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Oil and Gas Drilling Surges Despite Increased Oversight

The pace of domestic oil and gas drilling is nearing the 20-year high reached before the recession. The growth undermines claims that increased regulation slows drilling.

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(David McNew/Getty Images)

Energy companies have spent the last couple of years fighting off added government regulation, saying red tape is slowing development.

But recent data show that the pace of drilling is just short of the 20-year high it reached before the recession. Gas drilling has dropped off as the price of natural gas has stayed low, but high oil prices (and the widening price gap between oil and gas) have spurred enough oil drilling to more than make up the difference.

There were 1,882 rigs drilling wells around the country last week, up 21 percent from a year ago and up more than 50 percent from the beginning of 2010. There are now more rigs drilling for oil than at any time since 1987, according to Bloomberg News.

The numbers show that when prices are right, changes in policy or regulation are unlikely to stand in the way of new drilling, analysts and regulators say.

"I don't think, short of moratoriums, regulations materially impact the pace of drilling," said John Hanger, who tightened a number of drilling regulations in Pennsylvania when he led the state's Department of Environmental Protection until January.

The Marcellus Shale Coalition, a group representing the area's natural gas industry, warned last year that new rules covering the release of wastewater into streams would hurt growth. While acknowledging a "need for common sense regulations," a press release from the group said, "Unfortunately, these rules will make responsible shale gas development more difficult, and the jobs and economic benefits created throughout this process less likely."

Yet gas drilling has continued to expand in the Marcellus Shale. Pennsylvania still ranks among the fastest-growing states for drilling, according to Baker Hughes, one of the largest oil service companies in the world, which also publishes a widely used rig count.

Instead of suppressing development, the new regulations have driven innovation and led to greater recycling of wastewater, Hanger said. Earlier this month, the state announced that drillers had stopped discharging wastewater into streams.

Patrick Creighton, a spokesman for the Marcellus Shale Coalition, did not comment on the wastewater rule's effects but noted that his group supported a number of other changes the state implemented over the past year.

Andy Radford, a senior policy adviser for the American Petroleum Institute, said that while federal policy has stifled some drilling, much of the new activity is on private, state-regulated land in Texas, North Dakota and Pennsylvania. In Wyoming, where much of the drilling is on federal land, drillers have argued that federal policy has hurt growth.

Radford said rules passed in the states have not been overly burdensome, and energy companies have supported some new state regulations, including rules requiring disclosure of chemicals used in hydraulic fracturing.

But drillers have fought some major state regulatory changes over the past few years, and even in those states growth remains strong despite industry predictions that it wouldn't.

After Colorado rewrote some of its drilling rules in 2009 under Gov. Bill Ritter, the Colorado Oil and Gas Association said the new regulations would force drillers out of the state and filed a lawsuit to invalidate the changes.

Instead, Colorado drilling has increased 31 percent in the last year, outpacing the nation in that period, the Baker Hughes rig count shows. Overall, drilling in the state has recovered to about two-thirds of what it was in June 2008, before the recession decimated drilling across the country.

"We're very pleased to see this kind of recovery," said Tisha Schuller, president of the Colorado Oil and Gas Association. Schuller said drilling companies and the administration of the new governor, John Hickenlooper, have worked together to help industry comply with the rules without hurting business. Her organization dropped its lawsuit earlier this year.

In New Mexico, the industry has continued to fight a 2008 rule aimed at stopping water contamination from waste pits. When then-Gov. Bill Richardson championed the rule, drillers warned that compliance would be expensive. The current governor, Susana Martinez, has continued to voice those concerns, saying the rule drives jobs out of the state. But in the months after the rule was implemented, drilling in New Mexico increased until the recession took hold. Now the rig count is slightly higher than it was three years ago, when the rule took effect.

John Bemis, New Mexico's secretary of energy, minerals and natural resources, said the 2008 rule has slowed gas drilling in parts of the state, but that new oil drilling in other areas has more than compensated for the loss.

Bemis said some energy companies are pressing the state to revise the rule. He would not comment on what changes the companies want or whether the state will consider them. He referred these questions to the governor's office, which has not replied to a request for comment.

Nationally, drilling has rebounded to more than 90 percent of where it was before the recession. According to Baker Hughes, much of the recent growth is happening in Texas and North Dakota, where drillers are tapping into two shale oil formations. They are using horizontal drilling in concert with hydraulic fracturing, an approach similar to the one drillers have used to access the gas in the Marcellus Shale.

