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SAVE THE DATE FOR OKOGA’S ANNUAL MEETING
Registration is now open 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
OKOGA continued sharing information from the recently released independent economic impact assessment of the oil and gas industry published by the State Chamber Research Foundation in a new blog post this week that emphasizes the hundreds of thousands of jobs the oil and gas industry supports in Oklahoma. Right now, about 18 percent of the state’s entire workforce is tied to the oil and natural gas industry. Almost 1 in 5 (424,800) wage and salary workers and self-employed proprietors in Oklahoma are employed directly or indirectly by the oil and gas sector.
The Journal Record reported on an interim study hearing held this week that was requested by OKOGA. An extra fee on heavy equipment rentals would hit oil and gas drillers hard, an association executive said. Lawmakers have already considered a proposal to let rental dealers charge an extra 1.5 percent, but the most recent version of the bill died in this year’s legislative session. It could be brought back. “I don’t know if the proposal might appear again, but it is a proposal that’s been out there at least the last two years,” said Arnella Karges, executive vice president for the Oklahoma Oil and Gas Association. Karges said her association asked for an interim study to talk more about how the assessment would work. It wasn’t clear, she said, whether the 1.5-percent fee would be just about equipment rental or also cover service costs. “If drilling companies had their contracts (include the fee), the entire service and equipment rental, the additional cost per rig to shale drillers would be roughly $250,000 per rig,” she said. Any legislation adopted in Oklahoma could be challenged in court. A similar Texas law is under review by that state’s Supreme Court. (More on the interim study under LEGISLATIVE NEWS below.)
In case you missed it on OKOGA’s social media sites this week, this release from Duke University was posted that explains what is found in produced water – Fracking wastewater is mostly brines, not man-made fracking fluids.
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.
INDUSTRY NEWS
Denise Bode with Energy Matters writes this week about how the current oil and gas revolution is threatened by protests against new pipelines. After successfully stopping the Keystone XL pipeline, groups have turned to focus on all other new pipeline construction going on in the U.S. Of even greater concern is the increasingly dangerous tactics being employed. Climate activists halted the operation of five oil sands pipelines in a show of solidarity with American Indian tribes fighting the $3.7 billion Dakota Access crude pipeline in North Dakota. Five activists began manually turning off emergency safety valves on pipelines in North Dakota, Montana and Washington plus two in Minnesota this morning, halting shipments of oil sands from Canada into the United States. The sabotage illustrated how vulnerable pipelines are to low-tech attacks. Climate activists broke through fences and cut locks and chains and simply turned the pipelines off. All they had to do was twist shut giant valves on five cross-border pipelines that together can send 2.8 million barrels a day of crude to the United States from Canada – equal to about 15 percent of daily U.S. consumption.
The Oil & Gas Financial Journal reports on recent bankruptcy court rulings that may impact pipeline contracts. The first major test of whether bankruptcy may be used to end an unfavorable pipeline contract with companies in the midstream sector of the energy industry recently unfolded in the Bankruptcy Court of the Southern District of New York. In a pair of rulings this year, the judge overseeing the bankruptcy of Sabine Oil & Gas Corp. held that midstream gathering contracts can be rejected in bankruptcy and that such contracts do not constitute “covenants running with the land.” For the energy sector, the rulings were a stunning development because midstream gathering contracts had generally been considered bankruptcy proof. If other judges follow the analysis and conclusions reached in the Sabine Oil case, the expectations of midstream service providers in the oil and gas extraction process might be turned on their heads.
SEISMIC ACTIVITY
Dallas News reported this week, the problem with Oklahoma earthquakes is what scientists don't know, the director of the Oklahoma Geological Survey told a roomful of geoscientists today in Dallas. Jeremy Boak was one of the key presenters at a special session of the annual conference of the Society of Exploration Geophysicists meeting at the Kay Bailey Hutchison Convention Center. Others in the program offered new ways to predict significant human-induced quakes that make people nervous and new ways to analyze tiny micro-tremors that could help the oil and gas industry figure out where to drill next. The biggest quakes that have hit the state, including the Oklahoma-record temblor last month, have been at the far edges of the zone of highest concern, Boak said. And that gives him pause. Somehow, the pressure created by the injection wells is pushing faults that are relatively far away.
