Source: https://rockymountainenergyessentials.com/
Timestamp: 2019-04-21 18:09:19+00:00

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Rocky Mountain Energy Essentials | News, insight, and analysis.
It is no secret that Wyoming’s economy is heavily reliant on the energy and natural resources sector. In fact, the primary forces behind the economy of the Cowboy State are mineral extraction, in the form of coal, oil, natural gas and trona, and agriculture.
Wyoming is an attractive place to do business due to state incentives like no income tax and low sales and property taxes; however, Wyoming may become even more of a hot opportunity state in light of the passage of Senate Bill 181 by its neighbor to the south, Colorado.
Colorado has recently taken serious steps to increase oil and gas regulation and revamp the make-up of the Colorado Oil and Gas Conservation Commission. As Governor Jared Polis signed SB 181 into law yesterday, April 16, 2019, many are trying to anticipate the impact that the bill will have on the oil and gas industry in Colorado. The future of oil and gas is uncertain, due in part to the significant reforms mandated by SB 181. For a full discussion of the sweeping impacts of the bill, check out our prior post here.
Will the oil and gas industry shift more of its focus to the Cowboy State in the wake of SB 181?
Rural Nature of Wyoming – Wyoming is one of the least populated states in the country. In addition, the population of the state is spread out – meaning the population density is very opposite to that of Colorado. As a result, the friction that Colorado has faced with the oil and gas industry as its towns and communities have rapidly expanded into producing areas will be practically a non-issue for rural Wyoming. In fact, the New York Times wrote an article last summer commenting on this issue of the increase of production in Weld County coupled with Colorado’s population boom entitled, “In Colorado, A Fracking Boom and a Population Explosion Collide.” Wyoming is a much more attractive environment for operations than Colorado, given Wyoming’s lower population.
Pipeline Projects Underway – Miles of new natural gas and crude oil pipelines, as well as CO2 pipelines, are scheduled to be constructed in Wyoming. The Casper Star Tribune article entitled, “A Network of Pipeline is Spreading in Wyoming as Energy Companies Prepare for the Next Boom,” discusses the pipeline projects in the state. This is a major factor as companies need to have a way to move crude out of the state.
Attitude – Wyoming residents are, in general, supportive of responsible oil and gas development in the state. Talk in Wyoming is positive and hopeful of the boom to come, and folks are making what preparations they can in the hopes of a boom in the oil and gas sector again – welcoming it with open arms. Wyoming residents recognize the value of the revenue that oil and gas operations bring to the state.
Workers with Grit – Wyoming is known for its quality of worker; Wyoming folks work hard and with grit, as working outdoors in all weather conditions requires.
Wyoming presents a favorable opportunity for the energy and natural resources sector to grow, but will the oil and gas industry shift its focus to the Cowboy State in the wake of SB 181?
It is likely that Wyoming will benefit from the passage of SB 181 in Colorado, but only time will tell if SB 181 will be Wyoming’s new economic stimulus package…stay tuned!
As discussed in our March 13 post, which can be found here, Senate Bill 181, introduced on March 1, proposed significant changes to Colorado’s long-standing oil and gas regulatory system. After a number of amendments from Senate and House membership, Governor Polis signed S.B. 181 into law on April 16, 2019.
S.B. 181 now creates C.R.S. § 29-20-104(3), which establishes atechnical review board procedure to provide qualified input on local well siting determinations. This new system will allow a locality or operator to request that COGCC-appointed experts report on the technical and operational suitability of the locality’s preliminary or final well siting decision.
C.R.S. § 29-20-104(3)(b) makes clear that local governments will not be required to reconsider or amend siting decisions based on technical review board reports.
More specifics regarding technical review board procedures and membership can be found in the revised C.R.S. § 34-60-104.5(3).
S.B. 181 now includes important additions and refinements to the COGCC’s new mandate to adopt emissions regulations under C.R.S. § 25-7-109.
COGCC rules to minimize emissions of methane, VOCs and NOx must be adopted under C.R.S. § 25-7-109(10)(a).
Notably, S.B. 181 no longer requires emissions monitoring installation at every “oil and gas facility”in the state.
