Oil Lease Research Articles

Is Produced Water Really Water?

Is produced water flowing out of an oil/water separator actually water? Before answering, consider the fact that this question has set off a high-stakes legal battle over who owns produced water—landowners or oil companies—which is likely to end up before the Texas Supreme Court. An appeals court ruling recently confirmed the oil industry’s control over produced water. The majority opinion supporting that decision said this noxious fluid is distinctly different from the groundwater that Texas law says is controlled by landowners. However, one member of the three-judge panel dissented, saying that however chemically complex produced water is, it is not on the list of hydrocarbons covered by the oil lease. The fact that anyone is fighting to own produced water, and the potential environmental and health liabilities that come with it, is a sign of how unconventional exploration and production has changed the Texas oil business. “Questions about whether landowners owning produced water were sort of meaningless not that long ago because produced water was nothing more than waste,” said Stephen A. Cooney, a real estate attorney who closely follows developments in oil and gas law. He is one of several attorneys who has written online about the case that multiple lawyers say has “huge implications.” The suit was originally filed in Pecos, Texas, which is the home of most of the people who live in Reeves County where the local facts of life help explain how produced water has become something worth fighting over. The top tourist attraction in the area is the Balmorhea State Park which features a large “spring-fed swimming pool.” It’s an oasis of clear, cool water where only 0.3% of the 2,642-square-mile county is covered with water, according to the US Census Bureau. Pressure to conserve fresh water has made fracturing with produced water increasingly the norm in the Permian Basin. Water reuse has spawned a growing network of produced water pipelines, water processing facilities, and injection wells to provide the millions of gallons needed for fracturing and disposal of the rest. Reeves County is also in the heart of the Delaware Basin, where wells typically produce four times as much water as oil early on, and that ratio rises quickly as oil production plummets. Reusing produced water reduces the amount of water that the operator must dispose in injection wells and provides a relatively cheap source of frac water. And, most importantly, Reeves County is where two major landowners agreed to do something nobody had ever done before: sign a produced water lease. The contract gave Cactus Water Services ownership of what lawyers refer to as the “produced water estate.”

Potential groundwater contamination from oil drilling in the Okavango

Canadian oil and gas company, Reconnaissance Energy Africa (ReconAfrica), plans to exploit potential oil reserves in the Cubango Okavango River Basin (CORB) in Namibia and Botswana, where little is known about the local groundwater systems and how contamination and its effects could impact the region. Using borehole data from target oil and gas areas, we calculated hydraulic gradients, flow direction, and flow velocity to map potential groundwater contamination effects from oil and gas drilling in the region. We also plotted the major geological structures, calculated flowpaths, and estimated travel times for contaminated groundwater that may travel along these preferential flowpaths from the drill sites to the Okavango River and Delta. Results indicate that contaminated groundwater from the oil lease areas could take 3–23.5 years to reach the Okavango River system via the shallow sandy aquifer, but in a worst-case scenario, contamination could reach the Delta within four days via structures associated with dykes and faults that serve as primary flowpaths. Such contamination could adversely affect human health and the region's ecosystems and biodiversity. We recommend prohibiting oil exploration and production activities within the CORB until future studies can determine the impacts of hydrocarbon extraction with greater certainty.

Securities auctions with pre-project information management

This paper analyzes securities auctions in which bidders have an option to acquire information after winning the right to develop a project. The payment consists of an up-front cash bid and a contingent security bid, which distorts investment and information acquisition relative to the first-best. We order securities in terms of their steepness: the payment of a steeper security is more sensitive to high project values. The agent’s incentives to acquire information that prevents either cost overruns (Type I errors) or false cancellations (Type II errors) decrease with the steepness of securities. The optimal limited-liability securities auction involves bidding debt that minimizes the distortions in the agent’s incentives to acquire performance-enhancing information. The model delivers implications on the practices commonly observed in oil lease auctions.

