AGENDA REQUEST BUSINESS OF THE CITY COUNCIL CITY OF PEARLAND, TEXAS AGENDA OF: 5-9-16 ITEM NO.: Resolution No. R2016-81 DATE SUBMITTED: 5-3-16 DEPARTMENT OF ORIGIN: Administration PREPARED BY: Darrin Coker PRESENTOR: Darrin Coker REVIEWED BY: NA REVIEW DATE: NA SUBJECT: Resolution No. R2016-81; A Resolution by the City Council of the City of Pearland, Texas, supporting an improved statutory procedure that provides for unitization of depleted Texas Gulf Coast oil fields; and setting forth related matters thereto. EXHIBIT: Thursday Packet Information EXPENDITURE REQUIRED: AMOUNT BUDGETED: AMOUNT AVAILABLE: PROJECT NO.: ACCOUNT NO.: ADDITIONAL APPROPRIATION REQUIRED: ACCOUNT NO.: PROJECT NO.: To be completed by Department: Finance Legal Ordinance Resolution EXECUTIVE SUMMARY The Railroad Commission of Texas (RRC) is required to make and enforce rules for the conservation of oil and gas in Texas. Current, yet outdated law, prohibits the RRC from requiring field wide Unitization. Unitization is the joint operation among separate operators of existing drilling units within a common defined reservoir to maximize the recovery of oil. Unitization would provide for a democratic process of a super-majority of the working and royalty interests to vote on a Plan of Unit Development. Numerous entities have already expressed their support for Unitization as a means of preventing the waste of billions of barrels of stranded, but recoverable oil in Gulf Coast oil fields. There is a concern that without Unitization, numerous leases will be lost and numerous fields will be plugged and abandoned without recovering valuable resources. The attached resolution is intended to express the City’s support for an improved statutory procedure that provides for Unitization in Texas to protect untapped resources. Included in the packet is the background information previously provided in your Thursday Packet. RESOLUTION No. R2016-81 A Resolution by the City Council of the City of Pearland, Texas, supporting an improved statutory procedure that provides for unitization of depleted Texas Gulf Coast oil fields; and setting forth related matters thereto. WHEREAS, the City of Pearland is desiring to establish additional capital investment and the creation of new jobs that will benefit all residents of Pearland, Texas, and WHEREAS, the State of Texas leads the nation in advanced technology to revive depleting legacy oilfields through tertiary enhanced oil recovery via carbon dioxide injection (CO 2 EOR), and WHEREAS, the Texas Gulf Coast region has more than two billion barrels of recoverable stranded oil reserves that can only be produced through C02 EOR, and WHEREAS, CO 2 EOR offers an important means to achieve U.S. energy independence and also provides significant environmental benefits through the associated long term storage of CO 2 that would otherwise be vented into the atmosphere, and WHEREAS, encouraging CO 2 EOR projects in the Texas Gulf Coast will also encourage new industry that can partner with the oilfield to provide new capital investment, high wage jobs and result in a broader tax base through new services, materials sales and field environmental improvements that support our communities, and WHEREAS, Texas is the only top-ten U.S. oil and gas producing state that requires 100 percent approval of new field operations units on a voluntary basis, and WHEREAS, a statutory unitization procedure to support full field tertiary re- development of older, depleted oilfields is necessary in order to utilize CO 2 EOR, and WHEREAS, the lack of a statutory unitization procedure that protects the correlative rights of mineral interest and royalty owners inhibits CO 2 EOR development, and RESOLUTION No. R2016-81 WHEREAS, Texas energy and conservation policy should support such a procedure that honors the development wishes of a supermajority of interest owners, and WHEREAS, the City of Pearland has received direct benefit from CO 2 EOR projects, creating jobs, capital investment, and overall improvement to our local economy, and WHEREAS, the City Council has considered the matter and deems it in the public interest to authorize this action, and BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That the City Council supports an improved statutory procedure that provides for unitization of depleted Texas Gulf Coast oilfields. PASSED, APPROVED and ADOPTED this the _________ day of __________________, A.D., 2016. ______________________________ TOM REID MAYOR ATTEST: ________________________________ YOUNG LORFING, TRMC CITY SECRETARY APPROVED AS TO FORM: ________________________________ DARRIN M. COKER CITY ATTORNEY L//Lf//£ 10!.,-rl(,~ Saving Texas' Legacy Oilfields: ""''I /le- "" fr. ""1"" ...... ~ IA.·11' s-hl:P ( Current Policy Conflicts Result in Waste of our Valuable Oi G~cl~~ "~"'~;:';:o~J i.s,,,. ·~ rt.stl""~'.. .s-. ..k 'J - '".i> lffl U.