SHALE Magazine July/August 2018 by SHALE Oil & Gas Business Magazine

SHALE JULY/AUGUST 2018

THE NOVEMBER ELECTIONS IN TEXAS PROMISE SOME FIREWORKS STEER AND TXOGA HOST SAN ANTONIO ENERGY SUMMIT

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TOMMY NUSZ

AND OASIS PETROLEUM: DOING WHAT’S IN THE DNA

A NEW GULF COAST?

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JULY/AUGUST 2018

CONTENTS SHALE UPDATE

Shale Play Short Takes

FEATURE

Capturing Beauty in the Oil Field

COVER STORY

Tommy Nusz and Oasis Petroleum have done well in the Bakken — so well, in fact, the company is now the fourth largest producer in the Bakken play. As the company moves into the Permian Basin, we discuss the hurdles and opportunities Oasis Petroleum may experience. Luckily, the leadership team has the knowledge, experience and DNA to grow their production numbers in West Texas just as they did in the Great White North.

INDUSTRY

Latest Updates on the Eagle Ford Shale

POLICY

COVER AND TABLE OF CONTENTS PHOTOS BY MICHAEL GIORDANO

INDUSTRY

34 A New Gulf Coast? Steady Development Spurs Appalachia Rebranding

36 PESA Annual Meeting Features Diverse Topics and Speakers 38 STEER Calling for Entries for 2018 Eagle Ford Excellence Awards 40 Permian Pipeline Set to be Future Bottleneck for Production Growth 42 Booming Out of the Bust

POLICY 48 The November Elections in Texas Promise Some Fireworks 50 The Evolution of the Texas Railroad Commission and its Historic Dedication to Safety

52 Reflections on the Vital Role of the Oil and Natural Gas Industry’s Trade Associations

Steel Tariffs Go Fully Into Effect

BUSINESS 56 Tax Reform: Making the

R&D Tax Credit Relevant Again for Natural Resources

LIFESTYLE 60 Dripping Springs Distilling 62 Dry Dock Brewing Company

64 The Zuehl Saloon

SOCIAL 68 NAWBO SA Annual

Membership Meeting

BUSINESS

Saving Tips From a Financial Expert

LIFESTYLE

Omni Corpus Christi Offers Culinary and Bartending Excellence

SOCIAL

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VOLUME 5 ISSUE 4 • JULY/AUGUST 2018

KYM BOLADO

PUBLISHER / CEO CHIEF FINANCIAL OFFICER Deana Andrews CHIEF OPERATING OFFICER & EDITOR-IN-CHIEF Lauren Guerra EDITOR David Blackmon ASSOCIATE EDITOR David Porter ART DIRECTOR Elisa G Creative COPY EDITOR Kelly Hamilton VICE PRESIDENT OF SALES & MARKETING Joyce Venema ACCOUNT EXECUTIVES John Collins, Ashley Grimes, Michelle Mata, Matt Reed ONLINE CONTENT MANAGER Fernando Guerra SOCIAL MEDIA DIRECTOR Courtney Boedeker CORRESPONDENT WESTERN REGION Raymond Bolado

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CONTRIBUTING PHOTOGRAPHER Michael Giordano CONTRIBUTING WRITERS Leslie Beyer, David Blackmon,Mark E. Charnet, Chris Hosek, Karr Ingham, Bill Keffer, Katie L. Lee, Jackie Stewart, Thomas Tunstall, Ph.D. STAFF PHOTOGRAPHER Malcolm Perez EDITORIAL INTERN LeAnna Castro

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www.shalemag.com For advertising information, please call 210.240.7188 or email kym@shalemag.com. For editorial comments and suggestions, please email lauren@shalemag.com. SHALE MAGAZINE OFFICE: 5150 Broadway St., Suite 493, San Antonio, Texas 78209 For general inquiries, call 210.240.7188.

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JULY/AUGUST 2018  SHALE MAGAZINE

PUBLISHER’S NOTE

AS WE GO TO PRINT, 2018 IS MOST THAN HALF OVER. TIME FLIES, DOESN’T IT?

At the start of this year we were looking forward to an uptick in oil and gas activity in Texas, and throughout the U.S. It seems our hopes for higher prices and increased activity came to fruition as we see rig counts rising in many of the basins across our nation. With this increase in drilling and producing activity comes new opportunities for jobs and economic stimulation for the areas in and around the producing regions. It’s this topic that seems to be of common interest to business owners, community leaders and members, our elected representatives and more. We see there is a thirst for information on analysis and projections of future market activity and current operations with trickling economic effects. For this reason, we hold an annual luncheon to discuss these topics and more. The 2018 State

of Energy luncheon will focus on the 2018 market and beyond to give insight from energy leaders and experts. The fourth annual State of Energy luncheon will be held Aug. 29 at the Solomon P. Ortiz Center in Corpus Christi, Texas. We will have featured speakers from various sectors of the industry to provide energy perspectives from across the value chain. We look forward to releasing more information on discussion topics and featured speakers in the coming weeks. Stay tuned to our social media platforms to get the most current information. The evening prior, Aug. 28, we will proudly host a mixer at the Omni Corpus Christi from 5:30 p.m. to 6:30 p.m. in recognition of Women’s Energy Network (WEN) South Texas. This event will serve as an opportunity to share the benefits for this group and increase awareness of the brand in the Corpus Christi area. Attend this event for only $10, or join WEN South Texas for free entry. We hope you will join us for these events as we share new and exciting information from our prestigious group of speakers. You do not want to miss this event. Reserve your spot now at shalemag. com/soe.

KYM BOLADO

CEO/Publisher of SHALE Magazine kym@shalemag.com

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SHALE UPDATE

SHALE PLAY SHORT TAKES By: David Blackmon

Denver/Julesberg (DJ) Basin - Colorado

Production levels of both oil and gas in this key shale basin are also setting records in recent months. Bernadette Johnson, Vice President for Market Intelligence at DrillingInfo told an audience in Littleton, Colorado in June: “Since December, we have seen oil grow by nearly 10,000 bpd every month,” and DrillingInfo expects the rebound to continue in the coming months based on continued strong commodity prices.

Bakken Shale – North Dakota/Montana

After a brief minor decline in March, Bakken Shale production of both crude oil and natural gas rose in April, with natural gas production setting a record high for the play. Crude production of 1.224 million barrels of oil per day (bpd) came within 3,000 bpd of the all-time high, set in December 2014. The gains were achieved on the strength of rising crude prices, which briefly topped $72 a barrel during April before dropping into the high $60s range in May. The rise in the Bakken’s fortunes has also been facilitated by the presence of the Dakota Access Pipeline (DAPL), which celebrated its anniversary of full operation in June. The presence of the DAPL, with its takeaway capacity of 570,000 bpd, has cleared previously-existing transportation bottlenecks, lowered overall transportation costs, thus helping the basin to become increasingly productive.

The Permian Basin continues to be the main driver behind U.S. oil production, which sets new records with each passing month. However, a shortage of pipeline takeaway capacity for both oil and natural gas threatens to slow the Permian’s rapid growth in the coming months. Former Pioneer Natural Resources CEO Scott Sheffield told an audience in late June that he expects the region’s pipeline system to reach full capacity in late summer/early fall, and that producers who lack reserved capacity on the various pipeline systems will soon begin to forego new drilling projects and begin to shut-in some wells. With more than a dozen new pipeline projects currently in the planning or construction phases, this bottleneck will be relieved within a year, but in the meantime, it appears certain that the boom in the Permian will be slowed significantly.

SHALE MAGAZINE  JULY/AUGUST 2018

Eagle Ford Shale – Texas

The full extent of the oil and gas reserves present in the Eagle Ford formation became a bit more clear in late June, as the United States Geological Survey (USGS) released an update to its resource assessment for the basin. According to the USGS, the “Eagle Ford Group of Texas” contains 8.5 billion barrels of oil, 66 trillion cubic feet (TCF) of natural gas and 1.9 billion barrels of natural gas liquids that are “undiscovered” and “technically recoverable.” What those last two terms mean is that these volumes of resource are known today to be in place and can be produced using current technology. Given that technology in the oil and gas industry advances every day, this means that even this updated estimate of the Eagle Ford’s potential is significantly understated. Placed in context, the most prolific single underground formation in U.S. history – the East Texas Field – has produced a little more than 7 billion barrels of oil since its discovery in the early 1930s. Production from the Eagle Ford Shale recently topped the 3-billion-barrel mark since its inception 2008. Added to the 8.5 billion technically recoverable barrels estimated by the USGS that would mean we can expect ultimate recoveries from the formation to exceed 11.5 billion barrels of oil. It’s not the Permian Basin, but the Eagle Ford is a phenomenally rich formation.

FEORIS/BIGSTOCK.COM

Permian Basin – Texas/New Mexico

Marcellus Shale – Pennsylvania/West Virginia/Ohio

Three new academic studies released in a span of five weeks in May and June revealed that a decade of drilling in the Appalachian Basin – including the Marcellus Shale – has had no negative impact on the region’s ground water. The most recent study, conducted by scientists at Yale University, noted that much of the region’s groundwater has historically contained measurable traces of methane, but went on to note that our observations suggest that [shale gas development] was an unlikely source of methane in our valley wells.” These three studies add to the body of knowledge gained from a series of previous similar studies conducted since Marcellus drilling began. None of these myriad studies – some of them funded by anti-gas activists – have ever been able to find any real impacts to the region’s ground water from oil and gas operations.

Haynesville Shale – Louisiana/East Texas

A recovering natural gas price and the proximity to Cheniere Energy’s Sabine Pass LNG export facility has led to a modest resurgence in production from the Haynesville Shale region. Natural Gas Intelligence (NGI) projects that production from the Haynesville will rise by “235 MMcf/d m/m [month over month] to 8.97 Bcf/d in July.” Meanwhile, Investors Business Daily reported in early June that super-majors like Shell, Chevron and BP were competing to be the highest bidder for the shale assets of BHP Billiton, which have been up for sale for several months now. BHP’s assets include very significant Haynesville holdings, and are ultimately expected to fetch more than $10 billion.

SCOOP/STACK Play – Oklahoma

The rig count for the SCOOP/STACK play remained relatively static over the past two months in the wake of the new production tax increase passed by the Oklahoma state legislature in April. Chad Wilkerson, Vice President and Oklahoma City Branch Executive for the Kansas City Federal Reserve branch, reports that Oklahoma’s oil production rose to an all-time high in December 2017 and is expected to continue to grow throughout the remainder of 2018. In addition, the state’s natural gas production has reached an all-time high in recent months. Wilkerson notes that these increases are being achieved despite a significantly lower number of active drilling rigs and resultant oil and gasrelated jobs in the state when compared to mid-2014, attributing that to significant advances in technology that have taken place since that time.

About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at david.blackmon@shalemag.com. JULY/AUGUST 2018  SHALE MAGAZINE

 FEATURE

Capturing Beauty in the Oil Field Special to SHALE

hen you first meet Bob Callender his energy and vision are infectious. He is passionate about what he does and with whom he surrounds himself. Looking at his photography, it’s easy to recognize his commitment to excellence and desire to be the best at what he does. Callender credits his passion and work ethic to growing up in an oilfield family of 10. Through his upbringing, Callender gained a powerful respect for the oil field, the work ethic and values it represents and the men and women who make it one of the greatest industries in America. In his eyes, these are the unsung heroes and pioneers of today. At first glance, when seeing Callender’s art, the explosion of color draws you in. The images’ detail and use of vibrant color is the perfect mix to captivate the imagination. In the details, closeness and a deep respect for the landscape and architecture is portrayed in each piece. Upon looking closer still, you can find a hidden meaning in each piece — whether it is the story of the towering image that makes you feel diminutive in comparison, or the aweing sunset that seems to dwarf massive structures down to size. Peering into the life of the modernday cowboys of the oil and gas industry, a small insight is gained into the beauty surrounding one of the most crucial and gratifying careers in the modern-day world. Bob captures a balance of beauty and respect for the industry and the

SHALE MAGAZINE  JULY/AUGUST 2018

At first glance, when seeing Callender’s art, the explosion of color draws you in; The images’ detail and use of vibrant color is the perfect mix to captivate the imagination

people who make it their life. The story that so many who have grown up in and around the oil field know by heart is one of finding perfection in the imperfection. The eagle-eye and wrinkled brow of the men and women who work in the rugged Texas heat to power the nation is a powerful image to share. Callender derived a way to not only capture these ideas surrounding the oil field worker, but also the pageantry of the sunset, dagger-like precision of the lightning storm and ferocious colors of rust that only unforgiving weather and time can create. Callender’s art is available to view and purchase at his galleries and hundreds of fine art galleries around the world.

For more information: Bob Callender can be found online at www.BobCallenderFineArt.com. To learn more, call (432) 599-0998 or visit the gallery at 3404 West Loop 250 North, Midland, TX 79707.

JULY/AUGUST 2018  SHALE MAGAZINE

STATE ENERGY of

Women’s Energy Network (WEN) South Texas Mixer Hosted by SHALE Magazine and ITOP

r e x i m

Tickets: $10 at the door $5 if you are a member of WEN South Texas or TEAC Join us for appetizers, cash bar, door prizes and great networking

aug. 28 5:307:30

sponsored by:

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900 N Shoreline Blvd, Corpus Christi, TX 78401

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aug. 29 2018

Solomon P. Ortiz Center 11:30 am-1:00 pm

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JOIN THE SHALE MAGAZINE AND IN THE OIL PATCH IN PARTNERSHIP WITH THE ARANSAS PASS CHAMBER OF COMMERCE, CORPUS CHRISTI REGIONAL ECONOMIC DEVELOPMENT CORPORATION, INGLESIDE CHAMBER OF COMMERCE, PORT ARANSAS CHAMBER OF COMMERCE, PORTLAND CHAMBER OF COMMERCE, ROCKPORT/ FULTON CHAMBER OF COMMERCE, SOUTH TEXAS ENERGY & ECONOMIC ROUNDTABLE (STEER), AND THE UNITED CHAMBER OF COMMERCE AT THE 4TH ANNUAL STATE OF ENERGY LUNCHEON. FOR SPONSORSHIP INFORMATION, CONTACT SHALE AT 210.240.7188 OR EMAIL JOYCE@SHALEMAG.COM OR CONTACT THE UNITED CORPUS CHRISTI CHAMBER OF COMMERCE AT GLORIA@ UNITEDCORPUSCHRISTICHAMBER.COM

The ENERGY INDUSTRY is a key driver of the South Texas and global economy. This industry has transformed Corpus Christi and will continue to shape its future. The State of Energy luncheon is an annual event that features top energy industry leaders and gives insight into the future of the energy industry. The luncheon will include a panel discussion and key note speaker to address oil and gas, refinery and LNG representatives.

