Texas Alliance of Energy Producers

State Issues

The Texas Alliance of Energy Producers submitted information to the House committees on Ways & Means and Energy Resources regarding the committee’s interim charge four: Evaluate the status of water recycling and reuse efforts in the oil and gas industry in Texas and elsewhere. Evaluate options for tax credits, deductions, or discounts to encourage recycling, treatment, or reuse of produced water from oil and gas production activities. Make recommendations on statutory or regulatory changes needed to promote recycling and reuse strategies for produced water. Click here to download pdf of letter.

September 14, 2020

RE:      House committees on Ways & Means and Energy Resources

Joint Interim Charge on Oil & Gas Water Recycling and Reuse

Chairman Burrows, Chairman Paddie, and Committee Members –

The Texas Alliance of Energy Producers (the Alliance) appreciates the opportunity to comment on the committee’s interim charge related to water recycling and reuse efforts in the oil and gas industry in Texas. With over 2,600 members, the Alliance is the largest state oil and gas association in the US. Our members hail from nearly 30 states and 300 cities. We represent the upstream (exploration and production) segment of the oil and gas industry; our members are oil and gas operators/producers, service and drilling companies, royalty owners, and a host of affiliated companies and industries in Texas and beyond.

Given our membership’s role in the oil and gas industry, the Alliance has a unique perspective on water recycling and reuse efforts in the oil and gas industry. In addition to our membership’s operational understanding of recycling and reusing water, the Alliance also has a keen appreciation for this discussion due to the publication of a white paper we produced in conjunction with the Independent Petroleum Association of America last fall titled Sustainable Produced Water Policy, Regulatory Framework, and Management in the Texas Oil and Gas Industry: 2019 and Beyond, which can be found HERE. This white paper explores the challenges of produced water management and improvements in technology, the current statutory and regulatory framework impacting this sector, and makes recommendations on how to improve upon existing laws and practices.

As we have seen the shale revolution take hold in Texas over the past two decades, the demand for water for hydraulic fracturing and the increased production of water from oil and gas reservoirs has led to an unprecedented growth in water management and water midstream businesses. Historically, used hydraulic fracturing fluids and produced water were simply injected into disposal wells and industry by-and-large relied on fresh water for the hydraulic fracturing process. Texas took an early lead in recognizing the potential value of recycling and began updating its regulatory framework in 2013. Through industry innovation, supported by statutory and regulatory reforms, Texas has seen more and more oil and gas producers shift to recycling of their fluids and produced water for reuse in hydraulic fracturing operations as opposed to disposing of all of the fluids.

Despite these advances, the cost of these technologies used in recycling and reuse in the oilfield have limited wider and faster adoption of these technologies for end uses outside of the oilfield. The opportunity produced water can have for meeting the state’s growing demands for water is worth pursuing as one of the state’s few sources of new water. As our white paper points out, statewide volume of produced water was more than 8.5 billion barrels of water in 2017 and some projections show that by 2023, over 15 billion barrels per year of produced water will be produced statewide in Texas. As Texans, we want to do everything we can to encourage that water to be added to our useable water inventory.

The Alliance fully understands that the COVID-19 pandemic and other economic stresses on our budget will limit policy discussions and options available to the state at this juncture. However, we believe the upcoming legislative session provides an opportunity to outline the roadmap for utilizing produced water in Texas. The legislature took an important step last legislative session by directing the Texas Commission on Environmental Quality to seek delegation of authority from EPA over oil and gas discharge through the National Pollution Discharge Elimination System (NPDES) program. This recommendation, which is on track to be completed prior to January 2021, is an important mile marker in improving how state and federal agency cooperation can foster continued improvements that lower additional regulatory burdens. Last session, the House Ways & Means Committee advanced House Bill 2545 proposing a credit against either franchise, gas production, or oil production taxes for “producing freshwater of usable quality from a desalination facility.” Steps such as this one and various others mentioned in our white paper, to incentivize investments in technology for end-users inside and outside of the oilfield, are worth further investigation and study next session.

