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Winter 2015
content AnimAs river youth confluence Area students meet, want change
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Don Vaughan puBliSHER
Cindy Cowan Thiele EDiTOR
Dorothy Nobis Debra Mayeux CONTRiBuTiNG WRiTERS
Josh Bishop CONTRiBuTiNG pHOTOGRApHER
WPX remAins Active Across the country
leAving A legAcy
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Suzanne Thurman DESiGNER
Clint Alexander SAlES STAFF
lacey Waite ADMiNiSTRATiON
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Program will include energy classes at sJc school of energy
state of the industry
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it will turn around, the question is when
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Blm releases list of 2016 fee-free Days
oil and gas industry will rebound
early college high school
connect with public lands
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changes to onshore order no. 3 costly to new mexico
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consumer energy Alliance
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group to increase presence
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Majestic Media 100 W. Apache Street Farmington, NM 87401 505-516-1230 www.majesticmediausa.com Basin Resources magazine is published four times a
real people, real jobs
Blm san Juan Basin regulations to increase year by Majestic Media. Material herein may not be reprinted without expressed written consent of the pubcosts, harm economy lisher. Opinions expressed by the contributing writers
BhP-Billiton and navajo transitional energy company 28
energy news
group gives $310,000 in grants
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are not necessarily those of the publisher, editor or Basin Resources magazine. Every effort has been made to ensure the accuracy of this publication. However the publisher cannot assume responsibility for errors or omissions. Š 2015 Basin Resources magazine.
www.basinresourcesusa.com •Winter 2015
6 BASIN RESOURCES
Oil and gas industry will rebOund, recOver When it does SJC will be there to deliver a highly skilled workforce -It’s been a year since the oil and gas industry – and all of the people it employs – found itself in one of the worst downturns in recent times. There have been cutbacks, layoffs, reassignments, closures and unpleasant financial statements. Voices have been loud – and heard – that the industry will never return to the success and growth it enjoyed for decades and that the industry will not survive. Those voices obviously don’t know the strength, the courage, the determination and the belief in the industry that those who work in the oil fields, in the offices, in the boardrooms and in the trenches have. The oil and gas industry hasn’t – and won’t – die. The struggles may continue for a while, but thewill to survive is greater and stronger than those might think who don’t know us. That is not to say there aren’t challenges that must be met. In an article on the Elsevier R&D Solutions web site (Elsevier R&D Solutions is a portfolio of tools designed to solve the critical needs of researchers, engineers, educators and R&D professionals in the sciences, technology and commercial enterprise), recently stated that the oil and gas industry has greater obstacles to overcome, with fewer resources to overcome them “More than ever, showing creativity – in exploration and technological innovation, as well as through strategic partnering – and demonstrating a commitment to investing in human resources is critical to survival.” The article also states that more than 50 percent of the current workforce will retire in five to ten years. In addition, the current average age of an oil and gas worker is 50 years. The challenges facing the industry are more than just the price of oil. Jonathan Turner, a structural geologist in the Geological Studies Group at BG Group, stated that the industry has focused on doing more with less.
“If the oil price was above $100, we could still have a debate about doing more with less,” Turner said in the article, adding he believes there are three reasons for it. “One of them is less money, one of them is less man and woman power, and the third is less public buy-in, particularly with fracking and the whole debate around unconventionals.” Turner believes that, with 50 percent of subsurface professionals retiring, the industry will continue to do more with less. “The question is, how can an industry that doesn’t have loads more engineers or geologists, certainly doesn’t have lots more cash, how can it address these pretty challenging trends and get back to making good returns, which is what companies and investors want?” Partnerships between companies and contractors, and between
* Pacheco 43
randy PachecO dean Of schOOl Of energy san Juan cOllege www.basinresourcesusa.com • WINTER 2015
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AnimAs RiveR Youth ConfluenCe Area students meet, want change to hard rock mining laws Debra Mayeux Basin Resources The vibrant river valley fed with water from the animas, La Plata and San Juan rivers may have been forever changed on aug. 5, when a breach in the Gold King near Silverton, Colo., spewed millions of gallons of toxic water into animas, which flowed south into New Mexico. This tragic event brought communities together as residents tried to understand how this could happen. It also left the Navajo Nation questioning the government’s response to their needs for clean water. Now, five months later, high school students from Southwest Colorado and Northwest New Mexico are coordinating their efforts to change mining laws and keep local waters clean and safe. Nicholas Turco, a senior at animas High School in Durango, Colo., helped coordinator the animas river youth Confluence,
a collaboration of students from animas High School, Navajo Preparatory School, Piedra Vista High School, Silverton High School, the Mountain Studies Institute and San Juan College. The confluence had its first public presentation Dec. 1 in the
Technology Center at San Juan College, where member of the San Juan Soil and Water Conservation District listened to their concerns. Turco and his classmates are calling for a change to the hard rock mining laws
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 9 adopted in 1872, when expansion westward took place as people were searching for gold in the mountains. “It was easy to get hard rock mining claims. There were no royalties, no reclamation. Hard rock mining has nothing,” he said. “We are advocating the reform of the 1872 mining laws.” There are two bills in Congress that would change the outdated law, according to Turco, who wrote a letter to his representative. “I passionately urge you to support HR 963 proposing a reform of the 1872 mining law and the better utilization of public and federal land in the west,” he wrote, including information about the Gold King Mine spill. “The BLM estimates that $982 billion in hard rock minerals were taken from public lands in 2000,” Turco stated. “To restore economic and environmental losses HR 963 proposes an 8 percent royalty for new mines and a 4 percent royalty for old mines. These royalties would be loosely on par with that of oil and gas companies of 8 to 12.5 percent.” Turco and his classmates also have circulated a petition seeking support for the law, and New Mexico Senator Martin Heinrich’s local representative Jim Dumont was at the confluence meeting to get a photo of the petition and gather information from the group. Other elected officials, such as State Representative Paul Bandy, R-Aztec, were present for the water meeting. Turco spoke with them about the legislation, while students from Navajo Preparatory School set up photos and diagrams of their studies of water in the Animas and San Juan rivers. Navajo Prep Students Leniah Yazzie and Elisabeth Johnson began testing water in the rivers in the summer of 2015, prior to the spill. “We were testing whether the water index was average, because one of the students found out we had E. coli in the river,” Yazzie said.
Leniah Yazzie, left, and Elisabeth Johnson, right, are students from Navajo Preparatory School, who stand in front of their research of water quality in the Animas and San Juan Rivers, during the Animas River Confluence meeting Dec. 1 at San Juan College. (Photo by Debra Mayeux)
Nicholas Turco shakes hands with Jim Dumont, the representative for U.S. Senator Martin Heinrich, D-N.M., during the Animas River Confluence meeting Dec. 1 at San Juan College. (Photo by Debra Mayeux)
WINTER 2015 • www.basinresourcesusa.com
10 BASIN RESOURCES Their tests, however, showed an “average index with algae growing in the water” before the spill, Johnson said. “Over a 14hour time period after the spill there was a big increase in heavy metals.” The students tested for and found high levels of nitrates and copper. They sent more samples on to the Virginia-based Schneider Laboratories. “They found arsenic, chromium, cadmium, copper and lead,” Johnson said. This left both Yazzie and Johnson saddened. “In our culture, this is a bad thing to happen. Water is sacred,” Yazzie said. “I have family who live on the reservation and use the river as a resource,” Johnson added. “This hit me to the core.” These students share a similar sentiment with tribal leaders, who have repeatedly stated that the EPA and other government agencies have turned their backs on the Navajo Nation after this spill.
Navajo Nation President Russell Begaye has stated FEMA denied a claim from the tribe for assistance after the Gold King Mine spill. “It has been determined that the vast majority of the response and re-
covery efforts for this even fall under the authorities of other federal agencies,” FEMA Administrator W. Craig Fugate wrote in a letter to Begaye, and published in the Phoenix News Times.
