Author Archives: Melissa J. Lyon

What Factors are Influencing Colorado’s Future Role in the U.S. Energy Sector?

It is no secret that Colorado is, and has been in recent years, a hot state in the domestic energy sector. 

One of the reasons that the state has been a hotbed for development is due to the potential that the state has for oil and natural gas production.  According to the U.S. Energy Information Administration (“EIA”) profile on Colorado, which can be found here:

  • Crude oil production has quadrupled in Colorado since 2010
  • Colorado hold about 4% of total domestic crude reserves
  • Colorado is the 5th largest natural gas producing state
  • 11 of the country’s 100 biggest natural gas fields are located in Colorado

Colorado has serious potential for future oil and gas production.

As we discussed in our post, Proposition 112 Was Defeated, But That is Not the End, Colorado recently rejected a measure that could have had significant negative impacts on the members of Colorado communities.  However, as we discussed, Proposition 112 is not the end to the challenges facing the industry…as highlighted below. 

Predicting the future is obviously difficult.  We do not have a crystal ball or some special insight that gives us all of the answers.  Predicting is, just that – estimating things based upon the data and information we know and taking into account the numerous factors that we cannot anticipate and do not know, but that may make a significant impact

That being said, despite these difficulties, many are trying to predict what the future of the energy sector in Colorado will look like.  For example, these are some recent headlines in Colorado:

In addition to potential future regulations, the state has the Wildgrass case looming – Wildgrass Oil and Gas Committee v. State of Colorado et al., case number 1:19-cv-00190, currently pending in the U.S. District Court for the District of Colorado was filed January 23, 2019.  What is at issue is the statutory pooling of nonconsenting mineral owners in the form of a challenge to the constitutionality of C.R.S. § 34-60-116, the statutory/involuntary pooling statute. 

We will continue to monitor the Wildgrass case and we will be providing periodic updates as to the same – for an introduction into the case, Oil & Gas 360 posted an article entitled, Colorado: New Lawsuit Targeting Mineral Rights Pooling was Filed by Setback Proponents which also includes a Law 360 article entitled, Mineral Owners Want Forced Drilling on Their Lands Outlawed.

Needless to say, these matters will certainly have an impact on Colorado’s future role in the domestic energy sector, the operations of operators in the state and also the interests of mineral interest owners. 

From the Kitchen Recipe Box

It Takes the Right Ingredients: The Recipe for Sustainable Oil Prices and the Perfect Cake Have Common Elements

In baking, much like in many areas of life, all of the ingredients must come together in perfect harmony.  Baking is not just about measuring out the right amount of quantities of what you are adding in, baking it at the right temperature and hoping for the best.  No, baking also requires patience, finesse and foresight – but above all, it requires planning and the right ingredients.  

Achieving sustainable oil prices is much the same – numerous components must all come together in harmony for sustainable growth and stable pricing to be the result.  A little patience, finesse, foresight and planning don’t hurt the process either.  One or two factors do not, alone, cause a stable price environment – it is the combination of many ingredients, each playing a role.

I recently got my layer cakes down pretty well; however, then I got a little over-confident and substituted in eggnog on a whim while baking a Christmas-themed layer cake.  I did not think through the role that room-temperature milk actually played in a cake, nor did I think through the impact that the substitution may have on the other ingredients.  Luckily, my cake still worked out, but it was just a little off. 

Lesson Learned: Sometimes you just cannot substitute one of the crucial ingredients on a whim.

Some, But Not All of, The Crucial Ingredients for Sustainable Oil Prices

When one sits down to think about what all goes into the recipe for sustainable oil prices, it is easy to see how opinions on this subject can differ so greatly.  There does seem to be a general consensus on a few of the critical ingredients:

  • Supply and Demand
  • International Relationships and the Global Economy
  • Infrastructure and Drilling Efficiencies

Supply and Demand

 Although some question whether supply and demand have that significant of impact on pricing, most people recognize that this simple and basic economic principal is a foundational component of the sustainable oil prices recipe. 

While it is widely accepted that high oil prices leads to more drilling, thereby increasing supply, some question whether OPEC’s supply cuts have a true impact on price.  Others feel that production cuts support prices and give momentum to increases in price. 

A recent article featured on entitled, Oil Prices Gain 2 Percent, Extending Rally From December Lows, reports that the slight recent increases in oil prices are “drawing support from an agreed supply cut by the Organization of the Petroleum Exporting Companies, [as] well as some non-member countries such as Russia and Oman” and discusses in detail that “[t]he aim of the production cut is to rein in a surge in global supply, driven mostly by the United States, where production grew by nearly a fifth to over 11 million bpd in 2018.”

