October 2016, Vol. 243, No. 10

In The News

In the News

FAA Releases Application for Small Drone Waivers

The Federal Aviation Administration (FAA) released the form and instructions on how to apply for a waiver from certain requirements included in the “Operation and Certification of Small Unmanned Aircraft Systems” final rule.

The final rule went into effect Aug. 29, and permits the use, with certain limitations, of small unmanned aircraft systems (small drones) for non-hobby and non-recreational purposes.

The FAA will allow operators of small drones to apply for a waiver for a variety of reasons including operation from a moving vehicle or aircraft, daylight operation, operation over people and limitations for small, unmanned aircraft.

The FAA will not consider waivers for the carriage of property of another by aircraft for compensation or hire. An applicant must describe the risks of the waivered operation and identify appropriate risk-mitigation strategies to ensure that the proposed operation can be safely conducted.

The ability to seek a waiver is particularly important to the energy industry which may choose to use small drones for inspections of infrastructure. For example, a waiver of the line-of-sight requirements may make the use of small drones for pipeline right-of-way patrols more practical.

The FAA is encouraging applicants to submit waiver requests at least 90 days prior to the desired commencement of the drone operation. The agency plans to respond to each waiver request within 90 days but notes it could take longer depending on the complexity of the application or if information is missing.

Production Delay Allows Operators to Meet Demand

Although oil production levels have fallen in the West Texas Permian Basin, pipeline operators there are able to catch up after years of overwhelming oil volumes, according to a Morningstar report. Operators have added over 700,000 bpd of capacity in the past 18 months, oil research director Sandy Fielden said.

Permian production rose from 1 million bpd in 2011 to 2 million bpd at the end of 2015, according to the Energy Information Administration (EIA). Since January volumes have fallen by several thousand barrels per day. Before prices began to crash two years ago Permian drillers produced more crude than pipelines could handle, Fielden said, causing congestion getting oil to Midwest and Gulf Coast refineries.

Since 2015, several companies have built pipelines or added capacity to existing lines: a Magellan Midstream Partners and Plains All American joint venture added 300,000 bpd in capacity from Colorado City, TX to Houston. Plains added almost 100,000 bpd from McCamey to Gardendale in South Texas’ Eagle Ford. Sunoco Logistics added 200,000 bpd from Garden City to Port Arthur and 200,000 bpd from Midland to Garden City.

“These new projects not only relieve existing congestion,” Fielden wrote, “but have also created a significant overcapacity out of the region.”

Pipeline companies also have added several smaller lines, the report said, linking well heads to mainline hubs. Fielden said those lines should eventually reduce costs for oil producers, replacing “costly trucking fees with lower pipeline tariffs.

Meanwhile, another report suggests that oil patch data that lags behind current conditions is expected to start showing a rise in shale production as drilling recovers in the Permian Basin.

“New activity in the Permian Basin will not only balance the decelerating decline in other plays, but will restore the growth trend in onshore oil production in November and December 2016,” said Rystad Energy, a Norwegian group that tracks oil wells in the United States.

EOG Increases Permian Holds with Acquisition

EOG Resources acquired privately held Yates Petroleum in a $2.5 billion stock and cash deal, substantially increasing its position in the Permian Basin, according to Reuter.

“We’ll be able to grow oil (production) with less capital and more efficiently than we do now,” said EOG Chairman and CEO William Thomas.

Phillips 66 Partners Buying NGL Logistics Assets

Phillips 66 Partners will acquire a natural gas liquids (NGL) logistics system in southeast Louisiana owned by Chevron that includes 500 miles of pipelines and a storage cavern connecting multiple fractionation facilities, refineries and a petrochemical facility.

The assets include:

• TENDS Pipeline System, a 300-mile, bidirectional NGL pipeline system connected to third-party fractionators, refineries – including the Phillips 66 Alliance Refinery – and a petrochemical plant.
• VP Pipeline/EP Pipeline, 200 miles of regulated pipelines that carry raw NGLs from a third-party natural gas processing plant to pipeline and fractionation infrastructure.

