Sunday, January 25, 2009

Houma Today

New state drilling rules focus on safety

Jeremy Alford
Capitol Correspondent

Published: Sunday, January 25, 2009 at 8:00 a.m.
Last Modified: Saturday, January 24, 2009 at 11:17 p.m.
BATON ROUGE -- Louisiana has enacted what may be the most stringent rules in the country to regulate oil-and-gas companies that drill over water in close proximity to an interstate system.

From a historical perspective, it’s yet another industry first in instances where water and oil overlap.

In the early 1900s, Caddo Lake in Mooringsport hosted the first above-water drilling operation in the U.S.’s long history of energy production.

Over the past decade, just off the shores of Terrebonne and Lafourche parishes, explorers have reached ever deeper to siphon oil and gas from the ocean floor – lately at depths of 5,000 feet or more.

Endorsed by Conservation Commissioner James Welsh earlier this month, the new policy prohibits companies from drilling wells within 1,000 feet of an interstate highway that runs over a major waterway.

Most other states don’t have such a rule. Those that do have an average 100-foot threshold.

Along the Interstate-10 and Interstate-12 corridor and beyond, that’s prime property.

It includes areas like the I-10 crossing of the Atchafalaya Basin, Mississippi River and Lake Pontchartrain; the I-12 crossing of the Amite River; and the I-20 crossing of the Red River, among others.

Louisiana officials still are reeling from the gas-well blowout in November 2007. The blaze was tremendous and closed I-10 at Ramah, right outside Grosse Tete, for a 11 days.

Welsh said the state is so serious about taking a preventive approach that another set of rules went into effect in December to complement the ban.

They call for recurring training, design specifications, new diverters and updated requirements for the quick operation of valves controlling gas and fluid flow.

“We want to minimize as much as humanly possible all potential well blowouts, no matter where the well is located,” Welsh said.

Oil-and-gas companies aren’t overjoyed about the new regulations, Welsh said, but most have been quick to point out their attention to safety.

For instance, Bridas Energy USA Inc., which was responsible for operating the Ramah well in 2007, plans to re-drill in the same area, only this time under the new 1,000-feet guidelines.

“The new rules have placed new burdens on oil-and-gas exploration companies,” Welsh said, “but they too recognize the need to make the drilling process as safe as possible for their employees and the public.”

Jeremy Alford can be reached at

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Tuesday, January 13, 2009

Natural-gas CEO being paid well. How much is your gas bill this month?

Chesapeake CEO McClendon Gets $75 Million Bonus
By Arkansas Business Staff - 1/7/2009 4:27:01 PM

Chesapeake Energy Corp. of Oklahoma City and CEO Aubrey K. McClendon have agreed to terms of a new five-year contract, whereby McClendon will receive a one-time $75 million bonus, an annual salary of $975,000 and yearly bonuses that will not exceed his 2008 total of $1.95 million.

After taxes, the bonus will net McClendon $43.5 million, according to a U.S. Securities and Exchange Commission document filed Wednesday. The parties reached the agreement Dec. 31, according to the filing.

Chesapeake (NYSE: %%CHK) is active in the Fayetteville Shale Play, a natural gas reservoir in north-central Arkansas. The company is one of the play's largest producers. The company has worked to enhance its cash holdings since this summer when natural gas prices began to fall from the high of about $14.

The company closed the sale of a 25 percent stake in its Fayetteville Shale holdings in September. BP America purchased the stake for $1.9 billion. Chesapeake has sold stakes in several other of its natural gas holdings and reduced its capital expenditures multiple times to help raise its cash position.

Monday, January 12, 2009

Violators of water rules don't share details of problem or ideas for solution

Facilities mum on violation solution
Posted on Monday, January 12, 2009
The company that owns two facilities used to discard water used by natural-gas drillers is remaining silent about how it will fix violations that led to emergency orders halting disposal operations.

The two facilities, Fayetteville Shale Land Farm in Lonoke County and Central Arkansas Disposal in White County, are owned by Fayetteville Shale Land Farm LLC. Both permits are registered to Ron Carl, and each lists the same Carlisle address.

Attorney John Peiserich of Perkins & Trotter PLLC, a Little Rock-based environmental law firm, represents the company. He said he couldn't comment because his client was "in the middle of enforcement action negotiations" with the Arkansas Department of Environmental Quality.

"I'd just as soon not make any comment, but we've met with them and are attempting to resolve these issues," Peiserich said.

The two facilities remain closed. Teresa Marks, the Department of Environmental Quality's director, said Fayetteville Shale Land Farm expects to remain closed until spring.

