SHALE Magazine May/June 2021 by SHALE Oil & Gas Business Magazine

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MAGAZINE

MAY/JUNE 2021

MODA MIDSTREAM :

NAVIGATING THE SEA CHANGE IN AMERICAN ENERGY SECURITY THE BIDEN ADMINISTRATION’S EMERGING ENVIRONMENTAL OVERREACH

A PRIMER ON BEST PRACTICES IN OIL AND GAS BANKRUPTCIES

CAN OIL FIELD WORKERS BE PAID A DAILY SALARY AND STILL BE EXEMPT FROM OVERTIME?

HOW NATURAL GAS KEEPS ELECTRICITY CHEAP AND PLENTIFUL IN PENNSYLVANIA SHALEMAG.COM

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MOVING AMERICA’S ENERGY The Port of Corpus Christi puts its energy into what matters most - the needs of our customers. With our proximity and connections to Eagle Ford Shale, the Permian Basin, and beyond, we are built to meet the increasing production throughout Texas and the rising demand for energy across the globe.

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MAY/JUNE 2021

CONTENTS

SHALE UPDATE

Shale Play Short Takes

FEATURE

A Primer On Best Practices in Oil and Gas Bankruptcies–Royalty Owners

COVER STORY

When, in December 2015, then-President Barack Obama affixed his signature to one of the many omnibus spending bills that congress has sent to various presidents over the last 15 years or so, few could have predicted the massive paradigm shift the act would have on America’s oil and natural gas industry. Few observers were unaware of the fact that Republican Senator Lisa Murkowski had succeeded in including an amendment to the bill containing language that created a literal sea change in the industry’s fortunes that would, in turn, result in a frenzy of development at the Port of Corpus Christi.

INDUSTRY INDUSTRY

BUSINESS

30 (Thermo) Plastic Fantastic 32 Blackouts Present Opportunities to Implement

58 Avoiding Early Mistakes in Oil

34 Can the Oil Industry Avoid Drilling Itself out of

Wide Checklist

Reliability Solutions

Prosperity For Once?

36 Key Considerations For Supporting Your ETRM System

POLICY

and Gas Litigation

60 ESG Finance: An Enterprise-

LIFESTYLE 68 No Longer Business as Usual? A Mindful Guide for Returning to the Workplace

42 Vertical Rules in a Horizontal World 44 2021 Climate Report Pairs Big Banks and Fossil Fuels 46 The Last Decade – A Look Back at the Past Ten Years

70 Leveraging the Pilot Mindset

48 New Administration Priorities 50 The Biden Administration’s Emerging

72 2021 Midstream Open

of Oil and Gas Policy

Environmental Overreach

52 Big Chills and Strong Wills

for Effective Leadership

SOCIAL Golf Tournament

74 Fogo de Chao Mixer 74 Jonathan’s The Rub Mixer

How Natural Gas Keeps Electricity Cheap and Plentiful in Pennsylvania

POLICY

The Shale Controversy – Understanding Both Sides

BUSINESS

Can Oil Field Workers be Paid a Daily Salary and Still be Exempt from Overtime?

LIFESTYLE

Being an Exceptional Individual and Organizational Leader

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VOLUME 8 ISSUE 3 • MAY/JUNE 2021

KYM BOLADO

CEO/EDITOR-IN-CHIEF CHIEF FINANCIAL OFFICER Deana Andrews EDITOR David Blackmon

Providing energy for the world while staying committed to our values. Finding and producing the oil and natural gas the world needs is what we do. And our commitment to our SPIRIT Values—Safety, People, Integrity, Responsibility, Innovation and Teamwork— is how we do it. That includes caring about the environment and the communities where we live and work – now and into the future. © ConocoPhillips Company. 2017. All rights reserved.

www.conocophillips.com

ASSOCIATE EDITOR David Porter DESIGN DIRECTOR Elisa Giordano PUBLICATION EDITOR Melissa Nichols COPY EDITOR Nick Vaccaro VICE PRESIDENT OF SALES & MARKETING Josie Cuellar ACCOUNT EXECUTIVES John Collins, Ashley Grimes, Doug Humphreys, Matt Reed VIDEO CONTENT EDITOR Aslan Sukolics SOCIAL MEDIA DIRECTOR Courtney Boedeker CORRESPONDENT WESTERN REGION Raymond Bolado CONTRIBUTING WRITERS Igor Azevedo, David Blackmon, Mona Dajani, Kelley B. Duke, Tyler Greenwood, Jussi Heikkinen, Chris Horner, Annette Idalski, Bill Keffer, Kent Landrum, Benjamin J. Larson, Jarrod Martin, Kelly Warren Moore, Ian Dexter Palmer, David Porter, Joe Shakeenab, Tom Shepstone, Chad Sorenson, Nick Tarascio, Thomas Tunstall, Ph.D., Nick Vaccaro CONTRIBUTING PHOTOGRAPHER Fonzie Munoz STAFF PHOTOGRAPHER Malcolm Perez EDITORIAL INTERN LeAnna Castro

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For editorial comments and suggestions, please email editor@shalemag.com. SHALE MAGAZINE OFFICE: 5150 Broadway St., Suite 493, San Antonio, Texas 78209 For general inquiries, call 210.240.7188. Copyright © 2021 Shale Magazine. All rights reserved. Reproduction without the expressed written permission of the publisher is prohibited.

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LETTER FROM THE CEO

FIRST, I WOULD LIKE TO THANK THE ASSOCIATED BUILDERS AND CONTRACTORS, THE TEXAS COASTAL BEND CHAPTER (ABC), FOR FEATURING ME IN THEIR MEMBER SPOTLIGHT. It was an honor, thank you. ABC has played a vital role in spotlighting the need for energy infrastructure, construction, education and advocacy. SHALE Magazine and ABC have collaborated in many ways to promote both the construction and infrastructure sectors to gain more significant economic benefit and awareness for the Corpus Christi area and the great state of Texas. Speaking of infrastructure, our cover story is an exciting story about how incredible ingenuity, amazing timing, Texas, the Port of Corpus Christi and MODA Midstream came together at just the right time to thwart potential disasters predicted by the media. It is a fascinating read that I’m sure you will enjoy. As we continue putting more time between us and 2020, new questions continue to arise about conducting business in this new age. In this issue, we address hourly vs. salaried oil-field workers and the best way to proceed if your company is facing bankruptcy. And, the still-new administration has us all speculating about what the rest of the year will bring for the oil and gas industry. SHALE Magazine is here to help you stay up to date with all the latest business and energy industry news. Don’t forget to follow us on social media and tune in weekly to the In the Oil Patch radio program. It is the highest-rated show on Sunday nights on iHeartradio’s KTRH 740AM, and we will soon be going to syndication and will debut to 3,500 new stations and markets.

KYM BOLADO

HEADSHOT BY MICHAEL GIORDANO

CEO/Editor-in-Chief kym@shalemag.com

SHALE MAGAZINE  MAY/JUNE 2021

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SHALE MAGAZINE  MAY/JUNE 2021

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SHALE UPDATE

SHALE PLAY SHORT TAKES By: David Blackmon

Bakken Shale – North Dakota/Montana The North Dakota Department of Mineral Resources estimates that the Bakken Shale could see as much as 400,000 barrels of oil per day should opponents of the Dakota Access Pipeline succeed in their efforts to force the pipeline to cease operations while the Army Corps of Engineers conducts a new environmental impact study related to the line. The matter remains under consideration by the federal courts and the Biden administration.

Denver/Julesburg (DJ) Basin - Colorado Bonanza Creek Energy closed its $376 million acquisition of HighPoint Resources on April 1. Bonanza Creek said the deal increases its equity production to 50,000 barrels of oil per day and raises its Weld County leasehold position by 206,000 net acres. The company further estimated its 2021 pro forma levered free cash flow at over $150 million at current commodity prices.

Permian Basin – Texas/New Mexico

Eagle Ford Shale – Texas

In late April, BP announced that it plans to invest $300 million in a project designed to cut its natural gas flaring in the Permian Basin to zero by 2025.

Drilling activity continued to gradually tick higher in the Eagle Ford region, with the Baker Hughes rig count finding 43 active rigs working in the area in mid-April. While that remains a fraction of the 270 or so that were active in the area at the peak of its boom times of a decade ago, it’s a nice recovery from the 17 or so that remained active during the depths of the 2020 bust.

Earlier in April, Pioneer Natural Resources became the dominant driller and producer in the Midland Basin part of the Permian Region when it announced a $6.4 billion acquisition of privately-held DoublePoint Energy.

SHALE MAGAZINE  MAY/JUNE 2021

Marcellus/Utica Shale – Pennsylvania/West Virginia/Ohio In another obvious frivolous stunt coordinated with Earth Day, New York City sued major oil companies ExxonMobil, BP and Shell, along with API for alleged “greenwashing” of their operations. The suit accuses these representatives of “Big Oil” for engaging in false advertising and deceptive trade practices, alleging they have “systematically and intentionally misled consumers in New York City ... about the central role their products play in causing the climate crisis.”

Haynesville/Bossier Play – Louisiana/East Texas SCOOP/STACK Play – Oklahoma Like Texas, Oklahoma’s state government greatly values the contributions the oil and gas industry makes to its economy and quality of life. As the Biden administration and ESG-focused investors ramp up their national assault on oil and gas, Oklahoma’s house of representatives passed HB 2034, which would prevent the state government from investing in companies that adopt ESG-related tactics designed to damage the industry and to cut ties with asset managers, banks and insurers that are doing the same. As of this issue, the bill was under consideration in the Oklahoma senate.

In April, S&P Global Platt reported that overall production in the Haynesville/ Bossier region, which spans the border between Texas and Louisiana, reached an all-time record high of over 13Bcf of gas per day. S&P Global Platts said that “... recent production strength comes following a steady build in drilling and completion activity over the past seven months. In February, rig count in the Haynesville briefly topped 50, reaching its highest since December 2019.”

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 editor@shalemag.com. SHALEMAG.COM

 FEATURE

A Primer On Best Practices in Oil and Gas Bankruptcies–Royalty Owners By: Jarrod Martin and Tyler Greenwood

he more things change, the more they remain the same. Tumultuous events are certainly nothing new for the energy sector. But with recent events, including historically low oil prices, the Coronavirus pandemic, and a new administration scrutinizing oil and gas production, questions inevitably arise with respect to royalty leases: What can I do to protect myself? Are there safeguards within my lease? In such times, royalty owners would do well with a refresher. Background In typical oil and gas leases, parties contract to certain terms, conditions, and clauses, including the “habendum clause.” The habendum clause normally defines and breaks down the duration of the lease into two terms: a primary term (such as “for five years”) and a secondary term (such as “for so long as oil and gas are produced in paying quantities”). This clause can — and usually will — last as long as the condition in the secondary term is satisfied. The condition associated with the secondary term is referred to as the “production threshold,” which is the negotiated amount the lessee (the oil and gas company) must produce from the well for the lease to remain “active.” When the lessee no longer meets the production threshold, the oil and gas rights conveyed return to the lessor (the landowner), and the lease automatically terminates. Without more specificity, the secondary term of the habendum clause would likely be a death knell for lessees who failed to meet the production threshold on a property in a given term for reasons other than the property’s depletion of resources. However, certain varying savings clauses can possibly prevent the otherwise automatic termination of the habendum clause. Common examples of these savings clauses include, amongst others: a (1) “shut-in” provision and (2) force majeure provision. A shut-in provision contained in most oil and gas leases lessens the harsh results of the automatic termination rule. Assuming the condition of the secondary term cannot be satisfied currently, the shut-in provision allows a lessee to provide a “shut-in” payment to the lessor in order to keep a lease in force. Typically, this occurs when there is no market for oil or gas or there is no pipeline ready to receive production. A lessee also might fall back on a force majeure provision, which provides a lessee relief from the consequences of the failure to comply with the terms of the lease due to an unforeseen event. However, such terms are highly fact-specific and can vary widely under each lease. Recently, however, lessees have increasingly looked to force majeure provisions to prevent an

SHALE MAGAZINE  MAY/JUNE 2021

otherwise worthy well from automatically terminating — and which will potentially be discussed in a future article. Royalty Owners Assume you have an existing royalty lease, and given recent volatility, you are rightfully concerned a bankruptcy filing by a producer, or upstream purchaser, is going to impact your investment. You correctly believe in such an event, certain protections will be afforded to you, but without more information, you do not know which actions to take. Two options likely exist for landowners: (1) filing and perfecting any security

interest in the oil and gas proceeds and (2) state first-purchaser statutes. The Uniform Commercial Code generally provides the steps for one who holds an interest in property to “perfect” their interest. By “perfecting” your interest, you essentially gain a priority over any other creditors who have not done so, thus increasing the likelihood for you to receive payment on account of such interest before other creditors. Predictably, perfecting one’s interest requires jumping through a few hoops, including filing a financing statement with the applicable secretary of state. Certain states — like Texas and Oklahoma — seeking to simplify the process for royalty owners, passed “first-purchaser statutes,” provide that the royalty owners’ interests in the oil and gas proceeds automatically “perfect,” without the need for filing a financing statement. Such an idea has practical roots—within the context of bankruptcy, royalty owners are given a “first-inline” bite at getting their claims paid before other creditors are paid. However, a common error is relying too much on the assumption that your state’s firstpurchaser statute will apply in the bankruptcy context. Take In re SemCrude, L.P. for example. SemCrude filed for bankruptcy after reporting billions of dollars in losses. Texas producers who sold oil and gas believed under Texas law, their security interests were higher in priority over other creditors and thus first to be paid back in the bankruptcy case. However, because SemCrude was incorporated in a different state and not in Texas, the Court determined that Texas law did not apply. Because the Texas producers had not filed financing statements to perfect their security interests, their interests were subordinate to the banks’ interests, and the Texas producers received less than they would have if their interests were perfected. Oklahoma, seeking to rectify the effects of the SemCrude decision, amended its statute. And it worked in In re First River. Texas, however, has still not amended their first-purchaser statute. In light of the ruling in SemCrude, what can Texans do to otherwise protect themselves? By filing a financing statement in the state where the producer is incorporated or reserving a lien, Texan landowners can ensure their interests are secured so that in the event of bankruptcy, they too get a “first-in-line” bite.

See Tex. Bus. & Com. Code § 9.343; Okla. Stat. Ann. tit. 52, §§ 548–548.6, repealed by Okla. Stat. Ann. tit. 52, §§ 549.1–549.12. 1

Arrow Oil & Gas, Inc. v. SemCrude, L.P. (In re SemCrude L.P.), 407 B.R. 112 (Bankr. D. Del. 2009); Samson Res. Co. v. SemCrude, L.P. (In re SemCrude, L.P.), 407 B.R. 140 (Bankr. D. Del. 2009). 2

In re First River Energy, LLC, No. 18-50085, 2019 WL 1103294 (Bankr. W.D. Tex. Mar. 7, 2019). 3

In typical oil and gas leases, parties contract to certain terms, conditions, and clauses, including the “habendum clause”

About the authors: Jarrod Martin is a shareholder in Chamberlain Hrdlicka’s Bankruptcy, Restructuring & Creditor Rights practice. He can be reached at jarrod.martin@ chamberlainlaw.com. Tyler Greenwood is an associate in the practice.

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cover story

SHALE MAGAZINE  MAY/JUNE 2021

MODA MIDSTREAM: NAVIGATING THE SEA CHANGE IN AMERICAN ENERGY SECURITY

By: David Blackmon

WHEN, IN DECEMBER 2015, THEN-PRESIDENT BARACK OBAMA AFFIXED HIS SIGNATURE TO ONE OF THE MANY OMNIBUS SPENDING BILLS THAT CONGRESS HAS SENT TO VARIOUS PRESIDENTS OVER THE LAST 15 YEARS OR SO, FEW COULD HAVE PREDICTED THE MASSIVE PARADIGM SHIFT THE ACT WOULD HAVE ON AMERICA’S OIL AND NATURAL GAS INDUSTRY. FEW OBSERVERS WERE UNAWARE OF THE FACT THAT REPUBLICAN SENATOR LISA MURKOWSKI HAD SUCCEEDED IN INCLUDING AN AMENDMENT TO THE BILL CONTAINING LANGUAGE THAT CREATED A LITERAL SEA CHANGE IN THE INDUSTRY’S FORTUNES THAT WOULD, IN TURN, RESULT IN A FRENZY OF DEVELOPMENT AT THE PORT OF CORPUS CHRISTI. That language repealed an arcane relic of the horrific energy policies of the 1970s, one that banned the export of crude oil produced in the United States that had not first been refined in a domestic refinery. It was a sad and illogical leftover from the days of Arab oil embargoes and former President Jimmy Carter’s belief that the world would run out of oil in less than 20 years. Boy, was he surprised when the industry just kept on finding more and more oil to produce for the next half-century. The industry itself had sought the change, lobbying Murkowski and other key members of congress as prodigious new volumes of light, sweet crude oil produced from the various big shale resources in Texas, Colorado and North Dakota poured onto the market, creating a rising imbalance between the supply of that grade of crude and the capacity of domestic refiners to process it at their facilities. The fear in the industry was that the time was growing near when volumes produced in areas like the Eagle Ford, the Bakken or the Permian Basin would be unable to find a refining home, a situation that would likely result in a huge gap between domestic and international prices for crude and a necessary curtailment in U.S. drilling and fracking projects. President Obama, no friend of the oil and gas business, had repeatedly promised to veto any stand-alone bill containing Murkowski’s repeal language, but there were enough of his priorities contained in the omnibus spending bill to attract his approval.

SHALE MAGAZINE  MAY/JUNE 2021

Thus, the weird, sausage-making process of law creation in Washington, DC paid off for America’s oil and gas industry, and a rush to build out new infrastructure to transport light, sweet crude produced in the Permian and Eagle Ford plays to the Texas Gulf Coast in general, and the Port of Corpus Christ in particular, was on.