S.B. 181’s original changes to the nine-member COGCC, which de-emphasized oil and gas industry experience among the qualifications of its seven appointed, volunteer commissioners, will be effective until no later than July 1, 2020. By then, the COGCC will be restructured to seven total members, including five appointed commissioners of balanced credentials who will become full-time state employees.
At least one member of the restructured COGCC must have substantial experience or formal training in: the oil and gas industry; planning and land use; environmental and wildlife protection or reclamation; and public health. More specifics regarding the future makeup of the COGCC are set out in the new C.R.S. § 34-60-104.3.
S.B. 181 originally introduced amendments to C.R.S. § 34-60-116 that would have required a 50% minimum consent threshold on forced pooling applications and a 15% statutory royalty on oil and gas for non-consenting, unleased owners. The final bill instead requires consent to be pooled from parties comprising 45% of the interest of reasonably locatable owners and a statutory pooled royalty of 13% on oil and 16% on gas.
Watching commodity pricing is a bit like watching a rollercoaster – it goes up one minute, down the next, then up again and down. Today’s oil prices are no different. We started the day up a bit, and this afternoon we are down a bit – the rollercoaster continues. If you were looking for a lazy river-like pace, with its predictable turns and steady current, commodity pricing is not the ride for you.
A CNBC headline reads, “A ‘forecasting nightmare’: Volatile Oil Prices are Virtually Impossible to Predict, Analysts Say.” In short, prices are on a rollercoaster and folks are having difficulty predicting where exactly on the ride we sit – are we on the upswing or should we brace for decline?
OPEC Production Cuts – Plus Global Issues. According to CNN Business article entitled, “There’s Trouble in OPEC and Oil Prices are up 50%,” trouble in 3 OPEC nations, namely, Venezuela, Iran and Libya, have contributed to domestic oil price increases.
Restraint and a More Cautious Approach. According to CNN Business article entitled, “Wall Street Taught Oil Drillers Restraint. That Could Lift Oil Prices,” some of the price volatility could be related to the more cautious approach some companies are taking, with the hopes of keeping higher oil prices sustained. The article also reports that the sense of restraint in the oil patch could lead to breaking the boom-bust cycle.
There are of course other factors that may come into play, including politics, pipeline constraints, whether OPEC continues supply cuts and global supply and demand impacts.
While it is difficult to predict where the rollercoaster is headed, yesterday’s CNBC article entitled, “Prepare for $80 oil this summer as ‘wounded bulls’ rise, RBC warns,” forecasts that “international oil prices will average $75 a barrel in 2019 and consumers may find themselves contending with bouts of $80 crude this summer, RBC Capital markets said.” One thing is for sure, we are along for the ride!
Yesterday, Wednesday March 20, 2019, the Board of County Commissioners for Adams County, Colorado (the “Board”) held a special public hearing on whether to impose a temporary ban on local oil and gas permit applications in the wake of Colorado’s Senate Bill 19-181. Senate Bill 19-181 was passed (with amendment) by the Senate and is currently under consideration by the House.
Following a nearly three hour hearing that included statements given by numerous industry and community stake holders, the Board unanimously adopted a temporary moratorium on new oil and gas permits. This moratorium, which became effective immediately, lasts for six months and applies to all permits for which applications have not yet been submitted to the Board. Permit applications already filed with the Board are not affected.
In its resolution, the Board expressed concern with a potential flood of new permit applications and Senate Bill 19-181’s impending changes to local government authority to regulate oil and gas development. If Senate Bill 19-181 is passed into law this legislative session it is expected to take effect on July 1, 2019.
Click here for the full text of the Board’s resolution (via the agenda).
For more information on Senate Bill 19-181, check out the prior post on this blog by Jim Tartaglia, titled “In The Know: Primer on Colorado’s Senate Bill 181,” which can be found here.
We are constantly trying to predict the future of oil prices – that is just the nature of the beast in this business. So many things begin, and end, with the price of oil for us. Luckily, the U.S. Energy Information Administration (“EIA”) is literally in the business of analyzing and predicting the future of oil prices. Thank goodness, because there are so many factors that go in to predicting commodity pricing, this is not an easy feat!
