Amid oversupply and economic shocks, Oklahoma oil producers ask Corporation Commission for help

Erin Beu | KOCO

Oklahoma oil producers say the industry is in its worst state in decades, and they’re asking the Oklahoma Corporation Commission for assistance and guidance.

A global oversupply and the economic fallout from the coronavirus pandemic have pummeled the industry recently.

An Oklahoma Energy Producers Alliance estimated that the state is overproducing 100,000 barrels of oil a day.

On a virtual conference call, members of the organization expressed their concerns.

“A lot of us on this call have never been through the situation where we are right now,” said Mike Cantrell, past president of the group.

“People continue to flood the market with unneeded oil,” OEPA board member David House said.

“If there’s no demand for it, there’s no use for it,” said Dewey Bartlett Jr., the group’s chairman.

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Oklahoma Group Files Formal Request for State Oil Curtailments

Rachel Adams-Heard | Bloomberg

A group led by the Oklahoma Energy Producers Alliance filed a formal request for the state to curtail oil production as a global pandemic has slashed demand for crude and storage tanks around the world are filling to the brim.

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OEPA requests hearing to limit Oklahoma oil production

Daisy Creager | The Journal Record

The Oklahoma Energy Producers Alliance announced Friday that it filed a request for a hearing with the Oklahoma Corporation Commission to discuss a previous request that the commission restrict oil production in the state.

In an April 1 letter to the commission, OEPA President David Little and Chairman Dewey Bartlett argued oil is being produced at less than its “actual value” and “a significant amount” is being produced in a manner constituting economic waste, and the commission has an obligation to address the matters.

The letter cited the Texas Railroad Commission’s consideration of curbing Texas oil production by 500,000 barrels per day.

Bartlett said after sending the letter, the OEPA was told by the commission there was nothing for it to do in response to the letter because action had not been formally requested, so the organization filed the request for a hearing.

“The law states, very clearly in my opinion, that it’s the responsibility of the Oklahoma Corporation Commission to not allow economic waste,” Bartlett said.

“There’s a very good reason for them to very quickly and directly make a decision.”

The OEPA argues the commission has several avenues to curtail production, such as imposing allowables.

Bartlett said the “significant economic waste” occurring in the current pricing environment is “very detrimental” to the industry and the state budget.

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Oklahoma Energy Producers Alliance asks Corporation Commission to curtail state oil production

Rhett Morgan | Tulsa World

The Oklahoma Energy Producers Alliance has asked the Oklahoma Corporation Commission to curtail state oil production because of world oversupply.

An application to the OCC was filed Friday on behalf of the alliance and 11 Oklahoma companies.

The price of Oklahoma crude oil has crashed over the past three months from a high of almost $60 per barrel to at or under $20 a barrel.

“The drilling and production of oil at these prices are absolutely below the true value of that oil and at a level that constitutes economic waste,” Joe Warren, who heads Oklahoma’s Cimarron Production, said Friday in a virtual meeting. “We are pleading with the commission to step in and perform its statutory duty and obligation to take action.”

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Interest Deductibility CARES Act

The cap was raised from allowing 30% of interest payments to be deducted in the year in which occurred to 50%. The effective date for this change means it applies to both 2019 and 2020. 

Net Operating Loss (NOL) Provisions CARES Act

There CARES Act implemented numerous changes regarding Net Operating Losses. It allows for a 5 year carry back. The effective date for this change means the change applies to the tax years 2018, 2019, and 2020.

Modification of Rules Relating to NOL Carrybacks

  • Under the CARES Act, an NOL incurred in tax years beginning after December 31, 2017, and before January 1, 2021, may be carried back to each of the five tax years preceding the tax year of such loss, including those years when the tax rates were 35%, even though the losses were generated in years when the tax rate was 21%.
  • Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carrybacks.
  • Carrybacks are not allowed to offset IRC Section 965(a) income in those taxable years. Section 965(a) relates to Subpart F income from foreign corporations.
  • C Corporations may elect to file for an accelerated refund to claim the carryback benefit.
  • If advantageous, a taxpayer can still waive the carryback and elect to carry forward an NOL to subsequent tax years.
  • As part of this provision a technical correction was made to the excess business loss provision to clarify:
    1. Net operating loss and qualified business income deduction under Section 199A are not included in calculating an excess business loss, and
    2. The extent to which capital gains are taken into account in determining the amount of an excess business loss.
      • Deductions for capital losses shall not be taken into account.
      • Any capital gains taken into account shall not exceed the lesser of:
        • Capital gain net income determined by taking into account only gains and losses attributed to a trade or business, or
        • The capital gain net income.
      • The technical correction would apply to years beginning after December 31, 2017.

