Airport Participation in Oil and Gas Development (2018) / Chapter Skim
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Pages 32-65
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32 This chapter reports on the original research conducted in connection with this synthesis. The panel identified 13 airports to interview that have experience with oil and gas development.
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33 Denton Enterprise Airport, Texas (DTO) Denton Enterprise, a city airport, also serves as a reliever airport for DFW.
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34 airport-owned land from a wellhead located a mile from airport property. Because the wellhead is not on airport property, there is no airport lease, nor was the FAA consulted for approval of the transaction.
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35 3. Have any airport users/neighbors complained about noise, fumes, or odors associated with oil and gas development by the airport?
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36 3. Does the airport use contractors or consultants to manage the oil and gas development?
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37 Arlington Airport recently opened its west taxiway, which allows for the planned development of additional maintenance facilities, hangars, and aviation businesses. The airport hosts 20 businesses on site.
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38 In 2005, a small operator approached the city, seeking to exploit the gas resources located under a city landfill. The city decided to wait another year or two before allowing such drilling operations.
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39 Once the plan was approved, Chesapeake began implementing the development of the well pads adjacent to Arlington Airport; within 9 months, the wells were producing and the airport received its first check. The wells are still producing, even though the price of natural gas has dropped dramatically.
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40 DALLAS/FORT WORTH INTERNATIONAL (DFW) This case study is based on research and interview questions with Paul Tomme, Esq., airport legal counsel, and Jim Jackson, airport oil and gas development.
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41 Factors Taken into Account by DFW in Making Oil and Gas Decisions Valuation of the DFW Mineral Estate After DFW decided to pursue exploitation of its mineral resources, the airport hired DeGolyer and MacNaughton, an independent appraiser, to estimate the quantity and quality of the mineral estate and evaluate its market value. DeGolyer and MacNaughton is based in Dallas and offers petroleum consulting services, resource evaluations, field studies, reservoir simulation studies, and many other services for energy and financial services companies worldwide.
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42 when disruption or interference with airport operations is a concern. Chesapeake Energy is solely responsible for the development operations.
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43 • 2010 – One well drilled. • 2011 – No wells drilled.
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44 Local Development of Natural Gas By early 2000, news of natural gas development from the Barnett Shale had spread to Denton, and before long an oil and gas operator approached the city with a proposal for natural gas extraction from city-owned land. That same year, the city entered into an agreement for the mineral development of the first well on city property.
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45 road remediation plan and agreement that became an additional requirement in the regulatory approval and leasing process. Indeed, the city conditioned its plat permit grant on the successful execution of the road remediation agreement.
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46 Gas Revenues The Denton Airport lease produced over $8.5 million in royalty payments between 2010 and 2015. The annual royalty payments are ongoing, although payment amounts have dropped dramatically since the beginning of the drilling operations owing to the drop in the price of natural gas; the original anticipated 10-year forecast of $18 million in collected revenues will likely not be reached.
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47 • 2004 – First directional well built in the interior of Denton Airport property; capped within 1 year; three additional well pads built. • 2009–2010 – Well production begins; lease renegotiated to change royalty calculation.
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48 In the 1970s, before land was acquired for the new Denver International Airport, 71 oil and gas wells operated on what would become airport property.31 Because surface access rights in Colorado are granted to any party that owns mineral rights, the City and County of Denver acquired the mineral rights so it also would control surface use of airport land. Prior to the acquisition of land for the new airport, the City and County of Denver retained certified reservoir engineers to perform an evaluation of the existing wells.
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49 FIGURE 16 Oil and Gas Wells Surrounding Denver International Airport. Source: http:// blog.drillingmaps.com/2014/10/denver-airport-oil-gas wells.html (October 2014)
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50 Ongoing Management of Oil and Gas Activity at DEN DEN retains a single contractor (PetroPro Engineering, Inc.) to manage its mineral extraction program.