The EIA’s Short-Term Energy Outlook (commonly known as “STEO”) was released on March 12, 2019 – the full report can be found here.
Brent crude spot prices reportedly averaged $64 per barrel in February, which marks a $5 per barrel uptick since January.
The EIA forecasts that Brent spot prices will average $63 per barrel in 2019 and $62 per barrel in 2020.
These forecasts are great news because they predict price stability, in general, through 2020.
The STEO reports that the U.S. active oil rig count reached a 10-month low of 834 rigs as of March 8, suggesting the rate of U.S. crude oil production growth could slow.
Yet, the EIA forecasts U.S. crude oil production will increase by 1.3 million b/d in 2019 and by 0.7 million b/d in 2020.
OPEC spare capacity? Remind me?
OPEC’s primary goal is managing oil supplies to achieve market stability. In December of 2018, OPEC member countries agreed to production cuts through June of 2019. According to MarketWatch’s article entitled, OPEC Looks to Cancel April Meeting as Oil-Producer Committee Reports Improved Output-Cut Compliance, as of February, compliance with the production cuts was at almost 90%. Said another way, most OPEC member countries voluntarily complied with the agreed upon oil production cuts.
While it is difficult to predict what lies ahead for oil prices, stay tuned – we will have our fingers on the pulse of oil prices. Many factors influence oil prices and we will keep you apprised of new developments!
2019 marks the 150th anniversary of women’s suffrage in Wyoming – a truly wonderful anniversary, as women were recognized as having the right to vote in Wyoming a good 50 years before women in the rest of the country were guaranteed the same right.
It is the home of the women’s vote, as it recognized that women have the right to vote in 1869.
Esther Hobart Morris was the first female justice of the peace – check out this article from The New York Times – Overlooked No More: She Followed a Trail to Wyoming. Then She Blazed One.
It allowed women to serve on juries as early as 1870.
The first female governor in the United States was Nellie Tayloe Ross, elected in Wyoming in 1924.
As part of the Rocky Mountain Energy Essentials blog, we typically discuss the energy and natural resources sector of Wyoming; however, Wyoming has been on the forefront in more ways than just the oil and gas and other extracted minerals area. Its nickname of the Equality State pays homage to that!
On March 1, 2019, Senate Majority Leader Steve Fenberg and House Speaker KC Becker introduced Senate Bill 181, which proposes significant changes to Colorado’s oil and gas regulatory framework. This bill has initiated immediate public debate that is sure to continue as it proceeds through the legislature.
C.R.S. § 34-60-102 articulates the legislative goals of the Oil and Gas Conservation Act (the “Act”), which currently declares it “in the public interest” to “foster” oil and gas development “in a manner consistent with protection of” public health and safety, and to promote oil and gas development in a way that avoids “waste” of the state’s natural resources.
S.B. 181 would amend that declaration by directing the COGCC to “regulate” oil and gas development “in a manner that protects” public health and safety, and redefining “waste” to establish that non-production of oil and gas does not constitute “waste” that the COGCC must work to minimize.
C.R.S. § 34-60-128 currently directs the COGCC to administer the Act “so as to minimize adverse impacts to wildlife resources affected by oil and gas operations,” and in doing so the COGCC must consider the “cost-effectiveness and technical feasibility” of its mitigation-based decisions.
S. B. 181 would amend the definition of “minimize adverse impacts” in C.R.S. § 34-60-103(5.5) to remove cost-efficiency and technical feasibility entirely from the COGCC’s necessary considerations in administering the Act.
S. B. 181 would also restructure the COGCC’s membership qualifications set out in C.R.S. 34-60-104 by (i) reducing the minimum number of those with industry experience from three to one (and in turn eliminating the mandate that industry member experience include petroleum engineering and geology); and (ii) increasing the membership qualifications that must be achieved with respect to public health and environmental protection. The COGCC would remain at nine total members.
S.B. 181 would overhaul C.R.S. § 29-20-104 by clarifying the power of local governments to regulate land use and the siting of oil and gas facilities and broadly expanding local authority to protect against potential, adverse impacts of operations, including the authority to conduct regular on-site inspections, monitor emissions and other externalities often associated with well sites, and impose administrative fees and non-compliance penalties.
