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Below is the HillCo client report form the August 26 House Energy Resources Committee hearing.

Report from Rep. Myra Crownover on recent hearing regarding seismic activity

  • New seismologists is excellent addition to RRC – thinks legislation is not needed
  • RRC will do rulemaking to address concerns – increase reporting and monitoring, etc.
  • New report shows Texas at less risk for seismic activity
  • Discussions continue about managing risk and next step will most likely be more monitors, stationary and mobile

 
HB 2982 Update – Polly McDonald, Director of Pipeline Safety at RRC

  • Covers pipeline operators that were not previously covered
  • RRC has had series of workshops to educate industry and inform survey
  • Mid- Sept will send out survey to gather information
  • Will take surveys and then craft rule based on risk
  • Rule should be ready Sep 1, 2015
  • Clarification was made – when incident happens is when RRC steps in
  • Rep. Lozano – previous legislation was not needed but incident reporting is already done so couldn’t that be put on the state site to the state some money
    • McDonald answered reporting requirements did not include Class 1 and this rule will
  • 38 FTEs request is for event incident response 

 
IT Update – Brandon Harris CIO at RRC

  • $16.7 million was appropriated and are available 2 yrs after legislation effective
  • $7.9 million in Sept 1 that can be expended FY 14-15
  • Equipment was approaching 10-12 yrs of age
  • Funding is being used to improve access to data (permits, geospatial maps, redesign of website, etc.)
  • RRC has made internal updates as well (Windows 7, Office 2010 Suite, Cloud Based email services, etc.)
  • Current data center is being consolidated to state data center (DIR)
  • Improved processing on vertical and horizontal wells (now needs less manual intervention)
  • Two target release dates:
    • March 2015 – support groundwater determination letter, and others, queries, payment functionality, improvement to GS viewer
    • June 2015 – scheduling test submissions, From H5, H15, submission of digital charts and well logs for those types of test, track complaints, inspections and back checks, and enhanced functionality such as notifying operators of upcoming test
  • Rep. Wu – if more processors are needed, can they add capacity?
    • Yes, they moved to a cluster environment.

 
James LeBas – TXOGA Fiscal Analysis  

  • Quickly reviewed slides to committee  – growth of industry and revenue discussed
  • Job growth is flattening out
  • Current statistics are showing uptick in sales
  • Cost more for industry to get to new formations and there are a lot of taxes on it – sales tax is volatile as well as oil and gas production taxes and industry in aggregate has paid nearly double in last three years
  • Property tax is single largest tax but much steadier
  • State is primary beneficiary from rising property values, especially in oil patch, as well as cities, counties and special districts
  • School districts do get a one year bump but generally speaking school districts are not getting a windfall but other taxing units are
  • A refinery on average has a job multiplier of 27.6
  • RDF chart – could see RDF funds go in the neighborhood of $12 billion in 2017 which is unprecedented and unforeseen and not likely to hit cap (that will be $14 billion) and that is even assuming split funding with transportation
  • Rep. Burnam asked several questions in order to drill down on concept “don’t count your chickens” – including the following:
    • Severance taxes – are they normal?
      • They are historical
    • Tax revenue is market price of natural gas – why did price change so much in 2009 –
      • Speculative bubble in price and then correction
    • Can we reliably predict natural gas prices in next few years (5, 10, + years)
      • There are projections but question will be how wrong are they – it is like any other commodity
    • Severance tax can still fluctuate widely?
      • Sure
    • Prices and high revenue are related – any chance they will fall below $100 in near future?
      • Already there

 
Candice Brewer, National Association of Royalty Owners (NARO)

  • Estimate 5 million royalty owners
  • Asked about their opinion on fracking – they favor safe fracking and believe it should be regulated by state rather than a municipality
  • One example of how mineral owners working with producers – owners providing education on fracking
  • There are groups out in the public spreading false information and reason why production has come to halt
  • Well educated mineral owners need to help educate fact from fiction
  • NARO is about education
  • What is needed to prevent theft from royalty owners asked Burnam (most lawsuits mentioned were directed at Chesapeake)
    • Transparency
    • Audit the payments
  • Burnam says something needs to be done to protect mineral rights – asked about contracts and how one gets out of a contract
    • Burnam goes on to give example of abuses of leases – lease being sold to another vendor
      • Oil and gas leases are negotiable and can say deny assignment of lease to certain companies
    • Witness also cautions against regulatory overreach  to address contract abuses
    • Mother hubbard clause is a problem – can develop further tracks in proximity to property – Burnam asked for her to later follow up with him on this concern