Forbes has reported that two Oklahoma women and their attorneys have dropped a class action lawsuit in federal court that blames the recent spate of earthquakes in the state on oil and gas exploration, but they will re-file their claims against the fracking industry next year in a different court. Lawyers for Logan County residents April Marler and Lisa Griggs say they will re-file the case in a state court after waiting a year, which is required by law. Attorneys representing the energy industry count numerous reasons why the strategic legal move could pay off for the plaintiffs in the long run. “It is likely that the plaintiffs will be able to proceed further into the litigation without having to produce significant amounts of evidence early on to support their claims,” Eric Skanchy of Stoel Rives in Sacramento, CA said. “The Federal Rules of Civil Procedure requires a significant showing of evidence early on in the case, whereas state courts, generally, are more lenient in the early stages of a lawsuit. This would allow them to continue to gather evidence and data for a longer period of time.” He added that the standards for expert witnesses may be less onerous in state court.
In a separate action, parties in a case filed this past February in federal court by the Oklahoma Chapter of the Sierra Club and Washington-based Public Justice await the judge’s response to the industry’s motion to dismiss. A staff attorney in the Environmental Enforcement Project at Public Justice, Richard Webster, said that if the judge rules not to dismiss he expects the case to then move very quickly. One environmental lawyer said that citing RCRA was a stretch at best. “This is the ‘Star Trek’ of lawsuits,” Andrew H. Perellis in the Chicago office of Seyfarth Shaw said in an earlier article on the issue. “They are boldly taking RCRA where it has never gone before.”
Sunday’s Tulsa World covered the “challenge” of managing Cushing’s tank farm in the spate of recent earthquakes in Oklahoma. Operation of some of the 300 tanks at the world’s largest oil storage facility may be modified because of increased earthquakes, according to an engineer involved in not only designing and building the tanks but in developing specifications for them. “With the (seismic) activity we’ve seen to date, we haven’t seen the moment when we have a problem,” said Kenneth Erdmann, vice president for engineering with Tulsa-based Matrix PDM. “But we’re right at the limit for some of the tank sizes if they’re full to capacity. Our expectation ... is that there will be some modifications to future tanks, but it doesn’t look like severe step-changes.” The most likely modification to Cushing tanks, Erdmann said, would be filling the largest ones to no more than 90 percent of capacity. Tests and mathematical simulations indicate the leveraged weight of oil sloshing and shifting within the tanks is the greatest threat to a tank’s structural integrity. Cushing City Manager Steve Spears, an engineer by training, said people who have lived in the town a long time are not that concerned about potential danger. “We’ve all grown up with the tanks,” he said. “We all know what’s there. Steel is pretty plastic; it changes shape pretty well. So unless we have something really big, it’s not a concern.”
KSWO, local ABC affiliate in southwest Oklahoma reports that residents in Altus will participate in the Great American Shakeout, a nationwide event that teaches people how to survive and recover quickly from big earthquakes. Altus is far outside the state’s area of interest and has not experienced seismic activity though likely felt the Pawnee earthquake that occurred on September 3rd. “We really need to talk to our communities and see what we're going to do when something like this happens again because it seems like it's only getting worse,” said Sallie Hughes, an Altus resident. Jackson County Emergency manager, Wayne Cain says the American Shakeout drill to Drop, Cover and Hold on is practiced for real situations like this. “It could have been devastating,” said Cain. “So, being prepared, like I said, in any disaster. Preparation, knowing what to do...those are the things that are going to keep you, your family and your loved ones safe.” Lloyd Colston, the Altus Emergency Manager says although Oklahoma doesn't get hit with major earthquakes every day, it's important to learn to this because we never know when another quake, one that's even larger and more powerful than the one from September, will hit.
ELECTION NEWS
On Oklahoma’s ballot this November are Supreme Court Justices and Court of Civil Appeals Judges for retention. In a monthly Journal Record column, State Chamber of Oklahoma president, Fred Morgan, discusses the importance of being informed about judicial decisions before going to cast your ballot. Via the Oklahoma Civil Justice Council, the State Chamber releases ratings for statewide judges based on court rulings that affect business. You can find the ratings at www.okciviljustice.com.
State questions are getting a generating more attention in the final weeks before election day. The Tulsa World quoted Oklahoma Attorney General Scott Pruitt as saying, it is “simply not true” that a much-disputed state question would eliminate state regulation of water quality. Pruitt responded to a query about State Question 777, also known as Right to Farm, by saying he does not have a position on the matter, but that “Those who have said that the state will not have the ability to regulate state water, that’s simply not true.” The proposed constitutional amendment forbids the enactment of legislation interfering with agriculture except in cases of “compelling state interest.” It grandfathers regulations in place as of Dec. 31, 2014. The Oklahoma Farm Bureau and other agriculture organizations say SQ 777 is necessary to ward off unnecessary and even harmful regulation sought by animal rights and environmental advocates.