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51 that is acceptable to the Lessor to lease for oil and gas exploration and production [on] any Airport lands not then subject to this Amendment, other than the Existing Lands or Additional Lands, to which this provision shall not apply.
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52 practical matter, however, pooled rates are often tied to the financial terms negotiated by the owner of the host site from which the pooled reserves are tapped.46 If a landowner fails or refuses to enter into a voluntary pooling agreement, the developer may seek compulsory participation at statutory rates (NY ENV CON LAW 23-0901)
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53 owner. No approvals were necessary from the FAA ADO because no drilling activity occurred on the surface of airport property.
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54 Extent and Ownership of the Mineral Estate Greeley is located east of the Front Range of the Rocky Mountains, 45 mi south of the Wyoming border and 63 mi directly north of Denver. The airport is located in the northern reaches of the Niobrara Shale Formation.48 FIGURE 18 Drilling Rig in Weld County, Colorado.
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55 Regulatory Responsibilities In GXY's mineral lease agreement, the well operator is responsible for compliance with all state, federal, and local regulations.50 Accordingly, GXY has assumed no administrative or regulatory burdens associated with the oil and gas operations at the airport. Nor do airport staff regularly monitor, audit, or supervise the extraction of natural gas from the well located on GXY property.
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56 Background Pittsburgh International Airport is located in Allegheny County, Pennsylvania, and is operated and managed by the Allegheny County Airport Authority, which was formed in 1999 as a successor to the Allegheny County Aviation Department. The authority is a municipal authority, a form of special-purpose government unit under Pennsylvania law.
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57 Factors Considered by the Authority in Making a Development Decision Valuation of the PIT Mineral Estate After the authority decided to pursue exploitation of its natural gas resources, it hired an independent appraiser to value the assets related to the mineral estate and evaluate their market value. An individual or a team of business, finance, and technical experts can conduct this type of appraisal.
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58 Management of Drilling Operations and Environmental Cleanup The management of drilling operations at PIT is the responsibility of the winning bidder. The winning bidder is also responsible for any environmental cleanup, which would be undertaken only in the event that an issue arises.
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59 • January 2015 – FONSI and ROD issued for environmental reevaluation. • June 2016 – Gas flows to compressor station.
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60 Oil and Gas Development on Airport Property In 2009, the city published an RFP for oil and gas exploration and development on 650 acres of airport property. The city did not retain a consultant to estimate the mineral reserves located on ISN property; instead, it relied on the sophistication of the oil and gas firms operating in the region that submitted development proposals.
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61 Lessons Learned On-Airport Versus Off-Airport The airport director recommends that airports explore participation in an off-airport wellhead development wherever it is allowed. Such an arrangement has freed the airport from performing several administrative tasks and satisfying regulatory requirements, including undertaking an environmental study, obtaining FAA approvals, entering into leases with developers, and monitoring developer compliance.
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62 6 http://www.cob.unt.edu/firel/baen/Baen-%20Standard%2088%20Oil%20and%20GasFinal.pdf 7 https://www.dfwairport.com/fastfacts/; $37 billion in total economic output across North Texas is attributable to DFW. 8 https://www.reference.com/business-finance/natural-resources-texas-548641046809980; Texas also has abundant mineral resources.
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63 33 A shut-in well is one that is capable of producing but is not presently producing for various reasons, including lack of a suitable market, lack of facilities to produce the product, regulatory issues, economic infeasibility, or other reasons defined in the shut-in provisions contained in the oil and gas lease. 34 One of the transferred wells was completed in 2012.
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64 48 The Colorado Oil and Gas Conservation Commission regulates oil and gas activities in Colorado. The agency administers the permitting, drilling, operation, final abandonment, and reclamation of wells.
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65 70 Notice of Proposed Construction or Alteration. 71 The FAA is aware of ISN's mineral extraction program and, although it has cautioned ISN about revenue diversion issues, it has not voiced any operational concerns.
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