Multidimensional Auctions of Contracts: An Empirical Analysis

In this paper, we conduct a structural analysis of multi-attribute auctions of contracts with a general allocation rule when private information is multidimensional. Upon modeling bidders’ contract value that accounts for their endogenous ex post actions, we nonparametrically identify bidders’ private information from their bids and estimate their joint distribution. Analyzing cash-royalty auctions of Louisiana oil leases, we find government revenue worse and development rates no better than in a cash auction with a fixed royalty in view of adverse selection and moral hazard. Our findings revise conventional wisdom on the optimality of multi-attribute auctions. (JEL D44, D82, D86, H82, Q35)

E&P Notes (April 2022)

E&P Notes (April 2022)

Designing monitoring networks for local earthquakes

Abstract Seismic networks are essential for monitoring local earthquakes in connection to industrial activities, including wastewater injection and CO2 sequestration. Because these networks are typically deployed for short periods of time at specific sites, it is beneficial to develop best practices for efficient and effective installation and monitoring. Such standards are available for regional earthquake and microseismic monitoring, but not readily available for local scale (tens of kilometer scale) monitoring. Once the region of interest has been determined, the key parameters for establishing a network are available monitoring station locations, site noise, and site utility. Networks should be designed based on the project monitoring goals for earthquake magnitude and density. Herein, a network was established at the Patterson and Hartland Oil Fields in western Kansas in association with a US Department of Energy CarbonSAFE carbon capture and sequestration research project. We employed observations from an analog local network, the Wellington Earthquake Monitoring Network in south-central Kansas, to assess site noise and estimate earthquake detection thresholds for the Patterson and Hartland fields. Noise from oil production facilities was evaluated, concluding that oil lease sites are suitable for monitoring small local earthquakes (M1-M3). The network was designed to have a magnitude of completeness of M1 while using station locations on existing field operator leases. Fifteen months of continuous network operation demonstrates reliable and efficient local earthquake monitoring and provides best practices recommendations for similar operations.

The legal regime for assignment of interests in Nigeria’s upstream petroleum sector: a critique of Moni Pulo vs Brass Exploration, DPR’s 2014 and 2021 Guidelines and the Petroleum Industry Act of 2021

Abstract Nigeria discovered oil in 1956. The Petroleum Act of 1969 that for a long time regulated the upstream petroleum sector was obsolete. This was manifest in respect of the legal regime for the transfer of upstream assets and interests. Under this regime only direct transfer of Oil Licenses or Leases were regulated. Change in control situations of Oil License or Lease holders or a merger/acquisition were not regulated. Unfortunately, Nigeria’s legislative organ, like most of the developing world where there has been political instability due to military intervention, has not been able to respond swiftly to fast-paced developments in the industry. The Petroleum Industry Act has taken some 20 years from conception to passage. In that period, the Department of Petroleum Resources (DPR) that regulated the industry found creative ways to regulate the industry in light of the failure of the National Assembly. This included issuing regulations regarding transfer of interests in the upstream sector. The judiciary was not left out and at least one case came up for determination in this regard. This article argues that case law on this point and DPR’s intervention through regulation are wrong in law and section 95 of the new Petroleum Industry Act has saved the situation.

Information asymmetry, trade, and drilling: evidence from an oil lease lottery

AbstractWe exploit a government oil lease lottery that randomly assigned leases to individuals and firms. We examine how initial misallocation affected trade, drilling, and production outcomes. When parcels are far from existing production, leases won by individuals have similar drilling and production outcomes as those won by firms. However, for parcels close to existing production, we find that leases are about 50% less likely to be drilled when they are won by firms. We find evidence that information asymmetries drive these results.

Simulation modeling accounts for uncertainty while quantifying ecological effects of development alternatives

