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four corners oil and gas conference celebrating 95 years of oil and gas
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Don Vaughan puBliSHER
Cindy Cowan Thiele EDiTOR
Dorothy Nobis Debra Mayeux CONTRiBuTiNG WRiTERS
Josh Bishop Curtis Ray Benally CONTRiBuTiNG pHOTOGRApHERS
Suzanne Thurman
educaTional parTnership
The Trickle-down effecT
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DESiGNER
Clint Alexander Tonya Daniell SAlES STAFF
lacey Waite ADMiNiSTRATiON
For advertising information Call 505.516.1230
www.basinresourcesusa.com navajo Mine area iV cleared
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court vacates 2013 case to halt operations low energy prices cities facing tough financial choices
real people, real jobs
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fced initiative encourages community
column greater diversification
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program offers internships
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family vacations will be a little cheaper retail gas prices expected to be lowest since 2004
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Majestic Media 100 W. Apache St. Farmington, NM 87401 505-516-1230 www.majesticmediausa.com 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 • suMMer 2016
6 BASIN RESOURCES
Four Corners oil and Gas ConFerenCe
Celebrating 95 years of oil and gas in the San Juan Basin DOROTHY NOBIS Basin Resources When Norman Norvelle chaired the first Four Corners Oil and Gas Conference in 1994, the oil and gas industry was bustling with activity. Fruitland Coal was in a drilling frenzy, providing jobs in the San Juan Basin and much needed revenues to county and state coffers. With industry experts saying many of the oil and gas companies who have brought jobs and revenue to the Four Corners are being forced to do layoffs and cut budgets, the 2016 Four Corners Oil and Gas Conference is feeling the pinch as well. Scheduled for May 11-12 at McGee Park, the conference celebrates the 95th anniversary of the discovery of oil in the San Juan Basin, and will continue to provide speakers who are leaders in the industry, a trade show that will offer much of what is new in technology and equipment, and the opportunity to network with industry partners. Jan Tomko, the conference coordinator, said people are coming from as far away as Pennsylvania and Canada, but most of the attendees are from the Four Corners and California. “They either are working in the (San Juan) Basin or trying to work in the Basin,” Tomko said. “And many of them are interested in getting established here.” With the downturn in the oil and gas industry, Tomko said sponsors that the conference – which is held every other year – has enjoyed in the past aren’t coming in for this conference. “The sponsors help pay for conference expenses and whatever proceeds remain are split by the six conference partners,” Tomko explained. “Most of the partners use their proceeds for scholarships for students.” The six partners include the Four Corners
Chapter of the American Petroleum Institute (API), the Four Corners Section of the Society of Petroleum Engineers (SPE), the Sandia Mountain Section of the National Association of Corrosion Engineers (NACE), the Four Corners Chapter of the American Society of Safety Engineers (ASSE), the Desk and Derrick Club of Farmington, and the Farmington Chamber of Commerce. The conference executive committee includes two representatives from each of the six sponsoring organizations, as well as former chairs of the conference. This year’s committee members include conference chair Melissa Spencer of ConocoPhillips, Olivia Bommarito of BP, Eddie Chavez of Dugan Production, Linda Dean who is retired from ConocoPhillips, Ruth Duval who is retired from BP, Rod Gladden of San Juan College, Jim Holgate of Reliance Medical Group, David Martinez of Flogistix, Rocky Martin of Corrpro Companies, Karen Ortega of M&R Trucking, Jan Tomko and Audra Winters of the Farmington Chamber of Commerce, Gavin Tweedie of BP America, Chris Watts of Williams, and Jo Webber of Nelson Consulting. Melissa Spencer, this year’s conference
chair, said that while the downturn in the industry has affected the number of vendors in the trade show and the number of people attending, the conference is still important. “The conference (trade show) is sold out at this time and we have a waiting list,” Spencer said. “The oil and gas conference will still offer great speakers, who will speak on numerous subjects pertaining to the industry. Companies and employees of the oil and gas industry still have the ability to network.” Karen Ortega is a former chairman of the conference and remains active and involved with this year’s event. “This year is definitely different than it has been in years past,” Ortega said. “This is the first time in many years that we haven’t needed all of the facilities at McGee Park. That is a sign of the times. “However, it’s still shaping up to be a great conference,” Ortega added. “The Convention Center is sold out with booth vendors and all of the outdoor spaces are filled. The program committee has some great speakers lined up, so even though there will be fewer exhibitors, there will be plenty to see and great speakers to hear. “And, of course,” Ortega added with a
www.basinresourcesusa.com • SUMMER 2016
8 BASIN RESOURCES laugh, “there’s always the great food!” Sponsors for the conference include Wagner Equipment, Team Industrial Services, and Western Refining, who are lunch sponsors; Twin Stars Compression, Red Cedar Gathering Company, AWC Compression Automation and Archrock, who are Emerald Sponsors; XTO Energy and Engineering Dynamics Inc., who are Gold Sponsors; Souder, Miller & Associates, who is a Silver Sponsor; and Hoergiber, PSI-Process Solutions Integration, Bruckner Truck Sales, Inc., Rush Truck Center, MRC Global, Inland Kenworth, ConocoPhillips and Durango Party Rental, who are Bronze Sponsors. The list of guest speakers is impressive. Expected to share their knowledge and experience in the industry are Dan Steel of Xetawave, who will discuss “Hybrid SCADA Communication Networks Using SD Radios”; Jeff Voorhis of HY-BON Engineering, who will talk about “Best Practices for Vapor Recovery Systems to Reduce Venting and Flaring with Economic Benefit”; Bruce Kaiser of Lightning Master Corp., who will discuss “New API 545 Requirements for External Floating Roof Tanks; David A. Simpson of MuleShoe Engineering, who will present “Facilities Selection Impacts Reservoir Performance”; and Philip Valois of Pacer Energy Marketing LLC, who will talk about “Setting Up A Safety Training Program for Your Company.” Each speaker will have about 45 minutes to share their information. “The attendees can enjoy
