Not The Solution: Railroad Commission Pillages Clean Up Fund To Speed Processing Of Drilling Applications

The Texas Railroad Commission, the state’s petrochemical regulatory body, has pillaged a fund set aside for plugging abandoned wells and remediation of  contaminated drilling sites in order to process oil and gas well and disposal well drilling permits faster.

The three commissioners voted without dissent to take up to three quarters of a million dollars from the Oil Field Cleanup Fund to presumably hire more employees and create additional infrastructure necessary to process the permitting applications.

Railroad Commissioner Victor Carrillo said that the Commission was facing “extraordinary times,” and that special measures were required:

“We are in extraordinary times and they demand some extraordinary measures,” said Commissioner Victor Carrillo, a member of the three-member panel.

Surprisingly, Clayton Williams, the West Texas oilman who lost the 1990 gubernatorial race to Democrat Ann Richards showed up and threw his two cents in:

Midland oilman Clayton Williams, who lost the 1990 governor’s race to Democrat Ann Richards, pressed the commission to spend as much as $3 million to immediately begin hiring more people to process permits and regulators who oversee activity in the booming Texas oil fields.

“You have less people and more work to do,” Williams said. “You need more money.”

Williams was touting a talking point that the Railroad Commission has managed to get in the press a lot these days:

Industry advocates have been pushing the Railroad Commission, which once regulated railroads but now oversee the oil and gas industry, to seek emergency funds to reduce bureaucratic and costly delays in the permitting process.

[...]

Oil industry advocates say they have grown increasingly frustrated with the long waits for government approval to explore for oil at a time of soaring energy prices. Processing times for regular drilling permits is averaging 40 days, up from a wait of 14-21 days in 2007. The delay for expedited permits has doubled to two weeks, up from about a week one year ago, according to agency figures.

The Railroad Commission has shed more than 100 employees in the last decade, going from 851 authorized full-time employees in 1999 to 706 today, agency figures show. Over the same period, the number of drilling permits issued has more than doubled, from 8,430 in 1999 — a modern low — to 19,994 granted last year, according to state drilling statistics.

At the height of the last oil boom, in 1981, the commission issued 47,940 drilling permits. Drilling permits range from $200 to $300 per well depending on depth. It costs $150 extra for an expedited permit.

There are, however, some inherent problems with the Commission’s logic. During the last boom, I think it is safe to say that a large part of the permitting process wasn’t automated or computerized. Today, the majority of it is. Oil exploration companies can even file their permitting applications online using the Railroad Commission’s website. Too, the Railroad Commission has actually had many of its administrative and regulatory duties shifted to other agencies, including all oversight of railroads and any oversight it had over motor carriers, bus rates, railroad rates, etc. Some of the employees it shed went with its railroad regulatory division to the Texas Department of Transportation.

Before we get to a second problem with the Commission’s logic, it is important to note that only a minimal level of review is conducted to process the vast majority of oil and gas drilling permits. They are essentially rubber stamped.

Second, there is a problem with the permitting fee structure. The fees generated by the permitting process should do a better job of covering the costs of administering the permitting, especially in a “boom” year. First off, it is based solely on well depth, plus additional fees if it exceeds statewide rules ($200) or requires expedited processing ($150):

(1) With each application or materially amended application for a permit to drill, deepen, plug back, or reenter a well, the applicant shall submit to the Commission a nonrefundable fee of:

(A) $200 if the proposed total depth of the well is 2,000 feet or less;

(B) $225 if the proposed total depth of the well is greater than 2,000 feet but less than or equal to 4,000 feet;

(C) $250 if the proposed total depth of the well is greater than 4,000 feet but less than or equal to 9,000 feet; or

(D) $300 if the proposed total depth of the well is greater than 9,000 feet.

Thus, the maximum a company is charged is $300, excluding additional fees, regardless of whether the well will produce one barrel of oil per day or 10,000 barrels of oil per day.

There are better ways to do this. For one thing, Texas has open-ended permitting. In other words, if you request the permit today and are approved next week, you can sit on it for years before you drill. The permits need one year expiration dates which would require repaying the fee (but not refiling the application) if you don’t use the permit inside of one year.

Too, the permits should be required to be renewed annually with a sliding-scale fee based upon the number of wells maintained by an individual operator. The state of Arkansas has such a permitting process in place with a fee schedule as follows:

The amount of annual fees assessed each January 1 to all permit holders of liquid hydrocarbon
and associated Class II wells shall be as follows:

1. 1–5 Permits or Wells $100/Well
2. 6–15 Permits or Wells $750/Operator
3. 16-50 Permits or Wells $1,250/Operator
4. 51-150 Permits or Wells $2,000/Operator
5. 151-300 Permits or Wells $3,000/Operator
6. 301 or more Permits or Wells $4,000/Operator

Personally, I think that the fee schedule could be a bit more hefty at the higher end and still not hurt small producers. The 1-5 permits or wells could be reduced to a $100 per well or a $300 flat fee to further protect small producers.

In addition, instead of charging by depth, there should be a $300 flat fee applied to all applications, period. On top of that, there should be charges assessed either based upon the depth, the amount of oil the well is expected to produce in its first year as a producing well, or the number of permits the well holder already has. In other words, Exxon Mobile should be paying more to drill than an independent producer.

Finally, the unspoken part of all of this is “drill here, drill now.” RRC Chairman Michael L. Williams, who is up for re-election this year, is a Republican who no doubt supports Drill Here, Drill Now. The problem is that the speed (or lack thereof) of the Texas Railroad Commission to permit these wells won’t alter the current price of gasoline one iota. For one thing, it may be years before some of the permitted wells are producing. Second, not every well that is permitted for drilling will be a producer. I’m sure many will be “dry holes,” or will run into some difficulty that will cause them to be abandoned.

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