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Evaluating determinants of shale gas well locations in an urban setting

Abstract

This research aims to identify factors that contribute to gas well operator pad site location decisions in Denton, Texas. Using new production technologies, a wave of shale gas extraction between 2000 and 2014 resulted in the development of 854 gas wells on 539 pad sites within 2000 US Census block groups that include parts of the City of Denton. For pad site placement, we consider multiple location decision factors. We use both Poisson and zero-inflated Poisson regressions for the analyses. Unsurprisingly, census block groups sitting atop the Barnett Shale have more pad sites than block groups away from the Barnett Shale. Beyond that, we find statistically significant negative correlations between both housing unit density and the percentage of block group land area falling within the Denton city limits indicating that both urban development, and the regulations that go along with it, affect pad site development. However, we do not find that setback regulations in less urbanized areas curtail pad site development. We also find that access to pipeline infrastructure—needed to transport gas from each pad site—has a positive effect on pad site development. This indicates that production costs associated with potential sites do matter. It is unusual for extraction operators to share pipelines connecting pad sites to transmission lines. This could have the effect of limiting competition for natural gas property rights and reduce royalties paid to mineral rights owners. In terms of demographic or socioeconomic factors that may matter, we find income is negatively correlated with pad site development while education is positively correlated with pad site development. Finally, we find evidence that pad sites cluster. Clustering could advantage access to main roadways, reduce costs to extend pipelines, or be an outcome of urban developments that constrain pads from locating in certain areas.

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Notes

  1. As defined for the 2000 US Census.

  2. Denton’s Extraterritorial Jurisdiction (ETJ) includes unincorporated areas within 5 miles of the city limits in Denton County. Via interlocal agreements with Denton County, in these areas the city has some authority to regulate certain activities (Denton County Commissioners Court 2004). The purpose of creating these areas is to regulate development adjacent to the city and to reduce negative impacts on adjacent properties and infrastructure. There are technically two Extraterritorial Jurisdiction types adjacent to the City of Denton (Division 1 and Division 2). The city’s gas well survey only includes ETJ Division 1 land as Division 2 land is located far from the Barnett Shale and no pad sites have been located in that area. For the purposes of this paper, when we refer to the city’s Extraterritorial Jurisdiction, we are referring the ETJ Division 1 only.

  3. Only 0.08% of the study area is unincorporated Denton County.

  4. The eight are Argyle, Copper Canyon, Corinth, Fort Worth, Highland Village, Krum, Northlake, and Ponder.

  5. City drilling requirements may include screening, noise abatement, and setbacks from residences or other protected uses. In ETJ areas, city government controls platting and subdivision authority, but has no zoning authority that would require more stringent requirements for gas well development (City of Denton, Ordinances 2001, 2002, 2004, 2005, 2009, 2010a, b, c, 2011).

  6. To promote efficient production and minimize waste, the Texas Railroad Commission, which regulates natural gas extraction in Texas, has long established regulations for the spacing and density of conventional gas wells. Among other details, Rule 37 and Rule 38 specify the minimum land area needed for an operator to be able to secure a drilling permit and stipulates minimum distances between wells and between each well and the mineral lease boundaries (need to cite rule 37 and 38). With the advent of horizontal drilling, Rule 86 was designed to adjust the spacing and density rules to the specifics of the horizontal drilling technology. However, the Texas Railroad Commission issued Special Field Rules superseding rules 37, 38 and 86 for the Barnett Shale. These Special Field Rules have been amended regularly since first issued in 1986 to keep up with specifics of the evolving drilling technology being used (Weaver 1986; Shade and Blackwell 2013; Whitworth 2013; RRC 2018).

  7. The drilling permit is the W-1 permit for a gas well location and includes numerous documents to define the area for drilling, geologic information, and parties involved in the operations. Gas units are based upon W-1 permit application information. The gas units are generally one of three items: uncomplicated W-1 permits with single leases; pooled lease boundaries to meet acreage requirements for field rules; and unitization boundaries of single or multiple operators to maximize production.