THE PORT OF CORPUS CHRISTI – THE RIGHT PLACE AT THE RIGHT TIME Even before the passage of the law, talk within the industry was that the opening-up of U.S. crude exports would create a rich growth opportunity for the Port of Corpus Christi (Port CC). The Port itself is situated less than 100 miles from the center of the Eagle Ford region in South Texas and is also the closest seaport to Midland. Home to an array of refinery operations, Port CC had long possessed the infrastructure to host a significant crude oil import operation and was already in the early stages of a major project in which the U.S. Army Corps of Engineers would deepen and widen the main channel to better accommodate more ships per day, including the larger classes of oil tanker ships.

Port CC had long been engaged in facilitating the limited volumes of crude oil exports from the U.S. that had always taken place. The 1970s-era law authorized the U.S. Commerce Department to issue permits to companies for the export of limited volumes of crude oil that had already been partially processed at well sites or central delivery facilities. Producers taking advantage of this permitting program as of December 2015 included Pioneer Natural Resources and ConocoPhillips. Thus, Port CC had the location; it had the experience and strong leadership, and it had the promise of rapid future growth that would enable it to become the focal export hub for a national phenomenon that was destined to undergo an exponential growth pattern. Over the first ten years of the 21st century, exports of U.S.-produced oil under the Commerce Department’s permitting program averaged well under 30,000 barrels of oil per day (bpd), in some months approaching zero. During the next five years, as the shale oil production booms in first the Eagle Ford and then the Permian Basin steadily grew, volumes exported under the program also rose, reaching more than 400,000 bpd at points in 2015. Once the repeal of the ban passed, volumes rocketed up in almost a vertical progression.

By February 2016, U.S. crude exports surpassed 500,000 bpd. By February 2017, just 12 months later, they topped 1 million bpd. In May of 2018, they topped the 2 million bpd mark and rose above 3 million bpd for the first time in June of 2019. By mid-2019, we at SHALE Magazine were quoting experts who contended that every incremental barrel of crude production in the U.S. from then-current levels would necessarily need to be exported because all available refinery capacity in the country had been spoken for. Of course, at that point, U.S. production had just a few more months left to grow and peaked in November 2019. That was just before the global COVID-19 pandemic hit, throwing the industry into a tailspin that would last throughout 2020. According to the U.S. Energy Information Administration (EIA), domestic crude production dropped from 12.8 million bpd during November 2019 to just 9.9 million bpd in February 2021. Shortly after the repeal of the export ban, the nation’s midstream industry embarked on a massive buildout of new infrastructure needed to carry the growing volumes of both oil and natural gas from West Texas through the Eagle Ford region and cross to the Gulf Coast. Companies like Kinder Morgan, Howard Energy Partners, Enterprise Products, Magellan Midstream, Enbridge and EPIC conducted the permitting and constriction of an unprecedented array of new capacity. Most of the natural gas and natural gas liquids capacity targeted endpoints at Mont Belvieu and the Houston Ship Channel, with most of the oil capacity not surprisingly targeting a final delivery point at Port CC. Looking back, the industry is quite fortunate regarding the geographical location of these major shale formations because the simultaneous buildout of oil and gas infrastructure of such prodigious scope and scale could only have happened in Texas. Despite the rise of anti-development groups targeting many of the new pipelines, Texas policymakers at the state and local levels quickly comprehended the economic development potential this kind of infrastructure brings with it and worked to help clear the way for the various projects to come to fruition. Within months, the media coverage of the situation regarding oil production shifted away from reporting about the previously-looming train wreck of over-supply meeting up with under-refining capacity. Now, the reporting centered upon a supposedly looming train wreck that would take place at Texas Gulf Coast ports when all of these new pipeline projects started flowing massive new volumes of crude oil to overwhelm their inadequate facilities. Again, the media was in for a big surprise, as it turned out that the ports and the import/ export companies doing business within them were much more agile and creative than the reporters and the “experts” they like to quote had imagined.

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THE STORY OF THE JUST-IN-TIME DEVELOPMENT OF THE INFRASTRUCTURE AND SERVICES NEEDED TO FACILITATE THE MOVEMENT OF ALL THAT NEW CRUDE TO MARKETS NOT JUST IN THE U.S. BUT INTERNATIONALLY IS ONLY JUST NOW BEGINNING TO BE TOLD

MODA MIDSTREAM ENTERS THE PICTURE Wherever challenges related to the oil and gas industry exist, solutions tend to follow thanks to creative-minded entrepreneurs with access to capital and talent needed to make big projects work. Ingleside, Texas, is a small community that lies directly north across Corpus Christi Bay from the main facilities of Port CC. The town long relied on Naval Station Ingleside as its main source of economic growth, but in 2005, the federal government’s Base Realignment and Closure Commission (BRAC) voted to shut it down as part of its ongoing military facilities streamlining efforts. On September 9, 2009, the USS Sentry was the last of the Minesweepers from NS Ingleside to arrive in its new homeport of Naval Base San Diego, the final ship to be home-ported at the base. On April 30, 2010, the base was formally shut down, and Port CC took over the property. In 2012, OxyChem purchased most of the NS Ingleside property from Port CC for $82 million, with the rest being acquired by Flint Hills Refining for $8.5 million. OxyChem incorporated part of its acquired property into its pre-existing

SHALE MAGAZINE  MAY/JUNE 2021

chemical plant operations located on the adjacent property. In August 2018, the remainder of OxyChem’s property referred to as the Ingleside Energy Center was sold to a company called Moda Midstream, LLC. In the acquisition, Moda acquired a land footprint of 900 acres, which included liquefied petroleum gas storage, berths and infrastructure, certain crude oil pipeline assets and offsite logistics locations. In all, the company said it planned to invest between $300 million to $500 million to create a fullservice, multi-functional storage and export terminal that would provide access to global markets for crude oil and LPG producers and marketers. Incorporated in early 2015, Moda’s main source of initial funding was a commitment of up to $750 million in capital by Encap Flatrock Midstream, Encap Investments, management and co-investors. The company's mission is clear and targeted: “To provide the superior logistics platform for our customers’ liquids handling needs through innovation and entrepreneurial effort, operational excellence and a safe and reliable environment for all our stakeholders.” Armed with that large financial infusion, the company’s management team, led by co-founders CEO Bo McCall, Chief Operating Officer Javier Del Omo and Chief Financial Officer John Ackerman, quickly went about making deals for planned export infrastructure development.

• In March 2016, a little more than a year after its incorporation, Moda announced it would partner with Vopak, a large international terminal infrastructure company, to create Vopak Moda Houston (MH) to develop a marine terminal on Houston Ship Channel; • In August of that year, Moda announced it would partner with Ergon to form Ergon Moda St. James, a brownfield crude terminal designed to serve one of America’s largest refining markets; • Two years later, in August 2018, the company announced the acquisition of the Ingleside Energy Center (IEC), a storage terminal in nearby Taft, and other assets from OxyChem; • By December, Moda announced it had already loaded its first VLCC at the newly-named Moda Ingleside Energy Center, or MIEC; • In January of the next year, Moda announced its plans to help meet the growing demand for crude oil storage at Port CC by adding ten million barrels in crude oil storage to its pre-existing inventory, creating a facility with a total current capacity of 11.5 million barrels at the MIEC; • By November 2019, the company had begun construction on a new expansion that will ultimately allow the MIEC to simultaneously service two VLCCs with a third loading facility capable of handling Suezmax ships, 900ft. long vessels that can carry up to 1 million barrels of oil; • The company currently has plans to add another 3.5 million barrels of storage, which will raise its total capacity to 15 million barrels. If this pace of development at MIEC seems truly breathtaking to you, that’s only because it has been. But in reality, it has been executed just in time for the purposes of meeting the demands of the crude markets, as the major pipeline projects designed to carry Permian Basin and Eagle Ford Crude had completion dates along the same timeline. MIEC services five of those big pipelines, accepting deliveries from the Cactus I and Cactus II Pipelines operated by Plains All American, the Gray Oak Pipeline operated by Phillips 66, Harvest Midstream’s Arrowhead Ingleside Pipeline and the EPIC Crude Oil Pipeline operated by EPIC Midstream. Moda also has future plans to accept deliveries from Phillips 66’s Red Oak pipeline. Thus, the media narratives of 2017-18 questioning the ability of Texas ports to accept all of the millions of barrels of new light, sweet crude produced in the Permian and Eagle Ford shale regions died away as Moda and others worked with Port CC and other Texas ports to not just fill a looming void of capacity, but to put in place new, state of the art infrastructure that is capable of growing into the future. The question of whether these new volumes of crude would be able to find a refining home disappeared from view. For barrels seeking a home for export, the only question today is which of multiple facilities to access, and the MIEC has become the premier choice for many.

AN INLAND PORT WITH MANY ADVANTAGES Even with its Channel Improvement Project, or CIP, with the Corps of Engineers underway, it was understood that one significant potential fly in the ointment remained to be resolved: The inability to fully load Very Large Crude Carriers, or VLCCs, the largest class of crude tankers, at facilities along Port CC’s main channel. The Port has historically been able to land these huge, 1,100 ft.-long beasts, which sport a capacity of up to 2 million barrels of oil, but has only been able to partially load them while in port, with the remainder having to be lightered via smaller vessels to them once they reach deeper waters in the Gulf of Mexico. The channel improvement project will deepen the channel from its current depth of 47 ft. to 54 ft., but VLCCs require a minimum depth of 66 ft. when fully loaded, meaning they would still require some lightering after being partially loaded while in port. Recognizing this reality, Port CC officials have themselves worked on various potential solutions, including a project involving its nearby property at Harbor Island, which remains under consideration. Last year, Port CC entered into an agreement with Phillips 66 and Trafigura to build a VLCCcapable loading terminal in deep water 21 miles out into the Gulf of Mexico as a means of partially satisfying this need, and for now, the ability to fully load VLCCs at ports in Texas and Louisiana will be limited to this kind of offshore terminal. But that doesn’t make the in-port facilities any less attractive, and their advantages are numerous, both for their customers and for the environment. Once the CIP is completed, Port CC will sport the deepest inland channel along the Gulf Coast, and Moda says it will be able to load an additional 20-35% of vol-

LOOKING BACK, THE INDUSTRY IS QUITE FORTUNATE REGARDING THE GEOGRAPHICAL LOCATION OF THESE MAJOR SHALE FORMATIONS BECAUSE THE SIMULTANEOUS BUILDOUT OF OIL AND GAS INFRASTRUCTURE OF SUCH PRODIGIOUS SCOPE AND SCALE COULD ONLY HAVE HAPPENED IN TEXAS

ume onto the VLCC/Suezmax class vessels, thus minimizing the need for lightering to get them fully loaded. MIEC boasts the Gulf Coast’s fastest loading rates, with a combined rate of 160,000 barrels per hour across its berths, making it able to turn around even the largest ships in less than 24 hours. In fact, as Moda told us when we talked with them, the location itself is perfectly situated for a shipping operation, which was why the U.S. Navy selected it for its base to begin with. Established via the Defense Authorization Act of 1987 to accommodate a full naval battle group, Naval Station Ingleside was formally opened in 1992 when the USS Scout sailed into port to become the first ship formally based there. A reallocation of Naval resources ultimately led the Navy to make NS Ingleside its base for the Navy's Mine Warfare Force, composed of Avenger-class mine countermeasures ships, Osprey-class coastal minehunters, and the command and control ship USS Inchon. The location was originally favored for its safe harbor, its ability to berth multiple large vessels simultaneously and

SHALE MAGAZINE  MAY/JUNE 2021

its proximity to open water. Situated adjacent to Port CC’s main ship channel and the Intracoastal Waterway, departing ships are just a handful of miles and minutes away from entry into the Gulf of Mexico. All of these characteristics are highly sought after when developing marine terminals, and, when considered alongside the asset’s proximity to resilient supply basins and next-generation pipelines, the facility was a natural fit for Moda’s portfolio. Altogether, Moda’s facility has daily access to up to 3 million barrels of crude oil supply. The resilience of this massive supply chain is reflected in the MIEC’s performance. In 2020, MIEC solidified its position as the leading crude export facility for Permian and Eagle Ford grades of crude, proven out by its robust export figures. For the year, MIEC handled four times as many long-haul/large vessel loadings as the next closest location. In doing so, Moda facilitated customers’ access to international markets during a time of crisis in the industry. In addition to all of its already installed capacity, the MIEC property still contains 925 unused acres available

for further expansion of its infrastructure and capabilities. Thus, as the U.S. industry enters cautiously into another boom time, MIEC has plenty of room to grow should the level of supply demand it. Another advantage to loading and off-loading crude inland rather than out in the federal waters of the Gulf of Mexico has to do with the protection of the environment. As Sean Strawbridge, the CEO of Port CC, has pointed out many times, inland terminal operators must meet the requirements of both federal and state emissions regulations, thus providing a higher level of protection, and Port CC maintains its own high standards. At the MIEC, Moda goes the extra mile to not only meet but exceed these regulatory requirements. “We are committed to building a sustainable, reliable business that incorporates best practices in everything we do. Moda has been a leader in environmental stewardship,” Moda told us in an email. “Although we are a private company, we just published our second annual Sustainability Report and made it available on our website to share our approach and actions with stakeholders. “As detailed in our Sustainability Report, we strive for Lowest Achievable Emission Rate (LAER) equivalent emissions control technology, even when less-stringent Best Available Control Technology (BACT) is the requirement. For example, when Moda purchased the Ingleside Energy Center facility in 2018, we voluntarily upgraded the controls of tanks that were under construction by upgrading the seals, slotted guide poles, columns and leg socks. “Furthermore, through engineering and thoughtful design, we have reduced Volatile Organic Compound (VOC) intensity by more than 70% at MIEC while tripling throughput and increasing storage capacity. Most recently, we launched an air monitoring pilot program to further enhance our ability to manage our environmental footprint.” Moda also places a high priority on safety measures at the MIEC. “At Moda, we put safety first and strive to do the right thing every time,” the company said. “We foster a culture of safety excellence based on a shared sense of ownership and vigilance by every member of our team. Our safety programs are designed to help prevent incidents from occurring, but we also proactively prepare to respond effectively to any emergency that might occur. We maintain comprehensive Facility Response Plans and have worked to ensure our designs exceed National Fire Protection Association and industry standards. “The integrity of our maritime operations is paramount. For example, at Moda Ingleside Energy Center, our liquid and vapor marine infrastructure incorporates loading arms equipped with state-of-the-art emergency release couplings (ERC) to safely and efficiently load vessels in a controlled environment. The advanced infrastructure allows for the vessel and shore facilities to separate without releasing any product in the event of an unexpected upset. In addition to environmentally conscious ERC equipment, we deploy a spill containment boom around all vessels while berthed at our facility, providing an additional level of safety and redundancy. We have also taken steps to ensure that tugboat equipment is available

to ensure vessel stability, monitor traffic proximate to MIEC, provide immediate emergency response and help safe transit to open waters.” The ongoing need for lightering notwithstanding, even the biggest crude carriers benefit by bringing their cargoes inland.

A SEA CHANGE IN AMERICA’S ENERGY SECURITY America did not become fully energy independent during the Trump presidency, but its level of energy security was greatly enhanced by the massive increase in oil production from the prodigious shale resource plays in Texas and other parts of the country. Prior to the election of Joe Biden, this new energy security had driven gasoline prices to 30-year lows and relieved the U.S. from any real need to rely on the Middle East to help meet its daily demand for crude oil. That’s all being reversed now but will forever remain a fact of history. The story of the just-in-time development of the infrastructure and services needed to facilitate the movement of all that new crude to markets not just in the U.S. but internationally is only just now beginning to be told. It is a classic American story of smart entrepreneurs identifying a future area of demand and moving quickly to be able to meet it when it materialized. It’s been a massive paradigm shift, and changes like this don’t just happen: They require an intense level of focused effort over extended periods of time. A prime location had to be identified, and NS Ingleside was there and available. Capital had to be raised, and Encap was there and willing. Existing infrastructure had to be improved and new facilities built out. Contracts with multiple major pipeline projects had to be negotiated and finalized. The Taft hub site, which helps manage movement of the supply from multiple pipelines, had to be acquired and constructed. Logistics and safety and environmental protection plans had to be developed and finalized. And all of it had to be ready to flow oil and load ships just in time, as the oil started to arrive from West Texas through the pipelines. Fortunately for Texas and the country, the team at Moda Midstream proved more than capable of handling all of that related to the MIEC while developing multiple other facilities at the Ports of Houston and St. James at the same time. Port CC today is far and away America’s most important hub for the export of U.S.-produced crude oil, and the MIEC is a vital centerpiece of the massive level of economic growth that it produces. When Barack Obama signed that omnibus spending bill in December 2015, he could have never envisioned that it would lead to all of this and play such a vital role in facilitating such a sea change in America’s level of energy security. The pace and scale of the paradigm shift in such a short period of time have been truly stunning. The team at Moda Midstream played an indispensable role in making it all happen, and as we have seen, has the capacity to expand that role well into the future.

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INDUSTRY

How Natural Gas Keeps Electricity Cheap and Plentiful in Pennsylvania By: Tom Shepstone

recent article at the Energy Information Administration’s “Today In Energy” site reveals an important but seldom appreciated fact about natural gas: that an electricity generating facility using it can achieve capacity factors of over 70%, which is ordinarily more than twice that of solar and wind. Additionally, gas-fueled power plants can dispatch electricity whenever needed, and the efficiency of the equipment is getting better every day. Gas is king when it comes to electricity generation and for a good reason. And, outside Texas, Pennsylvania is king in producing the stuff, giving tremendous comparative economic advantages to the Commonwealth in relation to other Northeast states. The following EIA chart illustrates the increased capacity factors with respect to electricity generation as higher technology takes over.

