Author Archives: Melissa J. Lyon

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!  

Wyoming: A Place for Energy and Persistence

“Energy and persistence conquer all things.” – Benjamin Franklin

Discussing topics in the energy sector gives one a certain, well, energy. A charge or *spark* – a bolt of anticipatory excitement and the promise of potential comes from being “in the know.”  I just received such a spark

The U.S. Energy Information Administration (“EIA”) released a new portal this week that will change the way that we analyze state-level energy data in the United States.  To be honest, I am very excited about it, in the only way that a true nerd in the energy sector who writes an energy-focused blog can be. 

It is called the State Energy Portal and can be found here

I was instantly pulled to focus on the Rockies, and one clear conclusion was apparent – states in the Rockies, namely, North Dakota, Wyoming and Colorado, produce more energy than they consume.  The Rockies are producers.  Check out the EIA states overview map here.  

Yes, there are obviously other states in the same boat that are producing more energy than they consume (check out Texas, Pennsylvania, New Mexico, Oklahoma and Alaska, for example).  However, there is not an entire producing region like the Rockies anywhere else in the United States.  States in the Rockies are synonymous with energy production – the Rockies are giants in energy production.

Benjamin Franklin said, “Energy and persistence conquer all things.”  That could not be more true for the Rockies, an area of the country built by persistence, grit and tenacity – and also by the energy sector.   

The Cowboy State via the State Energy Portal

The state-by-state analysis in the State Energy Portal is amazingly instructive.  As a native of the Cowboy State, I was first drawn to the analysis on Wyoming, which can be found here

The first sentence of the State Energy Portal analysis on Wyoming says it all:

“Wyoming produces 15 times more energy than it consumes, which makes it the biggest net energy supplier among the states.” 

Folks from Wyoming are taught from a very young age the importance of producing. Work hard, imagine big, create, labor and focus your effort – produce something valuable with your time.  It makes sense that Wyoming is THE giant in energy production. 

What is also important, though, is that the State has a variety of sources to tap for energy production.  According to the State Energy Portal Wyoming analysis, and the internal sources cited within the same:

  • Coal: 7 of the 10 largest U.S. coal mines are located in Wyoming’s Powder River Basin.
  • Petroleum:  Wyoming is the 6th largest crude oil producer in the U.S.
  • Oil Production: Wyoming’s monthly oil production is on the rise and in August 2018 reached its highest level in more than 25 years. Most of the state’s oil production increase has come from two primary regions in eastern Wyoming: the Niobrara Shale (due north of the Colorado border) and the Powder River Basin (due south of the Montana border).
  • Natural Gas: Wyoming ranks among the top 5 states with the most natural gas reserves.
  • Natural Gas Production: Most of Wyoming’s natural gas has come from fields in the Green River Basin located in the southwest corner of the Cowboy State.  Notably, more than half of the state’s natural gas is produced on leased federal land – recently in 2018, the federal government approved a large natural gas project in the basin, which calls for the drilling of 3,500 wells over 10 years.
  • Uranium:  Wyoming has significant uranium reserves and is home to the largest uranium mining operations in the U.S.
  • Wind:  Wyoming has some of the largest wind reserves in the nation and big wind-generating electricity projects are in the works in the State.
  • Hydroelectric Power:  Many people may not know that Wyoming is home to 21 hydropower dams and hydroelectric power is the 3rd largest source of Wyoming’s power generation.

TAKEAWAY:  Wyoming is an energy production giant.  It provides a variety of sources for energy production, which clearly causes energy-related industries to dominate the Cowboy State.  While Wyoming is my personal place to refuel and recharge, it also is a major energy producer for the nation. 

A Line in the Sand: Weld County & Boulder County

As a resident of Weld County, I can tell you that there are sometimes stark contrasts between Weld and Boulder Counties.  Although neighbors, the two counties have very different views – and I do not mean of the mountains. 

One of the ramifications of S.B. 181 is increased local control, allowing Colorado cities and counties more control over drilling operations through local zoning ordinances and land use regulations.  Hence, a line in the sand is beginning to be drawn between Boulder and Weld Counties…

On May 1, 2019, the Weld County Board of Commissioners (“Weld County Commissioners”) issued a press release entitled, “Local Control Focus of Board Action,” which can be found here.  During the hearing that same day, the Weld County Commissioners reportedly started the process to give the Weld County government control over oil and gas permitting by “formally designat[ing] all of unincorporated Weld County as being under the purview of county government as it relates to mineral resources – particularly oil and gas.”

The press release follows the “Open Letter from the County Commissioners” from April 16, 2019, the same day that S.B. 181 was signed by Governor Polis, expressing Weld County’s understanding of the value of Colorado’s oil and gas industry, which can be found here

The proposed designation is set for public hearing on June 10, 2019, during which time the Weld County Commissioners will act on the same.  Per the press release, public comment and participation is encouraged at the hearing.  

It is clear that lines are being drawn…stay tuned as more develops!

Colorado’s SB 181: Wyoming’s New Economic Stimulus Package?

