American Oil and Gas Reporter - July 2016 - 98

ConventionCoverage: Oklahoma Independent Petroleum Association
ficulties, it is a good idea to examine all
pertinent contracts. "If you have done an
acquisition, you need to make sure you
have the assignments in hand and that
they have been executed," she encouraged.
"You should get the assignments recorded
as soon as possible. If you are entitled to
a lien, you should file it to preserve your
lien rights. Reviewing your contracts will
help you understand your legal position.
Other things will better your position,
such as getting documents signed and
recorded."
Moreover, she continued, providing
products or services to a company with
financial problems may call for precautions

such as requiring deposits or prepayments.
"You may want personal guarantees from
the owner," Brown suggested. "It is a
good idea to evaluate where you are and
make sure you dot your i's and cross
your t's so that you are in a much better
position to be paid if the company ends
in bankruptcy."
Elliott's remarks included a consideration of why companies that headquartered
and did most of their business in Oklahoma
might opt to file bankruptcy in Houston,
Delaware or New York. "One of the primary reasons is because major cases tend
to hire national counsel, and (counsel)
want to practice in courts in which they

practice frequently," he related.
He also cited a pair of reasons he described as cynical, one of which was that
law firms preferred to file cases in cities
where their higher rates were more likely
to be awarded by the courts. "The attorney
rates in New York and Houston are radically different than Tulsa," Elliott observed.
"Another cynical reason could be to inconvenience everybody. Filing in Houston
or Delaware drives up the cost to play in
those cases for Oklahomans and thus
tends to drive down participation. There
is less creditor participation because
people are not participating in the case
the way they might be if it is local." ❒

World Supply Rebalancing A Bit Early
LAS COLINAS, TX.-The world's oil
glut is easing and the market is returning
to balance a quarter earlier than many
analysts anticipated, indicated Stephen
Trammel, IHS director of North America
well and production content, at the Oklahoma Independent Petroleum Association's
2016 annual meeting, held June 10-13 in
Las Colinas.
"We have supply disruptions from the
Canadian wildfires, disruptions from Nigeria, and Iranian production is coming on
slowly," he observed. "We did not think
the oil price would get to $50 a barrel
until probably the end of 2016 but we
have been flirting with $50 for some time."
Trammel told OIPA that IHS suspected
Brent and West Texas Intermediate prices
probably would average $50 in 2016,
slightly above that level in 2017, and then
break into the $60s in 2018. But even
with that long view, he likened the more
proximate experience to a roller coaster.
"I don't want to focus on boom to bust,"
he considered. "Roller coasters are better,
because they offer thrills and chills. Remember, the paper market for trading
crude oil is 15 times larger than the actual
market of buying and selling physical
barrels. Any little hitch in the get along
causes this roller-coaster effect in prices.
We are going to ride that roller coaster
probably for the rest of our careers."
Manhattan Institute Senior Fellow Mark
P. Mills looked at market considerations,
especially within a broader economic context. Addressing the OIPA convention, he
made the case that oil and gas demand almost certainly would continue to increase
for the foreseeable future.
98 THE AMERICAN OIL & GAS REPORTER

Even assuming a 10 percent proﬁt, 64
percent of new U.S. onshore oil production breaks even at a West Texas Intermediate price equal to or less than $50,
relates IHS director of North America
well and production content Stephen
Trammel. Trammel spoke on the third
day of OIPA's 2016 annual meeting, held
June 10-13 in Las Colinas, Tx.

Bright Spots
Capital efficiency gains have reset the
U.S. onshore oil and gas industry, Trammel
indicated. He noted that an industrywide
65 percent improvement on price inputs
meant $1.00 worth of investment in 2016
could achieve what would have cost $1.65
in 2013.
Later, he pointed to an analysis that
showed 64 percent of new U.S. onshore
oil production broke even at a price equal
to or less than $50 WTI. "That includes a
10 percent profit," Trammel related. "That
is a real bright spot."

Moreover, he continued, 46 percent
break even if prices are below or at $40 a
barrel, giving operators the ability to still
make money in tough times.
As for the natural gas outlook, Trammel
attributed excess gas supplies largely to
robust production and mild temperatures.
"Gas storage levels are as high as ever,"
he pointed out. "We actually started reinjecting gas on March 11, which was a
record."
He noted gas prices improved from
$1.50 early in the year to above $2.00 at
the time of OIPA's convention, but warned
the gains could evaporate if a mild summer
followed the mild winter. "Gas in storage
already is 720 billion cubic feet higher
than the five-year average," Trammel noted. "We expect the year-end inventory
when heating season starts to be almost
4.100 trillion cubic feet, and 4.115 Tcf is
the maximum storage we can even have."
One counterintuitive trend he highlighted dealt with a decline in fuel switching from coal to gas for electric power
generation. "All the easy ones have
switched," Trammel assessed. "With really
low gas prices, there is not enough capital
to justify changing some of the more difficult coal plants to gas, so there is a lull
in that. We need gas prices to improve to
see any more of that switching."
However, he said, slumping prices finally were starting to cut into the country's
output, and were setting the stage for
what was likely to be a very gradual recovery. "Natural gas prices are going to
be at an 18-year low in 2016, an average
of about $2.10 an MMBtu," Trammel
predicted. "We will be trying to climb to

American Oil and Gas Reporter - July 2016

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