The Bureau of Land Management (“BLM”) announced today that it has temporarily postponed certain requirements contained in its 2016 final Waste Prevention Rule (also known as the Venting and Flaring Rule) for 1 year, until 2019.

The full text of the proposed rule language governing “Waste Prevention, Production Subject to Royalties, and Resource Conservation; Delay and Suspension of Certain Requirements” can be found here. The new rule is scheduled to be published in the Federal Register tomorrow, December 8, 2017.

By way of a reminder, the prior 2016 rule, known as the Waste Prevention Rule, or the Venting and Flaring Rule (81 FR 83008) (the “2016 Venting and Flaring Rule”), contained provisions that went into effect almost a year ago in January of 2017, and the rest was scheduled to go into effect just around the corner in January 2018. According to the BLM website, “[t]he [2016 Venting and Flaring] rule is intended to limit the loss through venting, flaring or leaks of natural gas from oil and gas production on public and Indian lands.”

Folks were tuned in to this new rule – over 150,000 comments on the new rule were reportedly received during the notice and comment period.

Basically, the new rule suspends and/or delays until January 2019 certain provisions of the 2016 Venting and Flaring Rule…

According to regulations.gov’s summary of the new rule, it will:

  • suspend until July 17, 2019, provisions pertaining to: waste minimization plans; flaring and venting of gas during drilling and production operations, and during well completions and related operations; determining the emissions levels of storage vessels; and minimizing gas vented during downhole well maintenance and liquids unloading
  • delay until July 17, 2019 (or by 18 months) provisions pertaining to: gas capture; measuring and reporting gas volumes vented and flared; existing approvals to flare royalty free; replacing pneumatic controllers; and leak detection and repair.

These time extensions are expected give the oil and gas industry more time to get into compliance and figure out the budgeting to accomplish this. Folks in the know (the BLM in its Regulatory Impact Analysis) estimated that the requirements of the 2016 Venting and Flaring Rule “would impose compliance costs, not including potential cost savings for product recovery, of approximately $114 million to $279 million per year.” According to the Law 360 article entitled, BLM Finalizes Delay to Methane Venting Rule Compliance, “[t]he BLM said in a statement that temporarily putting off certain requirements would help operators avoid compliance costs for requirements that could be taken away or significantly changed.”

According to the BLM, the extra time until January 2019 also “gives the BLM sufficient time to review the 2016 final rule and consider revising or rescinding its requirements.”

Only time will tell the fate of the venting and flaring rule…stay tuned!

 

Just recently, oil prices hit a two-year high – but now, this week they have started to head lower. What is going on? Are sliding oil prices a reflection of cold feet?

As I write this, according to Bloomberg Energy, WTI Crude is down to $56.96 per barrel (a -1.03% change) and Brent Crude is at $62.77 per barrel (a -1.32% change).  This is down about $1 per barrel from yesterday.

So what is causing folks to be nervous and uncertain and to have cold feet? Shouldn’t our toes be cozy and warm with WTI in the high $50s?

Contributing Factors to Cold Feet:

  • Rig Count

The rig count may be a factor contributing to the uncertainty in oil prices. As we all know, the rig count is typically used as an indicator of demand – increasing rig count should hopefully correlate to increasing demand for oil and gas. Increasing rig count can become an issue if it is out of sync with demand – if it outpaces demand.

According to the Baker Hughes Rig Count Overview & Summary Count, the last U.S. rig count was from November 22, 2017 and the total domestic rig count was 923 rigs – up 8 from the prior count and up a whopping 330 from the same time last year. The Canadian rig count has reportedly similarly increased 7 rigs since the prior count and 41 from the same time last year, while the International rig count is also reportedly on the rise with 20 more rigs in October 2017 from the prior count in September of 2017 (a 31 rig increase from the same time in October 2016).

  • OPEC Meeting – Tomorrow

The 173rd meeting of the Organization of Petroleum Exporting Companies (“OPEC”) is tomorrow, November 30. The upcoming OPEC meeting could be contributing to price uncertainty because it is unclear whether OPEC will continue to extend production cuts. Prices have been holding relatively steady and have been on the rise, which makes folks wonder about the future of OPEC production cuts. Many are reportedly concerned that “[t]he Nov. 30 gathering is likely to have a different tone than the last two OPEC meetings, because global oil demand has strengthened, inventories have tightened, prices are on the rise, and trading technicals appear bullish.” In the Bloomberg article, “War of Words Threatens to Upend OPEC Meeting,” geopolitical tensions are also listed as a factor that could potentially end hopes of extended oil production cuts.

