Western Interior Oil & Gas Report 2015 by DEL Communications Inc.

Western Interior Oil & Gas Report The publication for the DJ Basin and Niobrara Region.

Spring

2015

All about that

FRACK

Colorado’s fracking wars and the

controversy across the nation

To the rescue It’s time for North America to act like an energy superpower

DOPE STUFF Drugs + alcohol on the oilpatch

A look at current issues

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TABLE OF

CONTENTS

6 Message from the Governor of Colorado John Hickenlooper

7 Message from the Governor of Wyoming Matthew H. Mead

8 Oil industry will rebound: It’s time for North America to act like an energy superpower

11 Removing percentage depletion has unintended consequences

12 Colorado’s oil and gas task force – An update 14 Falling oil prices will foster greater efficiencies for a stronger, more profitable sector

16 Energy policy for 2015 – A unique opportunity 18 Fracking ban continues to move across state lines

Western Interior Oil & Gas Report

is published by DEL Communications Inc. Suite 300, 6 Roslyn Road Winnipeg, MB R3L 0G5 www.delcommunications.com President & CEO David Langstaff Publisher JASON STEFANIK

30 20 Colorado’s fracking war: Big wins, but more battles on the horizon

22 How to beat back fracking bans 24 Alcohol and drug use on the oil patch: A look at current issues

26 $15,000 per day, per violation: Colorado’s new oil and gas rulemaking

28 Greeley set to shine in the next few years: Strong economic growth forecasted

30 Oxygen’s miracle power in frack flowback water 32 Secondary containment advice from the leak and spill experts

34 Index to advertisers

Managing Editor SHAYNA WIWIERSKI shayna@delcommunications.com

Production services provided by: S.G. Bennett Marketing Services www.sgbennett.com

Advertising Sales Manager DAYNA OULION

Art Director kathy cable

4 western interior oil & gas report

Layout / Design joel gunter Advertising Art dana jensen | sheri kidd © 2015 DEL Communications Inc. All rights reserved. Contents may not be reproduced by any means, in whole or in part, without the prior written permission of the publisher. While every effort has been made to ensure the accuracy of the informationcontained in and the reliability of the source, the publisher in no way guarantees nor warrants the information and is not responsible for errors, omissions or statements made by advertisers. Opinions and recommendations made by contributors or advertisers are not necessarily those of the publisher, its directors, officers or employees.

Publications mail agreement #40934510 Return undeliverable Canadian addresses to: DEL Communications Inc. Suite 300, 6 Roslyn Road Winnipeg, MB R2L 0G5 Email: david@delcommunications.com PRINTED IN CANADA | 02/2015

DEL

Communications Inc.

Cover photo courtesy of the American Petroleum Institute.

Profit Through

EFFICIENCY

March 31 - April 2, 2015 Colorado Convention Center Denver, Colorado

Reducing cost and adding takeaway

DUGBakken.com It seems even turbulent oil prices can’t quell the innovative spirit that launched the U.S. shale revolution. Producers throughout the Rockies are defying the odds and recapturing narrowing profit margins by operating more efficiently. Leveraging the knowledge they’ve gained from drilling thousands of wells, these leaders are saving valuable time and money by improving their frac designs, streamlining logistics and deploying new technologies.

KEYNOTE LUNCHEON SPEAKER General John R. Allen Ret., U.S. Marine Corps

Come and discover new ways to cut operating costs and add more to your bottom-line. At DUG Bakken and Niobrara 2015, you’ll hear directly from 25+ senior-level executives, industry analysts and technology experts in the Rockies. Find out how the region’s top producers are finding ways to do more with less. Connect with over 2,500 upstream and midstream executives and operations and logistics managers during the event’s 9+ hours of targeted networking sessions. And with 200+ exhibitors onsite, you’ll get hands-on access to the latest products, services and technologies that will drive the industry forward in 2015.

General Allen will discuss America’s geopolitical relationships, share his perspective on global security and sovereignty, and give an update on his current role coordinating the international coalition to battle ISIS.

Featured Speakers:

James Volker

Chairman and CEO Whiting Petroleum

Taylor L. Reid

President and COO Oasis Petroleum

Greg Hill

President and COO Hess Corporation

Tim Rezvan

Senior Vice President, Energy Research Sterne Agee

Ian Dundas

President and CEO Enerplus Corp.

To ATTEND, SPONSOR or EXHIBIT, visit DUGBakken.com Presented by

Hosted by

Trisha Curtis

Director, Upstream and Midstream Research Energy Policy Research Foundation Inc. (EPRINC)

Colorado – A national model Innovation in hydraulic fracturing and horizontal drilling has brought enormous and renewed focus to the long-producing DJ Basin in northeastern Colorado, sparking an upswell in jobs and economic adrenaline to the region.

Message from the Governor of Colorado – John Hickenlooper Colorado is proud of its oil and gas industry, proud of the innovation of leading operators, and proud of the way competing interests have come together in our state to develop a national and international model for 21st century regulation of energy development. Innovation in hydraulic fracturing and horizontal drilling has brought enormous and renewed focus to the long-producing DJ Basin in northeastern Colorado, sparking an upswell in jobs and economic adrenaline to the region. The relentlessly creative and problemsolving nature of the oil and gas industry has led to methods of extracting energy from Niobrara shale deposits once thought out of reach from development. Instead, for two years running now, Colorado has set new records for oil production. 6 western interior oil & gas report

This upsurge in activity has generated tremendous benefits for Colorado, repowering our economy after the Great Recession, increasing our energy security and adding to our diverse mix of renewable and traditional energy sources, while reducing the emissions that affect the climate and improving air quality.

our regulatory approach. Time and again, we’ve brought stakeholders from across the spectrum to the table to advance best practices and sensible rules – work that has made Colorado a lighthouse on effectively balancing a thriving and critical industry with appropriate and evolving oversight.

But this success story hasn’t been without challenges. Industry activity in close proximity to communities creates understandable concerns from homeowners and residents who find the work disruptive or who have concerns about impacts to air and water. It’s important that together we address these issues in a thoughtful and serious way, with the highest regard for public health, safety and protection of the environment that makes our state a postcard to the world.

We believe that strong and continually adaptive regulations, combined with collaborative approaches between industry, regulators and communities, can provide the conditions for the industry to operate safely, strengthen our state and local economies, provide jobs, enhance energy security through development of our domestic resources and provide the heat, electricity and consumer products upon which we all depend.

Fortunately, in Colorado, we’ve worked for seven years through the Colorado General Assembly and the Colorado Oil and Gas Conservation Commission (COGCC), as well the governor’s office – and in productive partnership with industry and conservation groups – to continually update, expand and strengthen

We’re proud of the natural beauty and quality of life that makes Colorado a destination for new residents, employers and visitors. And we’re proud to partner with an industry in the DJ Basin and across the state that wants Colorado to remain a place where it, too, loves to work, live, play and stay. v

Wyoming applauds success of American oil and gas industry and prepares for more states can help fund infrastructure projects, school construction, and necessary services. At the federal level, the oil and gas industry has assisted in reducing the U.S. trade deficit by lowering imports of foreign oil and increased the national GDP.

MESSAGE FROM WYOMING GOVERNOR Matthew H. Mead In recent years, new oil and gas exploration and production have been an economic boon. Increased exploration and production have meant new economic opportunities for the communities and states that host such activity. Restaurants are serving more, local businesses are selling more, and ancillary jobs are created. Private industry – from homebuilders to hotels, from retailers to recreation providers – has benefited. The public sector has benefited as well from the revenue the oil and gas industry generates. At the local level, communities have more resources to repair roads and bridges while increasing public safety and health services. Revenue generated to

Hydraulic fracturing and horizontal drilling have added to the great success enjoyed by the oil and gas industry. The returns are many and Wyoming – the top exporter of energy to the rest of the nation – applauds the oil and gas industry. Hydraulic fracturing and horizontal drilling are not new technologies. They have been around and in use for decades, but these techniques have really flourished the last few years. High oil and natural gas prices provided the foundation from which the industry could start using these techniques in tandem. As a result, oil and gas production is higher than it has been since the 1970s. With this success come challenges. Increased production in North America, coupled with stagnant global demand, has created a surplus of oil. In addition, last November, the Organization of the Petroleum Exporting Countries announced that it will not lower production to bring the market into balance. These factors coalesced and prices have fallen. The price of oil has dropped by half – falling from $100/barrel to around $50/barrel. Natural gas, which was in the $4/

