As Idaho’s gas industry develops, concerns mount

NEW PLYMOUTH — New natural gas drilling near Idaho’s western border has challenged state regulators, alerted environmentalists and pushed industry to reassure locals that exploration will not harm Idaho’s soil, water and air.

The industry is trying to soothe fears spurred by national headlines of contamination from hydraulic fracturing - the process used elsewhere to unlock oil and gas trapped in shale formations.

But environmentalists aren’t convinced, even though no fracking has occurred or is proposed. They worry that the state’s regulations aren’t strong enough and that developments in Payette, Canyon and Gem counties are “entry points for an even more destructive process,” said Helen Yost, spokeswoman for Wild Idaho Rising Tide.

“We would like to see absolutely no oil and gas drilling in Idaho,” Yost said. ” … It’s really rolling the dice with part of our economy (agriculture) that’s been strong a long time.”

Regulators are working to find a middle ground between protecting the environment and allowing a blossoming revenue source while also learning about an industry that skirted the state for more than a century.

“Not being experienced with oil and gas development, people are nervous,” said Tom Schultz, Idaho Department of Lands director.

Idaho’s gas exploration rules recently were overhauled after the last update in the late 1980s. Regulators are tweaking the rules a second time alongside stakeholders before proposing them to the Oil and Gas Commission and eventually the Idaho Legislature.

These changes are related to process, oversight and codifying existing procedures, Schultz said. They also will seek to increase public transparency about drilling and the chemicals used in fracking, should it come to the state.

“We are looking at bringing industry into best management practices found around the country, but also putting an Idaho twist on it so that they are protective of our natural resources,” said Bobby Johnson, oil and gas program manager.

While state regulators are hearing from citizens and the Idaho Conservation League, “I don’t think we are on equal footing with the industry,” said Justin Hayes, ICL program director.

The ICL, however, is taking a more measured approach than environmental groups that outright oppose gas exploration.

“It is going to be developed, so our role here is not to throw ourselves in front of the drill rigs and chain ourselves to the wellheads to stop this from happening,” he said. “Our role here is to make sure it goes forward in a responsible way so that it doesn’t harm the environment.”

‘Near successes’

About 90 years of oil and gas exploration in Idaho once was described as an “ongoing saga of near successes and shattered expectations,” according to the Idaho Geological Survey.

Between 1903 and 1988, more than 150 wells were drilled in Idaho on the hunt for hydrocarbons, reported the University of Idaho in a December report on oil and gas exploration policies.

Idaho has little geologic potential for oil and gas deposits because intrusive, metamorphic and volcanic rock covers much of the state. Largely, oil and gas attention in Idaho has been focused on the southeastern corner near Wyoming and along the western Snake River plain.

In 2005, a private company began leasing land in Payette, Gem and Canyon counties. Those leases were purchased by Bridge Resources, which in 2010 drilled 11 exploration wells, seven of which showed production potential.

Bridge estimated the area - or “play” - holds relatively little gas, between 68 and 100 billion cubic feet (BCF). But the U.S. Geological Survey estimates the state’s total gas resource at only 10 BCF.

For comparison, the Bakken and Three Forks formations in North Dakota have an estimated 3.43 trillion cubic feet (TCF) to 11.25 TCF combined, the USGS reported.

After dumping more than $20 million into its Idaho project, Bridge went belly up and sold its assets to Snake River Oil and Gas, which later partnered with the Texas-based Alta Mesa Holdings to operate the play.

The play also has attracted the attention of Trendwell Energy Corp., which received a drilling permit in February. Alta Mesa received three drilling permits and drilled two wells last year. In May, the company applied for four more permits.

In all, 14 modern wells are in the play, nine of which are thought to have production potential. Only one pump now is producing - a low-flow well that delivers gas directly to the city of New Plymouth. Other wells have been capped and await pipeline connections.

In April, the state had its first ever oil and gas lease auction, which generated more than $1.84 million for the state from 26,400 acres of state land and minerals in six southwest Idaho counties.

Infrastructure is key

The gas play in western Idaho is being driven by new technology, but not the same technology making headlines elsewhere, said John Foster, spokesman for Alta Mesa.

While some companies use horizontal drilling and hydraulic fracturing to release previously inaccessible swaths of hydrocarbons trapped in shale, Alta Mesa is relying on data gathered from a campaign of three-dimensional geological seismic testing, Foster said.

The testing pinpoints pockets of gas, reducing the investment risk for explorers. Foster said the area’s geology won’t require Alta Mesa to frack to produce gas.

“What we are doing is drilling very traditional, 1940s, 1950s, the really easy types of wells that were all around the country before we had to go to an unconventional type play,” Johnson said.

Natural gas prices are low now. So low in fact that about 30 percent of the gas produced as a byproduct of oil production in North Dakota is burned in a process called flaring, which many other states have banned.

The investment required to get much of North Dakota’s gas to market is too high to consider when oil prices hover around $100 a barrel.

“People are estimating it’s about $1 million a day just being thrown into the air,” Marcus Stewart, an energy analyst with Bentek Energy, told NPR in January.

What makes Alta Mesa’s investment in Idaho pencil out is its proximity to a large gas pipeline and Idaho Power’s gas-fired Langley Gulch Power Plant, Foster said. Alta Mesa currently is permitting for a pipeline and a treatment facility to bring gas to market.

