The Questar deception

Submitted By Kirby Hedrick - Pinedale

I read last week's paper containing all the positive comments regarding the Questar winter drilling proposal with great interest. As a member of the Pinedale Anticline Working Group representing the public-at-large, I thought it would perhaps be useful if I convey my perception of what is happening behind the scenes. For those of you who don't know me, I had 25 years experience in the oil industry with Phillips Petroleum. During that time I was involved in over 15 major oil and gas field developments throughout the world. I held various positions as a drilling, reservoir, production, processing and major project engineer followed by operations and executive management positions.

My last position was as executive vice president in charge of worldwide upstream activities (worldwide exploration and production plus gas gathering, processing and marketing). I am still active in the oil industry as a director of Noble Energy (an independent oil and gas company with domestic and international operations based in Houston), where I am chairman of the health, safety and environment committee of the board. I have been a resident of Pinedale for the past four years, following retirement from Phillips Petroleum. At various times in the previous 20 years, I called Jackson, and then Farson, home while I worked internationally.

Many of you expect PAWG to help insure that oil and gas development on the Mesa incorporates best industry practices to insure that negative impacts on the environment, wildlife and wildlife habitat are minimized consistent with what is technologically and economically feasible for the companies. I share that objective and that is why I volunteered to serve on the PAWG. I hoped that my experience and independent advice would help the PAWG and ultimately the Bureau of Land Management, make the best possible decisions consistent with multiple use.

Unfortunately, I have come to believe that the deck is stacked against PAWG as far as having meaningful input on the significant issues relating to the Questar winter drilling proposal.

First, the PAWG charter restricts the group from discussion of issues other than those related to mitigation or monitoring of potential impacts of the proposal. Second, many organizations represented on PAWG saw fit to endorse the Questar proposal before it was fully discussed in the PAWG forum. Groups such as the state and county, whom one might have reasonably expected to withhold judgment and recommendations on mitigation measures until they had the benefit of discussion of the issues at the Aug. 11 PAWG meeting, had previously sent letters to the BLM endorsing the proposal with only minor comments.

On top of that, the delay in reestablishing the PAWG following resolution of the Yates Petroleum lawsuit prevented the required task sub-groups from being formed in time to evaluate key elements of the Questar proposal. Some members of the group were concerned that PAWG could not legally make recommendations to the BLM without the task sub-groups having reviewed the proposal. That created an environment at the meeting on Aug.11, when there was no meaningful discussion of the major issues and no chance to try to develop a consensus recommendation on additional mitigation that could be given to the BLM beyond what the represented organizations had already provided to BLM in their endorsement letters.

There are many good initiatives in the Questar proposal. I don't believe I need to dwell on these as they are adequately outlined in the comments the BLM has received from such parties as the Wyoming Game and Fish Department, the Sublette County Commissioners and our governor.

However, based on my personal experience, there are significant issues that are being overlooked which could enhance the Questar proposal while still allowing it to be very economic for Questar to fully develop their leasehold position.

First, contrary to what Questar wants you to believe, it is both technically and economically feasible to develop the Mesa from fewer well pads than they have proposed. Utilizing higher well deviation angles would eliminate the need for the nine new well pads they propose and thus further minimize habitat disruption. I have consulted two world-class drilling engineers who have had broad experience not only in western Wyoming, but worldwide. They agree with my assessment that the industry is technically capable of developing the Mesa with one pad per section. One well pad per section requires roughly 5,000 foot lateral displacement from the surface. The more aggressive drillers are reaching out 30-35,000. Surely it is not unreasonable to expect our Wyoming drillers to achieve a small fraction of what the Arab drillers can achieve.

If my experience and that of the best drillers I have known in my career isn't enough to convince you, consider this. The Record of Decision, page 49, for the Pinedale Mesa concluded that "limiting the number of well pads to less than four per section, based on what is currently known about the technical limitations of directionally drilling wells, may not be technically feasible and meet the objectives of the applicants permit."