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www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 11 A Navajo claim for damages to the EPA also remains unanswered. The EPA, however, has conducted regular tests on the water in the Animas River, and as of Nov. 16 reported “surface water and sediment concentrations are now below recreational screening levels. The river system as a whole is being maintained at pre-event conditions,” according to the website www.epa.gov. Metal and sediment levels could fluctuate from the result of weather and “other events that change water flow rates.” Despite the EPA’s testing, the students from Navajo Prep said they would continue testing the water, and Turco stated that he is dedicated to “enacting change” for the betterment of the communities along that river.
WINTER 2015 • www.basinresourcesusa.com
12 BASIN RESOURCES
Rick Muncrief, WPX president and chief executive officer.
WPX remains active across the country Continues drilling operations in the San Juan Basin Debra Mayeux Basin Resources WPx plans to market a gathering system in the San Juan basin, as it moves half of the way toward a goal of $400$500 million in divestitures by year’s end. This according to the company’s
fourth-quarter statement and plans for the future on its website, www.wpxenergy.com. In addition to further development in the San Juan basin, WPx looks to “evaluate opportunities for accelerating value in the Piceance basin. “We continue to rapidly execute on our
plans to reduce debt, drive down costs and bring more balance to our commodity mix,” said rick Muncrief, president and chief executive officer. “WPx is financially strong, has decades of drilling inventory, is making dramatic operational improvements and will continue to benefit from attractive hedges.”
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 13 WPX reduced cash operating expenses by 21 percent in the third quarter and entered into an agreement to sell a North Dakota gathering system for $185 million to Ares Management, L.P. - a deal that closed on Nov. 19. The North Dakota asset included an oil, natural gas and water gathering system. Under this agreement WPX will operate the system, supporting “the development of the Van Hook peninsula in the basin, but the system will be expanded and managed on behalf of Ares EIF Group by an affiliate of MCP Asset Development Group,” according to the company’s website. The company, based in Tulsa, Okla., also closed an $80 million sale of its coal bed methane interests in Wyoming. This is part of the company’s plans to reduce debt, after it added drilling inventory in the Permian Basin during the thirdquarter of 2015. “We announced, capitalized and closed a transformational acquisition in just over 30 days. That’s an incredible achievement that shows our ability to act quickly and facilitate material change,” Muncrief said. “We are fully engaged in debt reduction efforts. Our ability to move quickly and decisively is one of our strengths.” The move into the Permian Basin allowed WPX to set a new high for liquids production, averaging 56,500 barrels per day of oil and NGL in third-quarter 2015. Oil production surpassed 35,000 barrels per day for the first time and accounted for 21 percent of WINTER 2015 • www.basinresourcesusa.com
14 BASIN RESOURCES
The move into the Permian Basin allowed WPX to set a new high for liquids production, averaging 56,500 barrels per day of oil and NGL in third-quarter 2015.
www.basinresourcesusa.com • WINTER 2015
BASin reSOUrCeS 15 total equivalent production, up 15 percent from a year ago. “Enhanced completion designs on wells in the Permian and Williston basins are also yielding early-time results that exceed existing type curves, pointing to opportunities for increased shareholder value,” the website state. “WPX will continue to aggressively test and evaluate larger stimulations.” While the Permian Basin brought about record production, WPX took some of its capital and invested it in the Williston and San Juan Basins as well. The company spent $205 million in the third quarter, deploying eight rigs – four in the Permian Basin, two in the Williston Basin, one in the San Juan Basin and one in the Piceance Basin. With commodity prices at all-time low, however, the company decided against plans to add more rigs. WPX did complete 69 gross, wells including 29 gross non-operate wells, 15 gross in the San Juan Gallup oil play, 11
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gross in the Piceance Basin, five in the San Juan legacy area, four in the Williston Basin and five in the Permian Basin. In addition to this, WPX participated in the completion of 183 gross (126 net) wells, including 53 gross non-operated wells, 59 gross in the Piceance, 45 gross in the San Juan Gallup oil play, five gross in the company’s San Juan legacy area, 16 gross in the Williston Basin and five gross in the Permian Basin. Drilling activity during third-quarter 2015 was comprised of 44 gross (23.3 net) spuds, including 16 gross (0.7 net) non-operated wells, six gross (5.5 net) in the Piceance, seven gross (5.6 net) in the San Juan Gallup oil play, seven gross (4.6 net) in the company’s San Juan legacy area,
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two gross (0.9 net) in the Williston Basin and six gross (six net) in the Permian Basin. In the San Juan Gallup oil play, WPX recently drilled a well in just 6.7 days, besting the company’s previous quickest drilling time in the basin of 7.9 days. The company also started testing the upper Gallup with a 9,400-foot lateral that produced an initial rate of 1,350 Boe/d. After nearly 90 days, the well has cumulative production of approximately 116 Mboe (50 percent oil). Additionally, WPX has now completed 183 miles of oil, gas and water gathering lines in its Gallup development area. Despite all of this activity, WPX reported an unaudited net loss attributable to common shareholders of $0.93 per share on a diluted basis, which is equal to $234 for the third-quarter. This was compared with a net income of $0.30 per share, or $62 million in the same period last year.
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Early CollEgE HigH SCHool
Program will include energy classes at SJC School of Energy Debra Mayeux Basin Resources Providing the community with careerready high school seniors has long been a goal for schools in San Juan County. What about preparing students for high-paying jobs in the energy industry, and awarding them with a professional certificate upon graduation? This is exactly what will happen in four years, with the graduation of the first class of seniors to attend the new early College High School. early College High School is a program being developed by the local school districts and San Juan College, where the school will be housed. “We are thrilled to provide this tremendous opportunity to the youth in this county,” San Juan College President Toni Hopper Pendergrass said. “Students enrolling in the early College High School
will have the benefit of earning a college degree at the same time they earn their high school diploma. In addition, our vision is that these students will either be admitted into a university or have a job offer upon graduating.” There was an early college high school program in Houston, Texas, where Pendergrass worked before coming to San Juan College. Farmington Superintendent Gene Schmidt also was familiar with a similar
program in Los alamos, where he worked prior to joining Farmington Municipal Schools. With their expertise, Don Lorett, the new high school’s principal, is confident the program will be successful. “This program is certainly widespread, and both of them have worked in this arena,” Lorett said. Farmington Schools received a grant to start the program, which makes early College High School the fourth high school in the city.
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 17
“The new instrumentation and controls program is going to stimulate the students and get them excited about learning.” Randy Pacheco dean of the School of eneRgy
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WINTER 2015 • www.basinresourcesusa.com
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18 BASIN RESOURCES
However, it will be open to students in Aztec, Bloomfield, Farmington and Central Consolidated School Districts. The high school will focus on giving students an opportunity to simultaneously earn high school and college credits, but they also can select an area of study. Lorett, the superintendents, and Pendergrass are developing the programs, and there will be courses involving energy. “There will be an instrumentation program,” Lorett said. The San Juan College School of Energy is spending a lot of money to upgrade its instrumentation and controls program, according to Dean Randy Pacheco. “The new instrumentation and controls program is going to stimulate the students and get them excited about learning,” Pacheco said.
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BASIN RESOURCES 19 “It’s going to give the students engineering concepts, because if you bring them into our program they can discuss electricity and experience how a flow meter and a switch works. “This will give them real expertise in what it is like to be part of the engineering field,” he said. “Students in the Early College High School interested in the energy industry can learn and train on state-of-the-art equipment at the San Juan College School of Energy while earning a two-year degree and high school diploma simultaneously,” Dr. Pendergrass said. “The education they receive at San Juan College will prepare students for a career in the energy industry – not just in San Juan County, but across the country and around the world.” This follows the goal of wanting to have students “work-ready” upon graduation, Lorett said. “We also want them to be
placed in employment.” This is why Early College High School will be partnering with local businesses to offer mentoring and job shadowing to students. “We want to utilize all of our business resources. We want business partnerships in all areas to help grow the workforce in San Juan County,” Lorett said. “We want students to stay here.” And despite a lull in the energy industry, most analysts and oil and gas leaders say the industry will come back. “They (students) need to be ready when it does come back,” Lorett said. Students entering the ninth grade in the 2016-17 school year will be able to apply for enrollment in the Early College High School. The program will only have ninthgrade students in its first year, and will add an additional group of ninth graders each year, according to Lorett, who will begin recruiting students in January.