A combination of technology, timing and price has made these among the hottest spots in the country, said Julia Haggerty, a policy analyst with Headwaters Economics, a nonpartisan research organization. Haggerty wrote a report released last week detailing the drilling trend.

Energy companies have developed techniques to extract more oil from deep shale formations than had previously been possible. When the price of oil tripled after the recession, using that technology became viable despite its higher costs.

Haggerty's report said drilling has increased four-fold in North Dakota over the past two years, primarily into a formation called the Bakken Shale, and has doubled in Pennsylvania. She said there's little evidence that policy changes have slowed growth.

"It's hard to argue that the industry doesn't have the flexibility it needs to respond to these market signals," Haggerty said.

Wall Street Mugs Game…the big increases in drilling are @ Bakken Shale (Gas) and the Athabaska “Tar” Sands (Exxon says it’s American Oil) and that’s the standing future projection. Drilling “fracking” for oil is almost as expensive as Hydro Fracking for Gas. So @ $100 a barril, the EXPERTS, Can/Am, gov’t guys say “The Oil is worth the WATER USE!” Who are these guys and do they live in Washington/Ottawa or Wall Street.

Note: Fracking for Oil is barely worth the price and fracking gas is a big loser!

I think, they think they are going to take the whole world hostage and raise the prices for both Oil and Gas!  And they are simply wrong!

When the oil and gas explorationists [sic] decide they can go back into the numerous horizons which are shallower than the current plays, i. e. Marcellus, Bakken, etc. and re-develop them with horizontal techniques and the relatively newer high volume fracking it is hard to tell what the overall impact will be. The scope of new regulations is directed only toward the current developments - they should be inclusive to include this very real possibility. The environmental impacts and aesthetics insults from this activity will be much greater than is the current expectation. Most of the East does not have any sort of realistic conservation statutes, i. e. spacing, pooling,pro-rationing, field rules, etc. These type of rules in the shallow areas will be needed for sure - hopefully before it is too late.
Unfortunately this is just gathered under the jingoistic phrase “Forced Pooling.” and this is in general anathema to the drillers as well as many of the mineral owners! Unfortunately, it is the only way for this activity to proceed to fully realize the benefits of this resource.

One of the major reasons for the increase is surely about trying to garner votes from the more moderate Republicans. My be an exercise in futility since they are now a rare breed.

Big Energy has always been wont to attack anything that decreases its profits…99% of the time any statement on their part to the effect that some regulation will make hydrocarbon harvesting unprofitable is a lie - and everybody knows it.

But the wheels in energy don’t like the idea of having to use the same yacht more than one season, so they….lie.

In Pennsylvania, anti-gas-tax Governor Tom Corbett’s administration is issuing drilling permits (primarily in the Upper Delaware) with mercurial speed. At the same time, they are cutting funding to the Department of Environmental Protection. Regulation is one thing, enforcement quite another. Fracking’s cumulative impacts are already accumulating.

This week the Republican-controlled PA senate approved a new budget without a gas tax or impact fee. PA remains the only gas drilling state without one. Corbett would like to table the frack-tax debate indefinitely, but even a growing number of house Republicans are growing impatient with all the lost revenue. On July 22, the Marcellus Shale Advisory Commission’s final report is due on Corbett’s desk. Until then, he’s promised to veto any gas tax or impact fee. Maybe he figures drillers can afford to regulate themselves?

Liz R., KeepTapWaterSafe.org

Liz Rosenbaum

July 1, 2011, 4:15 p.m.

In Pennsylvania, anti-gas-tax Governor Tom Corbett’s administration is issuing drilling permits (primarily in the Upper Delaware) with mercurial speed. At the same time, they are cutting funding to the Department of Environmental Protection. Regulation is one thing, enforcement quite another. Fracking’s cumulative impacts are already accumulating.
This week the Republican-controlled PA senate approved a new budget without a gas tax or impact fee. PA remains the only gas drilling state without one. Corbett would like to table the frack-tax debate indefinitely, but even a growing number of house Republicans are growing impatient with all the lost revenue. On July 22, the Marcellus Shale Advisory Commission’s final report is due on Corbett’s desk. Until then, he’s promised to veto any gas tax or impact fee. Maybe he figures drillers can afford to regulate themselves?
Liz R., KeepTapWaterSafe.org

Great post, good points, Liz.  But even when the regulators are funded properly, there is never enough money for these people. 

