American Oil and Gas Reporter - July 2018 - 110

ConventionSection: Texas Independent Producers & Royalty Owners
Enterprises Ltd. "It doesn't affect all members' cost structures the same. Stabilization
from a cost-structure perspective and from
a pricing outlook will help."
Even so, tariffs are almost certain to
add significant costs for members who
source tubulars, line pipe and other material
from Canada, Mexico and elsewhere, predicts TIPRO President Ed Longanecker.
"Last year, the U.S. oil and gas industry
spent $9 billion on pipes, and if you
factor in a cost increase of 25 percent for
that material-if all of it was sourced
outside the United States-you are adding
more than $2 billion in new costs," he
calculates. "Even though market conditions
have improved, member companies cannot
absorb that. It is significant enough that
we have been trying to persuade the administration to exempt certain countries
and extend an exemption for others that
President Trump provided previously.
Unfortunately, that did not occur. We are
continuing the pressure and hope this is
short-lived and merely a negotiating tactic
that will achieve the president's objectives
before there is a substantial impact on
our industry, which in many ways still is
struggling through the recovery phase."
Problematic Protectionism
While praising the benefits TIPRO
members are likely to accrue from President Trump's American energy dominance
agenda, significant material cost increases
threaten to slow the industry's recovery
and prompt layoffs, Longanecker indicated
in comments submitted in May to the
U.S. Commerce Department's Bureau of
Industry and Security.
A quota basis involving tubulars under
the South Korean bilateral agreement
relies on data from 2015 to 2017, when
industry activity was down and job losses
were acute, he points out, noting that the
limits on South Korean tubulars are a
steep drop from 2014 U.S. imports.
On May 31, the Trump Administration
further complicated the picture and announced plans to end tariff exemptions
for steel and aluminum imports from
Canada, Mexico and the European Union,
Longanecker recounts.
"Some large operators are doing well
and increasing exploration and production
activity, but the industry-Texas in particular-still has thousands of companies
struggling from years of depressed commodity prices. They still are recovering
and trying to move their operations in
the right direction," he says.
Moreover, Garcia reflects, history

shows that protectionism does not work
as advertised, but the pain for many steel
consumers will be very real. "Our members are going to see step-level increases
in cost structure that will affect their
ability to operate as efficiently as they
need to," he forecasts. "There are issues
with take-away capacity in the Permian.
If our midstream partners cannot secure
materials at the right price to add capacity
in a timely manner, then everything gets
locked up. I hope it gets resolved."
Better Days
Garcia expresses confidence that the
Trump administration ultimately will do
the right thing to avoid hurting an industry
that added 30,000 jobs in Texas in 2017.
Citing the "State of Energy Report"
TIPRO released on April 30, Longanecker
says adding 30,000 jobs does not make
up for steep Lone Star State losses from
peak employment in 2014, but it does
demonstrate positive momentum. Protectionist moves and additional uncertainties
such as negative fallout from looming
changes to the North American Free
Trade Agreement, threaten to steal that
momentum. Mexico purchases 60 percent
of its natural gas from the United States,
he notes, which reinforces the need for a
strong relationship.
According to TIPRO's analysis, which
incorporates nine specific industry classification codes to define the oil and gas
industry, Texas accounts for 39 percent of

all U.S. oil and gas jobs, with industry employment making up 3.2 percent of all jobs
in the state. In Texas, oil and gas account
for 7.5 percent of payroll, and the oil and
gas industry offers 132 percent more in average annual wages compared with the
state's average private sector wages.
"We officially turned the corner in
2017," Longanecker reports. "By no
means are jobs reaching 2014 levels, but
positive momentum is building. Last year
was officially the first year that showed a
net positive, year-by-year employment
increase since 2014. The Texas industry
has seen 17 consecutive months of supply
growth and six consecutive months of
growth in oil and gas extraction. Certain
areas of the state are recovering faster
than others. The Permian Basin has been
driving a lot of that production and employment growth."
The Midland-Odessa area showed significant first quarter job growth, and
added 1,800 upstream jobs in 2017 for a
total of 31,620 jobs, Longanecker says.
Although Houston's numbers slipped,
Dallas-Fort Worth and San Antonio also
trended up.
Lessons Learned
Hurd Enterprises participates in conventional oil and gas exploration and
production on shore along the Texas Gulf
Coast and assumes nonoperating working
interest positions in the Eagle Ford and
Fayetteville shales, Garcia notes. He also

COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . .
FROM PAGE 28
federal and nonfederal minerals from offlease, nonfederal surface locations (See
related story, page 126).
* Rewrite Onshore Orders 43 CRF
3173, 3174 and 3175 by adopting American Petroleum Institute and Gas Processor
Association standards in their entirety.
Following an earlier recommendation
that the government simplify the process
for granting varying royalty rates for declining or particularly costly offshore oil
fields, the Royalty Policy Committee says
its offshore working group suggests DOI
add specificity to the earlier suggestion.
The group says in reviewing potential avenues for statutory royalty relief, the government should consider factors such as
enhanced oil recovery, high pressure/high
temperature wells, and reservoir depths.
"Where there are risks that certain
projects either would not materialize,

110 THE AMERICAN OIL & GAS REPORTER

would materialize sub-optimally (i.e.,
likely to produce substantially lower estimated ultimate recoveries), or would
face earlier than optimal end of asset
life/abandonment but for certain royalty
relief, there is a public interest in seeking
the 'win/win' wherein greater production
volumes, and associated revenues and
associated benefits, continue to flow to
the taxpayer, government, and employment
markets," the subgroup writes.
The policy committee says its nonfossil-fuel working group recommends OCSLA be expanded to U.S. territories and
possessions: Guam, American Samoa, the
U.S. Virgin Islands, the Northern Marianas
and Puerto Rico. It says including those
territories and possessions under the act's
leasing authority would increase economic
activity, revenues and scientific research,
and improve technology.
r

American Oil and Gas Reporter - July 2018

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