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20 BASIN RESOURCES
State of the induStry It will turn around; the question is when Debra Mayeux Basin Resources The San Juan basin has four oil and gas rigs operating at this time – that’s about ten times less than when production was booming. “It can’t get much worse,” said George Sharpe, investment manager at Merrion Oil and Gas in Farmington. Despite the low number of rigs, there is a base load of 30,000 wells which need to be maintained. So oil and gas jobs remain in the region, even after layoffs earlier this year of employees from ConocoPhillips,
Halliburton and baker Hughes. The slowdown can be attributed to plummeting natural gas prices - based on supply and demand, which drive product pricing within the industry. “The market conditions are extremely challenging,” said Tom Mullins, vice president Sharpe of the Independent Petroleum association of New Mexico. “The price of natural gas has not been this low since 1998.”
Vice President of aztec Well Service Jason Sandel said the slow down began late last year. “Since Thanksgiving of 2014 we have seen a precipitous decline of the oil and gas industry — and the San Juan basin has not been spared the pain. The 50 percent reducMullins tion in commodity pricing has impacted every person associated with the oil and gas industry, and times are certainly scary.”
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 21 Natural gas production drives the industry in the San Juan Basin. When prices are this low, the industry slows way down. “It’s not economic to drill at these prices, pretty much anywhere,” Sharpe said. “People are drilling, because they have leases to hold on to, but nobody anywhere is making money.” Mullins added that it is a challenge to keep the existing wells producing, and there have been additional financial burdens placed upon companies wanting to drill new wells. This is because of the new increase to the Bureau of Land Management’s cost Sandel recovery fees, which went into effect Oct. 1. Under the new fee schedule, 14 fees will go up with increases ranging from $5 to $40. The highest increase of $40 will be implemented for adjudicating more than 10 mineral patent claims, changing the fee from $3,035 to $3,075. A fee increase of $15 will be for adjudicating 10 or fewer mineral patent claims, changing the fee from $1,520 to $1,535. There will be 12 fee increases that amount to $5 per file, according to the Bureau of Land Management.
WINTER 2015 • www.basinresourcesusa.com
22 BASIN RESOURCES While the San Juan Basin once was a place, where new technology was being tested and developed, Mullins said, “the most prolific natural gas well in history recently was drilled in Pennsylvania,” where there has been an upturn in the industry. Midwestern oil and gas production in on private land holdings, so the industry does not need to apply for permits with the BLM, as they do in the west. Even so, Sharpe stated that the basin has a “pretty good base load” with its 30,000 wells that still need to be maintained by employees and service companies. Sandel, however, said the service industry has experienced pain from the downturn. “It is safe to say, that every service contractor in the San Juan Basin, and ultimately their employees, have felt a fretful impact; and this is most likely not the bottom of how bad times can get,” he said.
“While things are unstable and uncertain, we are hopeful, but not optimistic, that 2016 will bring some good news with regard to our industry. In the meantime, we are doing whatever we can to survive one of the most difficult industry downturns that we have experienced in generations.” Mullins agreed.
“We have more difficult days ahead, but long term, I know things will turn around, it’s just a matter of when,” he said. Sharpe has remained optimistic. “Prices will stimulate demand, and there will be a rebound. It’s not going to stay like this forever.” He, however, has worries about the power plants and coal industry, which
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BASIN RESOURCES 23 provide jobs and tax revenue for the city of Farmington and San Juan County. “Our economic base is in the power plants and the coal mines,” Sharpe said, adding that BHP-Billiton, which will exit the community in 2016, gave $1 million to the United Way, with Arizona Public Service and Public Service Company of New Mexico not far behind that. “Saving those power plants is bigger than oil and gas prices.” Sharpe said it would hurt to have BHP gone and to have ConocoPhillips not have as big a presence in the community. He is hopeful the new companies coming in to operate San Juan and Navajo Mines will follow the tradition of giving set by BHP. Sharpe also remains optimistic that the New Mexico Public Regulation Commission will approve a plan to leave the power plants where they are. “I think it will happen,” he said.
WINTER 2015 • www.basinresourcesusa.com
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It appears (but not a done deal) that the San Juan Generating Station will survive the PRC gauntlet with a positive vote on the Stipulation Agreement leaving two units in operation. The Public Regulation Commission’s hearing examiner recommended approval of the agreement, which usually means ay agErman the commissioners will vote that way. We CEO won’t celebrate until FOur COrnErs it’s all over. ECOnOmiC DEvElOpmEnt But on to the next dragon to slay which now looks like BLM Onshore Oil and Gas Orders 3, 4, and 5. These orders have not been amended in nearly 30 years, but the proposed regulations are more rather than less. Comments regarding these changes are in process and open for public input. Next up will be proposed venting and flaring rules with which to contend. As a community and as a movement, Real People Real Jobs and Four Corners Economic Development will again lead the charge to protect our way of life and our livelihood by martialing as many comments as possible. Over the coming weeks and months we must let the federal government and our legislative leaders know how punitive additional regulation is in terms of economic and job losses. As I and many others have said, the economic impact of regulatory overreach causes a tsunami of economic impact compared to a drip of environmental impact. There is just too much misinformation and misplaced emotion involved in these issues that needs to be replaced by correct data and logical analysis. Real People Real Jobs is not just about fighting against regulatory overreach. We also want to connect displaced workers with new jobs or other opportunities. Toward this objective, we are sponsoring with others, an Opportunity Expo on January 9 at the San Juan College Quality Center for Business. Anyone is welcome, but especially displaced workers. Hiring companies will be present as will professionals to help with money management, starting a business, buying a business, or those interested in going back to school (short or long term) to retrain toward another industry. Necessity is the mother of invention, and major problems become major opportunities. We hope you will join us either by participating as a job seeker, hiring company or just a community supporter. Have a Merry Christmas and we look forward to a better New Year in 2016.
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www.basinresourcesusa.com • WINTER 2015
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BHP-Billiton and navajo transitional EnErgy ComPany
Group gives $310,000 in grants to help the community Debra Mayeux Basin Resources More than 30 non-profit organizations received nearly $310,000 in grant funding from bHP-billiton and Navajo Transitional energy Company during a Nov. 12 luncheon at the Courtyard by Marriott.
The money came from the Community Investment Fund set up 30 years ago by bHP’s New Mexico coal program, which was the owner and operator of Navajo and San Juan Mines in San Juan County. The company recently sold both mines, and Navajo Mine was purchased by the Navajo Tribe, which in turn set up Navajo
Transitional energy Company, or NTeC. bHP-billiton and NTeC worked together to assist non-profits in applying for grants from the Community Investment Fund. a team of NTeC and bHP billiton employees scored the applications. both companies decided upon the recipients and sponsored the awards ceremony, which
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 29
BHP-Billiton and NTEC worked together to assist non-profits in applying for grants from the Community Investment Fund.
WINTER 2015 • www.basinresourcesusa.com
30 BASIN RESOURCES had more than 80 people in attendance. “Our communities are stronger because of the work each of you do,” said Clark Moseley, chief executive officer of NTEC. “We realize that the people you serve have had their quality of life enhanced because of the work you do.” Some of this year’s recipients included the Family Crisis Center, the San Juan Center for Independence and Big Brothers, Big Sisters of San Juan County. The Family Crisis Center will use its grant to pay for operational expenses and supplies for its Marge’s Place domestic violence shelter, which provides a safe place for men, women and children, who have been victims of domestic violence. The San Juan Center for Independence will use its grant funding to purchase land behind its San Juan Boulevard
location for a community garden, which would be maintained by people with disabilities. The fruit and vegetables grown there could help Center members learn healthy eating habits, while providing them with fresh produce. Big Brothers, Big Sisters of San Juan County received funds for its Science, Technology, Engineering, Mathematics Initiative. This program needs staff, which will place qualified mentors with children who need and want to learn more about careers in the fields of science, technology, engineering and mathematics. “We want these projects to impact our local communities,” said President of BHP’s New Mexico Coal Program Pat Risner addded that the companies want the selected projects to have an impact on the community. “We want them to positively impact as many people as pos-
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sible,” he said. BHP continues to manage Navajo Mine through the end of next year. It will exit San Juan Mine at the end of this year. Questions have arisen about whether the Community Investment Program would continue. Moseley said it would. “I want to stress to you that NTEC will continue the Community Investment Fund in the future,” Moseley said. He added, though, the fund’s name and emphasis could change. The fund, however, will continue to be available. Moseley said the community is strengthened by the projects from the organizations and NTEC wants to continue to foster that strength. Information for future applicants to the fund will be made available in the spring of 2016, according to NTEC spokesman Erny Zah.