Idaho is also a “very friendly climate and environment for doing the work,” he said. The state has a low severance tax rate of 2.5 percent and a moderate royalty rate of 12.5 percent, which is the same as Alaska’s.

Moreover, the market for natural gas is expected to increase as many consider it the ideal fuel to usher America away from coal-generated electricity as stricter federal carbon emissions regulations are issued.

Its low price and abundance, Foster said, are leading many to think energy companies will focus on exporting the product as a liquid to energy-starved Asian markets, where prices are triple those in the U.S.

“It is truly a world market, and there is a market even if prices are lower than they were a few years ago,” he said.

Developing regulations

In 2011, Idaho went through a rulemaking process to overhaul regulations by cherry-picking the best ideas codified by other states, Schultz said.

Idaho’s regulations were modeled on established oil and gas states such as Oklahoma, Texas and Colorado and from emerging plays in states such as North Dakota.

This second round of rulemaking focuses on requiring increased notification of drilling activities, more site investigation before and during drilling and stronger protection of fresh water resources, Johnson said.

Initially, Hayes said, everyone was caught off-guard when Bridge started drilling. ICL felt obligated to staff initial rulemaking sessions “intently” as few locals had the resources to monitor the marathon meetings.

Because the state lacked industry knowledge, however, regulators relied heavily on industry to “coach” them, Hayes said. ICL made some victories, such as requiring lined pits when industry wanted to store wastewater and other chemicals in earthen pits, he said.

“The rules that came out of that rulemaking, they were OK,” he said. “Some stuff is pretty good, and some stuff is not sufficient.”

Moreover, Hayes said, many felt rushed as political pressure mounted to bring the high-dollar resource online quickly.

Alta Mesa had invested $13.8 million by the end of 2012 and doubled that investment in 2013. The company expects to build $20 million in infrastructure alone, the state reported.

“If the discoveries to date in southwestern Idaho develop as the Idaho Petroleum Council expects they would, annual revenues from production would be $206 million,” the University of Idaho reported. “This would generate for the state $5.1 million in severance taxes and $5.7 million from royalties because about one-fourth of the discovered potential is on state endowment lands.”

The state also had to overcome a challenge many federal agencies are facing - finding qualified inspectors to work in the public sector at a lower salary than they could make in the oil field.

That national shortage of inspectors has resulted in about half of wells on federal lands in Colorado, Utah and Wyoming going uninspected, the Associated Press recently reported.

Schultz said the state went through three rounds of interviewing over more than a year to find and hire Johnson. As the state’s lead regulator and inspector - other field staff are trained to step in - Johnson said he can handle much of the industry’s drilling on his own for now.

“For right now, we feel like we are staffed well,” Schultz said. “Part of this is how you fund things. Until there is production and we have revenue streams, it is kind of like the chicken and the egg. You don’t want to get a bunch of staff until you have revenues to pay for them.”

Fracking transparency

During this rulemaking session, the state is pushing for a requirement that companies disclose information about the potential use of fracking and wellhead stimulation fluids, Hayes said.

Currently, drillers don’t have to publicly display fracking ingredients or recipes. If the rules change, they will be required to do so on fracfocus.org - a clearinghouse for such information used by many states.

“Even though it is highly unlikely that we’d have something of that nature in this play here in southwest Idaho … it still needs to be addressed,” Johnson said.

The state may be looking to stay ahead of the clamor around fracking, Hayes said.

Bridge made everyone “uncomfortable” because they said they wanted to do “mini-fracking” - a phrase invented to describe wellhead stimulation to those unfamiliar with the industry.

“Everyone else was staring at each other saying, ‘Wait, we are not in a shale formation, and you shouldn’t be fracking anything,’” Hayes said, noting that the two are different procedures.

Foster would not say whether Alta Mesa would fight the fracking disclosure, saying he didn’t “want to get ahead of the rulemaking process.”

“It has been unfortunate to watch some groups take advantage of the national hysteria over large-scale hydraulic fracturing and try to make it seem like that is a practice people have to worry about in Idaho,” he said. “Even when we say that, people say, ‘Oh, that’s industry - you can’t trust ‘em.’

“Well I’m not suggesting the public look to us. I’m suggesting they look to the geology.”

Alta Mesa did not push back at a meeting Wednesday when the subject was discussed, Hayes said, “so I presume that means they have decided to not fight it or they are going to make an end run in a way we can’t see.”

Transparency, responsibility

Soon the state should start running a new data management system used in about 20 other states funded through the U.S. Department of Energy. That software will allow Idaho to better track permits and well logs. The system also will have a public interface.

“It also helps the industry by showing that information to potential competitors so you can have the industry grow,” Schultz said. “It’s a transparency issue. It’s a management issue for us; it’s a marketing issue for industry.”

Yost said she and other environmentalists want Idaho to require water-well quality testing before any drilling. Currently, the state only requires such testing in advance of wellhead stimulation.

She said she thinks the state’s resource is so minimal that it could require “extreme energy extraction processes.” And without prior testing, residents may have no evidence against companies that could pollute drinking water with those methods.

“We understand that Idaho has dollar signs in its eyes because this is a new resource for the state, and I understand that they want to develop it responsibly. But it seems like a boom-or-bust situation,” she said.

Hayes and ICL want to increase bonding requirements for that reason.

“Having sufficient money set aside to plug wells that have been abandoned or left unplugged if a company goes bankrupt is a really important part of not only protecting the oil and gas resource, but also protecting the groundwater,” he said.

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