Has Your Company Downsized? Restructuring. Downsizing. Streamlining. No matter the label, you’ll be in for some life changes if it happens to you. But that doesn’t mean you’re out of choices. You haven’t stopped living just because you’ve stopped working, and there are new decisions to be made. Ron Dalley, CRPC® Associate Vice President Financial Advisor 4801 N. Butler Suite 14-101 Farmington, NM 87401 505-327-6201 ronald.dalley@morganstanley.com www.morganstanleyfa.com/ ronald.dalley
Start by carefully considering your company’s specific benefit choices. A Morgan Stanley Financial Advisor can help.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in a written agreement with Morgan Stanley. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account. © 2016 Morgan Stanley Smith Barney LLC. Member SIPC. RET009 CRC1127747 02/15 CS 8234507 05/15
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content complicated downturn Finding new solutions to old problems
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san Juan mine sale finalized
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Bhp sells mine to westmoreland
conocophillips changes
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cFo Jeff sheets retires after 35 years
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Battling toward recovery
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Back in the battle
column uphill battle
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Blm Venting/Flaring rules
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www.basinresourcesusa.com
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Majestic Media 100 W. Apache Street Farmington, NM 87401 505-516-1230 www.majesticmediausa.com
already strapped oil/gas industry faces another hurdle
an oil and gas win new mexico court of appeals rejects pit rule appeal
Bp rebranding
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Brighter stations with new signs
Bloomfield and energy conservation solar panels save money
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Basin Resources magazine is published four times a year by Majestic Media. Material herein may not be reprinted without expressed written consent of the publisher. Opinions expressed by the contributing writers 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 2016 Basin Resources magazine.
www.basinresourcesusa.com • sprinG 2016
6 BASIN RESOURCES
CompliCated downturn! Finding new solutions to old problems, working together, will help industry weather the storm Dorothy Nobis Basin Resources times have changed in the oil and gas industry since 1896, when blake No. 1, the oldest New Mexico gas well, was drilled southwest of the Miller street bridge in Farmington. in 1923, the Ute structure, located 17 miles northwest of Farmington, brought in a 5-million-cubic-foot gasser, with another well spudding (the very start of drilling on a new well) and reported to be the largest gasser in America. hogback crude oil tested at 70 percent gasoline and naphtha, and sold for four cents a gallon or $2 a barrel.
Not like the old days in 1950, there were 30 producing wells in the san Juan bain, and in 1961, El Paso
in 1986, the Conoco san Juan Gas Plant was the second largest natural gas processing plant, processing 500 million cubic feet of gas.
“Boom and bust”
Natural Gas completed a 24-inch natural gas transmission (pipeline) line from the san Juan basin to the west coast, establishing the first major market. in 1979, san Juan County was the first in total completions for all counties located in the rocky Mountain West area and remained at that level until 1982, when drilling in the san Juan basin suffered a drastic drop and 50 percent of employees in the oil field were let go.
the “boom and bust” cycle of the oil and gas industry isn’t new to the san Juan basin, but the financial repercussions of a bust are never easy to take. today, in 2016, the basin is in yet another downturn in the industry, with reports stating that about one-third of U.s, oil and gas production companies in the country could face bankruptcy this year. Adam Kinney, Farmington Market Leader at Vectra bank in Farmington, said the roller coaster cycle of the oil and gas industry affects not just the industry, but the trickle down effect takes its toll on every industry.
www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 7
Tough times “Due to the tough economic times, the industry has a dark cloud over it and there’s a big fear of the unknown about what will happen next,” Kinney said. “We’ve had more communication with our oil and gas customers so we can stand by them and stand up for them.” With local businesses struggling to control their bottom line and remain solvent, Kinney said area financial institutions are looking for ways to help. “We try to help in any way we can, even if we can’t provide a loan (for them),” Kinney said. “We look at our relationships with them, look at their financials and give them our recommendations, even if it’s not good. We’re not just a bank, but a consultant. Our oil and gas customers aren’t new to the cyclical effect of the industry and the relationships we’ve built together are a key factor in
how we can help.” Vectra Bank is under the umbrella of the Zions Bancorp, which has offices in 11 Western states, Kinney said, including Texas, where the Amegy Bank has specialists who know the oil and gas industry. “We rely on that entire team for their expertise, plus our local knowledge of the companies,” Kinney said.