In closing, we encourage the committee members and all stakeholders in the discussion regarding recycling and reusing produced water in Texas to read our white paper to understand more fully our recommendations on how we can achieve a more sustainable future for produced water management. The Alliance applauds your two committees for taking these issues so seriously and we look forward to working with all of you in the upcoming legislative session toward a resolution that will help Texas more fully realize the potential benefits of produced water and ensure our vibrant Texas economy continues to lead.

Sincerely,

Jason Modglin

President

______________________________________________________________________________

The Texas Alliance of Energy Producers submitted information to the House Land & Resource Management Committee regarding the committee’s interim charge two: Review, in coordination with the Office of Attorney General, the efficacy of the Landowner’s Bill of Rights (LBoR) in explaining to landowners the eminent domain condemnation process and their rights and responsibilities under Chapter 21 of the Property Code. Identify any omitted information which can enhance the landowner’s understanding of the condemnation process and determine whether any other changes should be made to the document to make it more user friendly. Determine whether it would be beneficial for the legislature to be more prescriptive in statute with the mandatory contents of the LBoR. Click here to download a copy of the letter.

August 14, 2020

RE:      House Land & Resource Management Committee

Interim Charge on Landowner’s Bill of Rights

Chairman Craddick and Committee Members –

The Texas Alliance of Energy Producers (the Alliance) appreciates the opportunity to comment on the committee’s second interim charge relating to reviewing the efficacy of the Landowner’s Bill of Rights. With over 2,600 members, the Alliance is the largest state oil and gas association in the United States. Our members hail from nearly 30 states and 300 cities. We represent the exploration and production segment of the oil and gas industry; our members are oil and gas operators/producers, service and drilling companies, royalty owners, and a host of affiliated companies and industries in Texas and beyond.

As we have testified to this committee before, we believe an eminent domain process that works well, which provides certainty for critical infrastructure projects and protects private property rights, is vital to not only the wellbeing of our industry, but to the entire state’s economy. We appreciate the Committee on Land and Resource Management taking the issue of eminent domain reform so seriously. The Alliance believes that eminent domain reform is needed in Texas and we are committed to working with all stakeholders and this committee toward that end.

We believe that Senate Bill 421 during the 86^th Legislative Session, as passed out of this committee and the full House, is a great starting point for legislation in the 87^th Legislative Session. That bill struck a fine balance between the landowner interests that must be protected and the importance of infrastructure projects to Texas’ economy.

Regarding the committee’s second interim charge, the Alliance would like to see the statutory requirements of the Landowner’s Bill of Rights (LBoR) be amended by the legislature in the upcoming session. As currently written, the LBoR puts the parties in land negotiation deals on confrontational footing unnecessarily, which sets up the rest of the transaction to be much more difficult than it should be. We believe this document can be helpful to informing landowners of their rights and know it would be beneficial for all parties if the legislature provides more prescriptive direction to the LBoR’s construction.

We applaud your leadership of this committee for taking up these issues of critical importance and look forward to working with you in the upcoming legislative session toward a resolution that protects our economy and strives to incorporate concerns from all stakeholders.

Sincerely,

Jason Modglin

President

__________________________________________________________________________________________________

Texas Alliance President sent the following letter to Texas Senator Charles Perry, which included comments regarding the interim charge related to Texas’ future water supply. The Alliance has encouraged our members to offer comments and showcase areas where operators are deploying produced water recycling technology.

August 6, 2020

The Honorable Charles Perry
Texas Senate
P.O. Box 12068
Austin, Texas 78711-2068

RE: Senate Water & Rural Affairs Committee
Future Water Supply Interim Charge

Chairman Perry and Committee Members –

The Texas Alliance of Energy Producers (the Alliance) appreciates the opportunity to comment on the committee’s interim charge related to Texas’ future water supply. With over 2,600 members, the Alliance is the largest state oil and gas association in the US. Our members hail from nearly 30 states and 300 cities. We represent the upstream (exploration and production) segment of the oil and gas industry; our members are oil and gas operators/producers, service and drilling companies, royalty owners, and a host of affiliated companies and industries in Texas and beyond.