-h1·,- h-16-f•l -J., (e""ftY', r~ss·J.t How can we continue to allow an outdated and unworkable 85 year old law enacted In 1931 to place Texas at( ~~'°' a distinct economic and strategic disadvantage In the production of our natural resources in whlc~ billlgns of crl,f J: J:r barrels of stranded, but recoverable oil reserves are being wasted and permanently abandoned? ~f- !J~"' IN • The Railroad Commission of Texas ("RRC") Is mandated under the Texas Natural Resources Code to make and JIJ ' enforce rules and orders for the conservation of oll and gas and the prevention of waste of oil and gas. Yet, t/'J/ due to the existence of an outdated 1931 Texas State law expressly prohibiting the RRC from requiring field wide unltization, the RRC Is without authority to implement a procedure that would protect and prevent the waste of Texas• depleting large legacy Gulf Coast oilfields, containing billions of barrels of stranded, but recoverable oil reserves. Without 100% unitized field wide development and operations, these legacy Gulf Coast oilfields will eventually deplete; the leases will be lost and the fields will be permanently plugged and abandoned leaving these billions of barrels unrecovered. Every major oil and gas producing state except the State of Texas has a statutory field wide unltlzatlon procedure for the benefit of the public and to protect mineral and royalty owners who wish to redevelop stranded reserves in their depleting fields. 1931 Anti-Statutory Unitizatlon Statute Why would Texas enact a statute In 1931 ordering the RRC to prevent the waste of our state's natural resources yet In that very same statute expressly prohibit the RRC from implementing unitizatlon of a field, a method proven to be one of the most effective means to protect against waste, maximize the efficient production of the natural resources and protect the rights of each owner In the field? A review of the historical context of this legislation sheds light on this deliberate legislative restriction. Texas was blessed with the discovery of the extraordinary East Texas Oil Field In 1930. By 1931, due to the chaotic drilling frenzy, photographs of which we are all too familiar with, the field was producing over one million barrels of oil per day resulting in an oil glut on the market and causing a spiraling drop in oil prices from $1 per barrel In 1930 to $0.10 per barrel in 1931. In response to the catastrophic Impact upon the oil and gas industry caused by the overproduction of the East Texas Oil Field, the Texas legislature called a special session to address these matters. Humble Oii and Refining Co. (now ExxonMobil Corporation) had secured a significant holding In the East Texas Field and aggressively advocated during these legislative hearings for field wide unitlzatlon which would provide for the "orderly development and lowered costs of production and to prevent the waste of oil and gas resulting from rapid development and overproduction." Humble was at the forefront of understanding the need to embrace unitlzation for conservation purposes. Its main objective was to prevent the destruction of the field resulting from over production and not necessarily to Increase the price of the oil. However, the equitable sharing associated with unltlzatlon advocated by Humble was viewed by the small Independent East Texas Field producers as a means by which Humble would monopolize and control the East Texas Oil Field. Unfortunately, as a result, the unitization concept became embroiled In the bitter fight amongst the East Texas Oil Field operators. Consequently, historians, as well as Humble, believe that the inclusion of an express prohibition to require unltization contained in the 1931 waste prevention act to address the East Texas Oil Field controversy was a deliberate legislative attack against Humble. As a result, Texas, the nation's leading oil producer, continues to bear the damaging and wasteful consequences caused by this express prohibition of statutory unitlzation as a natural resource conservation option. The Commission's OJI and Gas Conservation and Waste Prevention Measures during the Development Phases of an 011 and Gas Reid With the responsiblllty of protecting our oil and gas resources albeit without the authority of field wide unltlzation, the RRC has nevertheless administered oil and gas conservation laws during the various development phases of an oil field, generally referred to as primary, secondary or tertiary phases of recovery. During the primary phase of a field's development or the Initial exploration and development phases of oil and gas production, the RRC has, based on sound geo·sclence and reservoir engineering, implemented orderly well placement, production allocation, and other mandated techniques adopted decades ago under sound resource conservation principles to avoid waste of our natural resources; maximize the efficient production of our oil and gas resources; and protect the correlative rights of the interest owners. Gone are the days when drillers could strike a gusher anywhere they pleased. The RRC was also given additional administrative responsibility under the Mineral Interest Pooling Act for drilling of wells during the primary development phase of a field.