As an update to the Recipe Box, I have been testing out new recipes lately.

Testing recipes means that I am trying out things that I have never attempted to bake before…the risk is high and the reward unknown.  You could end up with a masterpiece or you could end up with the creature from the black lagoon.

For example, I tried a new pound cake recipe that had sweetened condensed milk in it as a secret ingredient; the result was a sunken in disaster contained in my bundt pan.  The secret is out – that ingredient didn’t work! I tried a blonde brownie recipe that ended up more akin to blonde brownie soup for some reason.  It just would not bake up in the middle.  Then I went back to basics and baked a simple cherry pie to make sure that all was right in the world and that I could still bake.  If there is certainty in life in anything for me, it is with pie – sometimes you have to break out a trusted recipe after too much unknown.

When you put the pan in the oven when you are testing a recipe, the future is very uncertain.

This is a lot like the future of coal in Wyoming…

Coal in Wyoming is a lot like flour in your cake. It is, or traditionally has been, the backbone. Take Kemmerer, Wyoming, for example – its future is now uncertain due to its historical reliance on coal. Coal has been a significant factor in Kemmerer’s health and viability historically. A recent article in the Casper Star Tribune entitled, Indebted Coal Firm that Operates Kemmerer Mine Finds New Financing, Still Faces Uncertainty, highlights these issues for coal-reliant communities in Wyoming, like Kemmerer.

The future of coal in Wyoming is obviously unknown due to a number of factors, including market conditions, federal regulation and politics.  In fact, the impact of state politics on the future of coal was discussed in a recent Casper Star Tribune article entitled, Wyoming’s Governor Has Walked a Moderate Path on Coal, Now Candidates are Lining Up to take the Reins.

The other big factor that has an impact on the future of coal is a basic one – financial pressures. A great discussion of the money factor and its impact on coal can be found in the Casper Star Tribune article entitled, Wyoming Coal Newcomer Argues that it Failed to Make Debt Payments Because the Bank Ceased Communications.

What will happen to Wyoming coal?

Your guess is as good as mine, but the one thing we do know is that change is certainly afoot. We discussed the Wyoming Integrated Test Center in our last post, which can be found here.  Big and new things are on the horizon for coal – however, it is the same as when we are testing recipes…we have to just wait and see how it will turn out.

Many of you may not be aware of the happenings in the Cowboy State concerning the future of the energy industry. Wyoming is not just sitting back and allowing market forces to have huge impacts on the state, it is taking steps to be on the forefront instead.  Here are a couple of big things going on in Wyoming.

Carbon Emissions – ITC

A new Wyoming research center is the driving force for change. The Wyoming Integrated Test Center (“ITC”) was dedicated by Governor Mead in Campbell County, Wyoming, last week. Check out the ITC website here.

  • What is the ITC?

Bottom line: It is a big deal – it is a collaborative effort that has the ability to change the future of energy by developing ways we can use power plant emissions.

The specifics: According to the About ITC website, the funding for the ITC came from the Wyoming State Legislature ($15 million), the Tri-State Generation and Transmission Association ($5 million), the National Rural Electric Cooperative Association ($1 million) and Basin Electric Power Cooperative is providing the host site at their Dry Fork Station located in northern Wyoming and additional valuable in-kind contributions (important things like engineers and construction management services). Supporters also include Rocky Mountain Power, Black Hills Power, XPRIZE Foundation and the University of Wyoming School of Energy Resources – the ITC is a true public-private partnership with a shared goal.

The goal is simple yet significant – to develop commercial uses for carbon dioxide emissions. Check out more on the science of this here.

The headline from the Casper Star Tribune says it all, In Unassuming Wyoming, A Quest to Change the National and Global Future of Coal.

Since this project involves coal, obviously it is hotly contested and controversial. Opponents reportedly question the use of taxpayer funds on the ITC and wonder whether the cause is useless because coal is a sinking ship.

Oil and Gas – Secondary Recovery

In addition, secondary recovery in oil and gas operations is a focus of the Cowboy State. The Casper Star Tribune highlighted this focus in its article yesterday entitled, UW Institute Fosters $2 Million of Research into Oil and Gas Recovery in Wyoming. The Enhanced Oil Recovery Institute reportedly, “announced recently that $2.2 million of research is about to roll out in Wyoming.” The plan is to dig deep into figuring out ways to increase secondary recovery and optimize production using new technology in Wyoming’s old wells.

Wyoming is clearly a force for change in the energy industry – there is something to be said for that Cowboy grit and work ethic. Cowboys know when to adapt and when to buckle down to figure out a problem. One thing is true – do not underestimate the Cowboy state.

Today, the U.S. Energy Information Administration (“EIA”) issued its Today in Energy entitled U.S. Crude Oil Production Growth Projected to be Led by Light, Sweet Crude Oil.

