by Evelyn Pyburn
Representatives of various aspects of the Montana’s energy and natural resources met with Congressman Greg Gianforte, last week, in a listening session about the issues faced by each industry. “My job is to be your voice,” said Gianforte in asking questions and listening to suggestions from Alan Olson, Montana Petroleum Association, Todd O’Hair of Cloud Peak Energy, Kent Beers of Oasis Petroleum, and Tom Hauptman of KGH Operating Company, Montana Senator Tom Richmond, and Jesse Noel of Westmoreland Coal.
While they have seen some backing-off of regulations over the past year, Montana energy developers would still like to see more changes in regulations and fees.
Hauptman pointed to the wide variance in permitting fees between the federal government and state government, as an example. While the federal government charges $9,790 for a permit on a gas well, the state charges $25. With regulations piled on top of those fees, which require hiring professional consultants to provide data to the government, the cost of just getting permitted can easily reach $40,000 to $50,000 –one third of the cost of developing a well, said Hauptman. Costs like those keep small companies out of the business, he said. “The rules keep going up and up,” said Hauptman, “it is mission creep.” Those things have to change, if we want people in places like Shelby and Cut Bank to be able to compete.”
Hauptman said that he was puzzled by the delays and barriers since the development of oil and gas benefits the federal government in the receipt of federal royalties.
“And the state benefits, and the county benefits,” added Gianforte.
Another issue that needs to be addressed, according to Olson, is a change in when the Federal government values gas in order to determine the royalties paid. It has always been valued at the wellhead, he said, but now they want to value it down the line after processes have made it more valuable. Coupled with the elimination of some previously- allowed deductions, producers are having to pay higher royalties.
Hauptman said, “We are all for ‘all of the above’” but alternative energies have to be backed up because they only produce about 35 percent of the time. “So what do we have to augment that? The only thing we have is natural gas.”
“This is a national defense issue, too,” added Gianforte, who said he is supportive of the President’s goal that the US be energy independent.
Richmond pointed out that there is a Russian tanker docked in a Massachusetts harbor right now selling natural gas (NGL). With natural gas in abundance in the US and with prices so low there should be no need for the US to be purchasing natural gas from Russia, he said. NGL exports are up, he said.
Gianforte asked, “We saw the administration lift the ban on exporting crude oil. What has that meant to the industry?”
“To the industry as a whole it has been fairly positive,” said Olson, but because Montana’s market is isolated it still struggles with a price differential because of costs of getting its crude to market. That differential has improved with the increased capacity of pipelines, rather than having to ship it by rail, said Olson.
Gianforte asked, “What is the safest and most environmentally friendly way of getting it to market, by pipeline or rail?”
Pipeline is the safest, most environmentally friendly and most economical, said Olson, adding that more pipelines are needed.
Calling it the elephant in the room, Jesse Noel, Director for Environmental and Regulatory Affairs for the Westmoreland Coal Company, talked about Thursday’s breaking news that his company is considering filing for Chapter 11 protection. Noel made it clear that the company’s three Montana mines are profitable despite the Colorado-based company’s financial problems. Westmoreland Coal also has mines in Wyoming.
Although uncertain as to what direction the company will take, there will have to be some restructuring, said Noel, but to keep the Montana mines operational is a high priority.
The mines are “good places to work,” said Noel, pointing out that many of their 500 employees earn six figure salaries.
“It’s a lot of money,” said Noel, in underscoring the importance of the mines to the state – not least of which includes the taxes paid. In 2017, Westmoreland Coal paid $39 million to the federal government, $34 million to the state of Montana and $11 million to the Crow Tribe.
“Anything we can do to keep jobs in Montana, we do,” he said.
Coal has struggled with the stiff competition of low natural gas prices and with regulations. The regulations “were put into place to shut down coal mines,” Noel said, adding that they have seen “some movement” away from that.
Todd O’Hair of Cloud Peak Energy reported that contrary to a lot of reports, the demand for coal is not slacking off, but is higher, as evidenced by a recent contract his company secured with a Japanese company. The contract is with JERA Trade, Singapore, to fire a new state-of-the-art coal gasification plant in the Fukushima Prefecture.
“You hear in the news that the whole world is coming off coal,” said O’Hair, “It’s just not true.” Countries are developing coal generated plants and are importing coal from other countries. “Fracking has opened up a wave of natural gas only in the US. The rest of the world is projecting that coal will remain important.”
While Montana is the “number one holder” of coal in the nation, the state struggles with having to pay more to ship it since they have to ship it through Canada which adds $9 more per ton to its cost.
Another area in which changes would be welcomes, O’Hair told Gianforte, is to reduce the amount of time it takes for the federal government to permit a mine. It takes ten to fifteen years, he said. “I don’t know how many businesses can plan business for 15 years out.” Reducing the permitting time to have that, would be helpful.
The problem is not so much the regulations but the appeals process, he said. “Every point in the process we are being challenged – not about how we are doing things, but whether we did the study good enough.”
Referring to the government agencies, Hautman added, “It used to be a cooperative effort to get a study done, but now it is ‘we’ vs. ‘them.’” The general message that producers get, he said, is “we don’t want coal.”
That has a “tremendous” negative economic impact to Yellowstone County and Billings.
Olson commented that it costs a hundred times more to do a project on federal land than on private, all because of the permitting process.
Gianforte asked, “Can we develop oil and gas and resources while still protecting the environment?”
“Hands down,” replied Olson, adding that it is not that developers are trying to avoid regulations, “We just want them to make sense.”
“What should the federal government do?” asked Gianforte.
“Take lessons from the state agencies,” responded Olson.
“State agencies do a fine job. Federal permits just piles on,” said Beers.
O’Hair thanked Gianforte for his support of the Tax Cut and Reform Bill. “It had a meaningful impact on our employees,” he said. It has meant about $170 more a month in their paychecks.
Olson commented, “This past year has been a big sigh of relief. We don’t have to look over our shoulders every day, wondering what’s next.”