May 2020 Industry Digest

WASHINGTON–Lawmakers in April added billions of dollars in COVID-19 pandemic relief when Congress passed and President Donald Trump signed HR 266, the Paycheck Protection Program and Health Care Enhancement Act.

The COVID-19 supplemental relief package passed the Senate on April 21, the House on April 23, and was signed by the president on April 24.

It enhances March’s $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act by providing an additional $310 billion for the CARES Act’s Payroll Protection Program (PPP), providing $75 billion for hospitals, $25 billion for COVID-19 testing and $60 billion to fortify the Small Business Administration’s Disaster Loans Program Account and Emergency Economic Injury Disaster Loan Program, according to text posted on the Congress.gov website.

Of the $310 billion allocated for PPP, the bill text indicates $30 billion is set aside for lenders with less than $50 billion in assets and another $30 billion is reserved for lenders with less than $10 billion in assets.

This was done to address complaints that many smaller businesses were crowded out of the $350 billion allocated to PPP in the CARES Act in favor of larger businesses, according to the Wall Street Journal, which reports, “Democrats successfully pushed for the $60 billion in earmarked funds for small, midsize and community lenders amid concerns that certain groups, including women, minorities and people in rural areas might have particular difficulty accessing PPP loans.”

The WSJ notes that the $350 billion allocated to PPP in the CARES Act ran out in less than two weeks.

The HR 266 text says the $25 billion allocated for COVID-19 testing must go toward “necessary expenses to research, develop, validate, manufacture, purchase, administer and expand capacity for COVID-19 tests.”

Of the $25 billion total, $11 billion is directed to states, localities, territories and tribal entities, which a CNN report says “had been a big sticking point in negotiations as President Trump had pushed for states to be responsible for expanding testing capacity while Democrats had pushed for the federal government to take a larger role.”

Democratic negotiators also had pushed for additional funding for state and local governments, but signed off on the HR 266 provisions when President Trump promised that would be addressed in the next coronavirus relief package, CNN adds.

WASHINGTON–The U.S. Environmental Protection Agency and the Department of the Army published the final Navigable Waters Protection Rule to define “waters of the United States” regulated under the Clean Water Act in the April 21 Federal Register.

The rule itself was announced Jan. 23 by EPA Administrator Andrew Wheeler in Las Vegas (AOGR, February 2020, pg. 14). The final rule, which replaces the Obama administration’s 2015 Clean Water Rule, will become effective June 22, although a number of organizations quickly filed legal challenges.

According to EPA, four clear categories of waters are federally regulated under the Navigable Waters Protection Rule:

• The territorial seas and traditional navigable waters;
• Perennial and intermittent tributaries to those waters;
• Certain lakes, ponds and impoundments; and
• Wetlands adjacent to jurisdictional waters.

The final rule also details 12 categories of exclusions or features that are not waters of the United States, EPA continues. Those include features that contain water in direct response to rainfall (e.g., ephemeral features), groundwater, many ditches, prior converted cropland and waste treatment systems.

In addition, EPA says, the rule clarifies key elements related to the scope of CWA jurisdiction:

• It provides clarity and consistency by removing the proposed separate categories for jurisdictional ditches and impoundments.
• It refines the proposed definition of “typical year,” which provides important regional and temporal flexibility, and ensures jurisdiction is being determined accurately in times that are not too wet nor too dry.
• It defines “adjacent wetlands” as wetlands that are meaningfully connected to other jurisdictional waters, for example, by directly abutting or having regular surface water communication with jurisdictional waters.

The Independent Petroleum Association of America points out that the final rule fulfills Executive Order 13788, “Restoring the Rule of Law, Federalism and Economic Growth by Reviewing the ‘Waters of the United States,’” issued by President Donald Trump in February 2017. It also “reflects legal precedent set by key U.S. Supreme Court cases as well as robust public outreach and engagement, including preproposal input and comments received on the proposed rule,” IPAA says.

