Common-sense regulation

USA

TOGY talks to Christi Craddick, chairman of the Railroad Commission of Texas (RRC). The commission regulates the exploration, production and transportation of oil and natural gas in the state.

The RRC was established in 1891 to supervise the rail industry. Currently the commission no longer has any authority over the railroads; however, its jurisdiction has expanded to cover many areas: oil and gas exploration, production and transportation; gas utilities; LNG; surface mining; intrastate pipelines and alternative fuels research. Through its Oil and Gas Division, the RRC aims to prevent natural resources waste, protect the rights of different interest owners, prevent pollution and provide safety.

• On labour: “Our long-term problem, which I think is everybody’s long-term problem, is our workforce. We have had 400,000 people leave the oil and gas industry across the country between 2015 and 2016. That is a challenge for us because this industry is going to pick back up quickly and the RRC must be ready to respond to industry growth with boots on the ground.”

• On the Wolfcamp Shale: “The Wolfcamp Shale is one piece of [renewed growth in the Permian Basin], as it crosses several counties. The Midland area is the most active in the state in terms of oil production, but a lot of activity is moving west of there as well. While Midland is still the sweet spot, the Wolfcamp Shale extends into Pecos and Reeves County. It presents a great opportunity for Texas to lead again.”

As the newly elected chairman, in what direction are you looking to take the RRC in 2017?
It is an exciting time with many opportunities ahead for the RRC this year. This industry has been very busy in Texas and across the country, so it has been an important time to reflect on what we may need to do differently as far as our rules and regulation of the industry. In the second half of 2016 we launched the Oilfield Relief Initiative that reassessed some of our rules and looked at what made sense as far as efficiencies from both our side and the industry’s. It examined where some cost savings could be implemented and how to make sure our rules are compatible with what is going on in the industry today, because overregulation continues to be a challenge. As we enter 2017, phase one of the initiative has been completed, but we’ll continue to look at ideas for phase two throughout 2017.
Another part of our goal this year is to reach out not only to the industry but also to service companies and other groups who work with our agency to see how we can adjust rules to make sure we still have best practices in place for the long-term future. There is a lot of innovation going on in this industry, so we want to make sure our rules consider changes within the industry going forward. We are talking to oil and gas communities in south Texas and west Texas to figure out how we can help them in terms of new opportunities, potentially building infrastructure and informing them of where we think the industry will be going so that they can plan ahead for the future.
Our long-term problem, which I think is everybody’s long-term problem, is our workforce. We have had 400,000 people leave the oil and gas industry across the country between 2015 and 2016. That is a challenge for us because this industry is going to pick back up quickly and the RRC must be ready to respond to industry growth with boots on the ground.
We are already beginning to see industry growth in west Texas. Service companies do not have enough equipment or workers on the ground, and we have the same problem at our agency. In addition, you need to train new people and make sure you have succession plans in place because people do retire or move to different industries. Internally, that is something we are working towards in terms of a five-year plan.

What inefficiencies has the RRC discovered in its regulations?
At the Railroad Commission, from the state level, one of the things we looked at is what information operators currently file with us, what we do with it, and whether we continue to need that information. While an operator may have the ability to file some of that information online, and we are slowly getting a great deal of information online at the RRC, we are still dealing with a lot of information in hard copy. It is important that we continue to bring data online for the public and industry’s use.
We have also considered the cost for the industry to do testing and comply with RRC information requests. Do we need to test every well, every year? Are there wells that are small wells, marginal wells, that may not be able to remain online due to our requirements that may be burdensome and unnecessary? We are looking at our requirements across the board because we can both make sure there are not any environmental problems and that common-sense rules are in place.
We had nine rule changes and efficiency improvements within the agency under the Oilfield Relief Initiative that we expect will save countless hours of staff time for the state and tens of millions of dollars for industry, so it is a win-win for all. It was a combination of both rule changes for our agency as well as improving the efficiency of how we work with the industry and what daily information we ask them to give us. We are eliminating data that is no longer useful for some purposes. That is where common-sense regulation makes an impact.

How does the RRC feel about the newly appointed head of the Environmental Protection Agency (EPA), Scott Pruitt?
We are excited to have somebody at the EPA who understands the RRC and the oil and gas industry. When you look at energy in Texas, we do a little bit of everything. We call it an “all-of-the-above strategy.” We have coal and nuclear, we are the biggest producer of oil and gas in the country and also one of the biggest alternative energy states, so we have solar and wind power too. We have it all. Between the RRC and Texas Commission on Environmental Quality, we are a good example of how the regulation of an industry can be done well. We know Mr. Pruitt has a similar mindset of how regulation can be effective in keeping the country safe and also refrain from hindering industry growth.
It is important to have somebody heading the EPA that appreciates energy and understands what overregulation has done to an industry, not just to oil and gas, but overall as well. I look forward to working with Mr. Pruitt and seeing his common-sense mindset put to work at the EPA. We know he has had conversations with the leadership in Texas and Oklahoma, and he’s worked with other states as well. He understands that states historically have done a better job of regulating industry in this country than the federal government, and we expect to see his appreciation for state-level regulation in his work at the EPA.

With the renewed growth of the Permian Basin, do you see Texas taking the lead in US oil production again?
Texas has had a slight production dip. Not huge, but oil and gas as an industry has been down. In 2015 hydrocarbons comprised 40% of the state’s economy and in 2017 it will be about 30%. Oil and gas is still one of the biggest drivers of our state’s economy, and thankfully we are seeing an uptick. We have doubled the rig count in Texas, and soon we are going to be leading because everybody today wants to have the opportunity to produce energy in west Texas, in the Permian Basin.
The industry is excited about USD 50-per-barrel oil. They think that if we can hold the price there, they are ready to start development again. There have not been discounts on the price of leasing in the Permian Basin and that is a good sign that the growth will happen there.
The Wolfcamp Shale is one piece of it, as it crosses several counties. The Midland area is the most active in the state in terms of oil production, but a lot of activity is moving west of there as well. While Midland is still the sweet spot, the Wolfcamp shale extends into Pecos and Reeves County. It presents a great opportunity for Texas to lead again.

How is Texas hoping to work with Mexico in oil and gas development?
Mexico has been interesting to watch since about 2014. They have come a long way very quickly in terms of restructuring their energy sector in the middle of the oil price downturn and trying to figure out how a vibrant international market works. There are lots of long-term opportunities for Mexico. Our Eagle Ford is their Burgos Basin, so we share that border and we share the economy of that border.
However, when you look at the night sky across the Rio Grande, it is dark on their side of the river because they do not have any infrastructure, roads, towns, electricity or pipelines to support development. They will have to continue to grow in the infrastructure area.
The RRC has met with their agencies multiple times to discuss rules and best practices. We want to share information, because we share a border and resources and we want to make sure they are doing it safely with good rules in place. If they have an environmental problem on their side, we are going to have it on ours, too.
So, we need to have some good commonality in rules. We need good people as far as a workforce on both sides of the border. They will have good opportunities if they persist and continue down this path. We will be there to help them along the way.

Read our latest insights on:

• Eagle Ford
• Mexico