Additionally, U.S. Sen. Jim Inhofe has been campaigning for the Yes on 777 effort and submits his argument for support for the state question in a guest column in the Tulsa World this week.
New media blog, NonDoc covered both sides of various state questions this week including State Question 779 that proposes a one percent increase in sales tax for teacher pay raises, CareerTech and higher education in Oklahoma - SQ 779: Toby Keith for #oklaed tax, Todd Lamb opposed.
Lt. Gov. Todd Lamb will run for governor in 2018 and be the heavy favorite. Attorney General Scott Pruitt will either run against Lamb or try again for a seat in Congress. And a long list of current and would-be officeholders will try to replace Lamb and Pruitt. Those are the predictions of Oklahoma political experts polled by The Oklahoman with the promise of anonymity. Most statewide elected officials — not counting the U.S. senators — will be barred from seeking re-election because of term limits. That means the offices of governor, lieutenant governor, attorney general, treasurer, state auditor and insurance commissioner will be open because of term limits. “2018 will be a transformational year in Oklahoma politics,” said one of the political experts responding to The Oklahoman's questionnaire. “Almost every statewide state office will change hands and at least one congressional district will be open.”
LEGISLATIVE NEWS
Two House interim studies tracked by OKOGA were heard this week. The first study (H 16-61) regarding the heavy equipment rental tax was requested by Rep. Elise Hall, R-Bethany, at OKOGA’s request. OKOGA Executive Vice President Arnella Karges presented industry’s concerns to the House Appropriations & Budget Subcommittee on Revenue and Tax. Karges said during Tuesday's interim study, part of the concern with the measure is in how the tax would be assessed. “The bill refers to it as a recovery fee. In trying to be favorable, the bill's language was changed to 'may assess' a 1.5 percent recovery fee, so not knowing when that will be assessed is (of concern),” she said. “Property taxes are assessed on the property value, having a blanket 1.5 percent recovery fee means older equipment will be assessed at a value that is like of brand new equipment. This is definitely a concern,” Karges. Marshall Mungle, property tax manager with ONEOK, agreed, saying the bill was “a drastic departure from the property tax methodology and the property tax structure we have today.” Some county assessors also expressed concerns that the rental companies would not be responsible for the property tax and instead would shift the responsibility to the consumers. “From the oil and gas side, we really ask legislators to think deeply before changing the tax structure and what the cost of business is in the state,” Karges said. (eCapitol and Journal Record (sub req’d) report)
The other interim study meeting held this week also discussed property tax issues, focusing on various ad valorem tax exemptions provided in state law. The study was requested by Rep. David Brumbaugh, R-Broken Arrow. Many industry representatives were present to hear if the five-year ad valorem manufacturing exemption would be discussed – it was not. The main concern presented by officials with the Tulsa County Assessor’s office was over nonprofit or charitable exemptions that may not be entirely proper. “We have to get this under control,” said Brumbaugh. “The success in Tulsa County with the new software doing proper valuations….has helped.” Brumbaugh said the interim study helped “shed some light” on some of the problems with the funding formula. “If we become more consciously aware of how this is supposed to be implemented, we will in the long-run…start relying on this revenue we have in these times of shortfall,” he said. (eCapitol reports)
The following House Interim studies impacting industry are scheduled for upcoming hearings:
- 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
Additionally, OKOGA has been asked to present at a joint House and Senate interim study Examining How Oklahoma Can Attract and Encourage Growth, Diversification and Recruitment of New Business and Industry. OKOGA has been asked to share what the state has done to help grow the oil and gas industry and what should be considered in the future to enhance future growth of the industry in Oklahoma. The meeting is scheduled for Wednesday, October 26, at 9 am to 4 pm, in Room 206, of the State Capitol Building. This meeting and the meetings listed above will be live streamed on the House website, click here to listen.
Upcoming 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
OKOGA COMMITTEE UPDATE
OKOGA REGULATORY PRACTICES
The OKOGA Regulatory Practices Committee met this week and discussed comments for various rule proposals at the Oklahoma Corporation Commission, the upcoming legislative interim study meetings and rule proposals OKOGA should offer in preliminary and rulemaking proceedings. A recap will be sent to the committee.
The Oil & Gas Conservation Division and the Petroleum Storage Tank Division of OCC has 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 for Chapter 5 were released on October 18th.