Given our membership’s role in the oil and gas industry, the Alliance has a unique perspective on the future water supply of Texas, particularly as it relates to produced water (water produced as a byproduct of oil and gas production). In addition to our membership’s operational understanding of produced water’s role in Texas, the Alliance also has a keen appreciation for this discussion due to the publication of a white paper we produced in conjunction with the Independent Petroleum Association of America last fall titled Sustainable Produced Water Policy, Regulatory Framework, and Management in the Texas Oil and Gas Industry: 2019 and Beyond, which can be found HERE. This white paper explores the challenges of produced water management and improvements in technology, the current statutory and regulatory framework impacting this sector, and makes recommendations on how to improve upon existing laws and practices.

As we have seen the shale revolution take hold in Texas over the past two decades, the demand for water for hydraulic fracturing and the increased production of water from oil and gas reservoirs has led to an unprecedented growth in water management and water midstream businesses. Historically, used hydraulic fracturing fluids and produced water were simply injected into disposal wells and industry by-and-large relied on fresh water for the hydraulic fracturing process. Texas took an early lead in recognizing the potential value of recycling and began updating its regulatory framework in 2013. Through industry innovation, supported by statutory and regulatory reforms, Texas has seen more and more oil and gas producers shift to recycling of their fluids and produced water for reuse in hydraulic fracturing operations as opposed to disposing of all of the fluids.

The technologies used in recycling and reuse remain relatively expensive compared to straight disposal costs which has limited wider and faster adoption of these technologies. This committee is aware of the opportunity produced water can have for meeting the state’s growing demands for water, but it is worth repeating. As our white paper points out, statewide volume of produced water was more than 8.5 billion barrels of water in 2017 and some projections show that by 2023, over 15 billion barrels per year of produced water will be produced statewide in Texas. As Texans, we want to do everything we can to encourage that water to be added to our useable water inventory.

The Alliance fully understands that the COVID-19 pandemic and other economic stresses on our budget will limit policy discussions and options available to the state at this juncture. However, we believe the upcoming legislative session provides an opportunity to outline the roadmap for utilizing produced water in Texas. The legislature took an important step last legislative session by directing the Texas Commission on Environmental Quality to seek delegation of authority from EPA over oil and gas discharge through the National Pollution Discharge Elimination System (NPDES) program. This recommendation, which is on track to be completed prior to January 2021, is an important mile marker in improving how state and federal agency cooperation can foster continued improvements that lower additional regulatory burdens.

In closing, we encourage the committee members and all stakeholders in the discussion regarding produced water in Texas to read our white paper to understand more fully our recommendations on how we can achieve a more sustainable future for produced water management. The Alliance applauds this committee for taking these issues so seriously and we look forward to working with all of you in the upcoming legislative session toward a resolution that will help Texas more fully realize the potential benefits of produced water and ensure our vibrant Texas economy continues to lead the globe.

Sincerely,
Jason Modglin
President

__________________________________________________________________________________________________

RE: Proposed Amendments to 16 TAC §3.40, relating to Assignment of Acreage to Pooled Development and Proratioin Units.

Download PDF version here.

December 9, 2019

Rules Coordinator
Office of General Counsel
Railroad Commission of Texas
PO Box 12967
Austin, TX 78711

RE: Proposed Amendments to 16 TAC §3.40, relating to Assignment of Acreage to
Pooled Development and Proration Units.

Dear Rules Coordinator,

The Texas Alliance of Energy Producers (the Alliance) appreciates the opportunity to
submit comments regarding the Railroad Commission of Texas (RRC) amendments to RRC
Statewide Rule 40.