SPRING 2016 • www.basinresourcesusa.com
County, cities depend on oil and gas revenue “There are a lot of great (oil and gas companies) out there that have positioned themselves through the years to be prepared for the trials and tribulations of the oil field,” Kinney added. “They’ve learned from the ups and downs. But many companies, unfortunately, have to lay people
8 BASIN RESOURCES off, and we’re looking at ways we can help.� “It’s a scary time for everyone,� Kinney continued. “Our county, our cities and our schools all get revenue from oil and gas, and when it’s (oil and gas) down, everyone feels it.� Randy Pacheco, general manager of A-Plus Well Service and former dean of the San Juan College School of Energy, referred to an article in the Oil and Gas Financial Journal that quoted John England, vice chairman of U.S. oil and gas sector leader, Deloitte LLP, as saying, “2016 will be the year of hard decisions. We could see E&P (exploration and production) bankruptcies surpass Great Recession levels as companies struggle to remain solvent.� “I feel the industry is very complicated right now, due to a glut that is caused by three factors,� Pacheco said, “over production, the ten economies in the world expe-
stances,� Slaughter added. “Staying solvent will require the same level of perseverance, innovative thinking and creativity as the technology breakthroughs that led to the boom in supply we have seen over recent years.� riencing an economic slowdown, and oil producers (OPEC) still believing that shale plays in the United States will impact world oil production into the future.� No silver bullet solution Andrew Slaughter, executive director of Deloitte Center for Energy Solutions, stated, “There is no silver bullet solution that applies to the whole industry. In fact, the landscape has never been more complicated.� “Each company has its own set of unique factors to consider – from issues specific to each producing region and asset, to various states of financial circum-
We will rebound The San Juan Basin will rebound, Randy Pacheco said, because it has done so in the past. “We understand the industry. We will recover, but it will take time,� Pacheco said. “The oil and gas industry is critical to San Juan County and to New Mexico. We’ll need to find new solutions to old problems and prepare for the future.� “Working together to find those solutions will be critical to our local economic base,� Pacheco added. “We’ve been through this before and have emerged as a stronger industry because of it.�
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BASIN RESOURCES 9
San Juan Mine Sale finalized BHP sells mine to Westmoreland on Feb. 1 Debra Mayeux Basin Resources The sale of San Juan Mine to Westmoreland Coal Company was finalized February 1 when Westmoreland took control of the mine, according to a press release from bHP billiton New Mexico Coal. bHP announced plans to sell the mine in May 2015, but Westmoreland took control of the property January 1, with the sale expected to be finalized by year’s end. “The addition of the San Juan Mine further enhances our mine mouth business model, which has been fundamental in providing strong cash generation,” Westmoreland’s Chief executive Officer Kevin Paprzycki said. “We look forward to building upon the solid partnership with the San Juan Generating Station team in the years to come.” San Juan Mine provides coal to San Juan Generating Station, the power plant owned by Public Service Company of New Mexico. “We believe the San Juan transaction is an overwhelming success for Westmoreland, PNM resources, and PNM’s customers,” Paprzycki said. This sale allows coal to be supplied to San Juan Generating Station beyond 2017, which helped the plant receive approval from the New Mexico Public regulations Commission to continue operations in the San Juan basin. bHP billiton New Mexico Coal President Pat risner said he
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SPRING 2016 • www.basinresourcesusa.com
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was pleased that the sales agreement between bHP billiton and Westmoreland would ensure the continuation of operations at the San Juan Mine, which provides jobs and a sustained revenue stream for local communities. “We will continue to work closely with our employees and the communities we serve to ensure a smooth ownership transition to Westmoreland,” risner said. Westmoreland purchased the mine for approximately $127 million, subject to post-closing adjustments. The company financed a portion of the transaction by entering into a $125 million structure loan with a subsidiary of PNM resources, Inc. “The loan is a $125 million Senior Secured Non-revolving Term Loan maturing February 1, 2021, and bears initial interest at a 7.25 percent rate plus LIbOr, which escalates over time,” according to a press release from Westmoreland. “There are no prepayment penalties and the loan is structured such that greater than half the balance is due to be repaid in the first two years.” The acquisition of the San Juan Mine augments Westmoreland’s suite of mine mouth mining operations by providing additional coal resources of 148 million short tons. Westmoreland also has entered into a long-term coal supply agreement with PNM and other owners of San Juan Generating Station. The agreement states that the plant will purchase 100 percent of its coal from San Juan Mine, with quarterly adjustments to tonnage and pricing through 2022, according to the press release. bMO Capital served as capital markets adviser for the transaction.
10 BASIN RESOURCES
ConocoPhillips changes Chief Financial Officer Jeff Sheets retires after 35 years Debra Mayeux Basin Resources after serving ConocoPhillips for more than 35 years, Chief Financial Officer Jeff Sheets announced his retirement. This led the oil and gas company to announce a realignment of responsibilities for several of its executives, according to a February 22 press release. “We will miss Jeff ’s extensive knowledge and experience, and I want to thank him for his Sheets significant contributions throughout his career at ConocoPhillips,” said ryan Lance, chairman and chief executive officer. “He has been a valued member of the executive leadership team and played an instrumental role in our transformation as an independent exploration and production company.” Don Wallette Jr. has been named executive vice president of finance and commercial and chief financial officer.
Wallette, the executive vice president of commercial, business development and corporate planning, has more than 30 years experience and has served in multiple leadership Wallette roles. He assumes the position vacated by Sheets, and his responsibilities will include being responsible for ConocoPhillips’ financial and commercial functions. al Hirshberg has been named the executive vice president for production, drilling and projects. Currently serving as vice president for technology and projects, Hirshberg’s Hirshberg move will have him overseeing the company’s worldwide operations. He also will be responsible for drilling, major projects and the health, safety and environmental functions of ConocoPhillips. Hirshberg has more than
30 years experience in a variety of operational, technical and leadership roles. Matt Fox, the current executive vice president for exploration and production, has been named the executive vice president of strategy, exploration and technology. He has more than 30 years experience in the operational, technical and leadership portions of the inFox dustry, and he will be responsible for strategic planning, exploration, business development and technology development. “I look forward to continued leadership from Don, al and Matt in their new roles,” Lance said. “This team is well prepared to take on the challenges and opportunities for ConocoPhillips at this important time in our industry.” Sheets will remain in his position until april 1, when the appointments become effective. He will stay on with ConocoPhillips until May 31 to assist with the transition.
