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.

Those of you who know me know that Wyoming is my first love and Paris is my second – but that is not why Paris is on my mind today.  Instead, it is on my mind because of a big breakfast meeting that going on this morning involving The Paris Agreement (aka The Paris Climate Accord or The Paris Accord)…

The New York Times reported that senior climate and energy ministers from a dozen or so nations are meeting for breakfast this morning to have “an informal discussion to help the Trump administration find a way to fulfill the president’s pledge to reduce emissions without harming the American economy.”

By way of a reminder, we previously discussed The Paris Agreement in our post from nearly a year ago entitled, “Its Official:  The Paris Agreement Goes into Effect Today.”  A few short weeks later, I was in Paris for the first time – walking the cobblestone streets with a pastry in hand, drinking pastis and falling absolutely in love with the City of Light.  France hosted the conference back in 2015 and according to Time.com article entitled, “What to Know about the Historic ‘Paris Agreement’ on Climate Change,” was a key player in the deal.

Need a quick refresher?

A great summary of The Paris Agreement can be found here in the NPR article entitled, “So What Exactly Is In the Paris Climate Accord?

What happened to The Paris Agreement?

We all know that one of Trump’s campaign promises was to pull the U.S. out of The Paris Agreement and he has frequently discussed that he would like to renegotiate the deal.

So what is going on today? What is the status?

Well, as of right now it is kind of hard to say for sure.  See the following articles:

The best I can do is to tell you that we will continue to monitor the status of The Paris Agreement and US involvement in the same…stay tuned.  And if you are like me, try not to dream about croissants all day now that Paris is on your mind!

 

This morning, I read a confusing article that made it sound like barrels of oil were somehow lost or permanently gone due to Hurricane Harvey. There are many misconceptions in the energy sector, so here is my attempt to nip this one in the bud.

The following article is what we are going to talk about:

The title of this article makes a person think that oil production being impacted by Hurricane Harvey is now “lost.” This could easily lead to confusion, in my humble opinion. Today is a Monday, after all, and many of us will need that extra cup of coffee to help us focus.

There have been no barrels of oil “lost” to Hurricane Harvey – there have been refining interruptions/closures and pipeline disruptions, but as far as I know, this oil is not lost. These barrels of oil are not gone, somehow vanished never to be found.

Details are important…

Refining capacity is what has been impacted so far. According to an article in Reuters entitled, “Oil falls but gasoline jumps as Harvey hits U.S. refiners,” “Texas is home to 5.6 million bpd of refining capacity, and Louisiana has 3.3 bpd. Estimates say the storm has taken more than 2 million bpd of refining capacity offline.”

The closure of Texas refineries and the impact to refining capacity has, in turn, affected gasoline futures, which is why you hear everyone talking about expecting increases at the pump. CNN Money article entitled, “Tropical Storm Harvey is wrecking havoc on America’s vital energy facilities,” explains: “Gasoline futures, which reflect wholesale prices charged to gas stations, are now at their highest level since July 2015. Analysts said it often takes about a week for such price swings to trickle down to drivers filling up at the pump.”

So you see, barrels of oil have not been “lost,” but refineries closing will decrease supply and trigger an increase in cost due to demand.

According to the article in CNN Money, “Prices are going higher because of outages affecting refineries that can process up to 2.2 million barrels of crude oil into products like gasoline. That means there will be less gasoline to meet the demand from American drivers.”

An article featured by CNBC entitled, “Hurricane Harvey may boost gasoline prices but send crude oil lower,” agrees and reports, “The weather event is pushing up gasoline prices because a number of refineries have shut down. Flooding threatens to damage the facilities on the Gulf Coast, which is home to nearly half of U.S. refining capacity. It’s pushing oil prices lower because it reduces refinery demand for crude oil, the raw material used to make gasoline.”

CNN Money also reports that, “In the aftermath of previous storms — such as Hurricanes Katrina, Rita, Ike and Isaac — gasoline prices peaked within two weeks after landfall at a level of 20 cents to 80 cents per gallon higher, according to PIRA Energy, an analytics unit of S&P Global Platts. Prices always ‘rapidly’ declined after that and returned to normal levels within two to four weeks, it said.”

Clear as mud? That is what my grandfather would ask…hope this helps clarify!  Texas, you are in our thoughts!

A sold-out audience attended the Beaver County Chamber of Commerce program “Doing Business in the Era of Shell” yesterday at the Club at Shadow Lakes in Aliquippa, PA. The program featured 3 speakers with real-life local experience with large-scale petrochemical projects.