The Alliance strongly supports the RRC’s attempt to encourage responsible development of
oil and gas reserves that cannot currently be produced due to acreage assignment issues
currently prohibited by Statewide 40. We believe this is a serious issue and applaud the
RRC for making an effort to fix it. Safe and responsible development of the vast Texas
natural resources is a primary commitment of the Alliance and the roughly 2,500 members
we represent.

While we do applaud the effort, the Alliance does have several concerns with the current
draft, found below. We appreciate your serious consideration of these issues.

APPLIES ONLY TO “UFT” FIELDS

First, we believe by only allowing operators in UFT Fields to avail themselves of the
benefits of this rule change, the RRC is inadvertently creating waste and creating a situation
whereby a statewide rule potentially has precedence over a field rule.

In the preamble of the rule change, there is a discussion of reservoir rock parameters that
says the severance contemplated is only to apply to “UFT” Fields. It is the opinion of The
Alliance that reservoir rock parameters should not have any bearing on a lease severance.
We feel that the lease severance provision pertains only to a “title issue” and not to a
reservoir parameter production issue.

Currently, if an operator permits a well in the Spraberry (Trend Area) R40 EXC Field they
must show the Commission that a depth severance has been established within the
designated correlative interval for separation to the Upper Spraberry formation. We are
not aware of any language in the proposed language that pertains to a vertical production
interval separation requirement to this established severance depth datum. A well in the
Spraberry (Trend Area) Field as well as the Spraberry (Trend Area) R40 EXC Field can each
drill a horizontal lateral completion 1 foot above or below this vertical depth severance as
long as they stay within their Oil & Gas Mineral Lease stipulated depth leased interval.
Therefore, there is no difference regarding the vertical separation in a “UFT” Field versus a
“Non-UFT” Field. Therefore, we believe only allowing this proposed rule change to benefit
UFT fields is unnecessary and arbitrarily prevents valuable oil and gas reserves from being
produced.

Oil & gas leased intervals have been around for a long time and have applied to all types of
well completions such as vertical, horizontal and both conventional and unconventional
reservoirs. There are both vertical conventional and unconventional fields that have had
large consolidated intervals established due to the reservoirs being in the later stage of
depletion. Operators can choose to produce these intervals separately or under a
commingled basis to maximize production. If a well is producing only from the upper
portion of the consolidated interval and the lease has expired, for example as to 100 feet
below the lowest producing depth, an operator who leases the bottom portion of the
designated consolidated interval has a problem with a double assignment of acreage under
Statewide Rule 40. This is due to the acreage already being assigned to the upper interval
within the same field.

Statewide Rule 40 is in fact a “Statewide Rule” so we see no reason why it should not apply
to all types of fields due to it only being a “severance issue” and not a reservoir parameter
production issue.

Statewide Rule vs. Special Field Rule – 3.40(e)(2)(F)

The way the current rule proposal is written, we are concerned that this statewide rule will
be given precedence over field rules, which may provide for special exceptions, such as the
current Spraberry (Trend Area) Field rules. 3.40(e)(2)(F) specifically provides for this
statewide rule to supersede all previously adopted special field rules. To our knowledge,
this is the first time a statewide rule would be allowed to supersede field rules and we have
some concerns about setting this precedent.

NOTICE REQUIREMENT – 3.40(e)(2)(B)
Clarification on “all available resources”

The notice requirement stipulates that all identified affected parties will need to be notified
within 15 days of filing the Statewide Rule 40 Exception Permit. The Rule states that “all
available resources” should be utilized in securing this affected party list and not just the
GIS Map System on the Railroad Commission of Texas website. With all the drilling permits
being required to be filed with the Railroad Commission of Texas, we are not sure what
other websites would be more accurate or updated than the Commission’s website. The
website can currently also be used to identify existing wells within the required ½ mile
radius or 2,640′ notification area and addresses can also be obtained from the Form P-5
Organization Report Query. If there are other sources that should be utilized, other than the
Railroad Commission of Texas Website, we would request that these sources be made
available for these identified operators with existing wells and also operators having filed
active Form W-l’s.