For more information on SHALE, visit shalemag.com For more information on the United Corpus Christi Chamber of Commerce, visit unitedcorpuschristichamber.com

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Today, Oasis ranks as the fourth largest producer in the Bakken play, and a massive portfolio of 506,000 net acres under lease

SHALE MAGAZINE ď &#x201C; JULY/AUGUST 2018

PHOTO BY MICHAEL GIORDANO

cover story

TOMMY NUSZ AND

OASIS PETROLEUM DOING WHAT’S IN THE DNA By: DAVID BLACKMON

JULY/AUGUST 2018  SHALE MAGAZINE

SHALE MAGAZINE  JULY/AUGUST 2018

PHOTOS COURTESY OF TOMMY NUSZ

This discussion brought our interview around to Nusz’s activity as a prominent supporter of Mississippi State athletics, an interest he shares with his wife, the former Terri Foster

The planner “You have to be deliberate and take your time, and don’t get ahead of yourselves. You have to watch out for each other because somebody gets a tear in their glove, or something like that, that has skin exposed, you can get frostbite.” Tommy Nusz, Chief Executive Officer of Oasis Petroleum, one of the most active producing companies in the Bakken Shale play, is talking about how his employees are trained to carefully go about their business in the often-subzero temperatures in North Dakota and Montana. “Our guys are always watching out for the other guys, because you lose feeling, it gets numb (snaps his fingers) that fast and then the guy doesn’t know that he has a hole in his glove. You have to be deliberate, you have to take your time and don’t get ahead of yourselves.” We’re sitting in the Oasis Petroleum executive conference room in the company’s downtown Houston headquarters, where we interviewed Nusz in late May. The temperature was approaching 100 degrees in Houston that day, but Nusz was expanding on the special measures his field employees must take when conducting their jobs during the very long, bitter winters in the Bakken Shale region, where the company had operated exclusively from its founding in mid-2007 until it announced a significant acquisition in the Permian Basin of West Texas last December. “There are certain times where you just have to shut down — whether it’s for a blizzard, whether it’s just too cold or whether it’s the wind in the spring,” he explains. “The weather goes from really cold and then you go into Breakup (the term for the spring thaw, when the ground’s ice cover melts and the Bakken oil patch becomes a muddy quagmire) for lack of a better term, and guys move around in the mud.” Such are the joys of drilling wells in the Great White North. Of course, now Nusz and his team must work to prepare their employees to operate in the often-oppressive heat of the Delaware Basin, that Southern and Western portion of the greater Permian Basin in Texas, into which the company made its initial entry by acquiring a little more than 20,000 acres situated in Loving, Ward and Winkler counties; one of the most attractive parts of the play. “In the Permian in the summer, the focus is on hydration,” he says. “You know when you think about, when we were kids, we had the whole thing about Gatorade, and the Florida Gators and all that? And when we played football, they didn’t give you water, because it made you soft, you remember that?” Oh, yeah, we remember that, and not very fondly. But let’s move on.

“So, just like anything, like sports or any other activity, when you’re sweating that much it’s making sure you don’t get dehydrated. So, we focus a lot of attention on obvious but important things like that.”

The Builder When the ConocoPhillips buyout of Burlington Resources (BR) was completed in April 2006, no one questioned the quality of BR’s senior leadership team. Led by CEO Bobby Shackouls, they had taken a company that had experienced significant financial difficulties during the mid-1990s and grown it into one of the most successful and largest independent producers in the country. No one at the time anticipated that more than 10 members of that company’s very talented senior management team would go on to become chief executive officers of other companies, but that’s exactly what happened. Tommy Nusz was among the earliest to make that leap. “The [buyout] announcement was made in December 2005, and the deal closed in April 2006. I kind of new when the deal was announced that I would probably do something different,” Nusz says in reflection. He began talking to people shortly after the first of 2006 and decided he would pursue one of two paths: “One, I could get a real job, and two would be starting my own thing,” he says with a laugh. He decided to give himself until August of that year to see if he would land in a suitable position with an existing company. Well before that time, however, he made the decision to include an alternate path. “Pretty much everything I looked at,” he says, referring to landing an existing position, “is going in and cleaning up someone else’s mess. It almost became a self-fulfilling prophecy because there was plenty of capital out there looking for management teams and we could do something where we could get up every day and do what we want to do with the people we want to do it with.” Thus, when August rolled around, he started pulling a business plan together and took the initial step of convincing another BR colleague, Taylor Reid, to join him in this new endeavor. Reid agreed, and has filled the role of Chief Operating Officer for Oasis starting on day one. After pulling together their business plan, the two men embarked on a private equity roadshow that fall. By early 2007, the pair had the beginnings of a deal in the works with Encap Investments, one of the country’s largest private equity venture capital firms. Things progressed rapidly after. “We launched with Encap in early 2007, and

it turned out that another company had made the decision to get out of the Williston Basin at the same time. We closed March 5, 2007, with Encap, we [went] to a data room on April 12 and 13, we sign a preliminary sales agreement in May and we close that deal in June,” he chuckles, “We had a $100 million commitment and we spent $83 million of it in three months.” Out of that transaction, Oasis acquired 175,000 acres in the Western portion of the Williston Basin, which was not at the time considered to be a very promising part of the play. “This wasn’t where, you know, you had Elm Coulee, and you had EOG Parshall, you were hearing about some of the big wells over there,” Nusz says, looking back on the risk involved. “The rest of the west side, people had kind of given up on. But we said, ‘Hey there’s a lot of oil here, in wells that come on at very high rates but decline very fast. This isn’t a geological or resource problem, this was an engineering problem. And this is what we do.’” It’s what he and Reid and the rest of the company’s staff do quite well, in fact, judging from the results and growth the company has achieved in the intervening 11 years. Today, Oasis ranks as the fourth largest producer in the Bakken play, and a massive portfolio of 506,000 net acres under lease. The company’s most recent investor presentation boasts of an inventory of more than 1,000 net drilling locations in the Bakken, to go along with the more than 500 net locations the company has available related to it’s new position in the Delaware Basin.

The Developer As things developed, it was Nusz’s experience in one of his many assignments at BR that made the recent Permian acquisition attractive to him. Burlington had a lot of success, especially the last 8-to-10 years of its life, as it executed on a strategy of building large, contiguous positions in a handful of major basins where the company could focus on repetition of its core competencies in resource play development. We asked Nusz if he and Reid imported any of the management strategies from Burlington into this company? “Yeah, well, that’s important — especially on the heels of us just having done this Permian deal. So, there’s two things — back in the BR days, I was the joint interest and acquisitions manager in Farmington for three and a half years. That was back when the Fruitland Coal was taking off,” he says. The Fruitland Coal was, in a sense, the precursor to the Barnett, Haynesville and Marcellus JULY/AUGUST 2018  SHALE MAGAZINE

Shale plays. Centered in the San Juan Basin of Northwest New Mexico/Southwest Colorado, it is a coal formation that was extremely rich in dry natural gas, which was held in place within the coal by water pressure. Some of the early producers in the play drilled vertical wells into the coal, perform what today would be considered tiny frac jobs (but were then state of the art) to help release the water and recover the production as the water pressure dropped and released the gas. BR developed an open hole completion method that was the catalyst for the play to really take off. In addition to the Fruitland formation, the San Juan is also home to more conventional dry- and wet-gas producing formations like the Pictured Cliffs, Mesaverde and Basin Dakota. Thus, it is a region with “stacked” formations where companies are often able to execute multiple completions in a single wellbore, similar to what is taking place today in the horizontal wellbores in the Williston and Permian Basins. Nusz was responsible for BR’s mergers and acquisitions group in the late 1990s and Reid was part of his senior staff running that group. “We were trying to buy up more acreage around our large, consolidated blocks across the company. In addition to being in charge of acquisitions and trying to build our position, I also ran our Strategic Planning, Corporate Engineering and Corporate Supply Chain Management organizations during that time,” he says. It was during that time frame, Nusz says, that he and Reid “kind of took a step back to figure out what we’re good at. We said, ‘Let’s focus more on what we’re good at and build meaningful positions where we’re as good or better than anybody else.’ That is when Taylor and I started the initiative to look at Canada and thought, ‘Hey, this looks a lot like what we do in the San Juan Basin.’” The outcome of that process was BR’s initial entry into Alberta with the acquisition of Poco Petroleum in 1999, a major acquisition of mostly natural gas reserves that was almost doubled two years later with the buyout of Canadian Hunter. Both Poco and Canadian Hunter were producers in Canada’s Deep Basin, a prolific natural gas producing region that is almost a mirrorimage of the San Juan. It is at the Northern tip of what the industry commonly calls the Rocky Mountain Fairway on the border of Alberta and British Columbia, while the San Juan Basin is at the Southern end of that Fairway. While climate conditions in Canada differed wildly from those in New Mexico and Southern Colorado, the physical similarities of the two basins’ topography and geology allowed Burlington to focus on repeating the core strengths and competencies developed in the San Juan Basin, and transfer both into the Deep Basin. The success of its Canadian operations played a large role in the company’s overall success, in the end helping to make it such an attractive takeover target for ConocoPhillips. By the same token, the climate conditions in the Bakken are a world away from those in the

SHALE MAGAZINE  JULY/AUGUST 2018

desert of West Texas – you might as well be experiencing two different planets. But, for Nusz and Reid, it was the physical similarities present in the geology and execution of the two plays that led the men to focus on the Permian as a prime spot to target for expansion. “You know, we’ve got a tremendous asset in the Williston Basin and now we’re the fourth largest producer,” Nusz says. This is quite impressive considering the company was only started in 2007. “But we’ve focused on what we’re good at, we’ve continued to build on our big blocky positions just like in the BR days, all the way back to San Juan. Even when we went public, we told people we’re going to be Williston focused but there’s going to be a point in time where it’s going to make sense for us to do something, have another portfolio element. “At one point in time, about three years ago, when the downturn started — just by coincidence, we started looking at other places, predominantly from Williston down to the Permian where we could do the things that we’re good at. We’re going to continue our focus on the Williston, but we’re also going to look out of the Williston if for no other reason than to know what’s going on in these basins from a technology standpoint, supply growth, all these other kinds of things.” Nusz also points to both his and Reid’s early years in the business as sort of a germination point for their decision to focus on the Permian. “Both Taylor and I, when we came out of college, went to work in Midland, and you’re always going to kind of gravitate back to the things that you know. A couple of years ago, [we] moved into full field development [in the Williston] so we have the experience to do that. Now, that being said, full field development in the Permian is going to be like the Williston on steroids — all the input elements and takeaway elements and all those things — but at least we’ve got a lot of practice. It made sense to us and it’ll be a great compliment to what we already have.” For those unfamiliar with the term, “Full Field Development” takes place when an operator, after an initial phase of testing and scoping the resource and geology of an initial acquisition, then moves in to expand its position through the acquisition of adjacent acreage, building out necessary infrastructure and fully developing and producing the available resource. When we asked Nusz what he tells investors, analysts and others when they ask if he plans to try to expand on the company’s new position in the Permian, he chuckles. “Well, what I tell people is, when they ask ‘Well, how do you think about it?’ I say, ‘I don’t have to think about it. You can look at the appendix of our investor slide deck and it shows you how we built the Williston position over 10 years. So, if you need a roadmap, you can just go look at that.’” He pauses for a moment, and continues: “You know, we started from scratch, it was cold zero when we started up in the Williston. [The Permian] gives us another portfolio element, it

provides some diversification, which is important when you try to make capital allocation decisions. It’s a little more difficult field development because the way we do it, it’s process, plan, people and execution. “Our people are planners,” he adds, smiling. “They don’t really like it when I go upstairs and say ‘Hey, I want to move this around at the end of this year.’ But at the same time, they know they have to be adaptable when circumstances change. When you’re trying to drill 10 to 12 wells per drilling [or] spacing unit, it’s really difficult to get all the permits and all the other input elements lined up and make sure you’ve got the takeaway. In Williston it’s a little more straightforward because it’s all Western U.S., section, township and range. It’s a little easier to put two sections together and you get a drill block. But you get to West Texas and it’s a patchwork quilt. So, we focus on the things we can control like execution, and we manage the business risk around the things we can’t control. That has served us pretty well. The Permian represents five percent of our total company production now, but it will grow.” We asked Nusz if his company having gotten into the Permian play toward the back end of a period of tremendous acquisition and expansion activity has caused Oasis any operational issues. “You know, it’s interesting — it’s the oil field, right? So, the oil field is filled with myths and untruths, like ‘you have your late entrance to the Permian, you won’t be able to contract for quality services.’ Well, yeah, we have. We’ve gotten services at reasonable prices and a lot of it’s because people have worked with us in Williston. They want to be with us as we grow. They find us to be good collaborating partners, we try to include them as much as we can on our planning processes,” he pauses and smiles, “and we pay our bills.” Yes, that tends to be a key factor in contracting for oilfield services, all right.

The Opportunist The oil price collapse of 2014 and the three years of industry downturn remain fresh on the minds of everyone in the industry today, but that was actually the second major price correction through which Nusz and the Oasis team had to manage the company. The first such downturn began barely a year after Nusz and Reid had completed that initial Bakken acquisition. As luck would have it, that initial price collapse came about just at the time Oasis was getting its initial drilling program underway. “We didn’t drill any Bakken Wells in the first year. We did a bunch of plumbing work, optimization work and then the next year, in 2008 we did our first deal on the East side of the basin (a $54 million acquisition of 131,000 additional net acres),” he says, looking back on that time.

“It’s funny, we started drilling wells in the middle of August, and if you remember, the oil price hit $147 in July. We start[ed] picking up rigs to meet our farm-in commitments we’d entered into on the East side of the play, and oil goes from $147 to $35 in six months. So, we start[ed] laying the rigs down, we left a bunch of the wells that we drilled uncompleted, and we deferred the completions until the summer of ’09. In the spring of ’09 when everyone else was running for the hills, the Encap guys stood right behind us.” Encap, in fact, agreed to allocate more capital to risk on Nusz and his team, enabling them to seize on the opportunities to make some bargain-priced acquisitions during the downturn. “We took the opportunity to acquire more acreage,” Nusz says. “By that time, after we did that first deal, we had already upsized the initial capital commitment to $200 million in the fall of ‘07. The next thing you know, we had 300,000 acres.” From zero to 300,000 in less than two years — sounds like a Jaguar commercial.