Mark Santo introduces speakers at Beaver County Chamber of Commerce program "Doing Business in the Era of Shell"Two speakers hailed from Southwest Louisiana where many multibillion-dollar petrochemical construction projects are currently underway, ushering in an enormous economic boom for local businesses, government tax coffers and school districts.

The Pittsburgh office of Fox Rothschild was pleased to sponsor the third speaker Chet Mroz, an executive advisor to industrial process automation companies around the world. During his career, Chet led major petrochemical businesses for global industrial process automation multinationals such as Foxboro (now Schneider Electric), Asea Brown Bover (ABB) and Yokogawa Electric Corporation of Japan. Most recently, Chet was the President and CEO of Yokogawa Corporation of America, the North American operating unit responsible for the company’s U.S., Canada and Mexico operations.

Chet’s presentation focused on the enormous impact the Industrial Internet of Things, commonly referred to as “Industry 4.0,” is having on global petrochemical companies, and particularly on their workforces. (I previously discussed the IIOT in a post in July.) As a longtime colleague of Chet, I had the pleasure of introducing Chet to the Chamber audience.

All three presentations from the Chamber program will be posted on the Beaver County Chamber website.

 

Those in the oil and gas industry know the producing regions well; we know right off of the top of our heads exactly where the Bakken, Niobrara, Permian, Marcellus, Utica and the Eagle Ford are when someone says those names. Visions of maps dance in our heads.

That is why when someone mentioned the Anadarko region the other day, different things popped into my head and I got a little nervous…

These were my thoughts: It this that old producing region – it can’t be that, can it? No one usually talks about that. Are we talking about the checkerboard ownership that was once UP land out west? I am losing it? Wait…did he say Oklahoma? It is that old play!

Bottom line: Sometimes when we don’t talk about something very frequently, we tend to forget it.

So let’s briefly break down the Anadarko region in a quick refresher: 

The Anadarko region is not a “new” play per se, it is an old producing region or what they call a “legacy” producer that is seeing new life and experiencing a so-called “uptick in activity.”

It turns out you can teach an old dog new tricks…

Conveniently, the U.S. Energy Information Administration (“EIA”) just released its August 2017 Drilling Productivity Report for Key Tight Oil and Shale Gas Regions and added the Anadarko region to their report! The full report can be found here. Sometimes these things are just serendipitous – turns out the EIA and I are on the same page.

Geographically, the Anadarko region is basically a tidbit of northwest Texas and the western half, give or take, of OOOOOOk-lahoma, where the wind comes sweepin’ down the plain! I couldn’t help myself…

Specifically, according to the EIA report, the Anadarko region includes “24 Oklahoma and 5 Texas counties” and it “has become the target of many producers using improved drilling and completion technology to this already well-established oil and gas producing region.”

In addition, the EIA report credits the Anadarko region with a monster number of operating rigs: 129 operating rigs to be exact – “second only to the Permian region with 373 operating rigs.”

Obviously the big dogs when it comes to barrels of oil produced per day are still the Niobrara, Eagle Ford and Bakken according to the EIA report, but the Anadarko region is not too far behind.

According to comments on the EIA report in an article entitled, “Anadarko Shale Basin Lands Oklahoma on EIA Map”:

  • “The Anadarko region accounts for approximately 450,000 barrels per day of oil production, 5.7 billion cubic feet per day of natural gas production, 13 percent of new wells drilled, and 13 percent of drilled but uncompleted wells as of July 2017”
  • “Oklahoma is home to about 4 percent of the total petroleum reserves in the country and accounts for as much as 5 percent of the total crude oil production in the United States.”

There you have it! A quick refresher on the Anadarko region…

Natural Gas Exports To Mexico will loom large in NAFTA negotiations

The North American Free Trade Agreement (“NAFTA”) entered into force some 23 years ago and in simple terms, the Treaty created a free trade zone between Canada, the United States and Mexico. At the time, NAFTA was viewed as a pathway to integrate Mexico into the highly developed economies of the U.S. and Canada. By doing so, however, it guaranteed there would be winners and losers as Mexico’s less-developed economy would attract U.S. industries to set-up shop there in order to take advantage of much lower labor costs. Indeed, small farmers and auto workers in the U.S. were two groups most impacted by labor cost disparity from south of the border.

