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! 

Commission Rules Under Construction: COGCC Mission Change Whitepaper Released

Many changes are on the horizon, as the Colorado Oil & Gas Conservation Commission’s (“COGCC”) rules are under construction.  On November 1st, the COGCC released its Mission Change Whitepaper (“Whitepaper”).  For the full text of the Whitepaper, click here

The Whitepaper provides a broad overview of certain rule changes contemplated by the passage of Senate Bill 19-181, which among other things changed the mission of the COGCC from “fostering the responsible, balanced development” of oil and gas resources in the State of Colorado, to “regulating” it.

As a reminder, Senate Bill 19-181, now enacted as C.R.S. § 34-60-106(2.5)(a), specifically provides that “the Commission shall regulate oil and gas operations in a reasonable manner to protect and minimize adverse impacts to public health, safety, welfare, the environment, and wildlife resources and shall protect against adverse environmental impacts on any air, water, soil, or biological resource resulting from oil and gas operations.”

The Whitepaper is intended to “facilitate meaningful stakeholder conversations and rule language development.”  Some of the major proposals for future rulemakings as discussed in the Whitepaper are as follows:

  • Streamlining:  The 300-Series Rules (addressing drilling, development, production and abandonment) should be revised to provide for a single, comprehensive application covering drilling and spacing units, surface location sites, wells, production facilities and flowlines.  The decision-making power on applications may switch from the Director to the COGCC as a whole.  Notice procedures may also be streamlined to provide more parties with pre-application notice.
  • Standing:  The 500-Series Rules (addressing practice and procedure) may be expanded to replace current Rule 508 with a simplified rule that provides the opportunity for a hearing to all “affected persons,” being those parties having “a personal justiciable interest related to a legal right, duty, privilege, power, or economic interest affected by an application.”  Current Rule 509 provides relatively few parties with standing to protest applications, whereas modified Rule 509 would outline criteria that the COGCC would consider in determining whether a party has demonstrated a “justiciable interest” and, therefore, would be deemed an “affected person.” 
  • Safety:  The 600-Series Rules (addressing safety regulations) may establish a process safety management program applicable to all oil and gas operations under Rule 602.  Current Rule 912.a, prohibiting unnecessary or excessive venting or flaring of natural gas, may also be moved to the 600 Series and, rather than maintain the undefined thresholds of “unnecessary” and “excessive,” be revised to prohibit venting and flaring from a well for more than 60 days from the date of first production.

The stakeholder meeting to review the Whitepaper originally scheduled for November 7th has been cancelled.  Instead, feedback is being sought though individual stakeholder meetings and from comments submitted though the Public Comment Portal, found here.

Big changes are underway in the Colorado regulatory context.  Stay tuned for more as these changes develop.

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…   

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.