Natural Gas
Natural gas accounts for about one quarter of all energy used in the United States. Residential use accounts for 22 percent, with more than 60 million homes employing natural gas for heating, cooling and cooking. Industry consumes 40 percent and the business sector 15 percent. Some 14 percent is used to generate electricity. More than 90 percent of the electric power plants built in the last five years are natural gas powered. Natural gas also serves as the raw material to make paint, plastics, fertilizer, steel, fabrics, glass and numerous other products. The Energy Information Administration forecasts natural gas demand will grow by about 40 percent by 2025.
The Barnett Shale
Below portions of Denton and 14 other North Texas counties is the Barnett Shale. The primary commercial production area covers 60 square miles in Denton, Wise and Tarrant counties. The Barnett is a formation of hard shale 350 million years old and 6,000 feet to 8,000 feet below the surface.
Exploration in the Barnett Shale began in 1981 when Mitchell Energy (acquired by Devon Energy Corporation) drilled its first well. Mitchell first used conventional drilling, but found production was beginning to decline. Mitchell commissioned a study proving natural fracturing (underground earth separation) was not a benefit in the Barnett. The company commenced to find the optimum fracture techniques. The typical well fracture compound today consists of a million gallons of water and one-half million pounds of sand.
The United States Geological Survey reports up to 30 trillion cubic feet of natural gas in the reservoir. The Barnett Shale is the largest-producing gas field in Texas. However, it is classified as an “unconventional natural gas resource.” Unconventional gas is gas that is more difficult and less economically sound to extract. The result is drilling methods that can create problems for local governments and their residents.
Drilling
After an energy company has determined the probability of gas in an area, it enters into a contract with the owner of the mineral rights. Ownership of the mineral rights may not be the same owner as the owner of the surface property.
A large drilling rig, well in excess of 100,000 pounds, is transported to the site over county roads. Drilling operation commences, and the operation can last from two weeks up to two months. Drilling is non-stop 24/7. Water used to drill and complete a well is transported to the site by tanker trucks weighing approximately 80,000 pounds per vehicle. Produced water is removed from the well and hauled to disposal sites. Approximately 400 round trips are made to each well during the fracturing operation. The 400 trips are equivalent to nearly 4 million passenger vehicle trips.
The water and sand mixture is forced into the well under high pressure to crack the reservoir, commonly called fracing, and allow the gas to escape and be removed from the well. Wells were usually drilled vertically every 40 acres in high production areas. New technology utilizes horizontal drilling that is more productive and can be spaced at greater intervals – one for every 160 acres.
Curse
In the late 1990s gas drilling in western Denton County accelerated. In 1995 there were 156 wells in Denton County. In 2004 there were 1,460 wells (see chart). Today there are more than 1,700 wells in the county. Drilling is largely located in Denton County’s most western precinct. Residents near drilling sites became agitated due to 24/7, lengthy drilling operations. Each well brought traffic, odor, dust, lights and strangers to an otherwise rural environment. Wells could be located within 200 feet of a home on property owned by the surface owner. Again, surface ownership and mineral ownership may be, but often are not, the same individual. Many complaints were made to the county by residents.
The Railroad Commission of Texas is the regulatory authority for natural gas production. Counties have limited authority over gas drilling. Cities are granted more authority due to their ability to pass ordinances, i.e. wells can be within 200 feet of a residence in the county. Cities can enact distance provisions. Gas production regulation follows the same pattern – broader powers granted cities compared to limited powers granted counties – by state statutes.
For many years, Denton County rural roads were designed to handle 25,000-pound loads, adequate for local traffic and general farm implements. Bridge loads were 3,000-pound to 28,000-pound weight limits. As a result of the increase in traffic and weight, paved roads that were in good condition soon experienced major failures.
“In 1999 the newly elected commissioner and I agreed to establish a goal to pave every county road,” said Denton County West Road & Bridge manager Mike Burton. “However, due to the drilling, we modified our program to major repairs and increased standards to handle the additional weight and traffic.”
Four major bridges in the western section of the county have failed in the past three years. Two have been replaced at a cost of $350,000 and $230,000, respectively. The other two are in the process of being replaced. All were in areas of gas well production and on roads used for drilling operations. Roads paved with chip-seal had an expected usability of 12 months to 18 months before needing to be completely rebuilt. Gravel roads could be bladed and were better for the gas areas. Hot Mix Asphalt (HMA) held up better but needed constant repairs in areas near wells.