Two factors affect the utilization of a combined-cycle natural gas generator: the efficiency of the generator and the delivered cost of natural gas. Newer NGCC generators use more efficient turbine technology and are generally larger than older units. Although all NGCC generators tend to increase or decrease utilization in response to changes in the price of natural gas, older units tend not to be used when natural gas prices rise because they are less efficient and more expensive to run than newer technology units… Grid operators, such as PJM, dispatch generators sequentially from lowest to highest cost. Because NGCC units built from 2010 to 2020 generally have the lowest operating costs, they are dispatched more frequently. Because of their lower efficiency, units built from 1990 to 1999 have higher operating costs and are more likely to be the marginal generators in the dispatch order, meaning they are the last combined-cycle generators to be dispatched.

This increase in capacity factors, of course, is the wonderful little secret of natural-gas technology — that it is improving at a rapid pace, easily matching or exceeding the media-extolled gains in renewables efficiency. This means there is no foreseeable point at which the capacity factors of solar or wind will ever equal that of natural gas, and capacity factors are the only thing that counts when it comes to ensuring energy security. Here are the key points from the “Today in Energy” article by Scott Jell, points which serve to explain a good deal of the reason capacity factors matter: The rapid development of shale gas resources in Pennsylvania, Ohio, and West Virginia has contributed to sustained low natural gas prices and encouraged the construction of natural gas-fired power plants. About one-third of the new natural gas-fired generating capacity built in the United States since 2010 is located in PJM Interconnection (PJM), the grid operator for all or parts of 13 states in the mid-Atlantic region, including Pennsylvania, Ohio, and West Virginia. In 2020, the utilization rate, called capacity factor, of natural gas-fired combined-cycle (NGCC) units built from 2010 to 2020 in PJM was 71%, which was higher than that of older units in the region.

SHALE MAGAZINE  MAY/JUNE 2021

This information is why the PJM Interconnection is so concerned about going too green as Tom Wolf, Pennsylvania’s trust-funder governor, wants to do to impress his prep school friends and other elitist brethren. It’s all about virtue signaling with him, but Pennsylvanians need cheap, plentiful energy, and clean natural gas has provided it in a way wind and solar never can. We need to concentrate on that 71% capacity factor and the recent experience in Texas (the only state to produce more natural gas than Pennsylvania) to understand the advantage natural gas has over solar and wind, which typically operate within the range of 25% to 40%. It’s a lot

easier to ensure energy security with a mix of generators producing 71% of the time than a collection of renewable energy facilities only generating a quarter or third of the time. The problem in the latter instance, of course, is the amount of juggling that is demanded. Theoretically, wind that often blows harder at night should be able to help offset the solar energy that dies with the setting of the sun. But, there is no predictability as to how hard the wind will blow or how much the sun will shine. Natural gas, by contrast, is much more available and highly predictable. It can usually be dispatched at will, which is the whole point. The Texas issue did involve issues with natural gas equipment freezing; that was a function of engineers not designing systems for the perfect cold spell. We know natural-gas systems can be designed for much uglier winter periods than the one Texas experienced. They just weren’t. That failure only exacerbated a root problem, the one the PJM Interconnection is concerned about in the Keystone State. It was quite simply an over-reliance, in response to demands for political correctness (the stick) and corollary carrots in the form of subsidies, on renewable energy systems. There were way too many 25% balls in the air for anyone to juggle when the 70% backup generators just weren’t available. The Texas debacle, in other words, teaches us exactly what happens when one more or less removes natural gas as the baseline or backup source of fuel for generating electricity. It was a terrible test run for renewables by any measure. Throw too many light balls into the air at one time, and it’s an unmanageable juggling act. When natural gas is available and can be dispatched as necessary to supply basic needs, the juggling act is just for fun again, and it all works. We know this is the case because, once Texas was able to address the freezing problem with natural-gas-distribution systems, natural gas quickly became the predominant source of energy for generating electricity as wind energy fell to almost zero. Indeed, between February 8 and 16, wind generation fell by 93%. Coal increased by 47%, and natural gas grew by 450%. Moreover, the Clear Energy Alliance also notes, “Wind subsidies have made older baseload power generators unprofitable. Texas has shut down more than 3,000-megawatt-hours of power from coal and natural gas over the past few years while adding 20,000-megawatts of unreliable wind. This has made the grid far less reliable.” This vividly illustrates the problem with any mix of generators that is too heavily tilted away from cheap and plentiful natural gas. Renewables directly undermine energy reliability and security because of their physical nature and lack of dispatchability while also indirectly weakening the entire system financially. They simultaneously demand subsidies and draw revenue away from natural gas systems that are the only cost-efficient mechanism to ensure that energy security. As the PJM Interconnection explained in a paper entitled “Reliability in PJM: Today and Tomorrow” and published March 11, 2021: Historically, adequate system capacity has resulted in adequate energy, as most traditional generation is capable of running 24 hours a day. As the level of renewables and storage rises, however, ensuring adequate energy across all hours of the day will be an increasingly important consideration because the available output of those resources can vary significantly throughout the day. We rely on excess renewables at our peril. We need natural gas, first and foremost.

Renewables directly undermine energy reliability and security because of their physical nature and lack of dispatchability while also indirectly weakening the entire system financially

About the author: Tom Shepstone is the owner of Shepstone Management Company Inc., a planning and research consulting firm located in northeastern Pennsylvania. He has advised many counties in both New York state and Pennsylvania, as well as other states, on economic development strategies, especially as they relate to rural and agricultural areas. He is also the publisher of NaturalGasNOW.org, a blog focused on the same objective.

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INDUSTRY

(Thermo) Plastic Fantastic

THE ADVANTAGES OF NON-METALLIC PIPE – AND WHERE IT COULD GO NEXT By: Igor Azevedo, Global Sales Director, Onshore Flexible Pipes, Baker Hughes

here are 4,023,360 kilometers laid in the United States. Nearly 25,000 kilometers are planned in the Middle East. The world’s longest stretches for around 10,000 kilometers over China and Central Asia. We’re talking about pipelines, and in total, there are enough to wrap around the equator more than eight times. Beneath our feet and over our heads, oil, natural gas, biofuels, water, hydrogen – and occasionally, even beer – is transported from production to consumption through the world’s pipelines. Ring of steel Much of that pipe is made of steel, with polyethylene accounting for some shorter distances and low-pressure environments. And there are good reasons for sticking with steel in many cases: it is, after all, excellent at resisting both high temperatures and high pressures. But, steel also comes with some major associated risks. It is costly to produce, transport and install. It’s unwieldy and inflexible. And it is exceptionally energy/carbon intensive at almost every stage, from the mining of iron ore and manufacture of billets and plates to pipeline construction and operational maintenance and on to end-of-life recycling and replacement. What’s more, it corrodes, and it erodes. Not immediately, but over time, and often in unexpected or unseen spots. Maintaining safety and pipe integrity is, therefore, an arduous and never-ending undertaking. Despite these problems, steel has been the default option available for most applications through habit as well as established supply chains and industry practice. Operators have tolerated lengthy install times and the risks of on-site hot-work because the only available alternative pipeline material, plastics, have not had the pressure capacity to be a viable replacement — until now. We have relied on steel pipelines for so long that it can be hard to imagine a feasible alternative. But there are options for energy and industrial operations which may offer real, tangible benefits. A new era The current financial, operational and political environment have made new alternatives even more important. In short, the industry is being required to cut costs and to rapidly decarbonize. Dependence on steel when it is not necessary hinders both goals. So, what is the new alternative? Research into novel material sciences has moved out of the lab and into the field on the back of Baker Hughes’ commitment to revolutionize composite engineered materials for their next generation of products. The result is Baker Hughes’ reinforced, thermoplastic pipe – which is already being widely (and economically) deployed in key areas and showing a great deal of promise for even wider usage. The pipe is a composite of selected non-metallic materials, which

SHALE MAGAZINE  MAY/JUNE 2021

We’re talking about pipelines, and in total, there are enough to wrap around the equator more than eight times are designed to give it strength and durability to withstand much higher temperatures and pressures than traditional polyethylene pipe over a full life-cycle, typically 20 years, but the product can be designed to operate up to 50 years of duty. That means it can be used to optimize the backbone of many flowline and pipeline networks. For example, certain designs of non-metallic pipe can now deliver fluid pressures up to 2,250 PSI and temperatures up to 180°F. These are available in 8” diameter, which means they are fit for higher-pressure, longer-distance transport and post-processing flowline duties. When deployed instead of steel, this technology can cut installation time in half and reduce the installed cost of the pipeline by more than 20% and can materially impact the total CAPEX and OPEX over the asset lifetime as well as slash the asset carbon/energy footprint. Cutting costs Several factors contribute towards these reduced costs. The first is that reinforced thermoplastic is much lighter and more flexible than steel, with individual pipeline sections available in much longer lengths on a reel. Critically, because it is spoolable, this instantly makes it easier and cheaper to transport and install: no more welding together 40ft. steel

booms and fewer truck movements – that in turn reduces the pipeline right-of-way width that is needed, as well as associated environmental disruption, so owners can buy or lease less land. Finally, there are the wider environmental aspects – an increasingly important issue for today’s energy and industrial sectors. Nonmetallic pipe simply reduces the lifetime environmental impact of any project. In addition, it can be used to transport CO2 to carbon-storage facilities or to move the hydrogen that will become a key component of tomorrow’s energy and industrial sectors – allowing thermoplastics to play a vital role in the conversion of existing infrastructure to carry these gases.

line pipe joints over miles of difficult terrain. The other impactful outcome for customers is that it massively shortens the time from project initiation to production, which is beneficial for overall project economics. Additionally, this technology can demonstrably reduce HSE risk exposure. Hundreds of meters of non-metallic pipe can be laid without connectors or welding, which reduces the construction crew size needed on the right-of-way. As the pipeline spools are pressure tested individually, it also greatly reduces the number of joints in the pipeline, which in turn reduces the risk of a hydro test anomaly. That leads us to maintenance budgets. Reinforced thermoplastic does not corrode – it is stable over time when exposed to a wide range of fluids, gases and chemicals. It can withstand H2S, CO2, water, sand, and contaminants in the oil or gas flow and can be designed to work for a specified life, typically 20 years, at maximum pressure and temperature without intervention – whether that’s the injection of chemical corrosion inhibitors, operational corrosion monitoring or inspection and disruptive repair work. Cleaning up These advantages are immediately clear. What is perhaps less obvious at first is that thermoplastic pipe can reduce required landuse quite substantially. Because the installation operation is relatively simple, it requires fewer on-site support facilities, dedicated equipment such as pipe bending machines and side-

The research continues Our technological advances in pipe design and material composition have already produced significant results. It wasn’t that long ago that an 8’’ non-metallic pipe was, quite literally, a pipe dream. Now it’s becoming available in versatile designs with different lining types – such as nylon, Polypropylene sulfide (PPS), Polyvinylidene fluoride (PVDF) and High-Density Polyethylene (HDPE) – and a structure that is optimized for purpose in different applications. Research, development and innovation are continuing. Attention is turning to manufacturing and how machine-learning algorithms can be deployed to enhance our understanding of reinforced thermoplastics and improve performance across a variety of operating conditions. There are plenty of promising developments that can add greater robustness to pipe design and qualification, optimize load-bearing capabilities to fit terrain and flow characteristics, and expand the applications in which non-metal pipe can be safely and successfully installed. There are occasions where carrying on as before is exactly the right strategy to pursue. But this is not one of them. The energy sector, our core customer base, is at a crucial inflection point. Operators need to reduce total expenditure over the lifetime of each of their assets to secure future investment in major project developments. It needs a positive sustainability message to attract talent and investors. And it needs to secure the social license to continue operations and developments throughout the coming period of the energy transition. These big goals cannot be achieved by just upgrading our pipelines. But, in an industry that is so dependent on them, reinforced thermoplastic pipe, which is recyclable, robust and reliable, can play a key role in efficient and cost-effective oilfield facilities and will provide the backbone for the next generation of lower carbon-footprint energy developments.

In an industry that is so dependent on them, reinforced thermoplastic pipe which is recyclable, robust and reliable can play a key role in efficient and costeffective oilfield facilities and will provide the backbone for the next generation of lower carbonfootprint energy developments

About the author: Igor Azevedo is the Global Sales & Commercial Leader of Flexible Pipe Systems Onshore, a Baker Hughes product line that provides non-metallic spoolable reinforced thermoplastic pipe for O&G and Industrial applications. Currently based in Houston, Igor joined the company in 2009 (GE, BHGE and Baker Hughes) and has had experience across a variety of countries in roles like Commercial Operations, Sales, Project Management, Product Management and P&L management. Igor is an XLP/IMPACT graduate from Baker Hughes and holds a degree in Industrial engineering from UFMG and a master’s in petroleum engineering UFRJ, both in Brazil.

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INDUSTRY

Blackouts Present Opportunities to Implement Reliability Solutions By: Jussi Heikkinen

exas temperatures have normalized, and power has been restored, but the question remains how can future blackouts be prevented? Additionally, what can the rest of the country learn from the blackouts in both Texas and California? There are several lessons we can learn from these blackouts, which happened just seven months apart. As a member of the Path to 100% community of experts and through my decades of work for Wärtsilä, I believe now is the time to find answers together to help states decarbonize in a practical, reliable and affordable way. In August of 2020, Californians suffered largely because the state does not have enough firm capacity within its borders, forcing them to rely heavily on the western interconnect for their power. On the opposite side, and where I want to focus, the Electric Reliability Council of Texas (ERCOT) stands alone — and when their lack of winter preparedness caught up with a grid — engineered only for hot summers and mild winters — there was no one to step in and help. Very simply, you could say that California relies too much on their neighbors for firm capacity, and Texas perhaps too much on themselves to handle any situation, including extreme weather events. What we have learned from both of these incidents is that there must be adequate, dispatchable, carbon-free power as we see more extreme weather events, like the arctic weather that crippled most of Texas in February. What went wrong in Texas? The recent arctic cold wave caused widespread blackouts in Texas because many power plants were not designed for extreme ambient temperatures causing them to become

SHALE MAGAZINE  MAY/JUNE 2021

inoperable during the below-freezing temperatures. Although it may be expensive, winterizing gas supply and power plants are required to avoid a similar blackout scenario. The gas system was not able to maintain adequate flow and pressure, meaning utilities were caught off guard when both gas heating and power generation fuel flows peaked simultaneously. Furthermore, Texas does not have firm rules on power plant engineering for ambient temp ranges. Recommendations from ERCOT were published after the 2011 blackouts, but they are not mandatory like they are in the eastern part of the country. For example, a new large 1,000 MW combined cycle gas plant just north of Houston was designed for a minimum of 15°F, but when temperatures went below 10°F, the plant could not operate. More than 20 GW of power plants had similar issues. On the open electricity markets, plant investors struggle to see an economic reason for winterizing for extreme conditions that may never happen. Indeed, it is going to be more expensive to engineer power plants to expand the

temperature range down from 15℉ to 0℉, but again the critical need for power during these conditions would make the investment prudent. Wärtsilä has almost a gigawatt of gas power plants in Texas, which are built according to Finnish standards and include an insulated building that covers and protects all equipment — even in sub-zero temperatures. These flexible power plants remained operational during the crisis, which offered some reliability for Texas. Wärtsilä power plants reach 25% of full output in mere 25 seconds after start command and reach full plant output in five minutes, so they can offer fast cure from stand-still in situations when power is needed instantly. They offer the lowest heat rate of any simple-cycle technology in the power industry and constant performance over a wide range of ambient conditions, including in 100+ Fahrenheit heat waves. One important feature that helped Wärtsilä plants produce power in Texas through the crisis is the low 75 Psi gas pressure required to produce full output — gas turbines typically need 300 Psi or more to stay on-line. Regulators and system planners analyze energy use based on one event in ten years, which determines the need for generation capacity and the required reserve margin. The current planning process does not account for extreme weather conditions that happen once in a hundred years. Moreover, to handle fuel-supply constraints, dual-fuel generation could offer an efficient and flexible solution. Liquid fuels can be stored in large quantities at power plant sites for occasions when gas is not available or pressure is too low. In the future, liquid backup fuels can be carbon neutral methanol or ammonia, offering firm power with long-term carbon-free at-site energy storage. Additionally, excess electricity from periods of oversupply of solar

and wind energy can be used to produce renewable fuels locally. If everything had worked in the cold, ERCOT could have managed the load during the cold wave without blackouts or with minor and controlled rolling blackouts. In comparison, this is quite different from what happened in California last summer. The Golden State was simply lacking an estimated 5 GW of capacity during the worst moments of the August heatwave. The benefits of “common sense” regulation Texas is too “unregulated” regarding the technical requirements to handle ambient temperatures on the power and gas systems. Instead of tearing everything down due to a lack of technical engineering requirements, require winterization of the Texas power system through common-sense policy. One area where the unregulated ERCOT market remains a bit risky is capacity adequacy since there is no regulation on how much firm capacity must be maintained to cover the peak loads. ERCOT has done well in this area despite the closures of several large carbon-intensive coal plants. However, establishing a firm capacity target will ensure the grid is as prepared as possible for the next extreme weather event.

Integrating renewable energy to provide reliability Renewable energy was not the main cause for the widespread blackouts in either state, but they are part of the solution. Renewable fuels such as hydrogen or carbon-neutral synthetic methane produced using curtailed electricity from periods of high oversupply from solar and wind — can be used to overcome the long-term storage challenge and produce long-term, dispatchable, or firm capacity. Adding flexible gas capacity — capable of converting renewable fuels in the future — along with battery storage will help safeguard system reliability under all weather conditions. Old, inflexible power plants need to gradually retire because they do not offer the flexibility necessary to balance the variability of wind and solar power. Texas has some of the most favorable renewable resources in the world with 24 GW of wind power and more than 5 GW under construction and around 4 GW of solar. These are trailblazing numbers — which makes production and utilization of renewable fuels a viable option for the Lone Star State to maintain reliability and lead on clean energy.

