OKOGA COMMUNICATIONS UPDATE

OKOGA President, Chad Warmington, was quoted in a PBS Newshour report this past weekend about the decline of seismic activity in the state, “Oklahoma researchers and regulators have already determined that there are specific areas of increased seismic activity in parts of the state that need to be addressed. The OCC should expect the results of the new regulations on wastewater to take up to two years. It’s important to keep in mind that the state has been repeatedly advised by independent experts that the actions taken by the OCC should not be expected to have instant results.” 

In the next section are articles relating to Oklahoma’s oil and gas severance tax. Coming this month will be a major announcement about how the state’s stable gross production tax rate is contributing to continued exploration and production in Oklahoma. 

INDUSTRY NEWS

Coincidentally, a Forbes contributor wrote this week about the struggle oil and gas states face during downturns. “States that rely heavily on the oil and natural gas industry to fund their governments have always struggled with the most effective ways to collect taxes on the industry while not stifling the economic growth it produces for their citizens. The issue is made more complex by the reality that these states actually are in competition with one another for the huge capital investments drilling companies must make in order to develop the resources within their borders. The capital budgets within each of these companies are allocated to proposed projects in all of these various provinces based on a variety of factors, the most important being their anticipated rate of return on the capital investment necessary to complete them. Given this reality, many state policymakers understand that an increase in a severance tax rate or cancellation of an incentive program runs the risk of putting their state in a non-competitive position related to other states and countries. 

“In Oklahoma, there is a battle brewing over oil and gas severance tax rates as policymakers there begin preparing for the 2017 session of the Legislature, which will convene in January.  A group calling itself the Oklahoma Policy Institute (OPI), various fractivists and other anti-development organizations, are urging legislators to do away with the state’s two-tiered severance tax rate, which was implemented in 2015 in exchange for the elimination of a previous set of severance tax incentives that were very successful in attracting capital investment to the state for many years. 

“Oklahoma is blessed with not one, but two nascent major oil and gas plays:  The so-called SCOOP and STACK plays in the central part of the state.  The current two-tiered severance tax system obviously gives Oklahoma a strong advantage over North Dakota to attract new capital to these plays as the oil price slowly recovers.  It also puts the state in a strong competitive posture with surrounding states like Texas, Louisiana, New Mexico and Colorado, all of which are home to their own world-class oil and/or natural gas plays. But raise the rate to a flat 7%, and those rigs are just as likely to keep going to the low-tax Permian Basin, where almost half the nation’s active rigs already reside, for a while longer.  The Permian, along with the neighboring Delaware Basin, have seen more than $6 billion in new acquisition investments take place during the month of August alone. 

“States either want the billions in oil and gas investments or they don’t.  States that want it know that one way to attract it is to keep their systems of taxing it competitive with other states.  But the siren song of supposedly easily balanced budgets via higher tax rates can often be hard to resist.” 

Last night, KOCO Channel 5 (OKC) reported on residents in west Yukon who are protesting an oil and gas field service company’s permit for two wastewater disposal wells near their neighborhood. If approved, these wells would inject 20,000 barrels of wastewater per day. Ryan Bloom is a resident of the area and he argues that the development of these two wastewater disposal wells will bring unwanted traffic to the residential area. “We have gravel and asphalt two lane roads that just aren’t equipped to deal with that kind of traffic,” Bloom said. In addition to traffic, Bloom also fears this could bring seismic activity to the area. The commissioners will decide on whether to approve the application. The trial for this case is set for late October.
 
The Journal Record reported on a recent state audit of the Oklahoma Corporation Commission’s Oil & Gas Conservation Division that shows vulnerability to embezzlement. There was no wrongdoing identified, but there weren’t enough internal controls to prevent an employee from embezzling money or to identify accounting errors. There was no way to ensure payments to cover insurance bonds for closing abandoned oil wells and money paid for drilling permit fees were accurately reported within the agency’s accounting division. His report also found there was poor communication among staffers, inconsistent documentation for payments, and no independent reconciliation for expenses and payments.  

