What the 2% rate is costing Okla in tax revenue

Article  in the IHS Drilling Wire

Here is an example of what the 2% rate is costing Okla in tax revenue in just 2 sections,- and that’s at $45 oil. This is almost criminal!! It also demonstrates how difficult this is to put in plain language every day Oklahomans can understand. Oklahoma reminds me of the brother Esau in the Old Testament story of Jacob and Esau. As I recall he sold his birthright for a bowl of stew.  We are selling our states birthright on the cheap!

OEPA

 

This article was sent to us by Steve Altman, a Petroleum Engineer and President of Brown and Borrelli Inc.

Article is from August 25, 2017, Volume 64, No. 164, page 5:

IHS Copyright and disclaimer, 8-25-17 <link>

 

Couple this with the previous article from July 14, 2017, volume 64, No. 134, page 1:

Devon frac density <link>

 

It talks about the Devon well completed for 6000 BOE/d.  On the second page, next to the last paragraph, Devon talks about their increased density pilot (Showboat) coming up in the third quarter where they plan to drill 25 – 2 mile lateral wells in sections 3 and 10 T16N R9W, landing in two upper Meramec intervals, one lower Meramec interval, and the Woodford.  This would make 6 wells per level, which would match their talk at the SPE luncheon a couple of months ago where they indicated 5 wells per landing zone, in their opinion, was not enough.

When you figure 25 wells and the payment is $2500 per acre, you are talking about $100 per acre ($200 for the 2 mile lateral) for a well that is making 6000 BOE/d.  That is a heck of a deal for them.

And the State of Oklahoma keeps taking it in the shorts on taxes.  Assuming $10,000,000 per well cost, and assuming the wells only break even, which takes $13,000,000 after taxes and royalty and operating, the gross income is $325,000,000.  The 5% GPT we lose is $16,250,000 in just these two sections, with 50% to 75% of that coming in the first three years.

It once again confirms what Joe Warren and others have been shouting from the rooftops: Forced Pooling is being used to artificially hold down lease prices.

Since the STACK play is now being talked about as an equal in quality to the Eagle Ford and Permian plays, the only difference in prices is Forced Pooling in Oklahoma.

By a factor of 10 or more!!

Steve Altman

 

OIPA demands Dewey Bartlett Jr.s Resignation

The Disintegration of a Petroleum Association

 

Dewey F. Bartlett Jr. Is a lifetime OIPA board member, former mayor of Tulsa, Former Chairman of OIPA, Former Chairman of the Oklahoma Energy Resources Board, former Chairman of the National Stripper Well Association and a leader in the Oil and Gas industry in America. For OIPA to demand that he resign his “lifetime” position on the board would be like asking Will Rogers children to give up their Oklahoma heritage.

 

Dewey Bartlett Sr. was the Governor and U.S. Senator of Oklahoma as well as a founding board member of the OIPA. The late Senator Bartlett coined the term “stripper well” in the American consciousness and passed significant legislation to save Oklahoma’s valuable natural resources.

We have no quarrel with the OIPA, even though we disagree on their responsibility to our state and to its conventional legacy producers. We might suggest they change their name to more adequately reflect who they represent to the “Oklahoma Horizontal Well Association.”

 

Click here for Letter from Wigley

 

Click here for Wigley Response

It’s Not Fake News. It’s Just Not Quite Accurate News.

Recently Adam Wilmoth at the Daily Oklahoman wrote a very well written piece on the landmark benefits of legislation (SB867) that allows horizontals drillers to drill laterally for more than a mile, for the first time ever: Oklahoma oil fields gain recognition.

 

The article touts as facts two assertions that we question.

 

  1. The first assertion is that now companies can drill 2 miles laterally in any formation for the first time ever. That is just not factual.

 

  1. The article also asserts that this bill will create a tremendous economic boom for our state. We believe that to also be inaccurate.

 

It is accurate that horizontal drilling combined with massive Hydraulic Fracking has allowed us to produce more oil and gas “quicker “creating another “boom” in the Oklahoma oil fields. (This is with $40 oil and a 2% tax rate but that’s another subject)

 

That has already happened; before the “so called” long lateral bill.

 

Horizontal drillers could already drill two miles in any formation- and many did. All they had to do was to stack a 320 acre tract on top of another 320 acre tract to create a rectangular 640 acre unit that is two miles long but only 1/2 mile wide.

 

So, if the industry wanted to drill a 2 mile lateral and they could already, why did we need legislation?

