oil and gas and the texas railroad commission

© 2015 Mark Miller

Mark Miller, PhD, PE

Oil & Gas and the Texas Railroad Commission

Lessons for Regulating a Free Society

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© 2015 Mark Miller 2

Wikipedia: “The state agency that regulates the oil and

gas industry, gas utilities, pipeline safety, safety in the liquefied petroleum gas (LPG) industry, and surface coal and uranium mining.”

Despite its name, the last railroad-related responsibilities were removed in 2005 The TRRC actually stopped regulating railroads

in 1984!

What is the Texas Railroad Commission?


Oil & Gas Division Prevent waste of the State’s natural resources Protect correlative rights of different interest owners Prevent groundwater pollution Provide for public safety Regulate injection wells (under federal program)

Oversight & Safety Division Provide for safety of intrastate pipelines Regulate city-gate and unincorporated area gas utility rates Regulate storage, transportation, and use of LPG, CNG, and LNG

Alternative Fuels Research and Education Public outreach and education on use of LPG, CNG, and LNG

Surface Mining and Reclamation Regulate surface mining of coal and uranium

Major Divisions


Part of Texas’ plural executive, which includes: Secretary of State (appointed by Governor) Lieutenant Governor Attorney General Comptroller of Public Accounts Commissioner of the General Land Office Commissioner of Agriculture Railroad Commissioners (3) State Board of Education (15, elected from

districts)Railroad Commissioners are elected to rotating 6-

yr terms, one every 2 years

TRRC Politics


Ryan Sitton (2020) Asset Integrity (mechanical) engineer from Houston Texas A&M BS Mechanical Engineering

Christi Craddick, Chair (2018) Attorney, Midland native, daughter of Tom Craddick

(former Speaker of Texas House of Representatives) UT Plan II, Law School graduate

David Porter (2016) CPA from Midland Harding University BS Accounting

The only petroleum engineer to serve as Railroad Commissioner (1947-63) was Bill Murray, UT MSPE 1937

Current Commissioners


Established in 1891 to regulate railroads Expanded to oil pipelines (1917), oil and gas production (1919),

natural gas delivery systems (1920), bus lines (1927), trucking (1929)

Following the Splindletop discovery in 1901, Texas, by 1930, had become the #1 oil producing province in the world

A series of regulatory “crises” ensued after the East Texas field was discovered in 1930 Subsequent legislation established the Commission’s right to

prorate oil, eventually for both physical and economic reasonsFrom 1930-70 the TRRC managed the world’s oil surplus

Consistently sought to protect independent oil companies and mineral rights owners from unrestrained competition

Rationale – unregulated production brings chaos – i.e., normal economic considerations are precluded because oil is discovered, a problem exacerbated by the legal principal of rule of capture

A Brief History of the TRRC


Huge! 45 miles long by 12 miles wide, extending across five counties

7 billion barrels originally in-place, 5.4 billion barrels produced to date Less than a year after discovery:

Producing > 1 million barrels of oil per day A new well was being completed every hour!

Kilgore at one time had 1000 producing oil wells in its downtown. Poorly understood (at the time) geologic trap (interestingly, source

rocks are Eagle Ford shale) Major companies failed to acquire leases

Regulatory issues were complicated by the (controversial and poorly understood at the time) strong waterdrive

Oil prices fell from $1.10 per barrel to less than $0.10 per barrel So much chaos (caused by large diversity of ownership) that in

1931, Texas Gov. Sterling sent in the National Guard and Rangers to enforce martial law

East Texas Field …The First Texas Oil Boom (1930)


Spring Forward to 1998

3.4 million BOPD


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What Actually Happened

1998Mar 2015:3.6 million barrels per

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Though Natural Gas May be the Future

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Natural Gas

Texas produces ~30% of US oil and gas


Why? … US Shale Plays


And the Technology that Allowed Their Development


Activity in Texas is Everywhere

What happened to Dallas and Ft

Worth?

Ft Worth Dallas


Now Fracking Has Entered the Public Discourse


How the Oil & Gas Industry Views Fracking


How the Public Views Fracking


$2.9 million to Wise County

family


Near Weatherford, TX


Near Azle/Reno, TX


How the TRRC Views Itself


How the Oil & Gas Industry Viewsthe TRRC


How the Public Views the TRRC


Rapidly advancing new technologies Of which large portions of the public are fearful Means that oil & gas will become more like manufacturing

than traditional explore & exploitExpanding geographic footprint of shale production

Even though per-well footprint is greatly diminished Surface rights are increasingly severed from mineral

rights Mineral rights are legally dominant in Texas

Water issues (both usage and disposal)Increasing public visibility and distrust

Perception that Commissioners are more beholden to the oil & gas industry than to voters

TRRC’s Challenges


Change the name to the Texas Energy Resources Commission Limit campaign contributions to 1.5 yrs before an election

rather than throughout full six-year termsProhibit Commissioners from accepting contributions from

parties with contested casesRequire resignation when a Commissioner becomes a

candidate for another elected officeRequire the Commission to adopt a robust recusal policy Transform the TRRC into an agency governed by a part-time

appointed boardTransfer the Commission’s enforcement hearings to the State

Office of Administrative HearingsTransfer gas utility regulation to the Public Utility

