Author Archives: Melissa J. Lyon

Oil and Gas Bankruptcies Rising

Headlines lately are shedding light on a frightening trend – oil and gas bankruptcies are on the rise:

According to Haynes and Boone, LLP’s August 2019 Oil Patch Bankruptcy Monitor, there has been an increase in the number of oil and gas bankruptcy filings, especially since May of 2019 – 26 exploration and production (E&P) firms have reportedly filed for bankruptcy through mid-August this year, with debts reportedly totaling $10.96 billion.

A number of factors are contributing to the increase in oil and gas bankruptcies – oil price is chief among them.  Further, according to the Oil & Gas 360 article, one of the reasons behind the bankruptcies is, “a displeased Wall Street cutting off the access to capital for most companies.”  

Many are waiting with bated breath to receive updated data on the number of bankruptcies – as of the date of the August Oil Patch Bankruptcy Monitor, there had already been 4 bankruptcies in the month of August, according to the report’s 2019 bankruptcy list.

While not an issue isolated to the Rocky Mountain region but impacting all producing states, many in Colorado are concerned that the recent legislation in the state may become yet another contributing factor to increasing bankruptcies in the energy sector.

Will oil and gas bankruptcies continue to rise for the rest of the third and fourth quarter?  Will Colorado be next to see a wave of bankruptcies?  Only time will tell…

Montana Dinosaur Fossils: A Bone to Pick in Ownership

The Montana Supreme Court has accepted a certified question from the Ninth Circuit Court of Appeals concerning whether, under Montana law, dinosaur fossils constitute “minerals” for the purpose of a mineral reservation.

Who owns dinosaur fossils in Montana?

History Lesson

According to an article in Science Magazine entitled, Are Dinosaur Fossils ‘Minerals’? The Montana Supreme Court will Decide High Stakes Case, “[p]ristine dinosaur fossils discovered in Montana have sparked a property rights dispute that has hit paleontologists like an asteroid.”

The landmark case is Murray v. BEJ Minerals, LLC, 924 F.3d 1070, 1074 (9th Cir. 2019), certified question accepted, No. OP 19-0304, 2019 WL 2383604 (Mont. June 4, 2019). The fossil discovery at issue is reportedly the “mother lode of fossils” – the “Dueling Dinosaurs,” triceratops fossils and a complete T. rex named the “Murray T. rex.” The Dueling Dinosaurs are reportedly two complete fossils of two dinosaurs “locked in combat” and the Murray T. rex is reportedly considered one of only a dozen ever found in such condition.

Traditionally, fossils are not considered minerals and belong to the surface, not the mineral, estate. However, the matter was not clear under Montana law and litigation ensued.

Procedural History:

The Ninth Circuit Court of Appeals had previously determined that fossils were “minerals” that belong to the owners of the mineral estate – this controversial decision is what sparked the certified question to the Montana Supreme Court.

Montana Legislation:

Recognizing that a gap existed in Montana law as to whether fossils constitute minerals in light of the Murray case, the legislature addressed the skeleton in the closet.

HB 229 was signed into law by the Governor of Montana on April 16, 2019. The full legislative history of HB 229 can be found here. The full text of the enrolled bill of HB 229 can be found here.

In short, HB 229 declared that dinosaur fossils are not minerals and that fossils belong to the surface estate.

Despite the Montana legislation, however, resolution of the Murray case is not extinct. The effective date of HB 229 was immediate, but its retroactive application has yet to be confirmed. We will continue to monitor the case and how the Montana Supreme Court responds to the certified dino question. Stay tuned!

From the Kitchen Recipe Box: Sometimes You Need to Spice it Up

Last night, I made salmon patties.  We have this amazing canned Alaskan wild salmon and it makes some extremely delicious salmon patties, let me tell you.  As I was making them last night, one thought kept crossing my mind: I was not in the mood for a basic, plain, old salmon patty.  You know what a regular salmon patty is?  It is boring, that’s what.

