Author Archives: Melissa J. Lyon

U.S. DOE to Purchase Crude from Small to Midsize Producers

In the wake of crude oil price’s recent plunge, the United States Department of Energy (“DOE”) has announced that it will fill the Strategic Petroleum Reserve (“SPR”) to its maximum capacity by purchasing 77 million barrels of American-made crude oil.  The DOE’s announcement can be found here.  

The initial solicitation is for the purchase of 30 million barrels by confidential Request for Proposal (“RFP”) and can be found at: https://www.spr.doe.gov/doeec/OilPurchase.htm. The focus of this initial crude oil RFP is small to midsize domestic oil producers – throwing a lifeline to those who have been hit especially hard by the price drop. 

According to the DOE’s announcement, “the [DOE] is working with Congress to finalize the funding to support the purchase of the full 77 million barrels of oil, consistent with the President’s directive.”  With regard to delivery, the announcement recognizes that the private sector needs time to plan for delivery logistics, so the solicitation is for crude oil to be delivered in May and June; although, early April deliveries are encouraged.

The purchase is sure to be controversial – as discussed in an article in The Hill entitled, “Trump administration prepares to buy 30M barrels of oil amid industry slump.”  However, the reality of the far-reaching benefits of the oil purchase cannot be overlooked, as oil and gas industry employees impact so many other service sectors in the nation.  Further, targeting small and midsize producers for the initial RFP will provide crucial relief for these companies who are the lifeblood of the oil and gas industry, but who may not have the financial wherewithal to weather oil prices below $30 per barrel for long.

What is Going on With OPEC??

There have been many changes recently, but one of the changes on the forefront of my mind has been “what is going on with OPEC”?  It feels like a major shift has happened with The Organization of the Petroleum Exporting Countries (“OPEC”).

Background

By way of a short reminder, OPEC has been around since 1960 – in fact, this year marks the 60th year since its founding.  Its mission is:

“to coordinate and unify the petroleum policies of its Member Countries and to ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”

There are 13 member countries including Saudi Arabia. 

Current Status

According to the Investopedia article entitled, OPEC vs the U.S.: Who Controls Oil Prices, “OPEC controls oil prices through its pricing-over-volume strategy.” 

Now, there is a big question mark behind that sentence.  OPEC allegedly controls oil prices, but we all know that many other factors impact the equation as well, including global politics, supply and demand and technology. 

Stability has historically been the primary goal of OPEC, but recent events have turned oil prices and supply on their heads.  The recent headlines indicate that a shift has happened in OPEC:

What does this mean for OPEC?  Has OPEC lost its grip and with it, its purpose and utility?  Only time will tell.

Wyoming’s Oil and Gas Resources Summarized as we Start the New Decade

This month, the Wyoming State Geological Survey issued the Oil and Natural Gas Resources in Wyoming January 2020 Summary Report.  A free copy may be downloaded here.  The report assesses where the Cowboy State is, and forecasts where it is headed, when it comes to one of the state’s most valuable resources – oil and natural gas. 

In short, the outlook for the Cowboy State is positive and the oil and gas sector appears poised for growth

HIGHLIGHTS OF THE REPORT

By way of a quick summary, the report provides as follows:

  • “Wyoming oil production is forecast to reach levels not seen since 1993 for the second consecutive year.” 
  • “With substantial reserves of oil and natural gas (the EIA estimates Wyoming reserves are enough to supply the U.S. with 46 days of oil and 262 days of gas), a favorable regulatory environment, and operators’ increased ability to lower production costs in unconventional reservoir development, Wyoming will remain a significant contributor to the national energy portfolio.”
  • Natural Gas Leader:  “The Greater Green River Basin is the top gas-producing basin in Wyoming, accounting for 60 percent of the state’s 2018 natural gas production.”
    • Projects in this basin are progressing more slowly than anticipated and hoped; however, “[t]hese long-term projects will significantly increase the basin’s total natural gas production if and when they come online.”
  • Oil Production Leader:  “The Powder River Basin has traditionally been, and continues to be, Wyoming’s top oil-producing basin, consistently accounting for at least one-third—and since 2014, more than half—of the state’s oil annually.”
    • The future of Powder River Basin oil production in general will be largely dependent on market conditions and will be “susceptible to crude oil prices, surpluses, and the international market.”
  • Wildcatter:  Wildcat wells, defined by the Commission as, “wells outside known fields or new wells which are determined by the Commission to have discovered oil or gas in a pool not previously proven productive,” accounted for 40 percent of the state’s total 2018 oil production.  “This percent-contribution from wildcat wells is expected to continue its upward trend in the future.”

