An Interview with Jim Welsh, Commissioner for the Louisiana Office of Conservation
July 28th, 2009
By Keith Mauck
Jim Welsh has seen the tenures of 9 former Louisiana Office of Conservation Commissioners come and go since he began his civil service career with the Office back in 1965. Today Jim is serving as the 23rd Commissioner and getting to oversee the Office during this historic Haynesville Shale drilling frenzy. Jim took time away from a honey-do list to speak with me by phone on a host of topics.
GHS (GoHaynesvilleShale.com): So let’s get a quick run down on the duties of the Louisiana Office of Conservation (LOC).
WELSH: We’ve been around since 1912. We have a lot of responsibility related to the oil and gas industry. We regulate pipeline, natural gas storage, lignite mining and injection well disposal. We also have a very active ground water aquifer program.
[Editors Note: The website states that the LOC’s mission is “to conserve oil, gas, and lignite resources; to regulate the exploration and production of oil, gas and other hydrocarbons and lignite; to control and allocate energy supplies and distribution; and to protect public safety and the State's environment from oilfield waste, including regulation of underground injection and disposal practices.”]
GHS: What’s your background?
WELSH: Well, I’m a geologist by trade. I’ve been with the office in some capacity since 1965. I was appointed the 23rd commissioner by Governor Foster in 2002 and reappointed by Governor Blanco and then kept on by Governor Jindal. I’ll soon be starting my 8th year as Commissioner. I’ve had the privilege of being the first career civil servant to be appointed the Commissioner.
GHS: What is the relationship or hierarchy between local and parish governments and the LOC?
WELSH: They have their responsibilities. Local governments are, of course, free to pass ordinances except when it comes to oil and gas regulations. My opinion is that this governance falls under the authority of the LOC. The state statutes placed this responsibilities under my office in order to prevent Parishes from doing something 64 different ways. It’s been that way, it’s in the statutes. We always work with the local government, such as the recent regulations. We had representatives from Caddo and Bossier Parishes as members of the ad hoc committee which drafted our new ordinance rules. We had public hearings. We got a lot of comments and we came out with a good piece of legislation dealing with the situation in NW LA.
GHS: What are you hoping to achieve with the ordinance dealing with Haynesville Zone E&P Operations in Urban Areas? (http://dnr.louisiana.gov/cons/notices/20090501-haynesville.pdf)
WELSH: As in any rule, it is designed to protect the environment and public health and safety. It has many provisions in it dealing with drilling in urban areas. People need to remember that these are in addition to our state-wide rules under 29b. Our ordinance is tacked onto these existing regulations to be enforced within city limits in the 8 parishes affected by Haynesville Shale drilling.
GHS: What was the thorniest issue that the committee has to hammer out in working out this ordinance?
WELSH: We seem to be getting more attention to noise levels. The local authorities wanted to accept the same decibel levels as the levels used in Fort Worth for the drilling of the Barnett Shale. After we saw some studies, we didn’t see a reason to go that low; when we pass a regulation we like to have a reason for doing it. The E&P companies, on their own, hired a Shreveport lab, All-Tech, to test the noise levels coming off local drilling rigs. The eventual decibel levels approved are close to the Fort Worth levels and within the levels mandated by all OSHA safety rules for noise. Some might dispute exploration and production companies (E&Ps) going out and hiring their own firm, but the lab is certified by DEQ. The study was done this year, in Louisiana and in the Haynesville drilling zone. So this study hits the bull’s eye & was a very credible source for adopting the decibel range we did.
GHS: Can our local authorities pass laws/ordinances regarding exploration or issues surrounding exploration?
WELSH: One issue that the ordinance does not cover is road use. The closest we come to addressing road use is that we do mandate that the drilling companies certify, to the LOC, that they are in contact with local authorities regarding their level of road use. This approach allows the local government to handle it the way they so choose. After all, they are the best entity to handle this. Roads aren’t our cup of tea.
GHS: I had heard that the District had been somewhat surprised by the upswing in activity in 2008. What measures did the district take to deal with the surge in drilling activity in the Shreveport District? How are these measures working? Has the district 'caught up' in this regard, in his opinion?