Rendering of North America from SpacePresident Trump’s mantra of “America First” does not bode well for NAFTA as he has called it “the worst trade deal ever.” Upon taking office, President Trump vowed to withdraw from NAFTA. However, due to intense lobbying from the business sector, the President reversed his plan to withdraw from NAFTA and on July 17th, the Trump administration gave Congress official notice that it planned instead to renegotiate NAFTA with the U.S. Trade Representative Office’s publication of a Summary of Objectives for the NAFTA Renegotiation. The tri-nation negotiations are slated to begin shortly with the U.S. negotiations being led by Robert Lighthizer, the U.S. Trade Representative. Lighthizer is a former senior trade official in the Reagan Administration who advocates greater trade protectionism. He is joined in this view by other senior Trump officials such as Secretary of Commerce Wilbur Ross and White House Chief Strategist Steve Bannon. Ross has spoken out publicly against the hollowing out of the U.S. manufacturing sector from NAFTA and Bannon would like to see NAFTA supply chains repatriated to the U.S.

The president’s decision, however, to renegotiate NAFTA instead of its withdrawal sends a strong signal that NAFTA will survive in good measure. The tri-nation supply chains which have been developed over some two decades simply prove too costly and disruptive to overturn. Natural gas exports to Mexico are a prime example.

Mexico imports nearly all of its natural gas from the U.S. and exports to Mexico are expected to double by 2019, with Texas fields being the primary source. At least 17 pipelines currently carry four billion cubic feet of natural gas a day from Texas to Mexico, with four additional cross-border pipelines in the works. Mexico’s demand for U.S.-sourced natural gas has been a boon to domestic producers as it has greatly offset the oversupply of natural gas production. Without this outlet to Mexico, natural gas producers in the U.S. will face a severe downturn with wells shut, job losses and investment curtailed.

The U.S.-Mexico natural gas symbiotic relationship is just one example of the tri-nation supply chain intricacies and complexities forged under NAFTA. There are countless others, such as deep supply chains in agriculture, construction materials and autos to name a few.

The extent to which NAFTA will be modified remains to be seen. However, from a legal standpoint, there are two sections of NAFTA which will certainly be squarely in the crosshairs of the U.S. Trade Representative. These provisions relate to the remedies available should a NAFTA nation’s exports injure the domestic market of another NAFTA member.

Specifically, under Section 302 of the NAFTA Implementation Act, the U.S. International Trade Commission determines whether increased imports from Canada or Mexico are a substantial cause of serious injury or threat of serious injury to a U.S. industry. If the ITC makes an affirmative determination, it makes a remedy recommendation to the President, who makes the final remedy decision. Section 302 investigations are similar procedurally to investigations under Section 201 of the Trade Act of 1974.

This is referred to under NAFTA as the “Safeguard Section” as it provides the U.S. the ability to seek redress via the ITC for damaging levels of NAFTA imports. The Trump administration however views the ITC as an impediment to taking action against NAFTA import abuses since the ITC has a high threshold of proving “actual injury.” Hence, the U.S. proposes to terminate the ITC’s jurisdiction in these cases, and instead transfer them to the Commerce Department which is a lot more biased toward U.S. interests.

Similarly, the US Trade Office will seek to eliminate NAFTA’s Chapter 19 dispute settlement mechanism. This Section establishes a mechanism to provide an alternative to judicial review by domestic courts of final determination in antidumping and countervailing duty cases, with review by independent bi-national panels of trade experts. A Panel is established when a Request for Panel Review is filed with the NAFTA Secretariat by an industry asking for a review of a domestic investigating authority’s decision involving imports from a NAFTA country.

These two changes will allow the Trump administration to unilaterally take direct action against NAFTA imports where it finds them to be injurious to U.S. commerce. This is completely in line with the protectionist leanings of the Trump administration.

Canada and Mexico will no doubt object to any proposal to eliminate these Sections as they prefer the non-interference protections afforded and want to have a buffer against U.S. unilateral decision-making. The stage is set therefore for some very intense and difficult negotiations. At the end of the day, however, natural gas will continue to flow from Texas to Mexico and if necessary, it will be made an exclusion from any final decision upon NAFTA’s fate. These exports are too vital for both countries as U.S. producers need the Mexican market and Mexico needs the gas.

Opportunities Abound in Downstream Infrastructure Logistics

The Marcellus and Utica Shale Plays are abundantly rich in “wet gas”; some 30-40% of natural gas produced in these fields is estimated to be recoverable into natural gas liquids with ethane being the most prevalent.

Chemical formula and molecular model of Ethane (C2H6)Ethane is a natural feedstock for ethylene, the primary petrochemical building block from which we derive products such as polyethylene. The latter is produced and eventually converted into a myriad of everyday consumer products from plastics to vinyl to rubber.

