June 13, 2012

FOR IMMEDIATE RELEASE: MIDLAND-ODESSA, SANTA FE, WASHINGTON BUREAUS NOTE

CONTACT: 432-684-6345

Statement by Ben Shepperd, president,

Permian Basin Petroleum Association

On U. S. Fish and Wildlife Service Decision

To NOT LIST AS ENDANGERED the Dunes Sagebrush Lizard

MIDLAND (June 13) — “Today’s historic decision is a victory for America’s consumers and her energy industry workforce. I applaud and endorse the U. S. Fish and Wildlife Service’s conclusion to let indisputable science, not politics, be the basis for the decision to not list the Dunes Sagebrush Lizard as endangered.

“The decision ends a hard-fought battle waged at all levels of our American government, and I firmly believe that our efforts played a critical role in stopping this proposal. We created a deep and wide coalition of local officials, private landowners, state and federal legislators, scientists, independent oil producers and major energy corporations with a clear mission — debunk the shoddy, so-called science on which the proposal was based. And we did.

“The PBPA’s coalition drove home the point that the best available scientific finds without a doubt that Dunes Sagebrush Lizard’s welfare is not threatened by agricultural or energy production.

“The Permian Basin, a 53-county region in West Texas and eastern New Mexico, is the habitat of this lizard species, and moreover, is one of the only regions in our nation that actually has more high-paying jobs than it does men and women to fill them. This proposal by the federal government was sheer insanity. Indeed, a decision to list the lizard as endangered would have had dramatic and negative effects on our nation’s domestic energy industry at a time when gasoline prices are at an all-time high, record numbers of Americans remain unemployed and the Middle East continues to be in the throws of revolutionary instability.

“Like so many laws in America, the Act is based on noble intentions. The bison and the Bald Eagle are two animals that were nearly extinct and saved by prudent and appropriate public mandates.

“But the Endangered Species Act in current form is being exploited by activist groups that generate income for themselves while hiding behind a pretense of protecting the environment. Suing the U.S. Fish and Wildlife Service is a cottage industry for them. Regardless of the decision rendered in their manifold lawsuits, the groups receive legal fees — our taxpayer dollars — from the federal government. I call upon our Congress to re-examine both the letter and the use of this law. The Act must be modified so that its abuse is outlawed once and for all, and the U. S. Fish and Wildlife Service can get back to its mission of protecting truly endangered species.”

June 5, 2012

Mike Soraghan, E&E reporter

Published: Tuesday, June 5, 2012

VANCOUVER, British Columbia — State officials say U.S. EPA and federal drilling restrictions are interfering with their efforts to foster oil and gas development in their states.

The midyear meeting of the Interstate Oil and Gas Compact Commission (IOGCC) kicked off here yesterday with U.S. governors and others casting the federal government under President Obama as the enemy of increased domestic production.

“It’s a sad commentary on where we are in this country when we cannot trust our agencies to implement the law in a reasonable, evenhanded and fair basis,” Alaska Gov. Sean Parnell (R) told state oil and gas officials as he opened the meeting.

Parnell said the state officials in the audience had maintained trust because they live in the communities they serve and try to ensure that oil and gas resources are recovered efficiently.

“You’re not in charge of greasing some political skids or blocking resource development,” Parnell said. “You’re in charge of achieving greater ultimate recovery, protecting people, minimizing impact and ultimately getting the right answers.”

State oil and gas agencies are different from EPA in that most of them have a mandate to not only regulate drilling but to promote oil and gas development in their states.

“Just so we remember, our mission is to promote the conservation efficient recovery of oil and gas, while protecting health safety and the environment,” said Bill Daugherty, managing partner of BlackRidge Resource Partners in Kentucky and vice chairman of IOGCC.

Alabama Gov. Robert Bentley (R), recently named to be the next chairman of IOGCC, had been scheduled to speak but missed the meeting because of a scheduling conflict. Explaining Bentley’s absence, Alabama State Oil and Gas Supervisor Nick Tew said, “He’s a strong believer that oil and gas agencies are the proper ones to regulate.”

Such sentiments are common among governors and state regulators, but support for having the states manage the country’s drilling boom has taken on a political tint in this election year.

Presumptive Republican presidential nominee Mitt Romney and congressional Republicans are highlighting their support for state regulation of oil and gas as a way to criticize the Obama administration’s handling of resources.

In North Carolina last week, Romney endorsed a state proposal to allow hydraulic fracturing in the state, and his campaign said Obama has “failed to lead” (EnergyWire, June 1).

On Capitol Hill, House Republicans held a hearing to press the case against federal regulation where one state regulator said the federal government should “back off” (E&E Daily, June 1).

