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The next petro boom

‘Onshore liquids-rich opportunity’ lures Gulf oil players into South Texas

Eagle Ford Shale

 

WILSON COUNTY — With the nation’s largest environmental natural disaster in history suffocating the country’s richest fishery and beginning to smother our coastal wetlands — the breeding ground for a variety of fish, crab, oyster, and shrimp — Americans are in a sour mood on crude. There aren’t many places left one can expound freely upon the glories of the Petroleum Age and expect to make it out unscathed.

Demonstrators march in New Orleans. Oil execs are slow-roasted in D.C. and on national TV. But the Wilson County Show Barn a half-hour south of San Antonio still offers lovers of all things oil-slicked a safe haven. “The petroleum industry is responsible for the quality of life we have,” a blond, boots-wearing representative of San Antonio-based Concept Energy Management tells a crowd of more than 200 area residents. “Everything we do is because of oil and gas. The air-conditioning, the meeting we’re having here tonight, fuel in our cars, everything.”

Patricia Schultz-Ormond represents one of two companies working a room full of potential clients on a recent weekday evening. If her glowing review inflamed any cynical nerves they were quickly soothed by gnawing self-interest. This group is waiting to hear what their land is worth to the increasingly frequent visitors prowling courthouse record rooms and county roads, contracts in hand, sniffing out easy access to the oil- and gas-bearing Eagle Ford Shale thousands of feet below.

For more than a year, the shale formation that starts in East Texas and sweeps southwest to the U.S.-Mexico border in Maverick County has been touted as the next big play on natural gas in the country. So far, the field has been the territory of a range of light- to middleweight companies, but that’s quickly changing. And White House efforts to implement a moratorium on offshore drilling in response to the Gulf disaster is likely to quicken the rush.

“You are sitting on one of the greatest things to happen to South Texas,” Schultz-Ormond tells the crowd. She compares the rush on the Eagle Ford to the last wave of oil development that hit these parts in the 1980s, when everyone in Wilson County either had a well on their land, knew a neighbor with a well, or “smelled it going down the road.”

While the hydrogen-sulfide odor may be familiar, mining of the deep oil- and gas-bearing shale has never been done in South Texas on this scale, and it’s a practice that’s proven disastrous at sites across the country.

Until the 1990s, oil companies considered the deposits in these “unconventional” shale formations too deep and too dense to exploit. But technical improvements in hydrologic fracturing finally brought it within reach. A vertical borehole is drilled, which in the case of the Eagle Ford may be as deep as 11,000 feet, and several lateral lines are then drilled out, from hundreds of feet up to a mile into the formation. Then a million gallons or more of water are pumped into the well, along with large amounts of sand and toxic chemicals, at pressures high enough to fracture the rock so that the oil and natural gas can drain into the well and be brought to the surface. Anywhere from 30 to 70 percent of the fluids shot down the well return to the surface, bringing with them a lot of other undesirables, including heavy metals and radioactive particles from beneath the earth.

In 2005, drilling started up in Tarrant County in North Texas and it has grown into a frenzy across Fort Worth’s urban landscape with all the controversy that could be expected to follow. Residents have complained primarily of noise and bad air. Bowing finally to intense public pressure, the Texas Commission on Environmental Quality initiated a quick spot check with infrared cameras in December 2009. The agency reported in January that one quarter of the wells monitored were emitting levels of cancer-causing benzene that could pose a health risk to residents.

“There’s certainly the potential from what I’ve seen,” said David Sterling, a professor at the University of North Texas Health Science Center School of Public Health. “If some of the higher numbers I’ve seen are real, then these are chronic exposures that could be occurring at levels that might have health impacts.”

Wells and creeks have been contaminated in Wyoming and Colorado. New York State placed a moratorium on fracking the Marcellus Shale, which runs beneath New York, Pennsylvania, West Virginia, and Ohio, until a U.S. Environmental Protection Agency report on the practice is released, possibly later this year. In Pennsylvania, numerous drinking-water wells have been contaminated by drilling activity, and EOG Resources was banned from fracking in the state earlier this month after an explosion sent natural gas and wastewater spewing 75 feet into the air for 16 hours.