TAKEAWAY:  While Wyoming continues efforts to diversify its economy, the report has provided good news for the anticipated growth of the oil and gas sector in the Cowboy State as we start 2020.  We all hope that the upward trends seen in the report continues!

A Change in the Winds: EIA Forecasts Bump in Renewable Energy for 2020

The U.S. Energy Information Administration (“EIA”) released its latest Short-Term Energy Outlook (“STEO”) on January 14, 2020, which can be found here.  This STEO is the first to include energy forecasts into 2021. 

Among the interesting forecasts contained in the STEO is the prediction surrounding the rise in renewable energy for 2020 and into 2021.  Specifically, the forecasts surrounding the increases in wind generation caught my eye.

Wind and solar generation expected to grow 15% in 2020

The predicted increase in wind generation is also discussed in detail in the EIA’s Today in Energy entitled, EIA forecasts slower growth in natural gas-fired generation while renewable energy rises. The EIA forecasts that “generation from nonhydropower renewable energy sources, such as solar and wind, will grow by 15% in 2020—the fastest rate in four years.”

Specifically, the EIA reportedly “expects a 32% increase of new wind capacity – or nearly 30 GW [gigawatts] – to be installed in 2019 and 2020.” 

Wind and solar generation expected to grow 17% in 2021

What is more, the EIA expects its forecasted changes in electric power generation to continue into 2021.  According to Today in Energy, the “EIA forecasts U.S. generation from nonhydropower renewable energy sources will grow by 17% next year as the electric power sector continues expanding solar and wind capacity.”

Although many were expecting to see forecasts predicting electricity generation from renewable energy sources to rise, many were not expecting to see such significant increases forecasted in the area of wind generation specifically.  Only time will tell if wind will truly expand at these high rates in 2020 and into 2021.  Stay tuned!

Did I Miss Something? What Happened in the Energy Sector in the Rockies Around the Holidays

Returning to work after the holiday season may have left many of you wondering if you missed anything important while you were in a cookie-induced holiday slumber. 

Here is a short summary of some key items that happened in the energy sector in the Rocky Mountain region around the holidays to keep you in the loop:

Wyoming Amended APD Rules

Effective December 20, 2019, the Application for Permit to Drill (“APD”) rules have been amended for the State of Wyoming.  The revisions to the APD rules can be found here

It is no secret that the number of challenges to oil and gas operatorship have increased recently in Wyoming and that those challenges frequently result in a costly and time-consuming process that ultimately ends up delaying development. 

Wyoming’s APD rules were amended in response to the increased volume of drilling permits filed in the Cowboy State and are an effort by the Wyoming Oil and Gas Conservation Commission (“WOGCC”) to reduce not only the backlog of permits, but costly battles for operatorship. 

Here is a quick summary of what you need to know about the new APD Rules – for more detail, check out the rules here:

  1. Wyoming remains a “first-to-file” state when determining operatorship – the race is still on.
  2. BUT there are now time limits (2-year anniversary of the most recent spud well in the DSU) and the opportunity/procedure for a challenging operator to seek operatorship.

The new WOGCC Rules – Chapter 3, Section 8, are worth a read for the details; specifically, subsections 8(l) and 8(m), the latter of which articulates the process that a challenging operator will utilize, within the two-year window.  The Notice of Intent to File an 8(m) Application and the 8(m) Hearing Application under Section 8(m) are going to be the new meat and potatoes.  Note that there are ten (10) criteria for the 8(m) Application that must be included when challenging operatorship and these criteria are contained in Section 8(m)(i).   

TAKEAWAY: The takeaway is truly that Wyoming’s rule changes are an effort to articulate not only a clear and streamlined operatorship process in Wyoming, but a procedure for challenges to operatorship as well.  Here’s hoping the changes will address the operatorship issues.    