• Sorrento Cavern, a salt dome cavern with 1.5 MMbbls of NGL storage capacity located in Ascension Parish.

Natural Gas Continues Generating More Power, EIA Reports

The Energy Information Administration (EIA) reported sustained low natural gas prices have led the power industry to produce record levels of electricity using natural gas in recent months.

The report said energy-associated carbon dioxide (CO2) emissions from natural gas are expected to surpass those from coal for the first time since 1972. Even though natural gas is less carbon-intensive than coal, increases in natural gas consumption and decreases in coal consumption in the past decade have resulted in natural gas-related CO2 emissions surpassing those from coal.

The latest Short-Term Energy Outlook projected energy-related CO2 emissions from natural gas to be 10% greater than those from coal in 2016.

No Pain for Houston Energy Executives During Downturn

Average compensation among the 500 highest paid executives of Houston’s publicly traded companies rose in 2015, up about $43,000, or 1%, to $3.62 million, according to data compiled by corporate consultants Longnecker & Associates and reported in the Houston Chronicle.

Top executives averaged $500,000 more in total compensation than they did five years earlier, despite Houston’s biggest corporations, dominated by energy firms, having a horrendous year in 2015. As oil prices crashed, so did revenues and profits. Companies pulled rigs from oil and gas fields, slashed spending and laid off tens of thousands of employees.

“The tendency is for executives to attribute performance in good times to their own wisdom, their own judgment,” Rice University business and strategic management professor Yan Anthea Zhang told the newspaper.

But in bad times, she said, they write off poor performance on external factors, like oil markets, to avoid losing pay.

The LNG exporting company Cheniere Energy lost nearly $1 billion in 2015 and its stock price fell by half, to $37 from $70. But CEO Charif Souki, forced out in December, walked away with a stock-based award valued at nearly $54 million, seven times what he earned in 2014.

Apache Discovers 3-Billion Barrel Field in West Texas

Apache Corp. reported a “significant” discovery in a Texas shale formation that holds enough crude oil to supply every refinery on the U.S. Gulf Coast for a year.

The Alpine High discovery in West Texas contains an estimated 3 billion barrels of oil and 75 Tcf of natural gas, Apache said Sept. 7. The asset is in the Delaware Basin, a subsection of the Permian Basin that has been a hotbed of acquisition activity among oil explorers this year.

“This is a world-class resource,” CEO John Christmann told a Barclays Plc conference in New York. “We are very early in starting to understand how big this is going to be.”

The Houston-based company drilled 19 wells in the area and has identified 2,000-3,000 more drilling sites. To accelerate drilling in the discovery, Apache raised its full-year 2016 capital budget by 11% to $2 billion.

Gas Leaks Cause Methane Buildup in Southwest

The Southwest has become the location of a significant buildup of methane, caused by natural gas leaks, scientists studying the phenomenon have concluded.

The leaks are coming from wells, storage facilities, pipelines and processing plants located across Arizona, New Mexico, Colorado and Utah. Some leaks are from untapped deposits naturally seeping into the air. However, according to the scientists from NASA’s Jet Propulsion Lab and Caltech, as many as two-thirds of the leaks are likely coming from just 25 locations.

The hotspot has been around since at least 2003, but until now, its source was not established. The scientific team used spectrometers from aboard a plane that flew over 1,200 square miles in the Southwest, the area where the biggest anomaly was detected earlier, said lead study author Christian Frankenberg.

There is an ongoing debate in the U.S. about methane regulation, and the gas is inevitably found in oil and natural gas fields. The Environmental Protection Agency (EPA) earlier this year stipulated that methane emissions from the oil and gas industry should be cut by over 40% over the next 10 years, or by 510,000 short tons of the gas.