AbstractWildlife management often involves trade‐offs between protecting species and allowing human activities and development. Ideally, these decisions are guided by scientific studies that quantify the impacts of proposed actions on the environment. However, critical information to assess impacts of proposed activities may be lacking, such as certainty in where actions will take place, which may hinder a robust impact assessment. To address this issue, we present the Development Impacts Analysis (DIA), which employs Monte Carlo simulation modeling to quantify the environmental consequences of proposed development scenarios, while accounting for uncertainty in the exact location of future development. We applied the DIA to five proposed oil leasing management scenarios under a revised management plan for the National Petroleum Reserve—Alaska. For each management scenario with differing levels of proposed development (“alternatives”), oil production pads and roads were randomly simulated in proportion to estimated undiscovered oil and following alternative‐specific restrictions. We assessed habitat displacement for two caribou (Rangifer tarandus) herds, eight shorebird species, and black brant (Branta bernicla) based on reported responses to development, repeating the process 100 times for each alternative. Some habitat loss was reported for each proposed alternative, but the amount of impact varied by alternative and species. One caribou herd and most bird species indicated greatest effects in the alternative with the least restrictions on development and lesser impacts under more protective alternatives. Our results emphasized the importance of considering spatial variation in development effects and species‐specific differences when evaluating management proposals. The DIA quantified potential impacts on a suite of species under proposed management alternatives, while accounting for uncertainty in where development will occur and providing confidence intervals on estimated impacts. This illustrates that uncertainty need not preclude management decisions about establishment of broad land use restrictions prior to submission of project‐level proposals but can instead be explicitly incorporated into decision making. While no single management approach will likely benefit all species, use of tools such as the DIA allows managers to quantify trade‐offs among species and pursue approaches that balance the needs of various taxa and other management objectives.

This Land is Our Land: Protesting to Protect Places on the Margin

ABSTRACT In 2008 Tim DeChristopher illegally bid on Bureau of Land Management (BLM) parcels offered for energy exploration leases near National Parks in Utah. DeChristopher and his supporters founded Peaceful Uprising, a climate justice movement, in response to his actions. We analyze mediated news coverage and in situ rhetoric gathered via rhetorical fieldwork to examine the ways that Peaceful Uprising combined place-based rhetoric and place-as rhetoric tactics to protect these park-adjacent lands from oil and gas leases and to protect DeChristopher from being convicted for making false bids on the leases. This analysis offers a unique example of place-based protest that is focused on otherwise ignored BLM lands. Moreover, we focus on a place—Salt Lake City—that is not conventionally perceived as a bastion of activism and protest about climate change. Our analysis expands the place in protest framework to considerations of: 1) the convergence of the place-based and place-as rhetoric tactics, and 2) the potential of place in protest appeals to enact different futurities.

E&P Notes (January 2021)

E&P Notes (January 2021)

Common Values, Unobserved Heterogeneity, and Endogenous Entry in US Offshore Oil Lease Auctions

Although an auction of drilling rights is often cited as an example of common values, formal evidence has been limited by the problem of auction-level unobserved heterogeneity. We develop an empirical approach for first-price sealed-bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. We show that important features of the model are nonparametrically identified and apply a semiparametric estimation approach to data from US offshore oil and gas lease auctions. We find that common values, affiliated private information, and unobserved heterogeneity are all present. Failing to account for unobserved heterogeneity obscures the evidence of common values. We examine implications of our estimates for the interaction between affiliation, the winner’s curse, the auction rules, and the number of bidders in determining the aggressiveness of bidding and seller revenue.

