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Energy Industry Update: 84th Legislative Session

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Texas Energy Industry Update

I remain incredibly encouraged by what I know the future holds for Texas’ mighty oil and gas industry.

While there is no way to predict how long the current price of oil might last, we can reflect on the direct production statistics we are seeing in Texas today. It is important that we credit the fast-paced, technologically driven spirit of the oil and gas industry and its innovation that has allowed for the recovery of more oil than ever before.

In the past few months we have seen a slight dip in permit applications which leads to fewer active rigs in the field. However, with the combined application of hydraulic fracturing and horizontal drilling, production levels are well above what they were prior to this new era of sustained growth. Production in Texas remains strong with more than 2.4 million barrels of oil produced on average per day each month thus far this year.

This sustained growth is different from the boom and bust we have seen in the past due to new techniques of mineral recovery, with production increasing as much as 30% in areas; mineral resources of all kinds that are valued and sold for a multitude of purposes in fulfilling our state’s energy needs; and critical pipeline infrastructure that continues to be developed across the state, avoiding a lag in progress toward the transport of product to market.

Texas is blessed to have not only vast mineral reserves, but an industry with a pioneering spirit, a strong regulatory structure, expert workforce, and well-developed infrastructure, all a part of what has become known as the Texas Miracle.

84th Legislative Session

The 84th Legislative Session ended Monday, June 1. With the period for which bills can be vetoed by Governor Greg Abbott fast approaching on Sunday, June 21, the legislature passed into law significant legislation related to energy regulation and production in Texas.

As Texas oil and gas production numbers remain high, communities continue to see the effects of increased production across the state. Key legislation will work to address certain issues associated with oil and gas development, including: further protection of Texas citizens and our natural resources; road infrastructure impacted by increased traffic related to production transportation; and, greater transparency with regard to the industry’s use of eminent domain authority.

Railroad Commission Budget and Regulation

One of the Railroad Commission’s top priorities during the legislative session has been to secure funding for the agency as we continue to raise our standards of service to both the public and Texas’ oil and gas industry during this busy time.

Over the last biennium, with help from the legislature during recent budgeting cycles, the Railroad Commission has made significant improvements toward a technology overhaul, increased staff support and efficiencies within our processes. The upcoming biennium’s appropriation will allow us to build on those achievements so that we are able to continue to effectively regulate the state’s biggest economic contributor.

House Bill 1 appropriates approximately $87 million in fiscal years 2016 and 2017 and 820 FTEs for the biennium. The funding includes the following exceptional items, with a focus on additional staff inspectors and IT program upgrades:

  • Provides $2.8 million in addition to our base budget
  • Authorizes 20 additional FTEs and $2.2M to enhance safety inspections
  • Includes $150,000 to replace microfiche readers for the Commission’s Central Record Department

Fully funding the Commission is critical to the long term success of our oil and gas industry for the benefit of all Texans, and we look forward to continued work with the legislature toward this effort.

While economic gains are meaningless without the safety of our communities and resources, hydraulic fracturing bans hurt Texas and the U.S. energy sector as a whole. Without certainty of fair regulation, businesses will be far less willing to risk their capital, and as a result, Texas will lose jobs, tax revenues, and the opportunity for greater economic development. Furthermore, hydraulic fracturing, when well regulated, is safe and has been key to the enhanced development of oil and gas that we know today.

The Commission is required by delegated authority in state law to issue oil and gas permits. Once the Commission issues a permit to drill a well in Texas, operators must comply with a variety of local ordinances within communities in which they operate, allowing cities to police issues such as noise, traffic and safety setbacks from production areas.

In response to the City of Denton’s vote to ban hydraulic fracturing, House Bill 40 was passed. The bill provides express recognition of state pre-emption, confirming that the Railroad Commission is the ultimate authority in regulating oil and gas operations in Texas.