MMBtu range in mid-2014, is below $3 today. While prices may be low now, they will not stay low. To quote from Thomas Petrie’s book Following Oil, “[T]he best cure for low oil prices is low oil prices.” Now is the time for states to work on infrastructure needed to support communities and ensure that a sound regulatory structure is in place. Through the Western Governors’ Association, governors are working together to ensure upcoming federal regulations on methane emissions recognize the efforts industry and states have taken. These efforts can be seen broadly in the fact that methane emissions have been decreasing while oil and gas production has been increasing. There are practical, cost-effective steps that reduce emissions and generate additional revenue. In Wyoming, we are focused on putting together regulations that balance the need for industry to move quickly while establishing proper safeguards. Wyoming has been a leader in striking the right balance, and we want to stay out front. As an energy leader, our state reacts nimbly adjusting to new demands. Rest assured, when prices rebound and rigs come back, Wyoming will be more ready than ever. We are prepared for more success to come and look forward to it. v Spring 2015 7

Oil industry will rebound It’s time for North America to act like an energy superpower by Brad Wall, Premier of Saskatchewan From 2000 to 2012, demand for oil in Asia grew by 41.5 per cent, while demand declined in Europe and the United States, according to the Organization of the Petroleum Exporting Countries (OPEC). OPEC forecasts that oil demand will climb from 90 million barrels a day in 2013 to 111 million barrels a day by 2040, with most of the increase coming in Asia.

The great British Prime Minister Benjamin Disraeli once observed that there’s no education like adversity. If that’s the case, the oil industry has done a lot of learning during the last few months, and so have governments that rely on the industry for investment, revenue and jobs. We have witnessed a precipitous drop in oil prices that virtually no one foresaw, a decline so steep the industry’s basic operating assumptions are being questioned by many.This is indeed a challenging time for companies, employees, and jurisdictions like Saskatchewan. As we deal with those challenges, we need to keep in mind that we’ve been here before, and not so long ago. 8 western interior oil & gas report

Oil prices plunged in 2009, and the industry faced the same uncertainty it confronts today. But prices bounced back fairly quickly, thanks in large part to growing demand in the developing world. And while this time prices may not recover as quickly, the industry’s demand dynamics have been forever altered by the rise of countries like China, India, Indonesia and Thailand. Even if those Asian economies weaken in the short term, it is difficult to envision a scenario where global demand for oil languishes for long. The world’s population is expected to increase to more than nine billion by 2050, with much of that growth to take place in Asia. Moreover, the world is becoming more affluent and more urbanized, which will translate into higher demand for energy.

This is why I believe the North American oil and gas industry will prosper in the long term, provided we have the appropriate taxation and regulatory regimes in place and the necessary infrastructure to get our product to market. In the shortterm, there will be some rocky days. Thankfully, the industry is made up of tough and resilient people, and so is the Province of Saskatchewan. We are both accustomed to market volatility. Saskatchewan is a province of traders, exporting almost three quarters of the total value of what we grow, mine or build to markets around the world. Our economy relies heavily on natural resources to drive growth and investment. But while many know Saskatchewan as a leading producer of potash, uranium and agricultural products, and that diversity of resources will help see us through a slowdown, the contribution of oil to our economic wellbeing is not as well known outside the province.

That’s why, wherever I go, I am quick to point out these facts: • That our province has 53.9 billion barrels of initial oil in place and 1.3 billion barrels of remaining recoverable reserves; • That Saskatchewan is Canada’s second-largest oil producer and its third-largest natural gas producer; • That prior to the recent decline in prices, Saskatchewan was producing a record amount of oil – more than 500,000 barrels of oil a day, with 65 to 70 of production exported to the United States (we ship more oil to the U.S. than Kuwait); • That Saskatchewan is a global leader in the research and development of enhanced oil recovery technologies; • That our industry has a solid track record of innovation, and has eagerly utilized horizontal drilling and hydraulic fracturing to boost production; Oil has provided an enormous boost to one of the fastest growing economies in Canada. In 2013, the industry accounted for an estimated 15.1 per cent of Saskatchewan’s $61.1 billion real gross domestic product. In 2014, it invested an estimated $6 billion in exploration and development, and supported approximately 38,000 jobs. Our government is extremely grateful for the hard work and enterprise of the hundreds of companies operating oil and gas wells in the province and the firms that support them. The private sector deserves the credit for the impressive growth in Saskatchewan’s energy sector. For our part, the government has tried to help by creating an atmosphere conducive to growth. That we have had some success is borne out by the Fraser Institute’s

annual Global Petroleum Survey, which ranked Saskatchewan as the third most attractive place in the world for the oil and gas industry. In these uncertain times, we will do everything we can to ensure Saskatchewan remains a competitive place to do business for the industry.

That includes serving as a strong advocate on the national and international stage. We have been vocal in our support of major pipeline projects that will benefit North American oil producers, such as Northern Gateway, Keystone XL and Energy

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East. The pipelines will provide a major boost to the North American economy, and ensure our oil can get to tide water, allowing producers to receive world prices for their product. I’ve travelled to Washington in support of TransCanada’s Keystone project. In speeches and in meetings with lawmakers, I’ve made the point that there are already more than 80 pipelines carrying hydrocarbons between Canada and the United States, all operating safely right under the nose of actress Daryl Hannah and other fervent opponents of Keystone. Keystone, in fact, would account for less than one per cent of the 150,000 miles of oil pipelines distributed throughout the United States, according to the Brookings Institute (there are another 2.5 million miles of natural gas pipelines). In my discussions in Washington, I also stressed the economic benefits of Keystone. According to the U.S. State Department, the project will contribute $3.2 billion to the U.S. GDP and create more than 42,000 jobs during construction. The State Department has also concluded that Keystone will not significantly increase greenhouse gas emissions. Keystone is truly a “no brainer”, as Prime Minister Harper has said. But President Obama doesn’t see it that way. The project is caught up in an intense political debate in the United States. I’m troubled by that debate, but I understand it. Opposition to the $12 billion Energy East project is harder to fathom. Energy East, another TransCanada undertaking, entails converting an existing natural gas pipeline to an oil pipeline, and extending the pipeline to ports in Quebec and Atlantic Canada. Seventy per cent of the pipeline is already built. 10 western interior oil & gas report

Energy East, like Keystone, will permit Canadian oil producers to get world prices for their product, which will not only benefit those companies, but all Canadians through increased tax revenue, wages and investment. The pipeline will allow for the shipment of conventional oil from West to East, opening up the possibility of Canadian oil displacing oil importing from countries like Saudi Arabia, Iraq and Nigeria. The economic benefits associated with Energy East have been confirmed by independent studies completed by Deloitte and the Conference Board of Canada. The Deloitte report predicts the pipeline will boost economic activity by $35 billion over its lifetime. This includes $10 billion in additional tax revenues, of which 20 per cent will flow to Quebec and 36 per cent to Ontario. It is estimated Energy East will create 10,000 full-time jobs in the construction phase, with most of the jobs going to workers in eastern Canada. Energy East is now the subject of a rigorous National Energy Board review. I was pleased to see that my colleagues, Premier Kathleen Wynne of Ontario and Premier Philippe Couillard of Quebec, have dropped their demand to expand that review to include the greenhouse gas emissions (GHGs) generated in the production of the oil transported in Energy East. Still, Quebec and Ontario are not yet supporters of Energy East. There is, in fact, considerable opposition to the project. I have no doubt TransCanada will do everything it can to allay concern and correct misinformation. Those of us who support the oil industry, and understand and appreciate

its importance, must help with the effort. And as we do, we need to deal in facts, for as the American president John Adams noted: “facts are stubborn things”. We should emphasize the fact that pipelines are by far the safest way to transport oil, far safer than moving oil by rail. We should make known the fact that every year, Canadian resource companies and governments lose out on billions of dollars in profit and tax revenue because we are unable to ship our oil to world markets. That means less money for job creation, less money for schools, hospitals and roads, less money for programs to help the most vulnerable among us. We need to disseminate the fact that few countries in the world have done as much as Canada and the United States to ensure the environmental sustainability of fossil fuel production. Over the years, billions of dollars have been invested to reduce the industry’s impact on the environment. And finally, we need to explain that the oil and gas industry has sustained our economies through difficult times, with the economic benefits extending far beyond the borders of oil-producing provinces and states. In 2013 alone, the Canadian industry invested $74 billion and employed 530,000 people. All North Americans should be proud of our oil and gas industry. We should trumpet its risk taking, its innovation and its social responsibility. Today, both Canada and the United States can make an honest claim to being energy superpowers. It’s time both countries started acting like energy superpowers. v

Removing percentage depletion has unintended consequences By Mike Cantrell, chairman of the National Stripper Well Association

Removing percentage depletion lowers the productive capacity, not only of the oil and gas industry, but also the entire American economy.

of 178,000 jobs per year and $115 billion in earned labor income, according to a new report produced by IHS for the National Stripper Well Association. Small, independent producers Removing the percentage depletion provision from the tax code would have unintended consequences for the nation’s economy by harming small businesses and royalty owners.

who operate marginally economic wells would be disproportionately affected by elimination of percentage depletion. At tax time, these “stripper well” producers count on getting a little bit back

Percentage depletion is a tax

from percentage depletion so they

provision that allows oil and gas

can then turn around and invest in

producers to re-coup some of

drilling more wells and increasing

the costs of investing in energy

production. For some years, it is the

production. It was designed as an

only investment capital stripper well

incentive to keep existing wells

producers have.

producing, and to invest in newer

Marginal wells represent nearly 80

wells. However, President Obama’s 2015 budget proposal includes the elimination of this provision.

percent of total wells in the U.S. and are responsible for 20 percent of all oil and gas produced domestically.

