By Lana Cunningham
This month marks the commencement of a session worth scrutinizing. Jack Ladd, Jr., vice president and special counsel for the Permian Basin Petroleum Association, sizes up the 2015 Texas Legislative Session and what it means to the oil and gas industry.
Obtain more funding for roads. Check.
Lift the export ban. Check.
Curtail federal agencies’ efforts to hamstring the petroleum industry. Check.
As the bells rang in the new year of 2015, oil and gas leaders turned their focus to state and national legislatures heading into session and drew up their To-Do lists. In Texas, the issues may be further complicated by efforts from federal agencies to extend more control over the petroleum industry.
Jack Ladd, Jr., vice president and special counsel for the Permian Basin Petroleum Association, looked at areas of concern that will impact the organization’s work this year. A native Midlander who left for college and then positions in various political arenas, Ladd always planned to return to his hometown. As of September 1, Ladd, who was brought aboard PBPA earlier this year, has been preparing this organization for what he sees as increased efforts by federal agencies to restrict an industry that supplies much of the nation’s energy.
“How to fund roads for the Eagle Ford and Delaware shales and the Permian Basin will be a major issue in the Texas Legislature,” Ladd said recently. Acknowledging that the executive director of Texas Department of Transportation (TxDOT), Lt. Gen. Joe Weber, USMC (Ret.), has visited the Permian Basin and viewed the road problems, Ladd remarked: “It would be in our best interest to work with TxDOT and the legislature to get some more funding out here to build better roads to keep up with the demand and stress that we’re putting on them out here.”
Another issue he sees the Texas Legislature tackling is the mounting challenges of unitization and forced pooling. “Texas, I believe, is the only state in the country that doesn’t have some form of unitization or forced pooling,” he said. “I think if you are a mineral owner that will be a tooth-and-nail fight, because you want to have the right to govern your own land. The problem with unitization is that on one hand you have mineral owners being forced to lease out their land or work with a company they don’t prefer. On the other hand, unitization has been shown to increase the viability of a shale play by spacing it out and controlling how many people can go where and when. It could speed up the drilling process.
“There are multiple facets to that issue and it’s very controversial. It will be a big issue in the Texas Legislature,” he added, noting that PBPA may not be involved.
Ladd expects other items will pop up during the legislative session which are not on the horizon now. The heaviest load of PBPA’s work, though, will be directed at the federal government as our association braces for increased skirmishing for more control over the industry.
On that front, The first task on the to-do list is educating Washington legislators about the need to lift the export ban on oil. Then the PBPA team will turn its attention to the Environmental Protection Agency, the Bureau of Land Management, and the U.S. Fish and Wildlife Service.
Before the end of 2014, the PBPA staff was meeting with Congressman Michael McCaul, R-Texas, concerning his bill to eliminate the U.S. ban on exporting crude oil. “A lot of legislators, especially on the House side, are not aware we have an export ban,” Ladd said. “And they don’t even understand what that means.”
He explained the industry’s reasons for wanting to eliminate the ban. Oil from the Permian Basin is traded on the West Texas Intermediate (WTI) benchmark. It is not traded on the world market. WTI crude is traded at prices lower than the Brent benchmark. By exporting the West Texas crude, its prices would go up and, in reciprocal fashion, the Brent would come down, so the two would trade at a more equitable rate. Ladd was quick to point out that the action would not raise gasoline prices but would lower them. The price of gasoline is based on the Brent benchmark, he said. “By putting our oil on the market, our prices go up, but Brent’s get lower because there is more supply. Lifting the export ban is key for us. With lower oil prices and the Saudis presumably flooding the market with their oil, we need every extra dollar per barrel we can get. For a lot of companies out here, if things go bad, lifting the export ban could be the difference between keeping the doors open and not keeping the doors open.
“It’s very, very important for us to get that done. With the new Republican House and Senate majorities, we think we may actually be able to accomplish this.”
Another facet of this issue involves McCaul, who is chairman of the House Committee on Homeland Security. “We are going to be making the argument that this is a Homeland Security issue,” Ladd said. “You’ve got Russia choking Europe right now with their natural gas prices. Being able to compete on the world market and send petroleum to Europe, [puts us in a position where] we could put the hurt on Russia in a way that previously wasn’t happening. We are going to make the case that being able to export our oil is a true national security issue.”