The New York Times took a different perspective of the upcoming OPEC meeting in its article entitled, “OPEC Leader Cites ‘New Optimism’ With Oil Prices on the Rise” – namely, that the prior production cuts to some extent, appear to have worked. Political issues from across the world – from Venezuela to Russia – are also noted as contributing factors by The New York Times.

  • Supply Concerns

Concerns over supply also may be contributing to the cold feet – the headlines say it all:

  1. Wall Street Journal: “Oil Near Flat After Data Shows Drop in U.S. Inventories
  2. Nasdaq: “U.S. Oil Production Hits 4th Straight Record High Ahead of OPEC Meeting
  3. Bloomberg: “OPEC’s Clash with U.S. Oil Is Nearing Its Day of Reckoning

As usual, predicting what is going to happen with oil prices is darn-near impossible. For now, all we can do to temper the uncertainty is to be sure to wear really warm socks…

If you watched the Broncos play the Patriots on Sunday, chances are you still do not want to talk about it. Chances are also that you are devastated by the fact that they are 3-6 right now, but you are nonetheless looking forward to watching the Broncos play the Bengals this coming Sunday.

You may have also noticed that the price of oil has been declining for the past 4 days in a row…

Two things that I have learned are not for the faint of heart: watching football and oil prices.

Here are some of the recent headlines on oil prices:

The bottom line is that WTI is still at $55/barrel as I write this. According to Bloomberg Energy, WTI Crude is currently at at $55.31 per barrel and Brent Crude is at $61.84 per barrel.

I was told today that I one of my best qualities is that I am genuinely cheerful – this post is not just me being optimistic towards the Broncos and also oil prices. While we loved seeing WTI inch up and hoped it would hit the $60 per barrel mark, we cannot be discouraged by this recent slump in oil prices. We have been through worse before. Same with the Broncos, and any football team for that matter – there are ups and downs.

Folks are starting to question oil demand and try to predict what will happen next: How much will oil slide? Is $30 oil on the horizon again?

Our time is better spent looking at the “best qualities” of a circumstance or thing – instead of questioning these things. There is no rulebook by which we can predict what will happen next – this holds true for both football and oil prices.

For example, a recent Forbes article from right before oil started taking a dip – “Oil at Two-Year Highs as Saudi Arabia Engages in its own ‘Game of Thrones’” – provides some valuable insight; specifically, if WTI trades in a similar range or higher between now and year-end, 2017 will mark the first year since 2013 that the median price of WTI crude is higher than the previous year’s.

Also, it could all change on a dime. One play can change the game. One tiny change in any one factor related to oil can significantly impact the price of oil. Enter: Venezuela. According to CNBC article entitled, “Oil expert Dan Yergin on why Venezuela could cause a ‘big shock’ to the markets,” major supply constraints will impact the system if the global oil market suddenly loses Venezuela’s 2 million barrels of daily oil production.

So chin up Broncos fans and chin up to those of us watching oil prices…we cannot get discouraged yet. John Elway once said, “I’ve experienced the highest of highs and lowest of lows. I think to really appreciate anything you have to be at both ends of the spectrum.”

Last August, I wrote a blog entitled, “Did you just ask me to dance the Contango?” It explained, in detail, oil prices being in Contango – the “situation where the future spot price is below the current price, and people are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity” (according to Investopedia).

Fast forward to today…

Everyone is talking about oil prices.  Specifically, the price of oil hitting the mid-$50 per barrel range for WTI and over $60 for Brent; according to Bloomberg Energy as I write this, WTI Crude Oil is at $54.74 per barrel, a 0.81% increase, and Brent Crude Oil is at $60.70 per barrel, a 0.35% increase. These prices also mark great price points thus far in the year.

CNBC put out an article today entitled, “The oil market just did something it hasn’t done for nearly three years,” where it discussed that the WTI calendar spread for the next six months has moved from “Contango” into “Backwardation.” The CNBC article states that based on Reuters data, the 6-month spread for WTI has slipped from Contango into backwardation for the first time since November 20, 2014 (Brent crude moved into backwardation earlier this year).