Over the next decade, eliminating

Stripper well producers are the

percentage depletion would cost

family farmers of the oil and natural

the U.S. economy $184.5 billion

gas industry and are collectively

in gross value added, an average

responsible for a significant part of

the energy independence we see today in the U.S. Keeping percentage depletion doesn’t just benefit producers, it benefits all Americans. The report found that removing percentage depletion would result in more than 37,000 wells not drilled, and 644 million barrels of oil and 2.8 tcf of natural gas not produced. Eliminating this provision would also affect royalty owners by lowering the incentive to lease mineral rights and drill new wells. As a result, royalty owners would lose $36 million over the next decade. Removing percentage depletion lowers the productive capacity, not only of the oil and gas industry, but also the entire American economy. Our livelihood as the small business sector of the energy industry, and that of nearly 10 million royalty owners nationwide, is based upon our ability to save percentage depletion. v Spring 2015 11

Colorado’s Oil and Gas Task Force – An update By Stan Dempsey Jr., president, Colorado Petroleum Association

Colorado’s oil and gas industry continues to be in the national spotlight as the price of both oil and natural gas continues to roil Colorado operators. National attention is focused upon the work of Governor Hickenlooper’s task force regarding state and local regulation of oil and gas operations. The governor, in exchange for Congressman Jared Polis withdrawing his two ballot initiatives covering oil and gas setbacks and the creation of an “environmental bill of rights”, formed the task force last summer. La Plata County Commissioner Gwen Lachelt, founder and director of Earthworks’ Oil & Gas Accountability Project in Durango, Colorado, and Randy Cleveland, president of XTO Energy, an ExxonMobil subsidiary, chair the task force. The executive order creating the task force has a 12 western interior oil & gas report

broad charge, yet recommendations from it must have two-thirds of support to be considered formal recommendations. Majority and minority reports are likely to be a part of the final task force report. The task force was to issue its recommendations to the governor by February 27, 2015. The task force will focus on how to most reasonably and effectively balance land use issues in a way that minimizes conflicts, while protecting communities and allowing reasonable access to private mineral rights. The desire of local governments to ban or regulate oil and gas operations is the political backdrop in which the task force is conducting its work. Congressman Polis offered to cease his efforts to place ballot measures in the 2014 ballot if the general

assembly could pass legislation at the end of the 2014 legislative session, allowing local government regulation of the industry. When that effort failed, Governor Hickenlooper, working with several operators, explored the idea of calling a special session to ask lawmakers to pass similar legislation. That effort failed, and the governor joined Colorado’s business community in announcing his opposition to Congressman Polis’ ballot measures. At the end of July, it appeared that Colorado voters would not only be subjected to millions of dollars spent on Colorado’s senate race, but also be asked to vote on the fate of Colorado’s economy by considering whether to shut down the state’s oil and gas industry. Desperate to not only find another way to convince Congressman Polis

to withdraw his ballot measures, but to protect the re-election chances of Senator Mark Udall and his own governorship, the governor continued to try to find a compromise. On the first Monday in August when the deadline for the submittal of ballot measures occurred, Governor Hickenlooper announced he had reached a deal with Congressman Polis that would result in the congressman not supporting his own ballot measures, though the measures were actually submitted to the secretary of state. At the same time, Governor Hickenlooper announced the formation of the task force, which convened on September 25, 2014. The task force has met around Colorado, and has heard not only from multiple experts who have addressed oil and gas issues, but many hours of public comment as well. Most task force observers agree that there will not be a “grand bargain” coming out of it that will provide certain local governments their wish to ban or significantly regulate oil and gas operations in their community. The fact that Republicans gained a one-vote majority of the Colorado Senate also diminishes the chance that legislative recommendations will be successful. Instead, look for a series of regulatory concepts to be developed by the task force for consideration by the Colorado Oil and Gas Conservation Commission. These concepts could include: • Development of comprehensive development plans that coordinate the review of oil and gas permitting by state and local governments, particularly in urbanized areas.

• Recommendations to the general assembly to provide additional funding and FTE to the Colorado Oil and Gas Conservation Commission and Air Pollution Control Division. • Support and coordination of memorandums of understanding between local governments and operators.

Many representatives of certain local governments and environmental organizations will feign their disappointment the task force failed to deliver recommendations allowing local governments to regulate an already heavily regulated oil and gas industry, but their efforts will simply shift to the inevitable 2016 ballot measures that are sure to come. Stay tuned! v

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Spring 2015 13

Falling oil prices will foster greater efficiencies for a stronger, more profitable sector

Photo courtesy of the American Petroleum Institute.

By Lisa Fattori

The sun rises over a pumpjack in Weld County, CO. Oil and natural gas production has coexisted with farms and ranches in Weld County since the 19th century.

The freefall of oil prices has created

more than halved to below $50 per

2015, as oil companies maintain

cutting capital spending and focusing on more profitable oil plays. While big borrowers and service companies will feel more of a pinch, lower oil prices is a welcome respite for consumers who have not seen gas prices this low since 2009.

production levels, all the while

Since June 2014, U.S. oil prices have

in the U.S., combined with slowing

uncertainty in the market, with no way of foreseeing when prices will bottom out and resume an upward climb. Oversupply is forecasted to continue throughout most of

14â&#x20AC;&#x192; western interior oil & gas report

barrel, hitting a six-year low. U.S. oil production levels are at their highest in almost 30 years, with the U.S. Energy Department forecasting an output of 9.3 million barrels per day in 2015. Prolific oil production

Photo courtesy of the American Petroleum Institute.

A drilling rig bores down into the energy-rich shale underneath Weld County. Sound walls, such as those encircling this rig, are erected around many drilling sites in Colorado to shield neighbors from industry operations.

economies in China and Europe, and OPEC's decision not to curtail production, has resulted in an oversupply of product and drastic drop in oil prices. "It's not that we didn't see this coming; it's more that there's been a huge paradigm shift with the resurgence of oil production in the U.S.," says Porter Bennett, president and CEO of Ponderosa Advisors in Denver, Colorado. "The market has been characterized by scarcity, which caused prices to go up. The notion that we're running out of oil is not true and we're now sitting in a position where we have too much of it. The only way to get prices to shift long-term is to get world economies growing so that they consume the product. Until that happens, prices will remain low." Hydraulic fracturing and horizontal drilling have revolutionized shale production in the U.S., unlocking vast reserves and increasing domestic supply. Current oil price volatility is reminiscent of the natural gas boom a decade ago, and an oversupply that sent prices

plummeting from a peak of $13 per thousand cubic feet in 2008, to below $3 per thousand cubic feet just a year later. The fate of the oil industry is expected to play out in a similar fashion, with a restructuring of operations and improved efficiencies. "We're calling this the Great Deflation, not just because of low oil prices, but because companies will be actively restructuring their businesses to be more efficient in a lower price environment," says Pete Stark, senior research director and advisor for IHS in Denver, Colorado. "What happened in natural gas is exactly what is happening in oil. Companies will focus on the best parts of the best plays. They'll focus on those sweet spots that are profitable at $45 per barrel. â&#x20AC;&#x153;In the U.S., we've had too much success. Companies will have to reduce overhead and sharpen their pencils. In the case of natural gas, companies today are producing more gas with fewer wells. The oil industry will similarly become more efficient and more profitable."