The Football Coach’s Son Taking advantage of opportunities when they present themselves; careful planning for success; focusing on the things you do best and repeating success. If those sound like the kinds of things your high school or college football coach

tried to pound into your brain in your younger days, well, that’s probably no accident. Tommy Nusz’s eyes mist up when asked to talk about the influence his late father, Dave Nusz — a very successful football coach at the college and professional levels — had on his life. It quickly becomes obvious that influence was huge. “He coached college football — when he graduated from the University of Maryland that was what he started doing,” Nusz begins. “His first full-time job was at William and Mary, and I think it was a year later, Lou Holtz also came to William and Mary. I was actually born in Virginia and then he went to the University of Detroit, they dropped the football program, and then he went to Texas Western College (now The University of Texas at El Paso, or UTEP). It was Texas Western College at the time, when the basketball team won the national championship [in 1966], he was there.” But, as is typical in the life of a football coach, the moving was just getting started. “He went from there to Mississippi State,” Nusz continues. “And then he went to Memphis State for a year, SMU for two years as defensive coordinator, Vanderbilt for three years; so I went to three different high schools. I went to Plano High School for two years (while his father was at SMU).” Plano High was, at the time, one of the two largest enrollment high schools in Texas, the other being Brownsville High. Nusz faced a lot of competition when he went out for football before his sophomore year there. “We had 150 freshmen going to be sopho-

mores at spring practice. We had 4,500 kids in the high school. It was before they split it up. So, we had some good football teams. It was like playing in a small college, we must have had eight coaches [or] 10 coaches. In fact, one guy we know, who’s a lawyer over at Mississippi State, and also the radio announcer for women’s basketball, one of his relatives — I think his or his wife’s uncle — was one of my coaches at Plano. The older you get, the smaller this world gets, you know?” No question about that. Still, the moving around wasn’t over. “So, we went from there to Vanderbilt University, from Vanderbilt to the University of Louisville, and then he ended up coach[ing] two years in the USFL. Then he went to work as a scout for the Seattle Seahawks for 14 years. So, we moved all over the place — mostly in the South, of course. You learn to be adaptable,” he says with a laugh. But it quickly becomes obvious that Nusz took away much, much more than that from his father. “There’s a lot of things I got out of that experience. Being adaptable and the changing environment and meeting new people, of course,” he continues. “So much of it is the people that you were around. I mean, you’re not going to hang around football practice all the time and talk to coaches and meet with coaches without having a firm handshake and making eye contact. And then too, you’re around teachers. My mother was a teacher and my dad was a football coach, his passion was coaching people, and its competitive if you want to win. “You know, he was just a good person. A lot of my people skills came from him — how he treated people, how he interacted with people, the respect for others. I learned about human interaction and coaching people and trying to make people better every day,” he says. “In fact, I was in El Paso just this last year — I’m getting way off track, but I’ll come back. I took my mother to the 50 year reunion of that UTEP team that beat Ole Miss in the Sun Bowl in 1967. I talked with Billy Stevens, who was a hotshot quarterback at Texas Western at the time, and he said, ‘You know your dad was a defensive backs coach, but he would come out with me every day and we’d each throw 100 passes.’ They had this little game that they set up — of how many spirals out of the 100, each one of them [could] throw. They called it “Rumble” for some reason — who knows why — my dad used to come up with all sorts of crazy stuff like that.” “He was a defensive backs coach, but he also wanted his quarterback to be better,” Nusz continues, relating things back to how he applies these learnings to his role at Oasis. “That’s one of the things we tell people around here: If you’re in a leadership position or if you aspire to be in a leadership position then I want to see tracks around the organization where you’re trying to make somebody better on Wednesday than they were on Tuesday and better on Thursday then they were on Wednesday.” Good stuff to learn from a parent, and good stuff to pass along to others.

The Booster This discussion brought our interview around to Nusz’s activity as a prominent supporter of Mississippi State athletics, an interest he shares with his wife, the former Terri Foster. Tommy Nusz and his wife met while they were both students at MSU, from which they both graduated in 1982. The couple married shortly after embarking on their professional careers, and they have now been married 35 years. “Terri was one year behind me, but because I worked for Halliburton the whole time I was in college, it took me five years to get out. So, we graduated at the same time. I went to Midland in ’82 and then we got married in January of ’83. I brought her to Midland then left her for six months while I was out in the field,” he says, laughing. “That was a great way to start.” As is typical with young couples starting and raising a family, TomJULY/AUGUST 2018  SHALE MAGAZINE

Nusz also points to both his and Reid’s early years in the business as sort of a germination point for their decision to focus on the Permian my and Terri Nusz didn’t spend much time focusing on engaging with their university during their first 15 years together. In the late 1990s, they began to reconnect and it hasn’t been all about athletics. “You know, you leave college and especially if you move away, you get focused on your job and your family and you can get a little bit disconnected,” Nusz says. “We re-engaged in a meaningful way back in 1998, for a laundry list of reasons that I won’t bore you with. We’ve gotten more and more involved. It really started with the engineering department when we helped them fund some of the startup of a new entrepreneurship program.” “We do a lot of things academically through scholarships and professorships, some facilities on the academic side, primarily with the engineering department,” he continues. “In athletics, we’ve done a lot of things with football, especially in helping to fund the football-only practice

facility. And that’s a function of my history.” But it isn’t just football – the Nusz’s are also heavily involved in promoting women’s athletics programs at MSU. That has a lot to do with Terri, Nusz explains. When they decided to go into this activity, she told him, “I don’t care, you do whatever you want, but do something for the girls.” The interest in women’s athletics also has much to do with an early interest in horses and the sport of equestrian horse jumping shown by his daughter, Megan. “Megan is a world class horse jumper,” he says with obvious pride. “In that sport, the women compete with the men, it’s coed. So, Scott Stricklin, who was the Athletics Director at the time, knew that he had a soft target here, somebody who has interest in women athletics. One thing we did was help with the anchor funding needed to completely redo the women’s basketball locker room when [women’s basketball Head Coach] Vic Shaffer came to Mississippi

State. Of course, they’ve been to the National Championship game two years in a row. When Vic got there, we averaged 1,000 people in attendance, now we average closer to 7,000 in women’s basketball. That’s really strong.” “Scott came to me several years ago, I think it was in 2013, and said, ‘Hey, I’ve got a problem: We’re supposed to host the SCC Softball Tournament next year, but our facility is not tournament ready.’” It turned out that Stricklin had agreed with his counterpart at South Carolina to trade years to serve as host for the tournament, so that MSU could push out its date to 2016. “So now we have a new softball stadium,” Nusz says with a laugh. “We had a lot of fun with that and we’re still very involved. I’m on the foundation board, I’m on the investment committee on the foundation board. Plus, I’m the President of the Bulldog Board.” The what? Nusz laughs. “The Bulldog Club Board. It’s like the 12th Man Foundation [at Texas A&M], it’s the athletic fundraising arm.” He laughs again. “I mean why wouldn’t I be? One day over a beer I’ll tell you that story, how that happened. It wasn’t something that was necessarily on my mind to do at the time, but I am honored to do it and I love it.” We are also very involved with the Sonny Montgomery Center for American Veterans. About 10 percent of the student population at MSU, actual

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SHALE MAGAZINE  JULY/AUGUST 2018

veterans and dependents, run through there. We note that it just sounds like he’s an easy touch when it comes to MSU. Another laugh. “Yeah, I know — exactly. Anyway, we do a lot of stuff there. We go to many of the football games, we go to women’s basketball, softball, we go to…ummm, I probably shouldn’t say all this stuff because somebody is going to say, ‘Hey, when does he do work at Oasis?’ But hey, most of it’s [the sports events] on the weekends and I have a great team around me here at Oasis.” OK, fair point. Even the CEO gets the weekends off. Most of the time.

The Father Ask Tommy Nusz about his and Terri’s kids, and his face just beams with pride. As noted above, their daughter Megan has been a world-class equestrian. “When she was in high school, she was so busy traveling that we couldn’t catch her — she would travel every weekend in the horse show business,” Nusz says. “I mean, she’s traveled by herself to all these places. Been all over the world, ridden

in the biggest classes in the world against the best riders in the world, the top 100 riders in the world, ridden for the U.S. Equestrian Team in Brazil and Slovakia, of all places. “She graduated high school early, and then she took a gap year. She went to TCU for five semesters and then dropped out of school to focus on riding. Last year, after eight years of that, she comes to us and says, ‘Hey, I never finished college and I gotta finish.’ Nusz feels like seeing her brother graduate may have been a bit of a factor. So now, she’s at Mississippi State, finishing her degree. “She started back last August and then turned 30 in September so she’s older than some of her professors,” he says with a laugh. “She’s like the Rodney Dangerfield [in the movie “Old School”] of Mississippi State. Of course, she knows so many people there because we’ve been going up there for such a long time and she teaches some riding lessons on the weekends. So, she enjoys coaching, which is no surprise.” “Our son, Brant, is five years younger than Megan. And he graduated from Mississippi State in May of ’16. Brant’s a hotshot driver down in Florida, primarily in a sod business, but he does a bunch of other stuff as well. He’s started his own company, so he works for himself, and he’s learning all the ropes of building

a business. And you know, he’s not calling me for money, so I think he’s doing pretty well,” he says with another fatherly laugh. “So, we have this family full of nontraditional kids — they’re both kind of nontraditional, unstructured people that don’t want to sit in a box all day.” In other words, they’re a lot like the defensive backs coach who stayed after practice every day to work with the team’s quarterback, and the CEO of the company that operates exclusively in the often-frozen tundra of the Bakken Shale who decides his company’s next logical move is into the arid desert of West Texas. Like so many other things in life, a lot of it is in the DNA.

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Latest Updates on the Eagle Ford Shale By: Thomas Tunstall, Ph.D.

he most recent quarterly meeting of the Eagle Ford Shale Consortium was held March 27 in Cotulla at the A.B. Alexander Civic Center. Over 80 attendees consisting of elected officials, economic development directors, city managers, industry representatives and other stakeholders participated in the event. Much has changed since the Eagle Ford first started producing crude oil and natural gas in significant quantities. The widespread use of unconventional extraction techniques in South Texas and other parts of the U.S. has significantly transformed local economies. Despite a slowdown beginning in 2015, the Eagle Ford still produces about a million barrels of oil, including an ultralight crude oil known as condensate. Natural gas production, though down from its peak of over 6 billion cubic feet per day (bcf/d), remains robust at nearly 5 bcf/d. Other shale fields in the U.S. continue to be prolific producers of both oil and natural gas as well. The Marcellus Shale in the northeastern U.S., for example, produces around 24 bcf/d of natural gas — by far the largest natural gas field in the continental U.S. The Permian Basin produces nearly 2 million barrels of crude oil daily, and that number should continue to increase in coming years. By 2019, the U.S. will be producing record levels of oil, regularly exceeding the previous high of 10 million barrels per day (bpd) set in 1970. The U.S. already produces unrivaled levels of natural gas, clocking in now at nearly 30 trillion cubic feet annually, with data going back as far as 1900. Participants at the event gathered to share their experiences over the years since 2011, when oil and gas production began in earnest. First up was a local economic development panel update, starting with Alfredo Gonzales, the general manager of the Holiday Inn Express. Cotulla now has over 20 hotels, up from just a handful a few years ago. Although one of the properties went bankrupt during the slowdown, it has recently reopened. Other speakers included Cotulla ISD Superintendent Dr. Jack Seale, Bryan Daughtery with Carrizo Oil and Gas and Daniel Mendez, Chief for La Salle County Fire Rescue. Larry Dovalina, City Manager of Cotulla (and former City Manager for Laredo), outlined progress that the city continues to make

despite the ups and downs of the energy industry. While economic activity is below levels reached during the height of the boom, the muted activity is now being referred to as the “new normal.” For example, even though around 2.5 billion barrels of crude oil and condensate have been produced to date in the Eagle Ford, overall estimated recoverable oil and condensate is between 10-12 billion barrels. Jesse Thompson with the Federal Reserve Bank of Dallas in the Houston branch provided a statewide outlook on economic activity across a variety of industries including energy, manufacturing and trade, real estate, as well as residual impacts from Hurricane Harvey to the Gulf Coast area. The meeting concluded with an overview of UTSA Institute for Economic Development programs designed to assist the South Texas businesses in various capacities. The Southwest Trade Adjustment Assistance Center works with manufacturing and service companies impacted by foreign imports. The Minority Business Development Agency Advanced Manufacturing Center, funded by the U.S. Department of Commerce, provides counseling and technical assistance to ethnically-owned manufacturing businesses by implementing advanced technology applications. Other programs work with small business to help develop business plans,

contracting opportunities and opportunities for export. The next Eagle Ford Consortium quarterly meeting will be held in Pleasanton, also known as the birthplace of the cowboy. If you would like a copy of any of the presentations from the Cotulla event, please drop me a line at thomas.tunstall@utsa.edu.

The widespread use of unconventional extraction techniques in South Texas and other parts of the U.S. has significantly transformed local economies

About the author: Thomas Tunstall, Ph.D., is the Senior Research Director at the University of Texas at San Antonio’s Institute for Economic Development, and was a principal investigator for numerous economic and community development studies. He has published peer-reviewed articles on shale oil and gas, and has written op-ed articles on the topic for the Wall Street Journal. Dr. Tunstall holds a doctorate degree in political economy, a master’s in business administration from The University of Texas at Dallas, and a bachelor of business administration from The University of Texas at Austin.

