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OKOGA WEEKLY HIGHLIGHTS | WEEK OF 10/14/2016
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REGISTER FOR OKOGA’S ANNUAL MEETING

 
Register now for the Oklahoma Oil & Gas Association 2016 Annual Meeting on Friday, November 18, at the Embassy Suites Downtown Medical Center, located in Oklahoma City. The annual meeting will focus on Oklahoma’s new area of oil and natural gas development – the SCOOP and STACK plays, which have been identified as the No. 2 region in the nation for oil and gas production. The agenda will also include a legislative and regulatory perspective panel, an update on work of the Water for 2060 Produced Water Working Group, and more. The annual meeting will feature top company executives with activity in the SCOOP and STACK. The meeting will also follow historic elections in Oklahoma that will result in a change of at least one-third of the Legislature due to term limits, some incumbents already being unseated and other legislators not seeking re-election.
 

OKOGA COMMUNICATIONS UPDATE

 
In case you missed it on OKOGA’s social media sites this week, OKOGA President Chad Warmington has a new blog post this week – Jobs, businesses, economies grow as oil and natural gas production grows. We know that when the oil business is good, the economy is good. If the oil and natural gas industry struggles, the state’s economy follows suit. At a time when the state has been rocked by low commodity prices and constant news about how those prices have impacted our economy, it’s great when a new economic report comes out and confirms that we are doing a lot of things right in Oklahoma to keep the oil and gas business as strong as possible. It’s important to understand that the oil and natural gas industry is every bit as important to those who don’t necessarily collect a paycheck from an oil and gas company, but who benefit financially just the same. Each new oil and gas job supports two additional jobs in the state. The oil and gas industry is in the best position of any industry to add high-paying jobs and sustain these jobs as long as the state remains competitive for oil and natural gas development.
 
If you are not currently following these sites, please follow OKOGA on Facebook and Twitter. OKOGA is actively posting on these social media sites, and we need you and your employees’ help to engage others in advancing the industry by liking and sharing OKOGA posts.

Warmington also spoke to the news media in the last week about the EPA’s recommendation to the Oklahoma Corporation Commission that it should establish a moratorium on disposal wells in the area of interest for seismic activity. He spoke with KOCO (Channel 5-OKC) about the EPA report, saying, “It’s a pretty good example of a federal bureaucracy that’s really slow and antiquated and hasn’t been able to be as responsive as the Commission has been.”
 
The Oklahoman also covered reaction to the EPA report. The federal agency's annual review of the underground injection control program administered by the Oklahoma Corporation Commission covers the fiscal year that ended in June 2015. It was sent to the agency Sept. 22. The EPA review drew sharp rebukes from energy industry representatives, with the Oklahoma Oil and Gas Association calling its seismicity recommendations “a stellar example of the inefficiency of the federal government. It's akin to a newspaper telling us today the football scores from games played 15 months ago,” said the association's president, Chad Warmington. “Well shut-ins have continued after that (EPA) report,” Corporation Commission spokesman Matt Skinner said Friday. “We don't look at this as a finished product. We continue to evolve our response. This is the most important issue this agency has ever faced, and this agency has faced a lot of important issues over the years.” Warmington said the EPA's own reporting system in Osage County was like “an encyclopedia in a Wikipedia world.” Oklahoma regulators have been far ahead of federal officials in their response to induced seismicity, he said.
 
“What is especially troubling is that while critical of Oklahoma, the EPA still has yet to institute increased volume reporting, has not asked operators to plug back wells out of the (granite) basement; and still has their annual reports filed on paper for the area of the state the federal agency is responsible,” Warmington said.
 
Thanks to the invitation of OKOGA Ad Valorem Committee Co-Chair, Marshall Mungle with ONEOK, Inc., Executive Vice President Arnella Karges spoke to the Oklahoma Association of Tax Representatives at their Fall Meeting. Karges shared an update on ad valorem tax changes avoided this past session and what is being discussed this interim. Results of the elections, including State Question 779 could have an impact on decisions about property tax increases in the future. This is a difficult connection for some to make, but with local and state revenues stressed, tax consumers look everywhere for the opportunity to access additional dollars and if this past session is any indication, the option to raise property taxes is a favored option.
 

