Earlier this week, the Railroad Commission of Texas (RRC) had what can only be described as a hair-pulling bad day at the office. The state agency regulates all-things oil and gas (as well as coal mining, brine mining, uranium exploration, gas rates and an assortment of other issues, but nothing on railroads), and is notoriously industry-friendly. The RRC has been in the public eye for the last month or so over whether or not they would take action on two globally significant issues that Texas is facing: what to do about all the rampant flaring (and venting) of gas (particularly in the Permian Basin of West Texas), and what to do about oversupply of oil given the lowered demand globally and the low prices caused both by COVID and recent actions of Saudia Arabia and Russia.
On Tuesday, May 5th, the three statewide elected Commissioners - Wayne Christian, Christie Craddick and Ryan Sitton - decided to do nothing on “proration” -- creating a defacto monthly production limit -- and more importantly to the Sierra Club, very little on flaring. In fact, they approved all six “exception” requests on their agenda to allow for more flaring despite opposition. Chair Wayne Christian acknowledged that flaring was a black-eye for the industry and something needed to be done, so he asked for input by early June... but only from representatives of the oil and gas industry. That’s like asking for an opinion about Trump’s handling of the COVID-19 pandemic, but only from Trump.
To make matters worse, the Commission unanimously passed three far-ranging resolutions that create exceptions to current fees and rules for up to a year to provide “regulatory relief” to the industry, with the meat of the resolutions largely suggested by industry itself. In other words, the RRC continues to conspicuously favor industry, making decisions with no input from anyone but the largest industry lobby groups and organizations. Who will benefit? Virtually no one but the oil and gas executives and their shareholders on Wall Street.
What is the Blue Ribbon Commission and why should you care?
A few short weeks ago, with some fanfare, Chair Christian announced that he had asked the oil and gas industry to form a new “Blue Ribbon Task Force for Oil Economic Recovery.” Can you guess who was on it? Surprise: the main oil and gas industry associations and some (but not all) royalty associations, including: the Texas Oil and Gas Association, the Texas Independent Producers & Royalty Owners, the Panhandle Producers & Royalty Owners Association, the Texas Alliance of Energy Producers, the South Texas Energy & Economic Roundtable, the Texas Independent Producers & Royalty Owners, the Permian Basin Petroleum Association, the American Royalty Council, and the Texas Pipeline Association.
And they delivered big time. Not only did they produce a report with a list of regulatory and financial relief ideas (released just moments after the RRC gave them much of what they asked for) but they were then asked exclusively by the Chairman for their input on how to reduce flaring by June 15th, when the RRC is scheduled to meet. Never mind that dozens of conservation groups and literally thousands of individual Texans had written into the Commission asking them, essentially: regardless of what you decide on proration, do something to reduce the physical waste of gas.
Over the last 10 years, the amount of gas being flared by both oil and gas producers has risen ten-fold as the Commission has routinely and predictably allowed “exceptions” to what is known as Rule 32 -- which states that gas must be used or sold, not flared off (unless granted an exception.) In 2019, the Commission granted over 6,000 exceptions to the non-flaring rule, allowing some 650,000 cubic meters of gas PER DAY to be flared.
And recent reports suggest that the actual amount of gas and methane being flared is much greater in part because operators routinely bust through their caps, and in some cases, even allow unlit flares to vent the gas straight into the atmosphere. A recent study commissioned by our colleagues at the Environmental Defense Fund found that some 3.7 percent of all gas in the Permian was actually leaking into our atmosphere from oil and gas producers, well over twice previous estimates. Methane is a climate killer, and is dangerous to public health.
What about the resolutions? What do they do?
They are short-sighted and will have major impacts over the next year. All of them were voted on with no public input -- other than from the industry representatives that suggested the ideas and from commission staff. No member of the public or press even saw the resolutions that were being voted on and according to public statements from Commissioner Ryan SItton, he only saw them the afternoon before the vote.
Below are the three resolutions.
Resolution 1: Forgiving Fees and Surcharges
The first is a big gift to industry but a big slap in the face to the state of Texas that will impact the 2021 Legislative Session. We’ll get to this in a second.
The Commission decided to exempt fees and surcharges on five types of applications through December 31, 2020, including “Form P-17,” related to storage of hydrocarbons as part of an exception to the normal Commingle Permit Applications; applications related to the underground discharge of fracked wastewater into a porous formation not productive of oil and gas (W-14); applications related to injecting fluid into a reservoir productive of oil and gas (H-1), allocations related to the storage of hydrocarbons underground (H-4); and applications for exceptions to the surface equipment removal requirements (W-3C).
Why do we care?
Two reasons. By forgiving these fees and surcharges through December, the Commission is encouraging applicants to seek exceptions and permits to store more wastewater, fluids and products underground and not have to remove surface equipment or to allow for more commingling of oil and gas in storage. All of these processes could have additional environmental, climate, and health impacts.. This resolution is then an act of encouragement by the Commission for industry to pollute and jeopardize public health at their will, as long as they have the right paperwork.