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A New Gulf Coast? Steady Development Spurs Appalachia Rebranding By: Jackie Stewart

hen you hear someone talk about “Appalachia” what sort of landscape comes to mind? For some, the image of a beautiful, mountainous region of the Eastern United States comes to mind. For most, sadly, the moniker still conjures images of shuttered steel mills, idled manufacturing plants and blight brought on by industrial abandonment. They envision the poverty and economic collapse wrought by the decline of steel and manufacturing industries — the “Rust Belt” of America. For more than a generation this was reality. Then, starting in the mid2000s, the oil and gas industry tapped into the carbon-bearing geological gifts the region offered, bringing about the shale revolution that would transform the Appalachian Basin. The development of the Marcellus and Utica shale formations in Pennsylvania, Ohio and West Virginia brought an economic boom to the region. Hundreds of thousands of men and women found jobs in the energy sector and its ancillary industries. Continued development in the basin has transformed the region as the ample supply of oil and, especially, natural gas has drawn several new investments to the Ohio River Valley — including the return of steel and manufacturing projects. Now, the region is shedding its “rusty” image. Rebranded as “Shale Crescent USA,” it is now in a position it to compete with the Gulf Coast as the premier choice for petrochemical investment. The Gulf Coast has held reign as the nation’s petrochemical hub for

SHALE MAGAZINE  JULY/AUGUST 2018

over 70 years; however, the Shale Crescent region offers significant appeal for new petrochemical operations in its financial and security advantages. These market advantages make its attractiveness for investment over the Gulf Coast difficult to ignore. Bolstering the case for investment is a recent IHS Markit study commissioned by Shale Crescent USA, a group of regional business and industry leaders. The study, Benefits, Risks and Estimated Project Cash Flows: Ethylene Project Located in the Shale Crescent USA versus the U.S. Gulf Coast, found the region will “provide

costs of polyethylene — a plastic formed from ethylene in the form of pellets — would cost 16 percent less. These savings are substantial. IHS Markit estimates that between 2020 and 2040, a petrochemical project in the Shale Crescent region would generate an $11.5 billion pretax cash flow, as well as a net present value of $713 million — that’s four times higher than the Gulf Coast. These findings mirror those of previous studies from Deloitte, the U.S. Department of Energy (DOE) and the American Chemistry Council projecting the prolific natural gas resources in the Appalachian Basin create the potential for vast petrochemical manufacturing opportunities. Testifying at a recent U.S. House committee hearing, Secretary of Energy Rick Perry echoed the importance of the development of the region. “To develop [the Gulf’s petrochemical industry] in another region of this country, the Appalachian makes sense because

Starting in the mid-2000s, the oil and gas industry tapped into the carbon-bearing geological gifts the region offered, bringing about the shale revolution that would transform the Appalachian Basin a significant financial advantage” comparatively, given the region’s prolific natural gas liquids production. Ron Whitfield, the study’s lead author, noted the Shale Crescent has “an abundance of natural resources at costs below their Gulf Coast equivalents, it is in close proximity to a very large installed base of plastics manufacturing customers, and the region benefits from reasonable costs of doing business.” The study found ethane costs would be 32 percent lower than in the Gulf Coast, while ethylene, a petrochemical derived from ethane, would cost 23 percent less to produce. Moreover, it found the transportation

you’re sitting on top of Marcellus and Utica, which are prolific gas fields, and helping transition the workers who are either out of work or not working in jobs that are satisfactory from their perspective into higher-paying refining and petrochemical type jobs. That is something we’re working on actively today at DOE.” In addition to its economic benefits, Secretary Perry emphasized he supports expanding petrochemical manufacturing in the Shale Crescent to enhance our national security. “As the Governor of Texas, in August and September, I worried greatly about a Category 5 hurricane coming up the Houston ship line and devastating the petrochemical footprint that is a substantial amount of that industry for the United States,” he stated. “That is a national security issue.” Concern over a concentration of America’s petrochemical capacity in a hurricane-prone region is not to be dismissed, as the effects of storms such as Harvey can be far-reaching. Ohio-based toy manufacturer Little Tikes reported last October that their costs for polypropylene from the Gulf Coast in the wake of Harvey jumped

25 percent overnight due to supply constraints. These costs could then potentially be passed on to the consumer in the form of higher prices. Little Tikes isn’t the only manufacturer that relies heavily on petrochemical feedstock in the region. In fact, the Shale Crescent is within 400 miles of 17,000 companies that make rubber, chemicals and plastics. To that end, it’s no wonder the area’s businesses are working diligently to make potential investors recognize expansion in the region is in their interests on a number of fronts. So far, the effort seems to be paying off, with Royal Dutch Shell deciding to locate their multi-billion ethane cracker in western Pennsylvania. The facility will eventually provide feedstock to 70 percent of the North American polyethylene market, which resides within a 700mile radius of their project. Shale Crescent USA spokesman and President of Ohio-based Artex Oil Co. Jerry James is optimistic the region will continue to capitalize on its attractiveness for future investments and looks to showcase the new study as further evidence the effort will come to fruition. “This report challenges conventional wisdom and corroborates the decision by several international energy companies that have already selected our region as the location for major, multibillion-dollar projects,” said James. “Our message to any other companies that are considering similar investments either here in the United States or internationally is that the Shale Crescent USA region offers unparalleled advantages for petrochemical manufacturing and is open for business.” Appalachia’s geological gifts and geographic advantages will attract further investments from petrochemical manufacturing industry and others. This new focus and renewed investment in the region will undoubtedly knock the “rust” off the “Rust Belt,” and provide a brighter, petrochemical-filled future for Shale Crescent USA.

About the author: Jackie Stewart is a Managing Director in the Strategic Communications segment at FTI Consulting, Inc., and is part of the segment’s Public Affairs practice and Energy and Natural Resources industry practice. Based in Ohio, she is also State Director for Energy in Depth. Stewart has more than a decade of experience in government and community relations, public policy and event management.

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INDUSTRY

PESA Annual Meeting Features Diverse Topics and Speakers By: Leslie Beyer

SHALE MAGAZINE  JULY/AUGUST 2018

 Upstream panel left to right: Brendan McCracken, Vice President and General Manager, Northern Operations, Encana; PESA Vice Chair and Panel Moderator Richard Alabaster, President – Surface Technology, TechnipFMC; PESA President Leslie Beyer; Greg Hill, President & COO, Hess Corporation; Jeff Shellebarger, President, Chevron North America Exploration and Production Company; and PESA Chairman Dan Domeracki, Vice President, Government, Industry & Global Stewardship, Schlumberger  PESA’s 2018 annual meeting Keynote Speaker General Colin L. Powell, USA (Ret.)

PHOTOS COURTESY OF PESA

he Petroleum Equipment & Services Association (PESA) 2018 annual meeting focused on opportunities for the upstream industry in the current evolving global energy market, with thoughtful discussions ranging from oil price volatility to diversity and the energy sector’s future. Keynote speaker General Colin L. Powell, USA (Ret.) kicked off the meeting with a challenge to PESA members and our leadership role in the global economy. “Trust and confidence go both ways in an organization,” he said. “If you create an environment where everyone will thrive, and treat them as equals, your people will have a sense of purpose. If you delegate authority to the people who work for you, amazing things will happen.” Powell also gave an overview of current diplomatic challenges around the world, including particular focus on China and Russia. PESA Chairman Dan Domeracki, Vice President, Government, Industry & Global Stewardship, Schlumberger, highlighted the strength of PESA Members’ combined voice in the industry. “As PESA’s voice grows, and we use it responsibly, one of the things that we can do is to spend time working through these organizations and directly with the operators, our customers, to help align and coordinate the key issues that we’re going to champion,” Domeracki said. PESA President Leslie Beyer also provided an update about the Association. “PESA has entered its third year of consecutive growth, thanks to the support of our Member Companies and their engagement with the Association,” she said. An upstream panel offered perspectives from Jeff Shellebarger, President,

Chevron North America Exploration and Production Company; Greg Hill, President and COO, Hess Corporation; and Brendan McCracken, Vice President and General Manager, Northern Operations, Encana. PESA Vice Chair Richard Alabaster, President – Surface Technology, TechnipFMC, moderated. Michelle Lewis, Chief Strategy Officer, DistributionNOW, presented the results of a groundbreaking diversity study from PESA’s Engagement Committee that analyzes the current state of female talent in the oil and gas industry. As part of PESA’s commitment to bring a greater diversity of thought into our organization, companies and industry, the study takes a careful, analytical approach to establish diversity metrics specific to the oilfield service and supply sector. The Analyst Panel, moderated by Board Member Kirk Shelton, President, NOV Completion & Production Solutions, engaged the speakers on an outlook of the industry, with both speakers forecasting multi-year growth in global drilling and completion (D&C) spending, with robust onshore spending and exploration and production (E&P) capital spending that will further demand for oilfield services. PESA’s first-ever Environmental, Social and Governance (ESG) panel featured commentary from John Mingé, Chairman & President, BP America; Stephen Arbogast, Director, Kenan-Flagler Energy Center, University of North Carolina; and Greg Gershuny, Managing Director, Energy and Environment, Aspen Institute. PESA Chairman Dan Domeracki, Vice President, Government, Industry & Global Stewardship, Schlumberger, moderated. Dr. Scott Tinker, Bureau of Economic Geology, University of Texas at Austin, spoke to the audience about the changing energy industry and how energy policy and technology can lift emerging communities out of poverty. Tinker said there are arguments on both sides of the equation, with some thinking that climate change is the most important issue of the moment, and fossil fuels are the problem, with others thinking that poverty is the most important issue of the moment, and fossil fuels are the solution. The challenge is to seek the middle through civil discourse. Jason Bordoff, Professor of Professional Practice in International and Public Affairs Founding Director, Center on Global Energy Policy Columbia University, gave the last keynote address at the meeting and reiterated what some other speakers had mentioned; the global energy sector is in transition. “Easing oil and gas production rules may help on the margin, but production growth is already strong thanks to productivity and technology gains,” he said. PESA would like to thank all participants and sponsors of the event.

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“As PESA’s voice grows, and we use it responsibly, one of the things that we can do is to spend time working through these organizations and directly with the operators, our customers, to help align and coordinate the key issues that we’re going to champion,”

For more information regarding PESA, please visit www.pesa.org.

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INDUSTRY

STEER Calling for Entries for 2018 Eagle Ford Excellence Awards Special to SHALE from STEER

The South Texas Energy and Economic Roundtable (STEER), serving the Eagle Ford Shale region in South Texas, is proud to open its call for entries for our sixth annual Eagle Ford Excellence Awards. The awards are focused on honoring members of the oil and gas community for diligent efforts to preserve the environment, ensure safety in and around the Eagle Ford Shale region and give back to the community in which they live and serve. We at STEER work to ensure the development of the Eagle Ford’s energy resources is accomplished in a manner that is mutually beneficial to the industry and communities throughout South Texas. The Eagle Ford Excellence Awards recognizes companies and organizations that are acting with consideration to the values that STEER sees as essential for continued advancements that benefit the greater South Texas community. With all the changes we have seen over the last few years in the oil and gas industry – including the fluctuating price of oil, new LNG projects in South Texas and exporting crude oil from the Texas shores – STEER is proud to announce the oil and gas industry has weathered these changes and adjusted operations accordingly. STEER and the oil and gas industry remains a constant presence in South Texas. The industry continues to create jobs and tax rev-

The Eagle Ford Excellence Awards recognizes companies and organizations that are acting with consideration to the values that STEER sees as essential for continued advancements that benefit the greater South Texas community

SHALE MAGAZINE  JULY/AUGUST 2018

enue for our great state. The organization expects to receive entries from throughout Texas on innovative companies that work diligently to combat the changes in the industry. Safety, community investment and protecting the environment have always been, and will continue to be, something STEER considers a top priority. STEER is honored to provide the forum to recognize those who share our values. Eagle Ford Excellence Award categories include: • Environmental Stewardship: To be considered for an award in this category, entries must demonstrate elements of innovation in reducing environmental impact through implementation of practices or use of technology benefiting the environment. • Safety Performance: To win an award in this category, applicants must have developed specific initiatives or products that have reduced the risk to workers and members of the local community. These initiatives should be evident in the company’s culture and safety record. • Community and Social Investment: To receive an award in this category, the entry must show true commitment to the community. The applicant should have provided a benefit to deserving individuals or groups, positively impacted the company or organization’s reputation in the communities in which it works or pro-

vided a measurable and positive impact on its surrounding community. • STEER Impact Award: This category is intended for nonprofit organizations and educational facilities working with the oil and gas industry in the Eagle Ford Shale. For consideration in this category, organizations must demonstrate excellence in: education, economic development, workforce development/training, safety performance, community relations or environmental stewardship. Third-party judges will examine the entries to determine the winner for each category. Entries best demonstrating commitment to the protection of the environment, community involvement and safety, will receive recognition from STEER for their efforts. STEER encourages self-nominations and third-party nominations for the Eagle Ford Excellence Awards. To apply for an award or submit a nomination for other companies, contractors or organizations working in the Eagle Ford Shale visit steer.com and complete the necessary forms. STEER will contact nominated entities to complete the application process. Award entries and nominations must be submitted before the deadline of Friday, Oct. 26, 2018 at 5 p.m. CST. Full details on the categories and additional information, including entry forms, can be found at steer.com. Winners will be honored at an event in San Antonio Wednesday, Dec. 5. Previous winners; 2017 Eagle Ford Excellence Awards: Safety Performance For companies or organizations with less than 250 employees: Tierra Lease Service LLC For companies or organizations with more than 250 employees: Sun Coast Resources Community and Social Investment For companies or organizations with less than 250 employees: Energy Waste For companies or organizations with more than 250 employees: voestalpine, Texas LLC Environmental Stewardship For companies or organizations with less than 250 employees: R360 Environmental Solutions For companies or organizations with more than 250 employees: Halliburton Impact Award Falls City Education Foundation San Antonio River Authority

ABOUT STEER The South Texas Energy and Economic Roundtable (STEER) is the leading Eagle Ford Shale resource in the region and is the primary coordinator for communication and public advocacy surrounding the oil and natural gas industry in South Texas. STEER serves as the bridge connecting the industry with legislature, educational institutions and the communities throughout South Texas to ensure positive collaboration and communication surrounding the activities associated with the Eagle Ford Shale

For more information about STEER, visit www.STEER.com.

connect. share ideas. discuss. SHALE Oil & Gas Business Magazine is an industry publication that showcases the significance of the South Texas petroleum and energy markets. SHALE’s mission is to promote economic growth and business opportunity that connect regional businesses with oil and gas companies. It supports market growth through promoting industry education and policy, and it’s content includes particular insight into the Eagle Ford Shale development and the businesses involved. Shale’s distribution includes industry leaders and businesses, services workers and entrepreneurs.