www.basinresourcesusa.com •SPRING 2016
12 BASIN RESOURCES
Battling toward recovery A lot of good people are facing difficult times We’re all wondering when our local economy, which is based on oil and gas, will reach bottom so we can begin the equally difficult climb back up. It’s tough in the oil field these days. It’s the worst I’ve ever seen it. There is little work in the San Juan Basin. People are losing their jobs and oil and gas companies are looking for any and all ways to cut expenses. We’re forced to tighten a belt that is already tight and, for many, there seems to be no light at the end of this long tunnel. And it’s not going to get any better soon. An article on the ClimateProgress website on February 16 stated that about one-third of U.S. oil and gas production and exploration companies are at high risk of entering into bankruptcy this year. A report published by consulting and business services firm Deloitte, looked at more than 500 oil and natural gas exploration and production companies worldwide and found that 175 of them – nearly 35 percent – were at a high risk of going bankrupt. Those companies combined have more than $150 billion in debt – all largely due to continuing falling oil prices. This year will find all of us making difficult decisions. Energy and production companies going bankrupt could exceed that of the Great Depression because those companies simply can’t continue to pay the price of doing business without the income necessary to run a business. As an industry, we’re going to have to work more closely with our federal and state governments to establish a long-term strategy. We need more efficient wells, and not as many. We need more price stability and we need to understand the concept of supply and demand. We need to realize that drilling when prices are high, “drill, baby, drill,” isn’t necessarily a good investment. Our economy needs to have more demand for the supply we have available. Prices of oil are always controlled abroad. The United States can’t rely as much on foreign oil, and we need more price control. To put this in perspective, Nell Lindenmeyer with A-Plus pointed out to me a bucket of chicken (mashed potatoes, gravy, and coleslaw included) costs more than a barrel of oil.
Oil and gas companies are struggling to survive. They’re being forced to pay people less, and with no more overtime to offset the pay cut. People need jobs and people will take what they’re given so they can keep their jobs. According to the New York Times, 60 oil and gas companies have already declared bankruptcy in the last 16 months. If oil prices stay where they are, the number could easily double. Many of those companies finding their way into bankruptcy were forced to borrow money to continue to operate and, because of that, have a significant amount of debt. Companies lucky enough to have survived thus far will be forced to change the way they do business. It will take dedication, thinking outside the box, and being creative. If we, as a nation, don’t fight to have more influence regarding the price of oil and to have price control, the United States will continue to suffer. But I believe those of us in the San Juan Basin will survive. We’ve been down this road before. We’ve weathered previous storms and we’ll weather this one. It’s not going to be easy and it’s not going to be fun. We’re going to have to monitor our expenses closely and our bottom line even more so. We’re going to have to work together with our legislators and our industry partners to learn from these tough times and plan carefully for the good times. Because the good times will return. The oil and gas industry has taken on these battles before and it has won. The San Juan Basin will recover and it will be better because of it. In the meantime, as an industry and as a community, we must work together to keep as many people employed as we can, to find solutions to the problems we’re facing and remain positive and productive. And that’s what we do best.
randy Pacheco www.basinresourcesusa.com •SPRING 2016
BASIN RESOURCES 13
Back in the Battle Stymied by regulatory overreach My contributions to this magazine probably sound like the proverbial broken record. Usually, economic development means recruiting the next new business to your community with all the ribbon cuttings and hoopla that goes with that. In a normal year, there are about 350 relocations that get placed around the country and there are no less than 5,500 counties competing for those deals. In the San Juan Basin, we generally lack the transportation infrastructure and available sites to recruit these types of companies. So economic development lately has been defined as trying desperately to hang onto the jobs and economic activity we already have. It’s not nearly as glamourous and headline grabbing, but much more important. To wit: once again, we find ourselves in the middle of a regulatory overreach fight that squarely pits radical environmentalists and a government agency against the economic interests, and jobholders (what’s left
ray hagerman ceO FOur cOrners ecOnOmic DevelOpment of them) in the San Juan Basin. Just about the time you thought it couldn’t get any worse, the BLM decides to implement new “rules to reduce Federal royalty losses from venting, flaring and gas leaks.” On the surface, this sounds like a move toward efficiency and to assist in the reduction of the “methane cloud” over the Four Corners. Who wouldn’t be for that? But oddly enough, this process is not exactly what it appears to be. In reality, it would add at least $5,000 annually in costs to EVERY well in the Basin. As you know, given low natural gas prices, there are thousands of uneconomic wells already. Adding another $5,000 will cause them
SPRING 2016 • www.basinresourcesusa.com
to be plugged and abandoned. In short, at a minimum 3,000 or at a maximum, probably 7,000 wells shut down. Not only does the government lose royalties that are exponentially larger than the vented gas royalty numbers they advertise, but also we the people lose the thousands of service jobs they provide in the San Juan Basin. I wish I could say we can stand and fight – and we will – but it’s hard to battle an adversary that legally prints money, and further, one that uses the media to convince us that its actions are morally right and unavoidable, regardless of the effects on our livelihood. It reminds me of a line in the Clint Eastwood western – The Outlaw Josey Wales. When the Union Senator was trying to convince the Confederate leader of the efficacy of his lethal actions, and how what was happening was actually good for him, the man simply replied “Don’t (blank) down my back and tell me it’s raining.” Grab an umbrella…
14 BASIN RESOURCES