In line with the above, S.B. 181 would end the long-standing exemption for oil and gas facilities from compliance with local noise ordinances [C.R.S. § 30-15-401].
S.B. 181 would also reconfigure the COGCC’s procedures under C.R.S. § 29-20-106 to introduce a new condition to the COGCC’s permitting procedure by requiring that, prior to filing any drilling permit application with the COGCC, all permit applicants provide evidence of prior application to and approval by relevant local governments authorizing the proposed drilling site.
S.B. 181 would create a new legislative mandate that the state’s air quality control commission adopt new regulations that require on-site “continuous emission monitoring equipment” for all oil and gas facilities located in the state.
S.B. 181 would create a new legislative mandate that the COGCC establish rules “to ensure proper wellhead integrity” of production wells and revisit its existing rules governing flowlines and shut-in or abandoned wells in light of the commission’s redefined legislative directive.
First, a pooling order could no longer be sought by “any interested person,” but instead would require that all pooling order applicants obtain consent to pooling from those owning more than half of the interest to be pooled.
Second, any pooling order issued by the COGCC must prohibit the operator from using any surface area owned by a nonconsenting, pooled owner (absent that owner’s written permission for such surface use).
Also, S.B. 181 would increase the statutory royalty due to nonconsenting, pooled owners from 12.5% to 15% [C.R.S. § 34-60-116(7)(c)].
S.B. 181 includes the new C.R.S. § 34-60-106(1)(f)(III) that many see as a potentially lengthy moratorium on new drilling permits by allowing the COGCC to delay permit issuances until it “has promulgated every rule required to be adopted by legislation enacted in 2019” that may impact oil and gas development under C.R.S. Article 60, and all such rules have become effective.
As most local readers will know, the sweeping Senate Bill 181 has already become a topic of vibrant public debate in our state. After clearing its first two Senate committees last week, the bill’s potential and final form should become clear in the near future.
Please check back for updates on Senate Bill 181!
It is no secret that Colorado is, and has been in recent years, a hot state in the domestic energy sector.
Colorado has serious potential for future oil and gas production.
As we discussed in our post, Proposition 112 Was Defeated, But That is Not the End, Colorado recently rejected a measure that could have had significant negative impacts on the members of Colorado communities. However, as we discussed, Proposition 112 is not the end to the challenges facing the industry…as highlighted below.
Predicting the future is obviously difficult. We do not have a crystal ball or some special insight that gives us all of the answers. Predicting is, just that – estimating things based upon the data and information we know and taking into account the numerous factors that we cannot anticipate and do not know, but that may make a significant impact.
The Gazette, Colorado Springs, Colorado: Bill to Reshape Colorado Oil, Gas Regulations Coming Soon, Democrats Say.
Denver Business Journal: Why Colorado Oil Companies are Planning Slower Growth in 2019.
In addition to potential future regulations, the state has the Wildgrass case looming – Wildgrass Oil and Gas Committee v. State of Colorado et al., case number 1:19-cv-00190, currently pending in the U.S. District Court for the District of Colorado was filed January 23, 2019. What is at issue is the statutory pooling of nonconsenting mineral owners in the form of a challenge to the constitutionality of C.R.S. § 34-60-116, the statutory/involuntary pooling statute.
We will continue to monitor the Wildgrass case and we will be providing periodic updates as to the same – for an introduction into the case, Oil & Gas 360 posted an article entitled, Colorado: New Lawsuit Targeting Mineral Rights Pooling was Filed by Setback Proponents which also includes a Law 360 article entitled, Mineral Owners Want Forced Drilling on Their Lands Outlawed.
Needless to say, these matters will certainly have an impact on Colorado’s future role in the domestic energy sector, the operations of operators in the state and also the interests of mineral interest owners.
In baking, much like in many areas of life, all of the ingredients must come together in perfect harmony. Baking is not just about measuring out the right amount of quantities of what you are adding in, baking it at the right temperature and hoping for the best. No, baking also requires patience, finesse and foresight – but above all, it requires planning and the right ingredients.