The Obama administration has not taken up the call of many environmental groups for increased federal oversight of state regulation. The administration has repeatedly highlighted that domestic oil and gas production has increased during his tenure. And White House officials have tried to patch things up with the oil and gas industry in the wake of the moratorium following the BP PLC oil spill (EnergyWire, May 15).

But industry groups and state regulators have criticized EPA’s new air rules governing emissions from drilling sites and its proposed guidance for the use of diesel fuel in hydraulic fracturing fluid.

“I’m hearing from a lot of people here that you don’t like these fracking rules, and I don’t know why you should,” said Dick Stoll, a Washington, D.C., lawyer with Foley Lardner, in a presentation on EPA’s handling of energy issues.

White House has become ‘more reasonable’

Stoll, a former EPA general counsel and attorney for chemical manufacturers, said Obama environmental officials “take a very different view of the world than their predecessors” in the George W. Bush administration.

“Early on, there was no good news out of EPA if you’re from industry,” Stoll said. When it came to coal regulations, he said, “what EPA and [Administrator] Lisa Jackson wanted to do was roll over the states.”

More recently, though, he said, White House officials have been doing “more reasonable” things, toning down aspects of EPA proposals that industry didn’t like.

Parnell, who took over as governor when former Gov. Sarah Palin (R) stepped down in 2009, said that he and other governors are holding off on permit requests until after the November presidential election.

“From conversations with governors, we have said, essentially, right now, if you do not need a permit right now, do not ask for one,” Parnell said. “Let’s get past this November election, and let’s get some stability before we do this.”

Parnell, who won election in his own right in 2010, blamed Congress for not reining in agencies such as EPA.

“Our Congress is in gridlock and is broke,” he said. “They don’t have oversight they once did. They have no ability to mete out consequences for improper administrative or regulatory behavior.”

June 5, 2012

Bloomberg Businessweek

Truck drivers hauling water and sand to U.S. oil and natural gas shale wells can’t extend their daily on-duty hours by using an exemption targeted for special oil- field service equipment, the govenment said.

Time spent waiting while water and sand are unloaded at well sites counts toward the maximum 14 hours a day that a truck driver can work, the Transportation Department said in a rule clarification to be published today in the Federal Register. Some drivers may be using an exemption for equipment such as pumps or gas separators that let operators subtract from the limit the time waiting for gear to be unloaded, said Boyd Stephenson, director of hazardous materials policy at the Arlington, Virginia-based American Trucking Associations.

The U.S. agency is targeting a boom in natural-gas drilling by hydraulic fracturing, a process that may require hauling as many as 1,000 truckloads of water and sand for every well. Limiting the exemption may force drillers to add drivers, Stephenson said.

“If you were an operator in the past that was utilizing this exemption for transporting sand and water then, yes, it means you’re going to have to have more drivers,” Stephenson said in an interview. “There were probably some that were utilizing this exemption for sand and water trucks in the past. How many is anybody’s guess.”

Shale Formations

A growing number of industries, from ready-mix concrete mixers to water-well drillers to agricultural retailers, have obtained or sought relief from rules including limits on truckers’ daily on-duty hours that the Department of Transportation announced in December. Consumer groups and the trucking association object to different parts of the rules and have gone to court to block them.

Hours-of-service exemptions were written into law for more than a dozen industries, including oil-field service equipment, before the final rule was issued.

Oil and gas discoveries in shale formations in states such as Pennsylvania and Ohio are bringing wells to rural areas that can often be reached using small rural roads not suited for heavy trucks. The anticipated expansion of drilling probably led the safety agency to issue guidance on who is eligible for the exemption, according to Henry Jasny, vice president of the Washington-based Advocates for Highway and Auto Safety.

Justin Nisly, a Transportation Department spokesman, didn’t return a phone call seeking comment.

“If you’re going to have thousands and thousands more sites, you’re going to have thousands more vehicle trips on rural roads which have the highest fatality rate to begin with,” Jasny said in an interview. “They’re not changing anything in the current exemption. They’re just trying to make it clear who gets which exemption.”

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

June 5, 2012

Forbes

Innovation in desalination was a feature at the Blue Tech Forum in San Francisco last week. Tyler Algeo, a research analyst at BlueTech Research, that patents for desalination technologies in 2010 were double the number filed in 2005. Desalination energy inputs have been reduced more than 50 percent in the past decade.

Markets for desal are broad: large water technology corporations, venture capital firms, Fortune 500 companies, research groups, consulting engineering practices, and government agencies.

On Thursday, I reviewed Porifera’s innovation: making a filter out of carbon nanotubes. Today I report highlights from a company working on radial deionization.

The startup Atlantis Technologies has created “a low-cost, chemical-free desalination system that can remove salt from oil, gas, mining, and industrial waste water,” according to its website. The company is calling the technology radial deionization.