The Salt Fork River is down several feet from where it was at the height of the fish kill. The banks are now littered with bones of fish that have been scavenged. The fish kills started several years ago. Most of the time, Elisabeth and Tim Glaser told FOX 25, it is the big bottom feeder fish that are the victims. Recently smaller fish and even minnows are dying in what they call toxic water. Many times fish kills happen from low oxygen levels in stagnated water. In the case of the Salt Fork River, the fish die after rains, when the water level is high. Just upstream from the Glaser’s home, the Salt Fork runs through the land of the Ponca Tribe. Along the banks of the campground are signs warning visitors for the tribe’s annual Powwow to avoid the water. Some of the locals blame oil and gas production, or the salty waste water it produces for the environmental problems. While there has been no official cause determined by state officials investigating, Casey Camp-Horinek, a councilwoman for the Ponca Tribe, said the tribe was not waiting to make changes. In February the Ponca Tribe passed a resolution issuing a moratorium on future oil and gas activity on tribal land. “We have to as citizens take control,” Camp-Horinek said of the resolution and the tribe’s commitment to making sure their natural resources stay clean.  In 2015 the Oklahoma Department of Environmental Quality launched the Oklahoma Kill Response Management Team in response to the repeated fish kills. The group is made up of experts from several state agencies including the DEQ, the Department of Wildlife, the Oklahoma Water Resources Board and the Oklahoma Corporation Commission. The DEQ told FOX 25 they are still monitoring the water and the dead fish. So far there has been no definitive solution as to what is causing the fish kills, but the agency remains committed to working to end them. (Fox25 follow-up: Environmental researchers seek to solve Salt Fork mystery) 

Energy Tomorrow posted an article discussing Oklahoma’s ranking as 5th in the U.S. in total energy production. Oklahoma produced nearly 2.5 trillion cubic feet in 2015, an all-time high for the state, ranking it third nationally. Production increased nearly 50 percent from 2006 to 2015. Oklahoma crude oil production also is resurgent, reaching 157 million barrels last year, the highest total since 1985. Production has increased 157.5 percent since 2005. The state had five operating refineries with a combined daily capacity of more than 500,000 barrels as of January 2015. The post included an infographic showing the benefits of a pro-development path. 

OK Energy Today and KOKC (1520 AM) shared the most recent report by the anti-industry Clean Air Task Force, claiming methane emissions from oil and gas operations contribute to high levels of asthma attacks. While the report says Texas will lead the nation in sicknesses linked to the oil and gas pollutants in the next ten years, it ranks Oklahoma second worst. Colorado is ranked third. Kansas and Arkansas are included in the top 20 states. Energy In Depth compiled the overwhelming amount of scientific studies that debunk this latest report. “A look at the claims laid out in this latest report makes it clear that the authors are far more interested in garnering headlines than looking at the science, which is likely why this project was not peer reviewed.” 

SEISMIC ACTIVITY

Federal regulators have tied a string of earthquakes in north Texas to oil and gas drilling operations in the state. An Environmental Protection Agency (EPA) report filed with the Texas Railroad Commission this month concluded that the frequency of earthquakes in the state correlates to the number and location of injection or disposal wells for hydraulic fracturing wastewater there. “In light of findings from several researchers, its own analysis of some cases and the fact that earthquakes diminished in some areas following shut-in or reduced injection volume of targeted wells, EPA believes there is a significant possibility that North Texas earthquake activity is associated with disposal wells,” said the report. The EPA said it’s concerned about the seismic activity around the Dallas/Fort Worth area because of the “potential impact on public health and the environment, including underground drinking water.” The EPA recommended more monitoring of injection wells and analysis of seismic activity in the state. (The Hill reports) 