Colorado Provides Draft Wellbore Integrity Rules

On New Year’s Eve, the Colorado Oil and Gas Conservation Commission (“COGCC”) made the draft wellbore integrity rules available.  The draft wellbore integrity rulemaking was shared on the COGCC website on December 31, 2019 via Google Drive, which can be accessed here or directly from the COGCC website here.  The revisions to the draft form are provided in clean and also redline form to easily see the new changes, which are far too numerous to describe.  The revisions include new definitions, changes in bradenhead testing, isolation of coal seams and protected water, and changes to the requirements for the well location plat, casing and cement plan and requirements for stimulation at depths of 2,000 feet or less provided with a Form 2 A – Application for Permit to Drill, just to name a few. 

TAKEAWAY: The draft wellbore integrity rules were made public at a time when many of us may have missed it, yet they contain significant revisions to the rules.  The deadline to submit a Request for Party Status in connection with the wellbore integrity rulemaking is Monday, January 13, 2020. 

North Dakota Rule Changes in Process

The North Dakota Industrial Commission (“NDIC”) has been in the process of adopting changes to the oil and gas rules in the state since last spring/summer.  The amended rules were approved by the NDIC on or about November 25, 2019 and can be found here.  On December 20, 2019, the final rules were submitted to the Attorney General for a legal opinion on the same, which will be provided on or about January 24, 2020, according to the Timetable for Adopting Oil and Gas Rules

TAKEAWAY: The North Dakota rule changes are in process and will be effective April 1, 2020, reportedly after the Attorney General confirms their legality and after approval of the Administrative Rules Committee. 

Some key things certainly took place in the energy sector in the Rocky Mountain region around the holidays!

It’s a Wrap: New Outlooks for 2020

Many of us have the end of the year and the end of the decade on our minds: wrapping up projects, working to close deals and matters, and striving to end the year on as high of a note as we possibly can.  It is hard to believe but there are only 15 days left in 2019.

With the end of the year at the forefront, it puts many things into perspective.  The U.S. Energy Information Administration (“EIA”) recently released its December 2019 Short-Term Energy Outlook (“STEO”) which can be found here.  With 2019 coming to a close, we look to forecasting 2020. 

STEO Forecast Highlights – By way of a summary, here are the highlights of the December 2019 STEO:

  • Slower Increase in Oil Production:  The EIA is expecting slowing crude oil production growth in 2020, but growth in U.S. crude oil production is expected to increase over 2019 production.  The EIA is predicting the following: “Slowing crude oil production growth results from a decline in drilling rigs over the past year that EIA expects to continue into 2020. Despite the decline in rigs, EIA forecasts production will continue to grow as rig efficiency and well-level productivity rises, offsetting the decline in the number of rigs.”
  • Lower Oil Prices:  The EIA is expecting that “crude prices will be lower on average in 2020 than in 2019 because of forecast rising global oil inventories, particularly in the first half of the year.”
  • Continuing OPEC Production Limits:  The “EIA assumes that OPEC will limit production through all of 2020. . . .”  The new production target is reportedly “1.7 million barrels per day (b/d) lower than in October 2018, compared with the former target reduction of 1.2 million b/d.”
    • By way of a reminder, the Organization of the Petroleum Exporting Countries (“OPEC”) met last week and approved additional adjustments to the previous production cuts – more on this can be found here.
  • Increase in Crude Oil and Petroleum Exports:  The “EIA expects total crude oil and petroleum net exports to average 570,000 b/d in 2020 compared with average net imports of 490,000 b/d in 2019.”

These new outlooks for 2020 leave us with a hopeful anticipation overall as we close out the year.  Only time will tell if they are accurate forecasts!

Hidden Value: Finding New Ways to Capture Resources in Produced Water

Produced water in the oil and gas sector can be a very costly and complex matter, and largely dependent on location due to the variables in the reservoir, the age of the well, the drilling technologies employed, etc.   

Produced water is an area where many lawyers have been spending a lot of time in recent years.  We draft agreements for the injection of produced water, the transportation of it via truck and pipeline, and we advise companies on its general management as production waste.  We answer a lot of questions about produced water in not only our professional lives, but also in our personal lives – what is in it, where does it go, where does it come from, why does produced water exist, who’s responsibility is it, what can it be used for?  An excellent resource for background on produced water is at the Office of Fossil Energy, which can be found here.    

