The Enid News and Eagle, Enid, OK

August 9, 2013

Oil and gas industry heavy hitters politely ‘duke it out’

By Rachael Van Horn, CNHI News Service
Enid News and Eagle

WOODWARD, Okla. — In a first-of-its-kind oilfield panel in Woodward, four oil and gas industry heavy hitters agreed on many aspects regarding how to best clear hurdles that lay ahead for the industry.

On differences, they found a way to “duke it out” politely.

Regardless of diverging opinions on some issues, all four panelists made one thing perfectly clear. Oil industry leaders must know and be able to discuss real data and science. They must be a visible resource in communities and end the “them against us” public perceptions that have sometimes dogged the industry.

The panel discussion was the brain child of organizers of the second annual Tri-State Oil and Gas Convention, which has hosted multiple events through the week.

Guests were Frank Q. Young, Unit Petroleum senior vice president; Robert Johnston, Apache vice president and general manager; Darren Sand; Devon Energy EHS policy and regulatory affairs manager; and Oklahoma Corporation Commissioner Dana Murphy. State Sen. Bryce Marlatt, R-Woodward, moderated the event.

The panel discussion was intended to establish a question-and-answer session that could bring to light issues facing the industry. The goal was to include diverse opinions about serious challenges to oil and gas seldom discussed at the grassroots level, said event coordinator Junior Long.

Panel guests took questions on issues ranging from how best to tackle water conservation, where tax incentives are best utilized for drilling success, issues related to the lesser prairie chicken and opinions regarding the 2011 Shale Reservoir Development Act.

Perhaps the most contentious of all the questions Marlatt posed involved the Shale Reservoir Development Act, signed by Gov. Mary Fallin in April 2011.

The 35-page bill updated Oklahoma oil and gas laws to include new technologies, such as horizontal and directional drilling. In addition, it set the Oklahoma Corporation Commission up as the agency with discretionary power and oversight in all cross unit drilling applications.

In short, the law allows longer laterals, which in some cases cross property section lines.

The law establishes guidance and rules for the protection of land and mineral owners in cases where that crossing of section lines also crosses ownership lines.

Discussion on the issue was:

• QUESTION — What are the options we have in dealing with longer laterals while continuing to develop production, and at the same time protecting the interest of land and mineral owners?

“At Unit, we have about 2,000 wells in Oklahoma and we have instances where fracking a horizontal has caused damage to a vertical nearby,” Young said. “There is also the consideration that the sand between the units isn’t homogenous and the difficulty associated with that in determining cost revenue split.

“However, even considering that, when you consider being able to go from 4,500 feet of lateral line to  9,000 or even 10,000, the savings of that is about $1.2 million for every two wells you have to consider the profits that can be generated. So I don’t see any issues big enough to stop it.”

Johnston said the Anadarko Basin is a perfect example of a drilling reservoir where the sand between units, which are the divided section lines, are not homogenous. That means the sand might produce a well on one section, but move over one section line and it changes drastically.

Johnston said he believes land and mineral owners could be at risk if corporations are allowed to assume that production in one section is equal to the production in another section, where one lateral might be drawing from both sections. He favors current legislation, which already is set up and has a good track record of protecting land and mineral owners.

“We already have all those problems,” Murphy said. “This is cross unit drilling, but it does not change the spacing. That is still something we need to resolve.”

Murphy said there are adjustments to be made on a case-by-case basis.

“You have got to rely on the regulatory body,” to determine what formations will work for this, she said.

At present, she said, since the signing of the Shale Reservoir Development Act, there have been about 101 applications for cross unit drilling. That is drilling a horizontal that has a lateral line that crosses a section line.

Murphy said new technology requires legislation that addresses the particulars of that enhanced ability to produce oil.

“Last year was the first year that we had more horizontal completions than vertical,” she said. “Our rules and regulations were written for only vertical wells.”

Murphy said it is critical to make sure rules and legislation relate to the real world of drilling so Oklahoma can be competitive with other states, such as North Dakota, which already have such legislation.

Panel members agreed that there is much-needed cooperative discussion also on the idea of sharing water resources to cut down on consumption. For instance, when a large company has a water storage pit, if companies came together cooperatively, it might allow for all producers to benefit from the economy of scale while at the same time reducing water consumption.

Smith favors the idea of a water cooperative run by someone else but paid for by each producer based on use. While there used to be an emphasis on treating and purifying water to reuse it in fracking and other applications, there is a new emphasis on the reuse of water that saves money and also opens doors for a wider supply of water by using it “as is,” he said.

“There has also been some testing of hydraulic franking with other mediums, such as gas,” he said.

Van Horn writes for the Woodward News.