Analysts have forecasted that U.S. oil companies will cut capital spending by approximately 30 percent in 2015. According to Baker Hughes, rig count in the U.S. was down 43 in the third week of January, for a total decrease of 144 rigs in the last year. This slight decline, however, is not enough to curtail production, as producers shut down operations in some areas and focus on more profitable projects. â&#x20AC;&#x153;If you have leases, you have to drill them or lose them, and this creates momentum to continue production," says John Felmy, chief economist at the American Petroleum Institute (API). "Some firms have to push on and produce because they need the money to pay debt. Others will move forward to retain their workforces. There is a concern that once we lose these folks, they're gone, and companies want to make sure that they'll have skilled workers in place when the upswing comes." The big winner in lower oil prices is the consumer, who is paying on-average $2.04 per gallon at the pumps, which is a decrease of over one dollar in one year. According to the U.S. Energy Information Administration, that translates into savings of approximately $750 per U.S. household and, with lower diesel prices, commercial drivers will also benefit. Lower natural gas and heating oil prices increase savings even further. With it costing less to heat homes and drive cars, consumer spending should increase, which will positively impact the U.S. economy. "Over $1.5 trillion is shifting from the pockets of producers to the pockets of consumers," Stark says. "When you put $750 into the pockets of drivers, lower oil prices have a bigger positive effect than a negative effect on the economy." v Spring 2015â&#x20AC;&#x192;15

Energy Policy for 2015 – A unique opportunity By Edward Cross, KIOGA president nation’s emergence as an energy leader. Unfortunately, there are some who remain mired in our nation’s energy scarcity past. The American people want, expect, and deserve elected leaders who will place what’s best for our nation’s economy and energy future above partisan ideology and political posturing.

Over the last several years, our nation has left behind decades of energy scarcity and has become a worldwide leader in energy production. We should take full advantage of this unique global energy leadership position. What we need from our elected leaders are smart energy policies that promote our nation’s position as a leader in energy production. Today, we stand at the threshold of a sustained era of American global energy leadership. We have the unique opportunity to diminish our nation’s economic and geopolitical vulnerabilities and permanently reduce our dependence on foreign sources of energy. We should ensure that America remains a positive force on the world energy market. It should not be about Republicans, Democrats or Independents. It’s about all Americans benefitting from our 16 western interior oil & gas report

Last November, voters sent a loud and clear message to elected leaders. Stop the politics of polarization and endless partisanship and work together on behalf of the American people and American economy. The new congress and President Obama have the opportunity to heed the will of the American people to, among other things, set our nation on a positive energy future. The fundamental question is whether we as a generation and as a nation will rise to the challenge of meeting our energy needs in a way that generates jobs, revenue and opportunity, or will we squander this unique opportunity at the altar of political expediency and ideology? The fact is fossil fuels will continue to take the lead in providing most of the world’s energy needs well into this century. The U.S. Energy Information Administration estimates that 25 years from now, fossil fuels will account for 80 percent of the nation’s energy consumption.

Misguided energy policy harms American consumers and businesses. Continual expansions of environmental regulations that do little or nothing to advance public health significantly harm our nation’s energy production potential and global energy leadership. For example, the current ozone regulations are protecting public health and will continue to make gains under existing rules. However, the EPA’s recently proposed tighter limits on ozone would, according to a recent report, be the most costly regulations ever imposed on the American people. And perhaps no issue better captures the potential and ongoing tension between America’s 20th century energy reality (scarcity and dependence) and our 21st century reality (abundance and energy leadership) than the ban on crude oil exports. The crude oil export ban, which once was an integral part of our nation’s energy strategy, is now a burdensome relic of America’s era of energy scarcity. The decadesold ban on crude oil exports does nothing more than impose an unnecessary cost on consumers and American business’ global competitiveness. Lifting it would send a clear signal to friend and foe alike that our nation takes seriously its role as an energy leader. These facts should be central to our nation’s energy policy discussion,

formulation, and implementation. The alternative invites regression to a time of American energy dependence and uncertainty. We have a unique opportunity to show the world how energy abundance can be used as a positive force rather than as a tool to harm or to control other nations. We should no more support policies that pull us back toward energy dependence and uncertainty than we should adopt policies that reverse gains we’ve made in other areas of our society. Our nation’s energy future should be inclusive, realistic, and above all rooted in the belief that energy’s fundamental role in our society is a positive that should be encouraged rather than hampered. We need to foster a better understanding of energy and

We have a unique opportunity to show the world how energy abundance can be used as a positive force rather than as a tool to harm or to control other nations. We should no more support policies that pull us back toward energy dependence and uncertainty than we should adopt policies that reverse gains we’ve made in other areas of our society. be willing to set aside partisan ideology to advance smart energy policies. Energy policies that expand American oil and natural gas development to create economic growth, expanded economic opportunity for millions, and long-term American global energy leadership contrast against the contrarian view, which would result in a lower standard of living, shrinking economy, and ultimately,

American energy dependence. The choice is stark and simple. Energy is central to our way of life and we will need more of it for many years to come. We need President Obama, the new congress, and elected leaders in our state legislature to work to ensure that 21st century America and future generations only know their nation as a global energy leader. v

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Fracking ban continues to move across state lines By Melanie Franner “TXOGA today filed a declaratory action and request for injunctive relief against the City of Denton on the grounds that a ban on hydraulic fracturing is inconsistent with state law and therefore violates the Texas Constitution,” stated a press release from the TXOGA.

Industry in action

The delicate balance between oil exploration and urban life is once again out of sync. The city of Denton, population 123,000, is the latest oil and gas city to issue a ban against hydraulic fracking – and the first city within the state of Texas to do so.

be ineffective against the thousands of acres that industry considered “grandfathered” – DAG took a more proactive approach to the issue. “After years of trying to work within the system, we decided to pursue an all-out ban on fracking within city limits,” says Briggle. “That campaign began on February 20, 2014.”

A grassroots initiative

And a citizens’ vote on November 4, 2014 found 59 to 41 per cent of the residents were in favor of the ban.

“We got involved in the issue back in 2010, after three new wells were approved close to the hospital and neighborhood,” explains Adam Briggle, vice president, Denton Drilling Awareness Group (DAG). “Our role was first and foremost an advisory and public education one. We weren’t talking about bans back then. We were just looking to craft more robust health and safety regulations.” After a new city ordinance stipulating a setback of 1,200 feet was put into place – and found to 18 western interior oil & gas report

“We had a significant turnout for the vote,” states Lindsey Baker, public information officer, City of Denton. “We had a lot more people show up at the polls for this vote than what we typically get for municipal elections.” City officials made the ban effective on December 2, 2014. But by then, both the General Land Office and the Texas Oil & Gas Association (TXOGA) had filed lawsuits against the city.

To the north of Texas, the state of Colorado has been having its own issues with hydraulic fracking. To date, four communities have entered the fray. All four – Boulder, Broomfield, Fort Collins and Lafayette – are west of Weld County, but still within the boundaries of the Niobrara and DJ Basin. All of this activity began with the City of Longmont, which passed a charter amendment in 2012 that banned the use of hydraulic fracking. Residents of Loveland eventually voted against the ban, but the initiative set in motion a clear path for the other communities to follow. “The activities in Denton are significant, but not as significant to us as the activity occurring within Colorado itself,” states Doug Flanders, director of policy and external affairs, Colorado Oil & Gas Association (COGA). This “activity” has seen the COGA file lawsuits against either bans or moratoriums on hydraulic banning. And the results to date have been favorable.