INDUSTRY NEWS

 
FedEx Freight has converted its Oklahoma service center to run on compressed natural gas, buying more than 100 CNG trucks and installing a large, on-site CNG fueling station. Gov. Mary Fallin, FedEx CEO Fred Smith and other dignitaries participated in a grand opening ceremony Tuesday for the expanded service center. Oklahoma City is the first market where the company has committed most of its vehicles to CNG. FedEx partnered with California-based Clean Energy Fuels to design, build and maintain the fueling station, which includes a four-lane fast-fill station and an overnight time-fill station with six zones and 18 hoses. This is exciting news for the natural gas market in Oklahoma and is why OKOGA worked with CNG users this past session to protect the alternative fuels state incentive for vehicles and infrastructure.
 
The Standing Rock Sioux Tribe lost its attempt this week to convince a federal appeals court to block construction on part of the Dakota Access pipeline that runs through North Dakota. The D.C. Circuit court of Appeals had listened to tribal arguments last month but the judges said they would not permanently stop construction of the $3.8 billion pipeline that will carry oil from North Dakota through South Dakota, Iowa and into Illinois. The ruling means construction of the 1,172-mile pipeline can continue near the tribe’s reservation. The judges stated in their ruling that while they gave the green light to the construction, “ours is not the final word.”
 

SEISMIC ACTIVITY


KFOR interviewed OCC spokesman Matt Skinner and former petroleum geologist Bob Jackman about the EPA report that focuses on July 2014 to June 2015. “Some of those concerns are based for that time period and much has changed, but does more work need to be done? Do we need to continue to move forward and evolve our approach? Obviously. We're still having earthquakes,” Skinner said. “The state of Oklahoma is injecting the equivalent of 517 Empire State buildings per year underground” he said. Jackman says there are still more than 700 wells injecting into the Arbuckle formation-- a seismic hot spot. “It's like you've got a major underground fire and somebody is saying well we've almost stopped pouring gasoline on it, but we're still allowing a little bit,” Jackman said.
 
The Sierra Club’s lawsuit accusing Chesapeake Energy, Devon Energy, SandRidge Exploration and New Dominion of causing earthquakes in the state through their use of extensive wastewater disposal wells remains active in Oklahoma City Federal Court. The most recent filing in the case (CIV-16-00134) was Oct. 3 in which attorneys for the four companies responded to an attempt by the Sierra Club to shore up its opposition to their motions to have the lawsuit dismissed before Federal Judge Stephen P. Friot. Responding to the Sierra Club motion for “supplemental authority,” the defendants maintained the case still should be dismissed and left in the hands of the state, not the U.S. District Courts. They contend state interests outweigh federal interest based on the circumstances of each case. The energy firms made the appeal to Judge Friot that, “This case presents extraordinarily compelling state interests. Plaintiff’s RCRA (Resource Conservation and Recovery Act) claims involve not a single site but rather hundreds of different wells covering thousands of square miles across the State of Oklahoma. They are an indirect challenge to a comprehensive regulatory system covering this crucial part of the state’s economy.”
The oil and gas companies contend “Oklahoma is taking immediate proactive and comprehensive steps, such as actively modifying disposal well permits of Defendants and other operators, to address through a uniform and coherent approach the precise seismicity concerns raised in Plaintiff’s complaint.” (OK Energy Today reports)
 
This week the Muskogee Phoenix had an editorial discussing the balance of Oklahoma’s economy, reliant on oil and natural gas production, and public safety concerns. Oklahoma faces a quandary over whether to limit disposal-well operations at the expense of the oil and gas industry. The state faces a teeter-totter balancing act between ending man-made earthquakes and lessening an economic downturn of the oil and gas industry. But safety has to come first. It’s time we go off that economic roller coaster and find more stable industries to be the foundation of our economy. But we can’t have houses and buildings cracking and crumbling every week while we wait for the big one to devastate our state. More earthquakes will assuredly bring death and injury. We can’t risk lives. We have to put safety first. We have to work toward a diversified economy that never forces us to compromise safety.
 

ELECTION NEWS

 
The Republican State Leadership Committee has named House District 39 GOP Candidate Ryan Martinez to its “16 in ’16: Races to Watch List”. It is a part of a project by the Committee to recognize minority and women candidates running as Republicans in state races. Martinez previously worked for Sen. Jim Inhofe and former Speaker of the House T.W. Shannon, R-Lawton.
 