Renewable fuels such as hydrogen or carbon-neutral synthetic methane produced using curtailed electricity from periods of high oversupply from solar and wind — can be used to overcome the long-term storage challenge and produce long-term, dispatchable, or firm capacity

About the author: Jussi Heikkinen is Director of Growth and Development at Wärtsilä’s Energy Business for Wärtsilä North America based out of Houston, Texas and lead architect for the Path to 100% initiative

SHALEMAG.COM

INDUSTRY

Can the Oil Industry Avoid Drilling Itself out of Prosperity For Once? By: David Blackmon

n case you hadn’t noticed yet, the oil and gas industry in the U.S. has not only recovered from its terrible, COVID-generated bust of 2020, it is actually now in the midst of a modest boom. It is not the leasing, drilling and fracking boom the industry experienced from 2017 through 2019, though; rather, it is a boom being driven by improved oil prices, adoption of technological solutions and implementation of internal processes and efficiencies mandated by not just last year’s industry depression, but by investors as well. Simply put, upstream oil and gas companies have had to become better at what they do over the last year and a half in order to survive. And survive they have, as evidenced by the numbers. From the low point of the 2020 bust on September 1, 2020, through the end of April, both the domestic rig count and number of active frac spreads more than doubled. Rystad Energy issued a report in April that found the number of hydraulic frac jobs performed in the Permian Basin during March of this year actually exceeded the number in that region during March 2020. With the folks at Primary Vision reporting that just a little more than half the number of active frac spreads were on the job in March compared to a year ago, can this really be possible? Well, yes, it can, when one remembers what was taking place in the industry in March of 2020. That was, after all, the month when the federal government implemented its “15 days to flatten the curve” strategy related to COVID-19 — a “temporary” strategy that continues to linger more than a year later, and it became crystal clear that the world was experiencing a real pandemic that would last for months, if not years. As a result, domestic producers were busy de-funding drilling programs and deactivating plans for fracking wells throughout that month. That’s a direct contrast to March of this year, a time during which drillers were ramping up their drilling and fracking programs to take advantage of the newly robust crude prices. So, the Rystad report, though initially counterintuitive, actually makes perfect sense and is just one of many indicators of the modest boom the industry finds itself in today. That being the case, the question inevitably arises about whether or not the U.S. oil and gas industry will once again embark on a drilling frenzy that will see it do what it traditionally does, and drill itself right out of prosperity again, increasing domestic oil supply to such an extent that a glut forms and prices crash. Indeed, the U.S. Energy Information Administration, in its April Short-Term Energy Outlook, projects that thanks in large part to continuing strong oil prices, the industry would ramp up production by 1.5 million barrels of oil per day over the next 20 months. But the EIA may want to cool its heels just a bit. Frankly, this forecast

seems unrealistic and fails to consider the depressing impacts that Biden/ Harris administration policies, like the ban on federal leasing and increasing permitting delays, will have on the industry in the months to come. We should also note that, while the counts of both active rigs and frac spreads have doubled since last September, they remain as of this writing at just more than half the levels of the heights they reached during the 2017-19 boom. More to the point, both the Baker Hughes Weekly Rig Count and the Enverus Daily Rig Count leveled off in April, which could be an indicator that upstream companies are starting to reach the limits of their budgeted drilling plans for the first half of the year. This trend was certainly consistent with the leveling-off of crude prices during April after their dramatic rise during the first quarter of the year. What about that global demand growth? Optimistic forecasts from the EIA and other analysts also could be overly optimistic about continued recovery in global demand growth, especially in light of April’s reports out of India of new economic lockdowns in response to another spike in COVID infections there. The country’s Ministry of Health reported more than 309,000 new cases on April 22, a new record high for a single day in any country. With the new set of lockdowns and other health-related measures being implemented in that country expected to last for weeks or even months, the Indian government said it expects its domestic energy demand to fall by as much as 20%. That placed downward pressure on crude prices right at the time during which corporate upstream companies were in the middle of revising their drilling and fracking budgets for the second half of the year. Timing is important in all of this, and the timing of this significant glitch in demand growth is likely to only encourage drilling and production companies to be more cautious and conservative in their drilling plans for the second half of the year. My belief is that the combination of these and other factors could well result in just enough positive momentum to keep the industry booming at its current modest level without overheating and drilling itself out of prosperity one more time. This has never been an industry that has had any real ability to exert any real degree of self-discipline over itself, but it seems as if the stars are at least trying to align for the creation of an extended period of industry growth that could last through the rest of 2021 and into 2022. Wouldn’t it be something if the domestic U.S. oil and gas industry was able to avoid drilling itself out of prosperity one more time? I’ve been involved in the industry since 1979, and such a happy outcome would be a first for me.

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INDUSTRY

Key Considerations For Supporting Your ETRM System HERE’S HOW AN OPTIMIZED IT SUPPORT CAPABILITY CAN MAXIMIZE RELIABILITY AND EFFICIENCY FOR YOUR ETRM SYSTEM. By: Kent Landrum

nergy trading and risk management (ETRM) systems are flexible, powerful tools that often lie at the very core of an upstream, midstream, or downstream oil and gas company’s commercial, logistics, and risk business process. They enable the trade-to-settlement lifecycle and support much of the hydrocarbon value chain. They’re routinely relied upon by traders, risk managers, accountants and many others across organizations for key business decisions to drive profit and loss (P&Ls), inform operations and ensure compliance every day. In many cases, they’re also tightly integrated with critical IT applications like enterprise resource planning (ERP) systems, as well as with external market data providers and logistics partners. These characteristics combine to create a challenging IT support scenario where system performance, reliability and resilience are paramount but are set against a backdrop of ever-increasing demands to innovate while continually driving down cost. The Opportunity Leading IT organizations are viewed as reliable service providers, sound stewards of scarce resources and trusted advisors for capital investment in innovation and technology projects. While not always flashy, the first two are foundational for IT leaders to earn a seat at the table and the opportunity to create incremental enterprise value. Providing efficient and effective support for a highly complex and business-critical solution set like an ETRM system can go a long way in establishing a basis for future business/IT alignment and more robust ongoing partnership between groups. The relentless pursuit of operational excellence tends to produce the kinds of savings that pay for bold technology initiatives. Requisite Capabilities To provide the kind of consistently reliable and increasingly affordable services demanded by business stakeholders, IT leaders should consider getting back to the basics and focus on delivering (1) quality technical support, (2) continuous improvement and (3) value-added services. These basic services tend to be defined a little differently in an ETRM system context than for traditional ERP or human capital management (HCM) platforms. While the books must be closed on time and payroll better be right, those processes occur with a predictable cadence. However, trading opportunities don’t, and commodity price risk is dynamic.

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Technical Support – The bedrock of IT is ensuring that servers are up, databases are accessible, applications are performing, security is managed, and all are within defined cost and servicelevel parameters.

Continuous Improvement – Providing routine patching, regular technical upgrades, report development, additional integrations, automation via RPA, targeted solution enhancements to extend the value proposition of the ETRM system ecosystem.

Value-Added Services – Help stakeholders get the most out of the ETRM investment by delivering training for both business and IT professionals, offering a playbook for rapidly onboarding new business activities (e.g., commodities, deal types, markets), or providing business intelligence insights via analytics, machine learning (ML), and artificial intelligence (AI).

Key IT Enablers “Do more with less” is a familiar refrain for most IT executives, and delivering the capabilities above a high standard can consume seemingly unlimited resources if deliberate steps aren’t taken to materially reduce the effort required to render services. These steps will help contain cost and free the department’s best and brightest to innovate. • Monitoring & Alerts – Don’t just monitor servers, monitor services. Cast defects, issues, errors, and communications about service interruptions in business terms. Did all the derivative trades come in from the broker? Were all the prices and corrections we expected received? What percentage of truck, rail and pipeline movements have been successfully processed for the day? Be clear about who is impacted and what processes and expectations are regarding service restoration. • Knowledge Management – During the safety briefing on commercial airline flights attendants remind passengers of the importance of donning one’s own oxygen mask before assisting others. This same principle applies to developing frequently asked questions (FAQs), knowledge of articles, and so forth for end-user support. This basic content can be roughed in working with IT staff, refined through use (while also improving service-level attainment) and, finally, extended to the user community for self-service.

Leading IT organizations are viewed as reliable service providers, sound stewards of scarce resources and trusted advisors for capital investment in innovation and technology projects • Test Management & Automation – Like Knowledge Management, it’s not flashy and can be hard to justify cost initially, but effective software quality assurance for ETRM systems will support Agile delivery, Dev Ops practices, and the ability to upgrade or patch systems frequently to reduce cybersecurity exposure. • Business Continuity & Disaster Recovery – No one cares about IT strategy when the ETRM system is down, so it’s easy to be seduced by the surface-level simplicity of five nines (99.999%) uptime. When a system experiences an outage, planned or otherwise, it can be more important than a longer event would be during a less critical time window. Reliability and resilience aren’t the same things, and the ability for IT and business leaders to quickly recover critical technologydependent processes together can yield effective, affordable outcomes. Take time to understand business imperatives and then plan and practice accordingly. Conclusions & Next Steps Thoughtful and well-executed investments made in automation, reliability and resilience will enable the IT organization to navigate a challenging environment in which system availability is non-negotiable and spend must trend down to free a sliver of capacity to partner with the business to innovate. A careful analysis of a department’s core competencies, assessment of realistic aspirations for the group, combined with the resources required to deliver on those commitments, will yield a matrix of ways to assemble the optimal mix of employees, contractors, consultants, managed service providers and more to realize some of the promise of digital trading and risk management architectures.

About the author: Kent Landrum, Managing Director in Opportune LLP’s Process & Technology practice who leads the firm’s Downstream Sector, has 20 years of diversified information technology experience with an emphasis on solution delivery for the energy industry. Kent has a proven track record of managing full life cycle software implementation projects for downstream and utility companies, including ERP, ETRM, BI, MDM, and CRM. Before rejoining Opportune, he served as a Vice President & Chief Information Officer for CPS Energy. Kent holds a B.S. degree in Computer Science and Economics from Trinity University and a master’s degree in Organizational Development from the University of the Incarnate Word.

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POLICY

The Shale Controversy – Understanding Both Sides By: Ian Dexter Palmer Views expressed by contributors do not necessarily reflect the editorial views of SHALE Magazine.

he oil and gas industry is complicated and confusing to many people. For example, if you told a person on the street that in a typical shale well 20 million gallons of water are used in up to 40 separate fracking operations along a 1-2 mile horizontal well, their eyes may look blank. But if you explain that all that water, if poured into a football stadium, would rise to a height of 40 feet over the grassed area, that may surprise them. Now, if that well, and many others, were drilled in a drought-stricken state, such as New Mexico, some rancher might say that’s too much freshwater, and it’s stealing from the aquifer. But a wider perspective would reveal that the total amount of water used in drilling wells and fracking them is less than 1% of the state water budget, and a drilling foreman might say it’s a negligible amount of water. The oil and gas world is filled with such contradictory and confusing points of view. Further, the natural human response is to pick one side and defend the position, often without properly listening to the other side. These are reasons I wrote the book called “The Shale Controversy”: so parents can tell their children both sides, so ranchers can talk to oilmen with more understanding and respect, and so environmental enthusiasts can discuss with industrialists and seek a middle ground. Other conflicts from the fracking arena. The book considers other examples. Does fracking contaminate aquifers? Not in shale wells. But occasionally, an aquifer does get contaminated, and it’s due to a poor cement seal between the well casing and the raw rock. Or it’s due to surface spills of liquid used in well operations. Earthquakes in Oklahoma were another issue, and a hot one in the period 2010-2017. Swarms of earthquakes that reached a high of 900 in 2015 were induced by oilfield operations. It was easy for people to blame fracking. But finally, the cause was traced to disposal wells where injected wastewater triggered faults deep in the basement. The Shale book documents this history in an easy-to-read manner.

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Success of the shale revolution. “The Shale Controversy” documents the success of the shale revolution. The obvious factors are cheap oil and gas for cars, homes, and businesses. It is accessible plastics for offices, kitchens and cars. A big one is the United States became self-sufficient in oil for the first time since 1947. That’s a goal that every other country of the world would like to achieve because the costs of importing oil can seriously affect in-country budgets. Finally, the growth of manufacturing industries and jobs directly and indirectly related to oil and gas have lifted millions of people around the world into the middle class. Global warming – the biggest controversy. First, we lay some groundwork. Fossil energy is responsible for 75% of global greenhouse gases (GHG). Second, temperature is rising faster than at any time in the last 10,000 years. Third, atmospheric concentration of CO2, the main global warming gas, is higher than in the past 3 million years. Fourth, if GHG are not controlled, then by the year 2100, the global temperature is predicted to be higher than in the past almost

million years. Does the world want to risk entering a twilight zone? A visit to Australia. 2019 was one of the three hottest years on record, the others being 2016 and 2020. In August of 2019, I spent a week four-wheeling through the outback of South Australia. A drought was on, and we didn’t see a blade of green grass even though it was mid-winter. We did see a lot of dead kangaroos. That drought extended into southeastern Australia, and it blew up in October 2019. Unprecedented wildfires consumed the forests all the way to the ocean, where people were standing in the sea to avoid the flames and heat. It was hard to find any climate deniers in those parts. The wildfires killed over a billion animals, including koala bears, and lasted through January 2020. At the same time, shocking wildfires were out of control along the west coast of the USA. California’s fire season finished with a bang — six of the larger fires started in October 2019. The largest was the Kincaide fire that burned 77,000 acres. In 2019 there were 6,900 fire incidents in California alone, with 732 structures burned.

Can a single event, or two extreme events, confirm global warming? An honest answer is no. The proper way to tell is to plot the intensity or frequency of extreme events such as wildfires or hurricanes over the last 50 or 100 years and look for a trend. While such plots of glaciers retreating and Arctic ice melting do reveal a worsening trend, the plots of wildfires or hurricanes in North America do not (Ref 1). Once again — two different sides of the “evidence” story. How to talk to your grand-children. A woman asked, how does a person talk with grandchildren about climate issues? She said she couldn’t accept emotional statements touted by some environmental extremists — such as, “Fracking needs to be banned right now because of the aquifer contamination it’s causing.” My reply was, that was why I wrote “The Shale Controversy.” It’s for intelligent people who want to understand the issues and want to know both sides so they can make up their mind, and so they can communicate respectfully with others — including their children or grandchildren, neighbors or coworkers. I also reminded the woman that emotional statements have been made by extremists on the other side who say, “Global warming and climate change are a hoax.”

products of the oil and gas industry. This has been called a “glide-path,” using the words of Senator Heinrich of New Mexico. But it would be good for the New Mexico airplane to see clearly the runway in the desert that is built on six ground truths: 1.

Burning fossil fuels cause 75% of greenhouse gas emissions.

Oil and gas will still be significant by 2050 — perhaps 30-50% of energy consumption.

The most practical timescale for the transition from fossil energy to renewables is a goal of net-zero greenhouse gas emissions by 2050. Not actual zero, but net zero

During the transition, workers need to be retrained or their jobs otherwise preserved.

One-third of New Mexico’s state revenue, currently provided by oil and gas, needs to be sustained in some way.

A “social contract” implies oil and gas companies will demonstrate genuine concerns for the environment.

Steering a glide-path. Here are five suggestions to ensure the plane reaches its desired target: • Switch to green power to provide all oil and gas operations. For example, drilling or frac pumping. • Reduce to near-zero flaring of gas and leaking of methane from wells, pipelines, and facilities.

Where does all this leave oil and gas companies of New Mexico? Oil and gas companies in New Mexico are in the eye of the storm. Partly because the Delaware Basin is the premier oil and gas basin in the USA, producing about 1 million barrels of oil per day (BPD). And partly because about half of the oil and gas produced is from wells on federal land, where recently new drilling leases have been banned for 60 days and possibly a year. Even though companies have stockpiled well leases that will last four years, the ban will gradually lower production of oil and gas in New Mexico. Momentum is changing fast, and the writing is on the wall — demand will gradually slow for

Can a single event, or two extreme events, confirm global warming? An honest answer is no

• Develop and implement carbon capture and storage in old oil and gas fields. This will be part of the social contract, and contribute to the net-zero goal, and will preserve jobs. Occidental is leading this effort, even capturing CO2 from the air and injecting it underground. • Redirect some investments from new oil and gas drilling to renewable energies. BP will be invested 40% in renewables by 2030; Total is investing $2.5 billion in Adani Green Energy, a company out of India, and will own 50% of their solar electricity. • Make an opportunity out of the leasing ban to redirect investment into renewables – perhaps on the very same federal lands, which are ideal country for wind farms or solar collector systems. References: Gregory Wrightstone, Inconvenient Facts, Silver Crown Productions, 2017.

About the author: Ian Dexter Palmer lives near the mountains in Albuquerque, New Mexico. He has a Ph.D. in physics from Adelaide University, Australia. By profession, he is a petroleum engineer who consults all over the world. His books include “The Shale Controversy,” “Fracman Conflicted,” “Hiking toward Heaven,” and “Weed and Water.”