This conclusion was based on industry advice and the engineering and geologic report prepared by the Wyoming Reservoir Management Group and contained in the draft EIS. Thus, this alternative was never seriously considered by the BLM during the EIS/ROD. The concerns in the report regarding directional drilling were both technical and economic. Questar's current proposal is based on two well pads per section - which the industry advised was infeasible, and thus not even considered as a mitigation measure, at the time of the EIS. This report, and thus the EIS and ROD are clearly out of date with respect to both. Since the industry deceived us before on what was technically possible regarding this important issue, doesn't it only seem prudent that the industry's actual technical capability be given closer independent scrutiny before endorsements are made?

It is also clear that the economics of developing the Mesa with deviated wells have improved significantly compared to what was represented at the time of the EIS. Questar continues to insist that it is uneconomic to drill wells with maximum deviation angles greater than 22 degrees, yet they apparently haven't evaluated this in detail as they stated at the Aug. 11 PAWG meeting that they have not even cost estimated a 5,000-foot lateral displacement well. Does Questar think the citizens of Sublette County can be so easily deceived? There is a reason that half the drilling rigs working in Wyoming are in Sublette County - exceptional profit opportunities from developing gas at Jonah and on the Mesa.

If that doesn't convince you, consider this: The 1999 engineering and geologic report included with the draft EIS evaluated the economic feasibility of drilling deviated wells based on gas prices at Opal of $1.50 to $2.50 (now $5.40); initial production rates of 1-3mmscfd (reportedly now 10-30mmscfd per George Ogden in July 8 issue of Pinedale Roundup and 5-20mmscfd from Wyoming Oil and Gas Commission production records of Mesa Unit, Pinedale, and Warbonnet Field recent wells).

The report concluded that reserves per well would need to be between 3 and 5.5 BCF per well for deviated wells to be economic within the gas price and well productivity ranges above. Current reserves per well average 28.6 BCF per well based on the 20 TCF reserve figure provided by Questar and the 700 wells included in the Record of Decision. Even if the number of wells required for full recovery doubles to 1400, average reserves would still be 14.3 BCF per well. At the Aug. 11 PAWG meeting, Questar quoted an 8 BCF per well reserve figure for 20-acre spacing. Wyoming Oil and Gas Commission public records show Questar's recent Stewart Point 1-20D well produced 1.3 BCF in its first six months alone. At $5/mcf gas prices, this well would have generated $6.5mm in revenue and more than paid out the $5.0 million cost for the 2,000 foot maximum lateral displacement deviated well in their proposal during that six month period. Although I am not privy to Questar's internal economics, development well payout periods of six months or less normally correlate to economic rates of return of greater than 100 percent. The only logical conclusion that one can reach is that the EIS is hopelessly out of date for determining what is economic and what is not regarding directional drilling. Market prices are triple what they were in 1999, initial production is five to 10 times better and reserves per well are significantly better than thought reasonable in 1999.

Current industry economic and technical capability for 5,000-foot lateral displacement directional wells on the Mesa is a significant issue that the BLM needs to aggressively address before endorsing the additional habitat disruption from building the nine additional pads proposed by Questar and allowing other operators on the Mesa to build additional pads beyond what would be needed for one pad per section.

The second issue that is being overlooked is the significant impact of oil and gas development on sage grouse. Although I am not a wildlife biologist, I offer this personal observation from my perspective as Chairman of the Upper Green River Valley Sage Grouse Working Group sponsored by the Wyoming Game and Fish Department. I have spent the last six months learning as much as I can about sage grouse. I have yet to speak to a WG&F biologist who is intimately involved in the sage grouse issue that disagrees with my assessment that the available data indicates that oil and gas activity is having a significant impact on sage grouse. They point to the absence of leks and nests in the South Piney field, even though the habitat there appears to be prime sage grouse country. Unfortunately, there was no lek data collected prior to start of oil and gas activity to document any decline in population in that area. However, we do know there are no active leks left within the Jonah field - only on the periphery. And finally, we have the preliminary results of Matt Holloran's (University of Wyoming) study, which documents the negative impact of oil and gas activity on lek and nest activity. Questar and the industry have all this information. I am disappointed that Questar and the industry have failed to respond to the latest sage grouse data and information in the spirit of the Adaptive Environmental Management process required in the Record of Decision. Their inaction gives the appearance that they are hoping to deceive the public by ignoring this information and lobbying to keep it out of the BLM decision-making process until after the winter drilling exemption is granted.

