American Oil and Gas Reporter - October 2019 - 98

ConventionSection: Permian Basin Petroleum Association

More Midstream Capacity
Encourages PBPA
By Danny Boyd
Special Correspondent
MIDLAND-In mid-September, members of the Permian Basin Petroleum Association began seeing an immediate benefit from additional natural gas take-away
capacity: the erasure of negative prices.
In September, operations were ramping
up on the new Kinder Morgan Gulf Coast
Express pipeline to Corpus Christi, Tx.,
reports PBPA Chairman Kyle McGraw,
improving Permian Basin prices at the
Waha Hub in West Texas by almost $1
and shrinking the price discount compared
with Henry Hub.
A slumping commodities market and
capacity constraints combined to push
prices into negative territory for some
companies though much of the spring
and summer, says McGraw, president
and cofounder, with his sons, of Midland-based Trinidad Energy LLC, which
conducts saltwater disposal operations.
"Seeing forecasted take-away improvements come to pass for natural gas is encouraging," he affirms. "Now, instead of

having to pay someone to take gas,
pipelines are paying. Prices are still not
great, but it's a good swing. We will soon
have more take-away for crude oil that
will improve our differentials even more."
PBPA members will hear the latest on
take-away capacity expansions and other
issues at the association's annual meeting,
scheduled for Oct. 23-24. The meeting
gets under way with an evening reception
at the Permian Basin Petroleum Museum
in Midland. On Oct. 24, members gather
from 7:30 a.m. to 4 p.m. at the newly
opened Barbara and George H.W. Bush
Convention Center in Midland.
"This brand-new facility offers more
room than the Petroleum Club," describes
PBPA President Ben Shepperd. "The Petroleum Club has been a fantastic venue
and we will continue to have events there,
but we are excited to be holding the
annual meeting this year in the new Bush
Convention Center."
Cash Flow Constraint
As the long-term midstream outlook
brightens for Permian Basin producers,

other trends include insistence from Wall
Street analysts that public companies limit
spending within their cash flows, McGraw
observes, instead of focusing on adding
production as the chief avenue to growth.
The upshot is budget cuts by publicly
traded oil and gas production companies,
which trickles down throughout the wider
industry and translates to fewer drilling
rigs and fracturing crews and less demand
for disposal and other services, he says.
"Our company tries to look at the
forecast for drilling and completions
and where operators are going to take
their saltwater," McGraw relates. "Suddenly you realize they may not drill as
fast as we initially thought. There is
concern on the service side that there
will be less drilling in 2020 than we
have been anticipating, and we had better
adjust accordingly.
"During the fourth quarter, budgets
usually are extended and activity slows,
but the overarching requirement for companies to stay within capital budgets and
current cash flow will be huge," he continues. "People will be so concerned
about overspending that they may underspend and err on the side of being conservative, which is going to mean less
drilling and less activity in the Permian,
even though we are the lowest cost, hottest
basin. We are going to have to batten
down the hatches and see what 2020
looks like."
Election Outlook
With the 2020 election season already
under way, McGraw says the basin's producers will keep a close eye on national
and state races.
The transition from the Obama administration's regulatory environment to
the Trump administration's deregulation
efforts has been a major plus for the industry and the country, he considers, but
election year shifts can change that.
"We have experienced more encouragement from the current administration
to develop and explore and improve
technologies," McGraw says. "At stake
in the election is whether we will go
back to the former way of doing things,

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