these speakers, talk to vendors, and see what’s new and exciting in the oil and gas field,” Tomko said. “It’s also a good opportunity to network.” There is no cost to attend the
a company uniform, having company identification, or have a guest pass,” she said. “The conference isn’t open to the public because of the liability issues with heavy equipment that is on display.” Putting on the conference demands countless hours of planning by the executive committee and others, Tomko added. “We just couldn’t put this event on without the committee and the almost 150 volunteers who come out and help,” she said. “The best part of the conference is the networking you get to do and the people you get to meet, all of whom are part of the oil and gas industry, which is our survivability in this area.” The celebration of 95 years of the discovery of oil in the area is especially important to Melissa Spencer. “I’m a strong supporter of the oil and gas industry,” she said. “I’ve been in the industry for 23 years and I’m a third generation industry employee in my family. I have been involved with the Four Corners Oil and Gas Conference for many years.” “The conference provides the opportunity to collaborate, network and expand one’s knowledge,” she added. “Each year, I meet new people along the way and I have the chance to learn about new equipment that is being offered to better our jobs or quality of service. By attending different programs, I have expanded my knowledge in this conference. great industry.” However, Tomko said, attenFor more information, people dance is limited to those who may visit the conference website, work in the oil and gas industry. fourcornersoilandgas.com, or “Attendees must show proof of call Jan Tomko at being in the industry by wearing 505.325.0279. www.basinresourcesusa.com • SUMMER 2016
BASIN RESOURCES 9
Navajo MiNe area iv cleared for developMeNt
Tenth Circuit Court of Appeals vacates 2013 case to halt operations DEBRA MAYEUX Basin Resources The Navajo Transitional Energy Company soon will be able to resume mining in Area IV North of Navajo Mine after the Tenth District Court of Appeals dismissed a lower court ruling that halted operations at the site. “This decision furthers Navajo sovereignty and self-determination for the Navajo people,” said Steve Gundersen, chairman of the Management Committee at Navajo Transitional Energy Company, or NTEC. “Our operations at Navajo Mine demonstrate the forward thinking of NTEC and the Navajo Nation. We are an extension of the Nation and we are proud of the work we are doing to secure the economic future of the Navajo Nation and the Four Corners area.” The U.S. District Court of Colorado previously upheld a case filed in 2013 against the U.S. Department of Interior by Diné Citizens Against Ruining Our Environment, San Juan Citizens Alliance, Sierra Club, Centers for Biological Diversity and Amigos Bravos. In the
case, the plaintiff environmental groups alleged BHP Billiton, former owner of Navajo Mine, did not “comply with the procedural requirements of the National Environmental Policy Act, or NEPA” for operations on Indian lands, according to court documents. The mine was and is the primary source of coal for the adjacent Four Corners Power
Plant, owner by Arizona Public Service. It supplies 8.5 million tons of coal annually to the plant. The Area IV North portion of the mine was part of an expansion project put forth by BHP. It contains approximately 12.7 million tons of coal. The lawsuit sought to halt the
SUMMER 2016 • www.basinresourcesusa.com
expansion, claiming the company was not under environmental compliance. The Navajo tribe, which recently purchased Navajo Mine from BHP, argued in favor of the expansion, and requested the case be dismissed. Upon purchase of the mine, the Navajo Nation opened Navajo Transitional Energy Company, or NTEC, which stated that it lost $2 million in profit with the inability to expand Navajo Mine operations into Area IV. The tribe argued that the case should be dismissed because the tribe is a sovereign nation. “By this logic, virtually all public and private activity on Indian lands would be immune from any oversight under the government’s environmental laws. This is neither the intent nor the import of Indian sovereign immunity,” Senior U.S. District Judge John L. Kane wrote in a 2013 opinion not to dismiss the case. Kane quoted previous case law regarding tribal immunity, specifically Manygoats v. Kleppe, which found that “NEPA is concerned with national environmental interests.
Tribal interests may not coincide with national interests. We find nothing in NEPA which excepts Indian lands from national environmental policy.” Kane also stated that the challenge put forth by the Diné Citizens and other environmental groups that were party to the lawsuit had to do with the completion of a federal environmental impact statement, “No prejudice will necessarily result to the Tribe, because the requested relief does not call for any action by or against the Tribe,” he wrote. Kane denied the motion to dismiss the case. The case continued and ultimately was appealed in 2015 by NTEC, sending it to the U.S. Tenth Circuit Court of Appeals, which overturned Kane’s ruling by vacating the case. “NTEC is very pleased with this outcome on appeal. As a company of a sovereign nation, we can continue doing work to secure Navajo Nation’s self-determined future,” said Clark Moseley, chief executive officer for NTEC. “The unfortunate decision of the Colorado District Court last year is no longer on the books, and NTEC can now move on with its operations on behalf of the Navajo Nation.” While the case was pending appeal, Navajo Mine operated seven days a week to provide coal to Four Corners Power Plant. “I want to thank all the Navajo Mine workers for demonstrating Navajo resiliency by adapting to conditions to ensure we continued to meet our obligations to Four Corners Power Plant,” Moseley said.