Does produced water actually contain a hidden treasure trove?

There is a percentage of residual hydrocarbon typically present in produced water, which some operators currently skim prior to injection if the amount of the resources present is large enough to make the skim operation economical.  Uncaptured natural resources are often present in the produced water. 

Finding the hidden value:

According to the Casper Star Tribune article entitled, University of Wyoming Scientist Awarded $1 Million from Federal Government for Wastewater Research, environmental engineer, Dr. Jonathan Brant, recently received a $1 million grant from the U.S. Department of Energy to research ways to limit the loss of uncaptured natural resources in produced water and to reuse the treated water for industrial purposes.  The project will reportedly launch in January 2020 and “an important goal of the research will be producing a cost-effective and simple product that operators can easily incorporate into current water management systems.”

Addressing other compounds present in the produced water is also part of the goal – the grant project will develop a process for cleaning the water to recover not only the uncaptured resources but also to recover these compounds, according to the Wyoming Tribune Eagle article entitled, UW Center for Excellence in Produced Water Receives Grant.  More information on the technology being developed can be found here and also on the homepage for the University of Wyoming Center for Excellence in Produced Water Management, which can be found here.

Congratulations to Dr. Brant and to the Cowboy State on the award of this important grant! 

Predicting Old Man Winter and Energy Outlooks: Is it Anyone’s Guess?

Whether we have a strong winter impacts many things.  From our road conditions driving to work, the extent of demand for home heating fuels, how our livestock will fair, and our ski season (including vital tourist revenue that results from ski season), predicting the degree of the intensity of the winter season can be important.

But this year it looks like it could be anyone’s guess…some degree of certainty would be nice, as it can have a major impact on energy forecasts as well.  For example, natural gas and propane demand.

The U.S. Energy Information Administration (“EIA”) released its Short-Term Energy Outlook (“STEO”) earlier this month, which can be found here.  The October STEO contains a lot of interesting information, including, but not limited to, that the “EIA expects downward oil price pressure to emerge in the coming months as global oil inventories rise during the first half of 2020.”

However, what really caught my eye in the October STEO was the EIA’s prediction as to the upcoming winter. 

In my neck of the woods, cattle ranchers are bracing for a big winter – folks are beefing up (pun intended) winter structures in their pastures to give their cows some protection from intense snow storms, and old timers are warning to push calving season later this year to avoid calves being born during the worst of the early spring snow storms.  Many people in my home state of Wyoming have already buttoned up their summer homes in the mountains and have had snowfall since the beginning of the month.  According to The Weather Channel article entitled, It’s a Record-Snowy Start For the Northern Rockies and Plains and Winter Is Still Over 2 Months Away, some areas have already been pounded by record-dumping snowstorms.

In fact, The Old Farmer’s Almanac similarly predicts in its winter 2019-2020 forecast, which can be found here, “below-normal winter temperatures” through most of the U.S. coupled with significant snowfall.  The 2020 Old Farmer’s Almanac predicts a “snow-verload” of “frequent snow events – from flurries to no fewer than seven big snowstorms coast to coast, including two in April for the Intermountain region west of the Rockies.”  

The October STEO takes a different stance – The EIA forecast as to the winter fuels outlook is based upon a mild winter.  Indeed, the October STEO provides the following winter fuels outlook:

  • “The [EIA] forecasts that average household expenditures for all major home heating fuels will decrease this winter compared with the last.  This forecast largely reflects warmer expected winter temperatures compared with last winter.”

The National Oceanic and Atmospheric Administration (“NOAA”) also released the following prediction:  Winter Outlook: Warmer than average for many, wetter in the North, which forecasts “warmer-than-average temperatures…for much of the U.S. this winter.”  NOAA predicts that “[n]o part of the U.S. is favored to have below-average temperatures this winter.”

The Weather Channel seems to take the middle road in its forecast entitled, Winter 2019-20 Will Likely Be Warmer Than Average in Southern U.S. & Colder Than Average in Parts of Northern Tier, and also includes the following disclaimer: “Given some of the conflicting factors listed above, this forecast will likely change, so be sure to check back to weather.com for updates.”

What will this winter be like and what will the weather’s impact be on the domestic energy outlook?  It is anyone’s guess!

