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  • 17
    March

    Oil Producers Nervously Watch Industry Trends

    By Alex Mills


    The oil industry in Texas and across the U.S. nervously awaited a weekly report from the U.S. Energy Information Administration (EIA) on Wednesday, and for the reaction of crude oil traders who bid on New York Mercantile Exchange (NYMEX) oil futures.

    Crude oil production in the U.S. has been increasing since July from 8.458 million barrels per day (b/d) to 9.109 million b/d on March 10.  Crude oil stocks had increased for nine consecutive weeks, resulting in prices declining to $47 from a high of $54 just two weeks earlier.

    Saudi Energy Minister Khalid Al-Falih added to the tension last week when he said Saudi Arabia, the world’s largest exporter of oil, will not "bear the burden of free riders."  Al-Falih was referring to other members of OPEC who have not been abiding by its agreement to reduce oil production in an effort to decrease the oversupply and firm prices.  OPEC nations agreed to cut production in November that would begin in January.  Early indications supported the decline in production, but a recent report from OPEC showed a rise in global crude oil inventory despite OPEC’s decline in production.

    However, EIA’s report on Wednesday surprised many by stating that oil stocks in the U.S. declined 200,000 barrels since the previous week, breaking the string of nine consecutive weeks of increases.

    Traders responded to the news, increasing oil prices by $1.14 per barrel on Wednesday to close at $48.86.

    Also, the Federal Reserve Bank announced it will raise the benchmark short-term interest rate by a quarter-point and possibly raise interest rates more this year.

    After the announcement from the Federal Reserve Bank, the dollar’s strength began to soften among traders, which was a positive for crude oil prices because oil is traded in dollars.

    EIA’s news was supported by a report from the American Petroleum Institute that said crude oil inventories declined 531,000 barrels.

    EIA noted that gasoline supplies fell by 3.1 million barrels, and distillate stockpiles dropped 4.2 million barrels last week, too.

    However, U.S. crude oil inventories are just below the historic high levels reached on March 3 at 528.393 million b/d.

    Minister Al-Falilh, speaking at an energy conference in Houston, said Saudi Arabia cannot be the swing producer any longer.

    “We can’t do what we did in the ‘80s and ‘90s by swinging millions of barrels in response to market conditions,” he said.

    OPEC members and some non-OPEC members all agreed to cut production 1.8 million b/d during the first six months of 2017. OPEC members are scheduled to meet again on May 25 in Vienna to evaluate it production decline policy.

    Meanwhile, oil producers in the U.S. will be nervously waiting and watching.

    -30-

    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

  • 09
    March

    Petroleum Industry News Sends Mixed Signals

    By Alex Mills


    There was a variety of news regarding the petroleum industry last week that sent mixed signals to industry observers.

    First, petroleum economist Karr Ingham said the Texas Petro Index increased again for the second month in a row.  The drilling rig count, drilling permits and well completions all increased from the previous month.

    Next came the news that ExxonMobil will invest $20 billion in the Gulf Coast region during the next 10 years, and increase employment by an estimated 45,000 jobs. ExxonMobil said it will strategically invest in 11 major chemical, refining, lubricant and liquefied natural gas projects in Texas and Louisiana to expand its manufacturing and export businesses.

    More positive news came from a report from the Business Council for Sustainable Energy.  According to the report, Americans now devote less than four percent of their total annual household spending to energy—the lowest since government started keeping records. “That welcome development is, in part, a result of the fracking revolution and of the declining prices of natural gas,” the report stated.  “Lower energy prices have also helped to reduce manufacturing costs, thus reviving the U.S. economy. Today, the United States generates very cheap electricity for industrial use, outranking China, India and Mexico.”

    In spite of those low energy costs, American producers have become more efficient. “The United States,” the report notes, "has decoupled economic growth and energy demand." Since 2007, American GDP grew by 12 percent, while overall energy consumption fell by 3.7 percent, it stated.

    Almost immediately following the glowing report from the Business Council for Sustainable Energy came news from the Energy Information Administration (EIA) that natural gas consumption has declined because of warmer weather. “Warmer than normal weather throughout much of the United States resulted in the first recorded net natural gas injection during a week in February since weekly storage data has been collected,” EIA stated. “For the week ending February 24, the amount of natural gas in storage in the Lower 48 states increased 7 billion cubic feet (Bcf). While some weeks during March in previous years had recorded injections, net injections of natural gas into storage do not typically occur until at least April.”

    The next day, March 8, EIA reported an increase in U.S. crude oil inventories. The EIA reported crude stocks rose by 8.21 million barrels to 528.4 million barrels.  Compared to the same period last year, crude oil stocks are 37.6 million barrels higher than current levels.

