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Changes to Idaho’s Oil and Gas Industry Proposed

Brian Smith | The Times-News

BOISE — After months of negotiations, industry representatives, environmentalists and regulators will soon present a set of changes to the rules governing Idaho’s budding oil and gas industry.

On Tuesday, the Idaho Oil and Gas Commission will mull the proposed rules before they go out for a 21-day public comment period in early September and a public hearing. If approved by the commission after, the rules will be forwarded to the Idaho Legislature for consideration.

The recently-concluded negotiated rulemaking session — the second of its kind in recent years — seeks more regulations on an industry that skirted the state for more than a century. Modern developers have explored Idaho for about a decade, drilling 14 wells, nine of which are thought to have production potential and one which is producing.

Two natural gas explorers are at the helm of Idaho’s modest play — Trendwell Energy Corp., and Alta Mesa, a Texas-based company who acquired its assets from Idaho gas pioneer Bridge Resources, which went belly up.

While gas prices are currently low, Idaho’s project pencils out because of low overhead, namely the play’s proximity to market infrastructure and Idaho Power’s Langley Gulch Power Plant, said Alta Mesa spokesman John Foster.

Among the proposed new requirements include increased industry notification and state inspection of critical pre-drilling operations and online disclosure of chemicals used during hydraulic fracturing. The changes would also increase bonding requirements to plug inactive wells, define rules on the integration of mineral rights, create restrictions on flaring gas, create restrictions for on-site chemical storage and increase protection of groundwater resources in various ways.

The proposals bring the state into best management practices and gets ahead of exploration headaches seen in other states, said Bobby Johnson, oil and gas program manager for the Idaho Department of Lands.

“As far as what the people wanted, and what industry wanted, I think we found a good median area that meets both,” he said.

Alma Hasse, co-founder of Idaho Residents Against Gas Extraction, disagreed. She said environmentalists’ requests were largely ignored, saying “the term negotiated rulemaking is false advertising … a better description would be railroaded rulemaking.”

The draft rules are “nowhere near enough to protect our property rights, our drinking water and air quality,” she said.

She said she was dismayed when requests for increased regulations on several items, including more fracking transparency, increased distance between drilling operations and homes, and pre-drilling environmental assessments were swept aside.

“Supposedly, the whole world was open for negotiation, yet I and a bunch of other folks tried to bring that up and we were not allowed to,” she said. “We were told to move on.”

Justin Hayes, Idaho Conservation League program director, took a more moderate stance, saying the organization would continue to advocate for some changes, but what’s being considered “significantly improves” environmental protections against exploration.

Also, Hayes said it was “awesome” that the state’s regulations are largely clear and readable to those unfamiliar with the industry.

“It’s approachable. It’s possible to make something so byzantine that you have to hire lawyers to tell you what you are looking at,” he said.

Foster said it would be “premature” for Alta Mesa to comment on the results of the negotiated rulemaking, but was complimentary of the state’s process “that gave everyone their say.”

“Now we just have to trust that they are going to put forward rules that make sense,” he said. “Anyone who wants to complain about what IDL puts forward is likely to be more concerned about their own pet perspective on issues than what’s in the best interest of the state.”

Suzanne Budge, executive director of the Idaho Petroleum Council, said the industry needs a “reasonable and clear guideline for how to do business,” while protecting the environment and health. The proposed rules are “generally moving in the right direction,” she said.


Increased oversight

A major change that is being considered is that gas explorers notify the state earlier and more often of their drilling-related activities so that Johnson can oversee critical surface casing and cementing work.

The nation’s oil and gas industry has come under fire of late as many wells on federal land are reported to go uninspected. Johnson said Idaho’s small gas play and new regulations will allow oversight at the start of every well. Most western state require such practice, but some allow inspections to be waived, Johnson said.

“It is not ‘may,’ it’s a ‘will’ — we are holding ourselves to a higher standard as well,” he said.


Fracking disclosure

Another high-profile energy controversy that’s been addressed in Idaho’s rules is that of companies disclosing what chemicals they use during hydraulic fracturing, the process used elsewhere to unlock oil and gas trapped in shale formations.

Although no fracking has occurred or is proposed in Idaho, state regulators will require companies to publicly disclose what chemicals they use during fracking to www.fracfocus.org. Still unavailable to the public, however, is the chemical “recipe” of those fracking fluids, Johnson said.

Hasse said fracfocus.org is a strawman in that it doesn’t ensure all chemicals are properly or accurately listed.

