Monthly Archives: May 2015

States File Suit Against BLM Following Update to Fracking Regulations

Fracking Regulations pic In March 2015, the United States Department of the Interior Bureau of Land Management (BLM) released the final draft of its regulations on hydraulic fracturing on public and tribal property. Aimed at improving safety and preventing groundwater contamination, the new rule bolstered requirements for wastewater disposal, wellbore integrity, and transparency regarding chemicals. However, a number of states have taken issue with the regulatory update.

On March 26, Wyoming Governor Matt Mead filed suit against the BLM for regulatory review, and North Dakota, Colorado, and Utah joined the effort soon after. The states argue that, in initiating the new requirements, the BLM has exceeded its authority and that the federal agency’s updated regulations will conflict with rules already in place at the state level. State leaders such as Utah Governor Gary R. Herbert have posited that the new requirements would lead to an inconsistent and inefficient regulatory system that could add several years and millions of dollars in expenses to the permitting process.

Neil Kornze, director of the BLM, has stated that the updated regulations would not take the place of more rigid requirements already in place at the state level, noting that they are intended only to fill regulatory gaps. However, the states contend that the recent regulations conflict with existing laws at both the state and federal level, including the federal Safe Drinking Water Act.

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A Brief Primer on Oil and Gas Interest Types

While all interests in oil and gas operations receive a portion of the production revenue, varying types of interests yield different rights and responsibilities. Individuals or groups holding a mineral interest do not pay any operational expenses but share a percentage of production revenue. This is because mineral interest owners possess the rights to the minerals produced. One producing well may have multiple mineral interest owners, with each earning a separate revenue interest, generally ranging from 12.5 percent to 25 percent.

Perhaps the most clearly identifiable owners in an oil and gas operation, working interest owners maintain leases with mineral owners that allow them to carry out oil and gas extraction activities. The largest working interest at one site is the “operator,” and although working interests share production revenues based on their percentage of ownership, they also pay corresponding portions of the lease and production costs.

By selling a portion of their revenue income but choosing to retain their mineral rights, mineral interest owners can create royalty interests. Although often referred to interchangeably, mineral and royalty interests differ greatly in the case of nonparticipating royalty interests, or NPRI. In an NPRI, the owner does not hold the rights to the produced minerals but is entitled to a portion of the revenue. For this reason, NPRI owners may not negotiate lease terms or accept rental payments.

Lastly, an overriding royalty interest, or ORRI, grants partial ownership of a particular lease or well rather than its mineral production. ORRI owners receive a portion of a lease’s production revenue, but the interest expires along with the lease when production ceases.

Drones Take to the Skies for New Oil and Gas Applications

drones pic The energy sector has been investigating the use of unmanned aerial vehicles, popularly known as drones, for nearly a decade. British Petroleum started its first tests in 2006 and recently became one of the first in the industry to obtain a license from the Federal Aviation Administration (FAA) to operate drones. Largely because the FAA has mandated numerous limits on drone activity, including requirements for drone pilots to maintain sight of all flights, the pace of adoption remains slow, but industry specialists have already begun exploring the many ways that drones can be useful in and around oil rigs across the globe.

For most companies, drones have proven most useful as inspection tools, whether one wants to check flare stack integrity or use infrared cameras to find early signs of oil pipeline leaks. Rig operators have begun deploying drones to check for everything from ground movement to wildlife activity, and innovative mapping technologies are allowing for fine-grain models of oil-rich environments. Drones have even been used within the rigs themselves, thanks to special enclosures that protect the vehicle as it moves through oil tankers. While the FAA has only approved a portion of the applications for drone usage in the United States, industry specialists believe that drones represent an important component of the energy sector’s future.