Waco Tribune-Herald: Q&A with Texas Railroad Commission Chairwoman Christi Craddick

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Texas Railroad Commission Chairwoman Christi Craddick, 44, begins her third full year at the agency that oversees and regulates Texas’ busy oil and gas industry — and at a time of great upheaval in the market, partially triggered by Saudi Arabia’s decision to keep its own oil production at high levels, causing an oil glut and depressing prices globally. Raised in Midland, ground zero for the oil patch, Craddick is an attorney who specialized in oil and gas, water and tax issues, plus electric deregulation and environmental policy.

Before her Jan. 15 address to the Republican Club of McLennan County, Craddick spoke with the Tribune-Herald about several issues involving fossil fuels including the price of West Texas Intermediate crude, a market benchmark, which since June has dropped from $109 to under $50 a barrel; fears that fracking might be causing earthquakes in Irving; a vote by residents of Denton to ban fracking within city limits; whether the Keystone XL pipeline project is even viable with ebbing oil prices; and the influence of her father, longtime state Rep. Tom Craddick of Midland, who was the first Republican since Reconstruction to serve as speaker of the Texas House of Representatives. This month Rep. Craddick became the longest-serving legislator in state history.

Q    The sliding price of oil has become a big concern. It’s dropped more than 50 percent since June. I think it’s under $50 a barrel.

A    It was $48 yesterday. I haven’t looked this morning. [Since this Q&A, it has dropped to $45.59.]

Q    I worked in West Texas back during the oil bust as well as the good times. I saw banks close down, restaurants close up. It wasn’t just the oil business that hurt. If the Saudis keep production and exports up and oil prices stay depressed, how soon should we in Texas start worrying?

A    There’s always been an ebb and flow in the oil and gas industry, as you and I know from living in West Texas. I’ve felt like there’s a three- to five-year cycle to this and we’re in year four. I don’t think this is unusual for us to have a lot of oil. This is part of a business cycle. I don’t think anybody’s panicked at this point. You’re always going to see some business adjustment. Sometimes we get very Texas-centric and forget that oil is really an international commodity, that there’s an international market for it. China is having (a sort of) recession, Japan is in a recession and the Russians are in an unstable market. We’re also seeing that OPEC [the Organization of the Petroleum Exporting Countries]doesn’t control the price of oil as much as they’d like to.

Q    They don’t have as much control over some of their own members.

A    Well, another problem for them is the U.S. is now the largest oil producer and largest natural gas producer in the world. We have a lot of oil. Now there’s this perception in the U.S. that we don’t have enough oil, but the reality is that we do and the Saudis were taking 34 percent less of the OPEC oil now than they were a year ago, so it’s a challenge for them. There are opportunities as we go through this. I don’t know what the timing of all this is, I’m not an economist, but looking at what the economists say, we face 12 to 15 months of glut. What we know historically is that a lot of companies have investment and dollars put in place for the next six to nine months.

Q    Some say the next time we might see a significant rise in the price of gasoline is summer.

A    That wouldn’t be unusual. We do have a glut, but I think some opportunities also exist. One, I think you’ll see some business takeovers and some people coming back into the business will have opportunities for different development. When horizontal fracking started, we were at $20 oil, so there’s opportunity for new innovation in the oil and gas industry, innovations that might be more cost-effective. And Texas is diversified across the state. Hopefully, too, a lot of the people have been through these cycles before and are better prepared for them.

Q    Let’s hope. You’ve heard that old joke about how you could find an oilman in Midland after the oil bust in the mid-1980s. “Waiter?”

A    Yes, and people even now will tell you they thought things were getting slightly out of balance. This is an opportunity to rebalance the markets. But I haven’t seen a lot of panic and that’s a good thing for us.

Q    Have you felt lately like picking up the phone and calling the comptroller or lieutenant governor and saying, “You know, this might not be the year for tax relief or to catch up on school finance, based on what’s happening in the oil markets.”

