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For Shale Oversight, One Size (Federal) Doesn't Fit All States

Top industry executives from Colorado, North Dakota, Pennsylvania and Texas on Wednesday told a crowd at the Shale Insight 2013 conference in Philadelphia that states and not the federal government should continue to be the primary oil and natural gas enforcers.

Close to 2,000 audience members were on hand for the opening day of the third annual conference, which is sponsored by the Marcellus Shale Coalition (MSC).

MSC CEO Kathryn Klaber was joined on the podium by executives with the Texas Independent Producers and Royalty Owners (TIPRO), North Dakota Petroleum Council (NDPC) and WPX Energy Inc., who represented the Colorado Oil and Gas Association (COGA).

Their shared message: let states continue to oversee unconventional drilling, and in particular, hydraulic fracturing (fracking).

Pennsylvania has "worked hard to get the state regulations where they need to be," said Klaber. "And that's where they need to stay." The last couple of years have put Pennsylvania in contention with the "big boys" among energy-rich states, with gas production of 2 Tcf in 2012 and output on track to reach more than 3 Tcf by the end of this year.

The economic impact of the Marcellus to Pennsylvania "is real and significant," said Klaber. An estimated "240,000 can attribute their jobs to the oil and gas industry," which has become part of the "local supply chain now." Working with state operators, MSC has worked with regulators to address "major concerns to communities, such as roads...

"There still are lots of challenges," said Klaber. "The regulatory climate is on overdrive."

Earlier this month, members of the U.S. House of Representatives' Natural Gas Caucus sent a message to the Obama administration: stay out of state regulators' gas and oil activities (see Shale DailySept. 19). Of particular concern to some lawmakers is federal oversight of unconventional drilling involving fracking (see Shale DailySept. 12). The Department of Interior's Bureau of Land Management in May issued draft rules governing fracking activities on public lands (see Shale DailyMay 20).

The federal government "can't really do that," said TIPRO's Teddy Carter, who runs governmental affairs. "You gotta go with the states. They know the regulations, they know what's best...No one-size-fits-all will work."

Texas regulators and lawmakers have had decades of experience in shaping regulations to oversee the energy industry and they continue to update them as needed, he noted. With about 2,500 members, TIPRO also is one of the oldest energy industry groups in the country, assisting independents large and small since the 1940s.

"To put it modestly, Texas is doing very well in the oil and gas industry right now, producing at some of the top levels in the country," Carter noted. "Our regulatory body has been at this for over 100 years. They understand that they have to continue to uphold their mission to uphold environmental standards, being stewards, while still allowing producers to seek access..."

It's "unquestionable" that Texas would not continue to thrive economically without energy production, Carter said. "Some of you may have heard from Texas leadership that our state is thriving, and economically sound, and that we are job creators. What's too often left out of the conversations, and what should be shouted from the mountaintop, are the contributions of the oil and gas industry."

Texas lawmakers "get it," he said of industry oversight. "At the end of the day, they know the state cannot do without oil and gas...It would be a wise thing if more states would follow that example. Oil and gas can be operated safely and should be embraced."

Texas producers helped the state build an estimated $8 billion-plus rainy day fund, a "piggy bank" used to fund all types of spending projects, he said. By 2015, the piggy bank is expected to hit $12 billion. "And oil and gas tax revenues provide even more to the state."

North Dakota's rejuvenated oil and gas fields have led to rejuvenated regulatory effort, said NDPC Vice President Kari Bjerke Cutting. The regulations are strict and continually evolving, she told the audience.

"We want the rules to stay the same" in North Dakota, Cutting said. Federal officials may believe that there are enough similarities in the states regarding their oil and gas production, and "there are some similarities...But there are enough differences" that states should be the primary gatekeepers of energy regulations. "The locals are aware" of what's required of producers to perform and to follow regulations. "We want to keep it at the state level."

Cutting noted that 10 years ago, when she traveled around the country, "people would say, 'oh, [North Dakota] is too cold, how can you live there?' Now they say, energy, jobs, economy. People are coming from all over the country trying to escape the recession and to get jobs, start a new life. We're glad they have come.

"We are a small state, 700,000 total population...but we've now become the second largest oil producer in the nation, second to Texas. It will take a lot to catch up with Texas but that's not a goal. We are producing 870,000 b/d today and we look at reaching 1 million by the end of the year."

North Dakota's oil and gas industry has become a huge contributor to the economy, at $30 billion and counting, she said. It's still a predominantly agricultural state, and agriculture contributes $35 billion a year. However, along with the economic benefits from oil and gas, the industry also pays about $2.6 billion in taxes. The state now has about 9,000 wells and "we expect it to go to 45,000 in the next couple of decades."

Representing Colorado's perspective was WPX Energy Inc.'s Mike Paules, an exploratory geologist whose company is an active COGA member.

"We don't need additional duplication" between state and federal regulations, he said. "States are the way to go."

From a historical perspective, Paules said, Colorado knows oil and gas backwards and forward.

"We've got six geological basins, not just one large basin in the state," he said. "Not quite half of the state is federal lands...That drives a lot of environmental analyses." The state has been a solid gas contributor for years, but today output is about evenly divided between oil and gas.

"Given the environmental attitudes in Colorado, we all put value in the great outdoors, and we have a strong interest in a lot of activities...A lot of studies have been conducted in Colorado, whether at the federal or state level and in some cases at the local government. They are very active at looking at concerns related to the potential impacts from water quality, usage, air quality...A lot of studies are done in cooperation with the governments, academic, operators and environmental groups..."

Colorado's regulations are evolving as technology and the targets -- oil or gas -- have evolved, said Paules.

 "We experienced a boom in natural gas 10 years ago on the Western Slope, in the San Juan [basin]. Since then, we've had significant rulemakings out of Colorado focused on site assessments, oil and gas locations, green completions..." Today there's a focus on rules related to venting emissions and technically enhanced radioactive material. "Colorado is very filled with challenges and opportunities..." The recent flooding in the Front Range now will require a rethink on rebuilding roads and infrastructure.

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