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Symposium: Federal Regulatory Push Worries Oil/Gas Sector

While deconstructing some of the latest regulatory moves by the Obama administration, and trading strategies for surviving in a low oil price environment, three industry players Thursday urged pushback in the regulatory/political arena and prudent planning in the oil/natural gas patch. The trio addressed a shale symposium in Houston hosted by the law firm BakerHostetler.

The takeaway from the remarks was that new federal regulations are bidding to impact every aspect of the oil/natural gas business in a full court press by the Obama administration in its waning years. Ideally, the speakers want to see the United States lift the ban on crude oil exports while the industry beats back the new federal regulations.

Mark Miller, president of Louisiana-based independent Merlin Oil & Gas and vice chairman of the Independent Petroleum Association of America (IPAA), said in today's turbulent landscape his small exploration/production (E&P) company is "taking the time to look inward," meaning examining everything it is doing to make sure it is making the best use of all of its resources.

"For all the fields in which we are currently operating, we are developing exit strategies," Miller said, adding that he wants to have strategies by the end of this year for every oil investment he holds. "If the price of oil continues to go down, I will probably have to sell some of them, and if prices go up, I want to know what they are worth."

While quoting the CEO of another small independent E&P who characterized the current state of the industry as mired in a lot of "discord and confusion," Miller urged members of the industry to address the current economic and regulatory challenges by "fighting back with technology and new ideas."

Miller and the other two speakers -- Mark Barron, a BakerHostetler attorney who represents IPAA, and Dan Naatz, IPAA senior vice president for government relations and public affairs -- outlined the industry's response to the latest regulatory challenges, including the proposed federal Bureau of Land Management (BLM) hydraulic fracturing (fracking) rule and various Environmental Protection Agency (EPA) moves.

Barron called the development of the BLM fracking rule (see Shale Daily, May 1) "a long journey" dating back to late 2010 when the initial increase in shale development and fracking began raising public awareness and when the Obama administration lost its majority in Congress, forcing the president to seek environmental policy changes through regulations rather than legislation. This stimulated the start of a chain of litigation.

Underpinning the legal action is the fact that BLM's resource management plan (RMP) process is "antiquated" and not able to handle the growth of oil/gas development spurred by the shale boom and fracking, Barron said, adding that the federal agency began developing its first draft fracking rule in 2012 (see Shale Daily, July 13, 2012).

"Ironically, the BLM rule has nothing to do with hydraulic fracturing," Barron said. "There is no regulation of how you hydraulically fracture the stages or pressures; it really is further regulation of aspects of conventional oil/gas development." The draft rule drew tremendous industry attention with 177,000 comments being submitted, he said.

Noting that through a three-year process of various drafts "some progress" was made in the changes, Barron said there are two troubling aspects of the final rule set to go into effect June 24 that need to be recognized

  • A new permitting process has been created, requiring a separate OK to perform fracking on public and tribal lands (creating another flash point for environmental legal challenges); and
  • Detailed disclosures of geologic features and fracking design are required from operators that goes beyond what is now required by any individual state.

"In our [IPAA's] view, the nature of geology and individual plans for extracting resources from that geology are the very essence of competition in the oil/gas industry," said Barron, who is involved in the pending court challenges by IPAA, the Western Energy Alliance (WEA) and several states (see Shale Daily, June 1).

Barron called the BLM fracking rule part of the Obama administration's "regulatory assault" of 2015. "It is only the first and highest profile of a significant and expansive sweep of regulatory effort by the Obama administration to try to change how oil and gas activities are regulated; it is going to affect every aspect of the production cycle."

Besides fracking rules, there are methane emission and flaring requirements on the production side, proposed royalty regulations on the financial side, and transportation regulations on the crude-by-rail regulations, Barron said. "We're talking about every aspect of the cycle, it is not specific to hydraulic fracturing, and that doesn't take into consideration the impacts of endangered species rules or EPA's 'Waters of the World' rule that apply everywhere," he said.

A large legislative package -- rather than a series of major regulation shifts from various federal agencies -- is unlikely to happen in the remaining days of the Obama administration, according to the third speaker, IPAA's Naatz. "From our perspective, we're going to see more gridlock in Washington, DC," he said.

Lifting the ban of crude oil exports is IPAA's top priority this year, Naatz said, adding that the concern currently is the prospect that gasoline prices at the pump could be raised as a result. "Fortunately, we have the facts on our side through a number of independent studies that say if exports are allowed that [pump price] impact should be negligible or it will lower them, but that is not easy to explain."

The other major issue is climate change and the federal administration's focus on it, including the proposed methane emission regulations, which Naatz said he expects to be released this summer and they could have a "devastating impact" on the oil/gas industry. "We've got a fight ahead of us, but we are going to continue to battle and continue to make our case."

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