EOG, an outgrowth of the infamous Enron Corporation, is a key player in the Eagle Ford, as is Anadarko Petroleum, which holds a quarter interest in the BP well now hemorrhaging 40 miles off the Louisiana coast. With company shares taking a pounding, Anadarko, in the words of CEO Jim Hackett, is taking another look at its “numerous onshore liquids-rich opportunities.” Spokesperson Matt Carmichael was guarded on the subject but confirmed the company had begun to develop some of its 375,000 acres in the South Texas shale last year and expects to have 70 wells in production in 2011. “We’re looking at our entire global portfolio, which includes the Eagle Ford,” Carmichael said.

Shell has acquired a quarter-million acres in South Texas’s Eagle Ford, and even BP crawled ashore earlier this year, striking a deal with Lewis Energy Group for half-ownership of 80,000 Eagle Ford acres.

For the past year, and with slowly gathering intensity, oil-company reps and surveying teams have been approaching ranch owners across Wilson County, which is thought to sit on the northern edge of the shale formation. They offer three-year contracts at $300 per acre, per year for the right to drill and $10 an acre for one-time access to conduct surveys of the underground formations using heavy seismic equipment, said Laurie Reusink, a county landowner who organized the June 15 meeting. She found the surveyors uncooperative. “I asked for any information they got on my property and they didn’t want to provide it to me. They refused to,” she said. “And then I got an offer from one of the oil companies there, Denali Oil and Gas, and they offered $300 an acre for three years. Basically, I called the company land man directly and asked if that was the best they could do, and he told me $400.”

When she heard her neighbor across the road had recently signed for $500, she figured it was time for a town meeting. “It’s really hot in Karnes and Dimmit, but it hasn’t heated up in Wilson County yet,” Reusink said. “Really and truly, we should be getting better offers on our property.”

The announcement for the June 15 meeting in the Wilson County News didn’t list any company names or suggest landowners would be expected to swing at sales pitches. Perhaps for that reason, the county’s first “informational meeting” on the Eagle Ford draws a standing-room-only crowd into the cavernous events barn. Bart Bayless of Amarillo-based Bayless Mineral Right, LLC, complained to the Current later that not only had Schultz-Ormond been allowed to close the meeting and field follow-up questions, but that his competitor had only recently switched from working for oil and gas companies to working as a “landowner representative,” something he’s been doing for more than 15 years.

Yet Schultz-Ormond seems to have the hang of it as she quickly walks attendees through several key aspects of shale development with the aid of a PowerPoint presentation. While she praises the professionalism of the industry she’s been a part of for more than 30 years, the newly minted landowner rep offers not a whiff of the problems fracking has brought to other property owners across the country — though she does say, almost in passing, that it may pay to think about what could happen if things don’t run smoothly. “I think you should negotiate the site. I think you should negotiate damages. I think you should negotiate remediation,” she said. “I think you should negotiate all of it, because I think it’s your land.” And be prepared, she adds, because after development, your land “is going to look different.”

As the overhead lights switch back on, most turn for the doors while a few linger in the oversized shed. It’s clear not everyone is happy with the amount of impartial information shared. One elderly attendee fumes, “They pissed me off,” as he shoves his copy of the paper’s meeting announcement across the table. “I thought this was supposed to be strictly informational.”

“There’ll probably be another [company] here next month,” says another attendee good-naturedly. “We’ll wait and see.”

Shirley Whitfield, sitting with her back to the front of the room, is reserved on the topic. The last time oil interests passed this way, in the 1980s, she was left with a reliable water well thanks to one of the company’s abandoned holes. It provided her a steady source of water through Texas’ recent severe drought. “I had water when no one else did,” she said. On the other hand, the drilling crews also dumped large amounts of briny water into a creek on her land that made growing hay or alfalfa across a portion of her pasture impossible.

One of the biggest issues facing South Texas landowners now is weighing the economic potential of a gas well or two, wells that could bring in hundreds of dollars a month for 30 years or more, against the increasing value of their water. Complaints about water contamination related to hydraulic fracturing are not uncommon. And while North Texas relies heavily on surface-water reservoirs to meet their needs, South Texans draw almost exclusively from subsurface groundwater. And yet no one in this shed is asking questions about that.

Johnny Akin said the small communities around the region have more than enough centralized supply to provide the companies with wastewater to drill with, that private landowners needn’t worry about loss or contamination. Yet in his very next breath he’s complaining about cities buying up tiny single-acre parcels to sink water wells to feed those municipal demands while ranchers and farmers watch their groundwater levels drop. It’s clear water here is already a resource under stress.