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INDUSTRY

Permian Pipeline Set to be Future Bottleneck for Production Growth KAYRROS ANALYSIS SHOWS LIMITED SHORT-TERM PERMIAN TAKEAWAY CAPACITY WILL INCREASE THE PRICE SPREADS THROUGHOUT 2018 Special to SHALE from Kayrros

GRAPHS COURTESY OF KAYRROS

Figure 1. Crude oil transportation infrastructure out of the Permian basin

Sources: Kayrros, EIA, Thomson Reuters, RBN Energy

SHALE MAGAZINE  JULY/AUGUST 2018

ermian pipeline connections are beginning to bottleneck, as revealed by Kayrros data. The bottleneck is caused by the pipeline capacity reaching saturation, limiting the flow of oil to storage hubs, which comes at a time when Kayrros sees the output from the basin rising in August 2018. Price differentials are set to widen until the entry of service of the Permian to Corpus pipeline in mid-2019. Kayrros sees Permian production growing steadily on average in each of the four coming months, reaching a new height in August. As production grows over the coming months, it will surpass total pipeline and refinery capacity by July 2018. This means the excess supply will have to be transported by rail or truck. Kayrros estimates the saturated pipeline capacity is likely to remain that way for the next 12 months. Although the Midland-to-Sealy pipeline recently began full service, the rate of growth in production is expected to surpass total pipeline and refinery capacity still. The 40 thousand barrels per day (kb/d) expansion of the BridgeTex pipeline, expected to be operational early 2019, is unlikely to meet the increased demand. The next major project to come on-line is the 400 kb/d EPIC pipeline linking the Permian Basin to Corpus Christi, Texas, but it will not be available before the third quarter in 2019. The spread between WTI Midland (WTM) and Louisiana Light Sweet (LLS) increased to a three-year high of $16.45 a barrel as of May 4 and remained above $14 for three weeks. The last extended period of saturated pipeline capacity dates to January 2014 and lasted for 10 months before the first lines of BridgeTex pipeline entered service, adding 300 kb/d of takeaway capacity at the time. The LSS-WTM spread hovered around $10 a barrel during that period, while the WTM discount to WTI Cushing (WTC) reached a high of $17.25 a barrel July 2014. The recent restart of the crude distillation unit at the Borger refinery as well as the full entry into service of Midland-to-Sealy pipeline brought some relief to the saturated takeaway capacity, narrowing the WTM/LLS spread down to $11.35 a barrel May 22. During the previous period of saturated pipeline capacity between January and October 2014, truck movement of crude in the basin soared, with up to 750 kb/d of crude transported on Texas roads in October (+95 kb/d compared to January of the same year). Crude movements by rail also increased to 65 kb/d September 2014, from a low of 4 kb/d December 2013. With current estimates for rail costs varying between $6 to $8 a barrel and trucks amounting to three times the rail costs, recent spreads have followed traders’ initiatives to arrange for rail and truck transportation out of the Permian. Any trucking shortage is set to push price differentials to new highs. Forecasted production (dashed black curve) considers both the reporting lag estimate for the last three months and future production for the next three months. Refinery capacity (in red) for local refineries considers the reported outages of these refineries. Excess supply is defined as the difference between Permian production and the takeaway capacity of the basin aggregating pipelines and the local refineries, as specified in Figure 2. Shaded areas in red are associated with positive excess supply.

Figure 2. Kayrros forecasted Permian production versus pipeline capacity and local refinery runs

Source(s): Kayrros analysis, Thomson Reuters, EIA, RBN Energy

Figure 3. Permian excess supply and prices differentials

Sources: Kayrros analysis, Thomson Reuters, EIA, RBN Energy

For more information: Kayrros delivers insights on the global energy market to help players make better investment decisions, using advanced data analytics and cutting-edge technologies such as machine learning and AI. Kayrros experts process and analyze data from multiple sources that include satellite imagery and maritime signals to provide its customers with market forecasts and near real-time measurements of key global energy trends. Kayrros teams are based in Paris, New York, Houston, San Francisco and Singapore to deliver actionable information in near real time and with less delay than existing publicly available sources. Through its unique combination of data analytics, machine learning, and expert insight, Kayrros helps provide greater transparency to the traditionally opaque energy sector. For more information, please visit www.kayrros.com.

JULY/AUGUST 2018  SHALE MAGAZINE

INDUSTRY

Booming Out of the Bust By: Bill Keffer

SHALE MAGAZINE  JULY/AUGUST 2018

to seek bankruptcy protection so far in 2018, so it would seem that the bust has ended, and we are now looking at the next expansion. It remains to be seen whether it will be slow and steady — or something else. Toward that end, companies are pursuing drilling programs and are, once again, investing in exploring for and developing their reserves. The Oil & Gas Journal reports that overall oil and gas industry capital spending in the U.S. will increase by 15

percent this year. Most company budgets are assuming $50-55 a barrel for oil (a level that actual prices continue to surpass) and $3.00/mcf in natural gas (a level that actual prices haven’t quite achieved yet). There is always the ever-present worry that, once industry cranks up production again because prices have risen enough for it to make sense, the increased production will cause another price collapse because supply outstrips demand (the continuing cause for depressed natural gas prices). However, this time around, there are interesting aspects that might help prevent an abrupt drop in crude prices. OPEC continues to voluntarily restrict their production, having finally given up on running the U.S. shale production out of business. Domestic producers spent the bust improving efficiencies so that now they enjoy a much lower break-even price. Venezuela is on the verge of turning off their crude supply altogether. Iran might have their crude supply sanctioned back into timeout. On the natural gas front, U.S. LNG export terminals are coming on-line, and countries like China are be-

With a hefty dose of cautious optimism, it does look like we have emerged from the last bust ready to produce even more in volume, and with even more efficiency coming big customers. Overall, global demand continues to increase. The economic picture looks promising. In 2008, the U.S. had a daily production of five million barrels per day (bpd) of oil and 63 billion cubic feet (bcf) of natural gas. In 2018, we are expected to produce 10 million bpd of oil and 80 bcf/d natural gas. That is astounding. Every semester, I tell a new crop of unaware law students that, not only are we not running out of oil and natural gas, we have more now than we have ever thought we had over the 159 years we have been commercially producing crude oil. One of the principal reasons the picture looks so rosy for the U.S. is a little area known as the Permian Basin. It has been continuously and prolifically producing oil since 1923; and, even after having produced for almost 100 years, it is predicted to become the world’s largest producing area in the next few years. This month, it is estimated it will produce 3.18 million bpd. If the Permian Basin were its own country in OPEC, it would rank number four in total production; and it will likely pass Iran by the end of this year and so would become number three. Compared to just two years ago in May 2016, when there were only 133 active drilling rigs in the Permian Basin, there were 463 active drilling rigs

J. G. DOMKE/BIGSTOCK.COM

ell, here we go again. It’s not hard to see why oil and natural gas prices are inherently volatile. They are among the most important, if not the most important, commodities in the world. As author Alex Epstein says, energy is the industry that powers every other industry – and oil and gas provide most of that energy. Firstworld nations need oil and gas to maintain their first-world status and keep up with the “Republic of Jones.” Third-world nations are still waiting for their opportunity to have access to cheap, abundant energy and graduate to join the first-world club. World prices ebb and flow on the daily whims of geopolitical events, on economic recessions and expansions, on increasing demand and on expanding supply. While the wealthy and comfortable wrangle over computer models on climate change, the impoverished and energy-deprived millions living in less comfortable circumstances long for a taste of the cheap energy the computer-modelers take for granted. With a hefty dose of cautious optimism, it does look like we have emerged from the last bust ready to produce even more in volume, and with even more efficiency. However, as with most busts, this last one left its share of bodies behind. The Dallasbased law firm of Haynes & Boone tracked industry bankruptcies during the bust, and the total number of industry-related companies that had to seek bankruptcy protection reached 144; 66 of which were in Texas. Only six companies have had

(and growing) there in May 2018. However, the Permian Basin is not the only area enjoying renewed activity. As reported by Baker Hughes in The Wall Street Journal, using the same dates for comparison, the Williston Basin rig count has gone from 24 in May 2016 to 57 in May 2018; in the DJ Niobrara, from 12 to 24; in the Granite Wash, from 3 to 13; in the Cana Woodford, from 27 to 70; and, in the Eagle Ford, from 27 to 66. Running the Energy Law program at Texas Tech School of Law, where the Permian Basin is our backyard, compels me to say just another word or two about this incredibly vast treasure chest of hydrocarbons. The three primary producing regions of the Permian Basin are the Delaware Basin, the Central Basin Platform and the Midland Basin. That part of the Permian Basin is 300 miles long and 400 miles wide — about the size of the state of South Dakota. The Permian Basin also has a dozen productive intervals — a veritable layer cake of hydrocarbon-producing formations. Another way to describe the vastness of the Permian Basin is to realize that the entire basin covers 102,000 square miles and produced 815 million barrels of oil in 2017. It would not be surprising, and might even turn out to be correct, to predict that the current measured euphoria will, like every time before, eventually crash and burn into the next bust. However, during the most recent bust, I was struck that companies not only didn’t pack up and leave Midland but they doubled down and invested even more heavily in their presence in Midland and the Permian Basin. Those decisions, if wrong, could prove to be doubly, if not more, expensive. The fact that so many companies chose to spend more money on the Permian Basin during the bust is testament to the future of the Permian Basin. The strange-but-true coincidence of the Permian Basin is that it is, not only the king of oil-producing basins in the world, but it has also become the wind capital of the world and is quickly becoming a major area for generating solar energy. It is a true energy triple threat.

About the author: Bill Keffer is a contributing columnist to SHALE Oil & Gas Business Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He also served in the Texas Legislature from 2003 to 2007.

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POLICY

Steel Tariffs Go Fully Into Effect

arkets are complicated – so much so that they are literally unmanageable. The business of establishing prices, production levels, goods and services to be produced, the location of production and so on is the result of billions of daily complex interactions and incentives about which no single person or government has complete knowledge or understanding. Therefore, any attempt to manage markets or bring about a managed outcome, even with the best of intentions, sets off a chain reaction that ripples throughout the entire process. Most often, the broader outcome is unfavorable, even if the original objective was accomplished. The job of the economist is to attempt to supply some understanding of the deeper waves of impact from the initial event that far exceed the singular outcome of the stated objective itself. And so it is with trade restrictions. There is little doubt about the fact that the primary steel-producing industry in the U.S. will be advantaged by the now in place steel tariffs and import quotas. Frankly, some other industries may fare somewhat better as well. But there is no doubt that steel-consuming industries in the U.S. will be harmed by those very same tariffs and quotas. As a matter of fact, there is no doubt that other industries supplying a broad range of goods and services to U.S. household and business consumers will be harmed, even those seemingly having nothing to do with steel (and aluminum, on which a 10 percent tariff has been imposed). When all is considered, there is no doubt about the fact that more jobs will be lost economy-wide than will be gained or saved because of steel and aluminum tariffs and import quotas. This is true mostly because the steel-consuming sector is much larger than the steel-producing sector. Primary steel-producing companies employ about 140,000 workers and added about $36 billion to the U.S. economy according to 2015 census data, whereas steel-consuming firms employed over 6 million workers and added about $1 trillion to the U.S. economy. Oil and gas producing, drilling and service companies are in that group.

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The Trade Partnership, a Washington research and consulting firm, through some comprehensive deep modelling that far exceeds a simple input/output calculation, has estimated the current tariff and quota structure will add about 26,000 primary steel jobs, at the same time costing roughly 433,000 jobs for a net job loss of about 400,000 jobs throughout the entire economy. That is 16 jobs lost for every job gained, and every single state will experience net job loss — including Texas. While the study did not carve out the upstream sector, upstream oil and gas employment will unavoidably be negatively affected. Trade restrictions — in this case, steel and aluminum tariffs and import quotas — must necessarily raise prices to domestic consumers. Were that not the case, the restrictions would be unsuccessful in achieving the desired stated outcome. Price increases limited to the amount of the tariffs passed through to customers in imported steel products alone would be troublesome enough. But alas, the price impacts extend far beyond the 25 percent tariff on steel products. Domestic steel prices are pushed upward as well, so the 25 percent is going to be paid no matter the source. Import quotas further restrict available supply, adding to upward pressure on prices. U.S. domestic hot-rolled coil steel futures have increased by over 40 percent since the beginning of the year as markets assess the ability for steel consumers in the U.S. to acquire what they need in the current traderestricted environment. The imposition of tariffs and import quotas overall create an artificial shortage of available product relative to current demand. Price increases have and will continue to exceed the 25 percent tariff. Further complicating the picture for U.S. oil and gas companies is the sheer lack of availability for oilfield specialty steel products that are not produced in the U.S. Imports are thus the only source of supply for these products and prices are moving upward in a hurry because those products are subject to the full range of the impacts of tariffs and quotas. Will higher prices for oilfield steel products cost oil and gas producing, drilling and service company jobs

Will higher prices for oilfield steel products cost oil and gas producing, drilling and service company jobs in Texas and the U.S.? Yes, indeed

MIRCEAB/BIGSTOCK.COM

By: Karr Ingham, InghamEcon, LLC

of the product to compensate for the increased costs), reducing the demand for labor. Period. Steel and aluminum tariffs were implemented in March, with temporary exclusions for some key U.S. allies and suppliers; most notably Mexico, Canada and the European Union. On May 31, however, those exclusions were lifted, and the tariffs were in place across the board apart from negotiated import quotas as a substitute for the tariffs (South Korea, primarily). Either by tariffs or quotas, however, oilfield steel products across the board are subject to dramatically higher prices. That being the case, what are the options available to upstream oil and gas companies in terms of gaining relief? Frankly, not many. The Texas Al-

When all is considered, there is no doubt about the fact that more jobs will be lost economy-wide than will be gained or saved because of steel and aluminum tariffs and import quotas

in Texas and the U.S.? Yes, indeed. A simple calculation based on upstream oil and gas company revenue impacts of a 30 percent increase in oilfield steel costs suggests the loss — or the lack of creation — of about 20,000 jobs in Texas, of which roughly two-thirds are direct oil and gas jobs. Is that catastrophic? Probably not, but again we ask, why is it okay to “save” (or create) primary steel jobs through policies that destroy or fail to create oil and gas jobs (or jobs in other steel-consuming industries)? Even that fails to tell the story, of course, because of the complicated nature of the chain reaction. Here’s a slice. Tariffs raise costs to upstream oil and gas firms, indicating job loss. Steel-producing industries are energy-intensive, however, and the added energy demand indicates job growth. Steel-consuming industries are also energy-intensive, however, and the damage done to those firms indicates job loss. The U.S. economy is likely to suffer a hit to gross domestic product (GDP) of some magnitude because of the tariffs and quotas, reducing energy demand broadly and further indicating job loss. Other countries will retaliate, reducing U.S. exports to those countries and indicating job loss. And in an odd twist, it could easily be the case that workers who have lost their jobs in manufacturing or other steel-consuming industries may become available to staff upstream oil and gas jobs during a time of extremely tight industry labor markets. When all is said and done, higher prices for oilfield steel products shift industry production revenues from profit to expense (crude oil and natural gas producers are unable to raise the price

liance of Energy Producers has pushed for blanket oil and gas industry exemptions from tariffs imposed on imports because of the unique nature of those products and the lack of domestic availability. The possibility of success is slim, however. That leaves individual firms to request exemptions on specified products. It is a cumbersome, tedious process and not all firms may have the expertise and the resources to navigate it successfully. Small, independent oil and gas companies will find it difficult to successfully apply for those exclusions — neither do they have the wiggle room to absorb the price increases without substantial detrimental effects. It may well be that the imposition of tariffs and quotas on steel and aluminum are a negotiating tactic designed to bring the players to the table to negotiate a future beneficial outcome. Under that scenario, perhaps, the duration of the restrictions is relatively short. That is an unknown, however; and in the meantime, steel costs for Texas and U.S. oil and gas producers, service companies and drilling companies is rising at a pace that exceeds the 25 percent tariff. The Texas Alliance of Energy Producers will continue to oppose the tariffs and quotas with their elimination as our goal, and to call attention to the unavoidable fact that steel jobs saved means oil and gas jobs lost.