The oilfield life for me A.B. Geren recalls good old days in the oil patch, while his company looks to the future Debra Mayeux Basin Resources The oilfield booms, and then it busts. This has been the financial rollercoaster experienced by oil and gas families throughout generations of cycles. Some families and their businesses persevere, while others move away or close up shop. The first oil well was drilled here in 1911, and the first gas well was drilled in the 1920s. D.J. Simmons has survived since 1952, when then-owner David Jack Simmons drilled his first well – a well the company still has, along with others drilled in the 1950s and ’60s in the San Juan basin. “It was drilled when el Paso got their first pipeline connected to California,” said John byrom, company president. Despite remaining a viable company during this most recent oil and gas bust, byrom said the company has had its share of struggles, and ashton “a.b.” Geren, nephew of Simmons and former company CeO, has experienced several boom and bust cycles. Geren recalls having to leave his beloved wife, the late Judy Geren, and children in San Juan County as he followed the black gold trail across the united States. Despite having an uncle with an oilfield business, Geren had to fend for himself. “I worked all of the time,” he said. Geren drilled wells in New Mexico, Colorado, utah, Oklahoma, arizona, North Dakota, Texas and Louisiana. “It’s been a pretty hectic life,” the 94year-old said, as he sat in the dining room at Namaste House, an assisted-living facility where Geren’s neighbor happens to be the former president of el Paso Natural Gas. On any given day, Geren will sit and reminisce about the good old days in the field, and he has shared several stories with byrom, over to whom he www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 15 turned the company when he retired. Byrom is Geren’s godson. His parents, Barb and Gus Byrom, were neighbors with Geren and his wife Judy. Their families grew up together, so when Geren asked Byrom to move his family to Farmington in 1994 and work for him, Byrom jumped at the chance. “Growing up, he was my godfather, and I loved him,” Byrom said. He had a degree in mechanical engineering from Texas A&M – also Geren’s alma mater. Byrom planned to work in the aerospace industry, but ended up in the oil and gas business. He was intrigued by all of Geren’s stories and knew the industry could offer his family a good life. Geren didn’t always run D.J. Simmons, working instead as a contractor. His degree was in geology, and he worked for several of the big oil and gas companies, as well as the small independents. “I went to work in the oilfield in North
Texas. It was one of the big companies – Stanolin Oil,” Geren said, but his Uncle Simmons convinced him to move to Farmington with his wife, Judy. “My uncle was a wheeler dealer. He was my mother’s baby brother,” Geren said. “D.J. would have A.B. do some things,” Byrom said, but he never offered his nephew a permanent position. D.J. Simmons’ shop was on Main Street, where K-Mart is today. When Jack Simmons died in 1968, the business went to his wife, Thelma, who wouldn’t hire Geren, but still depended on his help. It wasn’t until Thelma’s death in 1986 that Geren would take the lead at the company. He built upon his family’s legacy and in 2001 opened a new building off of 30th Street. It was hard work and determination that shaped Geren into a successful businessman. “I worked a lot of places,” Geren said. “You don’t work, you don’t eat.”
He often slept in his truck at well sites, but Geren recalled a nice hotel that used to be in Lybrook during the big boom. There was also a time when he worked in North Dakota. “It was so cold, they had to light a fire under the propane tanks to keep them from freezing,” Byrom said. “I worked with one guy, and I thought I was going to have to sue him to get my money,” Geren said. This man built the Frontier Hotel in Las Vegas, Nevada. “These were guys from Chicago, who would make you disappear.” Geren managed to get the debt settled by taking a car from the employer. In those days, wells were drilled after explosives were dropped into big open pits in the ground. “They called them open holes,” Byrom said. Nitroglycerin would be run down then held onto a wire with an electric signal to set it off. “That was tricky business” The nitroglycerin was brought in on
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16 BASIN RESOURCES trucks, driving down bumpy oilfield roads, and sometimes, if a bump was hit the wrong way, accidents happened. “I never did worry about it,” Geren said. “It was blowing and going.” Byrom said there were times when it was so busy; it was hard to find employees. “Everyone wanted oilfield personnel,” Geren said. “They were good and bad, so you had to take what you could get.” Fracking came on the scene in the 1960s as a new technology. It is one that has withstood the test of time. Geren recalled that when he completed wells, using fracking, he had to stay in the field every day. “We were blowing the wells, because they had water from the frac jobs, and we had to keep them cleaned out,” he said. Geren also had to call in on a partyline type phone system set up by the oil company to report the stats on the well –
and forget about being able to call home on a private line, because there were no cellphones. El Paso had a radio system set up. “You could get on the radio and call
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home to let your family know you were going to be late,” Byrom said. “Everyone heard. Everybody knew what everyone was doing.”
* DJ Simmons 25
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18 BASIN RESOURCES
Uphill battle Sandoval County case illustrates regulatory challenges facing New Mexico When it comes to drilling for oil and gas, New Mexico is truly two different states. In both the San Juan and Permian basins, the oil and gas industries are part of the landscape. Drilling rigs are seen regularly on the roads and wells are found on golf courses, in Walmart parking lots and in places that are in plain sight to such an extent that they are simply part of the landscape. And then there is the rest of the state. In recent years, local governments dominated by folks of the Not In My Backyard (NIMBY) persuasion have worked to ban drilling in Mora and Santa Fe counties. Mora is one of New Mexico’s poorest counties and Santa Fe is one of its wealthiest, but both are considered liberal parts of Northern New Mexico with little experience in the oil and gas industries. So it was with great interest to observers of New Mexico’s oil and gas industry when Oklahoma City-based SandRidge Energy was issued a permit by the state to drill for oil in Sandoval County and was currently going through the regulatory process. SandRidge Energy is involved with lowimpact drilling. Under the company’s
plans there would not be any refining. While the project was described as “not a huge job creator,” it was touted as “a big revenue generator.” The location of the proposed exploratory well was a few miles outside of the city of Rio Rancho, a suburb north and west of Albuquerque.