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POLICY

Vertical Rules in a Horizontal World By: Bill Keffer

e had a running back on my high-school football team that was fast and could put a move on you. But his problem was that instead of running forward downfield towards the other team’s end zone (what commentators call running “north-south”), he had a tendency to run sideline to sideline (running “eastwest”). Understandably, running really fast from sideline to sideline didn’t do much to advance the ball. Likewise, laying a ladder on the ground on its side isn’t nearly as useful as standing it up so you can climb to the desired height. Things that are meant to be used vertically aren’t very beneficial when they’re horizontal, nor are things that are meant to be used horizontally worth much when they’re vertical. The oil-and-gas industry – more specifically, oil-and-gas lawyers are now confronted with a similar issue. With the advent and proliferation of horizontal wells, lawyers have to figure out which parts of the jurisprudence that has developed over the past one hundred years premised on vertical wells also applies to horizontal wells. It turns out not all concepts and principles are easily transferred or are even relevant. Early on, in 2000, in the Texas case of Browning Oil v Luecke, the Austin court of appeals concluded that the fundamental doctrine of the rule of capture doesn’t apply to horizontal wells. With vertical wells, the rule of capture was meant to protect adjacent mineral owners from being liable for drilling vertical wells and draining oil and gas from underneath your property and to encourage you to drill your own vertical well to produce your oil and gas before it migrates away to your neighbors. Your vertical well is on your property, and your neighbors’ vertical wells are on your neighbors’ property, so the rule of capture makes sense. However, with a horizontal well that travels under multiple properties with specific take points (where the oil and gas from the formation enters the well)

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along the way, the principle behind the rule of capture is no longer relevant. Luecke also pointed out the need for a different methodology to allocate royalties. In a pooled unit, royalties are allocated based on the proportionate share of acreage contributed to the pooled unit; if you contribute 100 acres to a 400-acre pooled unit, then you’re entitled to one-fourth of the lease royalty, regardless of how much oil and gas is actually produced from your property. But, where there is no pooled unit, and there is only a horizontal well crossing under and producing from several properties, then you are entitled to the percentage of production actually coming from your property. In the 2017 case of Lightning Oil v Anadarko, the Texas supreme court decided that a mineral lessee (Anadarko) that couldn’t drill on its lease because of restrictions imposed by a wildlife refuge could drill a horizontal well from an adjacent property and required the permission only from that adjacent surface owner (Briscoe Ranch). The adjacent mineral lessee (Lightning Oil) objected to Anadarko allegedly trespassing by drilling through their (Lightning Oil’s) mineral interest to get to Anadarko’s mineral interest. The court concluded that whatever oil and gas that might be removed from Lightning Oil’s interest as a result of Anadarko drilling its well 8000 feet down and then laterally onto their property was insignificant compared to the overall value Anadarko would be able to derive from accessing its minerals in this way. In the 2018 case of Murphy Exploration v Adams, the Texas supreme court had to decide how to interpret a provision in a lease that required the lessee (Murphy Exploration) to drill an “offset” well on the lessor’s (Adams) property, should an adjacent mineral lessee ever drill a well within a certain distance of the property line. An adjacent mineral lessee (Comstock) did that, so Murphy Exploration had to drill an offset well. Traditionally, in cases involving vertical wells and conventional formations (sandstone, limestone, and other

relatively permeable and porous rock), the idea was to drill an offset well to prevent your oil and gas from being drained by the well on the adjacent property. However, in this case, though Murphy drilled a well, it was over 2,100 feet from the offending well – hardly close enough to prevent any potential drainage. Nevertheless, the court held that Murphy had satisfied its lease obligation by simply drilling the well, regardless of its proximity to the offending well. Because these were horizontal wells in an unconventional formation (i.e., tight shale that is neither porous nor permeable), the notion that an offset well would prevent drainage had no application. Finally, in the ongoing (at least, legal) debate regarding the legality of allocation wells, the conceptual and practical differences between vertical and horizontal wells also manifest themselves. One school of thought considers allocation wells to be illegal efforts to pool acreage, where no pooling authority has been granted by the lessor. The other school of thought is that allocation wells are nothing more than a series of continuous horizontal wells underlying two or more leases and have nothing to do with pooling – unauthorized or otherwise. It is curious to note that, despite this ongoing debate regarding the legality of allocation wells, there doesn’t seem to be any rush by any branch of government to resolve the matter. The state legislature has not enacted any statute that would answer the question – although you would think that it’s their job to do so. The courts have not decided any case that would shed any light on the matter – mostly because every case that has been filed so far has settled. The Railroad Commission has chosen not to issue any rules or regulations relating to allocation wells. This lack of action by all three branches of state government hasn’t seemed to slow down the number of allocation wells being drilled, which now are in the thousands. Perhaps ignoring the matter is the most productive course, after all. We are transitioning from a vertical-well to a horizontal-well world. Technology, as usual, is out ahead of the law. It remains to be seen what other changes in the law will be made in recognition of the different dynamics present with horizontal wells. Matt Skinner, with the Oklahoma Corporation Commission (Oklahoma’s version of our Railroad Commission), stated: “We have a well-established vertical world, and we have a new horizontal world. The issue is how can these two worlds live together.” It’s almost like starting over. For the industry, that kind of uncertainty is scary. For lawyers, it’s a good way to make a living.

With the advent and proliferation of horizontal wells, lawyers have to figure out which parts of the jurisprudence that has developed over the past one hundred years premised on vertical wells also applies to horizontal wells

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

2021 Climate Report Pairs Big Banks and Fossil Fuels By: Nick Vaccaro

inding themselves at the heart of the Banking on Climate Chaos 2021 Fossil Fuel Finance Report 2021, controversial conclusions were drawn on the working relationship between the banking and fossil fuel industries. With the current and intensified animosity towards both sectors, neither fared well in the published analysis. Authored by Rainforest Action Network, BankTrack, Indigenous Environmental Network, Oilchange International, Reclaim Finance, and the Sierra Club, the report indicates 60 of the globe’s largest banks were surveyed and found to have allocated $3.8 trillion to the fossil fuel industry between 2016 and 2020. While fossil fuel financing saw a 9% decline due to the global pandemic, the year 2020 still experienced higher levels in comparison to 2016 after the Paris Agreement was enacted. Indicating the financing of fossil fuel projects is heading in the incorrect direction, meaning levels are rising, the report vantage point finds fault in this scenario.

TARGETING THE BANKS

While the oil and gas industry found itself at the center of the recent presidential race and remains first in line for scrutiny and attack, this recent report not only takes aim at the banking industry for conducting business with oil and gas companies, but it furthers the opposition with singling out specific players. JPMorgan Chase was designated as number one, being the very worst to be in bed with oil and gas, with Citi following close behind. Wells Fargo, Bank of America, RBC and MUFG additionally were named to the list. Furthering the report’s dousing of shame, JPMorgan Chase, Citi and Bank of America were discovered to have furthered funding for some of the largest expansion companies even though they publicized support of the Paris Agreement, which the United States departed from under President Trump.

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FAILURE TO LAUNCH

According to the Banking on Climate Chaos report, the Paris Agreement seems to have fallen short of its fossil fuel annihilation goal. Disappointment has been wagered that after five years since the agreement’s birth, fossilfuel funding is reportedly higher when the climate crisis argument should have resulted in more favorable results. Furthermore, with the devastating effects of the COVID-19 crisis and a 7% decline in fossil-fuel funding for 2020, the report indicated disappointing results with funding still being higher than in 2016. Drawing conclusions, the analysis yielded both positive and negative theories. After running the gauntlet through the global pandemic, it is speculated that oil consumption may never return to prior levels. Considering the opposite end of the spectrum, however, fear is expressed in rationalizing the fact that even after the pandemic, reduction of fossil fuels is nowhere close to the desired mark by those who provided the report itself. Combatting the current route taken by fossil fuel production, the report opinion mandates an annual drop mirroring 2020 to take place over the next decade. In order to meet goals, the report describes a more managed and regulated approach. A suggested route includes the banking industry rising up and drafting regulations and policies that result in the same declines found in 2020. Vehemently showing disdain for the financing activity in 2020, the report calls for eradication of any possible short-term profit by banks and to keep their commitment to the climate crisis argument front and center. Simply stated, the report authors are pushing for decreased funding of fossil fuel projects by the banking industry.

BIG BAD BANKS

There has never been a better example of the term, don’t bite the hand that feeds you. The authors of the report are quick to vilify

the banking industry because of its business dealings with the fossil fuel industry. JPMorgan Chase took the biggest lashing, which one would think left them slighted and betrayed. While ranking number one on the report list, JPMorgan Chase conducts business on the renewable energy side as well. According to their website, JPMorgan Chase conducted $55 billion in green-initiative transactions. Bloom Energy Corporation produced efficient generators that are responsible for both lower electricity costs and reduced emissions. This was due to the $230 million raised by the banking empire. The largest wind farm was developed by ALLETE Clean Energy and produces renewable energy for 114,000 homes, all due to financing provided by JPMorgan Chase. According to Yahoo Finance, Wells Fargo has also contributed to the renewables sector by investing in over 500 projects as of February 2021. This was a 12% finance stake in domestic solar and wind capacity. Citi has made a contribution of its own to green energy and reducing the carbon footprint. In the article, “Citi’s Commitment to Net Zero By 2050,” Jane Fraser, CEO, acknowledged the climate crisis. She wrote that Citi facilitated $164 billion in low carbon solution projects between 2014 and 2019. They upped the ante with a commitment of $250 billion of environmental projects by 2025. The list remains long and distinguished. In relation to their size and financial rating, the banking industry is available on the greenenergy front. The simple factor to consider is it takes money to make money. In investment discussions and even through the educational process of Academia, we are taught the importance of a diversified portfolio. Consider one’s personal investments. Allocating all of your capital to one investment typically does not rank high on the suggestion scale of financial planners and investment brokers.

Banking institutions are no different in their own financial survival. While the renewable energy sector is highly important and growing in worth, the banking industry cannot rely on this one basket of eggs. Pulling out of fossil fuel investments would drastically impact their own portfolios and, in the long run, decrease their ability to fund wind and solar projects as well as those of carbon storage. The hard truth that many climate crisis crusaders want to avoid is that the fossil fuel industry is a staple of the economy, like it or not. No, it is not without problems and is far from perfect, but it is a pillar of the economy and, therefore, society. Those projects financed by the banks drive an economy that must remain strong. Total deviation and abolishment of fossil fuel financing would leave the banking industry vulnerable and with little operating power to provide for wind and solar projects. Total reliability cannot be had by any one industry. A well-balanced and financially stable portfolio is a necessity. In this same light, fossil fuels are a large part of the banking portfolio.

LET THE BANKS BE BANKS

In a world populated with highly intelligent minds that have the gifts to make it a better place, it is largely fueled by emotion. The desire to improve and preserve life is noble and necessary. Great thinkers have paved the way

in innovation in response to problems discovered. It is essential to remember that a variety of roles all contribute to the world we live in. Capitalism and a free market are cornerstones of our society. We can dare to change the world, respond to social injustice and right wrongs, but impeding legal business is not a fit. It is not the business of the banking industry to regulate the fossil fuel industry. It should be changed through free thought and innovation. Any aspect of endangerment should be regulated through the government. A well-suited example of this thought process involves the auto industry. When emission regulations came to pass, they were defined and regulated by the government. The auto manufacturers were tasked with engineering vehicles that met the established standards. The banking industry did not step in and refuse financing of new car purchases. The same process should apply to fossil fuel, renewables and the climate crisis argument. Discussions amongst great thinkers, innovation in technology, and a mandate of teamwork must prevail if any success is to be had. Ironically, the fossil-fuel industry has made great strides but never receives recognition. Instead, it is always painted with a brush of negativity and disdain. Organizations, however, like ONE Future are composed of oil and

gas players who have committed resources and collaboration to lowering emissions, not due to government mandate, but for the desire to better the environment and set a standard of their own. Carbon reduction is already a large portion of the fossil fuel industry. Storage projects are underway. While the industry does not specifically name careers in that wording, reducing the carbon footprint is a large part of industrial hygiene careers within oil and gas. The latest technology is provided on the university level for wellsite consultant positions. Efficiency is also a large part of the curriculum. Moving ahead and discovering new ways to be both profitable and environmentally responsible are essential in the future of this planet. One cannot exist without the other, and until that notion is accepted by all, little progress will be made. A happy balance must be had. The future is bright, and no one knows for sure what it will bring. It is quite difficult to imagine a future existence without a dependence of any size on fossil fuels, but if it is to happen, it will not be overnight and all at once. So with that, an attempt to kill it off with one shot of banking finance reduction will only negatively impact the development of the green energy world so many desire. From where this writer hails, that is known as cutting off your nose to spite your face.

About the author: Nick Vaccaro is a freelance writer and photographer. Besides providing technical writing services, he is an HSE consultant in the oil and gas industry with eight years of experience. He also contributes to Louisiana Sportsman Magazine and follows and photographs American Kennel Club field and herding trials. Nick has a BA in Photojournalism from Loyola University and resides in the New Orleans area. 210-240-7188 Nick@shalemag.com.

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POLICY

The Last Decade – A Look Back at the Past Ten Years of Oil and Gas Policy By: David Porter

n early January 2011, I took office as Texas’s newest Railroad Commissioner. From that vantage point, it appeared the industry’s major problem was a lack of production to meet demands for oil and gas, in large part sparked by the hostility of the Obama administration towards fossil fuels. The federal government’s hostility for oil and gas operations was expressed primarily by actions using regulatory overreach to discourage production. Much of our activity at the commission was directed at the need to maintain the primary regulation of oil and gas at the state rather than the federal level in order to thwart this threat to the oil and gas industry and the economy. Over the past three or four years, it seems the efforts of the anti-oil-and-gas crowd have transferred away from using regulatory overreach to reduce supply to efforts demanding renewable sources of electricity and electric vehicles. This approach seems to be having more success in limiting production for its proponents than their earlier approaches. However, it has even more serious consequences for the people of the United States, including Texas. I thought it was highly ironic (considering Obama’s disdain and opposition to the oil and gas industry) that the industry was the source of the strongest economic growth during his term in office. The jobs brought about by exploration activity, the increased revenues due to the increase in production, the reduction in imports of oil into the country all strengthened the economy. This led to, in the early days of the Trump administration, the United States becoming the largest oil and gas producer in the world. Now under the Biden regime, we are in the process of throwing away that hard-won status. It saddens me to think of all the work of hundreds of thousands of people trying to find better technology and methods of drilling wells — work that led to the horizontal drilling boom. It also saddens me to think about all the billions of dollars invested in drilling wells — yes, some were not economically viable, but that is the price that is paid as part of the learning curve when developing new methods and technology. The February blackouts show one of the consequences of reducing the usage of fossil fuels by requiring renewables. Unfortunately, I

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will predict that unless Texas has a mild season, there is a good chance that this summer, we will also have blackouts. My study of the electrical industry leads me to the opinion that anytime electric production by wind crosses the 10 to 12% threshold, there are potential negative long-term consequences for grid reliability. Texas is there. For additional information on this topic, I would like to direct you to David Blackmon’s writing, Texas Public Policy Foundation’s work, and John Hays’ recent article in Chronicles Magazine. Before I end this article, I want to throw out one more thought for the reader to consider. What kind of shape would the grid have been in during the February blackouts if we had at that time the amount of electric car usage predicted for 2030? I concur with the discussion around Texas that the power infrastructure should have been better winterized and better attention paid to making sure the electric blackouts didn’t affect natural-gas infrastructure — effects that would reduce electric production. These were also conclusions after the winter of 2011 problems. I understand why (while not agreeing with) electric-power producers would not want to spend money on what much of the government, media and elite society consider a dying industry that is on the way out. Ideas have consequences, and the idea that oil and gas production needs to be phased out has negative consequences, consequences that have a real impact on our lives.

Ideas have consequences, and the idea that oil and gas production needs to be phased out has negative consequences, consequences that have a real impact on our lives

About the author: David Porter has served as a Railroad Commissioner (2011–17) and Chairman (2015–16), as well as Vice Chairman of the Interstate Oil and Gas Compact Commission (2016). Prior to service on the Commission, Porter spent 30 years in Midland, Texas, as a CPA working with oil and gas producers, service companies and royalty owners. Since leaving the Commission, Porter works as a consultant for oil and gas companies. He also serves as Chairman of the 98th Meridian Foundation, a nonprofit concerned with water, energy and land issues.

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POLICY

New Administration Priorities By: Thomas Tunstall, Ph.D.

he Biden administration recently unveiled an ambitious set of proposals dealing with a wide range of infrastructure issues facing the U.S. Areas expected to benefit include semiconductor, broadband, electric vehicles, renewable energy and big pharma. Of note is that the stimulus will come more from fiscal policy rather than tariffs. The goal is to restore public investment to a 1960s level as a function of overall economic output, which typically approached two percent of GDP back then, instead of the one percent level now. Big difference. The proposed package – certainly subject to change before the likely vote in July – comprises several categories that will boost targeted sectors of the economy. For example, $300 billion will be aimed at fighting future pandemics. More generally, the legislation will probably include more grant funding for timely issues such as repatriating supply chains. Some of this would come in the form of a $50 billion Department of Commerce allocation for monitoring domestic industrial capacity and supporting investments for the production of critical goods. Overall, $620 billion is designated for transportation, including roads, bridges, seaports, waterways and airports. Many of these infrastructures have reached or are well past their useful life, which will become important to maintaining current standards of living achieved over the last century. The unexpected work-at-home requirements for many employees over the past year put untoward pressure on the housing market. With near-record demand, housing, home builders and construction suppliers will clearly see greater activity. Colleges and universities will see increased funding as well. The National Science Foundation (NSF) would receive $50 billion for a new Technology Directorate. Another $180 billion for research and development would be allocated to semiconductors, advanced computing, job creation in rural areas and addressing climate change. Another $40 billion would go to upgrading research in laboratories across the country, with emphasis on minority institutions. The University of Texas at San Antonio could benefit in terms of upcoming projects such as

SHALE MAGAZINE  MAY/JUNE 2021

the planned Tri-Centennial Innovation Park at the Main Campus – a multidisciplinary publicprivate partnership applied research center – and the planned expansion of Downtown Campus that will include the Center for Innovation, Entrepreneurship and Careers, mixed-use development, student and faculty housing. Repositioning workers in this new normal figures as a priority as well. The proposed package would add $100 billion for workforce development programs, including a new program to train workers in clean energy, manufacturing and caregiving services. Opportunities generated from fiscal stimulus will likely boost the prospects and employment for not only large firms but also small and medium-sized businesses, thus greater need for counseling services such as those provided by UTSA’s Institute for Economic Development. Other planned items include $100 billion for upgrading and building new public schools, $100 billion for broadband for universal highspeed broadband, extending coverage to 30 million Americans, and $111 billion in water infrastructure focused on replacing all lead pipes in the U.S. Of particular interest following Winter Storm Uri earlier this year is the $100 billion for the electric grid to incentivize higher voltage capacity lines and expansion of tax credits for clean energy. Lawmakers in Texas may consider alternatives to the separation of its grid network from the rest of the country if that arrangement results in lower reliability during extreme weather events. Finally, it appears likely that corporate and personal income tax increases will take effect in order to assuage budget deficit impacts. By the same token, many employees may begin to see lower wage inequality and labor protections. At the end of the day, a delicate political calculus will figure into whatever programs get through Congress. The major parties maintain razor-thin margins in both the House and Senate. Without some serious compromise, it’s possible to envision little more than an eventual stalemate, or perhaps only marginal progress on the infrastructure front, similar to the meager progress made during the last administration. Only time will tell.

