Streamline regulations to save jobs

DECLINING OIL and natural gas prices have placed significant downward pressure on E&P companies and oil service operators since early November 2014. More than $1.3 trillion of economic value, along with 150,000 energy jobs, have been lost over the past year. With no bottom yet in sight, there will be more carnage to come. Many are beginning to compare the current downturn to the oil and gas collapse in the 1980s.

Unlike 30 years ago though, we as an industry moved quickly to achieve greater operating efficiencies. Wells that previously cost $12 million to drill are now being drilled and completed at a fraction of that cost. Economically challenged operations are abandoned, while high quality rock is being exploited faster than ever. The fringe areas of the shale plays will become obsolete because they are no longer economical.

The Marcellus and Utica shales have perhaps the highest quality rock in the industry. Since 2007, production from the Marcellus alone has grown from roughly 1 bcfe/d to about 16 bcfe/d (Dec. 2014). Although drilling activity is down considerably from year-ago levels due to record low NGL prices, maintaining production, as well as the responsibility to manage the produced and flowback water from these wells, is no less important.

Few people outside the oil and gas industry are familiar with the complexities of the water disposal business as it relates to the oilfield. All producing wells, even wells drilled during commodity cycle downturns, require fluids management. Newly drilled wells that are fracture stimulated generate a certain amount of flowback water. This water must be recycled and/or reused and, ultimately, safely disposed back into the ground. A reduction in drilling activity, typically results in fewer fracture stimulated wells and less flowback water.

Produced water, however, is generated throughout the lifecycle of a well. As hydrocarbons are depleted from existing reservoirs, the water level within that reservoir typically continues to rise and requires safe and responsible water disposal. Today, water disposal companies, including GreenHunter Resources, are working hard to help E&P companies in the Marcellus and Utica safely dispose of their waste water.

Roughly 75% of GreenHunter's daily water disposal volumes is derived from produced water. Even with a drilling slowdown in the region, the company's two most recent wells at the Mills Hunter Facility in southeastern Ohio came online above expectations at about 6,000 to 8,000 b/d. In addition, three new wells are expected to come online over the next 60 to 90 days that have a significant portion of their injection capacity dedicated to new long-term take-or-pay contracts.

Demand for water disposal services will increase even more with the recent $430 million joint venture announcement by Magnum Hunter. On Aug. 11, Magnum Hunter said that it had executed a Letter of Intent with a private equity fund to develop just under 10,000 net acres in eastern Ohio. All fluids management responsibilities from the JV wells are earmarked for GreenHunter. There will be a significant uptick in well disposal activity at GreenHunter as these 50 new Utica wells come online.

The Appalachian Basin is not without its challenges. It is becoming more difficult to operate in some regions of the basin. Drawn-out permitting and approval processes that are tied up in the regulatory bureaucracy and local communities with ties to environmental groups have created stiff headwinds.

Oil and gas employees eager to get back to work are often sidelined by lengthy delays due to onerous permitting and approval processes. Businesses in those regions that rely on responsible oil and gas development, including local restaurants, retail establishments, automobile dealerships, and hotels, also suffer. As a CEO with more than 30 years' energy industry experience, I don't want anyone else to lose their jobs and potentially abandon the industry as a future career due in part to the permitting policies that could be responsibly streamlined if managed properly.

Rather than creating new challenges for workers, I suggest our local, state, and national authorities work with our industry to create sensible approval processes that help employees get back to work. The sometimes adversarial relationship between state regulators and oil and gas companies serves no purpose other than to delay operations and sideline men and women in the region who are eager to work and want to better their lives.

Clearly, many of the recent layoffs are the result of Saudi Arabia's decision to sacrifice profits for market share. This decision triggered the commodity price decline and a majority of the resulting layoffs. However, the water disposal business, despite the decline in commodity prices, has an opportunity to prosper and eventually employ more individuals.

At GreenHunter, everyone is working hard with local and state officials and the US Coast Guard to streamline the approval process and reinvigorate a sector of a very important industry. I believe that state regulators and the oil and gas industry share many common goals. These goals range from safe and responsible hydrocarbon development, greater employment within the sector, and an energy-independent nation through responsible development of our hydrocarbons. With the advent of horizontal drilling we now have the unique capability to make our country both energy efficient and completely independent from the rest of the world, which has historically controlled our destiny with the ability to regulate the worldwide supply of crude oil.

Gary Evans is chairman and CEO of Magnum Hunter Resources Corp. He is also founder, chairman, and interim CEO of GreenHunter Resources Inc.