A    I stay out of that. They have smart people who sit over there and give them advice. But a lot of what to do in all this is just good common sense. For instance, the Texas Railroad Commission is a much smaller agency than it was in the ’90s. We had 1,500 people working for us in the ’90s and we now have the ability to hire about 800, so we’re being more efficient, more transparent and more effective. We are asking for additional people because this industry has grown so much and we have so much going on. But we’re also aware if the dollars don’t come, we’re not going to hire more people. I think this is how it is with a lot of state agencies.

Q    Does the fact oil prices have dropped so sharply make Keystone XL pipeline completion a moot point? Is it even worth the Canadians’ time and effort now to pursue this project any further?

A    Yes. The Keystone XL pipeline is a very interesting thing. First and foremost, we permitted our piece (of the pipeline) in 2008 and it’s been open in Texas from Cushing, Oklahoma, to Port Arthur for a year now. And we’ve built other pipelines both between our Canadian borders and Mexican borders since then. So I’m not exactly sure why this becomes such a big challenge.

Q    And we have pipelines all over the place as it is now, don’t we?

A    We do. But I think that pipeline and the partnership we have with Canada continues to be important. You look at the price of oil internationally and you look to our friends in Canada and Mexico, with Mexico beginning to open up their market, and we know that the Eagle Ford (Shale) goes into Mexico. There’s real opportunity to work with Mexico. We’re one of their biggest trading partners and vice versa. And Canada is our biggest trading partner, it’s a great friend of ours, so why don’t we want to do business with them instead of Venezuela, Saudi Arabia or Iran? I’d rather continue doing business with our friends in North America.

Q    Do you worry Republicans have oversold the Keystone project in terms of job creation? Aren’t most of the jobs they promised in the United States just temporary?

A    Any infrastructure we put in place is a plus for us. We need the infrastructure because that’s part of the challenge of getting oil moved, whether it’s coming from Canada or the Permian Basin. It takes trucks off the road and it’s safer to move it in a pipeline as opposed to a railroad car. I think job creation is one piece of it, but it’s also our long-term partnership with Canada and other opportunities it brings. I mean, you’ve got to refine that product, you’ve got to ship that product.

Q    And free markets will decide where the Canadian oil goes, whether it stays here in the United States or goes to China or India.

A    Correct. And I think we ought to have free markets. I think it’s time in this country to open up our markets. [Since the 1970s, federal law has prohibited oil companies from exporting most crude oil drilled in the United States, action that came from humbling Arab oil embargoes four decades ago.]

Q    City of Denton voters overwhelmingly banned fracking. I think 59 percent of the residents voted for this. Now the Texas Land Commission is suing the city and the Texas Railroad Commission is watching all this closely. So why shouldn’t the people of Denton have a say over their own town?

A    One reason has to do with the knowledge base at the railroad commission. We have engineers and we are given the authority by the state to regulate oil and gas. We have since the 1930s. That’s our job at the railroad commission. We have great technical expertise. I think there’s a lot of misinformation about the Barnett Shale. And that’s where our first boom kind of happened. We have rules and even improved our rules about casing, making sure we are protecting (ground) water. We go out and inspect wells on a very regular basis because, again, that’s our job. And I think one of the things some cities don’t have in place is that technical expertise to be able to regulate oil and gas. In about half the cities in the state, their fire marshal or fire chief does that job. Some cities have started hiring engineers, but that’s our job.

Q    So you feel that people in Denton have possibly over-reacted? I mean, they do have some wells that are something like 180 feet or 200 feet from houses.

A    Yes, but that’s been under their rules. They decide the setbacks. The railroad commission gives the permit. However, we tell operators and cities that we believe operators ought to work with the cities on what I call a social license to operate. Operators and people who are drilling in the city need to go work with the communities and I think that was where we had a misinformation gap.

Q    Are there concerns about increasing scarcity of water in an ongoing drought and the great use of it in the oil patch? By 2060 our population will have nearly doubled, yet projections are that we will have 10 percent less water. And we’re using so much in fracking.