A typical land farm, as such facilities are called, has two large plastic-lined ponds where water and rock sediment discarded after drilling is stored. When one pond is full, the owner can submit water samples to the Environmental Quality Department and if approved, the water from that pond can be used to irrigate crops while the other is being filled.

According to Environmental Quality Department records, Central Arkansas Disposal has the largest ponds in the state, holding up to 180,000 barrels of the castoff water. Among the other 11 facilities in the state, the smallest ponds hold 25,000 barrels each. Each barrel is 42 gallons.

Central Arkansas Disposal is accused of maintaining a third pond about two miles away from the primary facility and pumping the water through underground pipes into the reservoir.

After a nearby property owner reported seeing dead fish in streams on his land Dec. 4, the department investigated. The inspector reported finding a "large unlined, unpermitted waste treatment reservoir" that was emptying into Raft Creek, which feeds the Steve Wilson/ Raft Creek Wildlife Management Area in White County. Central Arkansas Disposal was ordered to stop operations on Dec. 12.

The Fayetteville Shale Land Farm was cited Dec. 3 for allowing the water to run off the property after irrigation. Under the terms of the permit, drill water must be completely absorbed by crops, leaving no puddles or runoff.

The fluid is generated by companies drilling for natural gas in the Fayetteville Shale, a geologic formation that stretches from north-central Arkansas to the Mississippi River.

A man who answered the phone at Searcy-based Central Arkansas Disposal said no one there would be making any comment.

Marks said the department is working with Central Arkansas Disposal to develop a plan for fixing the violations.

"I actually went to the site to visit with them," she said. "It sometimes helps me to have a visual, particularly if there's significant interest from adjoining landowners or significant outcry from the public."

Marks said the department often works with any permit holder in violation because it saves time since their remediation plans must be approved by the department before implementation.

"We've not gotten any final documentation at this point, but this has been given to enforcement," she said. "Their position is that it was an accidental release into the reservoir.

"They did acknowledge that drilling waste did get into the reservoir, but that the reservoir was for holding water for irrigating farm land and that no drill waste was supposed to get into it," Marks said.

She said pipeline valves to the off-site reservoir had been closed.

Marks said there are 13 such facilities licensed to operate in Arkansas. Of those, 11 have had violations within the past few months that have resulted in enforcement action. It usually takes about two months from the date of inspection before sanctions are levied. Violations ranged from not having the proper clearance at the top of ponds - 24 inches minimum is required - to irrigating with more water than was approved by the department.

The largest fine in recent history was levied against Comer Mining Corporation in Sebastian County in December for $19,400, Marks said. The company's violations included:

No records of when, where and how much of the water was used to irrigate crops.

Not submitting reports to the Department detailing the origin, transporter and volume of the water taken in.

Flooding one field with the castoff water and mud.

Not submitting the required water and soil samples to the department.

Inspectors discovered the violations after inspections in March 2007 and in February, June and August.

Marks said fines can be as much as $10,000 per day of being in violation and that the department considers issues such as whether harm was done to the environment, whether the act was intentional and whether the company involved has a history of violations.

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Monday, January 5, 2009

On a different environmental front, Antrim Caskey reports through AlterNet on coal-ash spill in Tennessee

Legislature may see bill to protect public and environment from drilling-site waste

Something to consider supporting by contacting legislators and governor during the upcoming session.
Don't be shy about pointing weaknesses and strengths of the bill. Amendments will occur. Your comment can make a difference:



SECTION 1. Arkansas Code § 8-4-203 is amended to add a new subsection to read as follows:

8-4-203. Permits generally.