LEGISLATIVE NEWS

Following a meeting with Republican legislative leaders this week, Gov. Mary Fallin has decided against a special session to fund teacher pay raises. She previously floated the idea of to divide up a $140.8 million budget surplus, using some of the money for the pay hikes. Instead, she has decided to return the money to state agencies. Fallin made her decision after it became apparent that lawmakers did not want to return for a special session. “With so many legislators terming out and a large number of new legislators who will be elected and sworn into office in mid-November, it was decided to continue to develop a teacher pay raise plan with reform that will be introduced at the beginning of the next legislative session,” Michael McNutt, the governor's spokesman said. (Tulsa World also reports) 
 
According to Red Dirt Report, three democratic candidates and representatives, incumbent and candidate for state house district 45 Rep. Claudia Griffith, candidate for state house district 46 Jacob Rosecrants and district 16 state Sen. John Sparks, were present to talk about the environment at the last Norman Sierra Club meeting. Concerning the diversification of source of energy Sparks said a large majority of the states in the U.S. want cheap energy adding, “They don’t want oil and gas prices to be monitored.” Both Rosecrants and Griffith said to Red Dirt Report suggested understanding the fracking issue which provokes environmental issues, but also provides work for thousands of Oklahomans. In addition, Rosecrants is opposed to the Plains All American pipeline project passing through Oklahoma that will represent a threat to the environment. 

On another side, Griffith had an opinion more reserved on the solution to improve the environment in Oklahoma. She said technology is already available to stop reinjecting wastewater into well fracking by separating sand and water and therefore cleaning the water. However, the cost is too expensive and therefore not competitive today. “It is very complex, the technology is there and it will come about, maybe in a couple of years the prices will go down and will permit to companies to invest in these technologies,” Griffith said. Griffith believes the transition between conventional to green energies will take time. The transition should be made without destroying jobs and undermining the local economic life saying, “Change is difficult.” Griffith believes as a legislator she can’t force companies and people to diversify their source of energy. “We are in a time where technology just continues to jump and tomorrow something new can just expose, like phones,” Griffith said. “Technology usually advances way ahead before the social issues and economic factors.” 

The following House Interim studies are scheduled for hearings:

• September 7:  H 16-4 Study lease revenue bonds (Casey), Assigned to House A&B
• September 7:  H 16-20 State agency realignment and paperwork reduction streamline (Murphey), Assigned to House A&B
• September 13: H 16-45 Study outstanding debt owed to state agencies (Newell), Assigned to House A&B
• September 13:  H 16-49 Study agency fees – fee for service thresholds (Perryman), Assigned to House A&B
• October 25: H 16-53 Study options for wastewater recycling (Morrissette), Assigned to House Energy
• October 25: H 16-37 Study oil and gas; examining restrictions on the location of habitable structures and the owner of the habitable structure's property rights (Kouplen), Assigned to House Energy

ELECTION UPDATE  

OKOGA COMMITTEE NEWS

Regulatory Practices Committee

The City of Guthrie is proposing a new city ordinance regulating oil and gas wells within City limits and is seeking input from citizens. The proposed ordinance includes limiting drilling to general industrial and agricultural zoned land; 300 foot setbacks; subjective noise level restrictions; requirement of equipment to reduce odors, fumes, emissions, soot and dust; and new insurance and bond requirements. OKOGA staff is currently reviewing to prepare comments. Feedback can be emailed to City Manager Bruce Johnson (bjohnson@cityofguthrie.com), or by mail to City of Guthrie, P.O. Box 908, Guthrie, OK 73044 Attn: City Manager. Comments will be accepted until October 4 and a public hearing regarding the ordinance will be held during the Oct. 4 City Council and Guthrie Public Works Authority regular meetings. 

Additionally, the City of Tuttle City Manager and some city councilors are considering updating municipal ordinances to regulate oil and gas truck traffic and site noise abatement due to new industry activity in town. OKOGA staff have met with city officials, area legislators and representatives from the Oklahoma Municipal League to address concerns with development of reasonable local regulations. More information will be sent to the OKOGA Regulatory Practices Committee as this issue develops. 