A    Water is the next frontier for us. It’s very important. I talk a lot about water. First of all, fracking in this state uses 1 percent of the state’s water. That’s oil and gas and mining — all oil and gas (wells) use 1 percent. But I continue to see technology improving. One of the things that we did almost two years ago at the commission was redo and improve our recycling rules because we wanted companies to look at and start recycling. But in the last two years the technology has improved so much that we’re now seeing companies use brackish water, recycled water, they’re using effluent water and buying effluent water from the cities. In fact, the technology has really shifted a lot toward brackish water, which cities and you and I aren’t drinking. And recycling is really beginning to take hold. And there’s technology out there that has come from our friends in Canada that uses no water at all for fracking.

Q    How do they do that?

A    They’re using propane and natural gas liquids as propellants. So the technology continues to improve, even from a year ago. It’s really amazing to watch. And look, there are people who work for these companies who also live in these cities. They know they’ve got to have water but they want to do it right. And the other piece beyond recycling is we’ve improved our casing rules and regulations for pipes. For instance,when you drill a well, (we determine) how much cement you use. So we take water seriously all across the board.

Q    Well, a lot of people are worried that someone’s going to hit an aquifer built up over millions of years and all that pristine, prehistoric water is going to be polluted.

A    We take that very, very seriously at the railroad commission. That’s why our casing rules have improved and I don’t think we had bad ones to begin with. We use a lot more cement. You case quite a bit.

Q    So if I drive up to Irving, should I worry about earthquakes?

A    You know, Irving’s an interesting thing. These earthquakes in the Metroplex started about a year ago with Azle [near Fort Worth] first. It was a good thing for us. We didn’t have the right expertise at the railroad commission and last April we hired a seismologist — a really good West Texas guy from McCamey. He has come in and really tried to bring all the information that companies have, that SMU and other experts have, and disseminate that and read it and interpret it. Based on the information and what he’s looked at within our agency, we updated some rules in August of this past year for injection wells so we can go in and reinspect and put some limits and do some things. But Irving’s been an interesting thing. It started (this month). We as the railroad commission talked with their city manager and mayor immediately. We’ve sent people out to inspect the wells. We’re making our staff available to their city council to answer questions.

Q    So is there anything to this?

A    Azle and Irving are two different cities. Azle is still being studied. Irving’s new obviously. And we’re a very fact-based, science-based agency. We have engineers and geologists. What we know about Irving is that within a 10-mile radius of where these earthquakes are, there is no underground injection well in operation. There’s not even an active injection well in Dallas County. There are two wells within the 10-mile area that are natural gas wells — one was drilled and never put into operation. It was plugged. And the other has not been fracked since 2013. I think the media has just assumed and we are still looking at the facts.

Q    After the British Petroleum accident spilled oil out into the Gulf of Mexico in 2010, Congressman Bill Flores told us no oil company executive seeing all that ever wants that to happen to him, that oil companies will bend over backward to take every precaution. Then again, all it takes is a few people screwing up, someone who decides to cut corners to save money and time and is willing to risk environmental calamity.

A    We enforce things, we fine people. We try to work with people to remediate things, but if they don’t, we’ll take their operating permit if we have to.

Q    Are we going to change the name of the Texas Railroad Commission given that your primary duty involves the oil and gas industry, not railroads?

A    You know, our agency staff really likes the name, which I appreciate because there’s great history to it. Our biggest challenge is explaining to the Legislature that we are, I believe, a constitutional board, which means if we’re going to change our name, we need a constitutional amendment to do that. So if they change our name, I want it done constitutionally and I want something pretty like the Texas Energy Commission.

Q    Your dad is well known in Texas history. Has he advised you regarding your own career in public service?

A    Be true to what you believe in and ask and listen to people. I think he has done an excellent job of that or he wouldn’t have been in public service now for 46 years.

Q    It seems he’s been there forever. I didn’t have gray hair when I first became familiar with him.

A    Neither did he.

Interview conducted, condensed and edited by Bill Whitaker.

To read the interview on the Waco Tribune-Herald site, click here.