The goal is to restore public investment to a 1960s level as a function of overall economic output, which typically approached two percent of GDP back then, instead of the one percent level now. Big difference

About the author: Thomas Tunstall, Ph.D., is the senior research director at the Institute for Economic Development at the University of Texas at San Antonio. He is the principal investigator for numerous economic and community development studies and has published extensively. Dr. Tunstall recently completed a novel entitled “The Entropy Model.”

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POLICY

The Biden Administration’s Emerging Environmental Overreach: WHAT THE ADMINISTRATION LACKS IN RESTRAINT ON THE CLIMATE AGENDA IT MAKES UP FOR IN BRAZENNESS.

By: Chris Horner (Attorney and Member of the Board of Directors, Government Accountability & Oversight, P.C.)

mid an “Earth Day” lineup of sometimes curious political events, President Biden unilaterally pledged to double the United States’ climate promises under the doomed Paris Agreement, to which he recently re-committed the U.S. by using his pen-and-phone. This vow of massive emissions reductions came even as data showed that the economic lockdown of 2020, to which the U.S. contributed the greatest reductions globally, left us still not yet on track to meet President Obama’s first 2016 five-year plan under Paris. Once again, it turns out the government program “just wasn’t big enough” for it to really work. Putting aside the glaring, if neglected, concerns inherent in such unilateral commitments by a U.S. president, consider the implications of knowing that the self-harm imposed in the name of fighting COVID-19 was not nearly enough. Biden’s plan makes lockdown-size contractions a required annual pursuit, not something to merely resume but to repeat and compound it annually, year over year. The administration offered little comfort when it also subtly admitted the harm this plan will cause by threatening trade sanctions against other countries who choose not to also do this to themselves. So, although this agenda supposedly will unleash an economic boom, it is unfair to us if the rest of the world does not participate? An April Financial Times headline helps sort through the obvious contradiction: “EU Industry Calls for Urgent Carbon Border Tax as Prices Soar.” Apparently, GHG rationing regulations in Europe, which is much further down this regulatory path, “are a gift to rivals, say companies.” Little noticed are the President’s confessions, which partly take the form of massive

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new spending, or “investments,” that the technology to meet the law does not exist. There should be no doubt in the oil and gas community whether the Biden administration is coming after it, and in a way that will make the previous campaign, including the “war on coal,” appear measured. As Politico reported on the “Biden’s climate all-star” team of policy sages, “their goal is decarbonizing the country. Jane Flegal, the senior director for industrial emissions at the White House Council on Environmental Quality, says, “The assumption is that climate isn’t just aligned with the economic agenda, it is the economic agenda.” This is somehow the case even though every 2020 U.S. Senate sponsor of the Green New Deal boldly voted “present” when their convictions were put to the test in a Senate vote. Some jobs, it seems, are worth protecting — namely, their own. Clearly, what the administration has shown it lacks in restraint on the climate agenda it makes up for in brazenness. For example, this unprecedented subservience of economic well-being to political demands will proceed with little input from Congress outside of approving more spending. The actual restrictions to bind the U.S. economy to an agenda which no Congress has ever endorsed, and plainly will not endorse any time soon, are going to come through regulatory backdoors and a troubling use of the Department of Justice to target opponents. Regarding the former, one threat uncovered by chance in an open records request contains the worst elements of Washington: bureaucrats cycling in and out of office, collusion with ideological activists and, when democracy slams the front door shut, they seek out and find a backdoor “sue-and-settle” resolution. What’s now clear is that their proposed

method of circumventing Congress is an exceptionally complex, hidden regulatory scheme, though air-quality experts in the shale industries might see through the smoke and mirrors. What Biden’s people hatched prior to his election is a secondary National Ambient Air Quality Standard (NAAQS) for ozone, “robust” enough to serve as a regime for reducing greenhouse gas emissions. Rather than applying the law, it invents an aspirational way around the law. This effectively requires setting an acceptable U.S. level of this globally “well-mixed” gas, of which China is far and away the largest emitter, and the U.S. a marginal contributor when considering nature’s own bounty. We can’t control CO2 concentrations or meet CO2 or GHG NAAQS — even where requiring it is deemed legal. We can, however, do great harm to the economy, communities and people by pretending we can by fundamentally transforming the Clean Air Act into an unrecognizable and never-intended framework for economy-wide decarbonization. Naturally, the plan to exclude the people’s voice and enable governmental overreach came about because of past legislative and judicial rejections. Public records recently uncovered show it was developed over months between progressive state attorneys general and former career U.S. EPA attorneys, and other staff, now turned environmental activists. This was first revealed in records obtained from the attorneys general (AGs) by Energy Policy Advocates. For the group, I filed an amicus curiae brief in the D.C. Circuit federal court of appeals, laying these facts out in a lawsuit filed by these AGs the day before Biden’s inauguration, State of New York et al. v. Environmental Protection Agency, et al. Among the points made: Biden’s EPA official in

charge just spent two years plotting with these AGs who have sued to bring this agenda into existence, and now he is in position to roll over and concede it into place. A Wall Street Journal editorial, “Biden’s ‘Backdoor’ Climate Plan,” captured the revelations: “To sum up, Democratic AGs, green groups and a top Biden environmental regulator are colluding on a plan to impose the Green New Deal on states through a back regulatory door because they know they can’t pass it through the front in Congress.” When rumors that a similar greenhouse gas or “climate” NAAQS was in the offing arose early in the Obama-Biden administration, then-EPA Administrator Lisa Jackson publicly disclaimed the idea as not “advisable.” One prominent environmentalist group attorney, also seeking to quell controversy over the prospect early in the Obama administration, said, “hell will freeze over before there’s a NAAQS for CO2.” And so, they recognized the considerable political risk which explains such complicated legal maneuvering to sneak an economic transformation into the regulatory shadows. This agenda has not grown in popularity since the last sincere attempt to impose it through the front door, the doomed 2009 “cap and trade” legislation, which members of Congress made Nancy Pelosi promise in 2019 not to revive. The same fear was shown in shutting down bicameral 2020 efforts to force votes on Green New Deal bills. Consider also how, after the failure of the Kyoto treaty, the Paris Agreement was simply declared “not a treaty” so as to avoid a Senate vote. The rational conclusion to be drawn from these debacles is that the American people know what they do and do not want, and what they did, and did not vote for. Democrats instead concluded they needed to find back doors for their agenda. The second Biden approach, using the courts, derives from an unambiguous promise to weaponize DoJ: “Biden will instruct the Attor-

ney General to” do various things to impose a political agenda or target opponents, including, “strategically support ongoing plaintiff-driven climate litigation against polluters.” This, of course, refers to an expanding litigation campaign by activists and the tort bar to force the progressive’s “climate” agenda on the country and enrich themselves — while also finding a “sustainable funding stream” and “new streams of revenue” for progressive spending ambitions — through what are in effect taxes paid by consumers, run through massive settlements with energy companies. The plaintiffs’ team regularly admits that this is an attempt to use the courts as substitute policymakers for an agenda that keeps failing through the democratic process. Biden and Harris both walked back that vow, one (scandalous) half of a two-part promise, at the first confrontation with media curiosity. CNN reported Biden said in an interview, “I’m not going to be telling them what they have to do and don’t have to do. I’m not going to be saying, ‘Go prosecute A, B or C.’ I’m not going to be telling them. That’s not the role. It’s not my Justice Department; it’s the people’s Justice Department.” Harris echoed the sentiment of Biden’s remarks on the Department of Justice. “We will not tell the Justice Department how to do its job,” Harris said. We shall see. In late April, Biden’s DoJ announced the first component of the promised program. Is the threatened second half coming, too? DOJ has a $28 billion annual budget at its disposal to pursue things that might please their boss. A dramatic reset of the American economy merits scrutiny and, importantly, public consent. It is antithetical to the American system of government to allow parties to collude behind the scenes to transform our economy or use government prosecutions to bully opponents into acquiescence. A fleeting moment of radical government cannot be allowed to condemn

Americans to years of energy rationing and brakes on economic recovery that will only be reversed after needless suffering, which may also include the loss of the U.S.’s position as the leading power in the world. These actions provide troubling clues as to the extent of the emerging Biden administration overreach on or at least invoking as a rationale environmental matters. While the tactics are disturbing, the breadth of the agenda and zealousness of the commitment indicates that this is likely only the beginning.

About the author: Chris Horner is an attorney in Washington, D.C., New York Times bestselling author of four books, longtime think tank fellow and member of the Board of Directors of the public interest law firm Government Accountability & Oversight, P.C. He has written in the Wall Street Journal, Washington Times, WSJ Letters, New York Times’ Room for Debate, National Review Online, Spain’s Actualidad Economica and the Brussels legislative news magazine EU Reporter.

SHALEMAG.COM

POLICY

Big Chills and Strong Wills By: Kelly Warren Moore

was born in the Midwest, and most of my extended family still lives there, so I am not unaccustomed to the hazards of winter weather. When we were kids, visiting my grandparents on the Nebraska plains was an adventure. We would almost always encounter icy roads and treacherous driving conditions on the way there from our home in Corpus Christi. Mom and Dad were prepared with blankets in the car and plenty of water and food for the drive, “just in case.” Once we got to my grandparents’ old farmhouse, there was indoor plumbing, but still a working outhouse. My grandmother’s gas range was almost always on from dawn until after supper, so the kitchen was warm no matter how frigid it was outside. There was a gas heater in the central room of the house downstairs, which kept things warm enough, but we still wore heavy socks and sweaters all during the day. At night, we’d go upstairs to the bedrooms. The door to upstairs was kept closed during the day to conserve the heat downstairs but open at night so that some heat would make its way to those bedrooms, and there were piles of grandma’s homemade quilts and heavy woolen blankets on all of the beds. My sister and I shared a bedroom, and we’d race into our pajamas and under those covers as fast as we could to preserve body heat. I can remember struggling to pull the heavy bed covers up far enough to jump in, and for the first few minutes, it would feel like their weight might crush me once I was under them.

SHALE MAGAZINE  MAY/JUNE 2021

But once I fell asleep, they kept me warm and feeling secure all night. (I haven’t yet succumbed to the siren calls of the advertisements for “weighted blankets’’ that seem to be everywhere these days, but I certainly do understand their appeal, I learned about that firsthand!) Those experiences, along with 15 or so years as a grown woman living in the Northeastern United States, have taught me how to get along, survive, and even thrive in cold weather. I get excited when there’s the annual once or twice a year “severe winter weather” alert, planning what long and labor-intensive, delicious comfort food I’m going to make, what books I want to read and movies I want to watch should we get the rare South Texas “snow day.” So, once we started hearing about this potential cold-weather blast just after Valentine’s Day, we took it all in stride. We had just brought two Labrador pups home with us a few weeks before, and both my husband and I have been working from home, so there wasn’t going to be any worry about how our work travel might be impacted or what meetings would be canceled. There was plenty of food in the refrigerator and freezer, and the new puppies’ first experience with cold weather was going to be fun. Little did we know, this was not going to be just any ordinary winter-weather experience. We saw the horrendous footage of massive car pile-ups in the DFW metroplex, and then as the cold moved further south, we heard about snow and ice from our for-

mer Austin neighbors. But, we were now right on Aransas Bay in Rockport. Surely, the cold wouldn’t last long here. It never does! Boy, were we wrong. The cold came quickly, and temperatures plummeted. We even had snow! We realized that most of our plants would likely not survive more than a day or two of this kind of cold. But things were still fine. We had plenty of food and running water and internet. Until we didn’t. When the lights went out and the normal hum of a working, modernday home went quiet, we took it in stride. Demand was surely off the charts, but adjustments would be made, and after a few hours, we’d surely be back up and running, we thought. So, we played with the dogs, and of course, our cell phones were still working, so we could check on our family and friends and peruse social media and all the rest. But as

God’s grace will give us strength and courage to move on and thrive if only we ask for it, accept it, and give it to others the hours went on and the temperature in our circa 1870 home started to drop, I went to the guest room and dug out the treasured heavy quilt I’d inherited from my grandmother and the warm, woolen burnt orange and white afghan my mother had crocheted for me before I went to college. I found some other assorted blankets around and laid them out across our bed. I assembled a bunch of candles as it became clear that it was going to be a cold, dark night inside and out. Our puppies, my husband said, had been overheard whispering to themselves, “I sure hope this is just a foster family and that our real family can afford electricity!” At one point that week, the interior temperature of our home was 31°. I thought so often of my grandparents that week and the way they not just survived, but thrived, despite lacking almost all of the modern comforts that I consider necessities and take for granted today. I feel grateful that their DNA is mine, and it gives me strength and courage. When our water suddenly cut off the second day, that’s when we started to understand that this was going to get a lot less pleasant as time passed. We hadn’t had a need to go anywhere but then thought we should probably fill the cars up with gas in case of an emergency, plus we could use our cars to charge our phones and warm-up or even sleep in them if need be. We bundled up the dogs and decided we would drive around and check things out just to get out of the house. We stopped at our neighborhood gas station, out of gas. The next one, out of gas. Memories of the early aftermath of Hurricane Harvey came flooding back. No electricity means no ATM machines or working credit card machines. Some stores and businesses had generators, but that wasn’t guaranteed. We did find a station that had some gas, so we filled up. Word started to spread that this power outage of a few days was likely going to be “significantly longer.” What the heck did that mean? No electricity, no water, no heat. For days on end! I really started to understand the survival instinct that starts to kick in during extreme times. Unlike

during the oppressive late-summer heat of Harvey’s aftermath, the entire outdoors could serve as our refrigerator and freezer, so we moved meat and other perishables into coolers on our front porch and back patio. By a stroke of luck, we were in the middle of a kitchen renovation, so our contractor had installed a portable toilet for the crew at the end of our driveway. (I don’t need to go into detail about why that was important, I’m sure.) We started to hear stories of grocery stores being emptied and supplies being shorter than at the beginning of the pandemic. I went to our local HEB to get a few things and was astonished at the bare shelves, emptied meat section, and empty freezers. After the initial shock and panic about the possibility of days or weeks like this, it was remarkable how we all adapted and began to accept reality and start to figure out how to compensate for it. Living through all of the atrocities of 2020, with its lockdowns and unrest and fear-mongering, actually helped prepare our mindset for “making the best of it.” Living on the Texas coast means being prepared for tropical storms and hurricanes and oppressive heat, not bitter cold. As my husband, a career technologist likes to say, “There are two kinds of people. Those who have a backup plan, and those who eventually do.” So now we’ll have a checklist for winter weather in addition to our hurricane preparedness routine. As I reflect now, from the comfort of my back deck on a warm spring morning, watching the hummingbirds buzz around our feeders, most of our non-dead plants coming back to verdant life, my husband doing yard work and the dogs playing in the yard, the most miserable times of the past few years — devastating damage and loss from Hurricane Harvey, the uncertainty and fear when a family member was in crisis, and the devastation and chaos wrought by the fear of a virus — seem somehow distant and muted. I marvel at the resilience not only of nature but of the human spirit. At some point in our lives, we will all experience some sort of devastation. It might come in the way of the destruction of physical property, the serious illness or death of loved ones, or terrible accidents. Without the perspective of that type of loss, the temporary loss of our modern comforts can also seem like devastation. Through loss and fear and discomfort, there is something in our souls that silently whispers, “I don’t want to quit.” So we find ways, big and small, to continue moving forward, to laugh, to find connection with others, to survive. That is God’s grace, and in those times when it feels like He might have just had enough of us and moved on, He sends a sunrise or the first green shoots of long-forgotten daffodils or the discovery of a nest of wrens that has been carefully and intricately woven into a hanging basket right in front of you that you never noticed until you heard the babies chirping. There are more than enough very valid reasons to be outraged about how the corruption of our various systems of government has caused disastrous consequences and irreparable harm to so many. Accountability for ineptitude or negligence seems to be a relic of another era. I hope, but don’t expect, that the various causes of a disastrous man-made loss of life-giving and life-saving electricity by the entity entrusted with that immense responsibility will be uncovered and repaired. I hope our kids go back to school. I hope our elections can have proper integrity and trust. I hope our country turns around. But I cannot allow myself to be consumed with rage about any of those things all the time, and I won’t express any more of it here. We have been through much, and we will go through more. Every disaster changes our lives in different ways, and things are never the same afterward. God’s grace will give us strength and courage to move on and thrive if only we ask for it, accept it, and give it to others. That is ultimately how we get through everything and how we always have.