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www.basinresourcesusa.com • SUMMER 2016
BASIN RESOURCES 11
Cities faCing tough finanCial ChoiCes
Communities working together can find ways to decrease our dependency on oil and gas revenue When Blake No. 1, the oldest gas well in New Mexico, was drilled southwest of the Miller Street Bridge in Farmington, the oil and gas industry was in its infancy. By 1950, there were 30 producing wells in the San Juan Basin, and in 1961 El Paso Natural Gas completed a 24-inch natural gas pipeline from the San Juan Basin to the West Coast, establishing the first major market. In 2010, the San Juan Basin area in the Four Corners was ranked the second largest natural gas field in the United States in terms of proven reserves, with production of 1.3 trillion cubic feet in
sCott eCKstein Mayor City of BlooMfield
2009, according to the naturalgasintel website. In August of 2011 the drilling rig count was at 14; however, in early October of 2015, just three rigs were drilling, only one of them in San Juan County. One of the oldest producing areas in the United
States, the San Juan Basin can count only two drilling rigs working out of 20 rigs available. The “boom and bust” cycle of the oil and gas industry isn’t new to the San Juan Basin or to San Juan County. However, the financial repercussions of a bust can mean success or failure to any business that counts on the industry for revenues – including local and state governments. The oil and gas industry is suffering another downturn, with reports suggesting that about one-third of U.S. oil and gas production companies in the United States could face bankruptcy in 2016. San Juan
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505-325-9600 111 N. Behrend • Farmington, NM 87401 • SUMMER 2016 • www.basinresourcesusa.com
12 BASIN RESOURCES County and the city of Bloomfield join other counties and municipalities across New Mexico that are looking at bleak financial statements now and into the months – and possibly years – ahead. Leaders of Aztec, Bloomfield, Farmington, Kirtland and San Juan County are faced with making drastic cuts to budgets that have little to no fat left on them. With payroll being the biggest expense of any government or business, elected and appointed officials are leaving positions unfilled, reviewing employee benefits and payroll, struggling to keep people employed, and keeping intact the quality of living we all enjoy as we look for alternative economic development. As a county and as cities within the county we must deal with the challenges of today without forgetting the tomorrows our future will bring. We must tighten our financial belts, saving where we can and must – but we must also be mindful that if
we are to attract new businesses to our area, we must give them good reasons to move to San Juan County. The quality of life we enjoy throughout San Juan County must be maintained if the marketing plans we have to bring in businesses – in order to counteract the highs and lows of the oil and gas industry – move ahead. Streets and roads, parks and medians, buildings and homes, storefronts of businesses – all must be clean and attractive, which will invite visitors and new businesses to stop and consider our county a new place to call home. As leaders and citizens of San Juan County we must combine our energies, our resources and our enthusiasm to generate ideas for growing our area and making it less dependent on oil and gas. I believe we have the wisdom, the knowledge, the energy and the desire to think outside the box; and together we can lift our cities and our county out of the
struggles of a challenging economy and up and into a bright and successful future. We must put our economic sights on alternative industries – telecommuting, small manufacturing, tourism – expand on them and build them. In addition, when the good times return – and they always do – let’s not forget the tough times we’re going through now. As business owners, as elected and appointed government officials, and as heads of families, we must remember the safety net of fiscal responsibility. Financial reserves need to be rebuilt to help us get through another downturn. But it will take all of us – working together – to find solutions to our economic problems. I encourage each of you to share your thoughts and ideas about economic development with your community leaders. If we start the conversation now, we’ll be far better prepared to meet the challenges of our future.
www.basinresourcesusa.com • SUMMER 2016
BASIN RESOURCES 13
SUMMER 2016 • www.basinresourcesusa.com
14 BASIN RESOURCES
EDUCATIONAL partnership
San Juan College School of Energy expands learning opportunities into North Dakota A partnership between San Juan College School of Energy and Missouri River Resources has developed into a program that will provide stellar educational opportunities for American Indian Students from three affiliated tribes in North Dakota. When Randy Pacheco and Dave Williams were first introduced at a meeting in Denver several years ago, little did they know that this would lead to a partnership between their two organizations. Williams is the CEO for Missouri River Resources (MRR), a tribally-owned oil and gas production company operating in North Dakota. Pacheco is the former Dean of the San Juan Col-
lege (SJC) School of Energy (SOE). Together, with San Juan College President Dr. Toni Hopper Pendergrass, interim SOE Dean Ken Johnson, and others, a Memorandum of Understanding was created, which focuses on the training and development of North Dakota’s incumbent and future energy workforce. Why the need for a new approach at MRR? Williams acknowledges that typical oil field education is passed from generation to generation, a method that won’t go away. However, providing a consistent foundation of technical knowledge builds critical thinking and trouble-shooting skills. “Delivery of a safe efficient
Tyrell Smith, Missouri River Resources Field Technician, starts a pumping unit located at San Juan College School of Energy’s training well site.