Nevertheless, according to published reports, the Chesapeake Bay Foundation and ShoreRivers led a parade of challengers when they filed a lawsuit against the rule April 27 in federal district court in Maryland. They were followed, reports say, by a coalition of environmental groups led by the Southern Environmental Law Center that filed a challenge in federal district court April 29 in South Carolina, and another led by the Natural Resources Defense Council and the Conservation Law Foundation that filed April 29 in Massachusetts.

Then on May 1, 17 state attorneys general led by Democrats Xavier Becerra of California, Letitia James of New York and Hector Balderas of New Mexico sued in the U.S. District Court for the Northern District of California.

Meanwhile, other reports indicate the New Mexico Cattle Growers’ Association, supported by the conservative Pacific Legal Foundation, challenged the rule April 27 in a New Mexico federal district court, contending it “doesn’t go far enough in paring back the CWA’s reach.”

MONTROSE, CO.–The U.S. Bureau of Land Management’s field office in Uncompahgre, Co., has released the final version of its updated resource management plan, which has been subject to almost a decade of public comment and, media reports indicate, will open 171,000 Colorado acres to oil and gas leasing. Notice of the plan’s availability was published in the April 10 Federal Register.

BLM notes that the RMP, which updates and combines the 1985 San Juan/San Miguel RMP and the 1989 Uncompahgre Basin RMP, applies to more than 675,000 acres of BLM-administered surface lands and 971,220 acres of federal mineral estate. The Uncompahgre planning area includes lands in Delta, Gunnison, Mesa, Montrose, Ouray and San Miguel counties in southwestern Colorado, the bureau notes. It doesn’t include the Gunnison Gorge or Dominguez-Escalante national conservation areas, which are managed under separate RMPs.

According to the bureau, coordination with Colorado through the governor’s consistency review was completed in January 2020.

“We appreciate the productive dialogue with BLM, and the recent changes made to the Uncompahgre field office RMP to allow state wildlife managers the opportunity to provide input into mitigating the impacts of oil and gas development on sensitive habitat for elk, mule deer and bighorn sheep, as well as the inclusion of no surface occupancy protections for just under 33,000 acres of critical water and riparian resources, especially in the North Fork Valley in Delta and Gunnison counties near Paonia,” says Colorado Department of Natural Resources Executive Director Dan Gibbs. “We also appreciate the BLM’s commitment to undertake a future statewide planning effort to address related concerns with the density of development in sensitive big game habitat on BLM lands, which will bolster conditions for herds across the state.”

The bureau maintains that the RMP balances protection, restoration, enhancement and use of resources to meet natural resource management objectives and the needs of local communities. It estimates that 950 jobs and $2.5 billion in regional economic production could be generated annually from these public lands, including recreation, agriculture and energy development.

Western Energy Alliance President Kathleen Sgamma is quoted in the Durango Herald as emphasizing that the RMP is best understood in the context of BLM’s mission of considering multiple uses for federal land in a way that “balances oil and natural gas development with conservation of land, wildlife, cultural and other natural resource values.” In contrast, she says, anti-development groups seek to bar hydrocarbon production altogether.

The ROD, RMP and associated documents are available online at https://go.usa.gov/xnpgD.

WASHINGTON–The U.S. Department of Energy is offering domestic producers storage capacity for 30 million barrels of oil at the nation’s Strategic Petroleum Reserve. DOE says it also intends to make an additional 47 million barrels of storage capacity available in the near future.

The unprecedented global reduction in consumer demand caused by the coronavirus has forced U.S. refiners to decrease production of motor gasoline, commercial airline jet fuel and other refined products, the agency notes, reducing refinery crude demand and exacerbating a market oil glut, which has increased need for crude oil storage.

“A lack of storage is forcing premature shut-in of oil wells and economically hurting the U.S. energy industry and its workforce,” DOE observes. “The SPR is well-positioned to relieve some of this economic stress by making storage capacity available to U.S. oil producers immediately,” it says.

