Note: At the end of this article, there are Q&A’s with legislators about the legislative session.
As the smoke clears on the recently concluded legislative session, Texas’ oil and gas interests can be relieved that nothing too damaging found passage. Still, questions remain and certain issues linger.
If there are two things that West Texans certainly understand, it is the oil and gas industry and football. So those living in the Permian Basin can appreciate it when David Holt said the industry spent the 83rd Texas Legislative session “playing a great deal of defense.”
Defense, of course, wins championships, as every football fan knows.
“There doesn’t appear to be anything [in the final passage of bills from the legislative session that concluded on May 27] that hurt us very much,” said Holt, who runs the Permian Basin Petroleum Association’s Austin office. “The Texas Legislature recognizes the importance of the industry and protected us from unnecessary legislation, which is the way the system works. The governor’s office was also very helpful.”
Although the recent legislative session was dominated by discussion of water, roads, taxes, and education, there were a number of bills introduced that could have been detrimental to the oil and gas industry, which, of course, is the driver of the current robust economy in Texas.
The highest profile issue related to the oil and gas industry was the sunset review of the Texas Railroad Commission. Holt says the review got bogged down in all sorts of proposed amendments, ranging from a call for different campaign finance regulations for the RRC’s three-man commission compared to other elected state offices to a change to a single super commissioner to run the state’s regulatory agency.
Ben Shepperd, president of the PBPA, said much of that controversy swirled around the fact that RRC commissioners in recent years have alienated some legislators by using that office as a stepping stone to run for other state-wide offices, rather than regulating the industry.
There was also an attempt to change the name of the Railroad Commission, which Holt says would have required a constitutional amendment and opened up a number of other legal questions. Some even wanted to move the RRC duties under other regulatory agencies.
In the end, however, the legislature extended the Railroad Commission for four years, basically leaving the state’s oil and gas regulatory agency intact as is.
“We were pleased with that,” Shepperd said. “The Texas Railroad Commission does an extremely good job of balancing environmental and health issues with the needs of our industry. The Railroad Commission has been unfairly criticized. The oil and gas industry in the state is exploding, and the RRC has done a good job of regulating the industry and preventing pollution but keeping the needs the industry in mind. I wish the reauthorization period was longer, but I am happy the Railroad Commission was continued for four years. It gives everyone a chance to cool down.”
One of the provisions in the bill to extend the Railroad Commission, however, charges the sunset commission with re-evaluating all duties of the RRC.
“That sets the table to abolish the agency,” Shepperd continued. “That would be a horrible idea.”
Endangered Species
While much of the PBPA’s lobbying efforts were spent in defeating bills that would be harmful to the industry or preventing such bills from even getting out of committee, one of the bills, which passed, that the PBPA supported was the Endangered Species reform bill.
“This was basically Texas’ response to prevent an endangered listing by the U.S. Fish and Wildlife Service,” Shepperd said. The bill was carried by Senator Kel Seliger (R-Amarillo), whose district includes much of the Permian Basin, and Rep. Dennis Bonnen (R-Angleton).
“Both Senator Seliger and Speaker Bonnen did tremendous work to pass this bill. We owe them a debt of gratitude,” Shepperd added.
Although the Lesser Prairie Chicken has received much of the focus from the oil and gas industry in recent months following the lengthy fight to keep the Dunes Sagebrush Lizard off the endangered species list, Shepperd pointed out that over the next five years there are more than 100 species that Texas will have to evaluate and develop conservation plans for in order to prevent an “endangered” listing by USFW.
He said there are multiple species in every county in the state, and each species listing has the potential to prohibit economic activity for a period of two to five years, costing billions of dollars. HB-3509 lays the framework for stakeholder participation in the issue.
According to Shepperd, HB-3509 provides for a coordinated state response in dealing with the potential listings. It expanded the existing Task Force on Economic Growth and Endangered Species to include the Agriculture Commissioner, the Land Commissioner, the chairman of the Railroad Commission, the Comptroller, the executive director of Texas Parks and Wildlife, the executive director of the state Soil and Water Conservation Board, and the executive director of the Texas A&M AgriLife Extension, as well as the executive directors of the Texas Commission on Environmental Quality and the Texas Department of Transportation.