www.basinresourcesusa.com • SUMMER 2016
BASIN RESOURCES 15 business demands that technicians be multi-skilled, with a clear understanding of how oil and natural gas is produced,” Williams said. “This partnership is aimed at creating this workforce.” One program component, an Oil and Gas Production Immersion, was delivered to five members of MRR’s incumbent workforce in early April. SOE instructor Jerry Huwe, whose previous career includes more than 40 years of industry experience in oil and gas production, delivered the curriculum at the School of Energy facility in Farmington. Through the Immersion, MRR technicians gained an in-depth view of the principles of oil production, which included everything from compression, dehydration, artificial lift and measurement, as well as a hands-on overview of equipment such as wellheads, heater treaters, and separators. They had the opportunity to earn college credit that
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will apply toward a certificate or associates degree from San Juan College. Neil Packineau is an MRR operations technician who attended the Immersion. “The equipment cut outs and wellheads gave us a good look at what’s actually inside the vessels.” said Packineau. “The downhole information was also really useful,” He went on to praise Instructor Jerry Huwe for going the extra mile to effectively explain the material and answer questions. Dr. Pendergrass sees strategic partnerships like the one formed with MRR continuing at the School of Energy. “By seeking opportunities to expand beyond the San Juan Basin and serve as a global trainer of energy education, our school will continue to grow and students will receive an exemplary education,” she continued. “This endeavor is a win-win for all involved.”
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RealPeople RealJobs FCED initative encourages community to sign petition, get involved DEBRA MAYEUX Basin Resources Proposed changes to the way the Bureau of Land Management regulates oil and gas sites in New Mexico could result in the loss of 9,000 jobs in San Juan County. That number comes from Four Corners Economic Development, which is spearheading an effort to stop changes to Onshore Oil and Gas Orders 3, 4, 5 and 9. The effort is called Real People, Real Jobs, and it was an extension of a project developed to save Public Service Company of New Mexico’s San Juan Generating Station and its adjacent coal mine from the possibility of closure in 2015.
4CED mobilizing “Four Corners Economic Development is mobilizing the community to sign a public letter to our Washington delegation stating the impact of these regulations on the community,” said Chris Hunter of WESST. “We are asking our congressional delegation to take a good careful look at the implications of implementing these four regulations.” Onshore Oil and Gas Orders 3, 4, 5 and 9 have to do with the extraction of oil and gas from public lands. In New Mexico, 63 percent of oil and gas production comes from public lands which, Hunter pointed out are owned by the people. He also stated that on the surface these regulations make sense. “When you look under the hood, there are costs that need to be carefully considered,” Hunter said. The last time the BLM looked at these orders was in 1989, and the revisions were requested by the BLM to “keep pace with
changing industry practices and emerging and new technologies,” according to its website, www.blm.gov/live/pdfs/summary.pdf.
Order 3 Revisions to Order 3 state that its purpose is to strengthen minimum standards for ensuring oil and gas produced on federal and Indian land would be “properly and securely handled, so as to prevent theft and loss and to enable accurate measurement and production accountability,” the BLM stated. It would establish a nationwide process for measuring the amount of oil and gas extracted and the royalties paid, as well as develop new standards for commingling of wells.
As far as commingling goes, in this area many of the wells produce both oil and gas, but under this new order, there would need to be separate wells for oil or gas, according to industry officials. The order also would require seals, meter bypasses, reporting of unauthorized removal or mishandling of produce, site facility diagrams and off-lease measurement. Revisions to orders 4 and 5 require new and enhanced equipment to “ensure accurate and verifiable oil and gas measurement and royalty payments,” the BLM order stated. Under Order 4 there would be enhanced requirements for oil sales by tank gauging, vapor tight tanks, Lease Automatic Custody Transfer components and requirements, and
www.basinresourcesusa.com • SUMMER 2016
BASIN RESOURCES 17 a requirement of the use of “Coriolis measurement systems, which measure and output flow, temperature, density and viscosity,” the BLM order stated.
Order 5 Order 5 would require electronic gas meters and enhanced inspections of those meters, improved gas sampling and thermal content determination standards and “improved testing and review standards for the Department’s Gas and Oil Measurement Team,” which is an interagency panel of measurement experts, according to the BLM. There also would be set performance goals for the measurement of gas. The BLM added that changes to these three orders would require better record keeping on the part of oil and gas companies, transporters and pipeline operators. Order 9 is the final one up for changes, and it has received a great deal of attention as it would change the venting and flaring rules for gas sites on public lands. “Flaring occurs for a couple of reasons,” Hunter explained.
“We see flares by Counselors and Lybrook. These are oil and gas wells that have a lot of nitrogen.” The nitrogen, which is not toxic, is flared or burned off, Hunter said. The BLM, however, has stated that flaring is a waste of valuable natural resources, so it should be limited or stopped. The BLM also has alleged that the practice of venting and flaring is polluting the environment. This is something most in the industry dispute. Even the Farmington City Council adopted a proclamation on March 22 in opposition to the proposed changes to the orders.
the proclamation stated, “the industry is no longer the largest source of U.S. anthropogenic methane emissions.” The council went on to state that “the industry has been continuously innovating and developing new technologies to reduce emissions; this success along with the market incentives to capture and sell as much natural gas as possible will continue without the proposed regulations from the BLM.”