If this is their strategy, it is all the more troubling given that the greater sage grouse has been petitioned for listing under the Endangered Species Act. Sublette County is one of the last bastions of prime, un-fragmented sage grouse habitat. Within Sublette County, the historical lek count data shows the Mesa, Jonah and the area from Fremont Butte to the speedway road to be the principle core areas. Industry risks shooting itself in the proverbial foot by ignoring the significant impact they are having on the fragmentation of habitat on the Mesa and hiding behind their compliance with the stipulations and mitigation measures in the existing ROD

WG&F biologists I have consulted agree that sage grouse populations are unable to respond to the rapid industrial development we have seen in Jonah over the last two-to three year period. There is no logical reason for believing that sage grouse populations on the Mesa will respond any differently than those in Jonah. The data collected by WG&F, when combined with the Matt Holloran study, clearly demonstrates that the protective measures in the ROD are not having the desired effect. The oil industry, BLM, the county and the State of Wyoming's failure to acknowledge this significant impact is short-sighted and risks encouraging the U.S. Fish and Wildlife Service to question whether the state is capable of proactively protecting a critical, last bastion of the sage grouse. This obviously increases the probability of listing.

Listing would severely impact not only the oil companies on the Mesa and their shareholders, but a broad group of interests including all energy companies operating in the Rocky Mountains and their employees, businesses that rely on industry activity, ranchers and the state, to name a few.

If you are concerned about what could cause the "bust" part of the oilfield cycle in Wyoming and Sublette County, listing of the sage grouse is the one thing that could cause a "bust" sooner that anyone now expects.

Finally, in 25 years of oil industry experience, I have never seen a major field developed in an environmentally sensitive area without having a detailed, overall development plan reviewed and approved by the regulatory authorities.

The existing ROD is not a development plan. It merely set broad limits and stipulations that were deemed appropriate to have in place in 2000 before intensive activity began. Numerous assumptions and extrapolations were made due to the limited data available at the time. The Adaptive Environmental Management process was supposed to address new information regarding unexpected impacts. The Yates Petroleum lawsuit was a very successful strategy for the industry as it ensured that AEM could not have an impact during the last four years.

Questar controls only 10 percent of the Mesa. Piecemeal approval of the Questar proposal sets precedents regarding granting further exemptions to winter drilling stipulations that will undoubtedly be requested by other companies. No one understands the total impact of these likely additional winter exemptions. Yet our governor and the Sublette County Commissioners are willing to endorse the Questar proposal without the benefit of being able to evaluate the total impact of the precedent setting exemption to the winter drilling stipulations.

There is also no guarantee in the Questar proposal that the other companies will share the Questar facilities and pipelines to help minimize habitat fragmentation. They may continue trucking or try to build their own pipelines because the tariffs proposed by Questar are viewed as excessive compared to the cost of building their own lines. Oftentimes, oil companies try to gain competitive advantage over their competitors by obtaining permits to build pipelines, then try to charge their competitors excessive transportation tariffs to gain access to the lines.

Even Third World countries are smart enough to not fall into the trap of piecemeal approval and thus require an overall development plan before approval of final development. What are we thinking?

The Mesa is core habitat for America's largest mule deer herd, largest migrating antelope herd and the last bastion of the sage grouse. As a former oil industry executive, I am appalled and saddened that Sublette County citizens cannot have access to, and the benefit of, the thoughtful process that goes into formation of the type of overall development plan for the Mesa that was required offshore California, on the North Slope of Alaska or in Indonesia, China and Kazakhstan for that matter.

Is it too much to expect that the public be able to understand the whole development program in a sensitive area such as the Mesa?

These are not minor, inconsequential issues, but they are within the knowledge and capability of the industry to address. Yet is clear that the companies are not going to step up the plate until the county, state and BLM insist that the industry perform to their full potential.

Based on my experience with over 15 major oil and gas field developments, requiring an overall development plan for the Mesa is the single most important mitigation measure that the BLM could apply to ensure that development of the Mesa is accomplished utilizing best available technology while minimizing environmental and habitat damage.

If you agree with these points, don't expect the PAWG to accomplish them on your behalf. Contact your elected county and state officials, as well as the BLM, and tell them it is important that we not fall into the trap of a piecemeal approval of the Questar proposal without having an overall plan of development for the whole Mesa that incorporates and expands on the good initiatives in the Questar proposal.