American Oil and Gas Reporter - April 2016 - 95

ConventionSection: Tennessee Oil & Gas Association

Local Considerations
A Tennessee Topic
By Danny Boyd
Special Correspondent
BRENTWOOD, TN.-As it celebrates
its sapphire anniversary in 2016, the Tennessee Oil & Gas Association is working
to promote state legislation to divert oil
and gas severance tax revenues to counties
that need them while heading off localities'
and industry naysayers' attempts to usurp
state regulatory authority.
Despite tough industry conditions and
public policy challenges, TOGA is preparing for the association's 45th annual convention, scheduled for May 15-16 at the
Park Vista Hotel in Gatlinburg, Tn., with
plenty of members feeling pleased about
the state's new primacy over underground
injection control, says TOGA Chairman
Will Goodwin.
Last summer, the state gained the right
from the U.S. Environmental Protection
Agency to have primary regulatory responsibility for UIC permitting under a
process that began in 2000, he reports.
"Previously, Tennessee lacked primacy
to approve its own injection wells, so our
members had to go through EPA in a
process that could take as long as three
years and cost as much as $100,000," describes Goodwin, president of W.D. Goodwin Inc. in Brentwood. "Now that process
has been streamlined and we are going
through the first permitting stages. Things
seem to be going well.
"Enhanced oil recovery was not too
expensive in and of itself previously, but
the regulatory obstacles simply made it
difficult and drove up costs," he adds.
"This has been a long time coming, and I
am going to cheer about it for the next
couple years."
Although most of Tennessee's oil production has come through primary recovery, members continue to evaluate
EOR prospects for the Monteagle formation beneath portions of the state's
11-county region that produces oil and
gas, he says.
Most Tennessee wells are vertical,
with depths that average 2,000 feet, Goodwin reviews. With operators frequently
bringing on wells that flow 30-50 barrels

a day, especially in Overton County, the
state's ability to consider injection well
approvals can only help as operators consider economical EOR projects, he considers.
Leasing practices complicate efforts
to consolidate fields for EOR, Goodwin
explains, but some are waterflooding, including in offsets, where formations have
good porosity but declining output.
Severance Tax Destinations
With operators continuing to trim costs
and enhance production amid low prices,
TOGA in mid-March continued to monitor
legislation in the general assembly that
would divert severance tax revenue to
counties and another bill to restrict locations for natural gas compressors, indicates
TOGA President Chuck Laine.
Under the existing system, two-thirds
of the state's oil and gas severance tax
collections go to state coffers, while the
remaining third is earmarked for counties,
he explains. Although HB 1881 by Representative Dennis Powers, R-Jacksboro,
does not seek to change the tax rate, the
proposal calls for reallocating all oil and
gas severance tax funds to counties, says
Roxanne Reiley, TOGA research director.
Earlier, the Campbell County Commission requested a severance tax rate
hike from 3 percent to 7 percent in a bid
to raise additional revenue, she points
out, but Powers has suggested reallocating
current revenue exclusively to counties
can achieve the same goal without increasing taxes. TOGA and the Farm Bureau are among those that support HB
1881, Reiley adds.
"The counties get only a third of that
tax revenue, but we think the counties
basically make our industry operate by
providing our members with infrastructure
and employees," Laine says. "We would
like to see that tax revenue go back to the
counties in which we drill. It means so
much more to them than to the state. The
counties really deserve the lion's share
of those funds. The downside is the state
would lose close to $1 million a year
from the general fund, so we are waiting

to see how this is going to play out."
In mid-March, the House Finance,
Ways and Means Committee had postponed a decision until after the state
budget was settled so lawmakers could
determine the impact, Reiley says.
"Counties that produce oil in Tennessee
have the highest unemployment rates and
lowest incomes, so the tax assessors are
in search of funding," Goodwin contributes. "We cannot blame them. The
general fund gets an uneven portion, and
with Tennessee having a budget surplus,
the counties really should have the income
they desperately need. I believe taxing
landowners generally is unfair, and diverting some money back to the counties
will alleviate concerns for everyone. It
would take only a little piece out of the
state's pie."
Local Encroachment
The association also continues to monitor developments in which local authorities are proposing restrictions on oil and
gas activities. Last August, Reiley observes,
the Nashville, Tn., Metro Council voted
30-3 to restrict compressor station sites
to industrial zones, the first local zoning
ordinance in Tennessee affecting the oil
and gas industry.
SB 1915 would prevent compressor
station locations within a mile of a public
park, she says. "Tennessee has a lot of
public parks, so it could impact compressor
stations," Reiley says. "This proposal
comes on the heels of a move by the
Nashville Metro Council last summer
when it passed an ordinance to restrict
compressors to industrially zoned lands.
We are seeing quite a bit of action around
those kinds of issues."
The association will continue to be
proactive in reinforcing the state's sole
regulatory authority over the industry,
she says. Shortly after hydraulic fracturing
emerged as a public concern, TOGA was
able to help propose and implement proactive regulations, Reiley recounts, which
helped slow outside influences' quest to
influence public officials with half-truths
and curb industry activity. TOGA is hopeful for similar success in helping head
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