“If you look on there in other states, there’s line after line of ‘proprietary’ and ‘protected’ and ‘confidential’ chemicals,” she said. “There’s all kinds of things they are not reporting on those reports. … The public will have no idea all they are putting down those holes.”

Hayes said he liked the idea of fracfocus.org but had similar concerns about industry finding away around the requirement by claiming trade secrets.

“I believe that people are largely trustworthy. Someone out there is lying at all times, but by in large I think the industry is doing what they can to comply with the rules that they are obligated to comply with,” he said. “… That said, they have worked really hard to make sure they don’t have to fill out any tough information on any forms.”


Increased bonding

The state is also requesting to increase the size of bonds that the industry needs to post for the wells they drill that become inactive after two years. Beyond a standard $10,000 starter bond, the state proposes to raise the per-foot-in-depth fee from $1 to $8.

The current bond price would not be enough to cover the costs of the state having to step in and plug an inactive well to ensure it is environmentally safe long-term should a producer go bankrupt or simply walk away from a project, Johnson said.

Hayes said he thought that increase was good, but said other bonding requirements were “woefully inadequate.” Hayes said Johnson defended lower bonds on active wells by saying they are “a positive on the balance sheet” should a company go belly up and be bought by another.

“If you’ve just decided that you need eight bucks a foot plus $10,000 for an individual inactive well, how do you get by with a blanket bond for up to 10 wells for only $50,000?” he said. “…You are presuming that whoever is buying the dead carcass of the bankrupt company with active wells will treat them as an asset, bring them back into production and you don’t need to worry about abandonment.

“That’s noble, but somewhat naive.”


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Integrating mineral rights

The state is also proposing new rules on the legal combination of mineral rights — a process called integration. Integration combines mineral rights across an area of land to ensure an appropriate number of wells are draining the pool.

Too many wells pumping from the same pocket of gas wastes natural pressure critical to its recovery, Johnson said.

“What we are doing is the conservation of energy, making sure that with integration you can have an orderly, efficient draining of the mineral resource in that area so that everyone’s correlated rights are protected and everyone gets their mineral payments,” he said.

The state is proposing that 55 percent of the owners of mineral rights in an area would need to agree to integration before it can occur. Some states do not have such a percentage requirement, Johnson said.

“If someone (in another state) had one percent of unit on one or two acres, they could essentially get everyone in that unit (area of land) to be integrated based on that percentage of ownership,” he said.

Hasse said her group advocated for an 85 percent agreement. Property owners fear 55 percent could lead to two mineral owners strong-arming a third into leasing his or her minerals against their will.

“What integration does is forces me to deplete my savings account,” she said of the minerals sitting beneath her farm.


Flaring restrictions

Flaring — the process of burning off excess gas — is also receiving a new set of rules in the proposal.

Many states have banned flaring, but the practice lives on in places such as North Dakota where 30 percent of gas produced — a byproduct of lucrative oil production there — is flared due to its low market price and high cost of delivery infrastructure.

Idaho would allow some flaring as part of regular operations, or in emergencies, but not longer than 60 days in a row, Johnson said. Moreover, an explorer would be forced to pay royalties and severance tax on flaring occurring between 14 and 60 days.

The rules also require landowners within a quarter mile radius to be notified in the name of respiratory health. Hasse said she wanted that distance increased to at least one mile.

While the well regulations on flaring include an anti-waste provision, Hasse said she worries the flaring section governing processing facilities would allow operators a way to string together 60-day flaring episodes.

Hasse alleged producers are more interested in higher dollar condensate, or “wet” gas, and are hoping to write loopholes into regulation to allow massive flaring of cheaper dry gas.

“They want to be North Dakota and be flaring it because there is no infrastructure right now,” she said.

Foster balked when asked about Hasse’s comments on flaring — “I’m not going to dignify her behavior or her wild allegations,” he said.


Reports, chemical storage, and blowout prevention

Johnson said the changes also:

– Expand and clarify requirements for publication of legal notices.

– Require more information submitted by industry in their organizational reports and applications.

– Make fire protection regulations more robust.

– Expands the buffer in which industry can’t hydraulically fracture around freshwater aquifers.

– Create rules for fencing to keep wildlife away and rules to keep well sites clear of trash and other clutter.

– Increase requirements to remove chemicals that aren’t being used off site.

– Increase safety requirements and inspection opportunities for blowout prevention technologies.

– Increase quality and safety requirements of certain heavy equipment.

– Requires monthly public production reports from producers starting six months after a well is drilled.

– Regulates the on-site storage of produced oil and gas inside tank batteries and sets rules for spill containment measures around them.

– Regulates gas processing facilities and includes a quarterly inspection provision.


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