 The OKOGA Regulatory Practices Committee, OKOGA Legal Committee and OKOGA Committee on Legislation will soon receive a summary of the oral arguments that occurred Tuesday, August 30, before the Corporation Commission en banc regarding how pooling orders or spaced formations not in the target zone should be treated when the initial unit in the pooling is a horizontal well. The Commission's decision in this cause will be helpful in knowing whether and how the Commission will apply C.F. Braun & Co. v. OCC in future pooling proceedings.

REGULATORY NEWS

OCC - Petroleum Storage Tank Division

The Oklahoma Corporation Commission held a public hearing on Thursday of this week to consider adoption of Emergency Rules for Chapter 5, Rules of Practice and Chapter 25, Underground Storage Tanks. Chapter 5 rule changes will allow an administrative process approval of variance requests to close in place underground storage tanks without hearing if Petroleum Storage Tank Division (PSTD) staff are in agreement with the request. Provisions are made for hearings if the Applicant and PSTD staff do not agree. No comments were made or submitted concerning Chapter 5.  The primary change to Chapter 25 was meant to conform with an EPA Region 6 request that OCC rule language match that of EPA regulation specific to the tank release detection method known as Statistical Inventory Reconciliation (SIR). There are approved vendors that provide this service to tank owners and operators on a monthly basis for a fee. The changes eliminate a provision that allowed tank owners up to 30 days following the end of the month to obtain their SIR results.  EPA requires that all tank release detection methods are performed “at least every 30 days”.  PSTD has changed the word “monthly” to 30 days. The effect of this change could create an economic impact due to more frequent SIR analysis, depending on interpretation by OCC staff. The comments made at hearing requested a delay of the emergency rulemaking until more specific information could be provided by EPA, and a determination made for when any new rules would be implemented or enforced. The Commissioners continued the hearing another week until September 8, at 9:30 a.m. 

Postcards were sent by PSTD to remind tank owners and operators that new rules adopted earlier this year for Chapters 15, 25, 26, 27, and 29 became effective August 25, 2016. The Storage Tank Advisory Council (STAC) met on August 29, where more rule changes planned for this next cycle were announced in Chapter 15 Fuel Inspection, Chapter 16 Antifreeze, Chapter 25 Underground Storage Tanks, Chapter 26 Aboveground Storage Tanks, Chapter 27 Indemnity Fund, and Chapter 29 Corrective Action for Petroleum Storage Tank Releases. STAC approved the proposed rulemakings to move forward with the condition that final version would be provided to STAC again, prior to final approval. PSTD Director Robyn Strickland stated at least two Technical Conferences would be scheduled in the near future.   

US DOT

The U.S. Department of Transportation's (US DOT) Transportation Safety Institute has announced two Pipeline Safety Compliance Training seminars specially designed for the energy industry in Oklahoma. The course includes pipeline safety regulations and acute, critical, and serious safety violations. This course is designed to assist pipeline safety personnel with fewer than ten years’ industry experience. For more details, please click here. 

2016 Pipeline Safety Compliance Training – Gas
November 15-18, 2016, Oklahoma City, OK 

2017 Pipeline Safety Compliance Training – Liquid
January 10-13, 2017, Oklahoma City, OK 

FEDERAL REGISTER

USFW Endangered Species Act Compensatory Mitigation Policy. The U.S. Fish and Wildlife Service published the draft Endangered Species Act Compensatory Mitigation Policy. The draft new policy is needed to implement recent Executive Office and Department of the Interior mitigation policies that necessitate a shift from project-by project to landscape-scale approaches to planning and implementing compensatory mitigation. The draft new policy is also needed to improve consistency in the use of compensatory mitigation as recommended or required under the ESA. Comments will be accepted until October 17, 2016. 

EPA Revisions to Test Methods, Performance Specifications, and Testing Regulations for Air Emission Sources. The EPA promulgated technical and editorial corrections and revisions to regulations related to source testing of emissions. They made corrections and updates to testing provisions, and added newly approved alternatives to existing testing regulations. These revisions will improve the quality of data and provide flexibility in the use of approved alternative procedures. The revisions do not impose any new substantive requirements on source owners or operators. The final rule is effective on October 31, 2016. 

ARTICLES OF INTEREST