LEGISLATIVE NEWS


Governor Fallin announced staff changes in her office this week. The changes are:
  • Secretary of State and Native American Affairs Chris Benge, a former House speaker, will become the governor’s chief of staff. He will retain his duties as secretary of Native American Affairs.
  • First Assistant Attorney General Mike Hunter, a former legislator who served as secretary of state for former Governor Frank Keating, will become secretary of state and special counsel to the governor.
  • Chief of Staff Denise Northrup will become chief operations officer at the Office of Management and Enterprise Services, an agency formed in Fallin’s first term by consolidating several shared government services to generate efficiencies.
  • Deputy General Counsel Jennifer Chance, a former Oklahoma County assistant district attorney, will become general counsel.
All changes will be effective by Nov. 1. “With these changes plus so many new legislators next year and new legislative leadership, Oklahomans can expect a fresh, redoubled effort from my administration and other leaders to serve them successfully. I believe our best days are ahead of us and that we will continue pushing an aggressive, pro-growth agenda,” Fallin said.
 
Fallin said Denise Northrup, current chief of staff of the Governor, who has also worked with Fallin for 22 years, will take on some of the duties of John Estus, OMES director of public affairs and communications, and assume other duties related to the operations of the agency and efforts to identify other opportunities for cost savings in state government. Estus is leaving the office to take a job in the private sector with Saxum Communications. (eCapitol reports)
 
The following House Interim studies impacting industry are scheduled for upcoming hearings:
  • October 18: H 16-61 Study heavy equipment rental tax (Hall), Assigned to House A&B Revenue and Tax Subcommittee, 9:30 a.m. to 12 p.m., Room 432A – Requested by OKOGA
  • October 18: H 16-63 Study guidelines for Ad Valorem property tax exemptions (Brumbaugh), Assigned to House A&B Revenue and Tax Subcommittee, 1:30 p.m. to 4:30 p.m., Room 432A
  • October 25: H 16-53 Study options for wastewater recycling (Morrissette), Assigned to House Energy, 9 a.m. to 12 p.m., Room 412C
  • 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, 1 to 3 p.m., Room 412C 
With upcoming interim study meetings about issues impacting the oil and gas industry, it is important to note this Journal Record article that discusses sparse attendance at such meetings. In a hearing about how universities report rapes that happen on campus, experts gave testimony to a nearly empty House committee room. Only one Higher Education Committee member, Chairman Harold Wright, showed up for the interim study. The other representative there that day was Claudia Griffith, who organized the study. Griffith said she’d been told interim studies are poorly attended. “You put a lot of work and effort into asking people to come and speak,” said Griffith, D-Norman. “They’re taking their time to fulfill your wishes and when nobody comes it’s like, ‘Wow, what a waste of time.’” The first-term representative said she wasn’t surprised at the turnout. The empty hearing last week is indicative of a Legislature that rarely shows up to committee meetings during the interim, when lawmakers float ideas and experts give in-depth testimony about issues that might or might not reappear as legislation. (sub req’d)
 
Rep. Leslie Osborn and Rep. John Echols said this week they intend to propose legislation in the 2017 legislative session that would bring Oklahoma into immediate compliance with the federal REAL ID law. The duo's announcement came after the state learned it was denied an extension from the federal government to become compliant with the act. They said the state is out of time and out of options for complying with the REAL ID Act, which requires the coordination of state issued IDs in an effort to protect against terrorism and fraud. The Department of Public Safety announced Tuesday that Oklahoma was denied an extension from the federal government to become compliant with REAL ID. DPS officials said Tuesday their notification message noted the state has been issued a grace period that ends on January 29, 2017. “Starting January 30, 2017, Federal agencies are prohibited from accepting driver's licenses and identification cards issued by (non-compliant) states for official purposes,” read the letter from the U.S. Department of Homeland Security. “What this means is that after January 30, 2017, anyone who does not have a form of identification that is REAL ID compliant will not be able to enter a federal building or facility, military base, courthouse, etc. Oklahomans are strongly encouraged to plan ahead before visiting any federal building or facility,” DPS said in a statement. Beginning January 22, 2018, a driver license or state ID issued by a state that is not in compliance with the REAL ID Act and has not been granted an extension by DHS will not be accepted to board a commercial aircraft within the U.S. (eCapitol reports)
 
Important Legislative Dates:
  • November 8: ELECTION DAY
  • November 15: House members and incumbent senators may begin filing bills
  • November 16: Swearing in ceremony for new and re-elected legislators, also Statehood Day in Oklahoma
    • The House of Representatives will hold its swearing in ceremony at 11 a.m.
  • The Senate ceremony will be at 1:30 p.m.
  • November 23: Freshmen senators can begin filing bills
  • December 9: Deadline to request a bill or resolution
  • January 3: Organizational Day at the Capitol for official elections for House Speaker and Senate president pro tempore
  • January 19: Deadline to file bills or joint resolutions for consideration in the 2017 session

