American Oil and Gas Reporter - July 2020 - 70

IssuesUpdate: Independent Petroleum Association of New Mexico

Producers React Quickly To Oil Market
ROSWELL, N.M.-The subject of oil
and natural gas commodity prices surfaces
fast when leaders of the Independent Petroleum Association of New Mexico
reflect on the state of the industry.
Chairman Kyle Armstrong, president
and chief executive officer of Armstrong
Energy Corporation in Roswell, notes
that West Texas Intermediate crude oil
prices have followed their hard dive with
a bounce. "Independents are pleasantly
surprised at the upward movement in
WTI, even if most of us remain cautious
as to whether the $35-plus benchmark
will last," he said in early June. "Regardless, it certainly is not at a point where
most operators can justify a lot of exploration and drilling. A lot of operators are
in wait-and-see mode."
IPANM Executive Director Jim Winchester says New Mexico companies have
shut in many producing oil wells as they
watch prices. "I am unsure of any magic
number that will convince most companies

to begin reopening those wells, and/or
how long oil prices must remain above
certain thresholds before there is enough
confidence to do so," he acknowledges.
"Like everyone else, we are watching
what is going on, but people seem optimistic that the worst is over."
Despite the many shut-down wells, activity remains unusually strong in the oilheavy Permian Basin, he adds. "Obviously,
rig counts are down significantly, but that
can change very quickly," Winchester considers. "Certainly, activity in the Permian
continues to be relatively high."
Speaking of relative assessments,
Winchester says optimism may be ticking
up in the gas-heavy San Juan Basin.
"There may be a reverse effect going on
right now with natural gas," he suggests.
"With associated gas coming off line
because of shut-ins in the Permian, there
seems to be hope that prices may soon
climb to a point where it will be more
sustainable and beneficial for operators

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70 THE AMERICAN OIL & GAS REPORTER

to consider drilling in the San Juan. The
gas market has been down for a decade,
but there is optimism."
Coming Back
With operations concentrated exclusively in the Permian, Armstrong Energy
reacted much like other oil-heavy New
Mexico independents when crude prices
collapsed in early March. According to
Armstrong, the company examined its
well costs in light of the market and
began to act accordingly.
"It is an investment decision based
on how much you want to produce at a
certain price," he describes. "We have
gone through multiple stages of evaluating our wells at certain price points
and discussing what should continue
producing and what needs to be shut in.
As a smaller independent, we were relatively well positioned to ride this out,
but it creates a lot of uncertainty and
angst. We have managed to avoid layoffs,

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American Oil and Gas Reporter - July 2020

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