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BUSINESS

Can Oil Field Workers be Paid a Daily Salary and Still be Exempt from Overtime? By: Annette Idalski

he last two years have brought uncertainty to the issue of whether oilfield workers paid on a day-rate compensation plan may be properly classified as exempt from overtime under the Fair Labor Standards Act (FLSA). In a series of decisions from August 2019 to March 2021, the Fifth Circuit attempted to clarify whether a day rate is a salary under the FLSA. But, the barrage of issues and withdrawn decisions present a legal quagmire for employers seeking to make proper classification decisions. This article clarifies the law for employers seeking to maintain exemptions from overtime for certain oilfield workers. Exempt workers do not have to be paid overtime premiums for any hour worked over 40 in a single workweek. Some of the most common include the executive, administrative, and highly compensated exemptions. Each of these exemptions incorporates a salary basis test – meaning that the exemption cannot be established unless the employee is also being paid on a salary basis. Federal regulations define “salary basis” as a predetermined amount constituting all or part of the employee’s compensation which is not subject to reduction because of variations in the quality or quantity of the work and which is received on a weekly or less frequent basis. However, what if an employee’s compensation is computed with respect to daily work rather than work performed on a weekly or monthly basis? In other words, can an employee paid solely a day rate basis satisfy the salary basis test? The Fifth Circuit first attempted to answer this question in Faludi v. United States Shale Solutions decided on August 22, 2019 (Faludi I). In Faludi I, the Fifth Circuit determined that Faludi — who was paid $1,000 per day for legal consulting services — satisfied the salary basis test and was properly classified as exempt under the FLSA. Specifically, Faludi I noted that the salary basis test only required that compensation be received on a weekly or less frequent basis rather than calculated on a

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weekly or less frequent basis. Thus, because Faludi was guaranteed to receive at least $1,000 for any week in which he worked at least one day, his twice a month payment from U.S. Shale satisfied the salary basis test. Following the Faludi decision, the plaintiff requested the case be heard en banc – if

granted, this means the previous opinion is withdrawn, the case is heard by the full Fifth Circuit rather than the initial panel of judges, and a new opinion is issued. However, on February 14, 2020, rather than granting or denying the en banc request, the panel withdrew the August 22, 2019, opinion and decided the

case on separate grounds, which did not implicate the salary basis issue (Faludi II). However, the Faludi II panel did note that it took U.S. Shale’s argument that Faludi satisfied the salary basis test and was thus properly classified as exempt, as “well taken.” The Fifth Circuit next revisited the issue on April 20, 2020, with its opinion in Hewitt v. Helix Energy Sols. Grp., Inc. (Hewitt I). In Hewitt I, the issue presented was the one ultimately sidestepped by the Fifth Circuit in Faludi II – can an employee paid a day rate satisfy the salary basis test under the FLSA? The Hewitt I panel,

in contradiction to the withdrawn holding of Faludi I and dicta within Faludi II, answered no. In reaching this conclusion, Hewitt I emphasized that a day rate employee can only determine his compensation at the conclusion of a pay period as compared to a salaried employee who receives the same amount of compensation each

pay period and can thus determine his compensation before each pay period. However, Hewitt I also recognized that an employer could avoid this issue by agreeing to the length of each hitch in advance with the employee, thus allowing him to predetermine his compensation before each pay period. On December 21, 2020, following a request for rehearing and additional briefing, the Fifth Circuit withdrew its April 20, 2020, Hewitt I opinion and issued a revised opinion (Hewitt II). In Hewitt II, the Fifth Circuit again changed course and determined employees paid a day rate can satisfy the salary basis test provided several requirements are met. These requirements are 1) a guarantee and 2) a reasonable relationship between the guarantee and the amount actually paid. The first condition requires the worker be guaranteed a minimum weekly payment he or she can expect to receive – regardless of the hours actually worked. In other words, a guarantee that they will receive a certain amount of money per week, whether they work one day or seven days, provided that they are ready and willing to work. Hewitt II states this guarantee can be thought of as a “floor” that establishes an absolute minimum a worker can expect to be paid in any given week. The second condition requires a reasonable relationship between the above-mentioned guarantee and the amount actually paid. Hewitt II explains this requirement as establishing a “ceiling” on how much a worker can expect to work in order to earn their weekly guarantee. Hewitt II notes that employers need to be prepared to offer more evidence of a guarantee than a pure day rate arrangement to satisfy the first prong. Of course, this is consistent with language from Hewitt I. Hewitt II also concludes that day rate employees could satisfy the reasonable relationship test but doing so requires the employee not to be paid “orders of magnitude greater than the weekly amount” he or she was guaranteed to receive. Ultimately, Hewitt II stood for the proposition that a day rate worker may be properly classified as exempt, provided that certain caveats are met. However, the tale does not end here. On March 9, 2021, following a petition for an en banc hearing by Helix Energy, whose pay practice did not meet the requirements set forward in Hewitt II, the Fifth Circuit withdrew its December 21, 2020, Hewitt II opinion and granted oral argument before the full Fifth Circuit with a tentative date of May 24, 2021. The en-banc hearing and subsequent opinion (Hewitt III) should ultimately settle the question of whether a day rate can constitute a salary for purposes of exemptions under the FLSA.

The last two years have brought uncertainty to the issue of whether oilfield workers paid on a day-rate compensation plan may be properly classified as exempt from overtime under the Fair Labor Standards Act (FLSA)

About the authors: Annette A. Idalski is a shareholder and the National Chair of Chamberlain Hrdlicka’s Labor & Employment Practice. She may be reached at annette.idalski@chamberlainlaw. com. Brian Smith is an associate in the practice.

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BUSINESS

Avoiding Early Mistakes in Oil and Gas Litigation By: Kelley B. Duke and Benjamin J. Larson

f you do business in the oil and gas industry, you know that lawsuits are inevitable. The uncertainties of drilling success, coupled with volatile markets and prices, often spawn disputes that end up with at least the threat of litigation. While you can’t entirely protect your business from lawsuits, there are measures you can take to place your company in a better litigation position, setting yourself up for a better outcome. While oil prices have been steadily recovering and shale output is on the rebound, 2020 left the industry with plenty of disputes, many related to contractual performance obligations. Implied or ambiguous provisions in contracts and a general lack of precision often lead to litigation when business slows. When the economics of a deal have changed, parties will carefully scrutinize contracts in order to either enforce or excuse performance. It comes as no surprise that the number one contract issue we have seen over the past year in the oil and gas industry is a force majeure defense, which can negate contractual obligations and related liability because of unforeseeable, catastrophic events. Many contracts specifically exclude pandemics from force majeure clauses, and even when contracts are silent on the possibility of a pandemic, courts may not recognize a force majeure defense. Don’t expect force majeure to release you from contractual obligations. Inevitably, litigation will continue, and perhaps even increase, as the economy opens up again. Here are some best practices that can help your company reduce risk and minimize the uncertainty of oil and gas litigation. Early lawsuit mitigation The following are important steps to take at the outset of a lawsuit or even if your company anticipates litigation • If there is a possibility of insurance coverage, put your carrier on notice when you become aware of a potential claim. If the carrier has substantial exposure, it may want to get in-

SHALE MAGAZINE  MAY/JUNE 2021

volved in early legal strategy. Plus, you may increase your chances of avoiding an argument over timely notice and related refusal to cover the cost of defense. • Key employees need to be informed early of a lawsuit. Put out a formal litigation hold immediately, advising employees not to destroy emails, reports and other relevant documents. A consistent record retention policy is an essential component of any litigation readiness strategy. If records are not preserved, a judge may assume anything lost after your company was aware of a lawsuit was detrimental to the company’s position and may impose sanctions. • Prepare a timeline of the dispute, along with assembling relevant documents. This will be central to your legal strategy and the timeline of events will assist you with marshaling the facts and developing your strategy. This also will help you determine if any statutes of limitations apply. Be careful with communications Once you anticipate a lawsuit, it’s time to lock down your communications. Make sure involved employees know that anything they put in writing will likely be produced in discovery and could negatively impact the company’s position. We recommend a message drafted or reviewed by your lawyer to all pertinent employees that carefully explains limitations on communications. Cases often are won and lost in what is discovered in emails. Attorney-client privilege is another area where early missteps can handicap litigation. Make sure everyone understands which communications qualify for attorney-client privilege and how the privilege can be compromised by disclosing those communications to someone who is not an attorney. Start by issuing a corporate Miranda warning (also known as an Upjohn letter based on the name of the landmark Supreme Court privilege case), which explains to employees that anything they tell the company’s attorneys remains privileged and confidential at the company’s discretion. The company’s

attorneys represent the company – not the employees – and you don’t want to imply anything else. Courts have tossed employee testimony because an employee didn’t understand that the company’s attorney did not represent or protect him or her. Maintain a good accounting system When times are good, it is easy for oil and gas companies to become lax with their accounting and recordkeeping, neglecting to fully document expenses, executing handshake deals, skipping over the fine print in contracts and generally prioritizing the work over back-office housekeeping. That is understandable in a cyclical business where producers must push hard when markets are on the upswing, but we often have seen this come back to undermine legal positions in litigation. Good accounting and recordkeeping are essential to placing a value on damages. Put systems in place that maintain discipline in accounting and recordkeeping. Don’t make emotional business decisions By nature, energy exploration is an emotional business, as anyone who has ever drilled a dry well or struck unexpected deposits can tell you. We see people get angry and dig in on their positions, especially if they feel they have been taken advantage of by an opposing party. In the end, litigation is just part of doing business, albeit not a pleasant one. Take the personalities out of it and think only in business terms. What is expedient? Don’t wait to get legal counsel So many mistakes are made early in litigation before the parties realize that a dispute is going to escalate to a lawsuit. This applies less to a company that has in-house counsel, but we can’t stress how important it is to find agreement on a legal strategy right from the beginning. Don’t wait to consult legal counsel. What is written here is intended as general information and is not to be construed as legal advice. If legal advice is needed, you should consult your Ireland Stapleton attorney.

While oil prices have been steadily recovering and shale output is on the rebound, 2020 left the industry with plenty of disputes, many related to contractual performance obligations

About the authors: Kelley B. Duke is an experienced litigator and trial attorney who counsels oil and gas businesses and actively engages in oil and gas litigation in both federal and state courts. She is a director of the Litigation Practice at Ireland Stapleton (Denver, Colo.). She may be reached at kduke@ irelandstapleton.com. Benjamin J. Larson is a director at Ireland Stapleton and a commercial litigator with significant experience in oil and gas litigation. He frequently litigates issues before the Colorado Supreme Court. He may be reached at blarson@ irelandstapleton.com.

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BUSINESS

ESG Finance: An Enterprise-Wide Checklist

By: Mona Dajani, partner and co-leader of global energy, infrastructure & mobility, Pillsbury Winthrop Shaw Pittman Law

n the past decade, Environmental, Social, and Governance (ESG) finance has grown tremendously and is no longer just a passing option for industries looking to redirect capital. While they might not seem to offer obvious opportunities to the petroleum energy market, ESG programs and products are quickly becoming an expectation for boards and shareholders to show they are still relevant in today’s competitive market. With losses challenging the sector, a new administration feeding the ESG market, and lenders, consumers and investors seeking alternative investment choices, I hear more than ever about ESG finance in my energy and infrastructure practice at Pillsbury Law. Inherent to the idea is keeping up with what ESG responsibilities are and aren’t. Every Board member or executive trying to improve a score, and every shareholder compiling an ESG portfolio, has many factors to consider. Keeping metrics on a company’s standards is essential, and the Securities and Exchange Commission, Commodity Futures Trading Commission and other regulatory bodies are adding additional pressure for companies to show higher levels of transparency. Three places to start: • Diversity is a must. Boards need diverse members with appropriate ESG skills to make sure their companies’ strategies are sustainable and relevant. • Consider green bonds. Boards should consider issuing green bonds to fund sustainable projects and access ESG capital. • Be able to measure your progress. Boards should know their ESG proxy and other rankings (e.g., ISS and State Street), so they can measure management’s progress on ESG initiatives and improve on remedial actions and disclosures. To help, we’ve made a checklist for those looking to develop a clear strategy on how their company can best meet ESG goals —

SHALE MAGAZINE  MAY/JUNE 2021

or for those who want more clarity on what to look for when considering companies for ESG portfolios. Board responsibilities: Appropriate committees: Consider having an ESG-specific committee, or build ESG expertise into a Compensation Committee for Human Capital Management, or a Nominating and Governance Committee for ESG/Sustainability. Charters: If necessary, amend corporation charters to add this responsibility and appoint appropriate members to such committees. Diversity, a business imperative: Create programs to ensure that you have a workforce that is representative, at every level, of the diversity of your customers, investors, communities and business partners. Add new board members when varied expertise is needed or desired. Tracking costs and success: Review metrics relating to your business against ESG activities and what they cost to evaluate the success of these activities across all business units. Retain ESG measuring firm: Retain a thirdparty firm like Sustainalytics or MSCI, so you have an outside barometer to measure your progress and lend credibility. Assign management: Assign responsibility for your ESG program to one person: general counsel, head of investor relations, CFO, or chief ESG officer. Compensation plans: Add ESG progress — e.g., diversity and inclusion, employee and customer satisfaction, and community responsibility — as an individual performance factor, along with company performance, in the annual short-term incentive plan for executive officers. Green bonds: Consider whether issuing a green bond is right for your company. Such issuances have tripled in the last year, as companies use these as one way to access ESG capital and finance important sustainability investments.

ESG investor outreach: Define an outreach program to access the $25 billion of capital investing in ESG-friendly companies, expected to grow to $40 billion within a few years. Policies and reports every company should have: Metrics: Create a chart to track and measure ESG initiatives over time, so your stakeholders can see your progress. The metrics tracked might follow social, environmental and climate impacts, employee well-being and engagement, training, diversity inclusion, anti-harassment, sustainability, organizational development, and employee wellness. Public policies and reports: Responsible committees should make sure the company has adopted and posted on its website all appropriate reports, e.g., human rights, corporate social responsibility (CSR) or sustainability, environmental, supplier code of conduct, diversity and inclusion, etc. In the 10-K, include a Human Capital Management (HCM) report that’s accurate and comprehensive. Sustainable Development Goals (SDGs): Ensure the ESG program addresses the United Nations’ 17 SDGs, which many money managers and institutional investors are using to determine whether you meet their ESG investment qualifications. Proxy disclosure to look for: Board members: Bios should show ESG expertise where appropriate and diversity statistics that satisfy applicable law, e.g., California and NASDAQ. A skills matrix should also be included. More and more companies are using graphics to drive the expertise and skills message home—“a picture is worth a thousand words.” Board nomination graphics: Companies are also starting to include director nomination and succession graphics to show how they look for and appoint individuals with expertise and diversity.

CSR report: A Corporation Social Responsibility/Sustainability Report should be included as well as the HCM report (which can be extracted from the website and the 10-K). These disclosures will help improve ISS and other institutional shareholder ESG rankings. ESG rankings: Boards should know their ISS and other ESG rankings (e.g., State Street’s R-Factor, or Blackrock’s) to determine if improvement is necessary and take remedial actions. This might include adding or supplementing training and safety programs, benefits and wellness programs, diversity hiring and promotion programs, community outreach, evaluating energy efficiency, water usage, waste minimization, greenhouse gas emissions and climate risk, and impact on natural resources. Regulators and disclosures: Regulators eye impacts: Rostin Behnam, Acting Chair of the Commodity Futures Trading Commission, last September commissioned a first-of-its-kind report, “Managing Climate Risk

in the U.S. Financial System.” He followed in March by announcing a Climate Risk Unit with a focus on derivatives. He said it will support “industry-led and market-driven processes in the climate — and the larger ESG — space critical to ensuring that new products and markets fairly facilitate hedging, price discovery, market transparency, and capital allocation.” Standards evolving: S.E.C. Acting Chair Allison Herren Lee noted that “no single issue has been more pressing for me than ensuring that the SEC is fully engaged in confronting the risks and opportunities that ESG (issues) pose to investors, our financial system and our economy.” In fact, the S.E.C. is working on revisions to the 2010 climate disclosure standards and global consistency on ESG disclosure requirements. The biggest complex question for public companies is going to be how to balance the tension between profits, principles and ESG metrics. Lee suggested it will be an iterative process, taken in steps and requiring continuous improvement.

About the author: Mona Dajani is a partner and co-leader of global energy, infrastructure & mobility at Pillsbury Winthrop Shaw Pittman Law.

While they might not seem to offer obvious opportunities to the petroleum energy market, ESG programs and products are quickly becoming an expectation for boards and shareholders to show they are still relevant in today’s competitive market

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Across the country, companies are doing their best to get back to business as usual. Much has changed in the past year, but the need for good leadership is something that will never change. Here are a few articles to help lead you through the new normal. “What you do has far greater impact than what you say.” – STEPHEN COVEY

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LIFESTYLE

BEING AN EXCEPTIONAL INDIVIDUAL AND ORGANIZATIONAL LEADER By: Joe Shakeenab, Retired Chief Warrant Officer Four (CW4), Special Forces

hen I was a young Special Forces “Green Beret,” I often wondered what it took to be exceptional in an environment where everyone was deemed great. I’m certain I was not alone in my thinking, and many individuals in today’s workforce may ponder on this very subject in their quest for advancement. Years have passed since my days in uniform, and I have been fortunate to have many opportunities to experience, engage with others and study the subject of being an exceptional leader. For me, understanding expectations and being able to measure performance was a part of the equation. Another concern I put forth today is the ability to perform at the next higher level, with associated responsibilities, in a mature and quantitative manner. I have learned that in many environments, being exceptional is not operating on a lateral scale; it is more of an inverted pyramid in terms of scope and frequency. One’s knowledge and application of such knowledge spans outward. I will use a personal example to demonstrate the lessons of this article. As a member of the U.S. Army 5th Special Forces Group (Airborne) at Fort Campbell, Kentucky, I not only had to understand the individual and team standards, but I had to know the success criteria for the organizations in core areas of administrative and operational readiness. I had to think of my actions and lack of actions. I had to know when and where critical expertise was required and how to apply such skill sets. In short, I had to broaden my knowledge to that of an administrator, logistician, operator, security manager, budget analyst or so on. In the process of performing more effectively, I often asked my superiors (evaluation rater and senior rater) what they saw as exceptional performance within a defined scope. I learned to shape the question for a more effective response. Once I knew their standards and philosophy, I performed accordingly. To the end, I was mindful of how I performed as an individual and as a team member. I looked at regulations and policy guidance and sought to excel there. I made better use

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TO ME, BEING A TEACHER IS A TREASURED MARK OF AN EXCEPTIONAL LEADER

of my time in the office (team room) as well as on the range or during deployments. I worked to be the solution to a problem or set of problems by putting in the long hours to be exceptional in my foreign language abilities. Furthermore, I knew I had to be in the best physical and mental conditions, so, in addition to gym workouts, I sought emotional balance through meditation. Over the years of maturing as a professional and advancing in rank, I grew fond of grooming others to be exceptional. To me, being a teacher is a treasured mark of an exceptional leader. I wanted those to my left and right to be critical thinkers, visionaries, and transformational conduits. I wanted my program and the teams which support the program to be great for years after I

was gone. I wanted others to be much more successful than me, but in a shorter time. To this day, I seek to be of greater value to individuals and organizations through guiding and empowering others. Mentorship, empowerment, and support of others are some noted virtues of exceptional leaders. At the end of the day, when I sit and look out the window at the setting sun, I take comfort in knowing that today’s scholars and leaders in my areas of influence are prepared to be exceptional. Daily, I can see them embracing opportunities and greater responsibilities. With their advancement, I am confident that many of them will transition into being great mentors or advisors for others. Exceptional leaders build the next group of greatness within the ranks.