In addition to the passing of House Bill 40, this past April, I traveled to Washington D.C. to testify before the U.S. House Committee on Science, Space and Technology at their hearing entitled Hydraulic Fracturing: Banning Proven Technologies on Possibilities Instead of Probabilities. The banning of hydraulic fracturing by local ordinance is an important issue having a direct impact not only in Texas, but in states across the country. It is important to stress at the federal level and with our counterparts in other states that proper state regulatory structure and a strong working partnership with our local governments will ensure that any community’s concerns with regard to oil and gas drilling are properly managed.

House Bill 2 appropriates funds for the University of Texas at Austin, Bureau of Economic Geology (UT BEG) for the deployment and maintenance of the TexNet Seismic Monitoring program and modeling of reservoir behavior for systems of wells in the vicinity of faults and establishment of a technical advisory committee, which includes our Railroad Commission staff seismologist. Under this new program, the Railroad Commission will work with UT BEG in providing information to grasp a better understanding of any relationship between oil and gas production and seismic activity occurring in Texas.

In adding to the discussion on recent seismic activity, throughout the 84th Session, the Railroad Commission worked in conjunction with the legislature through our participation in hearings, meetings and through input on legislation to further investigate unexplained seismic activity occurring in areas of the state. For a recent interview update I gave on this issue with Capital Tonight in Austin during the Session, please visit the news link here.

Energy Production in Texas

In new production areas where little industry activity may have previously existed, particularly in areas of large population growth as we have seen in the Eagle Ford, we know that criminal activity and the need for law enforcement will grow. In the past two to three years, oil field theft has become an issue of serious concern. At the Midland based, FBI-led Oilfield Theft Task Force, law enforcement is averaging between $400,000 and $800,000 a month in theft in the Permian Basin.

House Bill 3291 establishes an easier prosecution of oilfield theft by creating an offense of theft of pipeline equipment, oil and gas equipment, oil, gas, or condensate and the unauthorized purchase or sale of oil, gas, or condensate for an individual who fails to obtain the required registration or permits from the Railroad Commission. This bill will go a long way as law enforcement across the state works to quickly become better educated about oilfield theft and prepares to aggressively address the issue.

With the many economic benefits that have come from oil and gas production in Texas, industry growth has had an impact on transportation infrastructure throughout the state. Communities are struggling to maintain roads, and resulting safety issues remain an issue. This session, the legislature passed House Bill 4025 allowing counties to designate County Energy Transportation Reinvestment Zones which promote transportation infrastructure projects in areas of the state affected by heavy oil and gas exploration and production activities.

Lifting the U.S. Oil Export Ban

There are a few major issues bubbling at the federal level that affect Texas energy development, and U.S. energy as a whole. A big issue is our nation’s inability to export crude oil ā€“ a law that adversely impacts approximately 90% of our country’s production. The U.S. is producing more light, sweet crude than our refineries can handle and the ban on U.S. crude oil exports should be lifted in order to develop new markets for excess production.

Expanded markets and free trade for crude oil produced in the U.S. would increase U.S. GDP by as much as $135 billion each year; create up to one million new domestic jobs; add $1.3 trillion to government revenue over the 2016 ā€“ 2030 time period, reducing our national deficit; reduce U.S. imports by $67 billion each year; lower gasoline prices as they are set by freely traded global product markets; and, strengthen the U.S. geopolitical standing. If the U.S. crude oil market remains persistently over-supplied, the market will increasingly discount the value of U.S. crude oil.

The crude oil export ban no longer makes sense for a nation with abundant crude oil reserves and means to produce them. Please help to educate your friends on this issue, and urge your representatives in Washington to support lifting the ban.

Thank You for Allowing Me to Continue to Serve Texas

The current energy growth has presented a real opportunity for producing states to benefit from the economic value of the responsible regulation of energy development. As the U.S. continues to rival OPEC countries in oil production, I look forward to working with policymakers and the Commission to keep regulatory structures in Texas strong, limit intervention in industry innovation, and ensure that we continue in the Railroad Commission’s long tradition of keeping Texas communities and our natural resources safe.

It remains my pleasure and honor to serve Texas as your Railroad Commissioner. My staff and I continue to welcome your concerns and questions involving oil and gas production in your community.

May God continue to bless you and the Great State of Texas!