It is no secret that Wyoming’s economy is heavily reliant on the energy and natural resources sector.  In fact, the primary forces behind the economy of the Cowboy State are mineral extraction, in the form of coal, oil, natural gas and trona, and agriculture. 

Wyoming is an attractive place to do business due to state incentives like no income tax and low sales and property taxes; however, Wyoming may become even more of a hot opportunity state in light of the passage of Senate Bill 181 by its neighbor to the south, Colorado. 

Colorado has recently taken serious steps to increase oil and gas regulation and revamp the make-up of the Colorado Oil and Gas Conservation Commission.  As Governor Jared Polis signed SB 181 into law yesterday, April 16, 2019, many are trying to anticipate the impact that the bill will have on the oil and gas industry in Colorado.  The future of oil and gas is uncertain, due in part to the significant reforms mandated by SB 181.  For a full discussion of the sweeping impacts of the bill, check out our prior post here

I have heard several folks referring to Colorado’s SB 181 as “Wyoming’s Economic Stimulus Package.”  The comment has been said in jest, but it got me thinking…

Will the oil and gas industry shift more of its focus to the Cowboy State in the wake of SB 181?

There are several factors that support the theory that Wyoming will greatly benefit from Colorado passing SB 181, including:

  • Rural Nature of Wyoming – Wyoming is one of the least populated states in the country.  In addition, the population of the state is spread out – meaning the population density is very opposite to that of Colorado.  As a result, the friction that Colorado has faced with the oil and gas industry as its towns and communities have rapidly expanded into producing areas will be practically a non-issue for rural Wyoming.  In fact, the New York Times wrote an article last summer commenting on this issue of the increase of production in Weld County coupled with Colorado’s population boom entitled, “In Colorado, A Fracking Boom and a Population Explosion Collide.”  Wyoming is a much more attractive environment for operations than Colorado, given Wyoming’s lower population.
  • Attitude – Wyoming residents are, in general, supportive of responsible oil and gas development in the state.  Talk in Wyoming is positive and hopeful of the boom to come, and folks are making what preparations they can in the hopes of a boom in the oil and gas sector again – welcoming it with open arms. Wyoming residents recognize the value of the revenue that oil and gas operations bring to the state.   
  • Workers with Grit – Wyoming is known for its quality of worker; Wyoming folks work hard and with grit, as working outdoors in all weather conditions requires.  

Wyoming presents a favorable opportunity for the energy and natural resources sector to grow, but will the oil and gas industry shift its focus to the Cowboy State in the wake of SB 181?

It is likely that Wyoming will benefit from the passage of SB 181 in Colorado, but only time will tell if SB 181 will be Wyoming’s new economic stimulus package…stay tuned!

Up a Bit, Down a Bit: The Pricing Rollercoaster

Watching commodity pricing is a bit like watching a rollercoaster – it goes up one minute, down the next, then up again and down.  Today’s oil prices are no different.  We started the day up a bit, and this afternoon we are down a bit – the rollercoaster continues.  If you were looking for a lazy river-like pace, with its predictable turns and steady current, commodity pricing is not the ride for you.

This morning, Bloomberg Energy reports the following oil prices, which are up a bit from yesterday:

WTI Crude $4.06 per barrel, a +0.75% change

Brent Crude $1.36 per barrel, a +.075% change

A CNBC headline reads, “A ‘forecasting nightmare’: Volatile Oil Prices are Virtually Impossible to Predict, Analysts Say.”  In short, prices are on a rollercoaster and folks are having difficulty predicting where exactly on the ride we sit – are we on the upswing or should we brace for decline?

A number of things have contributed to pricing’s rollercoaster effect, including:

  • Supply and DemandU.S. Inventories are High.  According to the U.S. Energy Information Administration’s (“EIA”) Monthly Crude and Natural Gas Production report released March 29, 2019, which can be found here, U.S. crude oil production is increasing.  In fact, according to the EIA’s Today in Energy from April 9, 2019 entitled, “U.S. Crude Oil Production Grew 17% in 2018, surpassing the previous record in 1970,” “[a]nnual U.S. crude oil production reached a record level of 10.96 million barrels per day in 2018.”
  • OPEC Production Cuts – Plus Global Issues.  According to CNN Business article entitled, “There’s Trouble in OPEC and Oil Prices are up 50%,” trouble in 3 OPEC nations, namely, Venezuela, Iran and Libya, have contributed to domestic oil price increases.   
  • Restraint and a More Cautious Approach.  According to CNN Business article entitled, “Wall Street Taught Oil Drillers Restraint. That Could Lift Oil Prices,” some of the price volatility could be related to the more cautious approach some companies are taking, with the hopes of keeping higher oil prices sustained.  The article also reports that the sense of restraint in the oil patch could lead to breaking the boom-bust cycle.

There are of course other factors that may come into play, including politics, pipeline constraints, whether OPEC continues supply cuts and global supply and demand impacts.

While it is difficult to predict where the rollercoaster is headed, yesterday’s CNBC article entitled, “Prepare for $80 oil this summer as ‘wounded bulls’ rise, RBC warns,” forecasts that “international oil prices will average $75 a barrel in 2019 and consumers may find themselves contending with bouts of $80 crude this summer, RBC Capital markets said.” One thing is for sure, we are along for the ride!