  8. Although the United States Geological Survey (USGS) has established a boundary for the Barnett Shale, the boundary should be viewed as a rough approximation. Also, due to horizontal drilling technology, it is possible to access Barnett Shale gas from pad sites not directly over the Barnett Shale.

  9. While the most recent version of the Local Government Code was adopted in 2009, this section was originally part of the legislation enacted in 1987.

  10. Before 2002, only seven pad sites had been developed within the study area and none are within 200 feet (60 m) of a residence.

  11. Outside city limits, the International Fire Code prohibits oil and gas wells within 300 feet (91.4 m) of assembly, educational, and industrial, but not residential, buildings (IFC 2000).

  12. Unincorporated Denton County makes up 0.08% of the study area.

  13. Even when gathering lines connect pads operated by different companies, it is likely the case that pad site operations have changed ownership.

  14. If no surface owner agrees to allow access, it is possible for the operator to petition the Railroad Commission to compel a landowner to provide access. We know of no cases where this occurred in the City of Denton in the time period covered by this study.

  15. Based on the 2000 Census map.

  16. The US Census data offer a better opportunity to target neighborhood factors that influence gas well pad locations than would larger geography-based data such as ZIP code or County data.

  17. A few small areas of the city are within block groups that overwhelmingly fall outside the city’s pad site survey. These parts of the city are not part of the analysis.

  18. The labor market was excluded because of the unlikelihood of variation in labor costs at the city scale. Recent labor market studies or summaries of the literature on employment and wage studies related to unconventional gas drilling are at the County scale (e.g., Brown 2014; Mason et al. 2015).

  19. Even if dates were available, it would be difficult to use this data to achieve useful results as pipeline and pad site development are all part of the same endogenous process.

  20. Based on conversations with City of Denton staff, we are confident that the main transmission pipelines were constructed long before the fracking boom began in 2000, ruling out the possibility that the transmission lines were placed to minimize the costs of linking to pad sites constructed during the boom.

  21. The Getis-Ord Gi* statistic is commonly applied to a set of geographic objects to identify clusters of high values (hot spots) and/or low values (cold spots). In its simplest form, for any object i, Gi* is computed as a ratio of the weighted sum of an object and its neighbors to the sum of all objects in a given geographic region. In this paper, a standardized Gi* statistic was computed using ArcGIS.

  22. We also estimated the negative binomial regression model, but the model does not show meaningful results and is not reported. Also, Akaike information criterion indicates that the ZIP model is a better fit than the negative binomial model, and the ZIP model has a higher log-likelihood value.

  23. Although it is possible via horizontal drilling to access gas reserves from the Barnett Shale from pad sites not directly over the shale.

  24. We recognize that the setbacks from housing increased over the 14 years when pad sites were developed in Denton. Unfortunately, it is not possible to analyze the effect of these changes for several reasons. First, while we can use the permit date for the first well at each pad site, there is not much variation across the different regulatory time periods. Less than 2% of the study area pad sites were developed prior to adoption of the 500 feet (150 m) setback. During the 9 years of a 500 feet setback, 92% of pad sites were developed. After the setback was increased to 1000 feet (305 m) between 2010 and 2012, 6.3% of the area’s pad sites were developed and then less than 1% of the pad sites were developed after the setback was changed to 1200 feet (367 m). Indeed, by 2010, most of the area over the Barnett Shale already had gas units assembled and pad sites developed. Finally, only seven of the 61 pad block groups in Denton had pad sites developed after 2010 and, combined with low counts, estimation of empirical models to analyze the time periods separately is not possible.

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Acknowledgements

Thanks to DrillingInfo (http://info.drillinginfo.com/) for providing access to their data on pad site locations and other attributes.

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Rous, J., Oppenheim, V., Kim, M. et al. Evaluating determinants of shale gas well locations in an urban setting. Ann Reg Sci 65, 645–671 (2020). https://doi.org/10.1007/s00168-020-00998-0

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