Technology Focus: Gas Production

Technology Focus While it is easy to see the local gas bubbles and shortages forming, we always seem surprised when it actually happens. The summer of 2019 has been rife with media reports about negative gas pricing in the Permian and, given the propensity of our industry to pick a favorite horse and then all pile on it at the same time, it is not surprising when we create our own boom and bust cycles. Is it the nature of capitalism or crowd psychology or just human nature that we repeatedly drill ourselves into negative cashflow territory and then wonder how we got there? Meanwhile, politicians and environmental activists in the northeast US have stalled pipeline permits, which has led to blackouts and construction cancellations. Gas meant for those markets has to find another home. Surpluses create dynamics like a river overflowing its banks during a flood; old channels are scoured clean and new outlets are created. There is disruption and unwelcome change but also new opportunities. Soon, nearly a billion cubic feet per day of gas will be flared in Texas alone, and innovators are looking for ways to recover value from that excess associated gas. Several operators are expanding gas enhanced-oil-recovery projects in the Eagle Ford, while others are testing the same process with less success in the Bakken. Small-scale gas-to-liquid plants can turn a few million cubic feet per day into high-quality diesel for local consumption. That shipping container full of power-hungry computer processors on a remote oil lease is turning associated gas into Bitcoin. The Jones Act was enacted nearly a century ago to protect US shipbuilders, but now it keeps waterborne liquefied natural gas (LNG) originating in Texas from being sold to any other US customer, prompting New Englanders to import Russian LNG instead. On a more commonsense note, LNG transport by rail is a simple way to deliver gas to LNG-powered ships and those affected by pipeline constraints. One resource is always consumed to create another, but can we manage the pace of development to avoid overshooting demand or store secondary products for a rainy day? Can we do better next time and not be a victim of our own success? Those who find ways to create value from what others consider a waste product will be respected by both entrepreneurs and environmentalists alike. Recommended additional reading at OnePetro: www.onepetro.org. SPE 192114 Increasing Coal Seam Gas Field Productivity With Horizontal Well Technology: A Case Study by Xuejun Lin, Sinopec, et al. SPE 192853 Boosting Condensate Recoveries of a Mature Retrograde Gas-Condensate Field in Pakistan by Sheraz Ahmed, Pakistan Petroleum, et al. URTeC 83 Intrawell Interference in Tight Oil Reservoirs: What Do We Need To Consider? Case Study From the Meramec by Mouin Almasoodi, Devon Energy, et al. URTeC 264 A New Method for Production Forecasting: Predictive Analytics vs. Conventional Methods in the Montney by Melanie R. Popp, Geologic Systems, et al. URTeC 402 Experimental and Numerical Investigation of Diffusion-Based Huff•‘n’•Puff Gas Injection Into Lower Eagle Ford Shale Samples by Qinwen Fu, University of Kansas, et al.

Paying for procurement: analysis of landman compensation surveys

ABSTRACTUtilizing a unique time series of cross-sectional surveys, we analyse the labour market for professional landman services to establish the factors affecting compensation during a recent period that substantially increased demand. Land services are an important subsector of the energy industry, especially for oil and gas exploration and production, which has been stimulated by technological improvements that facilitate economic extraction of unconventional resources. That led to an increase in oil and gas leasing activity and a resultant increase in demand for land services. We assess factors affecting compensation across several relevant margins. An influx of entrants into the profession has disrupted historic compensation patterns; entry appears to have been greatest in regions of the United States most affected by unconventional resource development. Some landmen are independent contractors while others are company employees. We find mixed results for professional certifications across contract types and gender, using instrumental variables to account for contractual choice.Abbreviation: AAPL: American Association of Professional Landmen; RPL: registered professional landman; CPL: certified professional landman; PLM: professional land manager

Common Values, Unobserved Heterogeneity, and Endogenous Entry in U.S. Offshore Oil Lease Auctions

In a environment, some market participants have private information relevant to others' assessments of their own valuations or costs. Economic theory shows that this type of informational asymmetry can have important implications for market performance and market design. Yet even for the classic example of an oil lease auction, formal evidence on the presence and strength of common values has been limited by the problem of auction-level unobserved heterogeneity that is likely to affect both participation in an auction and bidders' willingness to pay. Here we develop an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. We show that important features of the model are nonparametrically identified and apply a semiparametric estimation approach to data from U.S. offshore oil and gas lease auctions. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity - three distinct phenomena with different implications for policy and empirical work - are all present. Failing to account for unobserved heterogeneity obscures the empirical evidence of common values. We examine the implications of our estimates for the classic revenue ranking of sealed bid auction designs, and for the interaction between affiliation, the winner's curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue.

Invertebrate diversity in the deep Great Australian Bight (200\u20135000\xa0m)

BackgroundThe Great Australian Bight (GAB) comprises the majority of Australia’s southern coastline, but to date its deep water fauna has remained almost unknown. Recent issuing of oil and gas leases in the region has highlighted this lack of baseline biological data and established a pressing need to characterise benthic abyssal fauna.MethodsFrom 2013 to 2017, six large-scale systematic surveys of the GAB were conducted from 200 to 5000 m depth, constituting the deepest systematic biological sampling in Australia. Sampling was conducted on soft sediment and hard substrates, both at pre-determined depth intervals along north-south transect lines and at sites of interest identified by multibeam sonar.ResultsA total of 66,721 invertebrate specimens were collected, comprising 1267 species, with 401 species (32%) new to science. In addition to the novelty of the fauna, there was a high degree of rarity, with 31% of species known only from single specimens.ConclusionsIn this paper, we provide an annotated checklist of the benthic invertebrate fauna of the deep GAB, supplemented with colour photos of live specimens and commentary on taxonomy, diversity and distributions. This work represents an important addition to knowledge of Australia’s deep sea fauna, and will provide the foundation for further ecological, biogeographical and systematic research.