Filling the SPR with crude oil produced by U.S. companies that are facing catastrophic losses and increased financial hardship is a logical action by the federal government, assesses Secretary of Energy Dan Brouillette.

“The department continues to work with Congress to fund ways to make funding available for DOE to buy American oil,” Brouillette says. “However, we must move with a sense of urgency to support an industry that underpins the U.S. economy and supports our national security. Making some of the SPR’s storage capacity available to industry, without purchasing the oil, provides this immediate benefit to the industry and its hard-working employees.”

The first crude oil deliveries were scheduled for late April or early May, depending on producer logistics, reports Assistant Secretary for Fossil Energy Steven Winberg.

The Texas Alliance of Energy Producers points out the global crude oil market is increasingly oversupplied with production at or near record levels in the face of crashing demand.

“That means that oil needs a place to go until markets can begin to realign,” the association says. “The additional storage space provided by DOE through the SPR program is a strong move that alleviates some of these storage issues now, and pushes back the ‘day of reckoning’ in U.S. crude storage, allowing more time for other supply and demand solutions to take hold.”

CLEVELAND–Unambiguous lease language was “the beginning and the end” of a royalties lawsuit several plaintiffs brought against oil and gas companies operating in Ohio, writes Federal Judge Benita Y. Pearson in a case before the U.S. District Court for the Northern District of Ohio. In the class action lawsuit, landowners sued affiliates of Chesapeake Energy Corp. and Total S.A. for a minimum of $30 million in alleged underpaid royalties associated with eastern Ohio production.

According to press accounts, the landowners alleged the companies should pay royalties on gross proceeds from the sale of oil and natural gas without deducting nontax post-production expenses. The companies countered that landowners weren’t entitled to royalties on refined or processed products, and noted that the netback leases provided for transportation and refining cost deductions when they sold oil and gas from one subsidiary to another subsidiary before they sold it to a third party.

“Plaintiffs’ ‘gross proceeds’ argument, as articulated, does not follow the lease terms at all,” Pearson’s ruling states. “Their interpretation improperly renders a substantial portion of the royalty provisions meaningless.”

Her decision also observed that, “Numerous other courts have held that when royalties are to be paid based on the value of oil, gas and natural gas liquids at the wellhead, the netback method is an appropriate way to calculate the wellhead value.”

According to published reports, representatives for the landowners have expressed their intention to appeal the ruling.

OKLAHOMA CITY–The Petroleum Alliance of Oklahoma has hired Brook A. Simmons as its president, effective May 1.

“After a collaborative and exhaustive search, we are pleased to have found a new leader for the Alliance whose background and experience so perfectly fit with our goals and mission,” says Alliance Chairman David D. Le Norman. “Brook served as an active member in both of our predecessor organizations and was instrumental in uniting the oil and natural gas industry under the single banner of the Petroleum Alliance. It is fitting that he is coming home to Oklahoma in order to oversee the organization where he has such deep roots.”

Simmons was the Oklahoma Independent Petroleum Association’s federal lobbyist from 2008-15, after which he served on the executive committee of the Board of Directors for the Oklahoma Oil & Gas Association for four years. He helped merge the organizations into the Alliance. From 2015 until its 2019 acquisition by Encana (now Ovintiv), Simmons managed federal, state and local government affairs for Newfield Exploration, and frequently worked in Oklahoma. Since then, Simmons has represented private clients on federal issues in Washington.

Simmons describes his priority at the Alliance as ensuring that the group emerges even stronger from the economic storm while continuing to deliver powerful results for members of every size.

“The petroleum industry is the lifeblood of Oklahoma. Every sector of the economy depends on its vitality and the petroleum products our hard-working men and women deliver daily to enable human progress,” Simmons reflects. “The Alliance will remain focused on sound public policies to maximize Oklahoma’s role in this global business and on delivering effective services, so members are well prepared for the next chapter in our extraordinary story.”