Oil and Gas Bankruptcies: More Added to the List

Last month, we discussed the increase in oil and gas bankruptcy filings since May of 2019 – the full blog post can be found here.  Haynes and Boone, LLP released a new Oil Patch Bankruptcy Monitor as of September 30, 2019, which can be found here, showing that even more have been added to the list.

Since our last post on the subject, which reflected the August 2019 data, seven more companies have filed for bankruptcy in the last month or so, according to the September Oil Patch Bankruptcy Monitor.

In addition to the fact that seven more companies have been added to the list, the map of 2015-2019 E&P Bankruptcy Filings By Location found in the September Oil Patch Bankruptcy Monitor is similarly concerning; Texas is reportedly leading the charge with 89 filings, followed by Delaware with 31 filings, Canada with 18 filings, and Colorado and Louisiana with 11 filings each.

The September Oil Patch Bankruptcy Monitor also shows that the third quarter of 2019 has been the highest quarter of cumulative North American E&P Bankruptcy Filings since 2015…the upward trend of this graphical depiction is startling.  As of the publication of this blog, according to Bloomberg Energy, WTI Crude is at $54.01 per barrel and Brent Crude is at $59.92 per barrel, which is a general decline from this time last month.  As always, it is difficult to try to discern what this means. 

Stay tuned and we will keep you posted on oil and gas industry insights in light of the recent increase in bankruptcies.

Time for a Check-Up: Taking the Pulse of Wyoming’s Energy Sector

It is time for a check-up, or more appropriately, a check-in, on the Wyoming energy sector.  I have spent quite a bit of time in Wyoming recently, and one troubling comment that I heard in a gas station has resonated with me – “Wyoming is still in a recession.”  It got me thinking…is this true?  It is time to take the pulse of Wyoming’s Energy Sector…

Last week, I attended the Wyoming Oil and Gas Conservation Commission’s (“WOGCC”) hearings and was present for the Supervisor’s Report to the Commission, which can also be found here.  In the Supervisor’s Report, Mark Watson gives a status update on the oil and gas sector in the Cowboy State.  It is a sort of monthly physical, a check-up of sorts, on the goings on in the oil and gas industry.

In summary, the October 2019 Supervisor’s Report provides as follows –

The following numbers are down:

  • APDs:  The number of APDS received in the month of September by the WOGCC decreased about 20% from the previous month.
  • Rig Count:  The rig count is down from last month.
  • Monthly gas production in Wyoming as of July 2019 was down approximately 17% from July 2018.
  • Good news:  Monthly oil production in Wyoming as of July 2019 was up approximately 17% from July 2018.
  • 75 wells were removed from the Orphan Well Program list for the month of September, with 71 wells plugged and abandoned and 4 converted to water wells for landowners.

In addition, earlier this week, the Casper Star Tribune published its Energy Journal entitled, Energy Journal: What to Expect this Winter in Energy.  This article reports on the many aspects of the energy sector in the Cowboy State, including, but not limited to, the following:

  • Natural gas output may be starting to taper off, and the consequences of low natural gas prices are already starting to emerge in Wyoming.
  • Layoffs are starting to creep upwards.
    • Halliburton reportedly cut 650 jobs in the Rocky Mountain region.
  • Good news: Wind energy development is expected to expand.

The article’s perspective on the future of natural gas is troubling as, according to the U.S. Energy Information Administration’s Wyoming State Profile and Energy Estimates, which can be found here, Wyoming is among the top 10 natural gas producing states and has natural gas reserves among the top 5 states.  The Supervisor’s Report reported that monthly gas production was down 17% from July 2018 as well.

Layoffs in the coal sector and in the oil and gas sector are similarly troubling… 

Thank goodness that the Casper Star Tribune’s recent article entitled, Wyoming Utility Leading Drive to Expand Wind and Solar, provides a light at the end of the tunnel.  Wyoming has been struggling to diversify its economy in recent years, and this check-up seems to reflect a generally bleak prognosis.  However, the good news comes in the form of one of Wyoming’s ever-present assets – the wind.  As the Cowboy State is ripe for wind development, it appears wind infrastructure will be the booster shot that the state needs.

Stay tuned for more on Wyoming wind…