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BASIN RESOURCES 31
ConneCt with publiC lands BLM releases list of 2016 Fee-Free Days WASHINGTON –The Bureau of Land Management manages more recreational opportunities than any other federal agency, and most of these recreational opportunities are accessible to the public for free. A small number of BLM-managed recreation sites charge a standard amenity or day use fee, which will be waived on January 18, 2016 (Martin Luther King Jr. Day), February 13 to 15, 2016, September 24, 2016 (National Public Lands Day), and November 11, 2016 (Veterans Day). “Fee-free days make it easier than ever for Americans to connect with their public lands,” said BLM Director Neil Kornze. “Come discover opportunities to hike, bike, climb, fish and camp—right outside your back door.”
The BLM manages more than 245 million acres of public lands, which provide for a wide range of recreational opportunities. About 61 million visits were made to BLM-managed lands and waters in 2014, supporting more than 41,000 jobs nationwide and contributing $5.5 billion to the nation’s economy. Site-specific standard amenity and dayuse fees at BLM recreation sites and areas will be waived for the specified dates. Other fees, such as overnight camping, cabin rentals, group day use and use of special areas will remain in effect. More details about fee-free days and activities on BLM-managed public lands are available at www.blm.gov.
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32 BASIN RESOURCES
Sally Burbridge
Tommy Roberts
Scott Eckstein
Changes to onshore order no. 3 Costly to new MexiCo San Juan Basin officials pen letter in opposition to rule changes A wave of new Bureau of Land Management regulations is coming that will likely reduce New Mexico’s oil and natural gas production and lead to a loss of billions of dollars to the state and federal government over the next two decades. As the mayors of Farmington, Bloomfield, Kirtland and Aztec and the chair of the San Juan County Commission we are also extremely concerned about a loss of jobs and tax revenue at a time when we struggle to create jobs and expand our economies. We believe that BLM must – and can – carefully balance environmental protection and royalty issues with revenue and job concerns. For the sake of budgets, economies and jobs across New Mexico, we ask that our congressional delegation work to
help ensure that BLM gets these new regulations right. One new BLM regulation expected in 2015 is the venting and flaring rule, which aims to reduce the amount of methane (natural gas) released into the environment. Part of this rule is expected to require the twice-yearly inspection of all gas-producing wells with special, costly cameras. Companies that provide this service state that each inspection will take a half day and cost $600. In northwest New Mexico alone, where there are over 20,000 active wells, the annual cost would be over $24 million a year, not including administrative costs, the cost of company representatives at inspections and having the already resource-strapped BLM monitor the work of inspectors.
Because many natural gas wells in northwest New Mexico are older, lowvolume producers, these new costs would make them uneconomical. We therefore anticipate the premature closure of 3 percent to 5 percent of our gas wells, which over the decades will cost the state and federal governments a loss in royalties of approximately $300 million at today’s prices. If gas prices increase, the losses only get bigger. As residents of northwest New Mexico we of course want to keep our environment healthy for our families and future generations. We understand there have been indications that methane levels over the Four Corners region have been higher than those in surrounding areas, and we await the federal government’s investigation into its origins and possible remedies.
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 33 However, companies in the region are already taking steps to reduce emissions. One operator with more than 10,000 gas wells in the San Juan Basin has voluntarily reduced methane leakage by 54 percent since 2013. If government officials believe they still need to create new methane regulations, they should work with industry leaders to find cost-effective ways to do so. Another issue is the proposed update of BLM’s Onshore Order 3 (“OO3”), which in part regulates the metering of production on federal leases. The proposed changes to OO3 will most likely lead to the need to install
new meters on thousands of wells. While these changes may make small improvements in the accuracy of royalty payments, the increased cost of compliance will lead to the premature closing of wells that cannot be economically updated. Significant losses in revenue will be traded for very small changes to the accuracy of royalty accounting. One conservative estimate generated by the State Land Office a few years ago – when this same change was debated and then abandoned by BLM – is that New Mexico would lose $1 billion in revenue over a decade. The U.S. is now the world’s largest
producer of oil and natural gas in part because of New Mexico production. This is keeping gasoline, diesel, natural gas and electricity prices low for consumers, increasing economic activity, helping bring back manufacturing from abroad and creating jobs across the nation. For the sake of our community, state and country we hope and trust the BLM will get its new regulations right. Signed by Farmington Mayor Tommy Roberts, Kirtland Mayor Mark Duncan, Aztec Mayor Sally Burbridge, Bloomfield Mayor Scott Eckstein and San Juan County Commission Chair Keith Johns.
BLM potential proposed changes to Onshore Oil and Gas Orders 3, 4 and 5 Summary of Potential Proposed Changes to Onshore Oil and Gas Orders 3, 4 and 5 The Bureau of Land Management (BLM) is preparing to update and improve Onshore Oil and Gas Orders 3, 4 and 5 (Orders) to keep pace with changing industry practices and emerging and new technologies, and to respond to recommendations from the Government Accountability Office, the U.S. Department of the Interior (Department) Office of the Inspector General, and the Department’s
Subcommittee on Royalty Management. In 1989, the BLM last updated the Orders, which regulate site security for production accountability and the measurement of oil and gas. Possible revisions to Order 3 would strengthen minimum standards for ensuring that oil and gas produced from Federal and Indian (except the Osage Tribe) onshore leases are properly and securely handled, so as to prevent theft and loss and to
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enable accurate measurement and production accountability. Potential changes to Order 3 could address: (1) establishing a new nationwide process for designating official points for royalty measurement, known as facility measurement points; (2) new standards for commingling approvals; (3) use of seals; (4) meter by-passes; (5) reporting incidents of unauthorized removal or mishandling of production; (6) site facility diagrams; and (7) off-lease measurement.
Potential revisions to Orders 4 and 5 include incorporating by reference current or revised industry standards, and adding new requirements for the equipment and procedures that ensure accurate and verifiable oil and gas measurement and royalty payments. For Order 4, the BLM is considering: (1) enhanced requirements for oil sales by tank gauging; (2) vapor tight tanks; (3) Lease Automatic Custody Transfer components and requirements; and (4) allowing the use of Coriolis measurement systems, which measure and output flow, temperature, density and viscosity. For Order 5, the BLM is considering: (1) enhanced requirements for electronic gas meters; (2) enhanced inspection requirements for gas meters; (3) improved standards for gas sampling and thermal content determinations; (4) improved testing and review standards for the Department’s Gas and Oil Measurement Team (an interagency panel of measurement experts); and (5) overall performance goals for gas measurement meters based on the volume of gas measured. Other potential revisions to all three Orders include: (1) implementing more clearly statutory record-keeping requirements and expanding the number and types of violations that would be subject to immediate assessments, and (2) making transporters and pipeline operators subject to the record-keeping requirements and assessments related to those requirements.
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BASIN RESOURCES 35
Consumer energy AlliAnCe
Group to increase presence in San Juan Basin DeBra Mayeux Basin Resource The Texas-based Consumer energy alliance soon will increase its presence in the Four Corners region with a mobile office in Farmington. While there will not be a stand-alone office, members of the alliance will meet with energy officials in San Juan County twice monthly, while officially operating out of its Denver office. The Consumer energy alliance is a voice for energy producers and consumers,
providing the public with sound, unbiased information on domestic and global energy issues. With more than 400,000 individual members, representing each sector of the u.S. economy, the organization said it is committed to advocating for “sensible energy policies from the perspective of the consumer,” said Jennifer Diggins, chairwoman of the Consumer energy alliance. “It has been an exceptional year of growth for Consumer energy alliance. Now encompassing more than 275 corporate affiliate members and 450,000 grassroots members, Cea’s presence is felt
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from coast to coast, touching every sector of the u.S. economy,” Diggins said in the organization’s annual report. “The highvalue service Cea delivers to its affiliate members is as broad as it is unique, being offered nowhere else in the energy space.” Some local members of Consumer energy alliance include Public Service Company of New Mexico, WPx energy, New Mexico Oil and Gas association, Devon energy, ConocoPhillips, Colorado Mining association, New Mexico Trucking association, New Mexico Business Coalition and the Farmington Chamber of Commerce, according to the organization’s website: www.consumerenergyalliance.org.
