Oil waste decisions left to operators, for now

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Jack Money | The Oklahoman

Elected members of the Oklahoma Corporation Commission decided to leave in place an emergency order allowing operators to voluntarily shut-in wells in cases where they believe crude oil is being wasted.

However, they opted to give oil and gas industry executives and attorneys more time to consider an amended request made by the Oklahoma Energy Producers Alliance that would, if adopted, result in a declaration from the agency that oil production from wells across the state is wasteful.

During a hearing Monday, OEPA representatives stated a mandatory oil waste declaration from commissioners would allow the agency to take additional steps requiring operators to shut in wells or to take other actions deemed appropriate to cumulatively cut crude production.

It would leave determinations about what would be allowed and how to achieve those cuts up to the regulatory agency, unlike its initial request calling for the agency to take a series of specific steps to curtail production.

The OEPA represents mostly smaller, independent oil and gas producers who primarily operate older, vertical wells with smaller rates of production.

Dewey Bartlett, chairman of the OEPA and president of Keener Oil and Gas Co., said such a declaration is needed.

“It is the duty of the OCC as stated in the statutes to determine economic waste, and, that if one is made, to consider means of eliminating that waste in manners they see fit,” he said.

Joe Warren, an OEPA board member who is a partner in Brown & Borelli Inc. and Cimarron Production, agreed each well is unique in terms of production costs and revenues.

“But for the vast majority of Oklahoma producers, the West Texas Intermediate price is not what most receive,” Warren said. Instead, those prices are based on monthly averages of WTI, less costs to transport the product to storage.

He noted some companies are setting up massive amounts of temporary storage to hold crude they were forced to take involving contracts settled when oil was trading at negative values.

“In Oklahoma, we have more oil than we have demand. I would ask the commission to consider exercising its statutory duties and powers to prevent waste and to prevent this dumping of Oklahoma oil production by taking a stance and prorating oil production in the state,” Warren said.

Mary Anne McGee, an OEPA member who is president of GLM Energy, said her company began shutting in some of its wells in April, and expects it will have to shut in additional wells, moving forward.

McGee said one of her biggest expenses is the electricity it takes to run her wells, plus limited storage capacity for wells.

“I have not seen anything like this” before, McGee told commissioners. “At this rate, there is no way for smaller, vertical producers to continue operating.”

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Oklahoma regulators take no action after oil output hearing

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Liz Hampton | Reuters

Oklahoma’s energy regulators on Monday took no action on applications from oil and gas producers seeking to win state-support for measures they said would help stabilize oil prices.

The Oklahoma Corporation Commission, which regulates the state’s oil and gas industry, heard proposals seeking to declare some oil production in the state waste, and a plan submitted by trade group Oklahoma Energy Producers Alliance (OEPA) that included mandated output cuts.

After a five-hour meeting, the commission took the two under advisement and did not set a date or timeline for any decisions.

U.S. oil futures CLc1 this year have fallen about 60% to $24.14 a barrel as coronavirus-related lockdowns have crushed demand for fuel. The price collapse has companies in major oil-producing states pushing for regulatory action to stave off further declines.

Oklahoma last month adopted an emergency order that said some oil production could be considered economic waste. That allowed operators to opt to shut wells without losing valuable leases.

One commissioner last week submitted a dissent to the emergency order, saying it was “replete with fatal errors” and said he was not satisfied that the “basic requirements of due process had been met with respect to notice of the hearing.”

Last week, Texas regulators struck down a proposal to mandate output cuts.

“We’re floating out there in dangerous waters,” said Lee Levinson, owner of LPD Energy Company LLC, which submitted the order requesting some output be considered waste and was granted the emergency order.

Darlene Wallace, a member of the OEPA, said she has shut-in most of her wells and has had purchasers say they may not take her oil because of lack of storage.

“I cannot stay in business if I continue to lose money,” she said in support of the proposals.

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Texas Corporation Commission Hearing 2020

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The Texas Corporation Commission held a hearing considering the proration of oil throughout the state. You can read the submitted comments below.

Part 1

Part 2

Part 3

Part 4

Emergency order allows voluntary curtailment of oil production

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James Coburn | Pauls Valley Daily Democrat

The Oklahoma Corporation Commission approved an interim emergency order saying the commission finds certain production in Oklahoma for current conditions could be deemed economic waste, said Matt Skinner, public information manager.

Tulsa-based LPD Energy had asked the commission to allow a voluntary curtailment of oil production, said Corporation Commissioner Dana Murphy, R-Edmond.

On May 11 there will be a hearing on the merits of two applications, Skinner said.

The second application comes from the Oklahoma Energy Producers Alliance that calls for the commission to order a production cut, Skinner said.

One application represents Wednesday’s order citing economic waste.