You know what else can feel a little monotonous?  Reviewing energy statistics!  The U.S. Energy Information Administration (“EIA”) released its Monthly Energy Review, which can be found hereAs interesting as this data is, it can still taste a little bland.

Sometimes you need to spice it up!  In salmon patties and in reviewing data, a little flavor goes a long way.

I added a little Siracha to my salmon patties last night, whipped up a Siracha aioli sauce, diced up scallions and celery to add in to my patties and also topped them with dill and sea salt.  Just like that, the flavor profile was no longer boring.  It was totally new and exciting! 

To add a little spice to reviewing energy statistics, one must change the flavor profile by looking at the data with fresh eyes

The EIA’s Monthly Energy Review may look like just a bunch of charts and graphs, but a close review reveals patterns and trends.  I specifically like to look at production, consumption and energy prices.

For example, in the Crude Oil Price Summary, which can be found here, a comparison of the yearly average prices tends to show an overall upward trend. 

On a more micro-level, oil prices today are also moving upward. According to Bloomberg Energy,  WTI Crude Oil is at $55.95 per barrel at the time of the posting of this blog and Brent Crude is at $60.61 per barrel. Both of these prices are on the rise!

What is the spice to add when thinking about energy prices?  Projections and forecasts, of course.  Both of these considerations add the flavor.   

According to the EIA’s Short Term Energy Outlook (“STEO”) released earlier this month:

  • EIA forecasts Brent spot prices will average $64/b in the second half of 2019 and $65/b in 2020. The forecast of stable crude oil prices is the result of EIA’s expectations of a relatively balanced global oil market. 
  • This spice is clearly forecasting that Brent is on the rise from where we sit today.
  • EIA expects WTI crude oil prices will average $5.50/b less than Brent prices during the fourth quarter of 2019 and in 2020, narrowing from the $6.60/b spread during July. The narrowing spread reflects EIA’s assumption that crude oil pipeline transportation constraints from the Permian Basin to refineries and export terminals on the U.S. Gulf Coast will ease in the coming months. In the July STEO, EIA forecast the Brent-WTI spread to average $4.00/b in 2020. 
  • This spice forecasts that WTI will also raise and the spread will start to shrink up even more.

Thus, the flavor profile on oil prices is starting to heat up and is projected to get spicier.

TAKEAWAY:  Don’t be afraid to spice things up or look at things with fresh eyes to see a new flavor profile!

North Dakota Reports Record Oil and Gas Production

The June 2019 Director’s Cut was released last week, on August 15, 2019, by Director Lynn Helms, NDIC Department of Mineral Resources – a full copy of the June 2019 Director’s Cut can be found here. It contained some noteworthy info…

The June 2019 Director’s Cut reported the following new all-time high production records in North Dakota:

  • June 2019 Oil Production was 1,424,625 barrels/day and originated primarily from the Bakken and Three Forks
  • June 2019 Gas Production was 2,876,689 MCF/day

In addition, the June 2019 Director’s Cut reported that the number of producing wells increased (based off of preliminary numbers at the release date of the June 2019 Director’s Cut) by approximately 38 wells, also reaching a new all-time high number.

While the statewide rig count for North Dakota is significantly lower than the monster rig count numbers reached back in 2012, as of August 15, 2019 the North Dakota rig count was 61 and the estimated number of wells waiting on completion from end of May to end of June was 983 wells, according to the June 2019 Director’s Cut.

Reaching these all-time high production records this summer is certainly noteworthy.

What is the TAKEAWAY here? North Dakota oil and gas production is sitting pretty and is currently bolstering not just the local economy, but it has been improving the economy of the United States as a whole as well.  

According to Natural Gas Intel’s Shale Daily article entitled Lower 48 Oil Boom, Particularly in Texas and North Dakota, Spurring U.S. GDP, North Dakota’s growth in domestic oil production over recent years has been a key part of the drilling expansion that added as much as 1% to the U.S. gross domestic product (GDP) from 2010-2015.

