Environmental Protection, Safety, and Correlative Mineral Rights in Energy Resource Development

Railroad Commission of Texas Chairman Barry T. Smitherman Commissioner David J. Porter Commissioner Buddy Garcia

RRC Statutory Mission Our mission is to serve Texas by our stewardship of natural resources and the environment, our concern for personal and community safety, and our support of enhanced development and economic vitality for the benefit of Texans.

RRC History Established 1891 • Texas’ oldest regulatory agency • Led by 3 statewide elected officials • 121 year history, including over 90 years regulating the oil and gas industry

RRC Jurisdiction Regulates: • Oil and natural gas industry • Pipeline transporters, natural gas and hazardous liquid pipeline industry • Liquid Propane Gas (LPG), Compressed Natural Gas (CNG), and Liquid Natural Gas (LNG) • Coal and uranium surface mining operations • Natural gas utilities

Industry Profile • Texas is the nation’s #1 oil and gas producer with more than 398,950 wells.

• Texas is responsible for one-third of the nation’s natural gas production.

• The Permian Basin alone is responsible for 20% of the nation’s production of oil.

• Texas has the largest pipeline infrastructure in the world.

Industry Profile • Texas has more that 8,500 active oil and gas operators.

• The state has over 150,000 active oil producing wells and almost 95,000 active natural gas producing wells.* • In 2011, Texas produced 394 million barrels of oil and 7.0 Tcf natural gas. *As of June 2012

RRC Service Populations • 85% of Texas counties report oil production.

• 77% of Texas counties produce natural gas.

• In Texas there are 228 counties with oil or gas production, totaling 236,880 square miles.

RRC Service Populations • All of Texas’ 254 counties have a pipeline facility.

• There are 167,987 miles of pipeline under direct RRC safety oversight.

• There are 1,352 pipeline operators in Texas.

• There are more than 366,000 total pipeline miles in Texas* *Interstate and intrastate, regulated and non-regulated

Texas Pipelines

Working Throughout Texas Field offices are located in: • • • • • •

Abilene Austin Corpus Christi Fort Worth Houston Kilgore

• • • • • •

Midland Pampa San Angelo San Antonio Tyler Wichita Falls

RRC Statewide Rules Inspect and Witness • More than 115,000 field inspections annually • Perform 700+ complaint investigations annually • Investigate blowouts – 100% • Witness 1,600+ surface casings and 5,200+ well pluggings annually

RRC Expertise The Railroad Commission shares regulatory insight on operations and compliance information with countries from around the world. Some recent examples include:     

Iraq China South Africa Canada Brazil

    

Turkmenistan Republic of Indonesia Norway Italy Mexico

RRC Funding Oil and Gas Regulation and Cleanup Fund • Created by the 82nd Legislature • environmental cleanup • oil and gas permitting • oil and gas site inspections • providing public information

• Funded by Oil and Gas Industry

RRC Partnerships Working with Other Agencies • Texas Commission on Environmental Quality • Texas General Land Office • Public Utility Commission • Department of Public Safety • Texas Dept. of Transportation • Texas Department of State Health Services

Federal Regulation Oil and gas waste regulation: • Clean Air Act

• protects and improves the nation's air quality

• Clean Water Act

• regulates the discharge of pollutants from point sources to waters of the United States

• Safe Drinking Water Act

• federal law that ensures the quality of American’s drinking water

• Oil Pollution Act of 1990

• improved prevention and response to oil spills

Eagle Ford Shale Hydrocarbon-producing geological formation • Capable of producing both gas and more oil than other traditional shale plays • Roughly 50 miles wide and 400 miles long with average thickness of 250 feet

20

Texas Eagle Ford Shale Gas Well Gas Production 2008 through July 2012 Average Daily Rate

Million Cubic Feet Per Day

1000 897

900

869

800 700 600 500 400 303

300 200 100 0

51 2

2008 Note: Production figures for previous years may change periodically as delinquent production reports are submitted and processed

2009

2010

2011

2012

Year Gas Well Gas Production (MMCF)

21

Texas Eagle Ford Shale Oil Production 2008 through July 2012 Average Daily Rate 300000

282,724

250000

BBL Per Day

200000 150000 118,075

100000 50000 0

12

6

4

2

346

847

2004

2005

2006

2007

2008

2009

Note: Production figures for previous years may change periodically as delinquent production reports are submitted and processed

14,317

2010

2011

2012

Year Oil Production (bbl)

22

Eagle Ford Task Force Representatives from affected communities looking at impact on area infrastructure • Local elected officials • Environmental groups • Landowners • Industry representatives