$17 million in royalties. Costs such as these, coupled with the low return in profit from low oil and gas prices, have caused a slowdown in production in the region, according to Hunter. There are 20,000 oil and gas wells in the San Juan Basin. “These wells are under significant economic threat,” Hunter said. “Twenty-five percent of the gas wells are cash-flow negative at $2.” If the proposed orders are implemented, then 12.5 percent of the other wells will be at cash-flow negative, he said. When wells are not producing a financial return, companies have to cut costs, and cost
$16 million in costs The Farmington City Council estimated the implementation of these orders would impose up to $161 million in costs upon the industry in order to collect
* FCED 34
City proclamation In the proclamation signed by Mayor Pro Tem Gayla McCulloch, who is the owner and operator of Drake Well Service, it states that the oil and gas industry has voluntarily implemented equipment to its wells that reduced methane emissions. The emission of methane has dropped 21 percent since 1990 “without federal regulation, even as natural gas production has increased by 47 percent,”
SUMMER 2016 • www.basinresourcesusa.com
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Greater diversification Striving to reduce volatility, and uncertainty in global oil market The ebb and flow and the ups and downs of the oil and gas industry in San Juan County and the San Juan Basin aren’t new to us. We’ve been through the “boom and bust” cycle before and we’ll likely go through it again. However, with this most recent and devastating blow to our local economy because of low gas prices and lack of drilling, it is time we address the challenge of diversifying our economy. Four Corners Economic Development – an offshoot of the vision of the e>p leadership team – has continued the efforts of many in our community to look beyond the drilling rigs and the pipelines to find new businesses that will benefit our economic base and bring jobs – and families – to our area. The Gulf Cooperation Council (GCC) recently published a report that emphasizes what we already know – “(G)reater diversification would reduce exposure to volatility and uncertainty in the global oil market, help create private sector jobs, increase productivity and sustainable growth, and establish the non-oil economy that will be needed in the future when oil revenues start
to dwindle.” In addition, the report states that “(A) stable, low-inflation economic environment has been achieved, the business climate has been strengthened, education has been expanded, trade and foreign direct investment (FDI) has been liberalized, and the financial sector deepened when policies have been adopted to diversify the GCC economies and reduce their reliance on oil. “Development plans are being implemented nationally, with the hope of developing new industries and services that can employ a highly skilled labor force. Unfortunately, those plans are slow to succeed.” In San Juan County, we need to reach out to individuals, small businesses and entrepreneurs and encourage them to start and grow their business here. We need to recruit actively – with a full scale recruiting team – to find those businesses and people, and to share with them all we have to offer. We need a sales force with the primary goal of selling San Juan County as the perfect place for their business home. SmallBusiness.com has several suggestions for possible business opportunities for rural
areas such as San Juan County. “Businesses are starting to take advantage of low-cost rural locations. Rural sourcing took hold first in IT consulting and is spreading to other services. “The restoring of manufacturing is making national headlines, but it is rural areas that are reaping the most new projects. Between the labor and energy, U.S. manufacturing is again cost competitive for many projects, if located outside of expensive major metro areas. Supporting supplier and services in rural areas will grow along with
* Pacheco 33
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20 BASIN RESOURCES
low enerGy Prices: While bad for New Mexico’s economy, a net positive for U.S. What’s next for oil and gas prices? The hard truth is that no one “knows” what will happen to the prices of oil and natural gas. The future is unclear and, as we have seen in recent years, unpredictable. The price of oil (WTI) held relatively consistent above $100/barrel as recently as mid-2014. By the start of 2015 the price had dropped to $50. The current price hovers in the $30-$40 range amid anticipation that OPEC will come to some kind of agreement to limit output, but prices are volatile. Since oil and gas markets are beholden to different market forces and prices are disconnected, each one must be discussed with its varying factors and influences.
January prices $27/barrel In January the price of oil dropped all the way below $27/barrel. That was the lowest price since 2003. The good news is that since that low point, the price has rebounded to – as I write this – $40/barrel. That is an indicator that the market is working quickly to find a sensible price point. We haven’t seen the end of volatility, but $27/barrel proved unsustainable. The current price may not be as high as many producers would like or
have gotten used to, but $40 is not a disaster for the industry. Further positives include the end of the ban on crude oil exports and the potential for some kind of OPEC agreement to limit production. I wouldn’t lean too heavily on the latter, however, as OPEC members are notorious for “cheating” on their production limit agreements. The main threats to the price of oil include Iran ramping up production and thus driving prices down, or a further weakening of the global and U.S. economies. The current bull market in the United States is on the verge of becoming the 2nd-longest in history – only the 1987-
2000 bull market was significantly longer. The global economy, including China, however, is not doing as well. Low energy prices, while not good for New Mexico’s economy, are a net positive for the U.S. economy as a whole, especially if prices stabilize at today’s low, but not “bargain-basement” levels. This
Paul GessinG rio
President Grande Foundation www.basinresourcesusa.com • SUMMER 2016
22 BASIN RESOURCES makes the United States more competitive and better able to withstand global economic challenges. In other words, there is no particular reason why the U.S. economy and stock market should suddenly weaken. This trend should further stabilize energy prices. Of course, significant and longlasting increases in the price of energy could reverse this trend, but it appears that for the time being cheap energy will be a serious advantage for the U.S. economy.