Karr Ingham is an Amarillo, Texas economist, and is the owner and President of InghamEcon, LLC, an economic analysis and research firm specializing in statewide, regional, and metro area economics, and oil & gas/energy economics.

JULY/AUGUST 2018  SHALE MAGAZINE

POLICY

The November Elections in Texas Promise Some Fireworks By: Chris Hosek, Partner, Texas Star Alliance

SHALE MAGAZINE  JULY/AUGUST 2018

high-water mark for recent Democratic turnout (roughly 3.9 million voted for Clinton, 4.7 million voted for Trump). While those numbers are important, it should be noted that non-presidential election year elections see significant decline in turnout from both parties. The primaries this year yielded totaling 1.54 million Republican votes, with Democrats receiving 1.02 million. If these numbers were to hold statewide, it would equate to a 60 percent Republican and 40 percent Democrat split. Looking at the federal level, sitting Senator Ted Cruz (R) will be facing Congressman Beto O’Rourke (D - El Paso) for Texas’ Senate seat. Congressman O’Rourke will have to work to solidify his base and then win significant crossover from Independents and Republicans to win this election. This may prove to be somewhat challenging, given Congressman O’Rourke’s lackluster performance against two insignificant primary challengers. O’Rourke only managed to win 63 percent of the vote. In the U.S. House of Representatives, Republicans hold 25 of 36 U.S. House seats in Texas — Democrats hold 11. Of the 25 Republican seats, Democrats are targeting three to flip. The Republican incumbents will likely have a well-funded defense. One of the most competitive seats is Congressional District 23, which stretches from San Antonio to El Paso. Congressman Will Hurd (R) will field a tough Democratic challenger in Gina Ortiz Jones. She is a former Director of Investment at the Office of the U.S. Trade Representative and a U.S. Air Force Veteran who served as an Intelligence Officer in Iraq. However, Congressman Hurd

As always, the Texas primaries contain some of the most fascinating campaigns to watch on both sides of the aisle TSNORTH/BIGSTOCK.COM

s the oil and gas industry continues to set jaw-dropping production numbers, it is easy to stay focused on the job of producing energy and servicing clients. Everyone tends to have tunnel vision during boom times, but we should not forget to look at all the outside factors that may impact the oil and gas business. The list is daunting: commodity pricing, bottlenecks in the delivery and international affairs can all impact our business. But one thing we really need to focus on is elections. On May 22, the die was cast for all upcoming Texas general elections on Nov. 6. As always, the Texas primaries contain some of the most fascinating campaigns to watch on both sides of the aisle. Let’s look at some basics. Texas Republicans and Democrats held their initial primaries March 6 in the primary election. If a candidate did not receive more than 50 percent of the vote, then the top two candidates met in a run-off election that concluded May 22. This decided the respective candidate for each party on the November ballot. The general election will set the stage for one of the most interesting state legislative sessions Texas has seen in a long time, which begins Jan. 8, 2019. Before we look at the competitive races, let’s start with some of the turnout numbers from the primary election. Turnout numbers are strong indicators of voter enthusiasm. First, it should be noted that Texas Democrats have not won a statewide race since 1994. In the 2016 presidential election, President Trump defeated Hillary Clinton 52 percent to 43 percent. That is considered a

is a former CIA Undercover Officer serving in the Middle East and South Asia and is a rising star in the Republican Party. He has already won close elections in 2014 and 2016 and has a seasoned political team behind him. Other Congressional races in Texas to watch are U.S. Representative Pete Sessions (R) from Congressional District 32 in Dallas and U.S. Representative John Culberson (R) representing Congressional District 7 in Houston. Both will have to defend their seats in increasingly challenging districts. Statewide in Texas, Governor Greg Abbott will face off with Dallas County Sheriff Lupe Valdez. Governor Abbott is the overwhelming favorite in this race. He will go into this election with a significant war chest, strong name identification and a booming Texas economy. Sheriff Valdez, who just went through a grueling primary and run-off election, has an uphill battle to unite her party. Governor Abbott will no doubt create coattails for the other statewide elected officials. On the Texas Statewide ballot, we also have the Lt. Governor, Attorney General, Comptroller, Land Commissioner and Agriculture Commissioner. Important to the oil and gas industry, the Railroad Commission race will be between current Chairman Christi Craddick (R) and Roman McAllen (D), a former City Planner for the City of Brownsville. Chairman Craddick will be entering the November general election in a strong position, having high name identification and a fine-tuned campaign team. In the Texas Senate, we are likely to see only a few competitive races. One seat to highlight is the Fort Worth Senate seat (SD 10) held by Senator Konni Burton. She is a businesswoman from Colleyville in northeast Tarrant County. She was elected in 2014 when Wendy Davis vacated the seat for her failed attempt at run for Governor. Senator Burton will be facing off against Beverly Powell (D), a local business and community volunteer. This seat will be highly contested because of its history of flipping from party to party. What should we conclude from all of this? First, it is important to note the U.S. House will remain in Republican control. In the Texas House of Representatives, the Republicans hold 95 seats, and the Democrats hold 55. The current Speaker has announced he will not run again, leaving an exciting and interesting Speaker’s race that will unfold after the general election. The speaker in the Texas House holds great power, appointing chairmen and committee members, as well as controlling the flow of legislation. When we look the Texas House of Representatives general election chances, it is important to

analyze the primary and run-off elections in both parties. The Democrats in the House faced little turnover in their primaries; only five incumbents were defeated. Their challenges to incumbent Republican competitive seats are serious, and the sitting Republicans are treating them as such. Republicans produced a very strong slate of pro-business candidates, fighting back the Tea Party element of the overall party. This put the Republicans in a stronger position than most anticipated, making the general election fights that much more brutal. Ground zero in the battle for the Texas House

races will be Dallas County. Six of the top 10 Republican districts Hillary Clinton won in 2016 are in that county. It should be noted that even though Hillary Clinton won those districts two years ago, the Republicans managed to hang onto their seats. It seems obvious, but turnout will be key. Six months ago, it appeared as if the Democrats had the wind at their back. President Trump’s approval numbers were low, and the generic ballot showed a wide gulf favoring Democrats over Republicans. Now things seem to be changing. The generic ballot gap is closing, and President Trump’s numbers are rising. The economy is growing and strong, which should be no surprise to readers of this publication. However, national trends impact Texas, and it will always be exciting to watch.

It seems obvious, but turnout will be keY

Chris Hosek is a principal of Texas Star Alliance, specializing in direct lobbying and state agency relations. He has experience with a broad range of legislative issues and policy initiatives including a specific expertise in the energy sector. Chris served as the Chief of Staff for five years to the Chair of the Railroad Commission of Texas.

JULY/AUGUST 2018  SHALE MAGAZINE

POLICY

The Evolution of the Texas Railroad Commission and its Historic Dedication to Safety By: Katie C. Lee

I Today, the Railroad Commission remains committed to ensuring the welfare of Texans

SHALE MAGAZINE  JULY/AUGUST 2018

n 1891, the Railroad Commission of Texas was created by the Texas Legislature to protect Texans from the flourishing railroad industry’s abuse of power and discriminatory rates through regulation. The Commission was Texas’ first regulatory agency and initially maintained jurisdiction over the rates and management of railroads, terminals, wharves and express companies. However, the oil and gas industry also prospered and gained prominence which necessitated legislative regulation. In response, the Legislature passed the Pipeline Petroleum Law of 1917 expanding the Commission’s jurisdiction by proclaiming that oil and gas pipelines are common carriers. Essentially, pipelines and many railroads are common carriers because they transport goods for any person or company on regular routes at set rates. This law, consequently, provided the basis for the Commission’s present-day authority over Texas’ energy industry. Today, the Commission no longer has any authority or jurisdiction over railroads in Texas. Over time, the Commission obtained increased influence over the oil and natural gas industry from the Texas Legislature. The Oil and Gas Conservation Law of 1919 notably broadened the Commission’s regulatory purview by allowing the Commission to regulate oil and gas production. As a result, the Commission enacted Rule 37, which was the first Statewide Rule to regulate the energy industry. This Rule aimed to improve conservation and safety by requiring minimum distances between wells at drilling sites. Fifteen years later, the Texas Legislature provided the Railroad Commission with regulatory jurisdiction over “the purchase, transportation, sale and handling of the products, by-products and derivatives of crude petroleum oil and natural gas” (as described on the Commission’s website under the section of “History of the Railroad Commission 1866-1939”). Shortly thereafter, the Legislature adopted a detailed general oil and gas law in 1935 that prohibited wasteful operations and entrusted the Commission to put forth the essential measures to inhibit inefficient production. The early years of the Commission can thus be characterized by a steady increase in regulatory authority and interest in conservation within Texas’ energy production. However, in 1937, the political landscape of Texas’ oil and gas industry dramatically changed due to one of the deadliest school

disasters in U.S. history. The catastrophe took place during the afternoon of March 18 at a wealthy East Texas school in New London. The school, which had benefited immensely from the oil boom, routinely tapped into the waste gas pipelines of local oil fields for energy. While this practice was common, it proved deadly. The odorless, colorless gas had filled a crawl space beneath the school, and when the shop teacher, Lemmie Butler, turned on a sanding machine, an electric spark ignited the buildup of gas and caused a lethal explosion leveling the building and killing 294 students and teachers. As a result, the public demanded that the Texas Legislature and Railroad Commission develop and advance additional safety regulations. A newspaper article from the Austin American-Statesman dated March 22, 1937, states, “After the house had promptly suspended its rules to allow introduction of his measure, Rep. Fred Knetsch of Seguin and others urged emergency action on a bill requiring the use of a malodorant in gas sold to the public. Knetsch declared the loss ‘of hundreds of innocent lives’ [in the New London School explosion] was apparently due to escaping or accumulated gas.” Due to pressures from Texas constituents and several Representatives, the 45th Texas Legislature passed House Bill 1017 “requiring the introduction of a malodorant agent in natural gas.” The Railroad Commission, in response to the Legislature’s actions, ordered the odorization of natural gas to prevent future disasters caused by undetected leaks. By enforcing this legislation, the Commission committed itself to protecting Texans from the hazards of the oil and gas industry and set an important precedent for future safety efforts. Since the New London school explosion, the Railroad Commission has adopted several safety programs to protect constituents and the environment. In 1964, for instance, the Commission amended Statewide Rule 5 to demand that every operator must issue a plugging bond before drilling. This regulation guarantees that all abandoned wells are plugged, or sealed, to prevent water contamination. Another notable success includes the Commission’s Underground Injection Control program, which is under the federal Safe Drinking Water Act and targets Class II wells used to in-

The early years of the Commission can thus be characterized by a steady increase in regulatory authority and interest in conservation within Texas’ energy production ject fluids associated with oil and gas activity. This program dictates that the brine and other fluids produced by oil and gas extraction must be injected deep underground in areas separate from sources of drinking water. Since brine often contains toxic metals and radioactive substances, this measure prevents extensive harm to public health and the environment. In fact, the Railroad Commission earned a commendation from the 2016 fiscal report of the Environmental Protective Agency for its efforts to protect Texas citizens’ health and preserve potable water. Today, the Railroad Commission remains committed to ensuring the welfare of Texans. According to the Railroad Commission website, the Commission “serves Texas through [its] stewardship of natural resources and the environment; [its] concern for personal and community safety; and [its] support of enhanced development and economic vitality for the benefit of Texans.” Moreover, the recent revamp of the “Call Before You Dig” initiative further displays the Commission’s extensive dedication to safety. This campaign requests that all Texans who insert, move or remove any object from the ground follow Texas law and call toll-free 811 or 1-800-545-6005 at least 48 hours before digging to prevent hazardous pipeline damage. This call is free of charge, provides the service of marking utility lines and protects constituents from injury and expense.

Other safety efforts recently adopted by the Railroad Commission include the revision of Statewide Rule 13 (SWR 13), which regulates the cementing, casing and blowout prevention of wells, as well as the recruitment of a seismologist. At the beginning of 2018, the Commission notified operators of changes to SWR 13 due to their relevance in cement calculations and washout factors. The revisions consider the differences in soil chemistry, conditions, and density across Texas and accordingly allow operators to manage wells on a caseby-case basis — as opposed to the previous catch-all system. By permitting Commission inspectors to examine particular wells, SWR 13’s alterations prevent blowouts and leaks and achieve a higher standard of safety. Additionally, seismic activity in North Texas prompted the Commission to hire an expert seismologist to increase its understanding of earthquakes. The Commission, in response to the extensive seismological research, decided to reduce the amount of produced water pumped into disposal wells, which placed the safety of constituents above economic advantages. By persistently revising rules, extending consequential safety campaigns and proactively hiring key staff, the Railroad Commission has evolved and adapted to the changing needs of Texans and the oil and gas industry while maintaining its historic dedication to safety.