 

The answer is legislation wasn’t needed to drill 2 mile laterals. Legislation was needed to take more than 640 acres at a time by a process that only occurs in Oklahoma known as “forced pooling”.

 

So, SB 867 was not a “drill long laterals” bill. It was a “get more acreage bill”.

 

What they can do now that is different is take twice as much acreage as before using the power of the state to “force pool” (which is like subsurface eminent domain executed by the state for private interest).

Let us explain.

 

Oklahoma is the only state that has a process that allows drillers to use the state to set values and terms for mineral acreage. In all other states terms are negotiated between mineral owners and drillers.  That is why Texas mineral owners get up to ten times more for their comparable minerals and a larger percentage of the production than in Oklahoma. You cannot force a mineral owner to let you drill in Texas. You must come to terms. Texas mineral owners are not smarter or better negotiators than we are, they just get to make deals without state interference.

 

Oh, one more slight correction. The article asserts that this new ability will generate tremendous economic growth.

 

How does it generate more economic benefit when it requires fewer rigs, which means fewer jobs, allows drillers to hold more acreage without paying mineral owners more, and even results in fewer wells drilled and less acreage drained?

 

We are sure you could pay for some study to show how that works, but it seems to defy common sense.

 

OEPA

 

Another Battle is Indeed Looming

 

OIPA calls for Campaign for 2% rate

As posted below, the OIPA has a new call to their membership to fund a campaign to make sure they keep the “special 2% “ rate on new wells. They say they want to raise money to put a new face on the industry!

They’ve put a ” new” face of the industry in Oklahoma alright – one of destruction of property and greed.

It is disheartening to see so much of the work so many of us have done over the last 30 years to improve our relationship with the Oklahoma public goes down the drain so fast.

The OIPA we belonged to put our state’s interest at least on par with our own.

Setting the priority of protecting a 2% tax rate that is so obviously low, especially in light of our states serious budget deficits, simply is an indefensible position – even more so when considering that the historical rate of 7% is lower than in any other horizontal drilling state in the US.

Our industry should lead by example, relinquish the special 2% rate, and ask that other tax give always be abolished as well.

Government should stick to funding it’s core functions. The marketplace should pick winners and losers in business.

Oil and gas industry Leadership should put civic responsibility ahead of our own special interest, especially when we have become a big part of our funding problems by getting the legislature to approve the lowest -in – the-nation- Gross Production tax at the expense of our children, our state’s infrastructure, healthcare, and safety net.

Join with us at the Oklahoma Energy Producers Alliance ( okenergyproducers.org).

Let’s put on “our Oklahoma hat” and lead by example, return our state to fiscal sanity and start by restoring the Gross Production Tax from 2% on new wells to the historical rate of 7% that 86% of producers and royalty owners already pay. Only then will our states largest industry have the moral standing required of civic leadership.

Read the OIPA Newsletter…

 

 

ANOTHER BATTLE IS LOOMING AND WE NEED YOUR CONTINUED SUPPORT

In the past week, I’ve had the privilege to meet with Oklahoma’s legislative leadership to discuss current trends in the state’s oil and natural gas industry as well as the upcoming 2018 legislative session AND the potential special session this fall.

With the Oklahoma Supreme Court rejecting the 2017 tobacco “fee,” it’s becoming clear that there will likely be a special session sometime this fall to deal with the budget shortfall. The court has yet to rule on the excise tax issue, but if they rule it as unconstitutional, the budget hole will be even greater.

What does this mean? Once again there will be cries to raise the gross production tax on oil and natural gas development. Our legislative team fought all session long to protect our drilling tax incentive on new wells which places the incentive rate at 2 percent for three years. After the three years, these wells go to 7 percent. This tax incentive has helped Oklahoma companies stay competitive and attract additional capital investment.

In recent weeks, you should have received your membership renewal invoice for the 2017-18 year. I respectfully request that you consider continuing your generous support of OIPA’s efforts to protect you and your business. I would also like you to consider an additional commitment for a new and aggressive public education campaign that will help put a “face” on our great industry.

Your OIPA team works hard every single day to ensure that the interests of our great industry are protected and promoted among policy makers at both the state and federal level. The more resources we have – the more effective we can be for you!

This past spring, OIPA led the way to pass historic legislation to allow for long lateral drilling. This will lead to incredible investment in Oklahoma production. We also led the way in protecting your gross production tax rate to incentivize new drilling in Oklahoma.