The 2012 November ban in Longmont was ruled upon by a Colorado District Court in July 2014 and found in favor of the COGA’s position that governments cannot ban fracking and that oil and gas development is an activity of statewide interest. The following month, another Colorado District Court ruling again found in favor of the COGA, which had filed a lawsuit against the City of Lafayette and its attempt to ban fracking. That same month, the Colorado District Court responded favorably to COGA’s lawsuit against the City of Fort Collins, which had attempted to issue a five-year ban on hydraulic fracking. In November 2014, the same Colorado District Court denied the City of Fort Collins a stay pending its appeal of the court’s earlier decision. In September of 2014, the industry was once again on the receiving end of a favorable Colorado District Court ruling, this one upholding claims by an oil and gas operator (Sovereign Operating Company) that the Broomfield ban on hydraulic fracturing cannot apply retroactively to operations covered by prior agreements. To say that the COGA is pleased with the recent Colorado District Court rulings might be an understatement. “This is yet another victory for certainty and clarity in the way Colorado regulates oil and gas operations,” stated Tisha Schuller, president, COGA, after the September 2014 Colorado District Court ruling was given. “In just the last several months, three previous rulings have found that fracking bans are on their face unlawful, and now another court has found that agreements between a city and local

operator prior to bans passing are binding.” The COGA strongly believes in cooperation as a way to resolve these fracking issues. Approximately 95 per cent of the wells within the state use hydraulic fracking. “There is an important role for local governments in oil and gas regulation, and over 30 communities across the state have crafted unique solutions that address their concerns in keeping with state law,” continues Schuller. “The bans have been unnecessary, divisive and costly for taxpayers. Now that these three legal cases have been decided, we look forward to putting the ban debate behind us and focusing on meaningful solutions with our communities.” The COGA has also filed suit against the City of Broomfield and its fiveyear ban/moratorium on fracking. The Colorado District Court has not yet reviewed the case. And as for the City of Boulder, Flanders says that the COGA remains undecided at this point. “Boulder’s last oil and gas well was plugged in 1999,” he says. “We see this as more of a symbolic vote, but are keeping our options open at this time.”

Economic impacts The COGA’s continued work in fighting city bans against hydraulic fracking is proving advantageous for the industry – and for the state of Colorado itself. According to a March 2014 report from the Business Research Division of the Leeds School of Business at the University of Colorado Boulder, entitled Hydraulic Fracturing Ban: The Economic Impact of a Statewide Fracking Ban in Colorado, a statewide fracking ban would

prove “damaging” to the Colorado economy. The report states that a statewide ban on fracking would set the state back an average of 68,000 jobs in the first five years and $8 billion in gross domestic product. Over the long term (2015-2040), those numbers would result in an average of 93,000 fewer jobs and $12 billion in lower GDP. The study further suggests that local and state governments would also be affected negatively, with loss in tax revenue reaching as high as $567 million from 2015 to 2020, and as high as $985 billion by 2040.

Moving forward The Niobrara Shale and DJ Basin is reported to contain up to two billion barrels of oil, thus making oil and gas exploration central to Colorado’s economy. Last year alone, this formation accounted for more than 80 percent of the state’s total oil and gas production. Finding ways to work within existing government legislature, while also appeasing the communities in which oil and gas exploration occur, may be the only path forward for all parties concerned. At least this way, one will ensure continued growth and prosperity throughout the state. v Spring 2015 19

Colorado’s fracking war: Big wins, but more battles on the horizon By Karen E. Crummy

Frack or Fiction? Anti-Fracking Groups Have Been Frack orof Claims Fiction. Making Lots Lately.

of statewide ballot measures aimed at stopping fracking in its tracks. What a difference a year makes. Three local bans were struck down by courts (one is still being litigated, and industry has not objected to a ban in Boulder because there is no oil and gas development there). Loveland voters rejected a fracking moratorium in a June 2014 special election. And a compromise forged between Gov. John Hickenlooper and U.S. Rep. Jared Polis, both Democrats, kept anti-fracking initiatives off the 2014 ballot. The momentum continued into this year, when the Erie Board of Trustees voted down a proposed one-year moratorium on oil and natural gas development.

Paid for by Protecting Colorado’s Environment, Economy, and Energy Independence.

Nearly one year ago, Colorado’s oil and natural gas industry was on the ropes. Five local communities had issued moratoriums or outright bans on fracking. Citizen groups, propped up by well-funded national environmental organizations, were 20 western interior oil & gas report

pressuring the Loveland City Council to issue a fracking moratorium and threatening to put it to a popular vote if the council refused. And, at the same time, Big Green and a wealthy Colorado congressman had proposed a slew

So what happened? For one thing, oil and natural gas industry representatives collaborated with each other, as well as with community leaders, trade groups, local businesses and elected officials to educate the public about fracking and responsible oil and natural gas development. Conversations with voters occurred on doorsteps, in community meetings and on various social media platforms. Industry employees were encouraged to have these discussions with their neighbors, friends and family to help put a face on the industry. And to chip away at the David versus Goliath narrative perpetuated by

“Maintaining environmentally safe oil and natural gas production means we don't have to rely on hostile foreign regimes for the energy we need to power our homes and fuel our cars. Energy production in Colorado will make it less likely we have to send American soldiers into harms way in the future.”

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fracktivists, we started to expose so-called grassroots groups for what they were: fronts for wellheeled national environmental organizations.

has already been filed. Discussions are underway about potential initiatives that would increase drilling setbacks to 2,000 feet, or more. Additionally, a handful of communities are considering placing bans or moratorium measures on local ballots this year.

Fracking, we emphasized, was not a partisan issue, but an American one, and we gathered support Recent bans in New York State, from Republicans and Democrats, and especially Denton, Texas, have including Gov. Hickenlooper. This empowered extreme environmental helped focus the discussion on what groups and helped their national mattered to voters: private property fundraising efforts. This trickles rights, energy independence, the www.ProtectColorado.com down to Colorado. For instance, The stringent rules regulating oil and Park Foundation – a major player in natural gas development and Paid for by Protecting Colorado’s Environment, Economy and Energy Independence New York’s ban fracking movement economic benefits, such as lower – funds groups like Food and Water heating costs. Watch, The New Venture Fund and There has been much progress, but 350.org. Those groups then funnel Colorado still remains Ground Zero money and boots on the ground for the fracking debate. Even as a to local Colorado groups pushing state oil and gas task force is trying community fracking bans. to find a land-use balance for both communities and industry, a 2016 statewide ballot measure aimed at limiting oil and natural gas drilling

Currently, organizations like The Sierra Club, Clean Water Fund and 350Colorado.org are attempting

to influence the fracking debate at the local level. The Environmental Defense Fund has poured $2 million into an aggressive social and digital media campaign in Colorado to turn out young voters in next year’s presidential election. Billionaire Tom Steyer and his advocacy group NextGen Climate spent more than $6 million in the Colorado U.S. Senate race and $76 million nationwide last year. The 2014 election, he said, was just a warmup to 2016. He and what he calls his “climate warriors” are “just getting started”. To learn more about Protect Colorado and how to join our efforts, please email Karen@protectcolorado.com. Karen Crummy is communications director for Protecting Colorado’s Environment, Economy, and Energy Independence, a Colorado political issue committee. v Spring 2015 21

How to beat back fracking bans

For the last decade in Colorado – some argue longer – environmental groups have been flying under the radar, building social media armies focused on ending fracking. One analysis found 88 percent of Coloradans had heard of fracking, but received their information 50:1 digitally from anti-fracking opponents. People only know what they hear, and what they were hearing wasn’t good. Anti-fracking groups dominated both traditional and social media with unchecked, negative claims about oil and natural gas, and everything associated with it. It was clear something had to happen or fracking was headed towards an all-out ban in Colorado. 22 western interior oil & gas report

Industry needed a new, out-of-thebox effort to counter, neutralize and overcome the misinformation being delivered directly to voters. They turned to Pac/West Communications, a firm well experienced in handling complex and difficult situations. Their answer: Coloradans for Responsible Energy Development (CRED). In less than 18 months, CRED built the most robust education effort the oil and natural gas industry had ever seen in Colorado, and arguably the nation. But how’d they do it and can it be replicated? For starters, they quit avoiding the word “fracking” and addressed it

head on, educating Coloradans on the process and why it’s safe. And yes, they made a point to include the “k” in fracking on everything they put out. Through traditional and digital media, aggressive outreach plans including neighbor-to-neighbor walks, CRED hand-delivered the facts on fracking to the public. They used real people and their stories to creatively strike a balance by acknowledging legitimate questions about fracking, but subtly working in researched-based, persuadable messages. CRED partnered with business organizations, tapped into community groups, and encouraged oil and natural gas employees – the industry’s best messengers – to talk to everyone from their neighbors to