The monied interests call themselves free marketers or capitalists and seem to have the idea that because they believe in a particular ideology that they themselves should be judged as an ideology and not as people with responsibility to the community in which they live. 

They love making reference to Adam Smith but, like the Republican party with the Constitution, they ignore the parts they don’t like, as if they don’t exist.  I wonder how many of them know that even Adam Smith disapproved of subsidies and in fact put forward a model as utopian as Marxism?  Just as the ideal in Marxism does not work in the real world, so it goes with Smiths concept of capitalism.

NO, NO, NO. The govt has to act on behalf of the common good. Our society has forgotten the very basic premise to promote innovation and creativity. “Necessity is the Mother of invention”. If the govt did its job in protecting the public safety and welfare, industry would find a way to make a profit. On the way, they will complain about costly delays and development, but they will solve the problems, if it means PROFIT! American corporations want to do everything on the CHEAP and they care little about the costs in human life and suffering they cause on the way. The problem is that corporate control of the GOP and tbaggers has left our economy exposed to exploitation, fraud, swindling and international interference with domestic markets. There is no patriotism or loyalty to country among the corporate giants. American FREE TRADE ZONES are expanding and yet govt control is lax and oversight is non existant. Isolationism is not an option. But there is such a thing as law, enforcement and the primary duty of govt to “protect the common good” and secure our democracy from the ideologues and plutocrats that would concentrate power in the hands of the privileged few.

Hey Colleen,
I think there’s a republican tendency to purposely confuse free market capitalism and democracy, as if they are one and the same and it’s our right to make a buck at any cost. France has just become the first country to ban fracking, and New Jersey’s Senate has just passed a the same, though it remains to be seen if Gov. Christy (a bit of a gasbag himself) will sign They are sending a clear signal across the Delaware, and it’s not drill, baby, drill - it’s test, baby, test!.

Liz R., KeepTapWaterSafe.org

Edmund Singleton

July 4, 2011, 3:35 a.m.

I have always found it hard to decide what is better to have clean water of cheap energy?

I am a conservative and support the Tea party ideals. I believe in more drilling for OIL closer to our shore and drilling in Alaska and Nuke plant energy and digging for COAL,  BUT I AM AGAINST FRACKING FIR GAS.  Fracking defiles Pennsylvania’s pure safe drinking water.  FRACKING MUST STOP NOW !!!!!!!!!!!

Maybe you’d like to offer your back yard, or even your front yard to an oil rig, a nuclear plant, and coal mine?  How close do you want it?  They all look bad, smell bad and create poison.  So is it better to have clean water or cheap energy?

Comments appear to come mostly from people with no drilling experience and a very poor understanding drilling operations.

The article completely ignores the negative impact to offshore exploration and production in the Gulf of Mexico, and the cost in jobs and lost opportunities that result from the offshore fleet leaving the gulf. The article does not mention anything about economic impacts to the Gulf coast sector.

I suggest an economic comparison for offshore expenditures pre and post 2009.

And of course drilling has increased onshore since the shut down of the gulf. Most folks seem to forget that almost all oil and gas companies are publicly traded and are in most pension portfolios across the nation!!!!  Please somebody get real about econic analysis, not just a single rig count statistic

@Michael Hiner:  Do you, perchance, follow the activities of the American Petroleum Institute?  I see they have launched an offensive offensive using similar wording:  http://www.sacbee.com/2011/07/08/3756562/api-to-president-obama-our-industry.html

Coincidence, I’m sure.

This article is part of an ongoing investigation:
Fracking

Fracking: Gas Drilling's Environmental Threat

The promise of abundant natural gas is colliding with fears about water contamination.

The Story So Far

The country’s push to find clean domestic energy has zeroed in on natural gas, but cases of water contamination have raised serious questions about the primary drilling method being used. Vast deposits of natural gas, large enough to supply the country for decades, have brought a drilling boom stretching across 31 states. The drilling technique being used, called hydraulic fracturing, shoots water, sand and toxic chemicals into the ground to break up rock and release the gas.

More »

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