There is no other group in Oklahoma that represents the oil and natural gas industry better than OIPA. We like to call ourselves THE ASSOCIATION!

So please consider completing your membership renewal and send it in so that we can continue to fight for you. If you can add an additional amount to your membership dues, your efforts and commitment will be greatly appreciated.

I deeply appreciate your support of our efforts and we look forward to another great year in your service.

Tim Wigley
President OIPA

Hydraulic Fracturing

HYDRAULIC FRACTURING
Small producer wins verdict against Devon in ‘frack hit’ case

An Oklahoma jury has awarded $220,000 to a company that says hydraulic fracturing of a horizontal oil well damaged its conventional oil well.

Advocates for vertical well owners called the verdict against Devon Energy Corp. a significant victory in the bitter fight between small producers and large independents in the state.

“This might just open the floodgates of justice for producers who have lost wells to horizontal fracking,” said Mike Cantrell, legislative director and board member of the small producers’ group, called the Oklahoma Energy Producers Alliance.

Small companies operating vertical wells have filed numerous lawsuits in Oklahoma against larger independent producers that drill long horizontal wells nearby. The small companies say their wells have been damaged by the high-pressure fracture treatments performed on the horizontal wells. The fight has also spilled into the state Legislature.

Devon, based in Oklahoma City, declined comment on the verdict, first reported by OK Energy Today.

The jury sided with H&S Equipment Inc. of Oklahoma City on private nuisance and “subsurface trespass” claims but with Devon on claims of negligence. H&S had said it suffered $2.5 million in damage for the profits it would have made from the damaged well and the costs of plugging the well and drilling a new one.

H&S had a conventional vertical well in Blaine County, Okla., that had been producing oil since 1981. In August 2015, Felix Energy of Denver fracked a well nearby. Devon bought Felix assets in the area in a deal announced in 2015.

In fracturing, water, sand and chemicals are pumped at high pressure into a well to crack open rock and release oil and gas. H&S alleges the frack fluid shot past the area where Felix was to produce and toward the H&S production area.

The day after, the frack fluid started erupting from the well into the air, H&S alleged, as a result of what’s called a “frack hit.”

The frack hit caused serious damage, H&S claimed in the suit, “ruining the well and rendering it incapable of producing oil and gas.” H&S alleged that Felix had fracked “recklessly.”

Devon attorneys argued that Felix had “fully complied” with the rules of the state oil and gas regulators at the Oklahoma Corporation Commission.

They also argued that Felix had not been reckless.

“If a ‘frack hit’ occurred, it was at most inadvertent, and Felix’s engineers did not consciously disregard the risk,” Devon attorneys wrote in a motion, saying fracking fissures are hard to control.

They cited a previous ruling that the cracks created by fracking are “of immeasurable length and uncontrollable direction.”

 

Mike Soraghan, E&E News reporter

Published: Thursday, August 17, 2017

Sharing Our Thoughts

OEPA:
This is a message from one of the 3000+ small Oklahoma oil and gas producers that we are trying to protect. He asked to remain anonymous because he doesn’t want to offend the handful of companies doing this work that will even consider negotiations to pay for the damage they have done. Most say “sue us”.

AUTHOR:

I am a Small oil and gas producer from Kingfisher County. I would like to respond to the recent Journal record article where one of the horizontal fracking associations tried to gloss over the damage they are doing in the stack and scoop plays talking about all their “so-called” community service.

To start this off with I would like to state that I am part of a small family owned oil and gas company in the middle of the stack play. I have no problem with horizontal drilling, in fact, I believe it is a great tool to unlock reserves on the “tight” shale and lime stone zones. I have seen many wells drilled in these “tighter” formation and coexist and just fine with existing vertical wells and be “good neighbors” Where the problem lies is drilling these wells in the very loose, or porous, zones. This is where the good neighbor issue comes to play, in my opinion, with in the oil and gas industry.

I am going to start off with what I am seeing from a community side first then transition to the oil and gas side.

So, from the article, it appears that the major oil companies and the cronies in the OKOGA got together and put on a pig show for kids in Kingfisher. That is 20 miles from me and I heard 0 about this event. Granted, I don’t run in those circles but you would think word would get out about some “huge” pig show 20 miles away.

I want to start this good neighbor debate by comparing the Horizontal industry to the Wind Industry that is also active in my area. The wind company came into our area and rocked all the roads they plan on using to build the farms. They run water trucks up and down the roads all day to cut down on dust. The wind farm company is also very strict on their drivers when it comes to driving the county roads. They don’t tolerate the nonsense that happens on county roads. You get caught messing up, you’re fired. The company that is putting in the wind farm even donated to the town for their fireworks show this year.