To me, it still seems like we may be talking about dance moves…

Let’s break this down:

  • According to the previously mentioned CNBC article, “Backwardation is when the current price of oil is higher than a future cost of oil. It is seen as a sign of higher immediate demand. Conversely, Contango is when the futures price of oil is higher than the spot delivery price.”
  • Another CNBC article entitled, “US crude oil fails to take out 2017 high as a ‘cruel’ month for energy market begins,” provides that backwardation indicates the market is tightening – backwardation means “prices for future delivery are less expensive than contracts to ship oil at an earlier date.”
  • According to Investopedia, “Backwardation is the opposite of Contango.”

It is all linked to supply and demand. According to Investopedia, “[t]he primary cause of backwardation in the commodities’ futures market is a shortage of the commodity in the spot market.”

CNBC’s article explains, “[t]raders have less incentive to hold crude in storage because they stand to make more by selling it immediately. It also prevents U.S. shale drillers from locking in higher future prices with buyers, which tends to rein in their production.”

The takeaway is this – the price of oil may have moved from the hokey pokey to the two-step. The good news is that regardless, oil prices are still dancing.

 

 

Many of you know that when I travel, I tend to start to wonder about that state’s energy sector. What fuels it? What makes it different from Colorado and Wyoming?

This weekend, I was in Nashville, Tennessee – “Music City.” I started to wonder, besides being the home of country music and amazingly fun honky tonks where folks from all over the country come to kick their heels up, what fuels Tennessee?

It’s not all country music, hot chicken, cowboy boots and southern hospitality. Tennessee has more going on in the energy sector than one might think at first blush. Biofuel, a little oil, hydroelectric power, coal, natural gas, nuclear, wind, solar…Tennessee has it all.

According to the U.S. Energy Information Administration’s (“EIA”) state profile on Tennessee:

  • Most of Tennessee’s electricity generation is supplied by the Tennessee Valley Authority’s (“TVA”) Watts Bar 2, which is the nation’s first new nuclear power reactor in the 21st century (which began operating about a year ago)
    • The TVA operates:
      • 19 dams
      • 2 nuclear power plants
      • 7 natural gas-fired generating plants
      • 6 coal-fired plants
  • Tennessee is home to the nation’s third-largest pumped storage hydroelectric generating facility and more than 2 dozen hydroelectric dams
    • In 2016, it had the 8th highest net generation from hydroelectric power in the nation
  • Tennessee is home to the Southeast’s first major wind farm, which has been operating since 2000 – it is located on Tennessee’s Buffalo Mountain
  • Selmer, Tennessee is home to the largest solar facilities in the state

While crude oil production in the state is low, the state’s energy profile is very diverse. A more detailed discussion on Tennessee’s energy profile can be found here.

It can be easy to overlook what each state has going on in its own unique energy sector. Tennessee is one of those places that will surprise you with all it has going on, even in its energy profile!

I just read an online article in Fortune entitled, “Oil Prices Have Rallied. So Why is No One Celebrating?” and for a moment, I thought to myself, “wait, is this really a rally?”  Grab the champagne!

As I write this blog, WTI Crude Oil is at $52.47 per barrel and Brent Crude is at $58.51 per barrel according to Bloomberg Energy.

The Fortune article says, “the rally remains unloved, and for a good reason.”  Ok, hold the champagne…

Hang on, hang on. Are we really experiencing an oil rally?  Part of me thinks we are experiencing some stability in pricing, finally, but are we calling prices in the fifty dollar range truly a rally? Sure, many companies are able to be profitable above the $50/barrel mark. But is it a price rally? Or is it only a perceived rally?

Could prices perk up more and make us all happier? I think so – but if we really are in a sort of faux rally, we should be cautiously optimistic. The Fortune article lists several reasons why we should not show love to the alleged price rally.

Similarly, Nasdaq published an article yesterday entitled, “WTI Crude Oil Near $52; Why Price Rally Could Fade.”

So the bottom line is, no matter whether you think we are in an oil price rally or if you are not sure, we need to stay tuned to see what happens before we decide. Sure, we have seen gains and some stability in oil prices, but it looks like we should continue to be a little cautiously optimistic about prices…unfortunately, it looks like they are telling us not to break out the bubbly quite yet!

This weekend, I did the quintessential fall activity – visited the pumpkin patch at our local Anderson Farms! The perfect way to spend a fall day; we even got a little lost in the corn maze before picking out the perfect pumpkin to carve.

What I really want to talk about is not just pumpkins, although you know I am all about pumpkin everything right now, even after reading about the “pumpkin spice tax” that I am likely paying on all my pumpkin items I have purchased this fall (check out this article featured in Self entitled, Your Favorite Fall Foods May Carry a ‘Pumpkin Spice Tax’).