Thanks to the all-time high production records that were set in North Dakota in June, it looks as though this trend will continue.  

Navajo Transitional Energy Company to Purchase Wyoming Coal Mines

Navajo Transitional Energy Company, a wholly-owned limited liability company of the Navajo Nation, is about to close a big deal that will substantially impact Wyoming, and potentially the country as a whole. 

According to the Casper Star Tribune article entitled, Navajo Nation Coal Company Receives Approval to Purchase Cloud Peak Mines, Navajo Transitional Energy Company was the successful bidder and has received court approval to purchase Wyoming’s Antelope and Cordero Rojo mines, located in the Powder River Basin, out of bankruptcy.  The Spring Creek mine located in Montana was also reportedly included in the sale to the Navajo Transitional Energy Company.

Why is this important?

  1. This is a BIG deal. These coal mines are large – Wyoming’s Antelope and Cordero Rojo mines are the third and fifth largest coal mines in the country.  According to the press release dated August 19, 2019 issued by the Navajo Transitional Energy Company entitled, NTEC Expands its Conscientious Energy Development Efforts by Acquiring Three Coal Mines in the Powder River Basin, which can be found here, the properties acquired include surface and mineral rights to approximately 90,000 acres of land.
  • The coal produced from these mines located in the Powder River Basin has a low sulfur content and is therefore considered cleaner.
  • These coal mines currently employ roughly 800 Wyoming miners.
  • Navajo Transitional Energy Company is already in the coal business – according to its website, which can be found here, the company purchased the Navajo Mine in 2013, which is located on the Navajo Nation, south of Farmington, New Mexico. The Navajo Mine is operated on behalf of Navajo Transitional Energy Company by Bisti Fuels Company, LLC, a subsidiary of North American Coal Corporation. 
  • According to Navajo Transitional Energy Company’s press release, the assets were acquired free and clear of the debt burdens since they were purchased through the bankruptcy process.
  • This sale is historic – it not only involves large coal mines but, according to Navajo Transitional Energy Company’s press release, “Indian tribes have long had a deep connection to the earth, and for the first time, a tribal company will now lead thoughtful and diligent energy development on a national level.”
  • Further,  according to Navajo Transitional Energy Company’s press release, “[w]ith this purchase, NTEC [Navajo Transitional Energy Company] becomes the third largest coal producer in the United States.

This historic sale is the high note of the week, as the economic benefits not only to Wyoming, but to the Navajo Nation and the United States as a whole, will be significant. 

Business Friendly: Wyoming Establishes Chancery Court

Wyoming is business friendly and has been taking efforts to streamline conflicts related to companies doing business in the Cowboy State. 

On March 15, 2019, Governor Gordon signed into law an act of the 2019 Wyoming legislature, Senate File 104, which created a Chancery Court – check out the press release issued by the Wyoming Judicial Branch here.  

What is the purpose of the Chancery Court?

The Chancery Court is a specialty court of limited jurisdiction which is intended to be a business court, where business-related conflicts are expedited through the judicial process. According to the Wyoming Judicial Branch’s press release, its “purpose is to provide a forum for streamlined resolution of commercial, business, and trust cases.”

What types of cases would go before the Chancery Court?

According to the Wyoming Judicial Branch’s press release, the court would have “jurisdiction to decide actions seeking declaratory or injunctive relief and actions seeking money recovery over $50,000 that arise from claims including breach of contract, breach of fiduciary duty, fraud, derivative actions, the Uniform Commercial Code, and the Uniform Trust Code.”

When will the Chancery Court be established?

Short answer – the ball is starting to roll pretty quickly. The Wyoming Supreme Court has reportedly been charged with establishing the Chancery Court rules and regulations by January 1, 2020 and beginning March 1, 2022, the Chancery Court judge position is to be filled through Wyoming’s constitutional judicial selection process.