Contrast that to the big oil companies drilling around here. They leave these roads in much worse shape than they were before they were drilling. Sure, they might put a little rock down in some spots but the pot holes in those roads are awful. The rock, sand, and water haulers fly up and down these county roads. They are giving any warm body with a CDL a truck to drive and letting them run free. They are constantly running people off the road and tearing up the county roads. Good luck getting them to fix it, too. The only way you get them to fix it is if it is too muddy to get an oil truck in. I know several roads around here that are almost impassable because of the holes beat in them from the truck traffic.

As far as financial help the major oil companies drilling around here have yet, to my knowledge, to donate to the town or school. There is a local Frac company that is donating to the town and school but that is it. The actual companies doing the drilling have not given anything financially to the local community. If you were to get the donor list from the local, school, church, or town event, you not see any major horizontal companies that are drilling in the area but countless local companies, many of them being the mom and pop oil companies that are getting ran out of business because of the number of wells that are being ruined by the horizontal drilling in porous lime stone formations. Because of this, the donor list will soon be shrinking at the local level and people will begin to wonder what happened, by then it will be too late. The majors will have come, filled their pockets, and left; leaving us to once again fend for ourselves and pick up the pieces.

The next part of “being a good neighbor” is not coming into a community and getting family, neighbors, and old friends to sue each other over minerals and stripper wells holding up leases so the majors can get their leases cheaper and easier and not have to worry about protest at the commission from the small producers already here. When I first started out in this industry 10 years I had countless mineral owners thank me for keeping their wells going while all the majors were leaving so they could still have a little “mailbox money”. I have even had a couple older ladies thank me for trying to fix their wells while in tears when I was plugging the wells on their lands because the old well was just too far gone to repair. Fast forward to the last 3 years and those same people are suing the small companies, being pushed to do this by the leasing agents of the majors with the promise of a “large” lease bonus when in reality it is actually less than they would have to pay the small producer that already bought the lease years ago.

Finally, being a “good neighbor” would be to right the wrong and fairly compensate your neighbor when you ruin their property. The small producers have been through the ups and down of the industry and kept that little stripper well going so you can drill the horizontal well, that in most cases the small producers were forced into through force pooling. When the major companies Frac that horizontal well it waters out the stripper well essentially killing it. When this happens, the small producer is left with nothing but a hefty plugging bill. When they approach the larger companies they are basically told, not our problem – sue us. This is very rare and option since the small producers most likely Don’t have the money to spend on 1 attorney, much the less multiple attorneys it would take to take on the big oil companies and their team of lawyers. Occasionally you hear of companies working out these differences but they are settling for pennies on the dollar for the same reason I mentioned above.

All of that being said, once again, I am not slamming horizontal drilling as a whole, I believe it is a great thing when applied in the proper place. I do believe that drilling these wells in depleted zones already being produced by vertical wells for 30-50 years prior is an awful idea and that is where the problems are lying.

Thank you for listening…

See comments in Facebook:

https://www.facebook.com/OkEnergyProducersAlliance/photos/a.832142450257200.1073741828.832134270258018/899935036811274/?type=3&theater

 

Commentary – Being a good neighbor in STACK, SCOOP

Commentary regarding article in Journal Record – Being a good neighbor in STACK, SCOOP

Article in reference: http://ow.ly/2vci30e1uWn

If the big oil associations really want to be good neighbors they should stop the destruction of the hundreds of vertical wells with their horizontal frack jobs around those communities. While they are at it they should join us in the call to eliminate the special 2% tax rate we all get for new wells and truly fund the schools in those communities.

Looks like they think if they can write a few “puff pieces” about spreading a little money around in the communities where small producers live that they can get their friends and neighbors to “look the other way”. They have obviously stepped up their PR efforts. The image of the industry is important to us as well, and the damage they are causing is hurting that image a lot more than our comments are hurting them. We hope that they will do the right thing, acknowledge the damage to wells belonging to others, acknowledge the environmental damage caused by their actions, and allow the restoration of the 7% tax rate (which is still lower than in any other major producing state) for every producer. We want to find solutions. We want to develop our state’s resources. But we also are committed to developing those resources in concert with the best interest of our state and our fellow Oklahomans.

Good public relations should start with doing good things, not try to gloss over your problems by spreading a few dollars around communities to fool the public into thinking they really are good corporate citizens.