Even though I have pumpkin carving on my mind, let’s talk about the current price environment for oil. As I write this, WTI Crude is sitting at $52.09 per barrel and Brent Crude is sitting at $58.15, according to Bloomberg Energy.

What are people in the “know” saying about oil prices? Well, as you might guess, global factors, specifically, tensions in Iraq, are a significant player.

The following recent articles note that global considerations play a meaningful role:

Specifically, The New York Times article describes the impact on, and sensitivity of oil prices, to supply threats like the Iraq tensions in good detail by describing that:

  • “[t]he area around Kirkuk and the Kurdish region is one of the major oil-producing areas of Iraq”
  • “around 400,000 [barrels a day] comes from fields around Kirkuk that could be caught up in the conflict”

What will actually happen to oil prices?

As usual, your guess is as good as mine when it comes to oil prices, and many are predicting another significant decline in price. This article featured on oilprice.com entitled, The World’s Top Crude Trader Sees Brent Crashing to $45, predicts a landslide in 2018. Similarly, this article featured last week on CNBC entitled, Oil Market Bulls are Wrong to Forecast a Pick-Up in Prices – and Here’s Why, reflects a dim price environment for oil in 2018.

Predicting what will happen to oil prices is a little like being lost in the corn maze…

 

Yesterday, the Wyoming Supreme Court issued its opinion in Lon V. Smith Foundation v. Devon Energy Corp., et al., 2017 WY 121 (Wyo. Oct. 10, 2017), which provided guidance on the application of the Wyoming Royalty Payment Act (“WRPA”). The full case can be found here.

There were 3 issues before the Wyoming Supreme Court, one involving a probate question and two involving the WRPA.

Let’s just focus on the issues concerning the WRPA that the Wyoming Supreme Court gave us guidance on:

What were the WRPA issues?

  • Whether ORRI proceeds held in Devon’s own “suspense account” and not in an interest-bearing account in a Wyoming financial institution violated Wyo. Stat. Ann. § 30-5-302; and
  • Whether either party is entitled to attorneys’ fees in this case under WRPA.

Wait – let’s back up. What is the WRPA?

The WRPA is found at Wyo. Stat. Ann. § 30-5-301, et seq. and it governs the payment of royalties in Wyoming. It has been around for a pretty long time – the WRPA is by no means a “new” statute, although recent case law over the past 20+ years or so has really refined its terms and application.

I usually don’t cite cases in my blogs, but it is worth noting that the Cabot Oil case really explains the policy behind the WRPA: The WRPA is a remedial statute “enacted in 1982 to stop oil producers from retaining other people’s money for their own use.” Cabot Oil & Gas Corp. v. Followill, 2004 WY 80, ¶ 11, 93 P.3d 238, 242 (Wyo. 2004) (Internal citations omitted). The Wyoming Supreme Court in its opinion yesterday further explained the policy behind the WRPA as follows, “[t]he WRPA was designed to level the playing field between royalty interest owners and oil and gas producers.” Lon V. Smith Foundation v. Devon Energy Corp., et al., 2017 WY 121, ¶ 54 (Wyo. Oct. 10, 2017).

I will be honest, cases involving the WRPA might be my favorite cases to read. Insert joke about me being a big nerd here.

So, back to yesterday’s Wyoming Supreme Court opinion in Lon V. Smith Foundation v. Devon Energy Corp

Ok I kind of fibbed, we do have to quickly touch base on the probate issue to fully understand what is happening here.  Actually, it really sets the stage for the whole outcome of the case.  Without going into detail on the probate issues, basically, there was a dispute over who was the proper owner of an overriding royalty interest (“ORRI”) after the death of Mr. Smith. The Wyoming Supreme Court affirmed summary judgment in favor of Devon and determined that the Lon V. Smith Foundation (“Appellant” or “Foundation”) was not the proper owner and that the Marguerite Brown Smith Trust (“Trust”) is the proper owner of the ORRI. Id. at ¶¶ 34-39.

Now on to the WRPA issues…

Ok lets get to the good stuff.  WRPA!! Devon admitted that it held funds in an account that did not comply with the requirements of the WRPA when it just held funds in its own “suspense account” – but it argued that the account requirements for holding funds only applies if the party asserting the claim is “legally entitled to the proceeds.” Id. at ¶ 42. The Wyoming Supreme Court concluded, as you might guess, that because the Foundation is not the owner of the ORRI, it is not the “person legally entitled” to the proceeds and it cannot make a claim under WRPA. Id. at ¶ 45.

