AAPG provided a glowing introduction to me last month in this column, but now that it is time for my first column:
Washington policy continues to defy simple explanations. Washington is essentially shut down for pre-election campaigning and Congress passed almost no bills this year.
There were, however, many House hearings regarding energy issues as representatives sought to define their positions before the Nov. 6 election.
One, the Aug. 2 hearing of the Energy and Commerce Subcommittee on Energy and Power, featured witnesses who testified that federal onshore petroleum production declined in the past year, and regulatory changes could spur – or hinder – future production increases.
The hearing, called by Rep. Ed Whitfield (R-Ky.), looked into the disparity in energy production of onshore federal versus non-federal lands, a topic that impacts a variety of current issues – jobs, energy security, protection of environmentally sensitive lands, and state and federal deficits, to name a few.
U.S. oil production grew in 2012 to an average of 6.2 million barrels per day – a level not seen since 1998, according to the Energy Information Administration. Natural gas production also rose, primarily in liquids-rich shale gas areas.
On the other hand, oil production from federal and Indian lands decreased from two million barrels per day in fiscal year (FY) 2010 to 1.8 million barrels in FY2011, the most recent annual statistics. This represents a decline in oil production on federal lands from 36 percent of total U.S. production in FY2010 to 32 percent in FY2011.
Natural gas production from federal and Indian lands continued a multi-year decline; in FY2011 federal and Indian lands produced 21 percent of domestic natural gas, compared to 35 percent in FY2003.
The roots of these changes are relatively straightforward; however, the role of federal government policy in driving this decline is less clear.
Let’s start with the simple elements:
♦ The major reason for the onshore federal-private land production disparity is the increased industry emphasis on oil and gas from shales, which are located predominantly on state and private land.
♦ Offshore, the price-driven movement of operators from the gas-prone shelf to oil-prone deep water cut gas production. The deep-water drilling moratorium and regulatory restrictions after the 2010 Macondo blowout also have reduced oil production in federal waters.
The hearing highlighted the differences between a booming oil industry working primarily on private land in North Dakota and a declining oil industry in Alaska, where future potential resources are primarily on federal lands.
Lynn Helms, the director of the North Dakota Industrial Commission, stated that North Dakota drilling permits on private land are processed within 20 to 30 days, but federal drilling permits require more than six months.
Dan Sullivan, a commissioner for the Alaska Department of Natural Resources, recommended modernizing and reforming the federal permitting system and provided several detailed examples of what he viewed as excessive federal regulation that hindered oil and gas development.
One of his examples, Shell’s Chukchi Sea well, did get the necessary permits – in September, too late in the season to allow drilling to the potentially productive formations.
Additional witnesses at the hearing opined that leasing reform, instituted at the beginning of 2011 by the Bureau of Land Management (BLM), may be the root cause of production declines on federal lands, or it may be the beginning of a production growth spurt.
On the positive side is BLM’s effort to reduce leasing delays due to protests. On the negative side is a proposed BLM regulation of hydraulically fractured wells.
The assistant director of the BLM, Michael D. Need, lauded new procedures that allow for greater environmental review and public participation before a lease sale, which greatly reduces the number of legal protests that can significantly delay lease development.
In the past, protests were the only ways for organizations or individuals to raise concerns about a lease sale.
Christy Goldfuss, a witness from the Center for American Progress Action Fund, noted the Wilderness Society’s July 2012 report, “Making the Grade,” which tallied a two-thirds reduction in protests in 2011, the first full year under the BLM reforms. The result is that companies are now receiving their leases within one to two months of the lease sales.
There is still a large backlog of protested leases sold between FY2007 and FY2009.
On the other hand, a proposed BLM regulation could slow oil and gas production from federal lands. BLM’s proposed rules for hydraulically fractured wells would require disclosure of the chemicals used in hydraulic fracturing operations, strengthen regulations to assure wellbore integrity and establish water management requirements for flow-back fluids. The public comment period that resulted in over 7,000 comments closed on Sept. 10.
At press time, BLM had not announced when it will complete its analysis of the public comments or issue the final regulation.
The proposed BLM regulation and the Environmental Protection Agency’s hydraulic fracturing study have motivated many bills that were introduced in Congress this session to revise or streamline federal regulatory processes, or to assure that states rather than the federal government control the regulatory processes for oil and gas development. However, none of these have passed both the House and Senate and none are expected to become law.
Look for more on this topic in next month’s Washington Watch.