OEPA

 

Public support requires industry transparency and accountability

Whatever differences exist between different interest in the oil and gas industry, the one common goal that we should all have is to be well regarded by the American public.

Two of our board members Mike Cantrell and Pete Brown, who were the agency’s first and second Chairmen, are widely regarded as the co-founders of the Oklahoma Energy Resources Board.

In 1993 along with many other energy leaders like Jim Stafford, the President/Founder of the National Association of Royalty Owners, and Mickey Thompson the President of the Oklahoma Independent Petroleum Association petitioned the Oklahoma legislature to create the OERB.

We have many board members who have also served on the OERB board, with Dewey Bartlett and David House also serving as OERB Board Chairmen.

The OERB’s primary mission was and still is building a solid, open, and positive relationship with the Oklahoma public.

That task has been largely successful. Thru the OERB we have cleaned up over 15,000 historical damage sites. Working arm in arm with the Oklahoma Department of education we created an unbiased,scientifically-based energy curriculum for all students and provided much needed science resources as well.

And since its beginning, the OERB has continuously communicated with the public about important issues affecting all Oklahomans in relation to the oil and natural gas industry.

We at the Oklahoma Energy Producers Alliance are committed to keeping alive the tradition of leaving all industry disagreements completely separate from the discussions and work of the OERB.

It has never and should never be used to promote any segments own political purposes.

There are many current issues, like earthquakes being linked to oil and gas activity,  that We are quite certain the OERB board is doing its very best to continue that tradition by transparently communicating with the Oklahoma public.

We are committed to communicating openly and honestly with the public on issues related to the oil and gas industry in Oklahoma.

We are confident that the OERB Will continue to get better and to lead in its important role as the industry’s liaison with the public.

 

Viewpoint

Guest blog by

Dewey Bartlett Jr. and

Mike Cantrell

 

 

 

 

 

 

Over the past few months, many of us representing the conventional oil and natural gas industry have been reflecting upon our experience at the Oklahoma legislature. Even though our position did not win the day, we are all very proud that we very respectfully conveyed our facts and recommended solutions.

 

Most of our group has been through this process numerous times and we all subscribe to the approach that a very successful oil and gas lobbyist, Richard Hutton, said years ago. He observed that “we only have two kinds of people in the state legislature; friends and potential friends”.

 

That viewpoint is as spot on today as it was 20 years ago. Unfortunately, I recently read a piece written by an oil and gas lobbyist where he basically said that their group would punish those that didn’t vote like they wanted on a specific issue and reward the ones that do. To threaten a withdrawal of political and financial support is, in our view, not a way to win friends or much less consider an issue with an open mind.

 

It is very short sighted to require a litmus test. I am proud that we conventional operators of oil and natural gas wells do not require a litmus test. We just ask to do what is in the best interests of Oklahomans.

 

To threaten an elected legislator or a legislative candidate that there will be consequences on how he or she votes on one single issue borders on political bullying. What happens if their group is unsuccessful in unseating legislators that vote against their litmus test issue? In my experience in the capital, friends come and go but enemies have long memories.

 

The Oklahoma Energy Producers Alliance lost a very close and contentious vote at the end of the legislative session. We also took note of how everyone voted. But we did so in order to know the legislators with whom we need to work harder.

 

The answer is not to declare a political jihad on those that disagreed with us. It is for us to simply get better in communicating our position with all of our legislative friends, both current and future.

 

We will get better.

 

 

Charted Frack Damage from Steve Altman

Attached is a chart showing the now long term effect (20 months) of the damage done by 2 offset horizontal Mississippi wells on 4 Misener-Hunton (AKA Hunton Dolomite) wells.

As you can see, the well’s production levels have improved over the last 18 months, but not without significant expense (well over $100,000), and certainly not back to their pre-damage levels.

At $45/bbl of oil and $3.00/MCFG, the gross revenue has dropped from $26,862 per month to $12,066 per month, a loss of over $175,000 per year in gross revenue.  The expense increase, just due to handling additional water, is from $20/month to $98/month.  Other expenses, especially regarding the well that had pumping equipment installed, have risen more.

As a reminder, I have attached the BH Pressure chart run on the Wakeman #1 during the Wakeman 1706 6-25MH frac, which clearly shows the frack hit at approximately 220 hours (May 18, 2016).

 

Steve

 

Production comparisons after offset fracs   (link to Excel spreadsheet)

Wakeman_1_bottom_052016_Quick-Look   (link to PDF chart)