Producers have too much crude oil. Where do they put it?
Abundant supplies of crude oil have regulators pondering how and where it should be stored at off-lease locations.
On Thursday, elected members of Oklahoma’s Corporation Commission will consider a proposed emergency rule to establish those requirements.
The proposed rule does not loosen restrictions on what types of tanks can hold the product. Above ground tanks designed to hold crude oil remain a requirement, as do dikes and retaining walls needed to prevent pollution if a tank fails.
It also bars temporary storage location within the boundaries of certain floodplains or anywhere else that already is prohibited by law.
The emergency rule also lists other routine requirements. A permit to build and operate such facilities is needed, as would a $100,000 surety in the form of a bond, cashier’s check, certificate of deposit or irrevocable letter of credit.
Remote storage operators also would be required to surround the location with a fence to keep livestock and people away and to post a sign at its entrance identifying the site’s legal description, its operator, a 24-hour emergency telephone number and a language that warns unauthorized people to stay off the location.
Off-lease storage locations also would have to be accessible by passable roads, be free of trash or any other potential fire hazards, and operators would be required to take appropriate steps to stop or control any leaks, report the occurrence to the agency’s Oil and Gas Conservation Division and to follow its directives to address resulting contamination issues.
Other procedures would have to be followed by operators to return the sites to non-storage uses after they are no longer being used.
Violators caught without a permit to store the oil at an off-lease location would be hit with fines of up to $5,000 per day, the proposed rule states.
Steven Agee, an economics professor who is the dean of the Meinders School of Business at Oklahoma City University, said the proposed rule demonstrates that Oklahoma’s oil producers are continuing to face a “dismal” business environment, given that crude oil prices globally have fallen dramatically since early March.
Operators could be looking to empty full tanks so they can continue to run their wells, he agreed.
However, he also wondered whether well operators could be setting themselves up for potential lawsuits from mineral rights owners if they choose to move oil to off-lease storage locations.
Agee said some leases require payments to royalty owners when that occurs, assuming an initial sale has been made.
“The big question is whether or not they will be allowed to store it at an off-lease location without calling it a sale,” Agee said.
He said that issue, if it arises, would have to be settled in district courts between operators and mineral rights owners.
Regulators said this week the proposed rule was prompted by questions from both oil and gas companies looking for alternative storage locations, and from other people who normally have no involvement with the business and are looking at an opportunity to speculate within the market, grabbing up crude oil while it is cheap so that they could resell it for more, later.
David Little, president of Kingery Energy in Ardmore and also the president of the Oklahoma Energy Producers Alliance, said he believes regulators just want to ensure the product is safely stored, regardless of where that is.
“We believe the commission wants to be sure that everyone is following the required rules,” Little said.