“This bill creates a state-level task force that provides a more comprehensive and inclusive response,” Shepperd added. “The idea is the expanded task force will coordinate the state response, a more robust response to a more sensible conservation plan in moving forward.”
He said the Endangered Species Act puts the agriculture and oil and gas industries on better footing.
“Everyone gets a seat at the table,” Shepperd said of the newly created task force.
Roads
One of Shepperd’s disappointments from the recent legislative session was a lack of transportation funding support.
“Throughout the state, but especially in the Permian Basin and the Eagle Ford, heavy truck traffic is taking a toll on roads,” he remarked. “The oil and gas industry pays a fortune in state taxes. The counties have limited resources, and we were hopeful that the state would step in and take some of the dollars we pay to make infrastructure improvements. But that didn’t happen.”
The legislature did approved $225 million for the Transportation Infrastructure Fund for county transportation projects (that can be used for county roads with oil and gas activity), but Shepperd pointed out that total is for the entire state and won’t go very far.
Playing defense
Among the bills that the PBPA and other oil and gas industry groups managed to defeat was SB-873, which would have restricted the industry’s ability to gain permits for drilling water wells.
“We fought the bill,” Holt maintained. “We believed the current law was fine, and the state’s groundwater districts agreed.”
Another proposed bill would have required mineral interest owners to share profits with surface owners that had no minerals, according to Holt.
“That didn’t make any sense,” he said. “It didn’t get out of committee.”
HB-2748, the “common carrier” bill, was legislation that pipeline companies wanted but land owners opposed. It related to the burden of proof in proceedings in district, statutory county court, or county courts that involve the determination of common carries status for pipelines. It was defeated.
HB-500, which extended the franchise tax exemption, was passed, according to Holt.
“There were 46 or 47 new members in the legislature this year, and many of them had a learning curve,” he added.
Although it doesn’t directly impact the oil and gas industry, the legislature did pass a proposed constitutional amendment that will have to be approved by the voters next fall. If it passes, it will take $2 billion out of the Rainy Day fund for water infrastructure, certainly an important issue for drought-stricken West Texas. The Rainy Day Fund, of course, is funded by a severance tax paid by the state’s oil and gas industry.
“That freed up more general revenue for other purposes,” Holt added.
In addition to the work by Bonnen and Seliger, Shepperd also praised the efforts of Rep. Tom Craddick (R-Midland), Rep. Drew Darby (R-San Angelo), Rep. Tryon Lewis (R-Odessa), Rep. Carlos Uresti (D-San Antonio), and energy chairman Rep. Jim Keffer (R-Eastland), among others, on behalf of the oil and gas industry.
Both Shepperd and Holt said that they were “glad it is over,” and both believe the oil and gas industry escaped the legislative session relatively unscathed. That means a win for the Permian Basin.
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Keffer on Public Opinion
A Q-and-A with state representative Jim Keffer of Eastland, who chairs the House’s Energy Committee.
PBOG Magazine: What was your general impression, after it was all over, of how the oil and gas interests fared in the Legislature this year?
