Oil & Gas Industry Bats .500 in Defeating Four Anti-Hydraulic Fracturing Measures

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The voters have spoken and the lawyers are preparing for their day in court. The Oil & Gas Industry, meanwhile, is assessing its performance on Election Day.

On November 4, four communities across the U.S. voted to ban or significantly restrict the use of hydraulic fracturing, while four other communities defeated efforts to ban or limit the practice. Perhaps most surprising was the vote in Denton, Texas, a college town that sits atop a portion of the Barnett Shale, where hydraulic fracturing began in earnest about a decade ago. By a 59% to 41% margin, residents voted to ban hydraulic fracturing, despite opponents reportedly being outspent 10-1 by the Oil & Gas Industry.

The Denton voter initiative, jointly led by a local nurse and a college philosophy professor, focused on quality of life issues: truck traffic, noise and air pollution. It was the first hydraulic fracturing ban enacted in the Lone Star State.

Oil and gas interests immediately contested the legality of the vote. One commissioner with the Texas Railroad Commission, which regulates oil and gas development in Texas, expressed confidence the measure would be overturned. At least two lawsuits have been filed to block implementation of the ban, alleging it deprives mineral owners of their property rights.

Denton is home to about 275 gas wells. Some operators there have been re-fracturing existing wells, sometimes in close proximity to homes, which is what gave rise to the ballot initiative to ban hydraulic fracturing altogether. For more on this issue, see October 22, 2014, article - Texas City to Vote on Hydraulic Fracturing Ban Nov. 4.

Across the country, in Ohio's Utica Shale formation, three cities--including Youngstown--on November 4 voted down proposals to ban or limit hydraulic fracturing. For Youngstown, this was the fourth time in two years that drilling opponents tried and failed to ban or limit the practice. The vote there was 58% to 42%.

Youngstown has experienced an economic rebirth in recent years, as oil and gas development has created numerous jobs among manufacturers, who provide material to the industry as well as service providers like restaurants, banks and hotels that are now patronized by people whose economic fortunes are tied to oil and gas development. Youngstown, a Rust Belt city of about 65,000, used to be a national center for steel-making. But its population was halved and unemployment shot up after the steel mills began closing in the 1970s.

In a blog post on "Energy in Depth," Katie Brown wrote of the Youngstown vote: "The results are not surprising, especially considering that the Mahoning Valley has greatly benefited from the jobs and economic growth that have come with oil and gas development. As we've noted before, the region has landed over 25 oil and gas projects, contributing to at least 4,000 jobs and investments totaling more than $5 billion."

Brown noted the surge in industrial activity that has followed oil and gas development in Youngstown and Mahoning County, which sits atop the Marcellus and Utica shale formations. Since 2010, projects tied to oil and gas development in Mahoning County, Ohio, have contributed to a 17% increase in sales tax apportionment and have helped reduce unemployment by more than five percentage points in the area, she added.

Industrial Info's North American Industrial Project Database lists eight active projects with a total investment value (TIV) of $908 million in Mahoning County. Most are oil and gas facilities or pipe mills that manufacture the pipes used in drilling. In Northeastern Ohio's Zone 2, Industrial Info is tracking 130 active industrial projects with a total investment value (TIV) of about $6.74 billion. The four industries drawing the largest share of planned outlays are Power (14 projects ($2.1 billion in TIV), Oil & Gas Production (seven projects worth $1.6 billion), Metals & Minerals (15 projects, $966 million in TIV) and Oil & Gas Pipelines (nine projects worth $720 million).

On the West Coast, voters in Santa Barbara, California, on November 4 defeated Measure P, which would have banned hydraulic fracturing, by a 63% to 37% margin. However, two California counties--San Benito and Mendocino--approved measures to ban hydraulic fracturing, even though neither has any significant oil and gas operations.

Colorado nearly had ballot initiatives as well, but an 11th hour compromise by Governor John Hickenlooper kept the measures off the ballot--at least for 2014. For more on that issue, see August 7, 2014, article - Oil & Gas Industry Sees Brisk Business in Colorado after Withdrawal of Voter Initiatives. These proposed initiatives created a "near death" experience for companies operating in the Centennial State, industry officials told Industrial Info. For more on that, see August 11, 2014, article - Billions of Dollars at Risk if Oil & Gas Industry Can't Do a Better Job Telling its Story.

Speaking at the North American Prospect Expo (NAPE) conference in Denver four weeks after Election Day, Charles "Chuck" Davidson, chairman of Noble Energy Incorporated (NYSE:NBL) (Oklahoma City, Oklahoma), summed up the outreach challenge facing companies involved in extracting hydrocarbons: "In the November election, across the nation there were eight ballot measures to prohibit or significantly curtail hydraulic fracturing. Four of those measures passed. I'm not comfortable with a loss rate of 50%."

"We were slow to pick up on the public's concern about safety," Davidson told about 2,500 attendees at the NAPE event. "What we have found over the last year, is that transparency is critical" if producers are going to be successful in stakeholder outreach. "The winners will be companies that are transparent and proactive in engaging stakeholders. There is a continually growing environmental challenge to development of unconventional oil & gas reserves. Left unmet, those challenges could have a significant long-term impact on unconventional energy development."

For more on this, see December 18, 2014, article - Oil & Gas Executives Explain How to Rebalance the Conversation on Unconventional Development.

A recent report from the University of Illinois using Industrial Info's data on labor trends showed a dramatic gain in skilled craft labor stemming from Oil & Gas development in the Marcellus Shale. For more on that, see December 10, 2014, article - Marcellus Shale Development Creates Thousands of Skilled Craft Jobs.

"Despite winning four of eight ballot initiatives on Election Day, the industry is by no means out of the woods when it comes to public perceptions about and trust in Oil & Gas companies and hydraulic fracturing," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "With crude oil prices dropping by 50% during the second half of 2014, many operators have cut back capital budgets for 2015. I recommend that operators not cut back their investments in community outreach and stakeholder engagement, because it's clear that the industry has a ways to go to allay public concerns and opposition to hydraulic fracturing."

"This is a particularly difficult challenge for operators because traditionally they have focused on operational issues, mainly engineering," Davis said. "The softer stuff, like stakeholder engagement, is seen by many as less important than overcoming the geologic, engineering or financial challenges of extracting oil and gas. But if a community doesn't want you operating in their backyard, then it doesn't really matter whether crude oil sells for $100 a barrel or $10, as you will not be producing any of it in communities where you are not welcome."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.