Simmons serves on the Board of Directors for the Domestic Energy Producers Alliance and previously served on the boards for the Western Energy Alliance, North Dakota Petroleum Council, Royalty Owners & Producers Educational Coalition and the Utah Petroleum Association. He also served on Utah Governor Gary Herbert’s Energy Advisory Council.

WICHITA FALLS, TX.–The Texas Alliance of Energy Producers Board of Directors has elected Cye Wagner of Cooper Oil & Gas as its new chairman, Houston Sullivan of Double Eagle Energy Holdings III LLC as vice chairman, and Marshall Tillman of Kornye-Tillman as secretary.

According to the Alliance, Wagner has been with Cooper, the family business, for more than a decade. She serves in an executive management role over the exploration, accounting, human resources and regulatory departments. Before that, she held a position in EOG Resources’ Fort Worth division, where she worked in completions and production engineering. She graduated from Texas A&M University with a B.S. in petroleum engineering and a minor in business. Her membership in industry organizations includes the Society of Petroleum Engineers and the Independent Petroleum Association of America.

“The Alliance is an industry stalwart with a proven legislative and regulatory track record over nine decades. I have seen firsthand how much value the Alliance brings to our membership and to Texas energy in general,” Wagner affirms. “I am honored to represent the Alliance and its members as board chair during this difficult time for our industry, which is so vital to America’s economic and national security.”

Wagner is working with Alliance staff on solutions to ease the financial burdens on the industry, the association reports. Along with the state’s other major trade associations, the Alliance is leading the Blue Ribbon Task Force for Oil Economic Recovery formed by Texas Railroad Commission Chairman Wayne Christian. The Alliance is recommending relief measures to the RRC and other state agencies and officials.

“Cye is going to be an incredible asset as our board chairperson, especially as we work to mitigate these extreme losses to the oil and natural gas industry,” said Alliance Executive Vice President Karr Ingham. “She already has made great contributions to the Alliance and its members, including as an advocate at the state and federal levels. She will represent our members well, from the smaller producers and service companies to our publicly traded members.”

Vice Chairman Sullivan is the senior vice president of business development at Double Eagle Energy Holdings III LLC, the Alliance reports. Prior to Double Eagle, he served as vice president of business development of Veritas Energy LLC from 2012-17. In 2016, Veritas Energy LLC and Double Eagle Energy II formed Double Eagle Energy Permian LLC, the Alliance notes, and after Double Eagle Energy Permian LLC was sold to Parsley Energy Inc in 2017, Sullivan remained with the company.

According to the Alliance, Secretary Tillman has 39 years of oil and gas experience directly managing leasing, drilling and completion operations, daily production, well site supervision, regulatory filing and joint interest billing/revenue distribution. Marshall is a longtime active member and board member, and has served on the Alliance’s Executive Committee since 2018. He began his career as a landman in 1981.

WASHINGTON–The National Ocean Industries Association Board of Directors has elected Galen Cobb of Halliburton as chairman and Matt McCarroll of Fieldwood Energy LLC as vice chairman for the 2020-21 term.

NOIA President Erik Milito describes Cobb and McCarroll as the right people to fill the positions.

“As the offshore industry continues to navigate unprecedented energy uncertainty, Galen and Matt’s leadership will be a steadying factor,” Milito predicts. “The American offshore industry provides incredible benefits, and truly lifts society through safe and environmentally sustainable energy production. Despite the historic challenges facing our industry, the United States and the world will need reliably produced oil and natural gas and wind industry for generations. With Galen and Matt, we are well positioned to weather this storm, and emerge stronger.”

According to NOIA, Cobb is Halliburton’s vice president of industry relations and is responsible for the company’s global industry relations. He has been at Halliburton for more than four decades, serving in executive management positions in operations, marketing, sales and business development. In his current position, Cobb’s broad responsibilities include managing the company’s industry relations, energy trade policy issues, executive client relations and trade organization oversight.

