State, oil and gas industry question reports of under-reported fracking in Permian Basin
An ongoing oil boom in the Permian Basin was credited to the growing prevalence of hydraulic fracturing, which combined with horizontal drilling allowed operators to extract oil and gas from deeper and harder-to-reach shale.
The State of New Mexico subsequently began heavily regulating the practice, requiring producer to report when a well is fracked, completed and when it begins producing.
Adrienne Sandoval, director of the State’s Oil Conservation Division (OCD) – and arm of the New Mexico Energy, Minerals and Natural Resources Department – said essentially every new well drilled during the recent boom which started in the summer of 2017 was fracked.
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She said operators are largely compliant with the regulations – applying for completion permits and filing monthly operation reports.
Once an application to permit drilling (APD) is approved by the OCD, drillers have two years to complete the well before the permit expires.
At that point, the monthly reports become essential, Sandoval said, for the State to collect revenue from the operations via royalties and other fees.
“It’s critical,” she said of the reporting. “That’s where the State’s revenue comes from.”
To protect this source of funding, which was attributed to most of last year’s $2 billion surplus in New Mexico’s general fund, Sandoval said her office is refocusing efforts on enforcing compliance with state law.
“It’s something we need to be mindful of,” she said. “Some companies do a better job of following the rules that others. We are putting more emphasis on compliance than there has been previously.”
But she questioned recent reports that frack wells are going significantly under-reported throughout the Permian Basin, per a recent study from energy research firm Kayrros.
Sandoval said New Mexico operators largely comply with reporting requirements, as failure to do so could result in large fines and revocation of drilling permits.
“We need to determine if this is happening. This wasn’t a large issue that was on our radar,” she said. “It would be a big violation.”
In its July 23 report, Kayrros alleged fracking in the Permian was under-reported by 20 percent in 2018 as the boom continued to grow.
For its research, Kayrros used satellite and radar imagery to identify frack sites and crews, then cross-references its findings with state records and FracFocus, a national public registry for hydraulic fracturing operations.
Findings showed more than 1,100 wells were completed but not reported, out of the total of 6,394 wells.
“Kayrros measurements reveal that public data fail to capture the full scale of fracking,” read the report. “The macroeconomic implications of this under-reporting are far-reaching.”
The study also alleged that the under-reporting meant the backlog of wells drill but uncompleted (DUC) was much smaller than public records show, and that the average well is less productive and more expensive than previously reported.
It could also mean the operators do not have back-up wells that could be brought into service quickly without additional drilling should the industry suffer a down-turn.
“The prevalent view that shale operators sit on a large backlog of DUCs that could be quickly brought to production in the event of an oil crisis even without further drilling is thus deeply misleading,” read the report. “There is just no such inventory.”
Kayrros advisory chairman Andrew Gould said the research proves that shale producers aren’t producing as much in the Permian as reported and use more water and sand than believed previously.
Assuming wells cost about $5 million per horizontal completion, the study said capital expenditures made by operators were underestimated by up to $4 billion last year, while sand and water use was 23 percent more than recorded.
Demand for water was underestimated by 12.5 billion gallons, read the report, and sand by 9.2 billion pounds.
“Misperceptions about shale oil in general and the Permian in particular have consequences, hence the importance of these measurements that show Permian production per well has been substantially overestimated,” Gould said.
“By the same token, average production costs per well are understated. With far more wells contributing to Permian and US oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed.”
Robert McEntyre, spokesman for the New Mexico Oil and Gas Association (NMOGA) said the industry relies on regulation and oversight from government regulators.
Almost 90 percent of New Mexico’s land is managed by either the state or federal government through its Bureau of Land Management, compare with Texas which is mostly privately-owned.
He said wells going unreported is “highly unusual” in New Mexico.
“In a state like New Mexico where the land is managed by state and federal regulators who are in the area actively patrolling, it would be highly unusual for projects to go unreported to the government agencies,” he said.
“It’s pretty hard to place a rig on those managed lands and slip under the radar. We (NMOGA) would not recommend not reporting projects as required by law. Folks are being vigilant and watching what’s going on nearby.”
McEntyre said there could be some discrepancies in the amount operators are spending on wells, and production continued to sore in New Mexico’s southeast region.
New Mexico had 107 oil and gas rigs, per a Friday report from Baker Hughes, second in the nation to Texas’ 455 rigs and ahead of Oklahoma’s 88 rigs.
“Perhaps there’s more activity that we know about, but it’s pretty clear there’s a lot of activity,” McEntyre said. “If costs are going up a little more than forecast, maybe operators are trying some new technologies and innovations.”
Adrian Hedden can be reached at 575-628-5516, firstname.lastname@example.org or @AdrianHedden on Twitter.