“The global energy landscape has been turned upside down due to the COVID-19 pandemic,” Murphy said. “While overproduction by Saudi Arabia and Russia has played a role in the collapse in oil prices, the far bigger factor is a drop in oil demand that only weeks ago would have been thought impossible.”

Murphy said the commission was asked to issue an emergency order based on economic waste resulting from a world-wide wasteful glut of oil. Each company may have different economic thresholds, she said.

“There was no way for Oklahoma and other U.S. producers to anticipate and plan for up to 30 million barrels per day of consumption to disappear within just a few weeks,” she explained.

The order allows producers flexibility in determining whether to curtail or shut-in their production, Murphy said.

“Some companies may have hedged their oil and saved $40 or $50 a barrel. So it’s beneficial for them to continue to produce, but then again, you’re going to have an issue with the storage that is going to continue to be a problem.”

Murphy said no one understands the oil business better than Oklahoma’s operators. So action taken by the Commission gives operators the freedom to respond to volatile market forces and take action to survive, she said.

“Oklahoma’s oil producers have faced and triumphed over many challenges in the past 100 years. I have no doubt they will win out even over these previously-unimaginable market conditions,” Murphy said.

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State Regulators Taking Action as E&Ps Fight to Survive Amid Oil Demand Collapse

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Andrew Baker | Natural Gas Intel

Oil and gas regulators in some of the biggest producing states are seeking to ease the pain of a historic collapse in oil demand as operators struggle to stay afloat amid plummeting prices and disappearing storage capacity.

New Mexico Land Commissioner Stephanie Garcia Richard on Tuesday issued an emergency rule allowing operators to apply to temporarily shut-in wells on state land for at least 30 days without penalty.

Longer-term relief is on the way through a statutory rule change process, she noted.

“It is in the best interest of the vital public institutions we serve that the State Land Office allow the temporary oil well shut-ins to assure we get the best value for the resources that they rely on in order to operate,” Garcia Richard said, adding that operators and environmental groups alike had expressed support for the relief efforts during a public online meeting.

“From the feedback given at that meeting, we’ve also decided to move forward with a rule change that will allow longer-term shut-ins. In that process, we will require that operators who are approved to shut-in wells be bound to comply with future bonding increases.”

The Oklahoma Corporation Commission (OCC), meanwhile, on Wednesday approved a relief measure allowing operators to shut-in production without losing their lease rights.

The order was requested by Tulsa-based exploration and production (E&P) operator LPD Energy Co. LLC, which is owned by attorney Lee Levinson.

The OCC accepted Levinson’s assertion that oil production in Oklahoma at current prices may constitute “economic waste,” and ordered that E&Ps be allowed to shut-in or curtail output at their own discretion from wells that are uneconomic at current prices.

In the application, Levinson said the action by the OCC was warranted “based upon the current volatility of low oil prices along with the intervening circumstances of the Covid-19 pandemic.”

OCC Chairman Todd Hiett and Commissioner Dana Murphy voted in favor of the measure, with the OCC’s third member, Vice Chairman Bob Anthony, abstaining.

“While overproduction by Saudi Arabia and Russia has played a role in the collapse in oil prices, the far bigger factor is a drop in oil demand that only weeks ago would have been thought impossible,” Murphy said Wednesday. “There was no way for Oklahoma and other U.S. producers to anticipate and plan for up to 30 million b/d of consumption to disappear within just a few weeks.”

The commission’s action “gives those operators the freedom and flexibility they need to respond to market forces and decide what actions to take to survive.”

“It goes without saying, there’s a tremendous oversupply of oil right now in the world,” Levinson told NGI’s Shale Daily. The problem, he said, with extended-term leases in Oklahoma and elsewhere in the United States is “if you just voluntarily shut-in your wells, you could lose your leases.”

The OCC order benefits working interest and royalty owners alike by allowing oil to stay in the ground until prices recover, Levinson said.

“A substantial number of operators in Oklahoma are going to shut-in their wells because you can’t sell oil at $10, $15, $20/bbl or less,” said Levinson, who added that small and large operators alike supported LPD’s application.

The OCC is scheduled on May 11 to discuss mandatory production cuts, for which the Oklahoma Energy Producers Alliance (OEPA) has advocated.

However, in the wake of Wednesday’s favorable ruling, curtailment likely won’t be necessary, said Levinson. He is on the board of OEPA, but did not represent the group in its request for curtailment.

OEPA president David Little told NGI that Wednesday’s OCC order “will allow producers to shut-in their wells and hopefully keep their leases from becoming invalid.” However, “It does not prevent economic waste, which is occurring today,” he said.

As for the upcoming hearing on curtailment, Little said that OEPA is asking the commission “to use the tools they have at their disposal to prevent economic waste. We are hopeful.”

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Reeling Oklahoma oil producers win right to keep leases while wells shut

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Liz Hampton | Reuters

Oklahoma’s energy regulator said on Wednesday that oil producers could close wells without losing their leases, the first victory for struggling U.S. companies seeking relief from states after the market crash.