Crude Oil Prices: What Lies Ahead?

We are constantly trying to predict the future of oil prices – that is just the nature of the beast in this business.  So many things begin, and end, with the price of oil for us.  Luckily, the U.S. Energy Information Administration (“EIA”) is literally in the business of analyzing and predicting the future of oil prices.  Thank goodness, because there are so many factors that go in to predicting commodity pricing, this is not an easy feat!

The EIA’s Short-Term Energy Outlook (commonly known as “STEO”) was released on March 12, 2019 – the full report can be found here

Let’s focus on the EIA’s price forecasts in this most recent STEO:

  • Brent crude spot prices reportedly averaged $64 per barrel in February, which marks a $5 per barrel uptick since January
  • The EIA forecasts that Brent spot prices will average $63 per barrel in 2019 and $62 per barrel in 2020.

These forecasts are great news because they predict price stability, in general, through 2020

Moving on to the Crude Oil Markets Review featured in the STEO, which can be found here, the takeaways are as follows:

  • The STEO reports that the U.S. active oil rig count reached a 10-month low of 834 rigs as of March 8, suggesting the rate of U.S. crude oil production growth could slow
  • Yet, the EIA forecasts U.S. crude oil production will increase by 1.3 million b/d in 2019 and by 0.7 million b/d in 2020.

In addition, the STEO notes the potential for at least two wildcards – OPEC and U.S. production levels, as well as the pace of global oil demand growth.  The STEO forecasts that these factors “present considerable uncertainty to oil market balances and price expectations.”

“Based on the current forecast, however, the EIA expects global inventory builds and rising OPEC spare capacity will limit significant upward oil price pressures in 2019 and in 2020.”

OPEC spare capacity?  Remind me?

OPEC’s primary goal is managing oil supplies to achieve market stability.  In December of 2018, OPEC member countries agreed to production cuts through June of 2019.  According to MarketWatch’s article entitled, OPEC Looks to Cancel April Meeting as Oil-Producer Committee Reports Improved Output-Cut Compliance, as of February, compliance with the production cuts was at almost 90%.  Said another way, most OPEC member countries voluntarily complied with the agreed upon oil production cuts. 

While it is difficult to predict what lies ahead for oil prices, stay tuned – we will have our fingers on the pulse of oil prices.  Many factors influence oil prices and we will keep you apprised of new developments!

The Equality State and Women’s History Month

March is Women’s History Month.  In 1919, the 19th Amendment gave women the right to vote.  While we are celebrating the 100-year anniversary of women’s suffrage in the United States, it gives us a great opportunity to spotlight my home state of Wyoming

Wyoming is not just known as the “Cowboy State” or home to the Salt Creek Oil Field – once the largest producing oil field in the world that boomed and also busted, yet still produces oil today.  Wyoming is also nicknamed, “the Equality State.”

2019 marks the 150th anniversary of women’s suffrage in Wyoming – a truly wonderful anniversary, as women were recognized as having the right to vote in Wyoming a good 50 years before women in the rest of the country were guaranteed the same right.   

Why is Wyoming’s nickname “the Equality State?”  Here are the takeaways:

  • It is the home of the women’s vote, as it recognized that women have the right to vote in 1869.
  • It allowed women to serve on juries as early as 1870.
  • The first female governor in the United States was Nellie Tayloe Ross, elected in Wyoming in 1924.

In addition, the women of Wyoming have always been a different sort – full of grit, tenacity and strength.  As part of our spotlight on Wyoming this month, a recent project created by Wyoming native, Lindsay Linton Buk, entitled Women in Wyoming must also be highlighted. 

The project features “portraits and interviews of women who shape the West” and brings attention to the contemporary women in my home state who are remarkable role models.  The project is broken into 3 amazingly inspiring chapters – trust me, it is worth checking out! Give it a listen:

  1. Chapter 1 – Breaking Boundaries – my favorite feature is on Wyoming’s first female Supreme Court Justice, Marilyn Kite
  2. Chapter 2 – Filling the Void – my favorite feature in this chapter focuses on Dr. Diane Noton
  3. Chapter 3 – Power – my favorite feature in this chapter is on Mickey Thoman, “cowgirl, mentor and ranching matriarch of the Thoman Ranch in Sweetwater County, Wyoming” (which is also my home county)

Each Chapter contains 5 separate stories – each with truly breathtaking photographs taken by Lindsay Linton Buk herself, and each story is recounted in the subject’s voice and displayed in podcast format.  You get to actually hear the tales told in the subject’s voice, which is really a once in a lifetime opportunity to listen to true stories told by these amazing Wyoming women. This project is so unique and full of energy – it is an absolutely wonderful and inspiring project created by a Wyoming woman to bring these powerful stories to light – it is a “must see.”  Check it out!

As part of the Rocky Mountain Energy Essentials blog, we typically discuss the energy and natural resources sector of Wyoming; however, Wyoming has been on the forefront in more ways than just the oil and gas and other extracted minerals area.  Its nickname of the Equality State pays homage to that!

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 Investing.com 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.