Keffer: I think they fared very well. The issues were really not in my committee. The major issues were water, which is in Natural Resources, and greenhouse gasses—that is, permitting–which is in, obviously, Environmental. And then, there was the adoption of Rule 13, which was not even in legislation, because this went through the Railroad Commission. But I am very proud of the industry for its adoption of Rule 13 and [its impact on] well integrity. I’m glad that it did not have to be addressed through legislation. That was the industry and the Railroad Commission working together—as the system is set up to do. As for the water issues, what we did was, we set up joint meetings with Natural Resources so that the industry could tell the public what they are doing as far as recycling is concerned, as far as achieving the goal of minimizing the use of fresh water in the fracking process and the drilling process. But also letting the public know how complex the issue is. You can’t just wave a wand and be using recycled water or salt water or brackish water. It depends on the formation. It depends on the aquifer. You can’t make a sweeping statement that “Twenty percent of our production is now going to be recycled water.” In theory, that would be great. But through the testimony and just through the educational process—explaining that every formation is different, and every location is different, some are out in the middle of nowhere—so, you can [recycle] sometimes and you can’t sometimes. But I think, in the recycling area, the oil and gas industry was able to prove their point, that they certainly understand the importance of getting away from [too much reliance on] fresh water. Especially in the drought, and especially in the kind of places where a lot of these new formations are. The Cline Shale is one where the lack of water is well established. And so there will be some real challenges out there and it will take some really unique thought processes to make all of that work. But I think we were able to make that point and I think the industry was able to make that point.
PBOG: And what about permitting?
Keffer: In the permitting, the bill was passed to have TCEQ [Texas Commission on Environmental Quality] over that instead of the EPA. In the long run, I don’t know where that goes, but at least we were able to make a statement that we feel the state should be the caretaker and the regulator for permitting and not the EPA [a federal agency]. Which I thought was important. And again, as with Rule 13 and the issues with well integrity—last session we had Disclosure [the industry’s proactive decision to disclose its fracking practices], which became a national template, and now we have the well integrity issue that we have been able to do, and I think that that was a piece of the puzzle that is very important for us, and could be another national template. So I am very proud of the industry for doing that.
PBOG: Have you seen any signs that oil and gas is winning public support because of its contributions to the state’s tax base?
Keffer: I think there has been acknowledgement from both Democrats and Republicans that the reason the economy is what it is, is because of the foundation and the success of the oil and gas industry, so there were very few if any who wanted to disturb that. So again, we have to make sure that everything is done right in the environment and citizens are safe and all that, which is everybody’s goal. There has to be a balance there, but I think the successes of these industries have brought new opportunities. I think the light bulb has gone on in a lot of people’s minds that the oil and gas industry can be an ally and can be a positive, and that we will just work hard to make it stay that way.
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Seliger on Sunset, Water, and Endangered Species
A Q-and-A with state senator Kel Seliger.
PBOG Magazine: What was your impression of how oil and gas did in this session?
Seliger: I think pretty good, because oil and gas always does pretty good because people realize the importance oil and gas has in the Texas economy. And that we won’t have as healthy of an economy in Texas if oil and gas is not healthy.
PBOG: It seems as if that sentiment is spreading.
Seliger: I think so, if you listen to them [the legislators] during the session. But I think there are some people who take it for granted and just simply view it as a golden goose, and that is a mistake.
PBOG: What has been, for oil and gas interests, the key objective in this session?
Seliger: Well, Railroad Commission Sunset did not pass. And that’s okay, and the reason is because it had too much stuff on it. It’s really only supposed to be the re-authorization of the agency. But people try to hang a lot of legislation on it, and it becomes very unwieldy. We need a Railroad Commission. Long term, we’re going to have a Railroad Commission. We’re just going to have to get through all the other issues.
PBOG: You were instrument in passage of the Endangered Species bill. Can you comment on that legislation?
Seliger: With Endangered Species, the question really is about mitigation. And the purpose of the bill is to see to it that everyone is treated fairly, when it comes to mitigation credits, and that the whole process is very transparent. Ben Shepperd and some of the independents and these other oil and gas organizations worked very hard for this bill. It was really a partnership, and it worked very nicely.
PBOG: Going back to water—that seems to be an issue that is still not finished. What is next on that front, when it comes to usage of water in the oil and gas sector?
Seliger: Well, we need good, accurate reporting so that we know how much water is removed from the groundwater, total. At the same time, and this is going to be evolutionary, there is going to be recycling of water that is used in completion and production. It is very important because we are going to see increasing amounts of water used with advanced fracturing techniques, and as with every other enterprise, we can’t take that water for granted.
PBOG: How do you feel about regulatory issues, as far as keeping the regulatory oversight in the state? Is there a push and pull between the federal and state levels there?