For more information about the “Call Before You Dig” campaign, visit www.call811.com About the author: Katie recently completed her freshman year at The University of Texas at Austin. She is triple majoring in Plan II Honors, Government and Philosophy. Katie is also the Co-Chair of the Undergraduate Research Committee for UT’s Senate of College Councils, a violinist in the Plan II Volunteer Chamber Orchestra, and an avid writer. You may contact Katie at katieclee@utexas.edu.

JULY/AUGUST 2018  SHALE MAGAZINE

POLICY

Reflections on the Vital Role of the Oil and Natural Gas Industry’s Trade Associations By: David Blackmon

n mid-June, I read with great interest a farewell message written by DrillingInfo’s Chairman, Allen Gilmer, to the members of the Texas Independent Producers and Royalty Owners Association (TIPRO), where he has done a terrific job serving as the association’s chairman for the last two years. I’ve known Gilmer for many years and reading his reflections on his term and TIPRO’s proud history I began thinking about the many opportunities I had during my own career in the industry to meet and work with many chairmen and -women at a variety of the industry’s state and national associations. Taking on the leadership of an association with thousands of members is, in my view, one of the least appreciated and most vital roles for any industry; the nation’s oil and gas business is no exception. As we have seen over the last 17 months, with all the positive actions the Trump administration took throughout its first year that helped stimulate our domestic energy industry, and now the looming negative impacts of steel tariffs and various trade negotiations, public policy can have an enormous impact on any company’s ability to do business and turn a profit. These associations serve as the industry’s primary means of influencing public policy, and the job of leading them can be an extremely time-consuming and intense endeavor. Ironically, the people who agree to take these jobs are most often the busiest people at any company — the CEO, president of a business unit or some other high-ranking senior executive. While some who volunteer don’t take the job as seriously as they should and don’t really get much done as a result, I’ve been amazed at the very high percentage of such men and women who, like Gilmer, dedicate themselves to the task and treat it as seriously as they do their own companies. Over the years I’ve looked on as a man like Wyoming’s Diemer True, who served as Chairman of the Independent Petroleum Association of America (IPAA) from 2001-2003, purchased a home in Washington, D.C. so that he could maximize the time he spent in the nation’s capital. Another IPAA Chairman, EnerVest’s John Walker — who we profiled in this magazine late last year — took the time to create and execute an entire formal business plan when he succeeded Diemer in that chairmanship. Another CEO of a major independent producer, Larry Nichols of Devon Energy, never served as Chairman of IPAA, but took the time to chair its Public Lands Committee throughout most of the Clinton administration, as the industry worked through a daunting set of issues related to the Gulf of Mexico and federal onshore lands. Nichols did take on the

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task of serving as Chairman for the American Exploration and Production Council (AXPC), another of the industry’s national trade Associations. I had the honor of serving as Nichols’ vice chairman at IPAA and worked with him at AXPC and was constantly amazed at how much time he and other incredibly busy business leaders were willing to pour into these assignments. When I worked for Burlington Resources, my own CEO, Bobby Shackouls, took on the Chairman’s role at AXPC and was also very active with the U.S. Oil and Gas Association (USOGA). I saw firsthand

how much of his time those activities took while he was simultaneously building one of the largest and most successful independent producers of its era. Then there’s Jim Hackett, the dynamic former CEO of Anadarko Petroleum, who took on the job as Chairman of the now-defunct America’s Natural Gas Alliance (ANGA) during the 2010-2012 time frame, leading the effort to influence policies that would encourage more natural gas use in power generation and transportation. I was honored to lead the ANGA effort in Texas during that time and watched as

Taking on the leadership of an association with thousands of members is, in my view, one of the least appreciated and most vital roles for any industry; the nation’s oil and gas business is no exception

Hackett played a major role in influencing major legislation not just in Washington, but also in the Texas legislature, including the crucial Frac Fluids Disclosure Bill that passed in 2011. Any time we needed Jim to come to Austin to meet with someone, he’d jump on the next plane to be there. And trust me on this: When these folks travel to Washington or Austin or any of the various other state capitals, they aren’t going there to have nice dinners and see the sights. They’re there to work and get things done, even when that means meeting with people they don’t necessarily think too highly of and would never dream of voting for. It also often means testifying on behalf of the industry before congressional and legislative committees and fielding hostile questions from members who are on the other side of an issue. I’ve been in that role many times myself, and it really isn’t what anyone in their right mind would describe as fun. Texas is blessed with a wealth of highly effective trade associations. In addition to TIPRO, those include the Texas Oil and Gas Association (TXOGA), the Texas Alliance of Energy Producers (The Alliance), the South Texas Energy & Economic Roundtable (STEER), the Permian

Basin Petroleum Association (PBPA) and the Panhandle Producers and Royalty Owners Association (PPROA). Hey, it’s a big state that produces one-third of the nation’s oil and natural gas — we NEED a bunch of associations! All these associations have a rich history of past and present chairs — their rosters read like the who’s who of the Texas oil and gas industry, with names like Clayton Williams, Ray Hunt, George Mitchell, Raymond Plank, Townes Pressler, and on and on. The first time I met George Mitchell, in fact, was at the first TIPRO conference I attended back in the early 1990s. Years later, I had the unenviable task of having to follow Mitchell as a speaker at a conference on the Barnett Shale, where, of course, his company had become the first to successfully produce natural gas from the marriage of horizontal drilling and heavy hydraulic fracking jobs. I also had the pleasure of spending a great deal of time working with Williams to find a compromise on a Railroad Commission-related controversy during the 2011 legislative session. We didn’t quite get there, but things worked out for the best anyway. Then there’s Jon Rex Jones, an independent out of Albany, Texas, who served as the Chairman of IPAA from 1983-1985, and then later as

Chairman of TXOGA, where he was extremely active and effective. Jones’ spirit of service was passed along to his son, Jonny Jones, who also served as Chairman of TXOGA and has been very active in USOGA. It is that spirit of service, the desire to give back to the industry in which they have spent their lives and built their companies that leads these men and women to dedicate so much time and energy in leading these trade associations. God bless them all for doing it, because without their dedicated efforts, the industry as we know it today would simply not exist.

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BUSINESS

SAVING TIPS FROM A FINANCIAL EXPERT

Q: How do you eat an elephant?

By: Mark E. Charnet, American Prosperity Group

THE GOAL OF BECOMING a millionaire while starting out with “zero” is something we all can strive for — one bite at a time! I call it the 10 percent theory of asset accumulation and it works like this: A $1,000,000 goal when you are at the beginning of your road to retirement is far too big for most people to visualize or comprehend, kind of like eating an elephant. When starting off with nothing, $100,000 may be too enormous of a goal as well. In fact, most people cannot even realize accumulating a sum of $10,000, as it is too far down the road to visualize with clarity; However, $1,000 is a manageable goal and definitely a sum that one can see crystal clear. So, herein lies the goal — to accumulate $1,000. Starting with as little as $50 per month, one can open a mutual fund account with an automatic investment program that will draft your checkbook on any business day or multiple business days each month. Choose a comfortable and realistic withdrawal pattern for your budget and authorize the investment company to draft $50 as frequently as possible. Unless you are increasing the frequency of your contributions, or increasing the contribution amount, you should never deviate from this plan. Very quickly, one can realize their goal of accumulating $1,000. The other accomplishment is that you are now 10 percent of the way on your

journey to the $10,000 goal, as it has moved into focus since achieving the first $1,000. By practicing the identical behavior from the first goal, you will accomplish your next goal as well, since you now have $1,000 compounding and growing alongside your continuing contributions. If possible, continue to increase the frequency and amount of contributions, even if by only one extra day per month and/or a few extra dollars. Given enough time, you will achieve your goal of a $10,000 retirement portfolio, and now are 10 percent of the way to $100,000. Once at that level, you should begin to diversify your fund holdings by adding to the other opportunities in the fund family. The $100,000 goal begins to come into focus the same way you have accomplished your prior goals. This method of meeting small goals one at a time instills the habit and discipline of systematic investing. Don’t get dissuaded by the hurdles, potholes and pitfalls that periodically liter life’s road to financial independence — you will find a way through. Be diligent with following the 10 percent plan. Continue to contribute, enhance and increase your frequency of contributions. As your balance grows, further diversify your fund allocations. It will take time, like all your goals before, but your compounding $10,000 plus future contributions, coupled with market performance, will, on a quarterly statement from your mutual

A: One bite at a time

fund family, proudly demonstrate a $100,000 number. And now you are right back to where you started, 10 percent of the way to your ultimate goal of accumulating $1,000,000. Your personal retirement portfolio will be in addition to your employer-based plan, like a 401(k), which you should probably never sacrifice at the expense of your personal plan contributions. Shortly, you will be able to further diversify your holdings by taking from your personal plan to invest in things like a rental property. Your plan dollars can be used to fund the down payment for this property and the rent will cover the mortgage, taxes and insurance. Hopefully, there will be a positive cash flow that can be redirected back into your plan as additional monthly contributions. If you go this route, it is important to note that you should likely purchase an easy-to-rent year-round property, not a seasonal rental. With some effort, these properties are available and should probably yield an 8 percent or better return before debt service. In time, your real estate appreciation, coupled with your debt reduction payments, and on-going (and never-ending) contributions to your personal plan should one day be worth $1,000,000! And you know what? You are 10 percent of the way to your new goal of $10,000,000. This plan has a proven track record — I would know, as I have done it successfully myself.

Mark Charnet, founder and CEO of American Prosperity Group, has been in the retirement and financial estate planning field for over 35 years. Mark has numerous certifications and credentials, including Life and Health Insurance, Certified Annuity Specialist and FINRA Series 6, 63, and 65 Securities Licenses. APG’s unique approach to retirement and legacy planning allows clients to retire with confidence. To contact Mark, please call (973) 831-4424 or visit www.1apg.com

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JULY/AUGUST 2018  SHALE MAGAZINE

BUSINESS

Tax Reform: Making the R&D Tax Credit Relevant Again for Natural Resources By: David Wong, Gabe Rubio and Matthew Ferreira

he final tax reform law includes important changes set to impact mining and oil & gas companies. Some of these new and altered provisions — outlined at the end of this article — will increase taxes paid by these companies. As the sector evaluates the impact of the most significant tax changes in a generation, now is the time for companies to consider research and development (R&D) tax credits to reduce their income tax liability and/or effective tax rate. R&D Tax Credits – Why Now? The R&D tax credit was established in 1981 to stimulate domestic economic growth. It provides an incentive to companies that incur expenses trying to develop or improve their products, processes, software, techniques, inventions or formulas. The credit can be a powerful tool to help offset tax liability, improve cash flow, increase the value of the company and even fund future projects. Historically, many natural resources companies have found little benefit from the R&D credit, specifically those paying the alternative minimum tax (AMT) or generating net operating losses (NOL). Tax reform changes the game for R&D in the energy sector. Among the many changes that may increase tax liabilities, the current guidance repeals corporate AMT and limits NOLs. As a result of these changes, companies may now have the opportunity to use the R&D credit to recoup a portion of the cash invested in developing or improving new technologies.

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If claimed appropriately, R&D credits can provide meaningful cash-savings for companies of all sizes, from entities with one employee to one with thousands. R&D credits can enable companies to offset their federal and state tax liabilities by up to 20 percent of their qualified spending on innovative activities. If companies are not paying taxes, they can still benefit from R&D credits. For example, many states will pay the value of the credit. Additionally, the federal and state credits can be carried back or carried forward to earlier or later tax years, when they could be used to offset past or future tax liability. Does My Company Qualify for the Credit? Most mining, oil and gas, and other natural resources companies try to make their operations and results better, faster, cheaper or greener. Compressed oil prices have heightened the importance of lean operations, and technology is often the answer to finding efficiencies. In 2013, energy companies claimed more than an estimated $300 million in R&D benefits for precisely these kinds of activities. It doesn’t matter whether companies succeeded in their efforts or not, or how technologically advanced or incremental their attempted development was. The point of the credit is to encourage more of the risk-taking inherent in such undertakings, not to reward only those that are judged to have succeeded or to have made a material technological advancement. Any company that has tried or is trying to make any of the following better, faster, cheaper

or greener, has probably performed or is performing activities that qualify for the R&D credit: OIL & GAS • Drilling • Coiled tubing technology • Distillation • Reservoirs • Geological/geophysical interpretive methods • Production optimization technology • Conversion and treating processes • Auxiliary equipment MINING • Dragline evaluation techniques • Smelting/converting technologies • Material handling & feed drying • Flash converting/off-gas handling • Hydrometallurgic plants • High-wall mining processes • Matte handling and grinding • Spoil pile technologies • Coal washing processes • Overland conveyor tube technology • Crib support systems • Stolarzic horizon control system • Bird hazing system • Software Tax Reform: Summary of Changes Impacting Mining, Oil and Gas, and Natural Resources Innovation: All changes are effective for tax years beginning after Dec. 31, 2017.

• Reduction in corporate tax rate – The new law reduces the top tax rate from 35 percent to 21 percent. • Corporate alternative minimum tax repealed – U.S. mining, oil & gas and other natural resources companies that often pay AMT may now be paying regular income tax. R&D credits may be used to offset regular income tax. • Net operating losses deduction limitation – NOLs generated for tax years beginning after Dec. 31, 2017, may no longer be carried back and may only offset up to 80 percent of income generated in a given tax year. This change means companies that in the past have used NOLs to offset all of the income tax may now owe income tax. R&D credits may be used to offset income tax liability. • Exploration and production (E&P)/transition tax on U.S. shareholders – The new tax law imposes a new transition tax on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated. U.S. shareholders will be assessed a tax on their share of the foreign corporations’ accumulated foreign earnings that have not previously been taxed. • Elimination of Section 199 domestic production activities deduction (DPAD) – DPAD has been repealed for tax years beginning after Dec. 31, 2017. Historically, this deduction provided companies with up to an additional 3 percent tax rate benefit on all qualified domestic production income. • Lower taxes on pass-through business income – Raises the deduction available to pass-through filers to 20 percent. CONCLUSION The new tax law includes several provisions of importance to mining, oil & gas and natural resource companies. It is important for taxpayers in these industries to understand the changes these provisions bring, especially the ones with immediate impact. As you create your future tax plans, consider the R&D tax credit as a way to reduce your income tax liabilities. This article originally appeared in Bloomberg BNA’s Daily Tax Report.