To desalinate salt water, the technology passes it between two oppositely charged super capacitors, which attract charged ions. The ions pass through a charge-specific membrane and are adsorbed onto the surface of the electrode. When the capacitors have filled with ions, the system reverses the polarity, discharging the ions and removing them. (Learn more on the website.)

The two-and-a-half year-old company was a finalist in the 2011 ImagineH2O Competition.

The technology came out of funding from the Defense Advanced Research Projects Agency (DARPA) to develop a super capacitor to desalinate ocean water into drinking water for the troops.

The device has advantages in removing problematic salts, said CEO Pat Curran, and can clean water at up to 75 percent less cost than systems such as reverse osmosis and brine concentrators. The system can also handle silica, barium/calciumstrontium sulfate, produced water from fracking, and the waste from reverse osmosis processes.

Atlantis is “going after the 1 trillion gallons of salty wastewater in United States and North America” from the oil and gas industry, said Curran. With the boom in shale gas, the market is growing at 14 percent a year, he said, and is expected to be worth $1.6 billion in five years.

While the technology is pre-commercial right now, Atlantis has built full-scale, functional unit, he said. Patents have been filed, the senior team assembled, and letters of intent collected from Aera Energy (heavy oil), PERC Water (municipal wastewater), Filterboxx (oil sands in Calgary), and EPRI.

The technology is an attractive value proposition, he said:

• Its operating expense is 40 to 70 percent less than existing technologies.
• It can recover up to 95 percent of the water, depending upon salinity level.
• It’s modular: It can plug and play into a plant or mobile trailer.
• Its energy usage is low.
• It can handle salinity up to 150,000 mg/L chlorides, which reverse osmosis technologies cannot.
• It can remove some particulates than other systems cannot, such as organics, certain chemicals, sulfate, and silica, “which is a big problem up in oil sands,” said Curran.

June 5, 2012

By Deborah Byers

Across Washington, D.C., the push to end so-called energy company “subsidies” has become a well-worn political trope – touted as a solution for everything from reducing the deficit to punishing oil companies for high gasoline prices.

The president himself said he was in favor of repealing “billions in tax giveaways” to energy firms during a much-publicized address in March. But is that really an accurate portrayal of the current tax code?

For the most part, energy companies are treated just like any other industry

when it comes to taxes. Much of what politicians call giveaways are simply

timing issues related to when particular items can be expensed – governed by

provisions in the tax code established decades ago to strengthen U.S. energy

production. These provisions are not tax credits, which allow for a dollar-fordollar reduction in tax liability.

For example, the president’s most recent budget proposal calls for the repeal

of a provision that details how energy companies account for intangible

drilling costs, or IDCs. U.S. tax law has long allowed oil and gas companies to

deduct IDCs – expenses for labor and services related to drilling a well – at the

time they are incurred, versus depreciating those costs over time.

Eliminating those deductions would have dramatic consequences on domestic

energy production. Despite lawmakers’ and the public’s perception of “Big

Oil,” approximately 90% of all wells in the U.S. are drilled by independent

6/04/2012 @ 11:28AM | 793 views

Why We Should Keep Tax

‘Loopholes’ For Oil Companies

Christopher Helman, Forbes Staff

Energy Source

HOW WE POWER THE WORLD6/5/12 Why We Should Keep Tax ‘Loopholes’ For Oil Companies – Forbes

forbes.com/sites/energysource/2012/06/04/why-we-should-keep-tax-loopholes-for-oil-companies/print/ 2/3

energy producers, most of whom are small or mid-sized companies.

To independent producers, IDCs are the equivalent of research and

development costs that technology and pharmaceutical companies incur –

up-front expenses with no guarantee that the investment will deliver results.

Even if a well is successful, it typically takes many months before revenue is

captured. Thus, the IDC provision simply accelerates the actual cash flow of

the project but does not eliminate the tax liability.

According to the Independent Producers Association of America, IDCs

typically account for about 20% to 35% of the capital expenditure budgets of a

well. Without the ability to expense these costs, many independents’ cash

flow would be significantly diminished and they would have to immediately

reduce their drilling budgets since they lack the cash flow to fund these

operations internally and their cost of capital would otherwise increase.

And as producers scale back, production from shale oil and natural gas, which

is heavily driven by independents, will be at risk. In recent years, the shale

boom has played a major role in providing jobs, boosting domestic supplies

and increasing state and federal tax revenues. It is not an exaggeration to say

that the IDC provision is one of the factors that has allowed the “shale

revolution” to ramp up so quickly.

But IDCs aren’t the only tax item under scrutiny in Washington, D.C.

Another provision slated for repeal in the president’s budget governs

percentage depletion, a calculation used to determine the decreasing value of

a mineral resource as it is produced. But its use is limited by guidelines that

make it applicable only to small companies and individual royalty owners, so it

has a minimal impact on federal tax revenues.

