Texas lawmakers are not yet into the meat of their current legislative session, but the oil and gas industry appears to have dodged one bullet already, according to the president of the Texas Independent Producers and Royalty Owners Association (TIPRO). Still, it's early, and lawmakers in budget-strapped Texas could very well look to the state's oil and gas breadbasket to take up some of the slack.
A recent review of the Railroad Commission of Texas (RRC) by the Texas Sunset Advisory Commission recommended that the oil and gas regulatory agency shift from three elected commissioners to one elected official, whose job would be full time (see Daily GPI, Jan. 14). Up for discussion had been a five-member panel of appointed part-timers. That would have been a mistake, TIPRO President Justin Furnace told NGI.
"We feel that the economic benefit to the state and the importance of oil and gas to the state, both historically and today, is an important enough task that it deserves full-time and elected representation and oversight," he said.
However, another RRC recommendation to be taken up by lawmakers this session -- besides changing the agency's name to Texas Oil and Gas Commission -- is to move enforcement hearings from the agency to the State Office of Administrative Hearings (SOAH).
"We think that's a mistake in that you already have all of the expertise, both technical and legal, in house at the Railroad Commission," Furnace said of the Sunset Commission proposal. "Often times when you have a hearing you have both an attorney and an engineer that hear it because these cases are technical and legal in nature...You've got so much good expertise housed under one roof over [at the RRC] that it just makes more sense for what we do to keep it over at the Railroad Commission."
Furnace said TIPRO has yet to form an opinion on another RRC recommendation: that the agency be self-funding through dues and fees assessed on the industry. "We're in the process of working through that," he said.
There could be much more that TIPRO and the oil and gas industry will have to work through. The sun is just rising on this legislative session, which began Jan. 11, but lawmakers are facing a massive budget deficit in the coming biennium, and the oil and gas industry could look like an attractive cash cow in Austin.
"We're hopeful that the promises of addressing budget spending and not raising taxes hold true, but certainly when you provide such an economic boost to this state, you're worried when you're in this sort of crisis that they'll come to you again. It's something we're going to be engaged in and involved in," Furnace said. "There are no easy answers to this budget crunch...Some really really tough decisions are going to have to be made.
"The worry that we have is if you continue to hamper oil -- and especially gas in light of the price point that gas is at right now -- that you could severely hurt capital expenditures and do damage to the one bright spot in the economy in Texas right now."
The energy industry has seen its share of legislation introduced for this session, but it's not yet clear what bills are going to move, so Furnace said TIPRO has yet to turn its attention to the handful it thinks will be relevant, but it's tracking everything, with the budget in mind in particular.
"I think given the size of the budget crisis, I see all of [the tax incentives available to the industry] on the table, so to speak. I don't know that they're all vulnerable. Certainly any credit associated with recovery...There are certainly incentives for secondary and tertiary recovery of oil. Anything that they can identify, we certainly feel that they'll give it a look, and it's our job to educate them that there's a trickle effect in terms of the capital outlay going forward. That means essentially that if you address one of these incentives the net effect is there will be less jobs and less severance tax collections going forward."
Among bills introduced so far, the Barnett Shale has garnered much attention. This is mainly thanks to the fact that it's the only area of truly urban drilling activity in the state. Having drilling rigs in the vicinity of homes and businesses makes for a number of issues, at least some of which are to be addressed with legislation. For instance, Texas State Sen. Wendy Davis (D-Fort Worth) has filed several natural gas-related bills to potentially be considered during the session (see Shale Daily, Nov. 18, 2010). Davis said her legislation "will protect job creation in the Barnett Shale and support the positive impacts of natural gas drilling, while simultaneously focusing on the health and safety of those living near urban gas drilling."
Furnace noted the interest in the Barnett and said it's similar to what was seen in the legislature during the last session. The only problem with Barnett-focused legislation is when lawmaking for the region of the play takes a cookie-cutter approach to the rest of the state. In other words, while the Barnett lies in an urban area, the Haynesville and Eagle Ford shales do not.
"While there may be specific issues here and there in the Barnett Shale, often times [bills are] drafted in such a way that they have a disparate effect on rural Texas production, Furnace said.
One piece of legislation introduced by Davis, SB 105, which would require that wells for the disposal of drilling waste be in the Ellenberger formation or deeper, could be a problem "where you're having an across-the-board legislative solution for something that his inherently technical and individualized in nature," Furnace said.
The Haynesville has yet to attract the same kind of legislative attention the Barnett has, Furnace said. Ditto the Eagle Ford in South Texas. But "once you get into South Texas, though, you can anticipate any number of issues, including water use, becoming prevalent, and so I do anticipate legislation and issues with any and every new development. However, the uniqueness of the Barnett is that purely urban drilling, which is why we see so much interest and activity."
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