Eagle Ford Task Force The mission of the task force is three-fold: • Open the lines of communication between all parties • Establish best practices • Promote economic benefits locally and statewide

Eagle Ford Task Force Concerns

• Increase in truck traffic, deterioration of roads, concern for public safety • Impact of pipeline development projects • Housing issues • Water issues - Carrizo-Wilcox Aquifer • protection, conservation, water recycling

Eagle Ford Shale Responsible development is a must: • We must not act in haste

• We must exploit these resources while ensuring environmental protection • We must listen to and address concerns • RRC must regulate development and production activity • RRC must ensure this precious resource is developed properly

Eagle Ford Shale EFS contains a high carbonate shale percentage, upwards to 70% • High percentage of carbonate makes if more brittle and “fracable” • Found at a dept of 4,000 to 12,000 feet

Hydraulic Fracturing Hydraulic Fracturing • Safe practice in Texas for over 60 years • Combined with horizontal drilling • Releases oil and gas in commercial quantities

Hydraulic Fracturing What is it?

Hydraulic fracturing is the treatment of a well by the application of hydraulic fracturing fluid under pressure for the express purpose of initiating or propagating fractures in a target geologic formation to enhance production of oil and/or natural gas.

Statewide Rule 29, Texas Administrative Code, Title 16, Part 1, ยง3.29

Hydraulic Fracturing What’s in it?

• Fluid used is 99.5 percent water and sand • Additives generally represent less than 0.5 percent of total fluid volume • Fractures are actually minute fissures, smaller than the diameter of a human hair • Many hydraulic fracturing fluid components are found in household products

Hydraulic Fracturing HB 3328/SWR 29 – Hydraulic Fracturing Disclosure Rule • Rule relating to the public disclosure of hydraulic fracturing fluids • Disclosure of water used in hydraulic fracturing • Effective Feb. 1, 2012

Hydraulic Fracturing Hydraulic Fracturing Fluid Disclosure Requirements • Information must be listed on FracFocus website: http://fracfocus.org/ • Hosted by the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission

SWR 29 – HF Chemical Disclosure FracFocus REGISTRATION Information regarding registration of your company to use FracFocus.org can be found at: https://www.hydraulicfracturingdisclosure.org/Account /RegisterOperator.aspx NOTE: Registration can be expedited if your company uses the same security administrator listed on the company's Security Administrator Designation Form (RRC SAD Form)

Hydraulic Fracturing Water protection

• Surface casing set below depth of usable quality water • Usable quality water levels vary throughout the state • Groundwater Advisory Unit sets protection depths for each well • Never a single documented water contamination case associated with hydraulic fracturing in Texas

Eagle Ford Shale Freshwater zones range from the surface to 6,000 foot depth.

• Before you get to the Eagle Ford Shale, there is another 3,000 to 8,000 feet of isolating rock protecting the fresh water zones.

• Hydraulic fracturing in the Eagle Ford Shale is more than a mile deep at 8,000 to 15,000 feet.

Hydraulic Fracturing Steel casing and cement protect groundwater • Strict well construction requirements • Several layers of protection

• surface casing, production casing, cement

• Gauges monitor casings at the surface

Benefits • Job creation • New tax base • Royalty payments to private land owners • Permits and fees to local government • Reduces dependence on foreign energy sources

RRC Jurisdiction RRC has no statutory authority over private contracts, like lease and royalty matters, or damage payments • Information on RRC website • National Association of Royalty owners • http://www.naro-us.org/Texas

• Other resources

• Texas Oil and Gas Association • Texas Land and Mineral Owners Association • More links on RRC website

RRC Jurisdiction RRC has no statutory authority over eminent domain matters • FAQ information on RRC website • Pipeline information

• T-4 Permits (http://rrcsearch.neubus.com/) • contact information for pipeline operators authorized by RRC

RRC Jurisdiction Eminent domain resources • A&M University’s Real Estate Center • http://recenter.tamu.edu/pubs/

• Texas Landowner’s Bill of Rights T-4 Permits

• https://www.oag.state.tx.us/agency/landowners.shtml

• Other resources

• neighbors, legal representation, local officials, legislators

Interacting with RRC • Website • extensive information, FAQs • searchable databases

• Public hearings • downloadable agendas

• Webcasts • view live Commission open meetings online

• Rulemaking • comment on proposed rules

Interacting with RRC Online Research Queries • Oil and gas data • Access to electronic records • Public information • receives 2,200 requests for information in a typical month

Railroad Commission of Texas Gaye Greever McElwain Public Outreach Information Officer gaye.mcelwain@rrc.state.tx.us 512/463-5126