Rio Rancho, like all areas of New Mexico, benefits from the oil and gas, which in recent years has accounted for nearly onethird of New Mexico’s budget. And, the Obama EPA, in a significant 2015 report on the issue, concluded, “[W]e did not find evidence that [hydraulic fracturing has] led to widespread, systematic impacts on drinking water resources in the United States.” In fact, the study never definitively identifies a single case where the fracking process itself – as opposed to mishaps or negligence – resulted in water contamination. Since all New Mexicans benefit from oil and gas, and since New Mexico has had the nation’s highest unemployment rate for two months running (November and December 2015), local approval of SandRidge’s exploratory well was a shooin – right? Not quite. While the Sandoval County Planning & Zoning Commission voted unanimously
paUl GessinG rio
president Grande FoUndation www.basinresourcesusa.com •SPRING 2016
BASIN RESOURCES 19 to recommend rejection of the SandRidge Energy permit (likely killing it), radical environmental and left-wing groups such as MoveOn are pushing the Sandoval County Commission not only to reject SandRidge, but to adopt and enact an immediate moratorium on any oil/gas drilling. There is no telling what will happen, or when, in terms of SandRidge in particular. But given the strident and ill-informed reaction from residents of one of New Mexico’s most prosperous and conservative counties (outside the oil patch), ANY oil and gas company looking to explore previously-untapped oil and gas resources will have second thoughts. There are a few things that can be done. The first is for New Mexico’s Legislature to pass a bill clarifying that the state, not local governments, have the power to approve or deny any and all
drilling in the state. Rep. Nate Gentry introduced such a bill in the 2015 (60-day) legislative session. Another, slightly more aggressive legislative action, would be for the Legislature to put some mechanism in place to strip funding for roads and schools away from local jurisdictions that use unreasonable zoning or land-use regulations to prohibit oil and gas exploration/drilling. A third and probably the most gamechanging and difficult move would be for New Mexico to follow Alaska’s example and distribute a portion of the state’s oil and gas revenues back to the citizens. The average Albuquerque or Rio Rancho resident doesn’t “get” what the oil and gas industry means to the state until prices drop drastically and budget cuts are implemented. Receiving a check every year that is directly tied to the price of oil and gas
SPRING 2016 • www.basinresourcesusa.com
and how much is sold would create much-needed political buy-in. Unfortunately, this is by far the most complex and politically challenging solution. In the meantime, it is up to individuals working in the industry, and organizations such as the Rio Grande Foundation, New Mexico Oil and Gas Association, and the Independent Petroleum Association of New Mexico (and others) to educate average New Mexicans on the importance of this critical industry to them and their families. 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
20 BASIN RESOURCES
BLM venting and fLaring ruLes Already strapped oil and gas industry faces another hurdle Debra Mayeux Basin Resources using the argument that it wants to save the nation’s natural gas supply and curb waste, the bureau of Land Management has proposed a change to its venting and flaring rules, which have been in place for 30 years. Interior Secretary Sally Jewell announced the update on January 22, saying the bureau has a goal to curb the waste of natural gas, while reducing methane emissions. She also wants to “provide a fair return on public resources for federal taxpayers, Tribes and States,” according to a press release from the bLM. “I think most people would agree that we should be using our nation’s natural gas to power our economy – not wasting it by venting and flaring into the atmosphere,” Jewell said. “We need to modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resource.
BLM Director Neil Kornze
We look forward to hearing from the public on this proposal.” Natural gas often is vented or flared during production as a means of burning off excess and unneeded fuel. The bLM has stated that the amount of oil and natural gas flared between 2009 and 2014 could have powered more than five million homes.
The proposed rule change would require oil and gas producers to adopt new, available technologies, processes and equipment that would limit the rate of flaring at oil wells on public and tribal lands. Operators also would be required to “limit venting from storage tanks and use best practices to limit gas losses when removing liquids from wells,” the bLM
www.basinresourcesusa.com •SPRING 2016
BASIN RESOURCES 21 stated. The new measure also would give Congress the authority to set royalty rates at or above 12.5 percent of the value of production. The changes potentially could put independent oil and gas companies out of business, according to Jason Sandel, vice president of Aztec Well Service. “The BLM methane rule has the potential to put us and our employees out of business and on the unemployment line,” Sandel said, during a February 16 meeting at San Juan College’s Henderson Fine Arts Center. “The impact is that the BLM has tremendous power over our economic future. Power to choose winners and losers across our nation by implementing a rule that is selectively enforced based upon the owner of the land that a well is placed upon.” Assistant Secretary for Land and Minerals Management Janice Schneider called the change a “commonsense and cost-effective measure.” “These updated regulations, which would be phased in over several years allow operators to make the transition more cost efficient, and would not only get more of our nation’s natural gas into pipelines and delivered to market but also reduce pollution and cut greenhouse gas emissions that are contributing to climate change.” Former State Representative Tom Taylor commented on methane emissions, saying that the emissions are equal to 50
parts per billion more than normal. “It is not a health issue,” he said. “Here (in the San Juan Basin) we have thousands of miles of permeable sandstone outcroppings, every one of those is leaking natural gas and has been for millions of years.” Taylor presented the BLM with a petition signed by 50 state legislators in opposition to the rule change. He also stated that this rule change is not based in science. “If it’s a health risk at that level, I think this rule should extend to the building codes, because the bathrooms in our houses have a hundred times more methane at certain times of the day. It’s ridiculous.” The BLM disagreed in a January 22 statement about the rule change. It states that “venting and leaks during oil and gas operations are major sources of harmful methane emissions.” The BLM stated that methane as a greenhouse gas is “25 times more potent that carbon dioxide,”
SPRING 2016 • www.basinresourcesusa.com
and it is the goal of the Obama Administration to cut methane gas emissions from the oil and gas sector, which the BLM said will increase “by 40-45 percent from 2012 levels by 2025.” Sandel pointed out that the EPA’s greenhouse gas reporting data showed methane emissions dropped by 11 percent in the past decade, when oil and gas production was increasing. BLM Director Neil Kornze, however, believes the rule change would modernize the regulations to reflect modern technologies. “By asking operators to take simple, common-sense actions to reduce waste – such as swapping out old equipment and checking for leaks – we expect to cut this waste almost in half,” Kornze said. “The gas saved would be enough to supply every household in the cities of Dallas and Denver combined – every year.” While Denver and Dallas might be powered with the gas saved, Sandel said San Juan County would be adversely impacted with 51 percent of the population already stating that they feel worse off today than they did one year ago. “Eighty-three percent of residents are worried about the economic downturn,” Sandel said. “This has the potential to cripple a fragile economy.” The public has until April 8 to submit comments on the proposed changes to the Venting and Flaring Regulations.