GHS: What has been the LOC’s response to the need for increased manpower to handle the increased activity in NW Louisiana?
WELSH: It’s been a real fight and I understand the Governor just came out with another hiring freeze. However, I think we are ok now. I think we are able to enforce the rules in the Haynesville. We have 12 inspectors currently in the Haynesville Shale area and we have a pool of 45 inspectors, state-wide, that do other things (i.e. lignite inspections), but we can draw on any of these guys if we have to. So we are absolutely able to enforce state laws in the field.
GHS: Are you guys self funded or do you all take from state taxes?
Welsh: We have a little bit of general fund dollars. We self generate more than 50% of our budget. We generate this through a host of permitting fees. Any activity we regulate comes with an associated fee (i.e. production fee per Mcf of gas). We get some money from the federal government that we have to match with state money. Examples of this include our underground injection program, which receives funding from the EPA, our lignite mining program, which is partially the Department of the Interior, our pipeline safety program, which is partially funded by the U.S. Office of Pipeline Safety. We have an overall budget of 17 million and we have roughly 190 employees. Most of our employees are either geologist or petroleum engineers so we have a high tech office overall.
GHS: Let’s do an ABC rundown of the permitting process?
WELSH: The permitting process if pretty straight forward, spelled out by approved legislation. Basically, the E&Ps have to provide a certified location plat. They have to provide unitization information if there’s a unit involved. They have to document that the units are spaced correctly according to the field order.
The company is going to show us how they plan on constructing the well. They must identify the zone they are drilling down to. They have to show that they are fully in compliance with all the rules and regulations on the front end. We have a standard inspection form with a fairly long list of things that our inspectors check off (blow-out preventers, spill containment).
This information is then provided to the district office in Shreveport. The Shreveport office does a basic completeness determination making sure everything is addressed and then they forward it to the Baton Rouge office where the permit is actually issued from; we have streamlined this over the years.
GHS: So how long does it take to get a permit for a well?
Welsh: It is several months assuming no problems pop up; a couple of months probably.
GHS: Have you seen a slow down in the number of wells being permitted since the slowdown?
WELSH: I’ll tell you, we are not seeing any slowdown in the Haynesville. It’s amazing that 98 of the 116 rigs working in the state, and off shore, are in the Haynesville Shale. Statistically, South Louisiana has traditionally been the oil & gas exploration leader. Not so anymore.
Reporting Well Results
GHS: One of the issues that keep bubbling to the surface on GHS is the prospect of stiffening some of the penalties on operators for noncompliance with the reporting requirements. What is your stance on this issue?
WELSH: I think this is really a misunderstood thing. Reporting requirements are being met by the companies. Basically, the company is required to report within 20 days after the well starts producing. Producing means that the well is online and plugged into the pipeline; they are marketing the gas. Right now there are 130 producing wells in the Haynesville, but there are 495 active wells so a lot of them aren’t completed by the definition we use (i.e. selling gas to a pipeline).
Every number you see on SONRIS, production numbers, the company has filed a certified production report with our office. We don’t report company PR; we go by official filings to the LOC. It’s important that people have a place to go to see this production info. By filing this form, the company is signing under penalty of law that their production is x. This filing then becomes part of the well file. It would not be wise for a company to falsify a production report.
GHS: What are the penalties for a falsified production report?
WELSH: Generally, we have authority to fine up to $5,000 per day. We don’t have a strict fine schedule we follow. With oil and gas, it’s done on a case by case basis depending on the facts of the situation. We look at whether it was a foul up or done purposively. Also, we’ll take into account the compliance history of the company.
GHS: Do you think the process is efficient enough and the penalties sizable enough to prevent abuse of the reporting system?
Welsh: Yeah, the fines aren’t the biggest stick we have. Our main deterrent is really the ability to shut the well in. To a company, this is the jugular vein; they do not want to get shut in. In this scenario we cancel their authority to produce. This means that it is illegal for them to produce it. Illegal for a pipeline’s to take their gas from such a well, or a transporter to haul any oil from the lease, it is a very effective big stick.
GHS: How do you track the abusers down?