Natural gas prices This all brings us to the price of natural gas. Gas prices have been at record lows in real terms in recent months. While prices approached $14 per million cubic feet (MCF) in the late 2000s, the current price is below $2. According to petroleum geologist and energy writer Arthur Berman there could be a light at the end of the tunnel for natural gas producers who are able to stick it out. Berman notes that “gas production is flat, imports are decreasing and exports are increasing. Shale gas production has stopped growing and conventional gas has been declining for the past 15 years.” In other words, after years of oversupply, supply and demand could finally be coming into balance. Berman predicts a doubling in natural gas prices in the next year. That’s nowhere near the “good old
days” for producers, but it would be a relief from record-low prices. The best news for natural gas producers is that large quantities of liquefied natural gas (LNG) are now being shipped from the United States to overseas markets. Just last month, Cheniere Energy in Louisiana shipped its first cargo of LNG to Brazil, but more facilities are expected to come online over the next several years, thus opening low-cost U.S. LNG producers to a global market, including Japan and Eastern Europe where prices are much higher and – due to Russian political aims and market manipulation – often unstable. LNG exports are not likely to result in significant price increases due to the vast supplies of natural gas now available, but the development of new markets will be a boon for low-cost producers. If those markets are thriving economically, LNG
exports will grow steadily. Japan, Brazil, and other prospective export markets continue to experience economic challenges, but each of these nations faces serious challenges. Unfortunately for American producers, the biggest beneficiaries of American LNG exports will be Eastern European nations that have a reliable and cost-effective counterweight to Russia. The other significant, positive development for natural gas is the ongoing shift in electricity generation from coal to natural gas. According to the U.S. Energy Information Administration, natural gas started regularly surpassing coal as a source of U.S. electricity production in mid-2015. That trend is likely to continue as coal falls into disfavor for environmental reasons and natural gas
* Gessing 33
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BASIN RESOURCES 23
The Trickle-down effecT Volunteer fire departments feeling the squeeze Dorothy Nobis Basin Resources With the continuing challenges facing the oil and gas industry in san Juan County, the trickle-down effect has hit local volunteer fire departments. While the fire departments in san Juan County, Aztec and bloomfield don’t depend heavily on donations from the oil and gas industry, the industry has been generous with its donations to departments in the past. Most of the money donated is used for training volunteers.
City of Bloomfield “the local oil and gas industry has always supported local emergency responders in many ways,” said bloomfield’s Assistant Fire Chief John Mohler. “our area relies heavily on volunteers and many of the volunteers work within the (oil and gas) industry. the training they (oil and gas companies) provide their personnel benefits us as well, because these people also volunteer.” “the industry as a whole helps fund local emergency drills, shares safety training with responders and provides valuable information on the materials and processes that the industry uses,” Mohler added.
San Juan County Fire Department the lack of revenues from the oil and gas industry has impacted the san Juan County Fire Department for several years, said County Fire Chief Craig Daugherty. the county fire department is funded through a ¼ of 1 percent gross receipts fire excise tax. “because of the downturn of oil and gas in recent years, we’ve seen a drop in those revenues,” Daugherty said, “which impacts us more than the loss of donations.” the loss of revenues has “forced us to be more creative and reprioritize our budget and rely more on grant funding,” Daugherty said, adding that the loss of revenues from the excise tax as a result of the downturn in the economy created a 50 percent decrease in the money the department received in the last five to six years. the bloomfield Fire Department has faced challenges with the lack of donations for training. Assistant fire chief Mohler said, “Many training budgets are shrinking and only required training is being funded. this means we are struggling to keep people SUMMER 2016 • www.basinresourcesusa.com
“The problem we are seeing now is that somebody is taking longer and longer to arrive because of the lack of volunteers. We are all being challenged to do more with less; less responders with less training should be a huge concern for everybody in the area.”
— John Mohler Bloomfield Assistant Fire Chief
24 BASIN RESOURCES certified at their current levels and we rarely allow new personnel to move forward into new certifications.” Kevin Simpson, the city of Aztec’s Fire Chief, said his department doesn’t rely on donations for any part of its operational budget. While budgets are tight and donations limited, it isn’t just finances that cause concern for local fire departments. It is the constant need for volunteers. “My biggest concern is, and has been, having enough responders to handle an emergency, whatever that emergency might be,” said Mohler. “This area has relied on volunteers for so long, we have grown to expect somebody will show up (in the case of an emergency).” “The problem we are seeing now is that somebody is taking longer and longer to arrive because of the lack of volunteers. We are all being challenged to do more with less; less responders with less training
should be a huge concern for everybody in the area. We are challenged to get people to give up their valuable time to help their neighbor,” he added. Bloomfield had 41 volunteers in 2002. In 2015, the department had just 16 volunteers, but had 12 firefighters, seven of whom were paid with funding from a grant.
City of Aztec The city of Aztec has just one paid staff member – Fire Chief Kevin Simpson – and relies on 17 volunteers to respond to emergencies. “This area is fairly transient; therefore, it is always difficult to recruit and retain volunteers,” Simpson said. “We have lost some members due to layoffs in the past few years. The biggest concern for the future is that our call volume is increasing and we are not getting many younger people to volunteer.” The San Juan County Fire Department
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has 14 paid staff – four mechanics, two administrative positions, and eight responsecapable chief officers. In addition, the department relies primarily on about 275 volunteers who help man 24 fire stations in 14 districts throughout San Juan County, which covers 5,500 square miles. Across the county San Juan County could use an additional 100 volunteers to meet the ever-increasing call volume, Daugherty said, adding, “Our biggest recruiters are our current volunteers, and our recruitment retention is positive. The county regularly discusses the potential need for additional paid firefighters, but it always comes back to money.” “A tax increase isn’t something people want right now,” he added, “and having paid firefighters presents funding challenges as well. The value of our volunteers is priceless and often goes unrecognized by the constituents in the county.”