    Crude oil prices on NYMEX dropped 5.2% immediately to $50.28 and went below $50 on Thursday.

    -30-
     
    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

  • 03
    March

    Federal Government Overreach Attacked On Many Fronts

    By Alex Mills


    The President, Congress, and the Texas Legislature all have been very active in implementing executive orders, legislation, resolutions, and letters to reduce the federal government’s massive regulatory overreach.

    It all started with President Trump’s State of the Union address on Feb. 28, in which he said economic recovery must begin by reducing massive regulations on American businesses.

    The next day he signed an executive order directing the Environmental Protection Agency to review a controversial water rule. EPA Administrator Scott Pruitt said he would quickly withdraw the rule initiated by the Obama administration's EPA.

    That same day Rep. Mac Thornberry (R-Texas) filed the Federal Regulatory Certainty for Water Act, H.R. 1261, which would define "navigable waters" as waters that are either "navigable in fact" or those that have a permanent or continuously flowing bodies of water that form streams, rivers, lakes and oceans "that are connected to waters that are navigable in fact."
    The order will kick off what will likely be a lengthy process to undo the Waters of the United States (WOTUS) rule, which includes a lawsuit filed by a number of states over the regulation, along with energy, agriculture and development interests.  The legal action is in U.S. Court of Appeals.
    In a related issue, Republican leaders from 11 states, including governors and attorneys general, have urged EPA to stop collecting certain emissions information from oil and gas operators.

    Texas Attorney General Ken Paxton (R), as well as governors and top lawyers from other states, sent a letter to EPA Administrator Pruitt asking the new agency leader to halt information requests initiated by the Obama administration.
    Rep. Thornberry also sent a letter to EPA Administrator Pruitt on March 2 asking the agency to rescind the pending “Information Collection Effort for Oil and Gas Facilities” that was issued Nov. 10, 2016.
     “Within your rules and regulations, I respectfully ask that you fully rescind the oil and gas ICR,“ Thornberry said.

    "We believe the EPA's requests to be an unnecessary and onerous burden on oil and gas producers that is more harassment than a genuine search for pertinent and appropriate information," the letter stated from the states of Alabama, Arizona, Kansas, Kentucky, Louisiana, Mississippi, Montana, Oklahoma, South Carolina and West Virginia.

    Obama's EPA kicked off a formal survey last year, requiring 15,000 "owner/operators" in several sections of the oil and gas industry to provide information about controls that could reduce emissions of greenhouse gases, including methane.

    The survey was part of the methane rule that is also being challenged in the court.

    The U.S. House of Representatives got into the act, too, passing by a 241-184 vote the Office of Information and Regulatory Affairs Insight, Reform and Accountability Act.

    The bill seeks to reduce the size of federal regulatory agencies, and reduce the authority of unelected bureaucrats. This bill strengthens Congressional authority over the Office of Information and Regulatory Affairs to ensure it functions effectively as the first line of defense to stop overly burdensome regulations.
    While the Senate was confirming Rep. Ryan Zinke (R-Mont.) as Interior secretary, the Interior Department was publishing a notice postponing its regulation amending oil, natural gas, and coal royalty valuation. The rule, which has been embroiled in a legal battle, makes significant changes to the royalty valuation methods that impose a complex framework for operating on federal and tribal lands.

    In the Texas Legislature, the chairmen of the Texas House and Senate energy committees in the Texas Legislature filed two concurrent resolutions calling on the federal government to work with Texas to unravel “the harmful, overreaching regulations that have been implemented over the past eight years, which were largely aimed at negatively impacting the oil and gas industry.”

    Specifically, Senate Concurrent Resolution 26 filed by Senator Craig Estes (R-Wichita Falls) and House Concurrent Resolution 84 filed by Representative Drew Darby (R-San Angelo) strongly urge Congress and the new administration to closely review these onerous regulations in order to determine whether these rules should be revised, repealed, or alternatively, delegated back to the states to implement and enforce.
     
    -30-

    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author

  • 23
    February

    New EPA Head Stresses Cooperation With State Officials

    By Alex Mills


    It is unusual for the new leader of a federal agency to have sued the very agency that he now heads, but, that’s exactly what happened when President Trump nominated and the U.S. Senate confirmed Scott Pruitt as the new administrator of the Environmental Protection Agency (EPA).

    Pruitt, former attorney general for Oklahoma, has participated in several lawsuits against EPA, the Department of Interior, and the U.S. Fish and Wildlife Service over a variety of issues implemented by the Obama administration.  Those issues included changes to air emissions, expansion of water regulation, “sue and settle” agreements between federal regulators and environmental groups, and the Endangered Species Act.

