Edward J. Fitchell, service manager for Pratt & Whitney, travelled from Connecticut to Abilene for the Alliance's Membership meeting on September 14. His presentation during the technical sessions highlighted the Model 280 PureCycle Power System and its capability of producing electricity on the oil and gas lease.

 

The system is designed to work with wells that have elevated bottom-hole temperatures. An adequate volume of water is required to transfer sufficient heat to the turbine-generator. Wells that are currently in production with a large proportion of produced water, or wells that have been recently abandoned due to high water production, are the most eligible sites. The system works with bottomhole temperatures as low as 195 degrees F with 1000 GPM up to 300 degrees F with 180 GPM.

 

Texas Oil and gas employment remains in free fall, according to the latest Texas Petro Index (TPI), with more than 32,000 Texans forced out of work in the industry this year through July, and thousands of more job losses appear inevitable.

 

"Producers and oilfield service contractors are shedding jobs to shrink the industry's work force to the level required to operate 300 to 350 rigs in Texas," said petroleum economist Karr Ingham, who created the TPI for the Texas Alliance of Energy Producers. "That adjustment is not complete, so it appears that thousands more Texans will be sent packing before this cycle hits bottom."

 

Ingham said the TPI indicated that drilling activity has stabilized in the past few months, but at a very low level compared to this time last year, when the state's oil and gas economy was peaking. After surging to 240,000 workers in December, total oil and gas employment in Texas in July had declined to 207,700, according to the Texas Workforce Commission. Ingham estimated that one of every 10 Texans working in the industry have lost their jobs this year through July.