American Oil and Gas Reporter - July 2020 - 71

but a lot depends on how long prices
stay down."
And although prices in the mid-$30s
fall well short of where they began the
year, Armstrong Energy seems to stand
as a prime example of the United States'
exceptionally nimble independents, who,
production figures show, shut in great
volumes of production in a relative eyeblink when prices cratered, and then
were able to cut on a dime and bring
some of those wells back when the
balance sheet warranted.
"Not wanting to give away reserves,
we shut in quite a bit of production," he
recounts. "We are a conventional operator, so our shut-in process has not been
terribly difficult. Sometimes, you look
at what sort of equipment is down hole.
If you have a submersible pump, you
may have to pickle it or pull it completely, but our type of production has
been relatively easy to curtail. As prices
have recovered, it also has been fairly
easy to bring things back on line. Being
a low-cost operator, a lot of our wells
still have decent margins at $35 a barrel.
Horizontal production obviously faces
a very different challenge in this price
point. Those companies need significantly higher prices in order to achieve
a return on investment while still replacing reserves."
Even so, he acknowledges, balance
sheets still require plenty of wells to
remain idle. "I anticipate stripper production will be uneconomic for some
time," he predicts. "We also are being hit
with a pretty broad spread in terms of
WTI and our deductions. Natural gas
prices have been an issue in the Permian
to the point where it essentially has
become a waste byproduct that drains
revenue to get it taken away."
Nevertheless, he emphasizes, although
the Permian's previous decade was impressive, that rebirth followed a long history that included alternating periods of
thriving and surviving. "Having been
through so many downturns, people in
the Permian have learned to be resilient
and innovative," he considers. "Companies
that already have been through downturns
know how to manage them, but there is a
lot of hardship that workers are facing
while companies try to maintain positive
balance sheets."
Many New Mexico independents have
been able to keep their payrolls intact
by utilizing federal programs such as
the Paycheck Protection Plan, for which
Congress allocated significant funding
this spring, Armstrong reports. "Certainly,
we hope that has had a positive impact
on employee retention by helping highly
leveraged companies maintain their pay-

rolls," he says. "That has been a good
program for companies that have seen
their revenue slashed 50%-90%. We
hope it has allowed them to maintain
operations when they otherwise could
not."
Prolonged Presidency
According to Winchester, IPANM is
listening carefully to its members' input
about the best way to proceed with association events in the pandemic period.
Although IPANM decided in April to
postpone the annual meeting it had planned
to hold July 22-24 in Albuquerque, it remains conscious of the benefit members
derive from gathering.
"Member surveys show how important
it is for them to network, have conversations about what is going on, and
share information and ideas," he describes. "That means we are going to go
forward with some sort of day conference-probably in late August or early
September-that will be part board meeting, part general meeting session, and
then a golf outing and networking opportunity. Later, we also are looking at
other basin-specific activities."
Armstrong acknowledges that the
convention's postponement has prolonged
his presidency, but he is scheduled to
pass the gavel to IPANM Northwest
Vice President Ryan Davis with Marion
Oil & Gas in Farmington, N.M., whenever
the Board of Directors next meets. "Ryan
has been a tremendous leader and voice
for IPANM and the industry," Armstrong
praises. "He has led IPANM's efforts
on the state's Methane Advisory Panel
and has been tireless in advocating for
the industry."
"I am looking forward to Ryan's presidency," Winchester affirms. "He has a
very strong technical aptitude and has
been highly involved in a lot of the stakeholder process groups during the last few
years. He definitely will bring that expertise to the presidency."
As for Armstrong's term in office,
Winchester points out that no IPANM
president ever has had a tenure quite
like it. "What a roller coaster of a year
to be president, and what a whirlwind of
differences from the first part of his term
until now," Winchester marvels. "Kyle
has been an amazing industry advocate.
He has incredible networking skills and
contacts within state government that
have benefitted us so much in this environment. I greatly appreciate what he
has done and the leadership he has shown.
He certainly has demonstrated his commitment to independent producers, and
I have nothing but profound gratitude
for his efforts."
r

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JULY 2020 71

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American Oil and Gas Reporter - July 2020

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