36 BASIN RESOURCES
BLM San Juan Basin regulations to increase costs, harm economy The federal Bureau of Land Management (BLM) looms large in New Mexico. According to the BLM’s website, New Mexico has one of the largest oil and gas programs in the Bureau. Total surface acreage maintained by the BLM in New Mexico comes to 13.5 million acres. That’s more than twice the size of the state of Maryland or nearly as much land as the entire state of West Virginia. The Farmington BLM field office alone manages 1.4 million surface acres, an area larger than Delaware. In other words, to paraphrase the old EF Hutton commercials, “When the BLM speaks, people in New Mexico listen.” Under the Obama Administration, there can be no doubt that the BLM has become far more difficult for the oil and gas industries to deal with. A simple indicator of that is that since 2009 oil production on federal lands is down by 6 percent and natural gas production is down 28 percent. At the same time, oil production on non-federal lands is up by 61 percent and gas production on nonfederal lands is up by 31 percent. Unfortunately for New Mexico and the extractive industries doing business on BLM lands located there, a slew of new
and proposed regulations will only make things more challenging. Combined with lower prices, BLM policies could bring oil and gas drilling on BLM lands to a halt. It’s no stretch to point out that this may be the goal of many in the Obama Adminis-
tration. It is certainly the desired outcome of many of the President’s activist environmentalist supporters. According to the New Mexico Oil and Gas Association, “Any new rules and regulations will be placed into a BLM permitting system that is already struggling and often failing to approve permits in a timely manner.” There is already a significant backlog for Application for Permits to Drill (APDs) that are necessary for new wells to be drilled. In addition, since there is a
checkerboard land ownership pattern in New Mexico, delays in BLM permits for rights of way (ROWs) can dramatically slow development even on State Trust and private land. Proposed changes to Onshore Order No. 3 would dramatically alter the metering of production on federal leases, most likely forcing industry to install new meters on thousands of wells. These changes may slightly improve the accuracy of royalty payments, but the increased cost of compliance will lead to the premature abandonment of wells that cannot be economically updated. Significant revenue losses will be traded for minuscule changes to the accuracy of royalty accounting. A few years ago (when this same change was debated and then abandoned by BLM), the State Land Office conservatively estimated that New Mexico could lose $1 trillion in revenue over a decade under this regulation.
Paul GessinG rio
President Grande Foundation www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 37 Another costly new BLM regulation expected to be formally proposed in the near future will address venting and flaring. The rule, submitted to the Office of Management and Budget for review in September, aims to reduce the amount of methane released into the environment. A recent report from the Environmental Defense Fund (EDF) claims that $100 million worth of natural gas is “lost” in New Mexico due to “excessive” venting and flaring. But like much of what passes for “energy analysis,” this $100 million is calculated by comparing estimates in two different time periods. In the meantime, the EDF conveniently ignores the increasing amount of actual data that increasingly show reductions in methane emissions by industry action. In a typical lease arrangement, the lessor (in this case the federal government) receives a one-eighth royalty for gas that is produced. The companies (lessees) receive seven-eighths in the form of their revenue. These companies have every incentive for cost effective recovery of methane since methane is the primary constituent in the natural gas that is sold. However, the main reason for the Obama Administration’s action is climate change and the White House’s pledge to pare oil and gas sector methane emissions by 40 to 45 percent of 2012
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levels by 2025. New Mexico already has a venting or flaring statute on the books – 19.15.18.12.A, which has been on the books since the 1970s. Natural gas operators have been proactive in employing new technologies where they are cost effective. According to the Energy Information Administration (EIA), New Mexico’s flaring rate (the percent of overall production that is flared) is in line with other producing states. According to the EIA, New Mexico flares
38 BASIN RESOURCES 0.96 percent of gas produced as compared to Texas which flares 0.58 percent, California 1.02%, and Alaska 0.32 percent. This new venting and flaring rule is expected to require the twice yearly inspection of all gas-producing wells with special, costly cameras. Companies that provide this service state that each inspection will take a half day and cost $600. In northwest New Mexico alone, where there are over 20,000 active wells, the annual cost would be over $24 million a year not including administrative costs, the cost of company representatives at inspections, and having the already resource-strapped BLM monitor the work of inspectors. An irony in all of the talk regarding flaring of natural gas is the fact that a slow BLM permitting process increases flaring. When permits for rights of way for gathering systems are delayed, natural gas flaring times are often extended. This is a case of a bureaucracy-induced problem that has greatly impacted the industry in recent years. Yet another proposed BLM rule involves “fracking” on federal and Native lands. The BLM rules would require oil and gas companies to reveal the chemicals they inject, to meet construction standards in drilling wells and to safely dispose of produced water. This all sounds great, but “fracking” regulation has tradi-
tionally been done at the state level. The states have been doing a good job, according to Obama’s own EPA which has studied the issue extensively and never definitively identifies a single case where the fracking process itself resulted in water contamination. Colorado Attorney General Cynthia Coffman in April joined North Dakota, Utah and Wyoming in arguing that the feds
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BASIN RESOURCES 39 overreached and intruded into an area where state rules control. Said Coffman, “It makes no sense that there would be two sets of regulations — one from the state and another conflicting one from the federal government that would apply to the same activity — especially when the state of Colorado has been responsibly regulating oil and gas in our state for decades.” U.S. District Court of Wyoming Judge Scott Skavdahl agreed with Coffman and the other producing states. In late September he issued a preliminary injunction blocking federal land managers from regulating fracking on public lands until the legal case is resolved. These are just three of the major new regulations being imposed on New Mexico’s most important industry by the Obama Administration. Other regulations will impact the oil and gas industries on Indian lands. There are also new mining rules relating to streams on BLM lands.
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The BLM’s sister agency at the Department of the Interior is the Office of Natural Resource Revenue (ONRR). ONRR would be more simply identified as the IRS agency for oil and gas producers. ONRR interpretations regarding allowable gas transportation deductions have already negatively impacted New Mexico producers and may accelerate the abandonment of thousands of marginally economic “stripper” oil and natural gas wells in the basin. Undoubtedly, there is a concerted effort by the current occupant of the White House to drive the cost of doing business on BLM lands up in New Mexico’s most important industry. Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.
40 BASIN RESOURCES
Randy Pacheco, center front, at the ground breaking for the new School of Energy.
