With the start of a new year, elected officials in Texas and New Mexico can begin digging into legislative issues instead of election infighting. Unlike previous years when the energy industry came under fire in both states concerning regulations or the commission that regulates its activities, 2013 is a year when experts are predicting relatively quiet sessions.
The main issues facing Texas legislators will be:
• The sunset review of the Railroad Commission with a possible name change;
• Water—its use by the industry and the drought’s impact on state water needs;
• Roads in areas with the heaviest oilfield traffic;
• Monitoring what is added to the federal Endangered Species List.
Texas legislators were to start their 2013 session on January 8; New Mexico was scheduled to open on January 15.
The Texas Railroad Commission came up for sunset review two years ago and debate for and against was contentious. Ultimately, no action was taken, which means it will be up for review in 2013.
“Everything we’ve heard says it won’t be near the contentious issue it was two years ago,” said Doug Robison, who just completed his term as chairman of the board of the Permian Basin Petroleum Association. “The discussion before had focused on dissolving this RRC and forming a new commission with a new name.”
That might have allowed the federal Environmental Protection Agency to have jurisdiction over the drilling program. “We can’t do anything to jeopardize our oil and gas industry. If we sound paranoid, it’s because we are. We don’t mind being regulated by a Texas agency,” said Robison, chairman of EXL Petroleum LP in Midland.
State Rep. Tom Craddick, R-Midland, echoed Robison’s concerns. “The Sunset bill concerning the Railroad Commission is the biggest issue that will affect the oil and gas industry,” he said. Another sticking point during the last session was the proposal that the RRC consist of only one person, not three. Since no decision was made two years ago, the Railroad Commission was allowed by law to exist until this session. But if nothing is done now, the RRC will be eliminated.
“The Railroad Commission and the Sunset Advisory Commission have worked on a compromise where it leaves the three commissioners,” Craddick said. “I think this compromise will pass.”
This year, the arguing point might be the recommendation to change the name from “Railroad Commission” to “Texas Energy Resources Commission.”
“I don’t know where this name change will go,” Craddick said. “Some people are for it; some are against it.”
The representative for the counties of Midland, Martin, Dawson, Crane, and Upton said that the Texas Railroad Commission has developed a worldwide reputation. “Saudi Arabia looked at the Railroad Commission when they set up their system. People all over the world know what the RRC is. I’m aware the man on the street might not know what it means, but people in the petroleum industry understand it,” Craddick said.
Taking the other side is State Sen. Kel Seliger of Lubbock. “The name needs to be changed,” he said. “The Railroad Commission hasn’t had anything to do with railroads in years.”
Transportation issues, and specifically roads in areas experiencing a high level of drilling activity, will be another topic for the State Legislature to tackle.
“We’ve seen high levels of deterioration with the high amounts of oilfield traffic,” Seliger said, pointing specifically to drilling in the Panhandle, in the Eagle Ford area, and in West Texas.
“The question is how do we address it? Assessing more taxes on the industry is not the answer. This industry already pays more taxes than any other in the state of Texas. We need to get all the stakeholders, which includes the industry and county government officials, together and find a way to work through this.”
Craddick also cited highways as a major issue the Legislature will face. “With all the drilling and production going on in south and west Texas we don’t have the capacity in our highway road system to handle it. We’re four-laning the road from Midland to Lamesa and also will widen the road from Midland to Garden City to four lanes,” he said.
If comparing traffic counts on the Garden City Highway against that in a large metropolitan area like Houston were the question, there wouldn’t be a way to justify widening that road. But, the state legislator noted, “It is a death trap. The traffic there is unbelievable and it’s become a safety issue. We can’t compete vehicle to vehicle with Harris County, but we have all those 18-wheelers out there.”
The high amount of traffic on the Garden City Highway is sending motorists to detour to Big Spring on their way to San Angelo, a route that provides four lanes all the way.
Meanwhile, water—finding ways to provide more and use less for the people and all the industries—will challenge lawmakers.