½ mile radius too large

Under the current RRC rules, notification is required for Rule 37 and Rule 38 exceptions
due to wells being too close to the lease lines or too close to existing wells on the “same
lease and same reservoir.” The notice requirements for these wells only apply to the
applicable spacing rules governing the field in which the well is being permitted. For wells
too close to lease lines, the notice requirement is the greater of the two: the minimum
distance to the lease line or½ the distance between the well spacing rule requirement. For
wells too close to another producing well on the “same lease and same reservoir” notice is
required to all adjacent parties to the permitted lease tract.

Under a lease severance provision, we believe that this is only a lessor lease issue and do
not see how this effects any offset operators and/or permits within a ½ mile radius or
2,640′. Wells are drilled all of the time under existing Oil and Gas Mineral Lease severance
provisions and again, as long as an exception to Statewide Rule 37 and/or 38 is not
required, no notice is required.

The notice requirement in this rule proposal is ½ mile or 2,640′ perpendicular to the
horizontal lateral between the first and last take point (FTP /LTP). Notice is also required
½ mile or 2,640′ off of the end points (FTP / L TP). Under the current rules, many fields
have end point provisions off of the first and last take points (FTP / L TP). Common end
point provisions are 100′, 200′ or can also be the prescribed distance to the closest lease
line. We believe that these end points that are less than the distance to the closest lease line
have been adopted by the RRC due to the assumption that drainage is perpendicular and
not parallel to the producing horizontal lateral. This end point ½ mile or 2,640′ proposed
notice requirement seems unnecessary due to those required notified parties not being
affected by the producing well bore lateral.

With this large notice area requirement of½ mile or 2,640′, we see possible problems for
wells being drilled under the exception to Statewide Rule 40. It is a common occurrence
that when operators are drilling wells, sub-surface formation data is secured that requires
a change in the next permitted well location. Currently, all that is required in the Spraberry
(Trend Area) R40 EXC Field is to file an amended location-drilling permit with no
notification required on a regular location. Under the proposed Statewide Rule 40, a new
15-day notification period will come into effect, which is going to delay securing an
amended permit location. With the same rigs sometimes being used to drill multiple
horizontal wells off of the same surface pad, we believe it is easy to see how delays in
permitting amended wells is going to be very expensive with the daily rig charges under a
delayed spud date drilling operation.

Administrative approval needed

Additionally, we do not believe the proposed Statewide Rule 40 provides administrative
approval for an exception to Statewide Rule 40 if all required affected waivers have been
secured. We suggest that this provision be added to the language in the rule.

Clarification needed on type of notice

During the stakeholder discussions regarding this rule change, the Alliance and its
members were under the impression that the notice provided for under this rule change
would be a “good neighbor notice.” In other words, it would only be a courtesy notice, and
not one which if received, could then lead to a protest by someone who had received it. We
believe this is an important distinction given that the most likely grounds for a protest
would be the right to produce that interval, which is a title question reserved for the
courthouse in Texas and not the RRC. We believe this provision of the rule should be
clarified to ensure frivolous protests made due to a notice, which was only intended to be a
courtesy notice in the first place. It may also be helpful for further clarification if the RRC
were to provide a proposed notification form.

15 days prior?

Under (e)(2)(B) of the rule proposal, the notice provision begins with “Within 15 days
prior to filing its drilling application, the applicant shall … (provide notice)”. We believe this
phrasing is confusing and needs clarification. We believe “within 15 days prior to” means
that the notice could go out the day before the drilling application is filed. However, to
ensure all parties understand this phrasing, it should be clarified in the rule proposal.

Amended well locations

If an operator is required to amend a well location and affected parties under the rule
proposal have already received notice, can notice for the amended well location be waived?
We suggest that this provision be added to the language in the rule.
The Texas Alliance of Energy Producers would like to thank the Railroad Commission for
all of its hard work on this rule proposal. We greatly appreciate the opportunity to
comment on this important issue for our industry and thank you for your serious
consideration of our comments.

Best Regards,

Karr Ingham
Executive Vice President

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