We all know that I have a sweet tooth, but we aren’t talking those kinds of sweets today – we are talking light, sweet crude. It is no secret that light, sweet crude oil accounted for the growth in domestic production in recent years – but just how much growth is attributable to lighter crude from tight formations?

According to the EIA’s Today in Energy, “light, sweet crude oil, defined as having an API gravity of 35 or higher and a sulfur content of 0.3% or less” accounted for “nearly 90% of the 3.1 million barrel per day (b/d) growth in production from 2010 to 2017.”

In fact, just last week on April 4, 2018, the EIA issued a Today in Energy entitled U.S. Production of Crude Oil Grew 5% in 2017, Likely Leading to Record 2018 Production. This article discussed the significant increase in domestic crude oil production due to the development of tight rock formations. Specifically, the EIA’s April 4 Today in Energy provides as follows:

“Annual average U.S. crude oil production reached 9.3 million barrels per day (b/d) in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016.”

“In November 2017, monthly U.S. crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in U.S. history.”

As I write this, according to Bloomberg Energy, oil prices are pretty steady – WTI Crude Oil is at $63.30 per barrel and Brent Crude is at $68.65 per barrel.

I took this photo while flying into North Dakota a couple of weeks ago – flying high above North Dakota’s Bakken oil play and the mecca of light, sweet crude.

Flying into the Yellowstone Regional Airport in Cody, Wyoming, last week gave me a much-needed dose of the Cowboy State. Cody, a quiet and welcoming cowboy town named after Colonel “Buffalo Bill” Cody, is an amazing gem of the West.

I had a little free time so I stopped into the Buffalo Bill Center of the West for the first time and toured the Whitney Western Art Museum, the Buffalo Bill Museum, the Plains Indian Museum and the Draper Natural History Museum. If you haven’t already been – trust me, it is worth the trip! It is a truly amazing place to get a one of a kind glimpse into the American West.

I haven’t provided you with an update in a while. The trip got me thinking – what is new in the Cowboy State?

Wyoming Rig Count

WOGCC Creates New APD Approval Policy

  • The Wyoming Oil & Gas Conservation Commission (“WOGCC”) recently came out with a new policy for the approval of Applications for Permits to Drill (“APDs”). The WOGCC press release on the new APD policy can be found here. The official WOGCC Memo on Application for Permit to Drill Processing can be found here.
  • This new policy sparked my interest because we have been dealing with the exact same kind of issues here in Colorado when it comes to competing APDs and determining which is first in line. The commissions are being bombarded with APDs – the WOGCC Memo provides that “an unprecedented number of applications for permit to drill” are being received; “the monthly average for APDs received for 2017 was 1,050, which is an increase of 83% compared to the average for 2015.”
  • The new WOGCC policy provides that a basic completeness check will be conducted in order to prioritize the approval process. Simply put, the WOGCC will make sure submitted APDs are complete and contain all required information prior to processing for final approval. Operators cannot file an incomplete APD and expect to have the effective APD just because it was filed first– completeness of the APD is required for priority.

Demand for Energy Jobs Increasing

Emissions Rule Stayed

In sum, there is a lot going on in the Cowboy State!

“Do good things.” I could not tell you how many times my father has told me this – I would conservatively guess he has told me those words about 2 million times in my life.

I have mentioned this for quite some time now – that we need to focus on the good works and how much companies in the energy sector give back to their communities. From fundraisers to urgently responding to incidents of neighboring operators to lend a helping hand, I try to spread the word about the many good works that companies in the energy sector do and highlight the positives that these companies bring to their communities, and the Colorado Oil and Gas Association (“COGA”) is doing the same!

COGA is issuing an industry-wide community impact report – the form for submission can be found here.

What is it?

The goal is that the complete report will reflect industry efforts and employees’ efforts from last year to “highlight industry’s social responsibility and celebrate giving back.” If you know of a good thing a company in the energy sector has done in 2017, I urge you to go online and complete the form submission.

Why is this important?

It is crucial to highlight the good works of people, across all industries. Good spreads more good – I think I once heard that this is called a ripple effect. It reminds me of throwing a rock into a pond – the good continues to ripple out. The impacts of one good act spread and spread. In a time when we focus so much energy on negative things and events, we have to shift to focus on the good.

“Do good things.”

The 2018 Wyoming Budget Session of the 64th Legislature began today and there are several key bills relating to energy issues that are up before the Cowboy State’s legislature. I will highlight a few here and track them through the session to see how they end up – stay tuned!

All of the Bills before the Wyoming Legislature, and their statuses as the session progresses, can be found here at the House Bills Index/Senate Files Index.