E&P Notes (May 2018)

E&P Notes ‘Enormous’ Merge Play Resource Rivals Major World Gas Fields, Largest Discoveries Joel Parshall, JPT Features Editor Producers in the recently opened Merge play of Oklahoma’s Anadarko Basin are sitting atop a resource that rivals some of the world’s major gas fields and largest new discoveries, Geology CEO Greg Augsburger of Citizen Energy told the SPE Gulf Coast Section Business Development Group recently. Merge lies between the prolific Sooner Trend, Anadarko, and Canadian and Kingfisher (counties) (STACK) and South Central Oklahoma Oil Province (SCOOP) plays, effectively tying them together. Privately funded Citizen Energy, formed in 2012, drilled the Merge discovery well in September 2015 and 18 delineation wells before significant competitor interest emerged. The discovery, made by the Governor James B. Edwards well in the Sycamore formation, was Citizen’s first company well. Concho Deal Creates Permian Basin Giant Matt Zborowski, Technology Writer Concho Resources has agreed to acquire RSP Permian in an all-stock deal valued at $9.5 billion including $1.5 billion in RSP debt. The move is expected to make Concho the Permian Basin’s most-active driller and its largest oil and gas producer from unconventional shale, the opera-tors said in a joint release. The combined company will hold some 640,000 net acres in the basin and operate a 27-rig program, with fourth-quarter 2017 production of 267,000 BOE/D. RSP is providing Concho some 92,000 net acres, split almost evenly between the Midland and Delaware Basins, along with seven active drilling rigs. Its fourth-quarter 2017 production was 56,000 BOE/D, of which 80% was oil and 20% was gas. Once the deal is complete, Concho will have 26,000 gross locations and net resources of 12.2 billion BOE. Latest Gulf of Mexico Lease Sale Generates Moderate Bidding Interest Stephen Whitfield, Senior Staff Writer The largest lease sale in the history of the US Gulf of Mexico (GOM) drew a lukewarm response from industry bidders, as a small percentage of available blocks received winning bids well below past price averages. Held in New Orleans on 21 March, Lease Sale 250 was the second offshore sale held under the National Outer Continental Shelf Oil and Gas Leasing Program (National OCS Program) for 2017–2022. Under this program, 10 regionwide lease sales are scheduled for the GOM, where oil and gas infrastructure is well established. Two lease sales will be held each year and include all available blocks in the combined Western, Central, and Eastern GOM planning areas. The lease sale included 14,474 unleased blocks. Excluded from the sale were blocks subject to the US congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks that are adjacent or beyond the US Exclusive Economic Zone, in the area known as the northern portion of the Eastern Gap; and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary. Eni Enters Abu Dhabi Amid Zohr Efforts Offshore Egypt Matt Zborowski, Technology Writer Eni has notched agreements with a pair of Abu Dhabi companies that will increase the Italian multinational firm’s presence in the Middle East and give it another partner—along with cash—in its producing Zohr gas field offshore Egypt. Marking its entrance to Abu Dhabi, Eni has been awarded stakes in two off-shore fields for $875 million. It is receiving a 10% interest in the Umm Shaif and Nasr concession and a 5% interest in the Lower Zakum concession. The 40-year agreements are backdated to 9 March. Eni is paying a $575-million participation fee for the Umm Shaif and Nasr concession 135 km off Abu Dhabi, where oil production is targeted to reach 460,000 B/D. The Lower Zakum concession, 65 km off Abu Dhabi, comes with a $300-million participation fee and a production target of 450,000 B/D of oil. Oil was discovered at Lower Zakum in 1963, and production there began in 1967. Exploration Must Meet Tough Value Criteria Joel Parshall, JPT Features Editor Oil exploration has gone through a brutal period the last few years and remains commercially challenged, especially among companies that answer to a broad investor base. In a talk titled “The Exploration Conundrum,” before the Norwegian consulate general in Houston recently, Chief Upstream Strategist Bob Fryklund of IHS Markit said that pure exploration projects must meet tough value criteria to move ahead and companies must better communicate that value to the financial community. Yet communicating it stands as a tall order in today’s environment. Fryklund compared the 2014–2017 stock performances of four oil companies: An integrated supermajor A publicly traded national oil company with major international operations A United States onshore producer developing unconventional shale resources A pure international exploration company