CRED’s 22,000+ fans on social media far exceeds every local major environmental group combined: Colorado Community Rights Network = 2,560 Safe Clean Colorado = 2,119 Rocky Mountain Sierra Club = 1,900 FrackFree Colorado = 2,300 Conservation Colorado = 3,600 Clean Water Action Colorado = 750 Protect Our Colorado = 250 Ban Fracking in Colorado =125 friends to strangers on the street. While the industry has naturally shied away from the press, CRED jumped in with both feet. CRED quickly became a go-to source for reporters ensuring every question about fracking was answered in an open, transparent manner. No request was ignored. Moreover, CRED implemented a rapidresponse media tracking system to correct inaccurate statements, assumptions, or blatant misleading depictions of oil and natural gas in Colorado. CRED’s multi-channel digital approach amplified its message making it hard to ignore and fostered a base beyond typical industry supporters. By posting engaging content on Twitter, Facebook, and LinkedIn, CRED was able to generate thousands of shares and create meaningful conversations online. Then they utilized their team of ambassadors to push messages to their personal social networks. Print media and online searching are the resources Coloradans turn to for

energy and environmental issues. The creation of StudyFracking.com allowed CRED to address tough questions and demystify the industry and its scary-sounding practices. They also created an advertorial insert program in partnership with major new publications, establishing a first-of-its-kind, highly visible, custom publishing platform. Combined, well over one million Coloradans are reached directly by CRED’s collective communication efforts. Just about everyone in the state has heard of them.

bringing Colorado and the nation. Support for fracking in Colorado is now over 60 percent. Since the November 2013 elections, no moratoriums or bans on fracking have been passed by voters in Colorado. For communities and states just waking up to the ban fracking movement, the CRED model is worth a look. Learn more at CRED.org, or call (800) 425-0856. v

By focusing on Colorado’s bestin-nation fracking regulations – largely unknown to the public – CRED found a way to move past rumors and unfounded accusations about health and safety. With that achieved, the final step includes shifting towards the benefits of jobs, revenue, protection of private property rights, and energy independence the industry was Spring 2015 23

Alcohol and drug use on the oil patch: A look at current issues By Melanie Franner marijuana as the “primary drug of abuse statewide”, excluding alcohol. The 2013 legalization of recreational marijuana has had an affect on the population, namely a decline in drug seizures and testing, says the report, which has been accompanied by reduced arrests and court cases.

Colorado has been witness to a recent economic boom due primarily to the growth in the oil and gas industry. Located in the northeastern area of the state, the Niobrara Shale has been estimated to contain approximately two billion barrels of oil. Recent numbers suggest that the Niobrara Shale accounted for more than 80 per cent of the state’s total oil and gas production in the last year alone. With the growth in the oil and gas industry has come growth in the population, with many workers travelling from far and wide to take advantage of the robust employment opportunities. And with population growth, and especially transient workers, often comes alcohol and drugs. 24 western interior oil & gas report

The numbers have it According to an updated January 2014 report from the National Institute on Drug Abuse, entitled Drug Abuse Patterns and Trends in Colorado and the Denver/Boulder Metropolitan Area, alcohol remains Colorado’s most frequently abused substance and accounts for the most treatment admissions, poison control center calls, drug-related hospital discharges and highest drug-related mortality during the reporting period from 2012 to 2013. The report suggests that marijuana continues to be a major drug of abuse in the state, based on treatment admissions data, hospital discharges, availability, and the National Survey for Drug Use and Health (NSDUH). It identifies

Despite the legalization of recreational marijuana in 2013, the state of Colorado still sees marijuana as accounting for an alarming number of drug-related treatment admissions and hospital discharges. Marijuana ranks second in the state, only to alcohol. During the first half of 2013, primary admissions for marijuana represented 18.8 percent of total drug treatment admissions in Colorado. According to the report, methamphetamine accounted for the third-highest proportion of treatment admissions statewide (including alcohol). Despite the number of methamphetamine incidents remaining fairly stable at 14 percent and 16 percent from 2008 to 2012, the first half of 2013 saw a 16.7 percent increase in methamphetamine treatment admissions. The year-to-year increase is significant, seeing as it was 14.3 percent in the first half of 2012. Sergeant Scott Smith at the Weld County Drug Task Force has also seen this trend.

“Methamphetamine is the most common drug we deal with here,” he says. “Weld County is home to about 250,000 people, and oil and gas is very much a large contributor to the economy. We’ve seen a real boom in business over the last two or three years in particular. But as far as drugs are concerned, we haven’t noticed that much of an increase. For us, our investigations involve the same type of people we were investigating before the oil boom hit this county.”

state. Numbers from the Wyoming Oil and Gas Conservation Commission (WOGCC) show that the state’s oil production from the Niobrara Shale alone increased from 365,000 barrels in 2010 to 3.5 million barrels in 2013.

Undersheriff of Goshen County, Jim Lowry, is a 25-year veteran on the force and he, too, hasn’t seen much change in the number of drugrelated incidents.

So how does the state of Wyoming compare to Colorado when it comes to alcohol and drug use?

“We do not see alcohol and drug abuse as being a significant issue on the oil fields,” he says. “There has been no increase in the number of offences committed. We do experience alcohol and drug-related issues every once in a while, but for the most part, things have stayed fairly level.” In addition to singling out alcohol, marijuana and methamphetamine, the Drug Abuse Patterns and Trends in Colorado and the Denver/Boulder Metropolitan Area report also points to upward trends in treatment admissions, drug-related deaths and hospital discharge rates for heroin and prescription opioids/opiates other than heroin. Cocaine, on the other hand, shows a downward trend. Primary cocaine treatment admissions represented a new low of 5.5 percent of total admissions (including alcohol) in the first half of 2013. That percentage was 7.3 percent in the first half of 2012.

Colorado versus Wyoming Wyoming is another “oil-boom”

The Niobrara Shale is just one of many oil and gas sites in Wyoming. The state is rapidly becoming a leading oil and gas producer. And with that growth has come new job opportunities and new workers to fill those jobs.

According to information from the Foundation for Advancing Alcohol Responsibility, the state of Wyoming had 40 alcohol-impaired driving fatalities in 2012, while the state of Colorado had 133. When viewed in terms of alcohol-impaired driving fatalities per 100K population, Wyoming came out at 6.9 and Colorado at 2.6. Colorado has a much larger population than Wyoming. In 2010, Colorado was home to approximately five million people, while Wyoming had 560,000 people living within its boundaries. Interesting to note is that the 10-year change in alcoholimpaired driving fatalities per 100K population dropped 39.1 percent for Wyoming and 53.2 percent for Colorado. Arrest data for 2012 showed 26,180 individuals driving under the influence of alcohol in Colorado and 4,147 in Wyoming. According to the 2012-2013 National Survey on Drug Use and Health from the Substance Abuse and Mental Health Services Administration (SAMHSA), an estimated 23.9 million Americans aged 12 or older – or 9.2 percent of

the population – had used an illicit drug or abused a psychotherapeutic medication (such as a pain reliever, stimulant, or tranquilizer) in the past month. This is up from 8.3 percent in 2002 and 8.82 percent between 2010 and 2011. The increase reflects a recent rise in the use of marijuana, the most commonly used illicit drug. Based on 2012 and 2013 data, the estimated number in Wyoming is 6.62 percent. In Colorado, it is 14.9 percent.

Life on the oil patch Although local law enforcement agencies working on Colorado’s oil patch don’t report any significant increases in the use of alcohol and drugs over the last couple of years, the numbers show that the two substances remain of real concern to the state’s health authorities. The January 2014 Drug Abuse Patterns and Trends in Colorado and the Denver/Boulder Metropolitan Area report from the National Institute on Drug Abuse identifies alcohol as Colorado’s most frequently abused substance and marijuana as the primary drug of abuse. According to the report, the two substances take first and second place in the state. There’s no doubt that the continued use of the two substances continues to warrant further attention. v Spring 2015 25

$15,000 per day, per violation: Colorado’s new oil and gas rulemaking By Joseph M. Evers, Member, Jost & Shelton Energy Group, P.C. The Colorado Oil and Gas Conservation Commission began 2015 by finalizing a precedentsetting Enforcement and Penalty Rulemaking. On January 5, the commission adopted substantial changes to its enforcement and penalty rules. This rulemaking began nearly two years ago, on May 8, 2013, when Governor Hickenlooper signed Executive Order D2013-004. The EO directed the commission to “undertake a review of its enforcement program, penalty structure, and imposition of fines.” Then, in June of 2014, Governor Hickenlooper signed House Bill 14-1356, which mandated more severe fines and penalties and gave the commission more enforcement authority. HB 14-1356’s stated purpose is to deter noncompliance and encourage noncompliant operators to rectify violations. To that end, HB 14-1356 enacted a fifteen-fold increase in the maximum daily penalty for violations – from $1,000 to $15,000 (per day per violation) – and removed the previous $10,000 cap for any single violation (no matter its duration). In the rulemaking, the commission implemented this increase by adopting a base penalty calculation matrix. The matrix uses two sets of criteria, the first being the degree of “threatened or actual significant adverse impact to public health, safety, welfare, the environment or wildlife.” The second is the class of the rule violated. Class 1 is ministerial, Class 2 is indirectly 26 western interior oil & gas report

related to public health and the environment, and Class 3 is directly related. A minor degree Class 1 rule carries a $500 per day base fine, whereas a minor degree Class 3 rule violation carries a $5,000 per day base fine. The $15,000 per day base fine is reserved only for major degree Class 3 violations. The commission may raise or lower the daily base fines based on aggravating and mitigating factors. The matrix is a departure from the previous system, where base penalties were determined on a rule-by-rule basis, even though some rules have purely ministerial subparts. Thus, the new matrix adds clarity, certainty and consistency while tailoring fines more closely to the nature of the violation.

require a full hearing before the commission or a formal admission of wrongdoing, but a Notice of Alleged Violation resulting from gross negligence, willful misconduct or a pattern of violations requires a full hearing before the commission.