22 BASIN RESOURCES
An oil And gAs win New Mexico Court of Appeals rejects Pit Rule Appeal Debra Mayeux Basin Resources Oil and gas received a win February 24 from the New Mexico Court of appeals, which shot down an appeal to the 2013 changes to the state’s controversial pit rules. The appeal was filed by earthworks’ Oil & Gas accountability Project and the New Mexico Wilderness alliance. The groups asked the court to vacate
changes to the Pit rule, which governs certain aspects of drilling operations as well as the closure of oil and gas wells in New Mexico. earthworks’ Oil & Gas accountability Project and the New Mexico Wilderness alliance claimed the New Mexico Oil and Conservation Commission did not have jurisdiction to create the 2013 rule and that the commission was “arbitrary and capricious” in changing the rule. The case also
stated that the commission did not give adequate meeting notices. earthworks’ and the wilderness alliance stated that because the previous version of the rule was pending a court appeal, the 2013 rule could not legally be adopted. They also stated the rule was “contrary to evidence received.” There were three contentions on which the appeal was based: 1. The Commission had no jurisdiction
www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 23 to create the 2013 Rule because a previous version of the rule was the subject of a pending appeal. 2. The Commission’s decision to issue the 2013 Rule is arbitrary and capricious because it was contrary to the evidence received and because the Commission did not adequately set forth its reasons for changing the previous version of the Pit Rule. 3. The notice the Commission gave of its proposed rulemaking was inadequate. All three assertions made in the appeal were rejected by the court. The Appeals Court, however, issued a 30-page statement disagreeing with the claims. “We conclude that the pending appeals did not deprive the Commission of jurisdiction to promulgate the 2013 Rule. We further conclude that the Commission adequately explained its reasoning for
Appeals Court Justice Roderick Kenney
SPRING 2016 • www.basinresourcesusa.com
the rule’s adoption in the final rule and satisfied the statutory requirements for issuing notice,” Appeals Court Justice Roderick Kenney wrote. “We affirm.” At issue was the legislative legitimacy of the Oil Conservation Division and the Oil and Gas Commission, which were given rulemaking authority under the Oil and Gas Act. “It is well established that the Legislature can properly delegate rulemaking power to administrative agencies through an enabling statute,” Kennedy wrote. The separation of powers keeps the judicial branch from halting agency rulemaking actions, he added. The high court ruled that the differences between the 2008 Rule and the 2013 Rule did render the second “arbitrary and capricious,” because the commission explained the negative impact the 2008 rule had on the growth of New
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Mexico’s oil and gas industry. It created “unnecessary paperwork” and a “cumbersome process that does not promote predictability in the system,” court records stated. The commission showed little to no effect on the groundwater and encouraged oil and gas companies to reuse and recycle oilfield fluids to reduce surface impacts. All of which provided a basis for adopting the 2013 Rule. The court also ruled that while economic considerations “undoubtedly” played some role in the commission’s decision to change the rule there was no indication that “economic considerations were the primary purpose behind the rule.” Both Earthworks and the wilderness alliance did not show any deficiency in the evidence proffered during the 2013 rulemaking to suggest that the commission’s conclusions were arbitrary and capricious, the court stated. The Oil and Gas Commission also provided proper notification for meetings regarding the 2013 Rule change, according to court documents. All three claims presented by Earthworks’ Oil & Gas Accountability Project and the New Mexico Wilderness Alliance were rejected by the Court of Appeals.
at Highlands University - Farmington t BusinesT DurrJDuluN taughU bZ DurrenU oJM aOE gaT industrZ professionals. t ADDelerateE onliOF prograN designeE GoS workinH BdultT
nmhu.edu/farmington 505.566-3552 www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 25
DJ Simmons
continued from 16
In those days, Geren kept an office at the old El Paso Natural Gas building, which now houses San Juan College’s 30th Street Campus. The BLM was upstairs, and all he had to do to get a permit was walk upstairs and fill out some paperwork. “It was pretty quick. I would get a permit in a month,” Geren said. Now, Byrom pointed out, the permitting process takes months and months and can be quite costly. The permitting process and the price of oil and gas has led to a downturn unlike any other in this rich history. “The world has gone to hell out here in the West, but the bigger companies are still running,” Geren said. “The thing that is killing us is the price of oil and gas has tanked and have been down for so long,” Byrom said.
#
“The world has gone to hell out here in the West, but the bigger companies are still running.”