(c)(1)(A)(i) All facilities that land apply or store fluids generated or utilized during exploration or production phases of oil or gas operations shall be closed in a manner that ensures protection of human health and the environment.
(ii) As used in this subsection “land application or storage of fluids generated or utilized during exploration or production phases of oil or gas operations” means land-farming through the controlled and repeated application of drilling fluids to a soil surface or the practice of receiving and storing said fluids from offsite for waste management.
(iii) Surface facilities associated with Class II injection wells are specifically excluded from the requirements of this section.
(iv) Land applications at the drilling or exploration site that are authorized pursuant to any general permit issued by the Department are specifically excluded from the requirements of this section.
(B) Within sixty days after the effective date of this Act, each existing, permitted facility regulated under this section shall submit to the department the following:
(i) A plan to close the permitted facility and make any site restoration deemed necessary by the Department;
(ii) A detailed cost estimate to close and
restore the permitted facility that meets the requirements of this subsection and is approved by the Department; and
(iii) A financial mechanism that demonstrates, to the department’s satisfaction, the permittee’s financial ability to ensure adequate closure and any necessary restoration of the permitted facility in accordance with the requirements of this subsection.
(C) After the effective date of this Act, the department shall not issue, modify, or renew a permit for facilities regulated under this subsection without the permit applicant first demonstrating to the department’s satisfaction, the applicant’s financial ability to ensure adequate closure and any necessary restoration of the permitted facility in accordance with the requirements of this subsection.
(D) The amount of any financial assurance
required under this subsection shall be in an amount that is equal to or greater than the detailed cost estimate prepared by an independent professional consultant for a third party to close the permitted facility in accordance with closure plans approved by the department.
(i) For new permits, the applicant shall submit to the department, for approval, a detailed cost estimate to close and restore the facility based on the proposed operation and capacity of the facility from the date the permit is issued through the following October 1;
(ii) For renewal or modification applications, the permittee shall submit to the department, for approval, a detailed cost estimate to close and restore the permitted facility based on closure plans approved by the department; and
(iii) On or before August 15 of each year, all permittees shall submit to the Department for approval, a detailed cost estimate to close and restore the permitted facility in accordance with closure plans approved by the department.
(E) The financial assurance mechanism shall be renewable on October 1 of each year during the duration of the permit.
(F) Documentation that the required financial assurance mechanism has been renewed must be received by the department by September 15 of each year for the duration of the permit or the department shall initiate procedures to take possession of the funds guaranteed by the mechanism and suspend or revoke the permit under which the facility is operated. Any permit suspension shall remain in effect until a financial assurance mechanism is provided to the department in accordance with this subsection.
(G) The permittee is responsible for ensuring that documentation of annual renewal is received by the department by its due date.
(2) The permittee or applicant’s financial ability to adequately close or restore the land application or storage facility shall be demonstrated:
(A) By obtaining insurance that specifically covers closure and restoration costs;
(B) By obtaining a letter of credit;
(C) By obtaining a bond or other surety instrument;
(D) By creating a trust fund or an escrow account;
(E) Through the use of a combination of any of the above; or
(F) By any other financial instrument acceptable to the director.
(4) Any financial instrument required by this subsection shall:
(i) Be posted to the benefit of the department;
(ii) Provide that it cannot be cancelled without sixty days prior, written notice addressed to the department’s Legal Division Chief as evidenced by a signed, certified mail, return receipt; and
(iii) Be reviewed by the Department upon receipt of the cancellation notice, to determine whether to initiate procedures to revoke or suspend the facility’s permit and whether to initiate procedures to take possession of the funds guaranteed by the financial assurance mechanism.
(4) Before the department may release any financial assurance mechanism, it must receive a certification by a professional engineer that the permitted facility has been closed and restored in accordance with closure plans approved by the department.
(5) It is explicitly understood that the department shall not be responsible for the operation, closure, or restoration of any facility permitted under this subsection.
SECTION 2. EMERGENCY CLAUSE. It is found and determined by the General Assembly of the State of Arkansas that establishing financial assurance requirements for the closure of commercial facilities that land apply or store fluids generated or utilized during exploration or production phases of oil or gas operations is necessary to protect human health and the environment and that a delay in the effective date of this Act may result in harm to human health or the environment. Therefore, an emergency is declared to exist and this Act being necessary for the immediate preservation of the public peace, health, and safety shall be in full force and effect from and after the date of its passage or approval. If the bill is neither approved nor vetoed by the Governor, it shall become effective on the expiration of the period of time during which the Governor may veto the bill. If the bill is vetoed by the Governor and the veto is overridden, it shall become effective on the date the last house overrides the veto.

