San Antonio Business Journal
Published: 08-26-08
In Texas it’s the job of the Texas Railroad Commission to regulate the state’s fossil fuels industry. As such its duties include overseeing the drilling of wells production and transportation of oil and gas including pipeline delivery and safety. The commission ensures the plugging of abandoned wells that pose environmental or safety threats and administers federal surface coal mining and reclamation laws in Texas.
The daughter of oil man Eugene Ames Elizabeth Ames Jones is a sixth generation Texan who grew up in San Antonio. She was appointed to the Texas Railroad Commission in 2005 and elected the following year to serve a six-year term.
The Business Journal recently discussed the state’s energy picture with Jones.
Q. Please give us the state of the Texas energy industry.
A. The energy industry is alive and well in Texas. Over 30 percent of the natural gas and 18 percent of all the crude oil produced onshore in America are produced right here in Texas. That makes us the No. 1 producing state. We are also the fifth largest coal producing state and Texas is also rich in uranium reserves. Our state leads the way in wind production as well and our institutes of higher learning are incubating alternative energy technologies as I write.
So while Texas is on the front lines of production of conventional energy sources that are so critical to maintaining our quality of life and economy for decades to come we are also hot on the trail of cutting edge energy technologies that will be used by our great-grandchildren and beyond.
A real-time indicator of what is going on in the “oil patch” — which also includes natural gas as well — is the incredible increase in drilling permits we are seeing at the Railroad Commission. In 2004 we issued almost 15000 permits. Last year there were close to 25000 permits issued from our Oil and Gas Division a 67 percent permit increase in just three years.
Q. Where does San Antonio fit into that picture?
A. Not only is San Antonio the home to major downstream refining companies Valero and Tesoro but successful independent oil and gas exploration and production companies also are based in San Antonio. Similarly energy-related technological advances are being made at the Southwest Research Institute and San Antonio’s location puts it at the crossroads of oil and gas production in South Texas counties.
The Railroad Commission office for combined Districts 1 and 2 is located in downtown San Antonio to facilitate oversight of South Texas activity. Our other District offices around the state are in Houston Corpus Christi Pampa San Angelo Abilene Midland Wichita Falls Kilgore and in the near future we will have a presence in Fort Worth.
Q. What is most misunderstood about today’s high gas prices?
A. Let’s start with the upstream perspective. Consumers don’t realize that the volatility in the market price is a damper to sustained long-term drilling programs by energy E&P (exploration and production) companies even if prices reach temporary high spikes in the price cycle.
Companies prefer price stability. Even with a good well it takes years for a $2 million to $3 million well to pay for itself so a company can’t base a drilling budget on prices that give it a big spurt of profits if those prices soon collapse. To boot while drilling programs do benefit from applying the latest technology that technology is expensive. On top of that rig costs have gone up due to shortages as have payroll costs to attract and to retain a qualified workforce. These are just a few cost drivers that find their way down the energy chain. From the downstream perspective at the refinery the high price of oil government mandates on gasoline additives and anemic refining capacity plus the same issue with workforce shortages all affect the price that goes into gasoline at the pump.
Throw in the voracious global demand and consumers are in the middle of a perfect storm. Adding new supply will take pressure off prices as will conservation which we are seeing happen already as prices have soared recently. It’s a myth that new supply won’t make a difference on many different fronts. That’s why I have been speaking out for years and calling for the federal government to allow access to places to drill where hydrocarbons might I repeat might be found. More access means more producing wells because hydrocarbons aren’t under every inch that is leased up by exploration companies. And even with all the newest technology wildcatters still drill dry holes.
Q. What is the latest drilling technology that has you excited?
A. Unquestionably it is the combination of the techniques of horizontal drilling multi-stage formation stimulation (fracing) and enhanced 3-D seismic that has resulted in the release of enormous natural gas potential from heretofore non-commercial shale reservoirs.
The Barnett Shale play in North Central Texas is a prime example of the use of new technology making an unconventional resource now commonplace. Natural gas located under Fort Worth and surrounding cities and counties was once considered out of reach but it is now being produced by over 7700 wells well over a 100 percent increase from 2000. Horizontal technology allows for a smaller footprint.
Multiple zones and directions can be accessed by one well bore with the drilling rig located thousands of feet away from a school home or structure. Such technology has made drilling in urban and suburban settings possible. What is really exciting is that the technology that has been perfected in the Barnett Shale is also being used to tap into huge new shale plays in East Texas and Louisiana Arkansas and Oklahoma and even now Pennsylvania is getting into the act.
One could comfortably say that when it comes to natural gas America’s domestic reserves could supply our current needs. Americans consume about 23 trillion cubic feet a year 4 trillion cubic feet more than we produce in this country. With the right environment it wouldn’t be hard to close that import gap.
Q. Is there one piece of energy legislation that Texans should be watching?
A. “Windfall” profits tax. The last time we had a “windfall” profit tax it forced production overseas and contributed to the current account deficit of $700 billion being paid this year to other countries for their oil.
Enacted by President Carter the “windfall” profits tax was a penalty against domestic production and with federal price controls on oil and gas resulted in the collapse of the domestic oil and gas industry in the 1980s. It contributed to the loss of over 1 million jobs in the nation and almost 400000 jobs in Texas alone. ...
There is no legitimate basis for such a confiscatory tax on the energy industry any more than there is such a basis for a windfall profits tax on other industries such as the high-tech or entertainment industries both of which are industries that generate higher profit margins than the oil and gas companies.