WELSH: We have a tracking system in place via our production audit section. When the company starts producing they’ll file a production report. Pipelines also have to report what they are receiving and transmitting. All these numbers have to jive. If not, then there is something wrong. We have auditors checking this every day. We are tied in to the Department of Revenue; we have a pretty good cross referencing system. I don’t think people are being “cheated,” so to speak. The state gets severance tax, so the administration and legislature want to be sure all the funds due them are getting into the state treasury.
GHS: When is the last time you shut a well in and what were the circumstances surrounding it?
WELSH: It’s been awhile, I believe it dealt with injection wells. Regarding to issues, we issue them all the time, but I don’t recall anything really serious. As of late, most penalties have been fines in the neighborhood of $1,000.
GHS: So, if a landowner has an issue with a driller, perhaps they feel they aren’t getting adequate royalties, is there a way in which the landowner can file a grievance?
WELSH: Not with the LOC. This is solved in Louisiana courts which interpret Louisiana’s mineral code. Mistakenly, some who think they got the short-end of the stick on their lease give us flack. However, the LOC is not involved in this. This is for a judge in a court of law to decide.
GHS: Any plans to bring some SONRIS classes to NW Louisiana?
WELSH: Yes, we want to do that. We will be participating in the Gulf Coat Expo in October of this year. We will have a booth there. Our people will be there to show what can be done on SONRIS. We have had these classes all around the state and even Texas. In fact, we have one coming up in New Orleans in September. The classes are popular. It’s important to us that we have these so people know how to do reports correctly. For our system to work, companies have to cooperate.
GHS: Any plans to create some custom reporting on SONRIS so we can track Haynesville Shale monthly production (both total and by parish) or the possibility of giving the SONRIS user the possibility of differentiating between Haynesville Shale and non-Haynesville Shale production? Any plans such as this in the works?
WELSH: Staff has compiled such information in the past on request but it will take additional programming by our IT Division for this service to be available via SONRIS.
GHS: Have you ever seen water contamination issues in your tenure as a civil employee?
Welsh: Yes, in the early days, there was some contamination. Early on, before the underground injection control program matured and we didn’t have our current rules, it was pretty lax. The underground injection program had to grow and become more stringent. Once the EPA started enforcing laws that the state(s) had to certify that it had a sound set of laws and rules and the people to enforce them, it improved. As far a Louisiana goes during that early time, I believe we were ahead of most states. We’ve had a general prohibition against aquifer contamination since the 20’s. We are very competent in what we do in protecting underground water supplies.
GHS: What about hydraulic fracturing; do you have any concerns that fracturing may contaminate our ground water supply?
Welsh: Hydro-Fracking is fairly new. Fracking is not considered an underground injection; it’s exempted under current law. Regarding contamination by fracking, in my opinion, we have never witness any problems causing any aquifer contamination. We have done exhaustive research of our records and haven’t found anything. Most other states will tell you the same thing. A deeper issue is how flow-back water will be classified under the Underground Injection Control program. Frack fluid is 99.5% water and sand. It does have chemicals that could be toxic in a concentrated form; this is what happened to the cows. But some of these chemical we use in every day living. An example of this is chlorine; we use chlorine everyday in our drinking water and our pools. Overall, frack fluid is pretty inert, but it does have some bad stuff in it. Just in diluted amounts. It’s not the horrible thing that some people believe it is.
GHS: I’m sure you are keeping up with the idea of the EPA playing a role in the regulation of Hydraulic Fracturing; I shouldn’t assume, but I think it’s safe to say that you probably think the DOC has it covered?
Welsh: Yes, I’d rather the EPA stay in their regional Dallas office and leave it to our state to regulate.
GHS: What steps have been, or will be taken to ensure our water system is not consumed beyond fair use?
Welsh: We have some ideas to prevent overuse of our aquifers. We have some new proposed rules that will allow for the recycling of flow-back water & salt water. The rules would allow us to clean it up for reuse in frack water. To me this is a good move to minimize the use of underground aquifers for fracking.