Thursday, January 1, 2009

Drop in gas price makes severance-tax payoff uncertain

As tax on natural gas kicks in, intake unclear
Posted on Thursday, January 1, 2009
Arkansas' increased severance tax on natural gas, approved in April after much debate, takes effect today amid questions about how many dollars it will produce for the state and what those dollars will do.
The tax is based on the price of natural gas, which has plummeted since the state last produced revenue estimates.
That means projections of $57 million to be collected in 2009 are uncertain.
The bulk of the revenue is to be spent on roads, but fluctuations in the price of oil have created more uncertainty on exactly how it will be used, said Cliff Hoofman of North Little Rock, a member of the Arkansas Highway Commission.
"We have talked about setting aside [severance tax revenue] for some identifiable project, but our discussions a few months ago was that we should put that on hold because we were experiencing a real calamity in the reduction in department revenue," Hoofman said. "Now, we don't know what's going to happen. We're sort of in a holding pattern."
Much of Highway Department revenue from the state is based on a gasoline tax of 22.5 cents per gallon. Fuel tax receipts for the department from July through October were $73.4 million, down from $77.9 million in the same period in 2007, said Randy Ort, department spokesman.
Highway off icials have blamed the decrease on the fact that people bought less gasoline because of the high prices earlier in 2008. But now that the price of gasoline has dropped from $4 a gallon to $1.50 a gallon, officials say it's unclear whether fuel tax revenue will go up.
Hoofman said the severance tax money may end up simply making up for the loss in the fuel tax revenue. He said it "would be irresponsible" to start new projects with the money until the department has a better idea of the amount of tax col- lections.
The severance tax was increased after a surge in drilling in the Fayetteville Shale natural gas deposits in north-central Arkansas.
The previous rate was 1 cent per 1,000 cubic feet of gas, which was set in 1957 and was based on volume so it hadn't increased since then. The tax raised about $600,000 a year.
Gov. Mike Beebe and the Legislature increased the tax to 5 percent of proceeds from the sale of gas by the producer less the cost of treating and transportation.
The state projects revenue to increase to about $100 million by 2013.
The proceeds are to be divided four ways, with 5 percent going into state general revenue. Of the remaining 95 percent, 70 percent is to go to state highways, 15 percent to counties and 15 percent to cities.
Beebe called a special legislative session to raise the tax after negotiating with natural-gas production companies on an increase. That led to consensus in the Legislature to approve it.
Little Rock attorney Sheffield Nelson had called for an initiated act to raise the tax by an even greater amount, if the Legislature and the governor failed to act.
Nelson said some have argued that Beebe's agreement with the gas companies is too soft and contains too many exemptions.
"But it's 100 times more than what the state has been getting up until this time," Nelson said. "It's quite an accomplishment."
Nelson, a former Republican gubernatorial nominee and former natural gas utility executive, said "time has proven" that he and his supporters were correct to back off pursuing a ballot initiative to raise the tax.
He said he thinks that the economic downturn could have made it harder to raise any tax.
"Had we fought a very tough battle from that time until November, even if we had won, there would have been negative consequences," Nelson said. "No one would come down with a good taste in their mouth. I think we would have won but we would have burned so many bridges."
For example, he said had a ballot initiative been successful he doubted that natural gas producer Southwestern Energy of Houston would have decided to build a $25 million regional headquarters in Conway, which was announced Dec. 18.
At the time of the severance tax's passage in April, the price of natural gas traded on the New York Mercantile Exchange was $10 per 1,000 cubic feet. Now, it's $6.
"That's probably artificially low," Nelson said. "It's tagged to a certain degree of what's happening with oil. It will go back up."
Oil is a major ingredient in asphalt. So even though the Highway Department would have gotten more severance tax money when the price of natural gas was high, roads were more expensive to build and fix because of the increased price for asphalt, Hoofman said.
Hoofman said it's unclear whether the price for asphalt will decline with the reduction in oil prices the past couple of months. He said there should be some indication of that next week when project bids are opened.
Beebe spokesman Matt De-Cample said the governor expected uncertainty in the price of natural gas.
"We'll just take it as it comes," he said.
State revenue estimates were based on $8 natural gas. Richard Weiss, director of the Department of Finance and Administration, said the state hasn't updated it's revenue estimates for the severance tax.
Beebe said in 2008 that he wanted the severance tax money to be spent at the Highway Department based on "money following the cars," meaning in areas of high traffic and in places where it could help economic development.
DeCample said that's Beebe's general philosophy on highway revenue but that the governor has no specific plan on spending the severance tax money.
"We accepted the adjustment of the Arkansas severance tax," said Danny Games, spokesman for Chesapeake Energy Corp. of Oklahoma City. "We and our royalty owners pay similar types of taxes in most of the other states where we operate."
A Southwestern Energy spokesman didn't return a message.
Also taking effect today are two proposals approved by the people at the Nov. 4 election:
An initiated act that bars unmarried people living together from adopting children or being foster parents. The American Civil Liberties Union has filed a lawsuit challenging the law in Pulaski County Circuit Court.
A constitutional amendment calling for annual sessions of the Legislature, which now meets in regular session every odd-numbered year. So the first additional session under the terms of the amendment would be in 2010.
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