As a reminder, the first of two Oklahoma Corporation Commission (OCC) Petroleum Storage Tank Division (PSTD) public, technical conferences is scheduled for next week as part of the rulemaking process for proposed rule changes. The PSTD technical conferences are scheduled for 10:30 a.m., on Tuesday, October 25th, and 10:30 a.m., on Tuesday, November 22nd, in Courtroom 301, of the Jim Thorpe Office Building, located at 2101 N Lincoln Blvd, in Oklahoma City. Proposed rules can be found on the OCC website, Proposed Rules page. See Proposed Rules for Chapter 15 – Fuel Inspection; Chapter 16 – Antifreeze; Chapter 25 – Underground Storage Tanks; Chapter 26 – Aboveground Storage Tanks; Chapter 27 – Indemnity Fund; Chapter 29 –Corrective Action of Petroleum Storage Tank Releases.
Proposed Rules for Chapter 16 - Antifreeze includes a proposed change requested by OKOGA in Chapter 16 to exempt industry. See underlined part in 165:16-1-3. Applicability, that states, “This Chapter does not apply to antifreeze used for internal consumption and manufacturing processes.”
OKOGA COMMITTEE ON LEGISLATION
The OKOGA Committee on Legislation will meet on Wednesday, November 9th to discuss election results and legislative proposals for 2017. A meeting agenda will be sent to the committee next week.
OKOGA MIDSTREAM COMMITTEE
The OKOGA Midstream Committee will meet on Thursday, November 17th. A calendar meeting invite with a meeting agenda will be sent to committee members closer to the meeting date.
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
EPA
EPA needs to fix the RFS, HollyFrontier CEO says. The Hill. HollyFrontier President and CEO George Damiris warns that the Environmental Protection Agency's flawed Renewable Fuel Standard mandate could lead to many unintended consequences such as job losses and lower supply. He writes that the RFS forces oil refiners and importers to blend biofuels into regular gasoline and diesel despite having a limited ability to do so, and that the EPA should realign the point of obligation under the RFS to solve this problem.
PROPOSED RULES – National Emission Standards: Hazardous Air Pollutant Emissions: Petroleum Refinery Sector. On December 1, 2015, the Environmental Protection Agency finalized amendments to the National Emission Standards for Hazardous Air Pollutants Refinery Maximum Achievable Control Technology 1 and Refinery MACT 2 regulations and the New Source Performance Standards for petroleum refineries. The EPA is seeking comment only on the five identified petition issues and on the proposed compliance issue clarification and referencing error amendments. The EPA will not respond to comments addressing any other issues or any other provisions of the final rule. Comments must be received on or before December 2, 2016.
General Permits and Permits by Rule: Federal Minor New Source Review Program in Indian Country for Six Source Categories. The Environmental Protection Agency is finalizing general permits for use in Indian country pursuant to the Federal Minor New Source Review Program in Indian Country for new or modified minor sources in the following six source categories: concrete batch plants; boilers and emergency engines; stationary spark ignition engines; stationary compression ignition engines; graphic arts and printing operations; and sawmill facilities. This final rule is effective on November 14, 2016.
National Ambient Air Quality Standards for Lead; Review. The Environmental Protection Agency reviewed the air quality criteria and the national ambient air quality standards for lead (Pb) and determined that the current standards are appropriate and will not be revised. This final rule is effective on November 17, 2016.
Revisions to Public Notice Provisions in Clean Air Act Permitting Programs. The U.S. Environmental Protection Agency is revising the public notice rule provisions for the New Source Review, title V and Outer Continental Shelf permit programs of the Clean Air Act and corresponding onshore area determinations for implementation of the OCS air quality regulations. This final rule removes the mandatory requirement to provide public notice of a draft air permit (as well as certain other program actions) through publication in a newspaper. Instead, this final rule requires electronic notice (e-notice) for EPA actions (and actions by permitting authorities implementing the federal permitting rules) and allows for e-notice as an option for actions by permitting authorities implementing EPA-approved programs. When e-notice is provided, the final rule requires, at a minimum, electronic access (e-access) to the draft permit. However, this final rule does not preclude a permitting authority from supplementing e-notice with newspaper notice and/or additional means of notification to the public. The EPA anticipates that e-access will expand access to permit-related documents. The effective date of this final rule is November 17, 2016.