What does this mean for your Wyoming business?

TAKEWAY: Among the other favorable aspects of doing business in the Cowboy State, Wyoming has established a specialty business court for commercial/business disputes in excess of $50,000 that will have the expertise to streamline disputes that occur in Wyoming involving business entities. 

For more information, check out the following articles:

Revision to Wyoming’s APD Rules: Proposal for Wyoming’s First to File Rule to Expire in 2 Years

At yesterday’s hearings, the Wyoming Oil and Gas Conservation Commission (“WOGCC”) released a proposed rule aimed at addressing the increased volume of drilling permits filed in the Cowboy State. The formal bulletin entitled, “WOGCC Proposes Rule to Address Volume of Drilling Permits,” can be found here.

If approved, the proposed rule, released in accordance with Wyoming’s rulemaking guidelines, will change several aspects concerning the filing of Applications for Permits to Drill (“APDs”), according to the bulletin:

  • Going forward, Wyoming will remain a “first to file state” for a two-year period
  • After the expiration of the initial two-year period, other working interest owners within a drilling and spacing unit (“DSU”) will be able to file APDs with a time limit placed on the operator to drill the well
  • A new checklist will be provided for information to be included in and submitted with an APD from (i) the operator who is not the current operator of the DSU and (ii) the operator of the DSU who holds the oldest pending APD or producing well

To review the proposed rule, click here.  Prior to the comment period, a public meeting will be held to explain the rule and answer any questions. Written public comments will be collected and reviewed during the 45-day comment period.

Stay tuned as we will be monitoring how this proposed rule develops! This is a big proposed change that could have many potential consequences for operators. 

Wyoming’s Increases in the Energy Sector are Visually Apparent

As I drove from Denver to Sheridan, Wyoming this weekend, two things caught my eye from the highway:

1. Coal: I passed not one, but two trains pulling railcars filled to the brim with coal. It has been awhile since I have seen a full coal train on the move, let alone two within hours of each other!

2. Oil: More derricks are springing up.

Actually, I should say three things caught my eye – the third is that Wyoming is greener than I have seen in many years. The grasses are lush and vibrant, transforming the prairies and hills.

COAL

Many may not be aware that Wyoming has been the nation’s leading coal producer since 1986. For more excellent information about Wyoming’s coal production, check out the Wyoming Mining Association’s website, which can be found here.

The coal in the Powder is truly a one of a kind commodity. Wyoming’s Powder River Basin, located in the northeast corner of the state, is known not only for the large size of its mines, but the unique features of its primary commodity. Because thick coal seams lay relatively close to the surface, the Powder lends to cost effective coal recovery operations, keeping costs lower. Further, the coal from the geologic formation there is lower in sulfur, making it cleaner when burned.

Of the roughly 5,500 employees reportedly working in the coal industry across Wyoming, more than 4,500 of them work in the Powder. Coal has always been a big part of Wyoming’ economy, and the commodity’s future is very volatile at this point.

OIL

Oil production is on the rise in the Cowboy state. In fact, according to a recent article published by Wyoming Public Media, which can be found here, oil production in Wyoming has risen to its highest level in 25 years.

In short, increases in the energy sector are visually apparent in Wyoming – only time can tell what the future is for Powder River coal and what lies ahead for the oil produced in the Cowboy State. Stay tuned!

Potential Oversupply and Slower Demand: Will OPEC Extend Production Cuts?

There is one thing on the mind of many folks involved in the oil and gas industry – the upcoming OPEC meeting in Vienna.  On June 25, 2019, the 176th OPEC meeting will be held.

In fact, there are already reports out there attempting to predict the potential impacts of the upcoming OPEC meeting and other global factors on the price of oil – check out this recent article from Bloomberg entitled, Bulls Beware: The 2020 Oil Market is Quickly Turning Ugly.