Proponents say repealing provisions that deal with IDCs, percentage depletion

and the domestic manufacturing credit – available to all industries but used

by just a small subset of the oil and gas industry – would bring in close to $40

billion in new tax revenues over a 10-year period.

That $4 billion a year figure – small as it is compared to the overall budget

deficit – is based on current levels of drilling. It doesn’t take into account the

fact that domestic activity would most likely decrease as independents cut

back on their capital budgets in response and investments in new production

dry up.

In other words, changing the current tax code might make lawmakers happy,

but it won’t achieve its hoped-for objectives and, in fact, will do the opposite:

Integrated majors won’t be affected meaningfully

Cash-strapped independents will be hit hard Domestic production will be depressed Job growth related to the shale boom will stall Tax revenue will fall The technology advancements that are driving the shale boom, coupled with

the existing tax code, have put the U.S. in a position not seen in years – one

where domestic production is high and new reserves are creating economic

opportunities across the country. If we want to increase security of supply,

keep retail energy prices low and create high-paying jobs, our energy policy

should encourage future drilling by allowing proven tax provisions to remain.

June 5, 2012

Houston Chronicle

The natural gas drilling boom spreading across the U.S. could spark a revival in U.S. manufacturing and may lead to more than 1 million jobs by 2025, according to a group of economists.

Robert McCutcheon, an economist with consulting group PwC, told The Cleveland Plain Dealer at a manufacturing summit in Cleveland that natural gas could provide manufacturing companies a cheap source of energy that ultimately could save them $11.5 billion in energy costs by 2025.

“If we save $11.5 billion, that’s investment capital that could be redirected elsewhere,” he told The Plain Dealer.

A study by PriceWaterhouseCoopers found low-cost energy could create as many 1 million new manufacturing jobs in the U.S. The report pointed to various projects, including several in Texas, as examples of an upward trend in the manufacturer sector.

“We believe that the factors are in place for these trends to continue, despite concerns and uncertainties over how, and to what extent, the United States should use its shale gas reserves,” the report concluded.

The report found inadequate infrastructure, current tax policies and uncertainty over the environmental impacts of hydraulic fracturing could hinder the rising trend in the manufacturer sector.

If a manufacturing revival does come to the U.S., Texas might be among the states that benefits the most from the change.

According to a survey by Pepperdine University’s Michael Shires, Houston, San Antonio, Austin and Fort Worth are among the top 10 cities who could power the manufacturing revival. Seattle’s aerospace sector helped power it to the top spot on the list.

Houston, which ranked fourth, is the third-biggest manufacturing center in the United States behind Chicago and Los Angeles, according to a Forbes story. It – like San Antonio and Fort Worth – made the list because of the booming energy sector.

The Bayou City also is one of the few cities who can boast about having more manufacturing jobs than before the recession. According to Forbes, Houston has seen a 0.5 percent rise in manufacturing jobs since 2006.

The number of jobs is likely to rise in the Houston area after Dow Chemical announced plans to build a new ethylene plant and Exxon’s plans for a multibillion expansion at its Baytown complex.

Both announcements in the past week will likely bring more energy-related jobs to the region, officials said.

June 5, 2012

The U.S. Environmental Protection Agency overestimated methane emissions from hydraulic

fracturing, says a new survey from the American Petroleum Institute and America’s Natural Gas

Alliance.

BY CELIA AMPEL | Published: June 5, 2012 0

Oklahoman.com

Methane emissions from hydraulic fracturing are much lower than the U.S.

Environmental Protection Agency has estimated, according to a report released Monday

by two oil and natural gas industry groups.

The American Petroleum Institute and America’s Natural Gas Alliance found methane

emissions to be 50 percent lower than the EPA estimated when it issued the first federal

clean air standards for hydraulic fracturing in April.

Howard Feldman, API’s director of regulatory and scientific affairs, said the industry’s

report did not find fault with the EPA’s emissions factors, but rather its data on how

frequently hydraulic fracturing is used to release oil and gas from dense rocks.

“We’re just saying that, well, in fact, that process doesn’t happen as often as EPA

previously estimated,” Feldman said.

The industry survey focused on two large methane emissions categories: liquids

unloading, or the process of removing liquids from the wellbore, and well refracturing,

which helps existing wells keep producing.

The survey showed methane emissions from liquids unloading are 86 percent lower

than the EPA estimated, and emissions from well refracturing are 72 percent lower.

Craig Segall, an attorney with the Sierra Club’s environmental law program, said the

industry’s numbers, if they’re correct, still mean natural gas development is a major

contributor to greenhouse gas emissions.

He said most of the methane leaks from gas development are controllable, creating

another revenue source for producers if they make changes as prescribed by the new

EPA rules, which go into effect in 2015.