Leaving a Legacy Randy Pacheco accepts new position as general manager of A-Plus Well Servicing Dorothy Nobis BASIN RESOURCES the last 24 months have been hectic – and somewhat eventful – for san Juan College’s dean of the school of Energy. For the first 12 months, randy Pacheco and Gayle Dean, executive director of the san Juan College Foundation, were in fullthrottle fundraising mode. the two were tasked with raising $15
million to build a new facility for the college’s school of Energy, which had outgrown the several satellite buildings the school was using for classrooms and training. With what was then a booming energy industry, Pacheco and Dean set out to raise the money without asking san Juan County taxpayers to help. “When we started our fundraising efforts, i had no idea how many people and
businesses would support our mission,” Pacheco said, “but with the help of the state of New Mexico, san Juan College, and private donors, we raised $15.6 million in a year.” industry partners, including bP, Merrion oil and Gas, ConocoPhillips, DJ simmons/twin stars, Arizona Public service, Xto, Williams, the Public service Company of New Mexico, the tom Dugan family and the Westmeath Foundation,
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BASIN RESOURCES 41 which would be joined later by other contributors, attended the ground breaking of the new School of Energy on October 17, 2013. With the direction of Jaynes Corporation, which was hired to do a design/build construction of the facility, the ground breaking eventually evolved into a state-ofthe-art, 65,000-square-foot building that includes classrooms, training rooms and bays, and meeting rooms. In the fall of 2015, students filled the classrooms, training rooms and bays, and Pacheco – finally – breathed a sigh of relief. On December 8, Pacheco sat in his corner office of the new School of Energy, looked out at the beautiful view the office provided, and explained why he was stepping down as the dean. “I started as an achieved global certified facilitator at the School of Business, Industry and Training,” Pacheco said. “That was in 2001 and I was hired as a temporary contractor.” With a background in property management with Hunt Building Corporation and oil and gas production, Pacheco said San Juan College’s School of Energy had an opening to help train students in the energy industry. “The position would let me change lives, and I knew that’s what I wanted,” he explained. The temporary job became a full time one and ultimately Pacheco would become the school’s dean. It was a job he took seri-
“We have built a new School of Energy, but it’s never been about the building for me. It’s always been about the relationships and the ability to help change lives and help people feed their families and a lead a better life.” — Randy Pacheco ously and a job he loved. When the demand by industry leaders for more training reached a peak, Pacheco realized the three off-campus facilities that made up the School of Energy wasn’t going to work. “The day the (San Juan College’s) Board of Directors voted to approve building a new School of Energy will always be one of my best memories,” Pacheco said. Reflecting on his tenure with the School of Energy, Pacheco said he’s proud of helping place women in an energy industry that had been male dominated. “I’ve seen single mothers get their training at the School of Energy and get work in the industry, where they make good money and can financially care for their families,” he said. With a passion for helping others, and having that passion fed by the success of his students at the School of Energy, Pacheco said he wasn’t looking for a change. But when Bill Clark, owner of A-
Plus Well Servicing, told Pacheco he was retiring and asked him if he’d be interested in taking the business over, a change became an opportunity. “I listened to Bill Clark talk about his employees, what they mean to him, about his career and development of A-Plus and while I wasn’t looking for a job, Bill’s commitment to his employees was the deciding factor for me,” said Pacheco. “When someone decides to retire and owns a company, he has three choices – to close the business, to sell the business or to find someone to succeed him in the business and keep the business going for him and his employees.” Several meetings and discussions later, with Clark sharing his appreciation for his employees and that he wanted to continue to take care of them, Pacheco – who shares a bond with Clark about taking care of others – decided it was time for a change and for an opportunity. “We have built a new School of Energy, but it’s never been about the building for me,” Pacheco said “It’s always been about the relationships and the ability to help change lives and help people feed their families and lead a better life.” Continuing to help people feed their families and lead better lives is part of Pacheco’s new position as general manager of A-Plus. In addition, he expects to expand A-Plus Well Servicing’s focus on plugging and abandoning wells. “I’ve done a lot of soul searching about
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42 BASIN RESOURCES this community that I love,” Pacheco added. “There is so much tragedy in our world but you can still find communities in America – communities like Farmington – that have a sense of family. I love Farmington and I’m always asking myself ‘What else can I do in my life to give back to this community?’” With 55 employees at A-Plus, Pacheco believes he can give back by keeping those employees in their jobs. “It’s an honor and a privilege for me to have Bill (Clark) allow me to help lead the company and to keep the business going for the next generation and for future generations.” The employees at A-Plus Well Servicing will benefit from Pacheco’s leadership, said Brenda Blevins, who has been Pacheco’s administrative assistant for 12 years. “Randy challenges you and he’s fast paced,” Blevins said. “I’m very good at my job because of Randy. I’ll miss the challenges he has always provided. I respect
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him for all he’s done for the School of Energy and we’ve made a good team.” San Juan College President Dr. Toni Hopper Pendergrass praised Pacheco in a media release recently. “Randy has been a tremendous asset to San Juan College and his dream for the School of Energy to help students and to serve the industry on both a local and global basis has been realized,” Pendergrass stated. “I can’t thank him enough for all that he has done for San Juan College and the community.” “I have so much respect for Randy,” said Gayle Dean, “for his leadership, dedication, vision, integrity and for his heart. Sharing the dream (of a new School of Energy facility) and then watching the School of Energy grow with Randy was a part of my life that I will always treasure.” “I wish Godspeed to my friend and I thank him so much for making San Juan College a better place,” Dean added. “I’m excited to watch the great things ahead for
Randy and for our community because of him.” With a facility that has quickly become the model for other industry related schools across the country, goals achieved and missions accomplished, Pacheco is ready for the next step along his career path. And while he admits he won’t miss the regulations placed on education by the state and the federal governments that ensure taxpayer’s dollars are spent wisely, walking out of that corner office with the spectacular views won’t be easy. Looking around his spacious office and taking another look at the sun that was about to set, Pacheco paused before saying, “I’ve enjoyed a great sense of accomplishment and pride that I’ve been able to walk down the path with San Juan College. I’m grateful that I can leave something behind.” “But I’m going to miss everyone tremendously,” he added.
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Pacheco
continued from 6
companies themselves, have got to occur to revive and re-energize our industry. And it’s more than focusing on new technology, new equipment, new research and development. It’s about people – people who are dedicated to working together in those partnerships, in that industry, in those laboratories, facing those challenges that will help find the answers we need to achieve the success we want. Phil Andrews is the chairman of Getenergy Events Ltd., and said industry leaders fail to take the time and make the effort to visit colleges and universities, where students are embracing the data and anxious to put it to work – in the oil field. When a local economy suffers because a huge financial asset has taken a plunge, communities must look beyond that asset – in this case, the oil and gas industry. As community leaders, we must seek alternative economic boosters and we must expand our economic base. But we must not forget or ignore the industry that has sustained us for years At the San Juan College School of Energy, we are continuing to recruit and train those who see the vision, understand the future, and want to be part of the revival of the oil and gas industry in San Juan County and across the country. Many who have been part of the industry for years want to retrain and re-educate so they can return to the industry that has served them well – and to make a positive difference in new leadership roles. The oil and gas industry will rebound. It will recover. And it will continue to provide the products and services our community and our country needs. It will also create and refill jobs that our state, our communities and our families need. Dr. Toni Hopper Pendergrass, president of San Juan College, stated in a recent newspaper article, “While we are currently facing challenging times in the oil and gas industry, history has proven that it is cyclical,” she said. “Once we recover from the downturn, companies will look to San Juan College to deliver a highly skilled and trained workforce. Looking to the future, industry experts predict that natural gas and gas turbines will play a significant role in providing electricity, and the School of Energy will be on the forefront – possibly one of the very few in the country – to provide that training.” It will be those who lead, those who are retrained, those who understand that the growth of the industry lies in the hands of the people who will work in laboratories, in machine shops, in the field and in the board room that will move the oil and gas industry forward. It is a challenge we are prepared – and excited – to meet and overcome.
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44 BASIN RESOURCES
.E. . N . . .E. . R. . G . . . Y. . . . N . . . E. . W . .
Across the Nation
. S.
EnErgy-rElatEd CO2 EmissiOns up 1 pErCEnt Building, transport energy use pushes numbers higher U.S. energy-related carbon dioxide (CO2) emissions were 5,406 million metric tons (MMmt) in 2014, 1 percent (51 MMmt) above their 2013 level. Energy-related emissions also increased in 2013, but because of declines in earlier years, the 2014 emissions were still roughly 10 percent below their 2005 level. One approach to assessing emissions trends considers changes in demographic and economic drivers, together with changes in the relationship between economic activity and energy use and the carbon content of energy. Increases in economic activity, reflecting changes in population and per capita output, tend to increase emissions. Reductions in energy consumed per unit of economic activity or emissions generated per unit of energy tend to reduce emissions. In 2014, U.S. gross domestic product (GDP) grew 2.4 percent, while energy use per GDP and carbon per unit energy declined 1.2 percent and 0.3 percent respectively. Changes in energy-related emissions also can be analyzed by consuming sector. Emissions attributed to energy use in the
higher gasoline consumption, along with higher consumption of other fuels. Growth in energy consumption more than offset improvements in fuel economy of the vehicle fleet.
residential, commercial, industrial, and transportation sectors tracked in EIA’s data are measured by each sector’s consumption of various fuels. In this accounting, emissions associated with the generation of electricity are apportioned based on the electricity consumption in each sector. In 2014, energy-related CO2 emissions in the transportation sector were 24 MMmt higher than the 2013 level. Transportation fuel prices declined between 2013 and 2014. Lower prices, along with continued economic recovery, led to
Commercial sector CO2 emissions rose by 19 MMmt, while residential sector emissions increased by 18 MMmt. Although residential sector energy use is mainly influenced by weather on a year-to-year basis, commercial sector energy use reflects both weather and economic activity. Most of the increase in energy use in the residential sector came in the first quarter of 2014, when heating degree days – a temperature-based measure of expected heating demand – were 10 percent higher than in 2013. The industrial sector experienced an overall decline in energy-related CO2 emissions of 11 MMmt in 2014 despite a 13 MMmt increase in natural gas emissions. Because natural gas has the lowest carbon intensity of the fossil fuels, higher use of natural gas meant that more energy was being delivered with fewer overall emissions compared to coal and petroleum liquids, the fuels it likely replaced.