While oil prices have increased slightly today, they are still lower than many would like to see.  As of this post, WTI Crude is at $52.25 per barrel and Brent Crude is at $61.36 per barrel, according to Bloomberg Energy.  Of significant impact on oil prices is the fundamental nature of supply and demand – stockpiles are reportedly high (ish) and demand is currently low (ish), and may be going lower. 

Oil & Gas 360 released an article entitled, Goldman Sees Hard Path to OPEC+ Extension that discusses these supply and demand issues in the context of the upcoming OPEC meeting in detail.  The bottom line is that we may be going into the OPEC meeting with many uncertainties as to whether production cuts will be extended.  According to the Oil & Gas 360 article, stockpiles are currently at their highest level since mid-2017 and this oversupply is present “amid slower demand growth.”

According to the U.S. Energy Information Administration (“EIA”) Short-Term Energy Outlook which was released June 11, 2019:

Annual U.S. crude oil production reached a record 11.0 million b/d in 2018. EIA forecasts that U.S. production will increase by 1.4 million b/d in 2019 and by 0.9 million b/d in 2020, with 2020 production averaging 13.3 million b/d. Despite EIA’s expectation for slowing growth, the 2019 forecast would be the second-largest annual growth on record (following 1.6 million b/d in 2018), and the 2020 forecast would be the fifth-largest growth on record.

The takeaway from this is easily summed up by a recent CNBC article entitled, Oil Steadies as OPEC Supply Cuts Counter Growth Concerns as follows:  “While the talk of prolonged supply restraint is supporting prices, concern about slowing demand and economic growth has had a bigger impact on sentiment.”

Are we oversupplied?  Is there too much oil in inventories? How much will global oil demand drop?

We must wait and see…stay tuned!

Another Oil Glut Feared?

The headlines are all talking about supply and demand; specifically, oil supply and its impact on the price of oil.  As of the posting of this, WTI Crude is sitting at $58.07 per barrel and Brent crude is at $67.85 per barrel, according to Bloomberg Energy, and it has folks wondering where oil prices will go from here in light of oil inventories rising.  In fact, Oil & Gas 360 just released an article yesterday entitled, Rough Day for Oil: Crude Plunge Approaches 6% discussing the plunge in oil prices in detail.

The recent headlines include:

By way of a reminder, at the end of last year, a “glut” is reported to have helped contribute to the fact that oil prices took a significant tumble to that $45 per barrel mark, that we all would like to forget happened. 

So is another “glut” on the horizon? 

Let’s focus on North Dakota for now:

The North Dakota Industrial Commission (“NDIC”) released its most recent Director’s Cut on May 15, 2019, which can be found here.  North Dakota oil production reportedly bounced up approximately 54,500 barrels of oil per day from February 2019 to March 2019.  In addition, the number of producing wells reportedly increased by nearly 200 wells from February 2019 to March 2019, edging close to the all-time high number of producing wells which was 15,409 in January 2019.

However, the North Dakota rig count is reportedly down 70% from the high; the rig count as of May 15, 2019 was 65 and the all-time rig count was 218 from 5/29/2012.  The Director’s Cut also reports that drilling permit activity has returned to normal, operators continue to maintain a permit inventory that will accommodate varying oil prices for the next 12 months.

Now let’s look at big picture data:

According to the U.S. Energy Information Administration (“EIA”), crude oil inventories have risen – according to EIA data highlights, which can be found here, crude oil inventories as of May 17, 2019 are at 476.8 million barrels, an increase of 4.7 million barrels from a week earlier, and an increase of 38.6 million barrels from one year earlier. This increase was reportedly larger than expected, according to the article entitled, WTI Extends Slide to Weekly Lows Near $61 After EIA Report.

It is no secret that supply has increased, so the question remains as to whether supply has increased to the extent that it will cause a glut.  The upcoming OPEC meeting in June and many other factors may help us in determining where we sit on the supply front. Stay tuned!