ECONOMIC UPDATE

 
General Revenue Fund collections for September were 12.4 percent below the estimate on which the fiscal year 2017 appropriated budget is based, Office of Management and Enterprise Services Director Preston Doerflinger reported this week. General Revenue Fund (GRF) collections in September totaled $452.6 million, which is $64.2 million, or 12.4 percent, below the official estimate and $91.5 million, or 16.8 percent, below prior year collections.
Total GRF collections through the first three months of FY 2017 are $1.2 billion, which is $16.8 million, or 1.4 percent, above the estimate and $130.2 million, or 9.5 percent, below prior year collections. Through the first two months of the fiscal year - July and August - collections were 11.5 percent or $81.0 million ahead of the estimate, the office reported in September. “The previous month's jump was simply because of unpredictable circumstances and not based on any economic change,” said Doerflinger, who also serves as Gov. Mary Fallin's Secretary of Finance, Administration and Information Technology. “September's receipts give a much more accurate revenue picture. More concerning than September's correction is the continued slide of sales tax, which makes up a large portion of the GRF and city service budgets.” (eCapitol reports)
 
Matching last month’s depressed state revenue collections, Gov. Mary Fallin said she expects she will have to write her fiscal year 2018 budget with less money than was appropriated for the current fiscal year. Fallin said she did not believe the FY2018 deficit was be as big as the $1.3 billion hole she and lawmakers ultimately faced in writing the FY2017, current year, budget. The governor pointed to Monday's oil prices, which was more than $50 per barrel and projections by the Federal Reserve that oil prices could rise into the mid-$50 range by year's end and over $60 per barrel in 2017. Fallin also said she expected the country's economy would stabilize after the presidential election in November. At the same time, Fallin expressed caution, saying, “Agencies need to be prepared for budget cuts” when the FY2018 budget finally is approved. Fallin chairs the State Equalization Board, which is scheduled to meet December 21 to consider the initial FY2018 revenue estimate that she will use to write her executive budget. The board will consider a second estimate in February that takes into account any economic changes that could affect revenue that occur between the two meetings. That number is starting point for negotiations between the governor and lawmakers on a final budget plan. (eCapitol reports)
 
The Tulsa World editorializes on the big decisions legislators face next session, with another expected budget shortfall.
 
The Oklahoman also published an editorial about the budget problems legislators will continue to grapple. THE budget problems facing Oklahoma government are due in part to the tension between the political pressure to spend money and the reality that there's only so much to go around. Too often, those calling for spending increases, regardless of economic conditions, are only setting up the state for continued shortfalls. Applying higher tax rates to declining economic activity does not necessarily generate extra revenue. In fact, higher tax rates can deepen an economic slump, so higher rates can actually generate less tax revenue than what occurs at lower rates during good economic times. Oklahoma has been in a recession. Until that changes, it's inevitable that state government spending will be restrained. Oklahoma cannot defy the laws of fiscal gravity, and it's foolish to pretend otherwise.
 

OKOGA COMMITTEE UPDATE

 

OKOGA REGULATORY PRACTICES


This week the OCC Oil & Gas Conservation Division Advisory Subcommittees met to review and discuss the Draft Amendments for 165:10 – Oil and Gas Conservation, dated September 30, 2016, proposed by OCC division staff. Prior to the meeting OKOGA submitted to staff and others Comments on OCC Chapter 10 Draft Amendments, dated September 30, 2016 and other Rule Proposals. Though not included in the staff draft amendments, OKOGA recommended not to remove the option for the issuance of temporary permits to drill. OKOGA also expressed opposition to the reporting of completion fluid and/or additives releases, but rather allow for enhancement of the 5-day “frack notice”. The bulk of OKOGA’s comments were in response to the Rule Proposals presented by Steven C. Altman, President of Altman Engineering at the previous meeting on October 23rd. Only one suggestion by Altman was in the staff draft amendments, but OKOGA stated opposition to the idea of also sharing directional surveys as part of the notice to area operators.
 
A new proposal was presented by Jack Dake with Baron Exploration to institute statewide setbacks. Dake explained Baron Exploration has most of its operation within the City of Oklahoma City limits and within the boundaries of other incorporated municipalities. He expressed his frustration with inconsistent local ordinances and some ordinances that have setbacks that are so restrictive they are in effect a ban on oil and gas activity. Click here for the handout Dake presented with information supporting his proposal.
 
The Oil & Gas Conservation Division and the Petroleum Storage Tank Division of OCC have scheduled a meeting to discuss draft amendments to OAC 165:5 – Rules of Practice, on Wednesday, November 2, at 1:30 p.m., in Courtroom 301, Jim Thorpe Office Building, 2101 N Lincoln Blvd, in Oklahoma City. Draft amendments have not yet been released, but will be sent to OKOGA committees once received.
 
