The future of oil and gas development in Montana hangs in the balance, due in large part to how much weight the federal government will place on the scale.
Dave Galt, Executive Director of the Montana Petroleum Association, MPA, told Petroleum News Bakken that he sees 2014 bringing challenges that involve taxes, the environment and access to land.
Feds have dibs on most of the pie
The federal government owns approximately one-third of all land surface in Montana, and with stringent federal regulations on that land, Galt said it’s becoming “exceedingly more difficult” to explore for oil and gas in the state.
“If you look at what’s going on in Montana production, you’re seeing less and less development occur, with more and more restrictions, on federal lands,” Galt said.
What lies on the horizon also has Galt concerned. For instance, the U.S. Bureau of Land Management, BLM, drafted resource management plans in 2013 that have not been finalized.
“They cover all the oil and gas producing areas in Montana, and they’re very restrictive,” he said. “So when you have a third of the surface, relatively, with very strict regulation, it has an impact on adjoining lands as well. So I’m real nervous about what the BLM and Forest Service are doing with their management plan.”
A fear that oil and gas lands may go to the birds
In 2010, federal officials determined the sage grouse warranted federal protection, but was precluded from being listed simply because other species held higher priority. After a lawsuit, a federal judge ruled that the U.S. Fish and Wildlife Service, FWS, must make a decision about the listing by September 2015.
In response, a sage-grouse advisory council appointed by Montana’s governor began to develop a conservation strategy to prevent the sage-grouse from being listed, and MPA is attempting to negotiate on the plan to avoid severe ramifications to the oil and gas industry.
“The state’s going to put out a conservation plan, but the federal government is pushing back on the plan because they want to take 97 percent of federal lands off the table,” Galt said. “That’s a big deal in Montana. I’m real worried about access … and just the anti-development stance that seems to be coming out of the federal government.”
One of the obstacles in reaching an agreement is coming to consensus on the No Surface Occupancy buffer around sage grouse leks in their core areas. The proposed plan has the buffer at one mile, which would ban all surface facilities including roads and well pads within that one-mile area. MPA wants the distance at 0.6 miles, and Galt said the federal government is ambiguous.
“They don’t give a number,” he said, “They just say, ‘more.’”
Also in negotiation concerning sage grouse core areas is surface disruption percentage. The plan as it stands now limits disturbance to 5 percent, but the federal government wants to lower it to 3 percent. Galt said he thinks the industry could work with 5 percent, but not 3 percent.
“It’s those little stipulations that when you put them all together are an extremely big burden on oil and gas,” he said. “I believe Congress has to take a real close look at the Endangered Species Act because that act does nothing but hinder development and it has for a long time, and whether it actually recovers species is a big question.”
Feds present other potential problems for the industry
The Environmental Protection Agency, EPA, also keeps the industry guessing. The agency is currently undergoing a hydraulic fracturing study to determine the need for additional regulations. Meanwhile the BLM is considering its own hydraulic fracturing rules.
Galt said the state is trying to fight the introduction of more regulations, arguing that Montana doesn’t need the federal government regulating something the state already regulates.
“Federal regulations across the country are a big deal, but the land issue is so big in Montana because so much is owned by the feds,” he said.
Another possibly problematic issue originating on Capitol Hill is tax reform. Galt said many of the ideas he’s seen come out of the senate finance committee don’t bode well for the oil and gas industry.
“They change tax policy … and in Montana we need the ability to have those tax policies because it helps us raise capital and it helps us keep doing exploration and drilling,” he said. “Without those policies, that’s a real hindrance.”
Exploring the state is limited
The number of oil rigs in Montana stands at approximately 10. Compare that to its oil-rich neighbor to the east averaging more than 180 rigs, and it’s obvious that Big Sky Country has limited activity. It concerns Galt that oil development is centered on only two counties (see chart).
“If you take the extreme edge of Roosevelt and Richland counties off the table, we don’t have a lot going on over here,” Galt said. “You have such a focus on one part of the state, but federal regulations make it harder to do exploratory work in other parts of the state.”
Though he’d like to see more opportunities for exploration, Galt does cite some promising activity in north-central Montana near the cities of Conrad and Shelby, as well as Fergus and Musselshell counties in the central part of the state.
“We’re always interested to see how far west into Montana that the success from the Williston Basin goes,” Galt said.
Enhanced oil recovery is a ‘shining star’
Carbon dioxide injections in Belle Creek field to enhance oil recovery have showed promise. Denbury Onshore acquired the field four years ago with the intention of rejuvenating it by switching from water injection to carbon dioxide injection. The company expects to yield an additional 35 million barrels of oil from the process.
“That’s really a shining star in Montana and I look forward to that to continue,” Galt said. “Maybe enhanced recovery starts looking toward Fallon County, too.”
Galt said Montana Tech has a research team currently analyzing Elm Coulee in Richland County to determine how it may respond to carbon dioxide injection as well.
Increasing efficiency with technology
Technological enhancements continue to increase the efficiency of oil development in Montana. Recycled water technology is emerging, Galt said, and Montana Tech is evaluating various opportunities in the state to develop proppant.
“They’re looking at places to develop sand, to try to get it closer to home,” he said.
Galt believes activity in the Williston Basin is certainly benefitting the state, providing added revenue with a slow uptick in production in its two main oil producing counties. He expects transportation to grow to meet the production demands with projects like the Keystone XL Pipeline and other smaller pipelines.