    Although these issues directly impacted the fossil fuel industries, the main thrust of the suits involved states’ rights and federal overreach stepping on the toes of states that were already regulating these industries.  Many industry leaders described the actions of the regulatory agencies under the Obama administration as “harsh regulatory overreach” and “runaway bureaucracy.”

    During Pruitt’s first meeting with EPA staff on Tuesday, he stressed a cooperative working relationship with state regulators. “For enforcement and other issues, I seek to engender the trust of those at the state level, so those at the state level see us as partners in this important mission we have as an agency and not adversaries,” he said.

    “Regulators exist to give certainty to those that they regulate,” Pruitt said.  “Those that we regulate ought to know what we expect of them so that they can plan and allocate resources to comply.  That’s really the job of the regulator, and the process that we engage in in adopting regulation is very, very important because it sends a message.”

    Pruitt’s comments highlight an historical difference between state and federal regulators.  Federal agencies issue complicated rules that are often hundreds of pages long.  Enforcement is more of a “Gotchua!” approach, accompanied with the threat of large fines.  On the other hand, states like Texas work with those regulated to solve problems.  Of course, fines can be implemented, but they are not of the magnitude of federal fines, and they are not used as a threat.

    “I believe that we as an agency, and we as a nation, can be both pro-energy and jobs, and pro-environment,” Pruitt said in the 12-minute speech to some 100 EPA employees. “We don't have to choose between the two.”

    Environmental activists worked to prevent Pruitt from being confirmed by the Senate.  They funded a media campaign in states where they believed they had a chance to convince some Republican Senators to oppose Pruitt.  However, only one Republican, Susan Collins of Maine, voted against Pruitt’s confirmation.  Two Democrats, Heidi Heitkamp of North Dakota and Joseph Manchin III of West Virginia, voted for Pruitt.  The final vote was 52-46.

    -30-

    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.
  • 16
    February

    Studies Predict Increase In Activity

    By Alex Mills


    Several studies by economists, financial institutions, and the leaders in the oil and gas industry anticipate a much better business environment for the oil and gas industry in 2017. 

    The oil and gas industry in Texas ended a punishing 24-month-long economic contraction in December, according to Karr Ingham, a petroleum economist who issues the Texas Petro Index (TPI) monthly.    He said the TPI increased in December for the first time since peaking at a record high in November 2014.

    Ingham noted that the rise in crude oil and natural gas wellhead prices were key factors.

    Monthly average posted crude oil prices in Texas fell from $101.68 per barrel ($/bbl) in June 2014 to $27.08/bbl in February 2016, a decline of 73 percent, but recovered to a little above $50 in December.

    The average monthly price of natural gas fell from more than $4.50 per thousand cubic feet ($/Mcf) in June 2014 to a $1.63/Mcf in March 2016, a decline of 64 percent.  Natural gas prices recovered to average $3.46 in December.

    Ingham also noted that other economic indicators, such as the drilling rig count and drilling permits issued, increased during 2016.

    The national accounting and consulting firm Deloitte released a survey of industry professionals that found six in 10 believe the recovery has started.

    A majority of those surveyed expect oil prices to reach $60-$80 per barrel, prompting more investments in exploration and production.

    Companies will spend 2.5 percent more on capital expenditure this year than they did in 2017, the first yearly growth in such spending since 2014, BMI Research reported.

    Spending will increase to a total of $455 billion in 2017 from $444 billion this year, BMI said, but will be well below the $724 billion spent in 2014.

    Another report from Thomas McNulty, a director in the valuations and financial risk management practice at Navigant, reveals large private-equity investors are falling back in favor with the beaten-down energy sector. They moved to the sidelines of energy-related corporate debt as crude oil prices fell. These days, however, they're doing the due diligence that precedes making big deals on the sector's continued recovery, according to McNulty.

    According to the Energy Information Administration (EIA), U.S. crude oil production is forecast to increase from an average of 8.9 million barrels per day (b/d) in 2016 to an average of 9.3 million b/d in 2018, primarily as a result of gains in the major U.S. tight oil-producing states: Texas, North Dakota, Oklahoma, and New Mexico. Production in Texas, the largest oil-producing state, is driven by two major oil-producing regions, the Permian and the Eagle Ford.

    The electricity industry is planning to increase natural gas-fired generating capacity by 11.2 gigawatts (GW) in 2017 and 25.4 GW in 2018, based on information reported to EIA. If these plants come online as planned, annual net additions in natural gas capacity would be at their highest levels since 2005. On a combined basis, these 2017–18 additions would increase natural gas capacity by 8% from the capacity existing at the end of 2016. Depending on the timing and utilization of these plants, the new additions could help natural gas maintain its status as the primary energy source for power generation, even if natural gas prices rise moderately.

    -30-
     
    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.