Russia’s natural gas prices are based on the Brent benchmark, he noted. If Brent drops, then the price for Russia’s gas drops. “So, we would make more money and our people would pay less for gasoline. There is not a reason to not do it [eliminate the export ban].” Texas oil for the most part, Ladd noted, is lighter than the Saudi oil and has less contaminants than the imported Saudi oil.
Another issue is occasioned by the EPA, which is trying to change the definition of navigable waters. Looking at the expanse of dry land covering the Permian Basin, any West Texan might wonder why the PBPA is diving into the issue. “We don’t have any navigable waters, except when Wadley Avenue floods [in Midland] after a rain,” he said with a chuckle.
A recent U.S. Supreme Court ruling said navigable waters also include a nexus of waters that spill into the navigable water. “That was not well defined. They didn’t spell out what that meant. That decision brought more questions than answers. The EPA is trying to argue that navigable waters in a lot of cases is essentially going to be these dry creek beds out in West Texas. One day a year it rains and you could make the case it flows into navigable water.”
People who own land with a dry creek bed that spills over into navigable waters on the rare occasion of a heavy rain will see it regulated by the EPA. “And if you’re drilling there, you have to fill out a bunch of federal permits like you would on federal land. It would completely slow down production out here. It’s something we absolutely need to go up there and fight,” Ladd said.
U.S. Sen. James Inhofe, R-Oklahoma, is starting the fight against this defining of “navigable” waters. Ladd said the PBPA will work with Inhofe on this battle. Other people are starting to pay attention to what the EPA is trying to do and realizing it would have dramatic effects on the oil and gas industry. “If you own land and this rule were passed, the EPA would be able to regulate your land,” Ladd said. “It would dramatically extend the amount of land they have control over.”
Other issues include the ongoing battles with endangered species, including the lesser prairie chicken and sagebrush lizard. The PBPA currently is a party in a lawsuit against the Bureau of Land Management and the Department of Fish and Wildlife. That is in federal court in Midland, and the EPA is fighting to have the case moved to Washington, D.C.
To give a perspective on placing the lesser prairie chicken on the Endangered Species List, Ladd noted that the ESA allows the Fish and Wildlife Service to rate an animal on a scale of 1 to 12 with one being “completely endangered” and 12 being the “least endangered.” “The lesser prairie chicken was at an 8 when the Bush administration left office. Soon after the new administration took over, it was changed to a 2. It went from an 8 to a 2 in a matter of one year. They did that with the sagebrush lizard as well.”
He explained that it’s not so much an overreach by the federal government, as it is a result of environmental groups suing the government to go after the industries that would be impacted.
Far down on the PBPA list is a move by the EPA to include methane on the list of greenhouse gases. “That would have a massive effect on us and our emissions. That type of ruling is what the EPA did to hamstring the coal industry in West Virginia and Kentucky. They have their sights on us now.
“In the next two years, you can expect to see a very, very active Obama administration, a very active EPA, a very active ESA, you name it. There are going to be a lot of people gunning for the oil and gas industry. What the PBPA does is more important than ever,” Ladd said.
The PBPA has expanded its role from an organization that works on regional and state issues to one that has impact also in New Mexico and on the federal government. “We have gone from a regional organization to truly one that has statewide and national influence,” Ladd said.
The Midland native obtained a law degree and MBA from Texas Tech University after his bachelor’s degree from the University of Texas—Austin. He worked for Sen. Kay Bailey Hutchinson in her D.C. office and ran political campaigns for Sen. McCaul and State Rep. Tryon Lewis from Odessa. But he never intended to stay on the East Coast or in Austin. “I always knew I would come back to Midland,” Ladd said. “Just seeing the open sky is peaceful. My friends here are much better than the friends I had elsewhere.” Those friends are now working in the petroleum industry and Ladd takes the government issues personally. “I get to fight for my friends’ jobs and their livelihood,” he said. “This is my opportunity to fight for the home team.”
Lana Cunningham is a freelance writer who has lived in Midland since it was a pleasant city of 60,000 people.