Schultz-Ormond describes groundwater contamination as a Marcellus Shale problem, and insists it will not happen in South Texas. The Eagle Ford Shale is far removed from South Texas aquifers, she says, and in all her years she’s never seen anyone’s water well contaminated by fracking in the Lone Star State, a fact she attributes to the regulatory oversight of “one of the best bureaucracies in the country,” the Texas Railroad Commission. “I think we’re a little more sophisticated than they are in Appalachia,” she told the Current this week.

Grain of salt: Schultz-Ormond has never been to Dish, Texas.

In the town of Dish in Denton County — thoroughly drilled over, criss-crossed with pipelines, and dotted with numerous compressor stations — air emissions have caused major concern. In a survey published in December, Wilma Subra, a Louisiana-based environmental consultant who has studied the impact of the practice in North Texas, reported that 70 percent of residents surveyed complain of breathing difficulties. “We’re seeing a lot of neurological impacts, where you lose your function or your ability to stand. You lose your balance. The message doesn’t get from the brain to the skeletal muscles,” Subra told the Current. “The elderly and the young are more severely impacted.”

In April, blood-test results were released that showed town residents have the same toxic chemicals that are in the air in their bodies. And water wells have begun to show signs of heavy-metal contamination, Subra said. For Dish Mayor Calvin Tillman, who has helped lead the fight for five years to force the natural-gas and pipeline companies to start cleaning up the town’s air, the final straw came on Memorial Day. “We’ve been having these odor events and you’ll see a little spike in the permanent monitor,” Tillman said. “The night of Memorial Day the odor was pretty strong, strong enough to keep me awake. Two hours later my son woke up with a bloody nose. Since that point we thought it’d be better if we move on.” Tillman put a for-sale sign in his yard this month, saying he was “extremely concerned” about the health of his children.

More than 300 miles south of Dish, Reusink is working hard to bring Wilson County residents together to negotiate the best financial deal possible. “Landowners need to stick together,” she said. “They need to be honest about the offers they receive. The more they stick together, the better offers they’ll receive.” That practice has paid off in Atascosa County, she said, where residents pooled 5,000 acres and got $900 an acre from EOG, which finished its first well last year. But she was unfamiliar with the rampant air and water complaints that dog the practice of fracking around the country.

Landowner rep Bayless believes the health complaints and reports of water contamination in North Texas, New York, and Pennsylvania have more to do with Big Energy squabbles than actual hazards affecting real people. It’s about a “new administration” against petroleum; the coal interests against natural gas. “It’s energy,” he said. “It all has to do with big money. It really does. And you have the coal miners and all the coal unions and they pump money into everything they can.”

While Bayless is confident that if a “good company” abides by existing drilling standards, water contamination should be “almost nonexistent,” UNT’s Sterling said the lack of a serious comprehensive study makes it impossible to determine whether fracking can be done in a way that avoids contamination.

Until those questions are answered, Subra suggested South Texas landowners and local governments work together to minimize damages by creating ordinances to put tighter controls on the development of the Eagle Ford. The oilfield companies, she said, “need to tell them everything. Like, where’s the water going to come from? Where is it going to be disposed of? Where are the haul roads going to be? Where are the pipelines going to be? So you’re not just saying, well, so-and-so wants a well, but this is what it’s really going to be like. So you are looking at the total impact, not just a little piece of it.”

Tillman said water protection could be a key element of any drilling lease. “They can put it into the lease that if my water well goes bad for any reason, whether it comes up with what you’re pumping in or not, you fix it,” he said. “They can do some testing, baseline water testing, baseline air testing, there’s a lot of things that they can do to help protect themselves. I would love to be able to share that with people down there.”

In a video statement released Monday, President Obama said that if the country does not heed the warning of the BP spill “we would have missed our best chance to help build the clean-energy future America needs.” Despite the massive amounts of natural gas trapped in it the deep shales across the country, it’s still unclear if it qualifies as one of the ingredients in that future.

“What we have out there is still a big unknown,” Sterling said. “We have a lot of very suggestive information that says as things are being done now there is the potential for environmental and health impact that may be unacceptable.” Air issues may not be as significant in rural South Texas, where the space between homes and wells and compressor stations is likely to be much greater than in Dish, but according to the Texas Railroad Commission an oil company can use as much water as it needs to complete a well in the state. Schultz-Ormond said landowners should demand to be compensated for whatever water the companies take from beneath their land; Sterling suggests they may not want to risk it in the first place. “The money is good, but be careful, because once you’ve ruined your drinking water there’s no going back. And drinking water is probably going to become the gold of the future” •

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