International Relationships and the Global Economy

Now, more than ever, the global economy and the state of international relationships play a critical role in whether oil prices will be volatile.  We frequently consider circumstances in Venezuela, Iran, Saudi Arabia, Russia and other far-away countries when we look at predicting the future of oil prices.  Forbes discusses the international relationship impact on oil prices in its recent article entitled, Oil Markets Are In For a Wild Ride in 2019

Infrastructure and Drilling Efficiencies

Planning, from an infrastructure standpoint, such as pipelines, plays an important role on the stability of pricing as well.  Advances in technology that promote drilling efficiencies are similarly essential. 

The unavailability of pipelines has been an issue for years.  In fact, a recent article in Bloomberg entitled, Permian Shale Oil Boom Holds Good News and Bad News for OPEC, discusses current pipeline constraints in the Permian and also limitations in the United States export infrastructure in detail.  

Further, advances in drilling technology have resulted in efficiencies that have helped profitability increase.  A recent article in Forbes entitled, U.S. Shale Oil and Natural Gas, Underestimated its Whole Life, mentions the benefits of drilling efficiencies in oil price consistency and future production.

Bottom line – both sustainability in commodity prices and baking each require the right ingredients. 

For a wonderful white cake recipe, check out The Best Vanilla Cake I’ve Ever Had, by Sally’s Baking Addiction.

Production Records Reached in North Dakota

One of my favorite pastimes is reading the monthly Director’s Cut from Lynn Helms.  It is like those “You Might Be a Redneck If…” jokes, except it goes like this… “You Might Work in The Energy Sector If…you get excited to read the monthly Director’s Cut.”

The Director’s Cut reports go back to 2010 and are released monthly.  The full archive can be found here.  They look back and discuss in detail the prior months’ production, rig count, completions, etc.  In addition, they provide a helpful section called “Agency Updates” which breaks down all of the goings on in the Bureau of Indian Affairs (“BIA”), Bureau of Land Management (“BLM”), Environmental Protection Agency (“EPA”), U.S. Forest Service, etc.

The most recent Director’s Cut reports provide us with a positive outlook for the oil and gas industry in North Dakota.  North Dakota production levels are reaching record highs…F

To wet your whistle with North Dakota stats, according to the U.S. Energy Information Administration (“EIA”)’s Drilling Productivity Report released on December 17, 2018, which can be found here, the Bakken region produced 1,443 thousand barrels of oil/day in December of 2018 and is expected to produce 1,461 thousand barrels of oil/day in January of 2019

Now, to the Director’s Cut reports…

November 2018 Director’s Cut

The main takeaway from the November, 2018 Director’s Cut is that production records were being set.  Specifically, record oil and gas production levels were achieved in September of 2018 – hitting new all-time highs for oil production, gas production and producing wells. 

In addition, the November, 2018 Director’s Cut provides the following:

  • Over 99% of drilling now targets the Bakken and Three Forks formations
  • Drilling permit activity increased significantly from September to October 2018

December 2018 Director’s Cut

Similarly, the December, 2018 Director’s Cut provides that new records were again reached.  Record oil and gas production levels were again hit in October, 2018 – new all-time highs for oil production, gas production and producing wells were again hit.  

The December, 2018 Director’s Cut also provides that the November rig count was down slightly, but that as of the release date of the report on December 14, 2018, it was back up to October’s level, and that estimated wells waiting on completion is 959, up 31 from the end of September to the end of October.

January 2019 Director’s Cut

The January, 2019 Director’s Cut reflects a slight decline in oil and gas production from October to November; also, the number of producing wells is also down from October to November.   

The Takeaway:  The Director’s Cuts are a great resource. The December, 2018 Director’s Cut provides some insight into the optimistic outlook for North Dakota production and also details the production records that have been reached.  Specifically, the December, 2018 Director’s Cut provides that, “Operators continue to maintain a [drilling] permit inventory that will accommodate varying oil prices for the next 12 months.” Good news!

Increased Interest in Wyoming Oil and Gas

My Alma matter recently started using a slogan that I absolutely love – “the world needs more cowboys” – check out the University of Wyoming homepage here.   

However, the Cowboy State is not just home to cowboys.  Wyoming is also home to deposits of oil, gas, trona, coal, uranium, bentonite, and other elements – the Wyoming Mining Association website, which can be found here, and the Wyoming Oil & Gas Conservation Commission (“WOGCC”) website, which can be found here, are both excellent sources for information on Wyoming’s resources.  

Wyoming is no stranger to cowboys or to the booms and busts of the energy sector.  In fact, the foundation of Wyoming is deeply rooted in the hard working men and women who are gritty enough to work through the cyclical nature of the energy industry, not to mention those who can withstand the wind and the weather.  However, although Wyoming has struggled in recent years due to downturns in the oil and gas industry and the coal sector, Wyoming is increasingly on the radar for future oil and gas production.    

