American Oil and Gas Reporter - May 2017 - 83

ConventionSection: Oklahoma Independent Petroleum Association

Political, Economic Signals
Trend Up In Oklahoma
By Dan Holder
OKLAHOMA CITY-The overriding
mood for Oklahoma Independent Petroleum Association members attending the
2016 annual convention was uncertainty,
recalls Chairman Jeffrey McDougall, with
few reasons to think commodity prices
had hit bottom.
As the association readies for its 2017
event, to be held June 2-5 at the Four Seasons Resort in Las Colinas, Tx., McDougall
says he sees reasons for optimism.
"People are a little more convinced now
that we are on the upswing and the low is
behind us," says McDougall, president of
JMA Energy Company LLC in Oklahoma
City. "Even the service sector is in more of
a full-fledged recovery now. Last year at
this time, oil prices were in the mid-$40
range and had just come off a $26 low.
Prices now appear to be in a trading range
between $45 and $60 a barrel."
In addition to an upswing in financial
confidence, McDougall points to positive
news on the legislative and regulatory
fronts, with the Trump administration
upending eight years of uphill marches
against the Obama White House. Relationships on the state level also remain
positive, he adds.
"We don't know how this state legislative session will turn out," he allowed
in late April, "but in the last session, oil
and gas stepped up and did its part to
ease the (financial) burden Oklahoma
had in the form of stripper well relief,
where the industry basically gave back
$120 million of tax provisions in place
for stripper wells."
One of the major challenges in the
2016 session was getting changes to state
restrictions on long laterals, McDougall
points out. According to Oklahoma law,
operators may drill multiunit or long
lateral wells only in shale reservoirs, limiting western Oklahoma to vertical wells.
"We are working hard on that this
session," he said in April, predicting ultimate resolution. "If we get this through,
it would be a big incentive to grow production, increase activity and spread the
wealth across more of the state."

Lateral Wells
OIPA has been working to revise state
regulations restricting long-lateral wells
to shale formations for years, and is
closer to success than it ever has been,
OIPA President Mike Terry applauds.
"There are some groups, even within
the industry, that do not believe it is
good policy to drill long laterals in nonshale formations, believing that it is
tough for those who drill or produce
only vertical wells," he says of regulations
that have been in place since 2011. "Anything that is new or different from what
the industry has been used to for years
will require time to resolve, and this certainly has been an issue that has taken
time to figure out."
Terry adds that with more than 95
percent of new wells having horizontal
components, Oklahoma must learn how
to accept this new technology. He says
legislators are considering two bills affecting lateral regulation in the 2017 session: SB 669, sponsored by Senator
Bryce Marlatt, R-Woodward, and SB
284, introduced by Senator Mike Shulz,
R-Altus.
OIPA supports the first bill, which
would authorize the Oklahoma Corporation Commission to approve well spacing units of 1,280 acres. State law now
limits units to as much as 640 acres, the
Oklahoma Legislature website states.
The bill also provides that working interest
owners in nonhorizontal spacing units
who elect to not develop an overlying
horizontal spacing unit relinquish all
nonparticipating working interests in the
horizontal spacing unit.
SB 284, which has the support of the
Oklahoma Oil & Gas Association, expands the cap on drilling unit size to
1,280 acres, and also requires a vertical
well operator to notify a horizontal well
operator if he is affected by the horizontal
well's production. The operators have
30 days to settle any damages; if no settlement is reached, the vertical well operator may turn to the court system to
determine damages sustained, the legislative website says.
"The OIPA Board of Directors voted

to work with other groups within the industry, as well as with legislators, to
finally get something passed," Terry reports. "The SCOOP and STACK are great
plays, and are experiencing a lot of
drilling, but other parts of the state are
not seeing that activity because it is not
economical to drill wells. When you
extend that opportunity to drill two miles,
suddenly you can start thinking about
drilling those wells."
Budget Concerns
Oklahoma faces a deficit of $860 million in a state budget of nearly $7 billion,
says Terry. "The state depends on a
healthy oil and gas industry to come out
of this hole," he offers. "The industry
pays 25 percent of the taxes in this state.
Because of the budget hole, there are
those in Oklahoma who are saying the
industry does not pay enough."
This session saw the largest group of
freshmen legislators enter the Oklahoma
Capitol, he points out, adding it is OIPA's
job to educate that rookie class about the
importance of the oil and gas industry to
the state's budget. With the state's term
limits for legislators, Terry notes education
is an ongoing association issue.
"Those new legislators are willing to
listen," Terry says. "When you don't
have relationships because legislators are
new, you first have to establish that relationship. OIPA is trying to develop those
relationships and make sure legislators
understand that you don't want to kill
Oklahoma's golden goose. The leadership
is not interested in raising taxes on the
industry, but OIPA is not taking anything
for granted, and is working very hard on
that issue."
Another encouraging sign from the
statehouse is that legislators and the governor are seriously considering imposing
taxes on wind generation facilities, Terry
says. Those tentative steps include Governor Mary Fallin signing HB 2298,
which requires wind farms to be operating
by July in order to qualify for the state's
Zero Emissions Tax Credit-three years
before the tax break of $0.005 per kilowatt
hour is to expire, media reports detail.
MAY 2017 83



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