“The water issue may not be addressed for the oil and gas industry,” Robison said. “We’ve stressed that we use a very small part of it.” Hydraulic fracturing, however, could become a federal issue.
State Sen. Seliger added that new technologies allow water to be re-used in the industry. “The re-use of water will be an ongoing topic of discussion.”
Craddick doesn’t believe the Legislature will restrict the industry’s utilization of hydraulic fracturing, or fracking, but the federal government could impose some new regulations.
What both the Texas and New Mexico legislatures will be doing this year is watching what actions the federal government takes on issues such as fracking and placing various animals on the endangered species list whose habitat includes the oil and gas production areas of these states.
The U.S. Fish and Wildlife Service announced recently it was considering adding the lesser prairie chicken to the endangered species list. The bird’s habitat is found in five states with oil and gas production: Texas, New Mexico, Oklahoma, Colorado, and Kansas.
“There will be a lot of issues as to what happens next,” Seliger said. “We will address it aggressively and we hope to see the same result as with the sand dune lizard.”
The U.S. Fish and Wildlife Service ruled last June announced it would keep the lizard off the endangered species list after agreements were made with oil companies and landowners to preserve its habitat. Owners of about 600,000 acres in Texas and New Mexico agreed to take steps to remove threats to the lizard by removing farm roads, water lines, roadside drainage ditches, and other infrastructure items.
“It’s always going to take groups working together and this is in the early stages,” noted the Lubbock legislator.
Money and the problem of finding enough to fund everything is an issue both states will face.
Craddick looked at the issue in terms of a lawsuit concerning school funding. “In the last session we did not fund new school enrollment. This session we’ll be in the same situation. If the court comes in and says we need to increase taxes to put more money into schools, it will affect the oil and gas industry.”
The Texas Rainy Day Fund, formally known as the Economic Stabilization Fund, is the state’s savings account. It is funded almost exclusively by oil and gas taxes. In fiscal 2009, the transfer to this Fund was a record $2.2 billion, according to the Permian Basin Petroleum Association. The State Comptroller’s Office has reported the fund should reach $8.1 billion by the start of the legislative session.
“We haven’t heard what the deficit will be in this session,” said Robison with EXL Petroleum. “The oil and gas industry has become involved in raising revenue for the state. We already are the highest taxed industry in the state. I will give credit to the Texas Legislature. It does understand how important this industry is to the state. I have not sensed an indication to raise revenue [by taxing the petroleum industry] and thus discourage economic activity.
“They don’t want to kill the goose that lays the golden egg,” he added.
That may not be the same story with the federal government. Robison said a major reform is needed in environmental statutes. “With the Obama Administration, there’s no chance of reform,” Robison surmised. “The regulations coming out of Washington show there is no desire to see the petroleum industry grow and produce jobs. We could be energy independent in a few years and I don’t know why they won’t let us do it. The Permian Basin is still the premier oil play in the United States.”
A spokesman with the New Mexico Oil and Gas Association in Santa Fe is expecting a quiet 60-day legislative session. “But during this 60-day session, anything is fair game,” said Wally Drangmeister, NMOGA director of communications. He explained the state conducts a 60-day session one year in which bills on any issue can be introduced. The next year consists of a 30-day session that focuses only on budgetary issues.
“There is nothing unusual that we’re expecting in terms of legislation,” he said. But he noted that lawmakers have the first 30 days to submit their bills.
New Mexico’s production in 2012 reflected a large increase, and by mid-December was expected to hit 80 million barrels of oil by year’s end. The last time production levels hit that range was more than 30 years ago—in 1978 and 1979. That increased production also caused economists to predict an additional $283 million in new funds would be available for the state budget.
“This increase is due to improved drilling technology such as horizontal drilling, computer modeling, and fracturing,” Drangmeister said. “There are many formations where horizontal drilling is being used. We’re doing great as long as the feds don’t do something with hydraulic fracturing.
“If we can continue to do our job, in an environmentally friendly manner, our trend is definitely going up.”