According to an article published in Oil and Gas 360 in late September of 2018 entitled, Wyoming Has 18,000 Drilling Permits in the Queue for Approval and 30 Active Rigs, “Wyoming regulators have 18,000 applications for permit to drill in a queue awaiting approval” and the WOGCC is reportedly moving through up to 150 APDs per month.  The article further points out that, “[m]any of those [APDs] will not be approved, but the activity speaks to increased interest in either drilling in Wyoming or securing primacy over a drilling area by being the first to secure a permit.”

In addition, the WOGCC has been forced to take action since it is being bombarded with applications, further reflecting the spike in interest in Wyoming oil and gas development: 

1.         Effective with the July 2018 hearings, because the WOGCC has been so inundated with applications, an Inactive Docket (“B” docket) was created to lessen the burden on WOGCC staff.  Pursuant to the Protest Policy for Spacing Related Hearings issued on June 12, 2018, any protested spacing related application that is continued more than once will be automatically placed on the “B” Docket for a period of up to one year until it is either resolved by the parties or set for a hearing at the request of either party.  This is an effort to ease the workload on WOGCC staff and to get the process more streamlined.

2.         More recently, effective December 11, 2018, the WOGCC implemented a new hearing policy regarding amending applications.  The full updated policy can be found here.  The new hearing policy provides that when a hearing application is amended, it will be continued and assessed a continuance fee – and the applicant will be required to re-notice the application and provide a new affidavit of mailing.  According to Mark Watson, Oil & Gas Supervisor, this new policy is reportedly designed to provide the WOGCC staff adequate time to prepare the docket for hearing. 

It is clear that interest in Wyoming oil and gas development is on the rise and the good news is that the WOGCC is taking steps to accommodate the influx.  This news is not only good for those in the oil and gas industry itself, but for all Wyoming folks working in businesses that help support energy workers. 

Stay tuned – we will continue to monitor the energy sector in the Cowboy state.

Proposition 112 Was Defeated, But That is Not the End

Colorado’s Proposition 112, which gained national notoriety this fall, the full text of which can be found here, was a ballot initiative that proposed the nation’s strictest setback – a blanket 2,500 feet setback for new wells.  Luckily, the highly publicized Proposition 112 was defeated at the polls this November, as it could have had significant negative impacts on not only the industry as a whole, but on the lives of many Coloradans.  The extreme and controversial measure was even discussed in The New York Times article entitled, In Colorado, a Bitter Battle Over Oil, Gas and the Environment Comes to a Head, shortly before voters hit the polls. 

Residents of Denver saw people taking to the sidewalks and streets to oppose Proposition 112 and to spread the word of how detrimental the measure would be if passed – industry workers, landmen, executives, engineers, lawyers and the like all sported “Vote ‘No’ on 112” signs.  As a resident of Weld County, I personally did not see any “Vote ‘Yes’ on 112” signs until driving north to Fort Collins or west to Boulder. 

By way of a summary, Proposition 112 would have had substantial impacts on the oil and gas industry in Colorado, including the following:

  • It would have greatly reduced the available locations for new oil and gas development
  • Colorado’s tax revenue, unemployment rate and overall health of the state economy would have taken a major hit
  • Most notably, the measure would have had major negative impacts that would have rippled throughout Colorado communities – our families would have felt its negative impacts the most. 

What many forget is that it is not just those families who work in the oil and gas sector who would have suffered – local restaurants, hotels, gas stations, and many others who serve the industry would have lost a significant flow of income.  This also does not include the mineral owners whose asset could have remained undeveloped – they stand to lose the benefit of owning such a resource if it can not be developed.  An excellent summary of the potential impacts of Proposition 112 was put together by the Colorado Oil and Gas Association (“COGA”) and can be found here.  

Proposition 112 was reportedly rejected by a margin of 57% to 42%.   Those in favor of restricting oil and gas operations in Colorado will likely attempt future ballot measures aimed at the same…the takeaway is that the defeat of Proposition 112 will likely not be the end

The roots of this measure started to grow as early as 2010, with local Colorado communities starting to get interested in pushing fracking moratoria.  It is unlikely that this movement toward heavily restricting oil and gas development in Colorado will end any time soon.  Many think that the oil and gas industry is currently poised to educate the public now that it has defeated Proposition 112 and use the opportunity to prevent future misinformation and obstruction of the industry.  Coloradans for Responsible Energy Development is one such effort.

Stay tuned – we will keep you informed of any new developments and regulations affecting the industry in Colorado. 

2018 Year in Review

This has been quite a year for the energy sector, not only producing states in the Rocky Mountain region, but for the United States as a whole.  As we start 2019, let’s first take a look back on 2018 – a year full of relative price stability leading toward an optimistic outlook overall for domestic energy production.  

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