About the author: Joe Shakeenab grew up in the historic Mound Bayou, MS. Upon graduating from high school in 1982, he joined the U.S. Army at the age of 17. This decision became a colorful career in Special Operations where he served as an Army Ranger with the 2nd Battalion, 75th Ranger Regiment and later as a Green Beret with the 5th Special Forces Group (Airborne). Joe served in combat during the first Gulf War (1990), Somalia (1993), and Afghanistan (2001 - 2002), all with the 5th Special Forces Group. Joe retired from the U.S. Army in 2010 as a Chief Warrant Officer Four (CW4). Joe’s professional career is complemented by immeasurable experience in planning, directing, and advising in support of military and civilian organizations, at the international, national, and community levels. In addition to supporting various charitable endeavors in Clarksville, TN Joe enjoys hiking, reading on the subject of personal development, and writing about influences and impacts. Joe is a published author and his works can be found at www.shakeenab.com.

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LIFESTYLE

NO LONGER BUSINESS AS USUAL? A MINDFUL GUIDE FOR RETURNING TO THE WORKPLACE By: Chad Sorenson, SHRM-SCP, SPHR, HR Florida State Council President

eadership has its challenges – there’s no question about it. Add in a pandemic, racial challenges across the United States, shifting public sentiment about energy production and other divisive issues that seem to lurk around every corner and leading employees becomes increasingly difficult. As the country returns to the workplace, leaders have to adapt their styles to meet these new challenges. From my perspective, there are five steps companies and their leaders can take to ensure they are set up for success in the months and years to come amid this climate of uncertainty and change.

Put Yourself in Their Shoes When employee engagement and sentiment surveys are conducted, there are often disparities between how management and employees see their relationships. An effective leader will always try to understand an employee’s point of view rather than telling them how they should respond. Understanding can come in many forms. Individual conversations, employee surveys and group discussions can each bring a different level of clarity to managers and supervisors. Each has its benefits and drawbacks. The key for any relationship is trust; employees need to trust their manager if the manager has any hope of receiving honest feedback. As James M. Kouzes and Barry Z. Posner said in their book “Credibility,” “the more leaders and constituents comprehend each other’s perceptions, concerns, and values, the greater their ability to work together.”

Not Business as Normal Leaders who return to the workplace without taking into consideration the changing circumstances around them will likely fail, in my opinion. It’s no longer business as normal. In fact, the word “normal” is getting harder to define.

SHALE MAGAZINE  MAY/JUNE 2021

IT’S USUALLY SAID THAT AN EMPLOYEE DOESN’T LEAVE THE COMPANY; RATHER, THEY LEAVE THEIR MANAGER

The way we work has changed. The way business is done has changed. The way we interact with each other has changed. Managers need to understand the need to evolve along with the situations around them. Adaptability is key for leaders; however, many struggle with it. Employees have acclimated to working from home or having a flexible work schedule. Those who used to travel regularly have learned to do their work via video conference or by phone. Gone are the days of face-toface meetings and the occasional drop-by in the office. Successful managers have adapted to managing their teams remotely.

While we may get back to more travel and in-person meetings, not everyone will be excited about the return to “normal.” Managers must take each situation and evaluate it individually to determine the best outcome for both the employee and the company. Consistency, with some flexibility, will produce the best outcome. “My way or the highway” mentality will lead to strife, conflict and turnover.

Cultural Changes In addition to the changes directly impacting the workplace, the world around us is also continuing to evolve. Black Lives Matter, workplace and community violence and gender issues are impacting companies more regularly. Leaders must recognize that these significant cultural movements influence the day-to-day lives of employees. That influence flows into the office and can have ramifications on their teams. Leaders don’t have the option of ignoring these situations; rather, they must confront them. Diversity, equity and inclusion initiatives have a place at work, and leaders need to learn how to recognize potential issues before they get out of control. While a company doesn’t need to take a political stand on every issue, it must recognize its employees may be looking for a voice. Acknowledging their concerns and recognizing the personal impact it may have on their lives will help a leader better understand how to navigate employee interactions. Employee Resource Groups (ERGs) offer individuals an opportunity to gather with like-minded or similarly situated employees to address common issues. This also allows employees to work together to recommend changes in organizations rather than the company taking the lead on every situation.

By providing a leadership development program for managers, companies can ensure that all are treating similar situations in an equitable manner. This training also has the benefit of strengthening teams and providing a higher level of creativity and productivity. It’s usually said that an employee doesn’t leave the company; rather, they leave their manager. This is true in many ways, and it is incumbent upon the company to ensure their managers become leaders the employees want to work for.

Change is the One Constant Finally, change management must be a part of any leadership development program. As we have seen over the past year, change is constant and to be expected. It’s a normal human condition that people tend to avoid; however, leaders who help their employees navigate the evolving environment regularly produce better results. A successful change management program will consist of five parts: motivating change, creating a vision, developing support (buy-in), managing the transition of change and sustaining the momentum. Each part is equally important; without one, change is neither sustainable nor will it be effective. Leadership in today’s workplace is a challenge. Done right, it will result in more effective teams, greater productivity and higher profitability. Done wrong, and an organization could face even bigger hurdles.

Training for Leaders Leaders come in all shapes and sizes. Different backgrounds, experiences, socio-economic circumstances, and education all play a part in shaping a manager. Companies should prioritize training for supervisors and identify the competencies that are best suited for their organization.

About the author: Chad Sorenson is the President of Adaptive HR Solutions and has over 25 years of diverse business, communications and human resource experience.

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LIFESTYLE

LEVERAGING THE PILOT MINDSET FOR EFFECTIVE LEADERSHIP By: Nick Tarascio, CEO, Ventura Air Services and Jet Pilot

ircraft pilot training is extensive and challenging. Gaining ratings on multiple aircraft types, including jets, is a complex process. The lessons and experiences gained by pilots in the cockpit create a distinct mindset that can be adapted by business leaders. Faced with the need to adapt plans and make quick decisions, some of which could be life or death, pilots must learn to lead and trust themselves. With trust comes confidence to achieve mission success and overcome challenges.

Q Self-Reliance and Leadership

The first time I flew solo, I was 16 years old. This was not my first time in the pilot’s seat, but this time, I was alone. This was thrilling; my safety net had been removed, and the instructor was not there. When I took off, there was a notable difference; all the actions and responsibilities were on me now. I recognized the importance of rising to the challenge and clearly understood the need for self-reliance. Similarly, leaders need to rise to the occasion and gain the tools they need to achieve success. A pilot, like a business owner, wears numerous hats. For leaders, there comes a point where they must delegate. Can a copilot or crew member complete tasks or solve problems? It is up to the pilot to make this determination and prioritize how tasks are managed. Leaders must identify actions that must be delegated and determine if team members have the skills and ability to complete the task effectively. Businesses and aircraft have to keep moving to complete a mission or achieve a goal. This unstoppable momentum means challenges and issues must be addressed immediately and decisively. This alone is a powerful mindset to adopt. In business, waiting may mean the opportunity is lost, or the challenge becomes too great. In the cockpit, there is no

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time for vacillation. Pilots learn to think quickly and execute fast. When done in business, this creates a competitive advantage.

Q Clear and Deliberate Communications

In the air or on the ground, lives can be at risk if information and intentions are not presented clearly. It is for this reason that pilots and air traffic controllers have developed a specific vocabulary to aid in concise communication. Communication begins with the pilots identifying themselves and their aircraft, followed by who they are addressing. Air traffic control will respond, acknowledging they have heard the statement. This recognition gives the pilot the cue to state their intentions. They may wish to taxi to the runway or ask for approach clearance. This request is made in a precise way, using an economy of words. There is no time for long explanations or confusing statements. The tower will then grant or deny the request. This is a very deliberate and clear communications protocol that is a key part of safety and operations. Intentions are repeated back, demonstrating the message has been heard. This is an excellent approach for leaders to take. When staff members repeat back a request, it ensures they understand what is being asked. If unable to repeat what they are to do, that moment is the best time to clarify. With this strategy, the leader is more likely to get what he or she wants. Standardized language should be adapted for business. Stating intentions and goals allows leaders to share their vision and how goals will be accomplished. When language is confusing and intentions muddled, a company will struggle to stay on course.

Q Decisive Decision Making

In the cockpit, pilots know exactly what the dashboard tells them. For each flight, pilots know what altitude they will be flying,

IN THE AIR OR ON THE GROUND, LIVES CAN BE AT RISK IF INFORMATION AND INTENTIONS ARE NOT PRESENTED CLEARLY

approximate speed, weather conditions, arrival time and fuel levels upon landing. Any deviation in instruments readings, he or she will quickly make minute adjustments. Businesses should leverage the power of dashboards that present real-time, critical information about sales, financials, HR needs and other metrics. It is just as important to decide what doesn’t need to be on the dashboard as what does. Keeping a watchful eye on those critical items also allows for small and quick corrections to be made

and challenges to be prevented. Determining all the worst-case scenarios, a response plan must be planned in advance. This is a critical exercise and a significant part of pilot training. The COVID-19 pandemic has taught us that we don’t know what will be thrown at us, but total loss of revenue or a forced closure of our business is something we all could have planned for in advance of the pandemic.

Q Cockpit Culture

How pilots train in the cockpit is

the foundation for good corporate culture. Leadership and clear communications, assigning of tasks and having a common mission are all key elements of a positive corporate culture. Ground crews, maintenance staff, flight operations, dispatchers and pilots all need to be in alignment to execute missions. Satisfying the customer, like pleasing the passenger, creates a common bond and shared purpose. A well-developed culture is also a competitive advantage.

Q Looking Back to Move Forward

Military pilots examine their actions immediately after missions in an open forum where there are no ranks or hierarchy. This effort is designed to get honest feedback. Understanding what went right, what went wrong and what could have been done better is critical. In aviation, examining a mission allows pilots to sharpen skills. The process also identifies issues that must be addressed before the next flight. In business, talking with team members to assess a campaign’s success will provide leaders with information needed to modify approaches. Many managers are too busy executing on a plan that isn’t working and should instead constantly test their assumptions and compare its expected output to where they want to be a year down the road. The pilot learns, through training and execution, how to plan, prepare, take off, fly and land at their final destination. This is done thousands of times by communicating clearly and effectively, developing checklists and protocols, learning how to make decisions and take decisive action, understanding how to work with others to achieve goals and by looking back to find ways to improve. Leaders in business will benefit from adopting the Pilot Mindset. These tools, tactics and approaches will allow them to navigate their companies through challenging storms and events, identifying strategies for increasing efficiency that will allow them to rise above the competition.

About the author: Nick Tarascio is the dynamic CEO of Ventura Air Services, a fastgrowing aviation company focused on aircraft sales, maintenance and private air charter services. Based at Republic Airport in Farmingdale, New York, Ventura is a family business that was founded by Nick’s father more than three decades ago. In 2020 under his leadership, the company doubled the size of its charter fleet. Today Ventura’s fleet of 10 jets provides business and leisure travel services in North and South America and the Caribbean. Ventura is also a preferred “on-call” provider for rapid medical organ transplant teams that fly to hospitals in advance of life-saving surgeries. Ventura Air Services has been providing charter, sales and aircraft maintenance services for more than 60 years. In 2020 the company made a major investment in aircraft, doubling its fleet to 8. To learn more about Ventura Air Services, visit www.venturajet.com.

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SOCIAL

2021 Midstream Open Golf Tournament

PHOTOS COURTESY OF SHALE

Thank you, San Antonio Pipeliners Association, for hosting the 2021 Midstream Open Golf Tournament and allowing SHALE Magazine and TEAC to participate. The event was held on April 2, 2021, at the Hyatt Hill Country Resort Golf Course in San Antonio, TX as a fundraiser for the STEM Scholarship Program through the Midstream America Scholarship Fund. There were over 300 golfers who contributed and successfully raised $55,000 to benefit the STEM Scholarship Program. Thank you to everyone who participated in making this event possible and successful.

SHALE MAGAZINE  MAY/JUNE 2021

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Fogo de Chao Mixer As always, our mixer with Fogo De Chao was a success. We met many new faces and made many great connections. We want to give a special thank you to everyone who came out to support the Texas Energy Alliance Coalition (TEAC). Your presence made the night a great time. We would not be what we are without your unwavering support.

Jonathan’s The Rub Mixer PHOTOS COURTESY OF SHALE

This event was the Texas Energy Alliance Coalition's first time working with Jonathan's The Rub, and it did not disappoint. The atmosphere was great, the food was amazing and the company was like no other. We want to give a special thank you to the restaurant owners and staff for working hard to make our vision come alive and for being so accommodating to our needs every step of the way. We will definitely be back. We highly recommend taking the time to visit and have some great food.

SHALE MAGAZINE  MAY/JUNE 2021

Delivering insight into the development of the U.S. oil and natural gas industry and the businesses affected

SHALE SHALE SHALE SHALE SHALE SHALE MAGAZINE

NOVEMBER/DECEMBER 2020

THE ENERGY UNIVERSITY

CAMPAIGN POLITICS:

DUE TO COVID-19,

IN-PERSON SHOPPING WILL NEVER BE THE SAME

FOUR KEY IDEAS THAT WILL TRANSFORM RETIREMENT FOR EVERYONE

TEXAS TECH:

MAGAZINE

SEPTEMBER/OCTOBER 2020

HOW WILL RETIREMENT CHANGE NOW THAT WOMEN ARE TAKING CHARGE?

FEEDING THE CROCODILE, HOPING HE EATS YOU LAST

RENOWNED OIL PROFESSOR PROPOSES FRACKING ALTERNATIVE

WOMEN’S EDITION

U.S. SHALE’S AMAZING RESILIENCY

MYRTLE JONES

IER: 6 FOUNDATIONS FUNNELING BIG MONEY TO THE ANTI-FRACKING MOVEMENT

ACTIVITY RAMPS UP REGARDING REGULATION OF METHANE VENTING & FLARING

JASON MODGLIN

RAISE A GLASS TO TEXAS’ TOP WINE COUNTIES

JUMPING INTO LEADERSHIP AT THE TOUGHEST POSSIBLE TIME

A REMARKABLE WOMAN WITH A REMARKABLE STORY

TEXAS WOMEN FOR THE ARTS: PROMOTING HEALTH THROUGH ART DURING COVID-19

JULY/AUGUST 2020

MAGAZINE

COVID-19,

ENERGY AND THE ECONOMY

MIKE HOWARD

KNOWS HIS PRIORITIES AND LIVES THEM EVERY DAY

MAY/JUNE 2020

MAGAZINE

TEXAS RRC ESCHEWS STATEMANDATED PRODUCTION CUTS

THE BEGINNING OF THE END?

THE UNDELIVERED PROMISES OF CLIMATE ACTION PLANS BY U.S. CITIES BACK TO SCHOOL AFTER A PANDEMIC

MUCH IS AT STAKE IN THE UPCOMING NATIONAL ELECTIONS

MARCH/APRIL 2020

ANOTHER OIL BOOM REACHES A SUDDEN END

GLOBAL INVESTMENT SLOWDOWN SET TO HIKE OIL PRICES AND CAUSE UNDERSUPPLY OF 5 MILLION BPD IN 2025

NEPA REFORMS AND THEIR IMPACT ON SHALE

PUBLIC POLICIES WEIGHED AS INDUSTRY NAVIGATES UNCHARTED WATERS A STRONG EMPLOYER BRAND AND VALUES ALIGNMENT ARE KEY TO ATTRACTING MILLENNIALS

STAY HEALTHY, AMERICA!

TOM PYLE AND IER:

PUNCHING ABOVE THEIR WEIGHT FOR ENERGY

TRACEE BENTLEY

MAGAZINE

JANUARY/FEBRAURY 2020

BLOCKCHAIN IN ENERGY

BIG GREEN, INC.: THE HEINZ ENDOWMENTS ASSAULT ON SHALE PROSPERITY

LIFESTYLE: POWER IN MANUFACTURING THE ETHANOL INDUSTRY COULD NOT EXIST WITHOUT THE OIL INDUSTRY

PARTNERING IN THE PERMIAN

GLOBAL CHEMICAL SUPPLY, DEMAND THREATENED BY MIDDLE EAST ESCALATION

BRAD BARRON NuStar’s Future is Bright

MAGAZINE

STATE OF THE OIL & GAS INDUSTRY: WHERE ARE WE GOING INTO THE 2020S? LIFESTYLE: “FEEDING AMERICA”

AMERICA’S ENERGY REVOLUTION SUPPORTS AND STRENGTHENS OUR ACTIONS IN THE MIDDLE EAST

FOR ADVERTISING INFORMATION PLEASE CONTACT:

JOSIE CUELLAR / josie@shalemag.com www.shalemag.com @shalemag Shale Oil & Gas Business Magazine @shalemag

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 SHALEMAG.COM 75 and policy, and its content includes particular insight into the development of the Eagle Ford Shale and Permian Basin plays and the businesses affected.

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SHALE MAGAZINE  MAY/JUNE 2021

SHALE Magazine May/June 2021

Articles inside

Leveraging the Pilot Mindset

2021 Midstream Open

No Longer Business as Usual?

Avoiding Early Mistakes in Oil

Big Chills and Strong Wills

Can the Oil Industry Avoid Drilling Itself out of

New Administration Priorities

Key Considerations For Supporting Your

Vertical Rules in a Horizontal World

Blackouts Present Opportunities to Implement

Thermo) Plastic Fantastic

The Biden Administration’s Emerging