Transcript Enter Title Here

OIL & GAS
UPDATE
Ken Wonstolen
August 27, 2008
Montana Petroleum Association
When You Think WESTERN LANDS & ENERGY,
Think Fulbright.TM
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Natural Gas Production and Consumption
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Projections
History
26.1 Tcf
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Consumption
(trillion cubic feet)
Net Imports 21%
16%
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20.5 Tcf
Production
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10
5
0
1960
1970
1980
1990
2000
2010
2020
2030
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Source: Annual Energy Outlook 2007
Natural Gas Projections from EIA and Six Others: March 28, 2007
Greatest Natural Gas Reserves
by Country, 2006
Rank
Country
Proved Reserves
(trillion cu ft)
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Russia
1,680
2
Iran
971
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Qatar
911
4
Saudi Arabia
241
5
United Arab Emirates
214
6
United States
193
7
Nigeria
185
8
Algeria
161
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Venezuela
151
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Iraq
112
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Indonesia
98
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Let’s discuss your cost of natural gas.
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North American Gas Production
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•Last year – 50% of the natural gas
consumed in the US came from wells
drilled in the prior 40 months
•2 years ago – 50% of the natural gas
consumed in the US came from wells
drilled in the prior 48 months
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Since 2001, Incremental Rockies
Volumes Have Averaged 446 MMcfd
584
455
421
450
441
2004
2005
Average
446 MMcfd
322
2001
2002
2003
2006
Changes in Gross Withdrawals
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What does it take to drill a well?
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Can you get a lease?
Is the geology and terrain favorable?
Can you get to market?
What will it all cost?
Can you get a drilling rig?
How about a surface use agreement?
What permits are required?
How long will it take?
Will the rig still be available?
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Legislation – the hangover from 2007
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HB 1180 – production measurement
HB 1252 – accommodation
SB 237 – surface development
HB 1298 – wildlife protection
HB 1341 – COGCC reform and rulemaking
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Production Measurement
&
Sales Reconciliation
 COGCC rulemaking completed April 1, 2008
 Requires measurement and metering in accordance
with industry technical standards (API, GPA, etc.)
 Requires measurement prior to production leaving
the lease or production unit boundary
 Requires regular meter calibration, and gas quality
determination
 Sales reconciliation issue deferred
● Mcf MMBtu
● Drip, shrink, lease use, NGLs, flaring, downstream sales
● Correlation with tax reporting
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Accommodating the surface owner
 Codifies Gerrity v. Magness, 946 P.2d 913 (Colo. 1997); see
Getty Oil v. Jones, 420 S.W.2d 627 (Texas 1971)
 Minimize intrusion and damage to the extent an alternative
location or means of operation is technically feasible,
economically practicable and reasonably available
 Parties free to contract, and statute not to be construed to
abrogate or impair a contractual provision that “expressly
provides for the use of the surface … or that releases the
operator from liability for use of the surface
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Surface Development
 Developers must notify mineral owners/lessees of
impending “applications for development” CRS 2565.5-101 et seq.
 In the Greater Wattenberg Area, “qualifying surface
developments” require for local approval:
● No objection;
● Surface use agreement; or
● Designation of specified “oil and gas operations areas;”
and,
● Escrow of directional drilling costs ($87,500/well)
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The New COGCC
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Director of Department of Natural Resources
Director of Dept. of Public Health & Environment
Three with oil and gas experience, inc. degrees
Local government official
Experience in environmental or wildlife protection
Experience in soil and land reclamation
Agricultural producer who is royalty owner
 Balance production with protection
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COGCC Rulemaking
 HBs 1298 & 1341 require a “timely and efficient”
APD review procedure, providing an opportunity for
comment by CDPHE and CDOW
 New regulations on protecting public health, wildlife
and wildlife habitat are authorized
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Proposed regulation
 Draft regulation issued March 31, 2008
 Approximately 40 pages of single-spaced text
 Affects every aspect of oil and gas operations and
regulation
 “Oil and gas locations” require Form 2A, and are
subject to approval – doesn’t apply to gathering
systems or gas storage
 Applies to wells, ancillary facilities and may involve
consultation with CDPHE, CDOW, local
government (LGD)
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Proposed regulation, continued
 Form 2A subject to “completeness” review
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Photos, including reclamation “reference area”
List of all equipment to drill, complete and operate
Scaled drawing of visible improvements w/i 400 feet
Topo map showing surface water and riparian areas w/i 1000 feet
USGS topo map showing 3 mile radius and access from public road
Designation of land use and basis for reclamation
Construction layout, cross-section plot for slopes>10%
NRCS soil map unit description
Wellbore trajectory (multi-well pad)
Impact mitigation plan
Wildlife survey and protection plan
Presumptive conditions of approval
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Proposed regulation, continued
 Timeframe for approval, including “completeness”
review, vary
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40 days if covered by Comprehensive Drilling Plan
60 days if no LGD, CDPHE, CDOW consultation
70 days if consultation is required
Concurrent surface owner consultation
Public and adjacent landowner comment period
Ten day appeal period to Director
Operator may apply for hearing
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New environmental regulations
 Surface water drinking water supply areas
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Exclusion zone 300’ wide on permanent and intermittent streams
5 miles upstream of public water system intake
Performance standards, baseline investigation, monitoring
 Bradenhead monitoring during well stimulation
 Inventory of chemicals maintained and made available on
COGCC request. Proprietary formulations provided in
response to spill or medical emergency, subject to
confidentiality
 Extensive requirements for CBM development
 VOC, odor and dust controls
 New pit permitting and design standards
 New E&P waste management rules
 Stormwater management requirements.
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New wildlife rules
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Wildlife survey for species of concern
Transportation planning
Mosquito control (West Nile)
Bear control
Equipment disinfection
Timing limitations up to 90 days! (15 species)
Restricted surface occupancy! (16 species, riparian
areas)
 Variance = consultation
 Reduced well pad density, or CDP
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Proposed regulation, continued
 Memoranda of Agreement with local governments;
state “floor” + local “ceiling”
 Pollution Prevention/Compliance Checklist and
annual certification
 Geographic Area Plans
 Financial assurance/bonding increases
 Increased penalties for violations
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The road behind and ahead …
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Party status – 86 parties, 34 industry
COGCC prehearing statement
Party prehearing statements >10,000 pages
Party rebuttal statements > 4,000 pages
Public comment hearings
Testimonial hearings – 12 hours for industry
Deliberations underway
Legislative Review!
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When You Think WESTERN LANDS
& ENERGY,
TM
Think Fulbright.
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