Several U.S. states have considered aiding oil companies, many of which were already hurting before demand tanked during coronavirus pandemic lockdowns. That, and ballooning supply, sent U.S. prices into negative territory for the first time ever on Monday.

In an emergency order, the state energy regulator said oil companies could consider their unprofitable production economic waste, allowing oil and gas producers with money-losing wells to retain leases that could otherwise be voided if they halted output.

“There was no way for Oklahoma and other U.S. producers to anticipate and plan for up to 30 million barrels per day of consumption to disappear within just a few weeks,” Oklahoma Corporation Commissioner Dana Murphy said in a statement.

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Crude oil futures shrink below zero for first time in history

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Rhett Morgan | Tulsa World

The months-long free fall of crude oil could have far-reaching ramifications for Oklahoma, a local energy executive said.

On Monday afternoon, May futures for a barrel of American benchmark West Texas Intermediate tumbled below zero dollars.

At the start of the year, a barrel of WTI cost about $60.

“Unless we get beyond that very quickly, it will have a very permanent effect upon our national economy,” said Dewey Bartlett, chairman of the Oklahoma Energy Producers Alliance. “We’re at a fairly fast pace approaching that point in time where it’s too late.”

Monday’s nosedive in crude was exacerbated by a May futures contract that expires Tuesday, resulting in a sell-off among traders without access to storage during the oversupplied market crippled by the coronavirus crisis.

WTI crude for May delivery dipped below negative-$40 per barrel on Monday, meaning that sellers of the commodity were paying people to take it. WTI for June delivery remained in positive territory, holding above $21 a barrel.

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Low oil prices could affect Oklahoma’s economy for years to come

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Brin Beu | KOCO Tulsa

Oil prices are hovering around $9 per barrel Tuesday about 24 hours after they dropped below $0 for the first time in history.

The latest price is still dangerously low for Oklahoma’s economy. KOCO 5 spoke with oil and gas and economic experts, who said it’s very likely the state will see 10,000 if not 20,000 people lose their jobs in Oklahoma’s oil and gas industries. They said oil needs to be in the $60 to $70 range for producers to make a profit.

“COVID-19 has almost wiped out 10 years of economic growth on-demand,” said Dan Rickman, economics professor at Oklahoma State University.

Rickman told KOCO 5 that he has been using a certain algorithm to predict how dangerously low oil prices will affect Oklahoma’s economy.

“We are looking at a couple of very bad years in the state economy,” he said.

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Oil Market Turmoil Likely To Have Economic Repercussions On Both State And Local Levels

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Chris Polansky | Tulsa Public Radio

Oil Market Turmoil Likely To Have Economic Repercussions On Both State And Local Levels

Former Tulsa mayor Dewey F. Bartlett Jr. has seen a lot over his decades in the oil and gas industry, but he said he’s never seen anything like this week’s market turmoil, and never thought he would.

“Never,” Bartlett said. “Not to this degree, and not this quickly. Not even close.”

“It’s as bad as it seems.”

Bartlett said that the current crash, in which the price of West Texas Intermediate crude plummeted to below zero dollars a barrel for the first time in history, will have significant impacts across varied sectors and levels of Oklahoma’s economy, including philanthropy and municipal services.

“The oil and gas industry has normally been very generous with their donated funds,” Bartlett said. “But when companies are suddenly hit with a tremendous decrease in their revenues, they’re going to start cutting costs. And one of the first things they’re going to start cutting are donated dollars. They can’t afford it.”

Bartlett said that the plunge in prices will also likely lead to layoffs not only in the energy industry but also in adjacent industries, such as manufacturing and transportation. That increase in unemployment across the state, Bartlett said, will contribute to a decrease in sales tax revenues collected by localities.

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Experts say plunging oil prices putting thousands more Oklahoma jobs at risk

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Erin Beu | KOCO Tulsa

Mike Fielder was laid off from his energy-sector job before the COVID-19 coronavirus pandemic hit.

“It’s never a good feeling to get laid off,” Fielder said.

He told KOCO 5 that the oil and gas industry has been hurting for a while, but he never expected the price to drop into the negatives per barrel.

“It was the same thing — lower oil prices, lower gas prices,” Fielder said. “It doesn’t make sense. Can I go sell my gas to somebody?”

But all joking aside, Fielder said the situation is dangerously bad for Oklahoma’s economy.

“You’re just facing layoffs everywhere,” he said.

Another man, who didn’t want to be identified, said six people at his small energy company were let go or furloughed as soon as the virus hit Oklahoma. Now that the price of oil is dropping so low, he knows there’s more layoffs coming.

He just prays he’s not next.

Dewey Bartlett, chairman of the Oklahoma Energy Producers Alliance, said 10,000 to 20,000 Oklahomans are predicted to lose their jobs in the next few months because of the pandemic and the low prices.

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