The agency noted that methane is the second-most prevalent greenhouse gas in the country from human activities and about a third of the total methane emissions come from the energy industry, including oil production and the extraction and transportation of natural gas.

PPG&E 1st Gas Utility to Receive Process Safety Certification

Pacific Gas and Electric Company (PG&E) passed a comprehensive gas safety audit and has been certified to the chemical industry’s RC14001^® management system standard. The audit reviewed numerous end-to-end safety processes at the company, ultimately approving PG&E as the first utility to secure the certification.

“Achieving RC14001 certification demonstrates that a company’s environmental, health, safety and security operations are a real, day-to-day functioning part of their business,” said ACC President and CEO Cal Dooley. “As the first utility to meet the requirements of this management system standard, PG&E is a model for other utilities that seek to demonstrate their commitment to and investment in a culture of safety.”

Inter Pipeline Buying Williams’ Assets in Alberta

Calgary-based Inter Pipeline will spend $1.35 billion to buy Canadian oil and gas assets of Williams pipeline companies. Williams’ infrastructure in Alberta include two plants near Fort McMurray that extract natural gas liquids, a processing plant near Redwater and a 420-km pipeline system connecting the two. Oklahoma-based Williams said it spent about $2.5 billion on the development of its Canadian business over 16 years.

Inter Pipeline will also acquire a proposed $1.85-billion facility near Redwater designed to turn propane into propylene pellets used in plastics manufacturing. The company said it plans to make a decision by the end of the year on whether to go ahead with the facility, which Williams has already spent $250 million developing.

Rangeland Pursing Opportunities in Western Canada

 

Sugar Land, TX-based Rangeland Energy has formed a Canadian subsidiary to pursue midstream opportunities in Western Canada. Rangeland Midstream Canada, Ltd is led by industry veteran Briton W. Speer, who joined Rangeland Canada in August as vice president, business development.

Headquartered in Calgary, Rangeland Canada’s operational expertise spans the midstream value chain and includes gathering, compression, treating, processing and storage services for multiple commodities including natural gas, crude oil and natural gas liquids.

ARB Midstream Acquires Platte River Gathering System

Denver-based ARB Midstream, LLC , an energy midstream, logistics and marketing company, has acquired a controlling interest in the Platte River Gathering System from Rimrock Midstream Holdings, LLC. The PRG system provides gathering for crude oil production in the heart of the prolific Denver-Julesburg Basin, which is home to the Niobrara and Wattenberg plays in Weld County, CO. The system is backed by multiple long-term producer commitments, and started transporting crude oil in April 2016. PRG can move up to 157,000 bpd and includes over 40 miles of crude oil gathering lines, truck unloading at the Lucerne Hub, and planned storage capacity of up to 600,000 barrels. PRG delivers to the Grand Mesa Pipeline, which delivers barrels to Cushing, OK.

ARB also pleased announced the appointment of Pat McMurry as senior vice president of Gathering and Transportation. He joined the ARB management team after overseeing the development of PRG for Rimrock. Mr. McMurry has over 40 years of experience in midstream construction and business development, including multiple pipeline and terminal projects at Enterprise, TEPPCO and ExxonMobil.”

Texas’ Oversight of Oil and Gas Industry Criticized

A Public Citizen study said the Texas Railroad Commission, which oversees the industry needs significant changes in structure, transparency, funding, inspections and environmental protection.

The study looked at the best practices of eight states that produce oil and gas: Colorado, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, West Virginia and Wyoming. It examined regulatory practices ranging from ethics and transparency to fines and funding to inspections and environmental protections.

“Other oil and gas states have stronger mandates to protect public health and the environment. States that do better in regulating the industry require more frequent inspections and have fines large enough to deter violations,” said Carol Birch, legislative counsel for Public Citizen’s Texas office.

Birch said Oklahoma, for example, strictly limits campaign contributions from the oil and gas industry to prevent conflicts of interest.