NM industry leaders cry foul over new BLM rules

James Fenton
Bureau of Land Management officials on Tuesday discuss proposed updates to rules regulating the oil and gas industry during a meeting at the DoubleTree Hotel in Durango, Colo.

DURANGO, Colo. – About 75 people filled a ballroom at the DoubleTree by Hilton here on Tuesday to hear from Bureau of Land Management officials over three proposed updates to rules that regulate the oil and gas industry.

And while the event's location was in a small Colorado ski town, by a show of hands, those gathered were largely representatives of the oil and gas industry from New Mexico.

The proposed updates are called Onshore Oil and Gas Orders 3, 4 and 5. The BLM is updating the oil and gas rules that have not been changed since 1989, well before innovations in technology like horizontal drilling came along.

Richard Estabrook, BLM petroleum engineer, said the proposed rule changes were necessary to keep up with changes in technology, and standards and practices of the oil and gas industry.

"All are 26 years old, which isn't necessarily bad, but they need to be addressed," Estabrook said. "We need to revise the orders. That's the bottom line. That also means royalty accuracy."

The BLM's oil and gas management program collects more than $3 billion in royalties annually from oil and gas leasing activities on federal lands.

The majority of the language in the current rules is a mere list, which the BLM would like to make more dynamic for operators.

"Currently, it's just a list of things you have to do," he said. "(Orders) 4 and 5 would contain explicit performance goals, using a 'cookbook approach.'"

Estabrook said the new rules would also be stripped of redundant terminology, definitions, enforcement terminology and other language, and kept elsewhere in an enforcement handbook.

He said one of the lacking components of the three rules is the instruments that measure hydrocarbons as they are produced.

"Right now, we're dealing with Onshore 5 that doesn't even list electronic gas meters," Estabrook said. The proposed rule change would direct a "production measurement team" to oversee meters and measurement devices in the oil field, he said.

Estabrook said the BLM is as intent on ensuring the rules are as accurate and up-to-date as possible as the agency is in receiving feedback and data from oil and gas operators to help best shape the proposed rules. He also said the changes are not expressly trying to be punitive to the industry.

During a question-and-answer session, Heather Riley, senior regulatory specialist with WPX Energy's San Juan Basin operations, asked for more time to review the rules.

"You all have been looking at it for two years and trying to put (the new rules) together, but we're just now seeing them," Riley said.

The BLM has extended the comment period that included Tuesday's meeting — two more are planned this month in Oklahoma and North Dakota — giving the public until Dec. 14 to comment on the three proposed rules online at regulations.gov or by writing to the U.S. Department of the Interior, Director (630), BLM , Mail Stop 2134 LM, 1849 C Street NW, Washington, DC 20240.

Steve Henke, president of the New Mexico Oil and Gas Association, said his group's companies already are besieged by increased federal APD — or applications for permit to drill — fees, environmental compliance costs and fighting lawsuits filed by environmental groups. Henke sought to illustrate how the BLM and other federal agencies are hurting the industry.

Since 2009, federal oil production is down 6 percent, and federal natural gas production is down 21 percent. By contrast, oil production on nonfederal lands is up 61 percent, and natural gas on nonfederal lands is up 31 percent, Henke said.

The new rules would lead to a disincentive for investment in the federal mineral estate, Henke said.

"(The rules would lead) to a loss of jobs, a decrease in production and decrease in royalty to the federal government, the states and the tribes," Henke said. "And so I would suggest this costly package of new regulations ... are further examples of requirements that will further disincentivize development, decrease production and, ultimately, royalty and lead to the premature plugging and abandonment of marginal and low-volume federal wells."

Henke said the rules would lead to millions of dollars of work — modifications, retrofits and other compliance costs — to meet regulations for "an uncertain return in terms of federal royalties and return to the taxpayer."

John Alexander of the Dugan Production Corp. said many of the Farmington-based independent company's wells are marginal or low producing and would become financial losses under the proposed rules. He asked BLM officials to have commingled wells grandfathered in under the new rules. Commingled wells are wells producing from two or more formations through a common well casing that might not be economically viable otherwise.

"Work with us on this," Alexander said. "Understand, I live this every day. I've been in this business for 46 years. There's a lot of experience here. A very wise man once told me, 'Experience is a very good teacher, but a hard one because it gives you the examination first, the rest later.' I've failed a hell of a lot of exams, and I've learned a lot in the process. A lot of this is way too fast, and a lot of us are going to have difficulty."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.