— A.B. Geren “The prices have dropped for a year and half. All they’ve done is drop and drop and drop.” The wells in the San Juan Basin produce other liquids, such as petroleum, and industry used to fall back on the sale of those liquids. Even that has fallen off in recent years. “I don’t think it’s been like this before,” Byrom said. “We have to do a lot more to keep our wells operating
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from a regulatory standpoint. It’s put everybody’s life in an unsettled mood.” Byrom isn’t sure how long it will take for the business to come back. “It seems hard to see that at least for a good while that prices will go up. It could be years,” he said. “So many companies our size in the field have been wiped out,” Geren added. “It’s a sore subject.” The good news, however, is that the world still needs oil and gas. “It’s a big source of energy, and gas is a clean energy,” Geren said. In the meantime, D.J. Simmons’ tradition carries on in the hands of Byrom, who serves as president and Geren’s children, Dana Schmitz and Jim Geren, who serve on the board. The business also owns Twin Stars, a wellhead compression and vapor recovery business.
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26 BASIN RESOURCES
More thaN 30 years iN the iNdustry Interim Dean Ken Johnson has the experience to move SJC School of Energy forward Dorothy Nobis Basin Resources
He wrote the book
my mind that randy wouldn’t be here.”
30 years in the industry it was never Ken Johnson’s aspiration or career goal to be a dean at san Juan College. however, when his friend and boss, randy Pacheco, resigned as dean of the school of Energy, Johnson was selected as the interim dean. “i found out that randy was leaving in December,” Johnson said. “i was surprised (that Pacheco was leaving),” Johnson said. “i have to work six more years (before retirement) and it never crossed
With more than 30 years in the oil and gas/energy industry, Johnson has the experience needed to move the school forward until a permanent dean is found. since joining the school of Energy’s staff, working as an instructor and coordinator for ten years, Johnson initiated, developed and started the Lease operator AAs Degree Program, which included setting up a state-of-the-art well site location to give students handson training.
in addition, Johnson wrote a textbook, Oil & Gas Lease Operations, which has become a standard textbook on lease operations for students throughout the country. the book is sold online and in bookstores, and covers material to perform work in the oil and gas industry, with emphasis on field production operations. With all that experience and knowledge, Johnson said he had no doubt he could step in and take over as the dean. “i’ve been included in a lot of randy’s decisions (regarding the school of
www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 27 Energy) and when (San Juan College President) Dr. Pendergrass asked me to do it (take over as dean), I knew the support staff would keep it running while I got up to speed.”
Pacheco approved Pacheco left the School of Energy in December to assume the position of general manager for A-Plus Well Service. “Given the harsh economic times we’re facing,” Pacheco said, “we are fortunate to have Ken (take over). He has the background in oil and gas to help the School of Energy move forward and he has always had the best interests of the students at heart.” The challenges and opportunities facing Johnson as he leads the School of Energy until a new dean is appointed will be many, Johnson admitted. “The biggest challenge will be keeping the
tinue to develop an advanced petroleum degree that will focus on the needs of the “They’re still pumped up about a students. In spite of the current downturn career and they know the School of in the oil and gas/energy industry, JohnEnergy is a good place to go for that son said students are still eager to get the training they need for a career in the intraining. Students still have a high dustry. regard for the petroleum industry “They’re still pumped up about a career and they know the School of Energy and they still want to work there.” is a good place to go for that training,” he said. “Students still have a high regard — Ken Johnson for the petroleum industry and they still Interim Dean want to work there.” Brenda Blevins is Johnson’s adminisplaying field even until a new dean is trative assistant, the same position she hired,” he said. “I don’t plan to make a held when Randy Pacheco was the dean. lot of changes. The staff is really positive While transitions always include some and everyone knows what they’re doing. trials and errors, Blevins said Johnson has It will be business as usual.” eased into his new position quickly. “The transition has gone smoothly,” Developing a petroleum degree Blevins said. “Randy prepared for the Johnson does, however, plan to connext dean and left the School of Energy
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28 BASIN RESOURCES
in good shape. Ken is doing an excellent job and I’m sure some of that comes from working with Randy for many years.”
Instrumentation and Controls basic degree Pacheco had been working on creating the Instrumentation and Controls basic degree, an Industrial Safety degree and an Occupational Construction degree. “Ken has stepped in and completed those degrees, and has established a partnership with Missouri River Resources in North Dakota,” Blevins said. “He also offered to host an InterTribal Energy Conference in March.”
InterTribal Energy Conference The conference brings together San Juan College and the Foundation for Indigenous Education, Leadership Development
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and Sustainability (FIELDS), positioning them to take the lead in building a Tribal Energy and Management (TEAM) Institute consortium to help American Indians capitalize on the economic empowerment opportunities provided through tribal energy development projects, tribal member-owned energy sector support services enterprises and other enterprises, according to information provided by the School of Energy. With new projects, new degrees, and a new interim dean, Blevins said positive things are happening under Johnson’s leadership “The spirits of our staff are high and we’re ready to move on to the next part of our journey,” she said. “We’re fortunate to have Ken lead us in the weeks and months to come and we look forward to welcoming a new, permanent dean in the future.” Johnson doesn’t intend to apply for the dean’s position when it is opened, which he believes won’t be until this summer. “I don’t want to work another ten years,” Johnson explained, “and the college wants and needs someone long term. I’ll continue to help them through the hiring process and until they find the right person who meets the college’s needs.”