Trans Pacific Oil

Trans Pacific Oil Corporation is an independent operator based out of Wichita, KS. In the past 5 years, we have expanded our operations into Oklahoma, and have recently been drug into the fight to protect our vertical wells from invasive and potentially harmful horizontal frac damages and drainage.

Our fight came in the form of horizontal spacing, increased density and location exception applications filed by BCE-Mach that would overlay existing 40 acre spacing units. Trans Pacific already operated 3 producing vertical wells on these 40 acre spacing units.

BCE-Mach filed the applications in hopes that it would be permitted to drill a horizontal well in the same common source of supply that Trans Pacific’s vertical wells are producing from, essentially steering their wellbore straight through the middle of our lease. This plot map provided by BCE-Mach depicts the well bore in relation to TPOC’s vertical wells in the SE/4 Sec. 34. In response, TPOC protested the three applications and a waiver of consent application that was filed when BCE-Mach was unable to obtain the consent of 50% or more of the working interest owners in our lease to drill the well.

Despite being a small operator with 21 employees, TPOC dedicated the time and effort to port forth the best case possible using an in-house geologist, engineer and landman. Despite facing a much larger company with the type of name recognition that Tom Ward brings at the OCC, TPOC’s protest succeeded and the applications were denied. Here is a copy of the report of the ALJ.

Emergency Paid Leave Programs

On April 1, the U.S. Department of Labor (DOL) announced new action regarding how “American workers and employers will benefit from the protections and relief” offered by the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLEA), bot part of the Families First Coronavirus Response Act (FFCRA), enacted on March 18. DOL’s Wage and Hour Division (WHD) posted a temporary rule issuing regulations pursuant to this new law, effective April 1, 2020, and expiring on December 31, 2020. Face sheets for both employees and employers regarding both programs are available here and here, which provide specific information on the length of leave, calculation of pay, and qualifying reasons for leave. Additionally, DOL has released several “Questions and Answers” documents, which can be found here. The National Law Review has also issued a comprehensive legal analysis of the two emergency paid leave programs.

Notably, public agencies (including local governments and other political subdivisions) are required to provide the benefits of both the EPSLA and FFCRA programs to their employees, however, these public agencies are not eligible to receive the reimbursable tax credits from the federal government to offset the costs of these paid leave programs, impacts to public agencies, and next steps.

Summary of Employer Paid Leave Requirements & Qualifying Reasons for Leave

The FFRCA provides that covered public employers must provide to all employees:

  • Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
  • Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor.

A covered public employer must provide to employees that it has employed for at least 30 days up to an additional 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.

Under the FFCRA, an employee qualifies for paid sick time if the employee is unable to work (or unable to telework) due to a need for leave because the employee:

  1. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. has been advised by a health care provider to self-quarantine related to COVID-19;
  3. is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  4. is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
  5. is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
  6. is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

Under the FFCRA, an employee qualifies for expanded family leave if the employee is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19.

Duration of Leave:

  • For reasons (1)-(4) and (6):A full-time employee is eligible for up to 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
  • For reason (5):A full-time employee is eligible for up to 12 weeks of leave at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.

Calculation of Pay:

  • For leave reasons (1), (2), or (3): employees taking leave shall be paid at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).
  • For leave reasons (4) or (6): employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).
  • For leave reason (5): employees taking leave shall be paid at 2/3their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period—two weeks of paid sick leave followed by up to 10 weeks of paid expanded family and medical leave).

Shakeout from oil price forces alliance of foes

Stuart Burns | MetalMiner

The Texas Railroad Commission and the Oklahoma Energy Producers Alliance have mooted production cuts as one approach to stabilize prices. However, as part of the original objective for Russia and Saudi Arabia was to permanently depress shale oil output, it is hard to see why the U.S. groups would cooperate when their action is having precisely that desired effect.

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Explainer: Antitrust law won’t get in the way of U.S. acting to raise oil prices

Diane Bartz | Reuters

The Oklahoma Energy Producers Alliance has urged its state’s regulator to curtail crude oil production.

This kind of conduct in private industry would not be permitted, but under the state action doctrine it is allowed if it is done under the commission’s authority, said Sicalides.