But it all starts of course with ethane. Transporting ethane out of the Marcellus and Utica gas fields; however, will follow different routes:

  • Exported via pipelines either east to Marcus Hook Terminal on the Delaware River for ocean transport to the UK and Norway for chemical feedstock; south to Gulf Coast refineries; or north to Sarnia, Canada;
  • Stored in underground caverns or large ethane storage tanks in Terminals and Tank Farms; or
  • Consumed by refineries located in the tristate (PA/OH/WV) region, most notably the Shell Cracker.

All of these transport modes abound in logistical infrastructure investment and commercial opportunities. With respect to exports out of the region, we are presently witnessing billions of capital investment in pipeline infrastructure build-out. Excess ethane not transported via pipelines is currently an impediment however as the region lacks proper storage capacity. Plans are underway to address this imbalance with its first ethane storage facility based in Ohio in the works.

With respect to ethane being consumed within the region, different downstream logistics will be in demand all emanating, of course, from Shell’s ethane steam-fed refinery. Shell is currently working on its Falcon Ethane Pipeline; a 94-mile pipeline with two “legs” which will feed Shell’s ethane cracker plant in Beaver County. Once online, this ethane cracker will produce as a final end-product polyethylene (PE) resins which are pelletized. The Shell Cracker will produce some 1.5 metric tons of this stuff, which Shell will ship to wholesalers and distributors as well as downstream manufacturers who convert these pellets into everyday consumer products. It is estimated that over two-thirds of US and Canadian demand for PE is located within 700 miles of Southwestern Pennsylvania.

Therein lies the foundation for all sorts of logistical infrastructure coming online in our region. Storage facilities, tank farms, shipping terminals, freight forwarding, warehousing, trucking, rail and barge transport will all see significant investment in meeting this demand, not to mention the data processing and IT and web based applications associated with these modalities. Should additional ethane crackers come online in the tristate region as projected, logistical infrastructure investment and commercial opportunities will only exponentially multiply.

We are in the heart of an early peach season in Colorado. In fact, according to the Denver Post article entitled, “Palisade Peaches Ripen Early Because of Colorado’s Heat Wave,” peach season began a little early this year. Peaches are everywhere right now and my kitchen is stocked up!

You see, many things in life come down to one simple concept: supply. When life gives you peaches, make peach pie.

Several folks have asked me why I haven’t been adding to the “Recipe Box” portion of the blog recently – the truth is, I have not been baking much. My heart has just not been in it lately, which is unusual for me.

That all changed when Palisade Peaches flooded our farmers markets and grocery stores early. I was like a kid in a candy store when I saw the beautiful fruit filling the stands; needless to say, I am up to my ears in peaches in my kitchen. I may even start canning some peach jelly!

Colorado Public Radio refers to Palisade Peaches as “the Western Slope’s premiere fruit crop,” and I must say that I agree. According to Colorado Public Radio, “[w]hile most of Colorado is too hostile for fruit production, Palisade’s microclimate and natural air drainage allows peaches and other stone fruits to flourish.”

Sometimes things come together perfectly and you get wonderfully juicy and sweet peaches. Sometimes things come together and the energy industry starts adapting to the price environment and creates technological efficiencies that help them operate profitably during rough times, despite high OPEC crude oil supplies.

According to Bloomberg’s article today entitled, Oil Creeps Toward $50 as Investors Focus on U.S. Supply Data, “[d]ata from the Energy Information Administration showing a decline in U.S. inventories and a rise in fuel demand helped prop up prices for a second day. Nationwide crude inventories slid by 1.53 million barrels last week, while gasoline supplies fell for a seventh week, the data showed.”

That’s right – domestic crude inventories are decreasing slightly.  They are not decreasing as much as folks thought they would, but supply is declining.

According to an article in Oil and Gas Investor entitled, EIA: US Crude, Gasoline, Diesel Stockpiles Fall, “[c]rude inventories fell by 1.5 million barrels (bbl) in the week to July 28, compared with analysts’ expectations for a decrease of 3 million bbl.” It also reported “U.S. crude imports rose last week by 537,000 bbl/d.”

Even the New York Times weighed in on oil supply today in its article entitled, Oil Rises as Tighter U.S. Market Outweighs OPEC Supply, which stated, “[t]here are signs that the oil industry has adapted to an era of low prices and can produce and operate at levels that would previously have been uneconomic” and that many analysts are saying that “[a]mple supply is likely to keep a lid on prices.”

The takeaway: in peach pies and the oil markets, supply is a determining factor.