The Texas Transportation Code, Section 251.160, allows counties to recover the costs of damage to county roads. However, liability is difficult to establish since multiple wells drilled by several energy companies are located on a single county road.
Denton County had to increase road maintenance and paving standards to cope with drilling. The road and bridge budget has increased at an accelerated rate in the past several years. The budget for 2005-06 has increased 73 percent over 1995-96’s budget. Additional funds have been required from the general fund in addition to increased road and bridge fees received from more vehicles being registered. In 2005, the road and bridge budget, to date, has been supplemented by an additional amount of more than $1 million from bond funds.
Denton County is one of the fastest-growing counties in Texas (see chart). Primarily, the growth was due to additional subdivisions in cities and the rural areas. Concerns were raised regarding the compatibility of traditional development in areas where gas deposits were located. To study the issues, the Gas Task Force was formed. Membership was composed of energy company representatives, developers, homebuilders and other citizens.
The task force’s mission was to investigate areas of cooperation between the county, residential developers and energy companies. Topics included road issues, environmental issues, and education of residents on their rights in drilling operations. The result, although not 100 percent, has been a better relationship between the various segments.
Blessing
Denton County’s tax revenue on minerals (mostly natural gas) has increased from $89,000 in 1995 to $2,731,000 in 2004 (see chart). Production from the Barnett Shale is up 12.5 percent in 2005 over 2004. Some of the increase is due to additional drilling in Johnson and Parker counties.
Denton County has increased paving standards to accommodate the increased weight and traffic loads. Although the paving costs have increased, maintenance and replacement costs have declined making for more efficient use of resources. Before 2005 the county had never constructed a concrete road. Studies indicated that cost-saving measures were available with concrete construction on roads utilized by well traffic. The first county concrete road is under construction.
Two years ago a bridge on this road collapsed due in part to drilling operations. The county replaced the bridge at a cost of $350,000. Only 7,000 feet of this road is the county’s responsibility. Due to the location of the road, the drainage costs are excessive. Estimated cost of the project is $1.2 million. HMA construction necessary to sustain traffic and weight would have exceeded the costs of concrete construction. Additional concrete roads are in the planning stage. Roads constructed with HMA, in order to maintain durability and save maintenance cost, are laid with six inches of limestone base and four inches of asphalt.
The county entered into a maintenance agreement with Devon Energy. At the time Devon was drilling approximately 50 percent of the wells in Denton County. Here’s an example of their cooperation: They voluntarily contributed $115,000 to aid the county in replacing a bridge that cost $230,000 to rebuild.
Owners of mineral rights have fared very well. At today’s high energy prices, the average royalty owner’s share of revenue from one horizontal well can be in excess of $50,000 each month for the first year of drilling. After one year of production, due to less gas produced by the well, income drops to approximately $20,000 per month. Mineral owners normally have several well shares depending on ownership in large acreage.
Natural gas is an alternative energy source. It is readily available in the United States. When technological conversions are made changing energy requirements to natural gas from petroleum, it lessens the demands for oil, usually supplied by OPEC members.
Will the bubble burst?
John England, business/personal property supervisor at Denton Central Appraisal District, advised the following in a memo to the taxing jurisdictions: “Taxing units with mineral value (especially new gas well value) are cautioned not to expect value gains due to drilling activity to be permanent. On the contrary, when drilling slows or stops, as it will at some point, the existing wells’ value will decline each year as the mineral reserves in the ground are depleted. It may be advisable to treat the transient value as a windfall for however long it exists but realize that it will not be a permanent component of your tax bases.”
Blessing or Curse?
You be the judge.
When asked, some residents may say that drilling is a curse due to the disruption of their rural lifestyle. They could be standing by their mailbox, with several large potholes visible. You may have difficulty hearing them over the noise of the five drilling rigs in view.
Mineral owners would say gas drilling is wonderful! They could be communicating by ship-to-shore radio from their yachts. If you listen carefully, you can hear the clinking of champagne glasses.
Dr. Phil Henderson, a veterinarian from Ponder, said, “Gas wells are a blessing if the tax generated is applied to the area of roads where the gas wells are located; if not it is a curse.” Henderson should know – he travels western Denton County roads on a daily basis. Due to his honesty and candor, he was appointed to the Denton County Transportation Committee by the author of this article.
By Denton County Commissioner Jim Carter, Second Vice President, North and East Texas County Judges and Commissioners Association