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SPRING 2016 • www.basinresourcesusa.com
30 BASIN RESOURCES
BP reBranding Brighter stations with new signs with bold paint schemes Debra Mayeux Basin Resources bP announced plans to improve its retail stations in april by offering its branded marketers with new signs, a bold paint scheme and brighter canopy lighting, according to a press release from the company. “In 2016, bP’s commitment to its branded marketers will be unparalleled,” said John Carey, senior vice president of sales and marketing for bP Fuels North america. “That commitment begins with the launch of bP’s best-ever fuel, which builds upon the strengths of our prior
products. It continues throughout the year with a significant site refresh program, continued focus on our bP Driver rewards offer and a steady stream of exciting promotions to help drive fuel and store sales growth.” bP has a history in New Mexico that
dates back to the 1920s with a continued presence in the San Juan basin, which is North america’s leading producer of coalbed methane. bP’s New Mexico operations also produce so-called tight gas, or gas found in extremely dense rock formations. “bP has more than 2,100 operated and 5,100 non-operated wells across nearly 2,500 square miles in the southern San Juan basin,” according to fast facts on the company’s Website. “bP’s heritage companies began major development of the San Juan basin in the 1950s, with the construction of a pipeline to West Coast markets.”
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BASIN RESOURCES 31 The company also is a partial owner of the Blanco Plant, which processes gas from about 8,000 wells in northern New Mexico. With its station rebrand, BP will support its customers with a loyalty program, known as BP Driver Rewards, which has grown steadily since it was re-introduced in May 2015. A Visalinking option was added to the program. "Since we re-introduced the program, we have seen a 10 percent increase in average BP station visits per month from active members, and there has been an 8 percent increase in volume,” said Donna Sanker, head of marketing for BP Fuels North America. “We will continue to explore new areas for engaging with our
consumers in 2016.” Beyond its exploration and production activities, the company invested $5 million
to help build the BP Center for Energy Education at San Juan College in Farmington, which has been used to develop an advanced energy curriculum in disciplines ranging from natural gas to solar power.
The program will help technicians and engineers launch their careers, and to date, more than 3,500 BP workers have received training through San Juan College, which the company began partnering with nearly a decade ago. The partnership represents BP’s commitment to STEM learning, a highly skilled workforce, and communities where company employees live and work. Pete Mancini, the 2016 chairman of the BP-America and president of Chicagobased Parent Petroleum, said that he is impressed with the amount of investment that BP is making in its brand and he is pleased with the renewed focus on growth. “It’s a good time to be part of the BP brand,” Mancini said.
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Bloomfield and energy conservation Solar panels save money, help city put energy back to the grid Dorothy Nobis Basin Resources bloomfield special Projects Director teresa brevik was at a New Mexico Municipal League Conference a couple of years ago and met a sales representative
from yearout Energy services Company (yEsCo), a company that specializes in solutions to generate cost and energy savings and maximize efficiency and longevity of current assets. intrigued by yEsCo’s suggestion that it could help bloomfield reduce its energy,
heating, and water consumption and operating costs through the Public Facility Energy Efficiency and Water Conservation Act, passed by the New Mexico Legislature in July 2009, brevik took the idea to the bloomfield City Council. “i thought it sounded almost too good
www.basinresourcesusa.com • SPRING 2016
BASIN RESOURCES 33 to be true,” Brevik admitted of the idea, but she took it to the Bloomfield City Council anyway. “After multiple workshops by the council, so council members could fully understand the concept of the project and for YESCO to explain its products and services, the council approved it.” YESCO conducted an Investment Grade Audit for Bloomfield to determine an optimal set of retrofits and improvements that could reduce energy consumption and cost of operations. The purpose of the study was to develop a list of Energy Conservation Measures (ECM) for the city that would have a payback term from 15 to 18 years or less. The project included replacing interior lighting at several of the city’s departments and exterior lighting at five others with LED lighting technology lamps that provide a significant reduction in wattage requirements and a better quality of life. In
addition, the company installed solar facilities at five facilities. Work on the project began in the spring of 2015 and is expected to be completed
! SPRING 2016 • www.basinresourcesusa.com
this spring, Brevik said. The cost of the project is about $453,762, Brevik said. With an energy performance contract, Brevik added, if the projected savings at any
34 BASIN RESOURCES time aren’t enough to make the loan payment, YESCO, as the contractor, makes up the difference. “YESCO guarantees the project for the life of the loan, which is 15 years,” Brevik explained. “The savings currently cover the loan payment. After the note is covered, those funds will go into an operating fund.” “It’s a huge financial benefit to the city,” Brevik added. “With the solar panels, we’re putting energy back to the grid, which is a huge savings in itself.” Part of the contract with YESCO, Brevik said, is that if the project doesn’t meet the savings the company stated it would, YESCO will cover the difference. “That’s why I thought it was too good to be true when I first met with them,” Brevik said, adding that Bloomfield is the first municipality in the state to take advantage of this new type of performance contracting.
“It’s a huge financial benefit to the city. With the solar panels, we’re putting energy back to the grid, which is a huge savings in itself.”
— Teresa Brevik Bloomfield Special Projects Director
Another phase to the energy conservation project is the replacement with LED bulbs of the light bulbs in the 64 street lights lining Highway 64. Brevik said that project will enable the city to continue its efforts to be more energy efficient. “The energy project has inspired us to
look at other ways to save energy costs, such as converting the street lights to LED a few fixtures at a time,” said Bloomfield City Engineer/Public Works Director Jason Thomas, “and letting the savings pay for more. We’re also looking at other energy generating measures, such as microhydro power.” Micro-hydro power is generated by moving water, usually on a fairly small scale, such as energy harnessed from a local river to power a small town. Bloomfield’s Mayor, Scott Eckstein, is also a supporter of the city’s focus on energy conservation. “The city is trying to lead the way in energy savings,” Eckstein said. “That is evidenced by our green medians and the hydro turf, which saves water.” “We’re committed to conserving energy and money wherever we can,” the mayor added.
www.basinresourcesusa.com • SPRING 2016
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