A Few Key Energy Bills Before the Wyoming Legislature:

  • Senate File No. 14 – “Biennial Energy Strategy,” Sponsored by the Joint Minerals, Business & Economic Development Interim Committee
    • The Introduced Senate File No. 14 can be found here
    • In sum, Senate File No. 14 proposes, among other things:
      • A biennial energy strategy, which means a “coordinated and comprehensive biennial plan that: (A) Includes the activities of agencies, boards and commissions, policy initiatives and other actions aimed at achieving excellence in energy development, production, technological innovation, regulation and stewardship of natural resources for the highest benefit of Wyoming citizens; (B) Includes programs and initiatives intended to increase economic competitiveness, expansion and diversification, to provide for efficient and effective regulation and natural resource conservation, reclamation and mitigation and to develop education, innovation and new technologies; and (C) Identifies appropriate means to complete initiatives and work with agencies, boards, commissions and other interested parties to implement initiatives.”
      • The creation of an energy strategy committee within the governor’s office and assigning duties of the committee
  • House Bill No. 104 – “Wind Energy Production Tax,” Sponsored by Representatives Madden and Blackburn and Senator Case
    • The Introduced HB0104 can be found here
    • In sum, House Bill No. 104 is “an Act relating to the tax on production of energy from wind resources; increasing the tax rate; providing for distribution of the tax; repealing an exemption…”
      • In short…this one will be hotly debated!

The Casper Star Tribune also published an article entitled, “What to Watch for at the Wyoming Legislature this Year,” that discusses some other interesting issues before the Legislature this year.

Stay tuned! I will keep you updated on these key energy-related bills!

You may remember a prior blog post I wrote back in May of 2016 about Denver’s office real estate market feeling the pinch of the downturn in the oil and gas industry – Denver Feeling the Pinch: Denver Office Market Finally Feeling the Effects of Downturn in Energy Industry. A few months later in September of 2016, I wrote a follow up piece discussing this further in the blog entitled, Denver Office Market Still Feeling the Impacts of the Downturn in Energy Industry.

Well folks, we all know how far-reaching the impacts of the oil and gas sector can be, and today we have some more good news. I read an article today that discusses how the Denver office market is getting fresh blood from some new energy companies and how it is back on the upswing!

Denver Bisnow featured an article today entitled, Denver Office Market Improves with Recovering Energy Prices that discusses how energy companies are filling the downtown Denver office space back up.

We all know that I am the forever optimist – but I write this piece to show again how the energy sector can positively impact so many different areas. From the real estate market to the service sector, the energy industry’s benefits are widespread!

Earlier this month, an article on my home state of Wyoming was featured in the New York Times.  As I have said before, it is not often that the Cowboy State is written about in the New York Times; in fact, I think the last time I wrote about it was back in 2015 – see that old blog post here.

The New York Times article was featured on December 14, 2017 and was entitled, Where Wind Farms Meet Coal Country, There’s Enduring Faith in Trump. As I went home to Wyoming to celebrate the holiday with my family for a few days, I was able to reflect more and put together my thoughts on the article.

It is no secret that historically, Wyoming’s health and very survival has been centered on the strength of the energy industry.

The energy sector is and has always been the life blood of the Cowboy State. Revenues from mineral production have been a central part of the Wyoming budget basically since statehood. Wyoming families make their livings either in the extractive industries of oil and gas and mining, or in the service sector that relies heavily on the same. The boom and bust cyclical nature of the energy industry has always had a serious impact on the Wyoming economy. This is still the case today, and for the foreseeable future, unless the state can diversify its economy – check out this economics page from the Wyoming Mining Association.

In fact, that is why Wyoming created the Permanent Mineral Trust Fund back in 1975, to further the goal of extending the depletable nature of Wyoming’s minerals to benefit future generations – the concept had been attempted in the Wyoming legislature since the late 1880s. The fund is funded primarily by severance taxes.

The main premise of the article is that energy-reliant Wyoming, and specifically Converse County, have a lot at stake in President’s Trump promise to make the US a dominant energy force.

The truth is, in Wyoming, none of this is about who is in office or what promises have been made. At its heart, this is not a political issue for my home state.

This is about people being able to make a living in Wyoming. The crux of the issue is not Wyoming’s enduring faith in the President or his promises, it is about the ability to provide for one’s family.  Wyoming people want to work in stable jobs.

Wyoming is in the Emergency Room. Its residents are leaving the state for better opportunities, and they are leaving in mass exodus. In fact, the Casper Star Tribune has reported that the state’s overall population dropped this year for the first time since 1990.

The good news is that Wyoming’s heart is good, so no major organ transplant is necessary, but the state needs critical and intensive care, and politics is no doctor. It is up to the people to breathe life back into Wyoming.

As we look into the coming New Year, that is what Wyomingites are focused on – finding entrepreneurial new ways to make their families prosper.  It was easy to see this as I flew out of the Cowboy State last night.

 

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!

 

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.