Watch for a meeting notice for the OKOGA Regulatory Practices Committee soon to follow up on OCC Chapter 10 preliminary rulemaking and other issues.


OKOGA COMMITTEE ON LEGISLATION

 
The OKOGA Committee on Legislation will meet on Wednesday, November 9th. A calendar meeting invite will be sent to committee members.
 

OKOGA MIDSTREAM COMMITTEE

 
The OKOGA Midstream Committee will meet on Thursday, November 17th. A calendar meeting invite will be sent to committee members.
 

OKOGA REFINERY MANAGERS GROUP

 
The annual meeting of the OKOGA Refinery Managers Group will be held in December. Watch for a calendar meeting invite for this event.
 

REGULATORY NEWS

 

OWRB

 
Julie Cunningham, a long-time employee of the Oklahoma Water Resources Board was named the agency's interim director Wednesday. Cunningham currently serves as chief of the board's water planning and management division. She has been with the agency since 1994. She succeeds J.D. Strong, who is leaving the agency to become executive director of the Department of Wildlife Conservation. Board Chair Linda Lambert said the posting for a permanent director would not go up until after the first of the year. Gov. Mary Fallin applauded the Oklahoma Water Resources Board choice Wednesday of Julie Cunningham as the agency's interim executive director. Fallin added, “Water continues to be one of my major priorities and I look forward to making appointments to the Water Resources Board and having them confirmed in the coming months. I also appreciate the Water Resources Board's plan to allow for new board members to be seated before the hiring of a permanent director.” Fallin said she plans to make appointments to the Water Resources Board by the start of the next legislative session for seats representing northeast, northwest, and southeast Oklahoma. Those appointments are subject to confirmation by the Senate. (eCapitol reports)
 

EPA

 
The best way to protect the environment isn’t always obvious. Pacific Legal Foundation (Blog). Although environmentalists often decry fracking for potential impacts to groundwater–claims for which an EPA study found very little support–it has several demonstrable environmental (not to mention economic) benefits. By lowering the cost of natural gas, it has shifted energy production to a fuel that produces lower emissions of pollutants and carbon dioxide. It also, as Brian documents, provides the financial means for struggling farmers, ranchers, and other rural property owners to maintain their property as open space and habitat for wildlife. Protecting species, for instance, can be quite costly, by reducing economic development, restricting people’s property rights, and impacting communities in profound ways. How we protect endangered species has a huge impact on these trade-offs and the unintended consequences. 
 
EPA commits to review emissions from drilling sites. Argus Media. The US Environmental Protection Agency (EPA) today committed to take a closer look at the decades-old formulas it uses to estimate the volume of smog-forming emissions from flares at natural gas production sites. hat review, which EPA plans to finish in 2018, could lead to tougher air emissions regulations for the industry if the agency finds the flares emit significantly more volatile organic compounds than it thought. The American Petroleum Institute said it was reviewing the settlement agreement.
 
EPA to revise emissions formula for refinery flares. Argus Media. he US Environmental Protection Agency (EPA) plans to revise a key formula used to estimate the amount of emissions produced by flares at refineries and chemical plants. The formula change would increase by 16pc the "emission factors" used to estimate the amount of volatile organic compounds (VOCs) produced by those flares, which refineries and chemical plants use to burn off waste gas and other hydrocarbons. Those changes are in response to a lawsuit from environmentalists that said EPA was underestimating the amount of VOCs produced by flares, exposing nearby communities to more emissions than official estimates showed. EPA will accept public comment on the settlement agreement for 30 days. The changes will go into effect unless the agency receives comments indicating problems with the settlement. The American Petroleum Institute's regulatory affairs director Howard Feldman said the trade group would carefully review the changes and "provide appropriate feedback, if necessary," but said it supports the use of best science and technology.
 

ARTICLES OF INTEREST

 
Journal Record: Right Thinking: Something to really get scared about
The Oklahoman: This year, tax audits are more likely in Oklahoma (sub req’d)
Journal Record: Editorial: Putting women front and center
Tulsa World: Expert Advice: “Should I purchase earthquake insurance?”
Reuters: Bolt cutters expose vulnerability of North America's oil pipeline grid
NewsOK: Federal judge dismisses nuisance case against Oklahoma wind farm
AP: Dakota Access Pipeline Work Resumes Near Site of Protest
ABC News: Washington Voters to Decide on Nation's First Carbon Tax
 
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