We saw on the front end that the aquifer that serves Desoto Parish and South Caddo, the Wilcox is not suitable for withdrawing the millions of gallons needed for fracking. It would have been a matter of time before the aquifer would have really been damaged. From day one, we encouraged companies to get out of that aquifer and utilize other sources of water for fracking that being the Red River, Toledo Bend, and the Red River Alluvial aquifer. This high yield aquifer runs right along the Red River; the water isn’t suitable for drinking due to its mineral content, but it’s perfect for fracking and it’s an unlimited supply. It makes no sense to me not to use it.
We’ve identified, at the lignite mines, in Red River and Desoto Parishes, sources of water. In order to reach the lignite, the mines have to dewater the Red River Alluvial aquifer. The lignite is found just below the aquifer. Well, the mines send millions of gallons of water per day up the Red River. It makes no sense to me why we aren’t using this for fracking; picking up on these types of things make up good conservation practices.
GHS: Do you, as the current Commissioner, have the ability to issue an emergency injunction should it be found that our water sources are in jeopardy?
Welsh: Yes we do. We can issue an order that would restrict withdrawal. An order would be given if an aquifer is unable to show its sustainability which essentially means an inability to produce water at its previous normal levels. So yes, I do have the authority to issue such an order. We recognize priorities for water use and of course, the number one purpose is for our drinking supply. We are finding ways with the use of science and common sense to manage our water supply. It takes awhile to bring industry in line with our goals, but as long as they want to work with us, we’ll work with them. We feel very strongly than industry and nature can co-exist but it does have to be managed very wisely.
GHS: What is protocol for handling a reported environmental concern?
WELSH: Any time there is a complaint or issue, such as a blowout, we have a very formal process that we go through that informs all first responders. It’s guided by the State Police who have the ability to quickly to notify the DOC and the DEQ. The State Police send their HAZMAT team out to the site. The local Sherriff’s office is notified as quickly as everyone else. I know that Sherriff Prator was concerned about his notification. The exploration companies know the process and it’s carried out state wide.
GHS: Let’s use a hypothetical situation, or let’s look at the recent spill in Caddo Parish where 20 cows dropped dead – what role does the LOC play once a possible issue has been reported?
Welsh: We coordinated this effort with the DEQ. They played a big role in the investigation of this spillage. Although all our people [state department] determined that there was no E&P waste involved in this episode, what we did see was some spilled chemicals that had not been mixed into frack fluid. The DEQ took the lead by sampling all the chemicals, the drill site, the water and soil in the pasture.
GHS: So there is a hotline one can call to report hazardous waste or activity?
Welsh: Absolutely. We have a hotline that citizens can use to report. It’s in bold red letters on our website. You can’t miss it. Someone is there 24-7, it’ll be answered. We got the procedure to get the report to the proper authorities.
GHS: What is the LOC’s stance on units larger than 640 acres? Do you believe the standard has been set at 640 acres?
WELSH: Generally, we try to go with 640, that’s what the equities have determined. However, as production declines, which it will do, it is important to have the flexibility for companies to down-hole combine production. As these gas sands get marginal economically, it extends the life of the operations if companies can combine, or co-mingle, production from all the zones (i.e. the Haynesville and the Cotton Valley). This is the most economical way of getting any remaining gas. Otherwise, it’s going to be a nightmare trying to figure out what’s coming out of each zone.
GHS: What determines the reason(s) for granting larger units?
WELSH: The sections aren’t exactly 640, but close, and then you have some are that come up against the state line. We don’t like to leave gaps between units. We’d rather add that on then leave a landowner out of a unit; otherwise some landowners would never see production. Also, you’ll notice with Toledo Bend, we have some larger units that extend all the way to the Texas line. No company wants to put an off-shore rig in Toledo Bend. You just have to come to the hearing to understand why the units are given the size they are. Reasons will vary as to why the unit is size assigned.
GHS: But you don’t see a larger unit as becoming the standard?
Welsh: No, larger units will only be allowed for very specific reasons. Such as urban areas. As you get into urban areas, drilling locations are scarce and you just can’t drill anywhere because of existing ordinances. So, the companies have to carefully plan the configuration of the unit(s) and if they can’t get in there, the company won’t be able to drill and landowners won’t get a well(s) on their property.
You can read more at the LOC’s website http://dnr.louisiana.gov/cons/conserv.ssi.