The rulemaking implemented other provisions of HB 14-1356, including clarity as to how the commission calculates the duration of a violation. Finally, the commission went beyond the specific mandates of HB 14-1356 in order to clarify other aspects of its enforcement process, such as how to determine the severity of a violation.

How will this affect my operations?

Under the new rules, the commission director has less discretion to informally resolve certain violations. For example, the director must issue a Notice of Alleged Violation for a violation resulting in actual adverse impacts to public health, safety or the environment, rather than permitting a violation cure in lieu of further enforcement action. A Notice of Alleged Violation normally can be resolved through an Administrative Order by Consent, which does not

Enforcement actions undertaken by the commission have steadily risen since EO D2013-004 and HB 141356. Operators have experienced a marked increase in the amounts of fines and variety of enforcement matters pursued by the commission. After this rulemaking, operators can expect increased penalties for violations, especially if the operator does not quickly commence corrective action.

It appears likely that enforcement fines and penalties will continue to rise this year in Colorado. As such, operators should take extra steps to ensure their own compliance. Moreover, given the substantial increase in fines, operators should resolve potential violations with swift and decisive action, and should immediately respond to commission enforcement proceedings. If you or your colleagues have any questions as to how these changes in commission rules may affect your operations in Colorado, please contact Jamie Jost, managing shareholder, or Joseph Evers, member of Jost & Shelton Energy Group, P.C. v

Passion for Energy. Innovation for the Future.

Eﬀectiveness

Eﬃciency

Cost Savings

As with most things in life, there can be a dozen ways to solve a problem; but a workable solution does not necessarily equate to the best solution. Without effective communication, some of the best solutions remain unused tools. Jost & Shelton understands that our clients’ key to success lies in effective communication. We value our relationships and work tirelessly to cultivate relationships built upon effective communication so we are always using the right tool for the job.

Many of the necessary steps land and legal departments must take during the exploration and development process are duplicative in nature. Add this to the scope of a sophisticated development plan in a large prospect, and you have the recipe for ineﬃciency, which can result in costly mi mistakes. Jost & Shelton believes you should never have to pay twice for something that has already been performed. Whether it is a notice list for a pooling prepared during a title examination, or a regulatory action that cures a title defect, Jost & Shelton marries the core oil and gas practice areas to ensure th that valuable internal knowledge is always put to eﬃcient use.

Jost & Shelton believes that if client costs are reduced, it will free up capital so you can do what you do best: explore, produce, and develop energy. When clients are able to do this, our entire country benefits, and that is important to us. This is why we take great pride in en ensuring that all work performed is done effectively and efficiently, which, in turn, reduces costs and continues to place our country on the road to economic stability through energy security.

1675 LARIMER STREET, SUITE 420 • DENVER, CO 80202 • (720) 379 -1812 *Adam Shelton not licensed in CO. ** The Wyoming State Bar does not certify any lawyer as a specialist, or expert. Anyone considering a lawyer should independently investigate the lawyer's credentials and ability, and not rely upon advertisements, or self-proclaimed expertise. -- Rule 7.2, Wyoming Rules of Professional Conduct

Greeley set to shine in the next few years: Strong economic growth forecasted

Photos courtesy of the City of Greeley

By Melanie Franner

Coming in second is not bad at all, especially when it’s second in a list of the top 10 fastest-growing metropolitan areas in the U.S.

The numbers In an IHS Global Insight study entitled U.S. Metro Economies, GMP and Employment 2013-2015, prepared for the United States Conference of Mayors and the Council on Metro Economies and the New American City, the city of Greeley is forecasted to experience an average annual growth rate of 4.8 percent between 2013 and 28 western interior oil & gas report

2020. Midland, Texas, is the only city expected to grow faster, at 5.8 percent. “Greeley was one of the first cities to come out from the recession,” states Brad Mueller, director of community development, City of Greeley. “One of our key strengths, which contributed to this fast rebound, is our diverse economy.” That economy is rooted in agriculture, which remains the city’s number-one economic contributor. But oil and gas isn’t too far behind. “Agriculture is still a very strong sector in all of Weld County,”

states Bruce Biggi, economic development manager, City of Greeley. “Weld County is the ninthlargest agricultural producer in all of the U.S., based on the volume of agriculture produced on an annual basis. But oil and gas has rapidly become our second industry within the community.” Biggi cites JBS USA, a leading animal protein producer and exporter, as one of the larger employers in the city – with over 4,600 employees in the community. Leprino Foods, a manufacturer of mozzarella cheese and exporter of whey and lactose products, is another large employer, having settled in Greeley in 2013. The company employs approximately 500 people in the community. As far as oil and gas is concerned,

Photos courtesy of the City of Greeley

the city of Greeley has some very large players, such as Noble Energy (which employs approximately 600 people in Greeley) and Anadarko Petroleum Corporation (which has approximately 1,500 employees within the state of Colorado). Colorado’s oil and natural gas industry contributes approximately $30 billion to the state’s economy. City of Greeley Mayor Tom Norton attributes the industry with generating $3.3. million in tax revenue for the city in 2013 and predicts that the number will rise to more than $400 million over the next 25 years.

The ebb and flow “We’re proud to point out the positive influence that the oil and gas industry has made to the city of Greeley,” says Mueller. “But probably the strongest impact it has had to the community has been to round out the diversification of our economy.” This diversification includes all of the support and peripheral services required to fuel the industry. “One of the exciting things about having a mature economy prior to the onset of the oil and gas industry is that we already had the infrastructure in place to support the new growth,” adds Mueller. “In

my department, for example, we have seen a significant upturn in the multi-housing and single-family detached housing development, along with an increase in commercial and support services. That’s not to say it is all attributed to the oil and gas industry. Our economy is growing on multiple fronts, which is great.” Having such a strong and diverse economy means that the city will be better able to withstand the cyclical nature of the different industries, for which oil and gas is famous. “Everyone here is ramping up in a cautious and responsible manner,” states Mueller. “There is definitely a cautious eye, thanks to the recent recession.” That being said, in December 2014, the city of Greeley proper officially passed the 100,000-population mark. The past year also brought to the fore the need for better cooperation and transparency between the oil and gas industry and the community. “I would say that the oil and gas players themselves didn’t change significantly in 2014, but

their depth of investment in the area continued,” says Mueller. “I also think they saw a heightened awareness to reach out to the community.” Mueller acknowledges that there may still be issues that need to be addressed and conflicts to be overcome, but that there is now an open dialogue between the industry and the community. “I think there is more acknowledgement on behalf of the members of the Colorado Oil and Gas Association that the industry has not always been responsive to the needs of the communities,” he says.

Full-speed ahead With strong growth projected for the years ahead – combined with a more open and transparent relationship between the oil and gas industry and the communities in which this industry resides – the city of Greeley is in a prime position to accelerate on all fronts. Its diversified economy and established infrastructure will set the stage for an economic growth that maybe won’t lead the nation per se, but certainly won’t be too far behind. v Spring 2015 29

Oxygen’s miracle power in frack flowback water By Shea Casey

FracCure’s aerators atop Rockwater Energy’s frack tanks.

Frack pit operators are under constant pressure from regulators to remediate/recycle flowback water. A number of these operators are turning to aeration as a preliminary means of flowback water treatment. Some operators use aeration to keep the pit from going septic. Others use aeration as part of a more comprehensive remediation/ recycling program. Water used for fracking initially becomes contaminated due to the treatment chemicals added by operators. These additives include gelling agents, surfactants, scale inhibitors, solvents, and acids. In addition, as frack water enters the underground formation, it picks 30 western interior oil & gas report

up contaminants which occur naturally. These contaminants include calcium bicarbonate, strontium, iron, magnesium sulfate, and barium. As the fluid returns to the surface, it often contains soap, other heavy metals, and sodium chloride, leading to the term “brine wastewater”. The above contaminants usually render the flowback water unsuitable for reuse. To make matters worse, emulsions and sludge can also appear, having been formed by the metabolic activity of sulfate-reducing bacteria. Operators attempt to control these bacteria by using harsh chemical biocides which further contaminate the water.