Commission

A Few Sunset Commission Recommendations for the TRRC


How Do We Transform the TRRCFrom This


To This


Or Perhaps Even This


Human induced earthquakesEminent domainGroundwater trespassLocal control of oil & gas operations

Some Oil & Gas Regulatory Issues Facing Texas


Most recent serious controversy began after Azle/Reno earthquakes Nov.2013

Potential for seismic activity triggered by wastewater disposal (but not fracking) well-known for at least 50 years Yet denied by the TRRC up until very recently Conditions that allow a priori predictions are yet to be determined

Responses: TRRC hired a seismologist Apr.2014 SMU, USGS, and U. of Texas published study Apr.2015 Show-cause hearings held, but no action as yet Texas House approved $4.5 million for BEG earthquake studies May.2015

Meanwhile, there were more earthquakes in Johnson County and elsewhere likely caused by wastewater injection

Meanwhile, TRRC issued preliminary finding that wastewater injection was most likely not responsible for the Azle/Reno earthquakes

Oil & Gas Issue #1Human Induced Earthquakes


Increase the reporting requirements for wastewater injection wells

Provide a liability system for earthquake damageBetter public data collection, including monitoring of

seismic eventsConduct studies (privately if at all possible) to establish

scientific relationships between injection and earthquakes

Require wastewater disposal wells to be appropriately located (geologically) so as to minimize earthquake risk As well as subject to emergency curtailment or

rate/pressure modification

Ways to do Better?


Private common carrier pipelines have statutory eminent domain authority in Texas

Brought keenly to public attention by the Texas Rice Land Partners Ltd. v. Denbury Green Pipeline case decided by Texas Supreme Court Aug. 2011 Authority to grant common carrier status is in

statute, but not with TRRC Denbury was not a common carrier, in spite of

rulings by both District and Appeals courtsTRRC developed additional (inadequate)

permitting requirements in Oct 2014.

Oil & Gas Issue #2Eminent Domain


Transfer pipeline regulation to TxDOTBetter diligence on common carrier status

Penalties for negligently claiming common carrier status

Provisions for relinquishing common carrier statusMake land seizure a last resort not a first resort

Require route-specific appraisals by pipeline operators

Set seizure price at 150% of appraised value Require seizing entity to pay legal feels when price is

successfully challengedEncourage operators to use existing rights-of-way

Ways to do Better?


TRRC has jurisdiction to protect groundwater from oil and gas operations

Lipsky case Methane in groundwater observed in Parker County

wells, possibly from nearby hydraulically-fractured wells TRRC issued several reports, finally concluding that the

gas was not a result of Barnett Shale production activities ... and no further studies are planned

Final TRRC report was largely unconvincing (to me) Defamation lawsuit against property owner still pending

Meanwhile, there’s another similar case pending with the TRRC from Palo Pinto County

Oil & Gas Issue #3Groundwater Trespass


Utilize Texas’ deep oil and gas bench for technical studies

Submit Commission reports to a peer-review process

Allow hearings to be conducted by video conference

Provide public-defender type counsel to claimants with limited resources

Ways to do Better?


Response to 2014 Denton fracking ban passed Nov.2014HB 40 expressly preempts local regulation of oil and gas:

“... a municipality or other political subdivision may not enact or enforce an ordinance or other measure ... that bans, limits, or otherwise regulates an oil and gas operation ...”

Exceptions, any ordinance that: “regulates only aboveground activity related to an oil and gas operation

... including a regulation governing fire and emergency response, traffic, lights, or noise, or imposing notice or reasonable setback requirements” and

“is commercially reasonable” and “does not effectively prohibit an oil and gas operation conducted by a

reasonably prudent operator” and “is not otherwise preempted by state or federal law.”

Went into effect 18.May.2015 Vantage Energy resumed fracking operations 01.Jun.2015

Oil & Gas Issue #5House Bill 40 (84th Legislature)


Block grant fraction of severance taxes to local jurisdictions So that risks and rewards are appropriately reconciled

Change Texas statutes to better balance the rights of surface and mineral owners by encouraging negotiated solutions, e.g., Royalty sharing between surface and mineral owners Per diem payments to surface owners during drilling

and completion operations Buyouts of surface property or subsurface rights

Use the quasi-judicial role of the Railroad Commission to resolve surface and mineral rights conflicts

Ways to do Better?


Transparency Change the name:

Texas Energy Resources Commission? Texas Energy Commission?

Abandon Commission’s role as oil & gas industry championRegulatory Reform

Shed some current responsibilities, e.g., natural gas rate setting, pipeline safety and permitting

Sunset review regulations @ 20% per yearProperty Rights

Increased attention to surface property rights Including recommendations for statutory changes

Treat earthquakes and pollution as trespass issues

Specific Recommendationsfor the Texas Railroad Commission


Conflicts Resolved or Not?

oil and gas and the texas railroad commission

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