How this resolution affects the Texas State Budget
The greater concern is the fiscal impacts on the state’s budget. To understand why, we need to explain the Legislative Session and how the Legislative budget works. Every two years, the state legislature meets and only has to pass one bill:the two-year state budget. That budget lays out how much money each state agency gets for two years based upon revenue projections. If less revenues come in, and there is a shortfall in funds, the RRC will likely not be able to ask for additional monies to hire inspectors, permit writers or to even plug wells.
Traditionally, the RRC relies on three funding sources: federal funds, fees and surcharges that go into an account called the Texas Oil and Gas Regulatory Fee and Clean-up Account, and money out of the Economic Stabilization Fund (nicknamed the Rainy Day Fund) which is funded by oil and gas severance taxes on oil and gas production. As fees and surcharges are reduced or eliminated, it is likely that the RRC would ask for more money from the Rainy Day fund, which is also used for public infrastructure or services highways, education and other needs.
In other words, forgiving oil and gas companies application fees robs the state of needed revenues that could ultimately impact public needs and relief, or could lessen the agency’s budget, meaning less inspectors or permit writers.
Resolution 2: Temporary Exception to Statewide Rule 95
All oil and gas operators that want to store their product underground must go to the Commission, fill out an application, pay a fee, provide notice to other mineral owners and land owners, and in many cases they go to a hearing before an RRC hearing examiner before receiving a permit. With this resolution, a couple of things changed: one procedural, one completely new and potentially dangerous policy shift.
First, applications for underground storage of hydrocarbons will no longer go through a hearings examiner process, unless the operator or a protester requests it. This process shows thatThe Commission had actually taken their responsibility on underground storage of hydrocarbons very seriously; after all, if it is done wrong, it could lead to pollution of groundwater. The RRC had required all applications to have a further review through an administrative judge, known as a hearings examiner. That is no longer the case through May 5, 2021.
Even more concerning is that the Commission has now opened up the storage of crude oil in geologic formations that are not just underground salt formations -:Texas has traditionally stored excess oil in its famous salt caverns or domes. With this resolution, for the first time, Texas will consider the storage of crude oil in other types of underground formations. While the staff would still review these applications and recommend approval or denial, this is a major policy shift, and is being done without a proposed rule change or the normal process at the Commission. Critics fear that this could lead to pollution of groundwater, blowouts, or other disasters. Salt caverns have unique properties that allow them to be used more safely.
Resolution 3: Create Exemptions to Four Other Statewide Rules
The Commission passed yet a third resolution that loosens rules on 4 major environmental rules that regulate oil and gas.
First, under Statewide Rule 8, oil and gas companies that manage or maintain “pits” that store water, drilling muds and cutting, fresh mining, sediment and other pits will be given an additional year to dewater, backfill and compact the authorized pit if they request it. Essentially, they won’t have to clean up their pits as soon as possible but can ask for extension. Interestingly, while the Commission said the resolution was designed to create and keep jobs, extending clean-up of pits will actually decrease work. Keeping pits around longer also increases the chance that something could go wrong, particularly if there are local rain or flood events.
Second, the Commission allowed oil and gas companies that use alternatives to the strict casing and cementing requirements found in Statewide Rule 13 -- which lays out the rules for the tubing that extract product from underground -- will be granted more than the standard 180-day limitation, allowing them to use “alternatives” to the regular tubing requirements up to 365 days. This grants companies more flexibility to use alternatives in producing oil and gas for more time than is normally granted. Again, this increases the chance that something goes wrong with this “alternative” process.
Third, the Commission is granting companies more time to plug and clean up the surface of their “shut-in” wells, which are oil or gas wells that are no longer producing .. Thus, oil and gas producers who produced oil and gas in February but stopped producing no later than March 1, 2020, and then produce no more oil and gas over the next year, will have up to TWO years to plug wells.
This means that more wells might not get plugged-- and could actually become the state’s responsibility if oil and gas companies go belly up and declare bankruptcy. It also means that jobs that would have been created plugging wells -- exactly the kind of jobs we need during the COVID-19 pandemic -- won’t be there if companies take advantage of the new grace period.
Fourth, the Commission also created exceptions in Statewide Rule 3.107(b), allowing Commission legal staff to recommend lower administrative penalties than the minimum penalties found in state rule for oil and gas lawbreakers. The provision doesn’t require that the Commission lower recommended administrative penalties but it allows it to happen.
Thus, this policy shift could lessen deterrence that oil and gas companies have to obey the law. If administrative fines are lessened then breaking the law becomes a normal cost of business.
What’s next?
The Railroad Commissioners will come back on June 16th at an “open meeting” to talk about flaring and other issues, and we will be watching and participating.
And what do you do when the elected Chair of the Commission only wants to hear from industry on flaring? Tell him you want stricter rules on flaring and oil and gas waste anyway. Sierra Club will be working with our allies to give actual solutions to the flaring crisis which we will share broadly with the Commissioners and the public.