As the frack fluid flows back to the surface, the water quickly becomes anaerobic, meaning it has very little free oxygen. Oxygen is consumed by the heavy biological demand caused by the above contaminants and by hydrocarbons. The high oxidative demand in the flowback water also tends to render the chemical biocides somewhat useless. The reason is that these biocides, known as oxidizing biocides, are consumed as oxidizers before they are able to act as a disinfectant. Thus, even higher levels of these biocides are needed to control bacteria. It is at this point that dissolved oxygen comes to the rescue with

FracCure’s floating pontoons in QEP pit.

its miraculous power. If dissolved oxygen is introduced into the flowback water and allowed adequate contact time, it will transform solids such as iron and manganese to their oxidized states. These oxides can then be removed or else they can be allowed to settle to the bottom of the pit. Next, the dissolved oxygen transforms the water from an anaerobic to aerobic state. In effect, it “kills” the anaerobes, such as sulfate-reducing bacteria. Further, the dissolved oxygen supports the population growth of aerobic bacteria. These aerobes “digest” any floating or subsurface hydrocarbons, bringing clarity to the water. Finally, a high level of dissolved oxygen spares the biocide from being consumed as an oxidizer, meaning that smaller quantities of biocide are needed. If use of dissolved oxygen is the key, then selecting a proper mechanical aerator is of utmost importance to the frack operator. Aerators fall into several classes depending upon their mode of operation. The most common aerators are bubble

diffusers, splash aerators, and prop aerators. Bubble diffusers have emitters, which can easily become clogged in frack water, resulting in maintenance problems. Splash aerators create aeration by throwing water into the air. Besides being inefficient, such aerators can create a hazard since high winds can blow the contaminated flowback water onto people and equipment. Prop aerators are good at mixing dissolved oxygen within the pit, but they depend upon a separate air blower, ultimately making them inefficient and expensive to operate. There is a self-aspirating aerator on the market, offered by FracCure LLC, which boasts state-of-the-art aeration technology. This aerator is proving itself able to overcome the shortcomings of most other aerators. FracCure’s aerator employs a subsurface rotating turbine that generates micro-clusters of dissolved oxygen. Unlike other aerators, the turbine requires no routine maintenance, never needs to be greased, operates on much less horsepower, is made of corrosion-

FracCure floating pontoon aerator.

resistant materials, and uses the twin physics principles of centrifugal force and precession as applied to rotating fluids. It is proving itself to be equally at home in both frack pits and 500-barrel frack tanks. You can learn more about this amazing aerator by going to www.fraccure.com. Shea Casey is the managing director of FracCure LLC. He can be reached at www.shay@fraccure.com, or by calling 512-847-5026 or 866-802-2455. FracCure LLC is a Texas firm having been in business since early 2012. v Spring 2015 31

Secondary containment advice from the leak & spill experts and containment – and has been for 30 years. By leveraging that experience and applying it to the shale industry, our team of leak and spill experts deliver the best secondary containment solutions on the market. We are creative, pigheaded and hands-on.

There have been numerous studies regarding hydraulic fracturing and groundwater contamination. Surface spills, however, are one area where industry, regulators, and environmentalists tend to agree on the risk. Sources of oil, fuel, fracturing fluid and flowback spills at the well site include the drilling rig, mud tanks, diesel tanks, frack tanks, pumps, sand kings, generator sets, light stands, contractor vehicles, and blowouts at the well head. The risk of surface spills can be mitigated by secondary containment, which is a safeguarding method, in addition to the primary containment system (storage tanks, pipes, drums, blowout preventer). 32 western interior oil & gas report

Depending on the liquid, secondary containment may be required by federal and state regulations. Our 100 percent focus is on safely, effectively, and efficiently containing these chemicals to prevent the contamination of the ground and surrounding water. New Pig Energy (NPE), founded in 2013, manufactures secondary containment liners for the shale gas industry to protect the environment, while keeping workers safe on the job. Our products provide an engineering control for operators, service companies and regulators to prevent spills and reduce slips and falls. New Pig, our parent company, is the world leader in liquid control

From tank farms to well pads, NPE has designed containment systems and furnished on-site support for some of the world’s largest and most respected companies in the United States and abroad. Along with design and manufacturing, we provide training and keep current on the latest regulations and certifications to help our customers stay in compliance. From the stone used on the pad, to the equipment that removes the liner, we are actively involved and always improving.

Award-winning PIG Well Pad Liners Named as Environmental Protection’s New Product of the Year for three years running, the patentspending PIG Well Pad Liner is engineered and proven to perform under real-world conditions. Our unique layered composite handles long-term multiphase deployments under the harshest conditions – offering up to four times the tear resistance and seven times the puncture resistance of standard HDPE liners. Secondary containment is the safeguard if anything happens

New Pig Energy’s legendary service advantage • PIG Well Pad Liners are always in stock and available for warehouse pickup or hotshot 24/7. • We are headquartered in the heart of the Marcellus Shale play to provide personal service, hands-on training and support. • We work with our customers every step of the way, from assessing needs and explaining regulations, to installation support and postinstall maintenance.

• We don’t believe in the “lay and walk away” approach to containment. The oil and gas industry runs 24/7, so we provide on-site service and support 24/7 – even after installation. • The PIG Well Pad Liner is 100 percent Americanmade – zero imports, zero offshore! • We have multiple warehouse locations in Pennsylvania and Wyoming to support the Marcellus, Utica and Niobrara Shale plays.

to the original containers, which means the secondary containment must be watertight even under heavy traffic. We pioneered the composite structure and its lifespan from air rig to fluid rig to completions to production. Each layer in the composite is formulated – with all materials made in the USA – and constructed for specific properties, such as toughness, long-term chemical compatibility and cold-crack resistance. Beyond the physical properties, how a material interacts with the workers is critical. Unlike plastic, our composite liner is designed to be thermally stable to maintain a flat work surface – it will not grow and shrink causing tripping hazards as the temperature changes. In fact, safety was why we got involved in well-site containment in the first place. Plastic can effectively stop a spill, but it quickly becomes an ice-skating rink in the winter, leading to near misses and lost-time accidents. The outer layer of the PIG® Well Pad Liner was created from material proven to reduce slips and falls in manufacturing environments, and is the only liner certified by the National Flooring Spring 2015 33

From tank farms to well pads, NPE has designed containment systems and furnished on-site support for some of the worldâ&#x20AC;&#x2122;s largest and most respected companies in the United States and abroad. and Safety Institute (NFSI) as a hightraction work surface. Beyond the liner manufacture, we engineer and modify tools and equipment for installation and removal. We designed cleaning, cutting and winding equipment to efficiently remove the liner. Instead of requiring up to 10 dumpsters, we can fit a typical site into two containers, with one going for recycle. v

index to

advertisers Casper Oil Tools.................................................9

Jost & Shelton Energy Group PC.....................27

Diamond B Oilfield Trucking, Inc......................13

New Pig Energy.............................................. IBC

Dug.....................................................................5

Quality Mat Company.................................. OBC

FracCure LLC....................................................17

Volant Products........................................... 2 & 3

34â&#x20AC;&#x192; western interior oil & gas report

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Secondary Containment from the Leak & Spill Experts.

1 - 8 0 0 - 2 2 7- 8 1 5 9

ROCK drill site

Q M A T. C O M 5-ACRE MAT DRILL SITE

MAT drill site

AFTER ROCK DRILL SITE

Disadvantages - Damaging native farm land - Lost work time due to unsafe work surface - Delays in drilling - Unable to access due to bad weather - Wasting unnecessary amounts of rock - Unnecessary extra cost - High reclamation expense

WORLDS LARGEST SUPPLIER

AFTER MAT DRILL SITE

Advantages - No reclamation cost - Reduce the environmental impact - Reduce the amount of rock on native farm lands - Minimize unnecessary accidents - Mats provide a safe and stable work surface - 24/7 all-weather access with no down time - Potential to drill one to two more additional wells per year - Reduce the amount of truck traffic on roads - No additional cost - Protect existing flowlines

MANUFACTURING SINCE 1974