Seliger: There always has been. And clearly, when it comes to Endangered Species, some of the activities of the United States Fish and Wildlife Service have been a little bit overbearing. It’s something that we’ve got to watch carefully, because we should watch for over-regulation wherever it occurs. State or federal.
PBOG: What about the Lesser Prairie Chicken issue… is that heating up?
Seliger: I think it is proceeding apace. It is an issue that covers five states. And everybody is working very hard on it in the oil and gas industry, as well as in the agricultural industry. Keep in mind that there is still a hunting season for the Lesser Prairie Chicken in Kansas.
PBOG: What remains to be done, where oil and gas is concerned? Are there issues that are lingering for the industry?
Seliger: Well, there are always going to be issues, regarding the oil and gas industry. Tax issues and things like that. Probably the Railroad Commission Sunset is the thing that matters most, in terms of lingering issues. They got it [the Commission] extended for four years, so that it can operate just as it has been, and that is the way it ought to be.
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Craddick on Perspective
A Q-and-A with state representative Tom Craddick, former Speaker of the House
PBOG Magazine: What were the issues that the oil and gas industry faced in this session, and how did they fare?
Tom Craddick: Number one, there were several oil and gas bills on which the Permian Basin Petroleum Association took a very active position. They took an active position, obviously, on the Endangered Species bill. That was the bill they promoted, and that bill passed both the house and the senate and it is on the governor’s desk. And then we’ve got what everybody calls the “Lien Bill,” and the Permian Basin Petroleum Association was one of the few people who were willing to stand up on that, and talk about how bad it was going to affect the industry, and that bill died. Not once, but about three times during the session. And so they did a great job on those. And then another bill that they were really involved in was the [Railroad Commission] Sunset. And the Sunset is of course a bill where you renew an agency for a ten-year period. The Sunset failed two years ago. And so if you don’t pass a bill in Sunset, or get it in what they call a safety net, then it disappears, and this Sunset Bill for the Railroad Commission basically didn’t pass again, in this session of the Legislature, and it didn’t [for some time] get in the safety net to be taken care of, and finally they put it in the last night, and a lot of the work was done by the Permian Basin Petroleum Association to guarantee that bill was put in. It was put in to renew the agency for four more years. And that was probably the major bill of the session, for oil and gas people. Because without that you wouldn’t have a Railroad Commission and you wouldn’t have any regulation of the industry.
PBOG: Could you elaborate on the “Lien” bill?
Craddick: Today, if you sell your crude oil to a purchaser, you have a lien against that all the way to the refinery gate or until you get paid, and there was a group trying to do away with that, saying that after the first purchaser had bought it, maybe the trucking company that is trucking the crude, then you lose your lien. And so, it was important to make sure that bill didn’t pass. And that oil and gas producers maintain their lien on their crude.
PBOG: Can you comment on the proposed legislation that was aimed at water use and water districts?
Craddick: There was a bill—it was in the Senate, and we never voted on it in the House. It was by Glen Hager in the Senate, I believe. This bill stated that water districts would have to approve for you to drill a well for oil and gas. For instance, if you leased my land, and if you were going to drill for oil and gas—and most of these people who have an oil or gas lease also have a lease to to drill for water for [use in] drilling. And this bill by Hager would have let the water districts have the say on that. And that would not have been good. So then when that bill did not pass, it was a good thing.
PBOG: What will be the impact of the large numbers of new members of the legislature, where oil and gas interests are concerned?
Craddick: That is an interesting question. Because most of them do not have any oil or gas ties or background. A few of them did, and of course they helped on the issues with the other freshmen, but most of them don’t. So it is just harder for the oil and gas industry. They’ve got to work and explain their issues and what their problems are to more members, because those members don’t have any experience. Actually, we’ve got very few members of the House or Senate that have any oil and gas background whatsoever.
PBOG: Between now and the next session, what do you think are the challenges for oil and gas?