Achieving sustainable oil prices is much the same – numerous components must all come together in harmony for sustainable growth and stable pricing to be the result. A little patience, finesse, foresight and planning don’t hurt the process either. One or two factors do not, alone, cause a stable price environment – it is the combination of many ingredients, each playing a role.
I recently got my layer cakes down pretty well; however, then I got a little over-confident and substituted in eggnog on a whim while baking a Christmas-themed layer cake. I did not think through the role that room-temperature milk actually played in a cake, nor did I think through the impact that the substitution may have on the other ingredients. Luckily, my cake still worked out, but it was just a little off.
Lesson Learned: Sometimes you just cannot substitute one of the crucial ingredients on a whim.
Although some question whether supply and demand have that significant of impact on pricing, most people recognize that this simple and basic economic principal is a foundational component of the sustainable oil prices recipe.
While it is widely accepted that high oil prices leads to more drilling, thereby increasing supply, some question whether OPEC’s supply cuts have a true impact on price. Others feel that production cuts support prices and give momentum to increases in price.
Now, more than ever, the global economy and the state of international relationships play a critical role in whether oil prices will be volatile. We frequently consider circumstances in Venezuela, Iran, Saudi Arabia, Russia and other far-away countries when we look at predicting the future of oil prices. Forbes discusses the international relationship impact on oil prices in its recent article entitled, Oil Markets Are In For a Wild Ride in 2019.
Planning, from an infrastructure standpoint, such as pipelines, plays an important role on the stability of pricing as well. Advances in technology that promote drilling efficiencies are similarly essential.
The unavailability of pipelines has been an issue for years. In fact, a recent article in Bloomberg entitled, Permian Shale Oil Boom Holds Good News and Bad News for OPEC, discusses current pipeline constraints in the Permian and also limitations in the United States export infrastructure in detail.
Further, advances in drilling technology have resulted in efficiencies that have helped profitability increase. A recent article in Forbes entitled, U.S. Shale Oil and Natural Gas, Underestimated its Whole Life, mentions the benefits of drilling efficiencies in oil price consistency and future production.
Bottom line – both sustainability in commodity prices and baking each require the right ingredients.
For a wonderful white cake recipe, check out The Best Vanilla Cake I’ve Ever Had, by Sally’s Baking Addiction.
The Director’s Cut reports go back to 2010 and are released monthly. The full archive can be found here. They look back and discuss in detail the prior months’ production, rig count, completions, etc. In addition, they provide a helpful section called “Agency Updates” which breaks down all of the goings on in the Bureau of Indian Affairs (“BIA”), Bureau of Land Management (“BLM”), Environmental Protection Agency (“EPA”), U.S. Forest Service, etc.
To wet your whistle with North Dakota stats, according to the U.S. Energy Information Administration (“EIA”)’s Drilling Productivity Report released on December 17, 2018, which can be found here, the Bakken region produced 1,443 thousand barrels of oil/day in December of 2018 and is expected to produce 1,461 thousand barrels of oil/day in January of 2019.
The main takeaway from the November, 2018 Director’s Cut is that production records were being set. Specifically, record oil and gas production levels were achieved in September of 2018 – hitting new all-time highs for oil production, gas production and producing wells.
Similarly, the December, 2018 Director’s Cut provides that new records were again reached. Record oil and gas production levels were again hit in October, 2018 – new all-time highs for oil production, gas production and producing wells were again hit.
The December, 2018 Director’s Cut also provides that the November rig count was down slightly, but that as of the release date of the report on December 14, 2018, it was back up to October’s level, and that estimated wells waiting on completion is 959, up 31 from the end of September to the end of October.
The January, 2019 Director’s Cut reflects a slight decline in oil and gas production from October to November; also, the number of producing wells is also down from October to November.
The Takeaway: The Director’s Cuts are a great resource. The December, 2018 Director’s Cut provides some insight into the optimistic outlook for North Dakota production and also details the production records that have been reached. Specifically, the December, 2018 Director’s Cut provides that, “Operators continue to maintain a [drilling] permit inventory that will accommodate varying oil prices for the next 12 months.” Good news!
Rocky Mountain Energy Essentials is written by attorneys and other professionals at Steptoe & Johnson PLLC.

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