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BASIN RESOURCES 45
Across the U.s.: Electricity generation from coal trends down while natural gas rises The monthly natural gas share of total U.S. electricity generation surpassed the coal share in July for the second time ever, with natural gas fueling 35.0 percent of total generation to coal’s 34.9 percent share. Compared to the previous July, coal-fired generation fell in every region of the country, while natural gas-fired generation rose in every region. Earlier this year, natural gasfired generation surpassed generation from coal for the first time. This switch occurred in April, generally the month with the lowest demand for electricity. In times of low electricity demand, many generators schedule routine maintenance, and utilization rates for generating plants are low. As demand increases during the summer, output from both coal- and natural gasfired generators increases. Total electricity demand, excluding demand met by distributed (largely renewable) sources, increased from 384 billion kilowatt hours (kWh) in July 2014 to 398 billion kWh in July 2015. Coal-fired generation fell
from 150 billion kWh to 139 billion kWh, while natural gas-fired generation rose from 114 billion kWh to 140 billion kWh. This decrease in coal and increase in natural gas occurred in every region of the country: the Mid-Atlantic region had the largest decline in coal-fired generation, followed by Texas, while the Southeast and Central regions had
the largest increases in natural gas-fired generation. Natural gas prices continue to be relatively low. The monthly average price at Henry Hub, a natural gas benchmark, declined from $4.14 per million Btu (/MMBtu) in July 2014 to $2.91/MMBtu in July 2015, and it has since fallen to
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$2.72/MMBtu in September. The average price of wholesale natural gas in New York City during July ($2.06/MMBtu) was below the average wholesale price of Central Appalachian coal ($2.31/MMBtu), even before accounting for differences in fuel conversion efficiencies between coal- and natural gasfired generators. Prior to this year, the last time electricity generation from natural gas came close to surpassing coal-fired generation was April 2012, when monthly average spot prices for natural gas were near $2/MMBtu. Power generation shares for coal and natural gas diverged as natural gas spot prices rose to about $3.50/MMBtu by the end of 2012. Electricity generation dispatch decisions, especially between coal and natural gas, are complex. The ultimate level of generation reflects delivered costs, emission costs (where applicable), heat rates, supply availability, and other factors in fuel markets. More information on monthly electricity generation is available in EIA’s Electricity Monthly Update.
46 BASIN RESOURCES
Lowest retaiL gasoLine prices since 2008 Trend leads to Thanksgiving trip savings across United States Traditionally, the Thanksgiving holiday is one of the mosttraveled times of the year in the United States, and much of that travel is by gasoline-fueled lightduty vehicles – passenger cars and light duty trucks. AAA estimates that during this Thanksgiving holiday period – November 25 through 29 – 41.9 million people in the United States will travel more than 50 miles from home by car. This is a slight increase of 0.7 percent compared with last year, and the highest number of travelers by car for Thanksgiving since 2007. This year, gasoline prices have fallen to the lowest levels for Thanksgiving week since 2008, with the U.S. average regular retail gasoline price at $2.09 per gallon (/g) as of November 23, 73 cents lower than the same time last year (Figure 1). Gasoline prices across the country reflect differences in gasoline specifications, taxes, and the characteristics of regional market supply and demand balances. In 2015, regional supply disruptions in California and in the Midwest resulted in higher wholesale and retail gasoline prices in the affected markets. Based on data from EIA’s Gasoline and Diesel Fuel Update, retail gasoline prices, as of November 23, range from a low of $1.85/g in Petroleum Administration for Defense District (PADD) 3 to a high of $2.58/g in PADD 5 (Figure 2). Lower gasoline prices across the country
translate into cost savings during Thanksgiving travel, but those savings, like gasoline prices, vary by region (Figure 3). Estimated trip savings can be calculated using the average light-duty vehicle fleet fuel efficiency of 22.3 miles per gallon in 2014 and 22.6 miles per gallon in 2015, with AAA’s 50mile (100-mile roundtrip) distance traveled, and the regional average retail regular gasoline price for Thanksgiving week of each year.
The region with the greatest travel savings compared to last year was the Rocky Mountains (PADD 4), where the average retail price of regular gasoline is 84 cents lower than the Thanksgiving week of last year, saving an estimated $3.93 on the 100-mile round trip, falling to $9.25 from $13.18. The region with the lowest price change compared to last year is PADD 5, where a 100-mile round trip costs $2.30 less compared to last year. However, trip savings using the PADD 5, except California, average price is $3.15, highlighting the price effect of California’s ongoing supply disruption (Figure 3). Lower gasoline prices this year are linked to lower crude oil prices. As global petroleum and other liquids’ production continued to outpace consumption in 2015, the resulting increases in global inventories of crude oil and petroleum products have put significant downward pressure on oil prices. The decline in crude oil prices also reflects concerns about lower economic growth in emerging markets, a negative factor for demand growth and expectations of higher crude oil exports from Iran. Spot prices of North Sea Brent fell to $42 per barrel (/b) in the third week of November, $37/b lower than the $79/b average during November 2014. Additionally, higher inventories and
www.basinresourcesusa.com • WINTER 2015
refineries returning from fall planned outages will likely weigh on wholesale and retail gasoline prices going forward. Total U.S. gasoline inventories were 216 million barrels for the week ending November 20, 10 million barrels higher than the same time last year, and 9 million barrels higher than the five-year average. Refineries returning from fall maintenance have pressured gasoline prices further, particularly in the Midwest (PADD 2), where wholesale gasoline prices in Chicago briefly fell below $1.00/g last week. However, the lower wholesale prices will take time to pass through to the retail level.
U.S. average regular gasoline and diesel fuel prices decrease The U.S. average regular gasoline retail price decreased eight cents from the previous week to $2.09 per gallon as of November 23, 2015, 73 cents lower than at the same time last year, and the lowest price for Thanksgiving week since 2008. The Midwest price fell 15 cents to $1.94 per gallon, making it the second region, after the Gulf Coast, with a sub-$2 per gallon average retail gasoline price. The Gulf Coast price declined seven cents to $1.85 per gallon. The West Coast price decreased six cents to $2.58 per gallon. The East Coast price fell five cents to $2.11 per gallon, and the Rocky Mountain price decreased four cents to $2.09 per gallon. The U.S. average diesel fuel price decreased four cents from the prior week to $2.45 per gallon, down $1.18 per gallon from the same time last year. The Midwest price decreased 5 cents to $2.44 per gallon, while the West Coast price declined 4 cents to $2.65 per gallon. The East Coast price decreased 3 cents to $2.47 per gallon, and the Gulf Coast price was down 2 cents to $2.28 per gallon. The Rocky Mountain price decreased 1 cent to $2.47 per gallon.
Residential heating oil price decreases while propane price increases As of November 23, 2015, residential heating oil prices averaged nearly $2.38 per gallon, 2 cents per gallon lower than last week and almost 99 cents lower than one year ago. The average wholesale heating oil price this week was just shy of $1.42 per gallon, 4 cents lower than last week and $1.16 per gallon lower than a year ago. Residential propane prices averaged just under $1.96 per gallon, almost 2 cents per gallon higher than last week’s price but almost 45 cents lower than one year ago. Wholesale propane prices averaged 49 cents per gallon, unchanged from last week and 44 cents lower than last year’s price for the same week.
