Safeguards on drilling make sense
COMMENT: I'm not aware of oil and gas industry complaints in BC, but the relationship of the industry to government is very much an insiders club exclusive mainly to industry, the Oil and Gas Commission, and the Ministry of Energy, Mines and Petroleum Resources. Only those people would know what complaints there are - and how industry is mollified or government softens its position.
We do know that the royalty structure hasn't been visited in over a decade which suits industry marvellously. BC's maximum royalty threshold of $3.40 per thousand cubic feet (mcf) of natural gas was set when $3.40 was thought to be an extraordinarily high price for gas. Gas shot through $3.40 in the middle of 2002 and hasn't come close since (yesterday's index price at Sumas was $4.70/mcf, well off the recent year averages in the $6-$8 range). There have been absolutely no echoes of BC trying to repeat Alberta's royalty review of last year.
But nominal royalties are only the tip of a giveaway iceberg to the oil and gas industry. Some of the "regimes" concocted within MEMPR for unconventional operations, like coalbed methane, deep drilling, summer drilling, have bent over backwards to discount the royalty and grant royalty credits to encourage investment. The "Net Profit Royalty" scheme can permit a project with a royalty as low as 2%.
What possible public interest does that serve? Especially since it is intended to stimulate more fossil fuel production in a world in climate crisis.
I'm off topic. Sorry.
This article is written by an industry insider in Colorado who thinksthat environmental regulations and the costs they impose on industry are just fine, and entirely appropriate.
By Michael P. Dowling
The Denver Post
Posted: 03/22/2009
Oil and gas brought me to Colorado 25 years ago. I spent 10 years in the business, supporting my family while developing resources we all use. This innovative industry now performs feats that were unthinkable in my day, routinely drilling wells a mile deep with a half-mile horizontal reach. Two dozen of these wells are drilled from a single pad. A single large pad can cost almost $50 million and resembles a factory in a hay meadow or alongside a stream.
The upside of this amazing technology is that we are unlocking valuable domestic energy resources. But we are also industrializing large swaths of our natural and agricultural landscapes. Colorado has over 38,000 producing wells, with another 100,000 in sight. The number of well permits issued has increased 700 percent in less than 10 years. By contrast, car and home ownership took a half-century to double.
The pace of oil and gas operations has largely sidestepped the environmental protections adopted by other industries over the past 40 years. No one would suggest we can revive the auto industry by eliminating air bags or catalytic converters and going back to leaded gasoline. No one thinks we should stimulate the housing industry by canceling modern safety and environmental standards. Yet some suggest that protections recently adopted by the Colorado Oil and Gas Conservation Commission be delayed or dropped. This would be an historic mistake.
Relative to the million-dollar cost of drilling and operating modern wells, there is minimal cost to recording the types of chemicals pumped underground, lining waste pits, controlling noxious fumes near schools and hospitals, and locating new facilities a few hundred feet away from public water supplies. Likewise, rules requiring operators to cluster facilities and share roads where practicable and to avoid the most critical tiny percentage of wildlife habitat when they can will cost little and may save money in the long run.
Oil and gas companies assess every proposed well's viability across a broad range of future economic conditions. This is a cyclical industry. Drilling rig rental rates, which pushed $30,000 per day one year ago, are now headed to $15,000 or lower. An average well will produce for up to 20 years, so the cost of sensible steps to protect public health and the environment is truly lost in the noise of these bigger factors.
Some people call the new rules a tax on industry. This is nonsense. If I make a dollar profit while shifting 10 cents of pollution and cleanup to my neighbor, I have merely made him pay some of my production costs. The entire economy benefits if I pay the smaller, upfront penny or two to prevent my own mess in the first place. It's like having a painter spread a drop cloth so he doesn't ruin your carpet.
It's no secret that the oil and gas industry is hurting. Yet this is a famously profitable and resilient business. Operators will continue to drill in Colorado in expectation of higher prices, though the pace may be slower than in recent years. Every one of these new wells will mark the land for decades and will impact our air and water, our wildlife and our lives.
We have the knowledge and the ability to do this right. Won't it be a shame if we don't?
Michael P. Dowling is a former oil and gas industry executive and a member of the Colorado Oil and Gas Conservation Commission.
Posted by Arthur Caldicott on 25 Mar 2009