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26 BASIN RESOURCES
POWER Initiative
Program offers internships; retraining for displaced energy industry employees On October 15, 2015, the Economic Development Administration, a division of the U.S. Department of Commerce, announced that San Juan College was selected as the recipient of a POWER (Partnerships for Opportunity and Workforce and Economic Revitalization) Initiative grant. These funds are awarded to eligible communities that historically have relied on the coal economy for good jobs and economic prosperity to assist with economic and workforce development. In December, San Juan College selected me as director of the Four Corners POWER Initiative, the name for their grant program. Since then, we have worked fervently to develop an implementation plan, establish valuable partnerships and begin utilizing the awarded funds. The College’s program was designed to promote economic development through investment in information technology and additional programs through the purchase of necessary equipment. Workforce development is also a priority with an emphasis on the rapid retraining of displaced
workers and the development of internships.
Internship program One of the first initiatives implemented was an internship program created in partnership with International Business Machines (IBM). Six interns were selected, and IBM sent a trainer from Malaysia to onboard the interns and provide staff training. The interns are working for IBM’s Learning Division assisting with employee enrollment into educational programs. However, the benefit isn’t only in the work being performed. Interns are being exposed to new computer software, an office environment, working in a team and communicating with individuals all over the world. This exposure is teaching them a wide variety of skills, including cultural sensitivity and how to communicate across cultures. Interns can work in the program for up to a year, allowing them to gain valuable experience and a chance to apply for positions within IBM that may not be available to the public. Through the
course of the grant, I hope to develop additional internships in a wide variety of fields to provide unique and challenging opportunities that could lead to job placement for our students.
Education and workforce training Recently I have been able to offer funds to assist displaced workers and their families to train for new careers. The purpose of this opportunity is to re-train workers who have traditionally relied on fossil fuel industries for employment. Through education and workforce
MElIssa MEEChan FOuR CORnERs POWER InItIatIvE DIRECtOR
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BASIN RESOURCES 27 training, individuals can seek gainful employment in non-energy fields and continue to provide for their families during difficult economic times. To date, 25 individuals have been approved to pursue education from a list of programs that were selected for the ability to offer credentials or certifications within a year in a field that is actively hiring. Most of the programs we selected are focused on information technology, business, or healthcare, but other options include pursuing a Commercial Driver’s License or certification in Instrumentation and Controls. Through the grant, we can pay for tuition, books and related school fees for those who meet participation criteria. Program participants not only receive educational benefits, but are required to learn about their natural career aptitudes and prepare for their future by attendance at additional trainings and utilization of services offered on campus. These additional opportunities help workers who haven’t been to
school in a while. Recently, an applicant told me he was relieved by the additional support we offer. As I described the program to him, he was glad to know that I am vested in his success and will be there for him through the process. It gave him peace of mind to know that he isn’t working through this on his own. Due to the nature of our program, students will make numerous contacts on campus and will know where to get help or support when they need it, making their success all the more likely.
practices that will enable our Nation to effectively prevent and respond to a catastrophic cyber event. This program will contribute significantly to the advancement of state-ofthe-art cyber defense knowledge and practice.” The center is expected to draw students to San Juan College and promote economic development as businesses move to the region to hire graduates. The ultimate goal for the program is to earn recognition as a National Center for Academic Excellence in Information Assurance/Cyber Defense.
Cyber center on San Juan College’s 30th Street campus
Dr. Bradley Purdy
A big project on which we are working is the development a cyber center on San Juan College’s 30th Street campus. The School of Business’s Dean Dr. Bradley Purdy reports that “The center will allow San Juan College students and the Four Corners Community to proactively increase our understanding of robust cyber defense technology, policy and
SUMMER 2016 • www.basinresourcesusa.com
Dr. Purdy’s prior experience developing similar programs for other institutions is an asset that will only help us succeed. During his career, he says he had the pleasure of working at the national and regional level to support the development of cyber security best practices in cooperation with various governmental agencies as well as leading professional organizations such as Information
28 BASIN RESOURCES Systems Audit and Control Association (ISACA), ISC2, CompTIA and ASIS. His work over the years has led to the creation of academic programs focused on providing degrees, workforce development for immediate employment training and community focused cyber conferences across the country. The center is a long-term project that will be completed as part of the renovations to San Juan College’s 30th Street campus, a project funded by the 2015 San Juan College GO Bond election.
Included equipment upgrades The Four Corners POWER Initiative is a substantial undertaking and will also include equipment upgrades to the Instrumentation and Controls and Commercial Driver’s License programs. School of Energy personnel have met with several vendors and industry stakeholders to ensure that equipment purchased will best serve
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Amanda Wright completes an assignment as part of her internship with IBM, which is funded through the Four Corners POWER Initiative.
students and employers. Upgrades to the Instrumentation and Controls program are being made to modernize outdated equipment in order to offer the potential for graduates to work in a wide variety of in-
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dustries. It is our goal to have the new equipment in place before students report for the fall semester so that incoming students receive the best possible education on state-of-the-art equipment. The Four Corners POWER Initiative has three years to complete projects and fulfill grant objectives. I feel that this is a reasonable task and expect that much of the work will be done sooner. We are already on-task with many of our plans. We are actively offering internships and educational opportunities and hope to have most of the incoming equipment purchased and installed before the fall semester. It is my goal to complete the projects as quickly as possible to help meet the needs of our students and community because that is really what this program is about, helping San Juan County become stronger and more resilient to changes in the energy industry.