Propane inventories gain U.S. propane stocks increased by 1.7 million barrels last week to 106.2 million barrels as of November 20, 2015, 27.0 million barrels (34.1 percent) higher than a year ago. Gulf Coast inventories increased by 1.2 million barrels and Midwest inventories increased by 0.6 million barrels. East Coast inventories increased by 0.1 million barrels while Rocky Mountain/West Coast inventories decreased by 0.2 million barrels. Propylene non-fuel-use inventories represented 3.2 percent of total propane inventories. WINTER 2015 • www.basinresourcesusa.com
48 BASIN RESOURCES
New Mexico Now iN the MouNtaiN regioN New classifications of natural gas storage regions began November 19 EIA’s Weekly Natural Gas Storage Report (WNGSR) publishes weekly natural gas storage inventories by region. Natural gas storage levels have been high and recently, reached a record 3,978 trillion cubic feet. In an effort better to illustrate regional storage trends, EIA will publish weekly data divided into five regions, rather than the current three, beginning with the November 19 report. Later, the WNGSR page will reflect the new five-region format, and the threeregion series will be discontinued. When the WNGSR was originally established in 1993 by the American Gas Association, data for the Lower 48 states were separated into three groups: the Consuming East, the Consuming West, and the Producing region. At that time, the Producing region – including Gulf of Mexico offshore – was home to 74 percent of the nation’s natural gas production, while the other regions were generally consumers. Because of changes in regional trends in natural gas consumption, production, and storage since then, the new categorization generally splits each of the previous two consuming regions into two parts, while the coverage of the former Producing region is now largely encompassed by the South Central region.
in the nation. This type of field tends to have only one cycle per year – they are filled with natural gas during summer and fall, and then the stored natural gas is withdrawn through winter and spring.
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With a few exceptions, the states previously grouped as the Consuming East region are now in two groups: the Midwest and the East. The main difference in the two regions is the type of storage facilities. The Midwest region, with its high concentration of aquifers, has more than 85 percent of all natural gas storage aquifers
www.basinresourcesusa.com • WINTER 2015
BASIN RESOURCES 49 Facilities in the Midwest tend to inject natural gas at much more consistent volumes compared to the East, reflecting the more stable and predictable behavior of aquifers. Storage facilities in the East region, by contrast, consist almost entirely of depleted fields. Depleted fields generally offer a higher degree of flexibility to inject or withdraw gas at any given time compared to aquifers, and, as a result, net movements of gas into and out of storage in the East region show more variability than those in the Midwest. The previous West region was split into two regions, the Pacific and Mountain regions. Although both the new Pacific and Mountain regions are dominated by storage
in depleted fields, the Pacific region facilities tend to have much higher deliverability – meaning gas is able to be withdrawn at higher rates. Average deliverability of fields in the Pacific is close to 0.5 billion cubic
feet per day (Bcf/d), which is nearly three times higher than that of the Mountain region, even though average working gas capacity is roughly the same in the two regions. Many facilities in the Pacific region use storage in an active way to respond to
price conditions and customer demand, similar to how salt facilities might operate. With the exception of New Mexico, which is now in the Mountain region, the Producing region has remained relatively unchanged, but it was renamed the South Central region. The South Central region is home to most of the U.S. salt dome storage facilities, which are able to cycle gas much more rapidly either than in depleted fields or in aquifer storage. Because the nature and operation of salt facilities are distinct from depleted reservoir facilities, the South Central region can be further separated into salt and nonsalt, as was the previous Producing region. EIA began publishing separate salt and nonsalt data in 2012, and backcast the series to the end of 2006.
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advertisers directory 4 Rivers Equipment.....................30 1100 Troy King Rd. Farmington, NM 505-326-1101 www.4RiversEquipment.com Airstar ..........................................2 100 Maryland Street Bloomfield, NM 505-634-0602 www.airstarinc.com Animas Valley Insurance......26 & 27 2890 Pinon Frontage Rd. Farmington, NM 505-327-4441 www.aviagency.com Antelope Sales & Service Inc. ......47 5637 US Hwy 64 Farmington, NM 505-327-0918 www.NMASSI.com Bailey’s Welding..........................31 505 Rd. 350 Farmington, NM 505-632-3739 BM Technology & Supply .............42 2303 Bloomfield Hwy. Farmington, NM 505-326-9144 Calder Services ...........................48 #7 RD 5859 Farmington, NM 505-325-8771 Edward Jones/Kristy Visconti .......34 4801 N. Butler, Suite 7101 Farmington, NM 505-326-7200 Elite Promotional & Embroidery...15 1013 Schofield Farmington, NM 505-326-1710 Envirotech ..................................37 5796 US Hwy. 64 Farmington, NM 505-632-0615
Four Corners Community Bank .....18 505-327-3222 New Mexico 970-565-2779 Colorado www.TheBankForMe.com Foutz Hanon ...............................45 2401 San Juan Blvd. Farmington, NM 505-326-6644 Golden Door Realty/Genesis King...3 Farmington, NM 505-325-4153 505-427-0723 Halo Services..............................51 70 CR 4980 Bloomfield, NM 505-632-7007 Highlands University ...................24 505-454-3004 nmhu.edu/energy ImageNet Consulting ...................43 Farmington, NM www.imagenetconsulting.com KAVE Construction.......................33 PO Box 443 Flora Vista, NM 505-793-3942 facebook.com/kaveconstruction Kelley Oilfield Services ................52 3601 N. 1st, Suite M Bloomfield, NM 505-632-2423 www.kosinm.com Morgan Stanley/Jim Loleit............17 4801 N. Butler Farmington, NM 505-326-9322 www.morganstanley.com Partners Assisted Living..............19 313 N. Locke Ave. Farmington, NM 505-325-9600 www.partnersassistedliving.com
PMS............................................23 1001 West Broadway Ave. Farmington, NM 505-327-4796 www.pmsnm.org
The Spare Rib .............................18 1700 E. Main Farmington, NM 505-325-4800 www.spareribbbq.com
QuickLane Tire & Auto Center ......49 5700 East Main St. Farmington, NM 505-566-4729
Arlon L. Stoker............................35 2713 E. 20th St. Farmington, NM 505-326-0404 www.stokerlaw.net
RA Biel Plumbing & Heating.........38 505-327-7755 www.rabielplumbing.com Reliance Medical Group ...............41 3451 N. Butler Ave. Farmington, NM 505-324-1255 www.reliancemedicalgroup.com Rocky Mesa Auto & Truck Repair..39 2201 E. Bloomfield Hwy. Farmington, NM 505-327-3223 www.rockymesaautoandtruck.com Rush Truck Centers .......................7 6521 Hanover Road N.W. Albuquerque, NM 505-839-3600 800-357-6643 San Juan Casing Service...............34 6101 E. Main St. Farmington, NM 505-325-5835 San Juan College/School of Energy ... ..................................................10 5301 College Blvd. Farmington, NM 505-566-4100 www.sanjuancollege.edu/energy San Juan United Way....................14 Helpline 505-326-4357 www.sjunitedway.org
Summit Truck Group ....................10 5444 US Hwy 64 Farmington, NM 505-325-3521 Sunray Casino .............................37 Farmington, NM 505-566-1200 Treadworks.................................25 4227 E. Main St. Farmington, NM 505-327-0286 4215 Hwy. 64 Kirtland, NM 505-598-1055 www.treadworks.com Uncle Bob’s Auto & Truck ............48 3995 Cliffside Dr. Farmington, NM 505-436-2994 US Eagle Federal Credit Union .....11 3024 E. Main St. Farmington, NM 888-342-8766 useaglefcu.org Wagner Equipment ......................21 905 Hwy 516 Flora Vista, NM 505-334-5522 Ziems Ford Corners.....................22 5700 East Main Farmington, NM 505-325-8826
Sanchez and Sanchez....................5 Farmington, NM 505-327-9039
www.basinresourcesusa.com • WiNter 2015