 
Cyrus Reed, Lone Star Chapter of Sierra Club

  • Passed out handouts and articles over last weekend
  • We’ve got “school districts getting rich”
  • Time to look at high cost gas exemption
  • In regards to venting/flaring, are all taxes gotten from production that are being lost?  
  • Regulatory improvements include fracking database, proposed new rules on disposal wells (still need some addressing), more funding for inspectors in pipeline and wells
  • Shale emissions have impact on ozone formations
  • Crownover clarified there is a difference between fracking a well and drilling a well
    • Reed said his testimony is referring to upstream production
  • Rep. Wu asked about study by Dr. David Allen (Reed clarifies it was a preliminary study)
  • Wu wanted to know more detail on emissions from production in shale versus gas pumps, etc
  • Burnam said San Antonio will be in non-compliance probably because of production in Eagle Ford Shale
    • Dallas/Ft. Worth have never been in compliance, out of law for almost 20 year
    • Harder to get in compliance because of inadequate regulation of production in shale area which are different from refineries which have stricter regulation
  • Discussion on new EPA rules and if they effect new facilities only which is Reed’s assertion
  • Burnam noted DFW area was making progress on reducing emissions, a big holdout was cement kilns, but shales have impacted that
    • If adequately regulated emissions in the industry – could possibly stay in compliance (shale)
  • RRC needs to raise fines for those flaring and venting without permits 
  • Another recommendation to put more funding into the clean-up of old oil and gas fields
  • Basic message is that he doesn’t want to shut down industry but there are cities facing the impact of not meeting ozone standards and people are getting sick so issue needs to be addressed

 
Corey Pomeroy, Texas Oil and Gas Association (TXOGA)

  • Injection wells are disposal wells
  • Gave brief overview of injection waste
  • Rep. Keffer asked witness to direct testimony to rules and regulations at the RRC
  • Discussed what TCEQ and RRC regulate and what is permitted
  • There are numerous reasons for flaring (until determine flow rate, safety concerns, appraisal or exploratory wells)
  • Ozone
    • EPA new source review permitting is more intense
    • A 60ppb ozone standard would put all 250 counties in non-attainment and a majority of the Unite States would be in non- compliance
  • Wu – ozone standards are not just oil and gas industry?
    • Yes, any type of emission would impact
    • Wu asked what percentages of VOC and NOX are released by production in the state? Vs from people gassing up? Foundries? Dry cleaners?
    • Witness said they do not have the information but Cyrus Reed is going to get it and give to the committee
  • Rep. Howard inquired about water usage and on-site ware recycling
    • Flaring to treat water on site to use it vs trucking cost
    • Witness has read article on field gas and thinks it’s an interesting idea  
  • Burnam does not see how flaring is in best interest of Texas – will not get taxes on that natural resource
  • Burnam thinks there needs to be some sort of penalty on the flaring

 
Brent Halldorson, Texas Water Recycling Association

  • Seen more interest in water recycling in industry than in past ten years
  • A flaring challenge is making it well site specific
  • Permit by rule gives them needed flexibility
  • Muti-lease, mutli-operator – was needed for recycling to take off and is key
  • No conflict with other agencies and RRC kept rules “within own sandbox”
  • Keffer –  there will be a focus hearing on this issue during the next session

 
Matt Nelson, Texas Water Development Board (TWDB) 

  • Regional Water Plan’s and State Water Plan’s can be amended at any time
  • Mining use category covers all extraction of natural resources
  • BEG projections are used in State Water Plan
    • In some counties there was more than a 100% increase anticipated in mining water
    • These projections were varied by county
  • Working on own estimates utilizing the fracfocus database 
  • Demand of water is shown but calculations on recycled water will count toward source in reports

 
Major Ron Joy, Texas Department of Public Safety (DPS)

  • Issues in Permian Basin
    • Availability of housing not able to keep up with demands causing housing prices to increase
    • High vacancy rate
    • Because of high demand for employees agency employees are leaving current employment and will take job in oil field industry
    • 57% increase in accidents in last 4 years
    • 117% in commercial vehicle accidents in last 4 years
    • 90% increase in fatalities in last 4 years  
  • Issues in Eagle ford Shale
    • Does not have infrastructure to support growth
    • Availability of housing issue for state employees here as well

 
John Thomas, Region 18 Education Service Center

  • Permian Basin/Eagle Ford shale has impacted the schools
  • Schools in the area have teacher and personnel shortage
  • Unable to hire because of lack of housing (Availability and affordability)
  • Howard asked about current mechanism for funding schools – increased property values is windfall for state not schools
    • Witness said school finance is complex and school districts don’t benefit much from increase in property value
  • Burnam encouraged the schools to ask from help from local businesses
    • Witness said they were able to get help from some businesses and schools are trying to address but it still needs to be looked at  

 
Chris Traylor, Texas Department of State Health Services (DSHS)

  • Challenge in both areas and particularly Permian Basis has been in APS and CPS
  • Very difficult to be able to afford anything in the Permian Basis
  • Turnover rates have been increasing but slowed that some with a stipend

 
Sep. 11 in Cuero – roads focus
Sep. 25 joint hearing with the International Trade & Intergovernmental Affairs Committee in Edinburg