American Oil and Gas Reporter - August 2020 - 77

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IssuesUpdate: Petroleum Association of Wyoming

Restarting Rigs Essential
To Wyoming's Future
By Del Torkelson

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PINEDALE, WY.-Ask Paul Ulrich
about reasons for hope regarding his
state's oil and gas industry, and he does
not hesitate. Ulrich, who serves as vice
president of government and regulatory
affairs out of Jonah Energy LLC's Pinedale
office, has gained some perspective about
the state and its top industry while spending the past three years as chairman of
the Petroleum Association of Wyoming.
"We have a lot of smart and dedicated
people in our industry along with outstanding leadership in the governor's
office and legislature," he emphasizes.
"Everyone understands our industry's importance and is working toward-and in
some cases has installed-measures of
relief as we claw our way out of this situation. The industry and state are concentrating on the need to get rigs standing
and production flowing. We think we
have the tools to do it. We certainly have
the will and focus."
Besides, suggests PAW President Pete
Obermueller, oil and gas industry veterans
tend to earn a stoic bent after enduring a
few cycles. "Although this is more than a
normal bust, our people still possess a
certain amount of resilience," he reflects.
"For instance, when crude oil prices fell
this spring, I expected producers to shut in
upwards of 50% of the state's wells, but it
was nowhere near that. That indicated to
me people believed they could carry on."
Moreover, Obermueller points out,
Wyoming's output enjoys some inherent
advantages. "The Powder River Basin
produces a very desirable, sweet crude,
and that quality is not going anywhere,"
he details. "It is there, waiting for us to
get back to work. Companies will want
to access it because people need it."
State Specifics
Nevertheless, Obermueller and Ulrich
acknowledge, Wyoming's industry must
squeeze every drop of benefit possible
from those advantages, considering its
particular challenges. Even as the industry
across the entire country navigates a particularly steep and winding road, they

note, some characteristics particular to
Wyoming make it particularly tricky.
"Wyoming is seeing virtually no development," Ulrich reports. "As of midJuly, we are sitting at one rig, compared
with more than 30 this time last year."
Moreover, Obermueller observes, that
single rig is drilling for gas, which carries
historic implications. "It means no rigs
are drilling for oil in Wyoming for the
first time since 1884. From top to bottom,
our members are pulling in and retrenching
as much as possible to survive until prices
come back."
Ulrich mentions numerous factors
that stack the deck against Wyoming's
industry:
· The state is a net energy exporter,
and those exports must cover vast distances
to reach their markets, shrinking producers'
bottom lines. "Whether it is oil or gas
transported by pipeline or truck,
Wyoming's production struggles with a
price differential," he says.
· That same relative isolation adds
to service and supply costs. "Distance is
a factor when it comes to sourcing materials that are critical for us to drill,
complete and produce wells," he observes.
"Our pipe, sand, chemicals and more
have an added cost."
· Almost half of Wyoming's surface
is federal land, and about two thirds of
its minerals also belong to the federal
government, which encumbers many projects with extra obligations. "With federal
mineral royalties factored in, our effective
tax rate is very high, and complying with
the myriad federal regulations and stipulations also adds cost to any oil and gas
development in this state," he notes.
Speaking in mid-July, Obermueller
observed that crude oil futures prices had
been hovering around $40 a barrel. Even
if that price stays, he predicts it is too
low to stir activity in Wyoming. "We
probably need $45-$50 before people
start bringing rigs back," he suggests.
"We may not see any appreciable drilling
programs until next summer."
Of course, that assumes most Wyoming
producers' other cost variables remain
more or less constant, which Ulrich cau-

tions may not happen. "A significant shift
in federal policy could pose further challenges to our ability to operate on federal
lands," he warns. "Whether we are talking
about additional requirements for leasing
and development, or Endangered Species
Act issues relating to sage grouse, we
are, in large part, at the mercy of federal
public land policy."
Well-Timed
PAW notched a victory when the 2020
Wyoming Legislature passed, and Governor
Mark Gordon signed, HB 243, which cuts
the severance tax rate for newly drilled
wells from 6% to 4% for their first six
months on production. That rate falls to
3% for six months once prices fall below
certain levels. The strike prices are based
on 12-month rolling averages for the
Henry Hub natural gas price and the West
Texas Intermediate spot price, and are
$2.95 an Mcf for natural gas and $50.00
a barrel for crude oil.
When HB 243 passed before the session's March 11 adjournment, Obermueller
notes, the oil price trigger seemed irrelevant
for the foreseeable future. "Well," he
muses, "it kicked in after four months."
And now some lawmakers with an
eye toward improving Wyoming's competitiveness among producing provinces
are considering adding triggers on the
positive side of the price curve to encourage activity. "The intention is for it
to kick in when prices reach a level at
which companies begin to consider drilling
again," Obermueller details. "Once oil
prices hit $45, it would drop our severance
tax from 6% to 3%."
If the governor calls another special
session, Obermueller adds, such legislation
could come up before year's end. "A special session seems unlikely before the
Aug. 18 primary, but its likelihood seems
to change by the hour," he assesses.
Meanwhile, the fact Wyoming's state
government derives such a large proportion
of its revenue from taxes and fees associated with fossil fuel extraction means
Cowboy State coffers are light. According
to Ulrich, the state estimates its income
will fall by $1.5 billion during the next
AUGUST 2020 77

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