US Gulf of Mexico Production Projected To Hit Record High

The deepwater US Gulf of Mexico (GOM) sector has struggled since the onset of the oil price downturn in 2014, but as costs settle and operators establish new standards for running efficient projects, this year may be a significant turning point for the industry in the region. In January, Wood Mackenzie published a report predicting that production of oil and gas in the deepwater GOM will reach an all-time record high this year, with more than 1.9 million BOPD, surpassing the previous record set in 2009 by nearly 10% and representing 13% growth year over year. William Turner, Wood Mackenzie’s senior research analyst and lead author of the report, Deepwater GoM: 5 Things to Look for in 2018, said that, more than 2 months into the calendar year, the level of activity in the region is still on track to meet expectations. However, recent developments may have an effect on that trajectory. Policy Impacts In January, the US Department of the Interior (DOI) announced a proposal to place more than 90% of federal offshore land containing oil and gas—including land in the GOM—up for auction between 2019 and 2024. In February the DOI’s Royalty Policy Committee issued a recommendation for lower royalty rates for offshore oil and gas drilling on sea-bed owned by the US government. If approved, royalties from off-shore drilling would drop from 18.75% to 12.5%, the lowest royalty rate per-mitted. The US Bureau of Ocean Energy Management (BOEM) had already relaxed royalty rates to 12.5% for some shallow-water leases in August 2017. With the WTI and Brent crude prices still hovering in the low $60s as of early March amidst relatively high supply, the recommendation could make it more attractive for operators to look at bidding for offshore oil leases in the GOM. Turner said while the decision on the royalty came faster than anticipated, it is likely the US federal government wanted it in place before Lease Sale 250 on 21 March. At the time of this writing, it was scheduled to be the largest regionwide sale in US history, with 77.3 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida avail-able for exploration and development. The sale includes approximately 14,700 unleased blocks located in the GOM’s Western, Central, and Eastern planning areas. The BOEM estimated that these blocks contain about 90 billion bbl of undiscovered technically recoverable oil and 327 Tcf of undiscovered technically recoverable gas. The royalty rate may have a bigger impact on operators’ decision making in the coming months. For instance, Turner said it is possible that Total may try to rebid for leases in the North Platte field—where it holds a 40% working interest—rather than taking over operation of its holdings from Cobalt International Energy.

Deposit Windfalls and Bank Reporting Quality: Evidence from Shale Booms

This paper investigates how depositor information problems affect bank reporting quality. Using plausibly exogenous deposit windfalls coming from shale and oil leases, I find that banks exposed to shale booms provide higher reporting quality, measured as loan loss provision timeliness, compared to other banks. Improved loan provisioning timeliness is concentrated in banks with stronger incentives to attract deposits–smaller banks and banks with fewer uninsured deposits. Moreover, banks that improve the most tend to experience a larger increase in their subsequent deposit levels, suggesting that depositors value timely information. Collectively, my results suggest that information asymmetry between depositors and banks is an important determinant of banks’ reporting incentives.

How and Why Petroleum Leases Are Held by Production: Analysis of a Compound Option

Most oil and gas leases allow the operator to extend possession by establishing production in paying quantities. We show how this option to “hold by production” (HBP) stimulates the drilling of many uneconomic wells but also creates incentives to delay other economic wells. We provide a simple method to value the HBP provision as a compound option and estimate that it has increased the value of typical shale gas leases in the major U.S. basins by 25% to 250% in recent years. We also identify subbasins where drilling appears likely to have been suppressed rather than stimulated.