The next issue was whether the prevailing party language in the WRPA, specifically, Wyo. Stat. Ann. § 30-5-303, applies to entitle somebody, either the Foundation or Devon, to an award of fees and costs. Again, the Supremes looked to who is “legally entitled” to receive payments as the preliminary step in the analysis. Id. at ¶ 47. Again, as you might guess, because the Foundation was found to not be the owner of the ORRI, the Court concluded that “the Foundation did not have a statutory right to seek relief under the WRPA.” Id. at ¶ 52. “[N]either the Foundation nor Devon is entitled to attorney fees because neither party was the prevailing party in a proceeding brought pursuant to the WRPA.” Id. at ¶ 52.

As you can see, the Wyoming Supreme Court gave us some guidance on the applicability of the WRPA – Being “legally entitled” to the dolla bills is the key.

This week, a new public website was unveiled that provides participating states’ well data. The site is called National Oil & Gas Gateway and it can be found here – www.noggateway.org

  • What is it?

One stop shopping for well data. It is basically a consolidated source for oil and gas well data from the states that participate. In short, “[t]he Gateway is the first publically available website of well-level data across the nation” and its information is submitted by individual participating states.

According to the “About” section of the website, the U.S. Energy Information Administration (“EIA”) collaborated with the Ground Water Protection Council (“GWPC”) and its member states, along with the Office of Fossil Energy, to put the Gateway together.

  • What info does it provide?

The Gateway reportedly includes, “data on well identification, production, completion, well tests, underground injection control, geologic information, and other data elements determined by each state” and it “also integrates the hydraulic fracturing chemical disclosures from FracFocus.”

According to NGI’s Shale Daily, “[w]ell data is to be updated monthly by participating states.”

  • What states participate?

The Gateway reportedly only includes well data from participating states. While all oil and gas producing states can participate, so far, ten states are submitting their well data information, including the following:

  1. Alabama
  2. Arkansas
  3. Colorado
  4. Kentucky
  5. Mississippi
  6. Nebraska
  7. New York
  8. Oklahoma
  9. Utah
  10. West Virginia

Problem: You’ll note that some of the major producing states are currently absent from this list…

  • Takeaway

This is pretty rad and it is a great new resource. Having easy access to oil and gas well data in one place is a serious benefit instead of having to go to each state’s oil and gas commission website, as noted by the article in NGI’s Shale Daily.  According to Daily Energy Insider, “Gateway users can view, analyze, and export data on oil and gas wells, including well location, name, unique API number, operator, current status, type, production, injection, and disposition.”

Hopefully more producing states participate!

After reading this weekend’s headlines and checking the stock market, Tom Cruise in the movie Jerry Maguire yelling, “SHOW ME THE MONEY” has been ringing in my head this afternoon.

So here we go, let me give you a quick summary of what has been going on to bring you up to speed and show you the money:

  1. The price of oil is up! As I write this, according to Bloomberg Energy, WTI Crude Oil is at $52.17 per barrel, up 2.98%, and Brent Crude is at $58.99 per barrel, up 3.75%.  According to MarketWatch, WTI is at its highest level in about five months as of today and Brent crude has been lifted to a more than two-year high!!
  2. Also, Forbes put out an article today entitled, The Biggest Global Tax Break Ever Bubbles Up from Texas Oil Industry, which reports that, “According to the Energy Information Administration’s (EIA) most recent report on drilling productivity, total U.S. shale oil output is expected to climb above 6 million barrels a day for the first time in September.”  Production is increasing.
  3. In Cowboy State News:  The State of Wyoming reportedly netted $19 million from a federal oil and gas lease sale on Friday, largely in the Powder River Basin. The full article, Federal Lease Sale Nets $38.7 million from Oil and Gas Developers, can be found here.
  4. Things are looking good in North Dakota too.  The NDIC September Director’s Cut from Lynn Helms shows oil production up in late summer – reporting 32,473,305 barrels for the month of July from a new all-time high of 13,981 producing wells in July.
  5. Lastly, the Baker Hughes Rig Count is reflecting the rig count as of September 22, 2017 as 935 rigs, a 424 increase from September 2016.  That sounds like a monster increase over the course of one year.

This is all good news – it is great for our local economies and the folks who have been forced to tighten their belt while the energy industry saw extreme lows and experienced significant volatility.  Those of you who know me know that I am an eternal optimist and I love good news. And good movies. In the words of Jerry Maguire, you…complete me – well, good news does!  It is the best way to start the week.