American Oil and Gas Reporter - January 2019 - 117

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after two failed attempts in the sessions
immediately preceding.
"Every state agency must undergo a
review process by the Sunset Advisory
Commission on a recurring basis, and
this inward-looking audit scrutinizes the
stewardship of taxpayer dollars and the
agencies' performance," says Smith.
"While most agencies only incur one
sunset review every decade or so, the
RRC endured three reviews in back-toback-to-back legislative sessions.
"Ensuring that a state agency is operating
efficiently and not mismanaging taxpayer
funds is an exercise in good government,
and these reviews are extremely thorough-
and therefore time-consuming-for all involved," he continues. "With the support
last session of TIPRO and numerous other
engaged stakeholders, the RRC was approved as a state agency for another 12
years, and many recommended changes
to the internal functions of the agency
were approved through the process."
Industry Issues
The Texas Legislature kicked off its
140-day regular session on Jan. 8, and
TIPRO comes at the session with several
priorities. According to Longanecker,
those priorities include transportation, inactive well legislation, critical infrastructure
development, workforce development,
water policy and ad valorem taxation.
On the matter of transportation, he
says several bills will seek to address
road repair and maintenance, including
legislation that has already been filed to

use a percentage of production taxes to
create a tax trust fund for energy country
infrastructure. With regard to transporting
hydrocarbons, Longanecker indicates
TIPRO will continue to advocate for a
balanced approach to critical infrastructure
needs that recognizes the dominance of
the mineral estate, existing laws and regulations, and private property rights.
As for production, he notes, the industry
slump forced many operators to shut in
some wells. "The RRC has reported an
annual average of more 100,000 inactive
wells for the past few decades, many of
which are still economically viable," Longanecker relates. "Texans know that every
barrel counts, so TIPRO will continue to
work with policymakers to find common-sense solutions to bringing inactive
and orphaned wells back into production,
and to providing the tools necessary to
sustain that production regardless of the
economic and regulatory climate."
TIPRO also will be keeping tabs on
any legislation impacting water use, specifically as it relates to brackish groundwater
development or groundwater exports, says
Longanecker. "The past few sessions have
seen bills that seek to change the way
brackish groundwater is regulated as well
as how groundwater exports, or movement
of water across groundwater conservation
district boundaries, are treated," he describes.
"Brackish groundwater, and water in general,
is a vital resource to our industry. Any legislative or regulatory proposals that could
alter an operator's access to water will be
highly scrutinized by the association." r

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Permian Producers Hedge Bets
Against Pipeline Building Delays
HOUSTON-Permian Basin producers
increased their 2020 oil-basis hedge positions by 431 percent in the second
quarter of 2018, Wood Mackenzie reports
in its analysis of oil and natural gas
hedging activity. It adds this surge in oilbasis hedges signals producers' misgiving
that key pipeline projects may fail to
start by their 2019 target dates.
"It was an anomalously high trading
volume for this particular hedging derivative (2020 Mid-Cushing basis-swaps).
The only reasonable conclusion one can
draw from this surge is that Permian producers are concerned that key pipeline
projects won't be completed on schedule,"
assesses Andrew McConn, corporate research analyst at Wood Mackenzie.
The Permian oil production forecast of
increasing more than 400,000 barrels a
day year-over-year on average through

2020 is overwhelming the basin's takeaway capacity, Wood Mackenzie says,
causing oil and gas to sell within the basin
at steep discounts to national indexes.
According to the analysis, as recently
as 2015 significant pipeline constraints
caused the Midland to Cushing West
Texas Intermediate discount to widen to
as much as $20 a barrel. This prompted
many Permian operators to use derivatives
to hedge against the risk of still wider
price differentials, Wood Mackenzie says.
While midstream operators are racing
to complete pipeline projects and expansion to help ease congestion, Wood
Mackenzie points out it may take more
than a year before West Texas producers
see sustained relief. The analysis warns
current underconstruction of final investment decision projects will not provide
sufficient capacity until late in 2019.

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JANUARY 2019 117

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American Oil and Gas Reporter - January 2019

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