Like. Follow. Connect.

David Wong is a partner and west leader of BDO’s Specialized Tax Services practice, specializing in R&D and Section 199 Tax Services.

Gabe Rubio is a managing director in BDO’s Specialized Tax Services practice, specializing in R&D tax credits.

Matthew Ferreira is a manager in BDO’s Specialized Tax Services practice, specializing in R&D tax credits.

JULY/AUGUST 2018  SHALE MAGAZINE

LIFESTYLE

Omni Corpus Christi Offers Culinary and Bartending Excellence

gleaming jewel in downtown Corpus Christi, Texas, Omni Corpus Christi has the best eats and drinks for your next visit to the Sparkling City by the Sea! Republic of Texas Bar and Grill

Enjoy cocktails and entertainment at the Republic of Texas Bar and Grill. This getaway lounge is located on the 20th floor of the Omni Corpus Christi. For over 20 years, this establishment has created memorable experiences for weddings, anniversaries, engagements and other social gatherings. Let me introduce you to the three bartenders, who together, bring over 30 years of experience in memories and mixology. Meet Thomas Salazar III who has traveled and bartended in 28 different countries. He will pair some of the most exquisite cocktails with our cuisine, ensuring your next visit is planned before you leave. Bartender Mike Cantu brings 10 years of

SHALE MAGAZINE  JULY/AUGUST 2018

experience to the Republic of Texas. Mike’s accolades include the 2013 TGI Friday’s Flare Competition for local bars. He has also won the “2018 Best Margarita” in Corpus Christi with his signature Jalapeño Watermelon Margarita. Last but certainly not least is Pedro Martinez. Pedro has 10 years of experience; 7 years of service with the Omni Hotels. His skills in mixology and hospitality have made him the bartender everyone strives to emulate. This dynamic trio complements each other with creativity, versatility and style. Come in and create your next memory. Topsider Lounge Nestled on the second floor within the downtown Omni Corpus Christi Hotel is Topsider Lounge. Serving hotel guests, locals and tourists, Topsider features a variety of drinks, appetizers and entrees. Chef Dean Sprague and his culinary team have

created a versatile menu for their guests’ enjoyment. From crab cakes and martinis to pulled pork nachos and draft beer, Topsider is sure to be your new-found hidden gem.

To learn more about Omni Corpus Christi and book your next stay, visit www.omnihotels.com/ hotels/corpus-christi.

PHOTOS COURTESY OF OMNI HOTELS

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LIFESTYLE

Dripping Springs Distilling Special to SHALE

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PHOTOS COURTESY OF DRIPPING SPRINGS DISTILLING

t all started in a small warehouse on a road that, for the most part, only the town’s locals knew about. Brothers Kevin and Gary Kelleher leased an abandoned church in a small Texas town in the Hill Country. The decision to move into distilling was a mix of legacy and opportunity, as the Kellehers were raised with stories of their great-great-grandfather, a German who migrated to Russia tasked with making vodka for the Czar of Russia. In 2005, with both Kelleher brothers looking for new opportunities they decided to go into business for themselves. The choice to distill in Dripping Springs came down to the area’s reputation for delicious water from natural springs. The Kelleher family launched Dripping Springs Vodka in 2007, building their recipe from that special water in a one-of-a-kind handmade copper pot still. Within a year, their flagship product won Gold Best in Class and The Vodka Purity Trophy at the 2008 International Wine and Spirits Competition (IWSC) in London. To this day, Dripping Springs Vodka remains the only North American vodka to win the coveted IWSC Vodka Purity Trophy since the competition was founded in 1969. The company has since added several products to their name, including Dripping Springs Texas Orange Vodka, Well No. 1876 Vodka, Dripping Springs Artisan Gin, Dripping

smooth products that are hard not to love,” said Marissa Wagner, Public Relations Manager for the distillery. The company’s commitment to consistency and quality across all DSD brands can also be seen in the hands-on approach the distillery has maintain given rapid growth over the past decade. “For Dripping Springs Orange Vodka, our Dripping Springs Gins and Paula’s Orange, Lemon and Grapefruit Liqueurs, our distillers take the time to zest our citrus with handheld micro-plane zesters,” said Wagner. “It’s wonderful to be a part of a company that truly takes pride in every small detail in order to produce a true quality product.” The company has also adopted the qualityover-quantity mindset when it comes to their marketing and advertising strategy. “Our approach is organic growth. More guerrilla marketing, as opposed to having a lot of ads in large publications,” said Kelleher. On the marketing front, the distillery is heavily focused on events, sponsorships, donations and tastings. Kelleher says they donate to over 350 events each year and conduct in-

Dripping Springs’ success can be attributed to the Kelleher family’s passion for creating true craft products Springs Traditional Gin and 1876 Texas Straight Bourbon Whiskey. In March 2018, San Luis Spirits Distilling Company, which now does business as Dripping Springs Distilling (DSD), acquired Empresario brands, expanding their brand portfolio to include Republic Tequila and Whiskey, Pepe Z Tequila, Paula’s Texas Spirits, Martine Honeysuckle Liqueur and Republic Spirit Blends. Dripping Springs’ success can be attributed to the Kelleher family’s passion for creating true craft products. “Our whole mantra is to spend the time to make the best product possible as opposed to mass production,” said Kevin Kelleher, who still oversees the distillery as CEO. And a true craft it is — Small batches and quality water are the name of the game at Dripping Springs, as their vodkas and gins are distilled in small 40-to-50-gallon batches in proprietary copper pot stills designed specifically for the distillery. “When you add the unique profile of our artesian spring water to the mix, it makes for incredibly

store tastings at more than 300 liquor stores. As the number of distilleries, wineries and breweries in the state continue to grow and launch their products, it’s good to know that the original brands like DSD can continue to enjoy the support of loyal Texas drinkers as well. “There are so many craft distillers, it’s increasingly difficult to stand out,” said Kelleher. “But if you take the long view you can be successful.” The distillery is open to the public for tastings, tours, cocktails and special events. They offer walk-in tastings Monday through Saturday, tours on Thursdays and Fridays at 3 p.m. and on Saturdays at 12:30 p.m., 1:30 p.m. and 3 p.m. Cocktails are currently available on Saturdays from 11 a.m.-4:30 p.m. and the distillery hosts a variety of special events throughout the year. Dripping Springs Distilling is planning to open a new Visitor’s Center in 2019.

To book a tour or for details on a special event visit www.drippingspringsvodka.com. For more information on a particular DSD product or for questions on how to find and buy a bottle, you can visit https://drippingspringsdistilling.com/ or call the distillery at (512) 858-1199.

JULY/AUGUST 2018  SHALE MAGAZINE

LIFESTYLE

Dry Dock Brewing Company

ry Dock Brewing Company was the first brewery to open in Aurora, Colorado. A decade ago, owners Kevin DeLange and Michelle Reding expanded their homebrew shop, the Brew Hut, by adding a seven barrel (BBL) brewhouse and tasting room in the back room. By word-of-mouth, the 900-square-foot brewery established itself early on as a community gathering place and Aurora’s microbrewery. Dry Dock’s original location, South Dock, continues to expand. The location has grown to 6,500 square feet and houses a family-friendly tasting room with 180 seats and 16 taps. To keep up with the high demand for its award-winning beers, Dry Dock opened a second production facility in 2013. This expansion allowed the company to nearly quadruple its production numbers in one year. This additional location, North Dock, contains a state-ofthe-art 40 BBL brewhouse, a growing fermentation-tank farm and a Wild Goose canning line. Not far behind the opening of the North Dock brewhouse came the Canoe Room at North Dock in 2014. This space was previously used to store canoes for The Boy Scouts of America Aurora Chapter, and the nickname stuck. Canoe Room offers nine rotating draft beers and the brewery’s canned Home Fleet. It is also home to one of the state’s first Crowler machines that fill 32-ounce cans on-demand with fresh beer for customers to take home. Canoe Room at North Dock is the closest brewery taproom to the Denver International Airport, conveniently located less than 15 miles away on Tower Road and I-70. Colorado Freedom Memorial Blonde is the latest seasonal release from Dry Dock Brew-

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PHOTOS COURTESY OF DRY ROCK BREWING COMPANY

Special to SHALE

ing. This light and crisp ale is brewed with a touch of flaked maize for added character. Reminiscent of a refreshing pale lager, it is the perfect porchpounder for those warm, summer nights. Colorado Freedom Memorial Blonde is now in six packs and on draft for a limited time across Colorado. It was brewed for the Colorado Freedom Memorial in Aurora, Colorado. The memorial honors the sacrifice of over 6,000 Colorado veterans killed in action since 1876 and is the first memorial in America dedicated to those killed in all U.S. wars, from all branches of service, and containing the names of all those who died from a single state in those wars. Dry Dock is donating a portion of the proceeds from from every colorado Freedom Memorial Blonde case sold to the Colorado Freedom Memorial Fund.

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Dry Dock Brewing Company was the first brewery to open in Aurora, Colorado

To learn more about Dry Dock Brewing Company, visit www.drydockbrewing.com.

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LIFESTYLE

The Zuehl Saloon Special to SHALE

f you follow the winding back roads alongside the Cibolo Creek, just outside the San Antonio city limits and about one mile south of Interstate 10, you will come across an authentic Texasstyle honky tonk and event venue known as the Zuehl Saloon. The location of Zuehl Saloon itself has a rich history dating back to 1872, when the building was originally constructed as the town’s meat market. Over the years, the building has operated as a general store and several bars. After a year-long renovation project to carefully revive the building and preserve its authentic roots, the Zuehl Saloon was established and opened in October 2016. Since re-opening its doors, the venue continues to attract neighbors from the local private airfield and patrons from cities in the greater San Antonio area. The Saloon is just a few doors down from another historical site — the original Clemens School — which, in addition to the saloon, is one of the last surviving buildings of the original Zuehl community. The atmosphere is laid-back and familyfriendly, and the Saloon is a desirable destination for many different community functions, including charity-related motorcycle runs, benefits, reunions, birthday parties and

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cook-offs. Saloon customers praise the accommodating staff, who consistently provide friendly service and are eager to share the bar’s history with newcomers. “It really feels more like a community center than your typical bar,” says business owner Courtney Boedeker. “It’s a unique place with regular patrons who have been a part of the establishment for years. This is my hometown, so it feels like family. The more I find out about the history of the bar and the town, the more I fall in love with it.” Zuehl Saloon currently offers a variety of bottled beer, wine coolers and wine by the glass or bottle. Patrons can enjoy pool, darts, an outdoor patio and outdoor games like washers and horseshoes. You can find someone barbecuing in the backyard almost every weekend. The Saloon also hosts a variety of live music artists and singer-songwriters. The open-air style bar not only intentionally reflects the authentic nature of this historic spot, but also provides a comfortable atmosphere where you can enjoy the outdoor landscape. Ample fans and a constant cool breeze make even the most brutal Texas summer days enjoyable. The cold beer and warm, welcoming greeting you receive from the local patrons makes the Zuehl Saloon a uniquely Texas experience.

To learn more about Zuehl Saloon, visit www.zuehlsaloon.com.

PHOTOS COURTESY OF ZUEHL SALOON

PHOTO BY ERIN NICOLE

JULY/AUGUST 2018  SHALE MAGAZINE

River City Dental Solutions

General, Cosmetic & Implant Dentistry Trusted, Comfortable & Affordable Family Dental Care The Latest Procedures, Instruments & Techniques Always Welcoming New Patients Most Dental Insurance Accepted Dr. Thomas C. Shields would like to welcome Dr. Joseph Perry to the practice. 7300 Blanco Road, Suite 203, San Antonio, TX 78216 210-349-3745 66

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Joshua Creek Ranch is the 2018 Orvis Endorsed Wingshooting Lodge of the Year. As a finalist for the prestigious award for the past three years, plus featuring an Orvis Endorsed Wingshooting Guide of the Year winner in 2017 and finalist in 2018, there is little wonder to why Joshua Creek Ranch has been delighting guests from all over the world for nearly three decades. The sporting lifestyle meets luxury resort amenities at this Texas Hill Country paradise. A custom itinerary and extraordinary experience awaits guests seeking an unforgettable adventure surrounded by warm Texas hospitality. m Migratory Dove Hunting m Upland Bird Hunting for Quail, Pheasant and Chukar m European-Style Driven Pheasant Shoots m Decoyed Mallard Duck Hunting m Fly-Fishing for Rainbow Trout, Bluegill and Bass m Seasonal Whitetail Deer & Turkey Hunting m Trophy Axis Deer Hunting m Sporting Clays Shooting

www.joshuacreek.com a (830) 537-5090 a

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The South Texas Energy & Economic Roundtable (STEER) and the Texas Oil & Gas Association (TXOGA) partnered to host an Energy Summit at the Pearl Stable on Thursday, May 31. Speakers at this event included Omar Garcia, STEER President; Todd Staples, TXOGA President; Joe Gorder, Valero CEO; Glenn Hegar, Texas Comptroller; Todd Abbott, Marathon Vice President Resources Play South; and a panel discussion featuring Lyle Larson and Donna Campbell.

NAWBO SA Annual Membership Meeting The National Association of Women Business Owners (NAWBO) San Antonio held their annual membership meeting on June 28 at Maggiano’s Little Italy. The meeting included announcements regarding recent activity and upcoming plans. The new board was sworn in and guests enjoyed a fascinating healthcare presentation.

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PHOTOS COURTESY OF SHALE

STEER & TXOGA Partner for Energy Summit

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ATV ADVENTURE TAKES FLIGHT NATIONAL SAFE DIGGING MONTH

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OTHER SERVICES OFFERED BY SHALE MAGAZINE Branding / Web Production / Search Engine Optimization / Ad Design / Social Media Video Production / Public Relations / Email Marketing / Campaign Strategy / Direct Mail SHALE Magazine is a statewide industry publication that showcases the significance of the South Texas petroleum and energy market. SHALE’s mission is to promote economic growth and business opportunities that connect regional businesses with oil and gas companies. The publication supports market growth through promoting industry education JANUARY/FEBRUARY 2018 affected.  SHALE MAGAZINE and policy, and its content includes particular insight into the development of the Eagle Ford Shale and Permian Basin plays and the businesses

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