Consensus can be hard to find
A s several oil and natural gas industry-related bills are working their way through the Legislature, lawmakers are calling on the industry to reach a consensus.
That’s a good goal, but also a challenging feat for such a big industry with so many varying interests. Various overlapping trade associations claim to speak for the many perspectives, with internal negotiations often requiring long discussions.
The oil and natural gas industry includes producers, service companies, pipeline companies, refiners, retailers, royalty owners and many other stakeholders. Rarely will that many disparate groups agree on anything.
One of the most divisive issues is one that has great consensus on the big picture, but a plethora of disagreements on the details.
Producers for years have been trying to drill long horizontal laterals. In some parts of the country, they’re drilling wells up to three miles long, but in much of Oklahoma, they’re still limited to one mile.
The Legislature in 2012 allowed companies to drill laterals up to two miles long in shale layers, but not in most other rock layers. The larger producers have tried every year since to extend the legislation to other rock types, but the efforts have failed, largely because of disagreement among oil and natural gas producers.
Some concern is from smaller producers who have vertical wells in the area. Those vertical wells are not producing from shale, so they don’t care what happens to those rock layers. But they say large horizontal wells in their producing layers can hurt their existing wells.
The small producers also are concerned that they can be forced out of their leases if large companies want to drill several multimillion dollar wells in the area. If the small producers can’t afford to buy into all those wells, they could be forced to sell their positions.
The Oklahoma Oil and Gas Association — which represents major integrated oil companies and larger independent producers, along with refiners, pipeline companies and others — the Oklahoma Independent Petroleum Association — which represents a broad swath of independent producers, along with service companies other support interests — and the upstart Oklahoma Energy Producers Alliance — a group of small, vertical producers led by a few former OIPA chairmen — each have their own proposal to address the issue.
The two larger groups also oppose an increased gross production tax, while the newest group wants new production to be taxed at the same higher rate as older production.
That’s just the producers.
Also involved is the Oklahoma chapter of the National Association of Royalty Owners and the Coalition of Oklahoma Surface and Mineral Owners. The royalty owner groups have backed the Oklahoma Oil and Gas Association on long laterals and oppose an increase to the gross production tax. At the same time, the royalty and mineral owners are opposing some producers on an effort to reduce the interest rate paid when royalty owners are not easily located or identified.
As with other parts of the economy and government, consensus is a noble goal, but it’s not easily obtainable.