Cobb serves in leadership positions on numerous industry trade association, public company and civic boards.

NOIA notes that McCarroll is the founder, chairman and chief executive officer of Fieldwood Energy, a Houston-based production company operating exclusively in the Gulf of Mexico. Fieldwood is one of the top 10 largest producers in the Gulf of Mexico and is also one of the largest privately-owned exploration and production companies in the United States.

McCarroll serves as a director of Dynamic Energy Services International and is an active member in numerous industry associations, a member of The Dean’s Advisory Council of the College of Business at Louisiana State University, and in 2015 was inducted into the college’s hall of distinction.

The 2020 honorees are:

• Advisian Digital, for the CAROL® catalyst removal robot;
• Baker Hughes, for the SureCONNECT™ downhole intelligent wet-mate system and the Aptara™ lightweight compact tree;
• Bosch Rexroth, for its high-force, low-voltage subsea valve actuator;
• Dril-Quip Inc., for the VXTe™ vertical subsea tree system;
• Halliburton, for its Xaminer® magnetic resonance service;
• NOV, for its SWIT™ subsea low-sulphate and low-salinity plant, and its PowerBlade™ energy recovery system;
• Schlumberger, for the NeoSteer at-bit steerable system and the Ora intelligent wireline formation testing platform;
• Siemens, for the Siemens AM Monitor™, an enabler of industrial-grade 3-D printing; and
• TechnipFMC, for its subsea power distribution station.

OTC adds that several companies received Spotlight on Small Business awards:

• DarkVision, for its HADES-F™ acoustic imaging technology;
• Rocsole Ltd., for its liquid in-tank inspection service;
• Rolloos, for its safety-enhancing Red Zone Monitoring service;
• Upwing Energy, for the Upwing Subsurface Compressor System™; and
• WFS Technologies Ltd., for the Seatooth SmartClamp and its subsea cloud computing network.

“There has been a growing trend in the number of small-business applicants and therefore winners in recent years,” observes Cindy Yeilding, who chairs OTC’s board of directors. “This is a direct reflection of the innovation happening within the industry as well as the importance of this recognition.”

WASHINGTON–Underground natural gas storage in the United States stood at 2.320 trillion cubic feet on May 1, 20.5% above the five year average, according to the U.S. Energy Information Administration. That was up 315 billion cubic feet from the 2.005 Tcf in storage on March 20, which was 17.0% above the five-year average. The May 1 storage number was 797 Bcf more than a year ago, when gas storage stood at 1.523 Tcf.

According to EIA, gas storage in the East Region was 424 Bcf on May 1, 30.1% above the five-year average and 26 Bcf more than on March 20, when storage stood at 398 Bcf, which was 32.2% above the five-year average. East Region gas storage on May 1 was 131 Bcf more than it was a year ago.

Gas storage in the Midwest Region stood at 530 Bcf on May 1, 36.6% above the five-year average and 38 Bcf more than the 492 Bcf in storage on March 20, which was 29.8% above the five year average. May 1 gas storage in the Midwest Region was 226 Bcf more than a year ago.

In the Mountain Region, EIA says, gas storage was 111 Bcf on May 1, 7.5% below the five-year average, but 19 Bcf more than the 92 Bcf stored on March 20, which was 16.4% below the five year-average. Gas storage in the Mountain Region was 34 Bcf more than a year ago.

Gas storage in the Pacific Region was 228 Bcf on May 1, 1.7% below the five-year average and 34 Bcf more than the 194 Bcf stored on March 20, which was 3.5% below the five-year average. Pacific Region gas storage on May 1 was up 69 Bcf from a year ago.

In the South-Central Region, gas storage levels on May 1 were 1.027 Tcf, 19.6% above the five-year average and up 198 Bcf from the 829 Bcf in storage on March 20, which was 14.7% above the five-year average. The May 1 gas storage level for the South-Central Region was up 337 Bcf from a year ago.