CRADDICK: Well, regarding the “Lien Bill” I talked about, they are going to have some interim hearings on it, to try to see if there is a problem with it. As for the Sunset issue, even though the Railroad Commission has been extended, there are going to be some studies done on it and I think the main thing is that we keep more and more regulation off the oil and gas industry. I know that the federal government is looking at taking over fracking and maybe eliminating fracking and I saw where some county in New Mexico [Editor: it was Mora County] eliminated fracking a few weeks ago, and we’ve just got to play defensive and explain our position on these different things.
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Lewis on Getting Involved
A Q-and-A with state representative Tryon Lewis, of Odessa
PBOG Magazine: What’s been your reaction to how things went for oil and gas this year in the Legislative Session?
Lewis: I was concerned about several things, and a couple in particular. I am concerned that the Railroad Commission Sunset Bill was—well, that we didn’t have one that we could pass. And I think that that is a real problem. It’s been several sessions we’ve gone without having a bill that could pass, and I’m concerned by the level of distrust by some members in the Legislature toward the Railroad Commission—distrust in their ability to do their function. I think that we have very good commissioners, and a really good staff over there… and I think it is time that we gave them the support they need, and some certainty. Instead of always being in limbo. Because it is hard to keep staff—and when they read in the newspaper that the Railroad Commission Sunset is not getting passed, then that has got to be upsetting to them. And they need, I think, a lot more pats on the back and a lot less uncertainty. Now, that is the big thing. But I was excited to see, on the positive side, we put in more money in the budget for them to, finally, get some staff support that they need and—this is very important—a computer update. I think there was a lot of money for a computer update that their executive director was fighting for and that the commissioners have been fighting for. The Railroad commission computer systems are a decade behind the times. It is frustrating for oil and gas people trying to use their records, and it is frustrating for the 
Commission to not have updated computers. But that is ongoing and we have done a good job there. Another thing, though – and this is back on the “down” side – is that there is a huge crisis as a result of the Supreme Court decision that basically allows any landowner to question whether a pipeline is a common carrier or not. Which is going to make it very difficult to get pipelines, especially major, long-distance pipelines, built. Because you could literally have hundreds of lawsuits, every time you cross some landowner’s land, now, on the question of whether that is a common carrier or not… I had a bill that would clarify that the Railroad Commission would have the authority to decide on that issue, early on. It was House Bill 2748, that an application could be made, and that you could have an evidentiary hearing, for determination—by the Railroad Commission—of whether the pipeline is a common carrier or not, and therefore able to exercise eminent domain, as needed. When we got it to the floor, there was a point of order on it. So it didn’t get through. But I think that is very unfortunate that that didn’t get through, because that is a very important issue.
PBOG: We understand that there were a lot of freshman legislators in the session this year. Do you think the influx of the new people will be good or bad for oil and gas?
Lewis: Well, overall, I think good. I think that appreciation of the role of oil and gas in the Texas economy, and what it means to Texas, is growing. So, even with new members coming in, I think there are a lot more areas of the state that realize the importance of oil and gas. And certainly to our budget, it has meant everything in the world. That’s because the explosion of positive developments in the oil and gas industry. So I think that the new members are very good. I think that if we had a vote on the house floor [regarding House Bill 2748], I think we would have done well. The people understand the problem. But it’s like anything else—you have winners and losers. Some landowner groups, they think this is great, that it [Supreme Court decision] gives them bargaining power. I think that there is a lack of understanding in that, yes, it gives somebody bargaining power, but what it does is it shuts down major pipelines. Because you can’t build one. You can’t unless you know you can go through. You can’t get financing for it, for a major pipeline, and you can’t get the infrastructure at both ends of the line that need to be built, unless you know you can go through before you start building that pipeline. You can’t wait until the very end and then have a hundred lawsuits to face. I think the oil and gas industry needs to realize how important that is. And I hope that the oil and gas industry—when it comes to things like the Railroad Commission and dealing with common carriers—that they will become more active. Because that is the way things get done. It is the active individuals—people in the oil business and gas business actually pick up their phones and call their legislators. That is when those things happen.