American Oil and Gas Reporter - September 2024 - 32

ConventionSec tion: Texas Alliance of Energy Producers
the ground there all the time, " Ingham relates.
" We talk with him about what we
want to do, who we need to see and what
we want to accomplish, and he offers
suggestions and coordinates great trips. "
The conversation with Cruz included
the senator's work on legislation that will
be introduced by Senator James Langford,
R-Ok., to provide operators, particularly
smaller ones, with some relief from the
methane tax created by the Inflation Reduction
Act of 2022. Ingham notes that
the IRA's language is vague enough to
provide the U.S. Environmental Protection
Agency considerable latitude in its implementation,
which has allowed the
agency to greatly expand how many operators
are subject to that tax.
" The legislation on which we are
working puts up guardrails around the
tax and clarifies how EPA must structure
it, " Ingham describes. " If a company
was not subject to that tax according to
the rules in place on the day that bill became
law, then it is not subject to it
going forward. "
According to Ingham, Cruz acknowledged
that Democrats' control of the
Senate, as well as the Biden administration's
record on energy matters, lengthen
the bill's odds of becoming law during
this Congress. Nevertheless, Ingham observes,
Washington negotiations conceivably
may see the bill attached to
legislation that will have their support.
Moreover, as hockey legend Wayne Gretzky
put it, " You miss 100% of the shots
you don't take. "
" We understand the political realities,
but we have to take every opportunity to
protect our members, " Ingham says. " We
have to take that shot. "
Methane Morass
Herrick points out that his company
is among the producers with many wells
jeopardized by the coming methane tax
and new regulations. He explains that
Pantera's business strategy focuses on
acquiring, improving and operating mature,
shallow vertical wells, especially in the
dolomite formations of the Hugoton Field.
Today, the company of 54 employees operates
about 1,800 wells in the Texas and
Oklahoma panhandles north into Southwest
Kansas.
" There is such a disconnect between
what Washington is pushing and our dayto-day
experience, " he laments. " Clearly,
a company such as ours does not want to
see any emissions of the product we are
32 THE AMERICAN OIL & GAS REPORTER
trying to sell, and so we already are
striving to prevent gas from going anywhere
except a sales pipeline.
" There is a real problem with the language
the federal government has used
and how that translates into our operations
that complicates this, " he continues. " It
even extends to the nomenclature, where
EPA is dealing with tons of carbon dioxide
equivalent while we deal in Mcfs and
barrels. EPA is using really broad strokes
that assume all wells emit all the time.
That leaves us with the task of proving a
negative, which requires investing in
costly equipment that, in many cases,
may make compliance impossible for
lower producing wells. "
As he talks with other operators that
have numerous low-producing wells, Herrick
says it is clear many of them are uncertain
about what they must do. " Everyone
knows they will have to do something,
but the biggest question I hear from so
many colleagues is how they will know
if they are doing enough, " he relates.
" On a practical level, it is hard to answer
the question of what operators must do
to minimize their risk, because no one
knows what an EPA representative will
consider sufficient. "
Despite the headaches and additional
costs, Herrick predicts his company will
endure, and Ingham says many other
savvy Alliance members share that same
mindset. " We have many sophisticated
operators who will not be blindsided, but
we are going to lose some companies as
a direct result of the combined effects of
the methane rule and methane tax, " Ingham
warns. " It is not only about companies,
but the number of operating wells. Some
surviving companies may be forced to
shut in a third or more of their wells because
they are no longer profitable.
" The number of operators is shrinking
under normal market circumstances, " Ingham
adds. " The federal government
should not hasten that. "
Upstream Consolidation
Herrick says consolidation is a frequent
topic of conversation among Texas
producers. " There are fewer players
today than there were five years ago,
which is indicative of the increasing
regulatory requirements, " he reports.
" Consolidation is one way for big companies
to make headway on compliance.
Meanwhile, many smaller guys say it is
tough to justify the economics of a
smaller operation. "
There are upsides to a lively merger
and acquisition market, he notes, including
the inherent signal it sends about
hydrocarbons' enduring value. " Transactions
demonstrate interest and a healthy
overall market, " Herrick points out. " It
is more worrisome when there are no
transactions. "
Ingham notes that the consolidation
reflects strong economic incentives. " Scaling
up helps companies remain competitive
in a very challenging, competitive environment
and we are seeing that not only
in the Permian Basin, but throughout the
state, " he says.
Even so, he acknowledges, there are
consequences for associations that represent
the collective industry. " Every time
a dues-paying member absorbs, purchases
or merges with another, we lose one of
them, " Ingham observes. " It is not only
the high-profile deals, either. Consolidation
is happening across the spectrum. "
Another side effect is the sudden disappearance
of personnel in those companies
who had been active members in the
Alliance, Herrick says. " A lot of those
faces have been strong supporters, or
even members of the Board of Directors,
and after a merger, we do not see them
anymore, " he describes.
He goes on to suggest that individual
rules or taxes rarely prompt operators to
plug wells, sell companies or leave the industry,
but the collective weight of those
requirements can become a burden that
some opt not to bear. " Combine all the
additions, from the Texas Railroad Commission's
weatherization piece to the new
federal emissions standards, and if you
step back and look at everything that has
been added during the past few years, it is
frankly impossible to survive without the
help of a group like the Alliance, " he says.
Revised Revisions
When the RRC in mid-August released
its rewrite of Texas' Chapter 4 and
Statewide Rule 8 requirements governing
oil field pits, the Alliance enjoyed a nice
reminder of the contrast between Washington
and Austin rulemakings. The commission
on Aug. 15 formally published
its latest revisions, and the Alliance says
they are far better than the initial proposal.
The group's Aug. 16 " Energy Beat "
update expresses gratitude to the commissioners
and RRC leadership for incorporating
industry input. " In their original
form, the proposed rule changes
would have added significant costs across
American Oil and Gas Reporter - September 2024

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