ESA
Attorney: Feds’ broad ban on ‘take’ of species endangers conservation. The Oklahoman (Op-Ed). The late Supreme Court Justice Antonin Scalia once described the Endangered Species Act as imposing “unfairness to the point of financial ruin — not just upon the rich, but upon the simplest farmer who finds his land conscripted to national zoological use.” His comment resonates with far too many landowners in Oklahoma and across the country. The target of his criticism was the statute's “take” prohibition, which forbids essentially any activity that affects a single member of a protected species or its habitat, even if unintentional. This broad prohibition includes a wide range of ordinary land uses. Despite its broad reach, the harsh penalties include costly lawsuits, substantial fines, and even imprisonment. When Congress passed the statute in 1973, Sen. John Tunney, D-Calif., acknowledged that this is a “stringent prohibition.” He wasn't kidding!
FEDERAL REGISTER
PHMSA
PHMSA to Impose Higher Penalties Across the Board for Violation of Federal Pipeline Standards. PHMSA will impose "higher penalties across the board for any violation of federal pipeline standards" in order to increase deterrence and lower incident risk, the agency says in an advisory issued today. Current law gives PHMSA discretion in imposing maximum of $2m for pipeline safety violations. Link to Advisory from PHMSA.
Pipeline Safety: Enhanced Emergency Order Procedures. This interim final rule establishes regulations implementing the emergency order authority conferred on the Secretary of Transportation (Secretary) by the ‘‘Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016’’ (PIPES Act). These regulations are mandated by the PIPES Act and, in accordance with the Act, PHMSA is establishing procedures for the issuance of emergency orders that will be used to address an unsafe condition or practice, or combination of unsafe conditions or practices, that pose an imminent hazard to public health and safety or the environment. PHMSA will add two definitions in order to clarify the meaning of Emergency order and imminent hazard. This interim final rule is effective October 14, 2016.
Pipeline Safety: General Policy Statement; Civil Penalties. The purpose of this policy statement is to advise pipeline owners and operators that the Pipeline and Hazardous Materials Safety Administration has now made a civil penalty framework accessible on its Web site. It further advises pipeline owners and operators that PHMSA will, as appropriate, issue higher penalties in order to apply stronger deterrence and drive down incident risk. These penalty frameworks become effective October 17, 2016.
Expanding the Use of Excess Flow Valves in Gas Distribution Systems to Applications Other Than Single-Family Residences. This final rule makes changes to part 192 to expand this requirement to include new or replaced branched service lines servicing SFRs, multifamily residences, and small commercial entities consuming gas volumes not exceeding 1,000 Standard Cubic Feet per Hour. PHMSA is also amending part 192 to require the use of either manual service line shut-off valves or EFVs, if appropriate, for new or replaced service lines with meter capacities exceeding 1,000 SCFH. This final rule requires operators to notify customers of their right to request installation of an EFV on service lines that are not being newly installed or replaced. PHMSA has left the question of who bears the cost of installing EFVs on service lines not being newly installed or replaced to the operator’s rate-setter. This final rule is effective April 14, 2017.
DEPARTMENT OF COMMERCE
First Responder Network Authority: Environmental Impact Statements; Availability, etc.: South Region of the Nationwide Public Safety Broadband Network. The First Responder Network Authority (‘‘FirstNet’’) announces the availability of the Draft Programmatic Environmental Impact Statement for the South Region (‘‘Draft PEIS’’). FirstNet also announces a series of public meetings to be held throughout the South Region to receive comments on the Draft PEIS. The Draft PEIS evaluates the potential environmental impacts of the proposed nationwide public safety broadband network in the South Region, composed of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Comments must be received by December 13, 2016. A public meeting will be held in Oklahoma City on November 3, 2016, from 4:00 p.m. to 8:00 p.m., OKC-County Health Department, Northeast Regional Health Wellness Campus, 2600 NE 63rd Street, Auditorium, Oklahoma City, OK 73111.
ARTICLES OF INTEREST
Tulsa World editorial: State legislators get one right (for once) in revitalizing state tax commission enforcement auditors
eCapitol: Measure creating Revenue Stabilization Fund set to take effect
OK Energy Today: Anhydrous Ammonia Gas Leak Kills Nebraska Driver—-Tulsa’s Magellan Midstream Investigates Leak
Journal Record: Continental asks court for help in seismic data dispute (sub req’d)
NewsOK: Researchers: Limits on drilling not enough to protect sage grouse
OK Energy Today: Bernie Wants Work Stopped on Dakota Access Pipeline
Tulsa World: Eight school districts win lawsuit against Oklahoma Tax Commission; outcome to affect hundreds of districts
SmartBrief: How Chevron leverages social media in a crisis
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