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30 BASIN RESOURCES
Family vacations will be a little cheaper Retail gasoline prices this summer expected to be lowest since 2004 The U.S. Energy Information Administration forecasts that U.S. drivers will pay an average of $2.04 per gallon (gal) this summer for regular gasoline, according to EIA’s Short-Term Energy and Summer Fuels Outlook. The forecast price for summer 2016 – which runs from April through September – is 59 cents/gal lower than the average price last summer, and it would be the lowest average summer price since 2004. Monthly average gasoline prices are expected to increase to $2.08/gal in June, and then fall to $1.93/gal in September. In the United States, slightly more than half of the vehicle-miles driven in a
year occur in the six months from April through September. For the full year 2016, EIA forecasts
U.S. regular gasoline prices to average $1.94/gal. Based on this annual average price, EIA estimates the average
www.basinresourcesusa.com • SUMMER 2016
household will spend about $350 less on gasoline in 2016 than in 2015 and about $1,000 less than in 2014, when retail gasoline prices averaged more than $3/gal. Gasoline prices are based on four main components: crude oil prices, wholesale margins, retail distribution costs, and taxes. Because the latter two are generally stable, movements in gasoline prices are primarily the result of changes in crude oil prices and wholesale margins. Each dollar per barrel of sustained price change in crude oil and/or gasoline wholesale margins results in a change of 2.4 cents/gal in product prices. Gasoline prices in the United States typically reflect changes in the Brent global oil benchmark. The Brent crude oil price is forecast to average $35/barrel (83 cents/gal) this summer, about $22/barrel (50 cents/gal) lower than last summer. Crude oil prices are lower this year because global oil supplies have continued to exceed consumption, leading to persistently large inventory builds. EIA expects these inventory builds to persist through 2016, keeping crude oil prices below $40/barrel. EIA expects wholesale gasoline margins – the difference between the wholesale price of gasoline and the Brent crude oil price – will average 47 cents/gal this summer, about 13
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32 BASIN RESOURCES cents/gal lower than last summer. Gasoline production has been higher recently, and several of the severe refinery outages that caused high prices last summer – particularly on the West Coast – have since been resolved or accommodated by obtaining supplies from other sources. Regional differences in retail gasoline prices can be significant, and EIA forecasts average summer prices to range from a low of $1.80/gal on the Gulf Coast to $2.51/gal on the West Coast.
! www.basinresourcesusa.com •SUMMER 2016
BASIN RESOURCES 33
Pacheco
Gessing
continued from 18
small custom manufacturing firms,” the website states. “Cooperatives are for more than just the grain elevator and the electric utility,” the website article continues. “Coworking, popups and combination businesses are pooling resources and cutting costs. Community ownership is taking over where individual ownership can’t make a go of it. Not-justfor-profit businesses are paying attention to their own bottom line, their people and the community. Successful business owners are investing back into their community. The opportunity here is to think outside the usual forms when creating or re-creating a rural business.” By thinking beyond the usual business opportunities, by partnering with others of like mind and vision, and by promoting all San Juan County has to offer – a great qual-
ity of life, a friendly and positive business community and the willingness to do what we can to help every business succeed – we can take the first step to creating an economic foundation that doesn’t depend on an industry that has served us well in the past, but is facing its own struggles today. Oil and gas will always play a major role in the history of San Juan County, and the economic benefit to our community will always be appreciated. However, as the industry faces its own challenges in the future, we must be prepared and pro-active in recruiting and bringing new sources of business revenues into our community. The first step begins with us – and as a community and as business leaders we must take that step to ensure the path toward our future is as beneficial as the road behind us.
continued from 22
becomes the “go-to” electricity source for utilities. To summarize, both oil and gas producers face a great deal of uncertainty. Given the vast supplies of oil and natural gas that can come online as prices go up, keeping costs low is a must. In terms of New Mexico’s economy, low prices seem to be the “new-normal.” As some producers fall by the wayside, production numbers will undoubtedly result in significantly lower employment and tax revenues for the foreseeable future. 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.
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cutting often comes in the form of layoffs. The Basin has seen several layoffs in the past few months as companies cut corners. If the trend continues, Hunter estimates more jobs will be lost. This is because there are 1.2 employees for every gas well in the basin. If the wells are not producing, those employees are no longer needed and we see job losses throughout the region.
Education, quality of life suffers As people lose their jobs, they move out of the community, and schools and businesses suffer. Farmington Municipal Schools
saw a reduction of 150 students in the 2015-2016 school year. Fewer students mean less money for the schools, and that means a shrinking workforce in the school district. As more people lose their jobs in oil and gas and education, businesses will suffer and more workers could be laid off from positions that are not industry related. It is trickle down effect that could negatively impact the local economy. The loss of jobs, however, is not the only concern, because 40 percent of New Mexico’s budget comes from oil and gas rev-
enues. Now the state has a potential to run out of funds, because the industry is not producing what it used to, according to Hunter. Hunter and others are encouraging community members to sign the letter to Congress and let the New Mexico delegation know that oil and gas are important to this region. “We have 3,500 signatures now, and we are looking for a lot more,” Hunter said. “The oil and gas industry is important to this community. It is filled with responsible men and women.” For more information or to sign the letter visit www.realpeoplerealjobsnm.com.
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