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Company seeks gas well variances

Profile image for By Peggy Heinkel-Wolfe / Staff Writer
By Peggy Heinkel-Wolfe / Staff Writer

Business: Applications for four sites submitted before moratorium

A shale gas operator has asked out from Denton’s current moratorium on gas well development.

EagleRidge Energy and EagleRidge Operating applied July 20 for variances for four gas well pad sites in northwestern Denton. The city will have a public hearing on the request during its regular meeting Sept. 11.

The company’s chief operating officer, Mark L. Grawe, wrote four letters to the city, one each for Rayzor West 3H, 9H, 10H and 12H, which are pad sites located along either side of Interstate 35.

In the letters, Grawe said the applications were submitted before the moratorium by Teleo Operating. However, because of the moratorium, the city staff was not acting on the applications.

The Denton City Council first passed a 120-day moratorium in February, and then extended it another 120 days in June. Until the moratorium expires Oct. 4, it blocks new permits for gas well drilling and production inside city limits while city officials write and adopt new rules.

The city changed some key provisions in the ordinance in 2010, setting up a department that keeps records and conducts regular inspections. But even though residents had been asking for new rules since 2009, the city did not start making other revisions to the ordinances until this year.

Despite asserting that its applications weren’t subject to the moratorium, EagleRidge was also applying for the variance because the moratorium had been going “for almost five months, with no end in sight,” Grawe wrote.

In an e-mail, he said the company was concerned the moratorium would be renewed another 120 days, or more.

“There have been no indications that the new city regulations for gas wells will be finished when the current moratorium expires,” Grawe wrote. “This is only to allow the processing to continue on these permits which will not be started for 6 to 12 months.”

In an interview this week, the city’s outgoing planning director, Mark Cunningham, said the city’s natural gas development ordinance had been rewritten and was with the legal department for review. The City Council met in closed session Tuesday afternoon to review the rewrites with attorneys.

In the letters, Grawe said the moratorium is causing EagleRidge a hardship for a number of reasons, including endangering contracts with drilling service companies and putting its current leaseholds at risk for “top leasing.”

A top lease is one that takes effect after another lease expires. Mineral owners can negotiate for leases that expire if the gas is not developed within a set period of time so that they can sign again later with a new company.

But that doesn’t mean everyone wants to lease, Denton resident Cathy McMullen said.

McMullen was among those who pushed city leaders for stronger natural gas development rules beginning in 2009.

In the past three months, she has heard from residents along Bonnie Brae Street and Interstate 35 who didn’t know how to respond to the pressure from land men leasing for Tierra Resources and Advantage Resources.

“A lot of people didn’t want to do it,” McMullen said.

In an e-mail, Grawe said the company was still assessing the operational and strategic questions posed by the leasing by Tierra and Advantage.

In the letters to the city, Grawe wrote that without relief from the moratorium, the company may be required to write-down, in part, its “investments in underdeveloped oil and gas leases and financial commitments with business partners and financial investors.”

According to recent financial reports, many shale gas producers have written down — reduced part of the balance — of their assets in recent months because of historically low natural gas prices.

In Denton, the gas well division has reported that several shale gas operators have sold their interests to other companies.

The latest Henry Hub trading values showed natural gas selling for about $2.71 per Btu (British thermal unit, or thousand cubic feet, Mcf).

Because of the high cost of drilling and hydraulic fracturing, operators say shale gas is not economically viable when it sells below between $5 and $8 per Mcf.

In an e-mail, Grawe said that EagleRidge did not know how much of a write-down would be attributed to market conditions and how much could be attributed to the moratorium.

“This is unknown because EagleRidge doesn’t know how long the moratorium will last,” Grawe wrote. “However, EagleRidge believes that the market is viable even at $2.70.”

In addition to calling the public hearing, the city put the issue of the variance on its new, interactive website, Engage, saying that feedback there would be included in the public hearing.

Residents have been both voting and commenting on the variance request on the website. Some expressed concern about the company’s operating history.

An EagleRidge Operating worker was indicted in June on a felony charge of illegally dumping. City employees visiting the company’s well site in the 3100 block of Airport Road found a pump forcing contaminated water into a tributary of Hickory Creek.

The city issued a violation notice under the water code and Denton police investigated the incident, which meant the company could also have been held criminally liable, but it was not. The company has a pending enforcement action with the Texas Railroad Commission.

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her email address is .