Smooth Move: Oklahoma Independent Petroleum Association

All,

If Berlin was a betting woman, she would venture to guess that an organization with the words "Independent Petroleum Association" in the title and that represents itself as the unified voice and advocacy group for the Oklahoma oil and natural gas industry might support an independent producer in court proceedings against a municipality. In most cases, the bet would pay out, but not when the Independent Petroleum Association in question is the Oklahoma Independent Petroleum Association (the "OIPA").

In a truly bizarre action, the OIPA, filed a motion with the Canadian County District Court to file brief of amicus curiae to oppose the actions of Citizen Energy II, LLC, a Tulsa based, independent oil and gas operator. There are various Latin terms contained in their motion, but the gist of their argument is that the municipality, Mustang, Oklahoma, was within their right to only conditionally approve the permit to drill. Not only is this weird because the OIPA is supposed to advocate for independent oil and gas producers, but it sponsored legislation to hamstring municipalities' restrictions on drilling operations in 2015 (52. §O.S. 137.1).

Were we supposed to hit send on this fancy letter to the judge?

In a quote from the OIPA's 2018 annual meeting invitation:

After years of oppressive regulation and months of low prices, we’re making the independent oil and natural gas industry great again. Come reflect on our success, plan for the future, expand your knowledge and take it easy at the legendary OIPA Annual Meeting.

Their words, not Berlin's. Who doesn't love greatness? Berlin would like to ask the OIPA how they define success (and legendary), but they would probably just say that it comes before work in the dictionary. Now, Berlin isn't arguing the validity of Mustang's case, she just finds it odd that the advocacy group is anti-advocating. Would it have been a better idea for the OIPA to keep its expensive opinions to itself? Its one thing to whisper to your attorney over a bloody at Cheever's and say "hey, why don't we hang Citizen out to dry?" It's quite another to be openly hostile and support Mustang.

The staff of the OIPA don't appear to be oil and gas folks, but their board appears to be comprised of industry professionals. Berlin is positive that one of the 80 board members own or are employed by companies who will attempt to drill a well inside a municipal boundary in the next year. Did they vote on this action? Weird.

The cat that came in from the cold and now must be nice to the other cats in the office.

It really isn't any surprise the OIPA fumbled this extremely easy to hold (easy_to_hold = nerf) football. Most Southern Oklahoma producers defected last year to form the Oklahoma Energy Producers Alliance after they were disgusted with the OIPA's policies towards extricating Oklahomans from the financial tar bit that is the State's budget. The larger independents left before that to lead the Oklahoma Oil and Gas Association. All groups advocate for crony capitalism and preferential treatment, but only the OIPA advocates for preferential treatment of groups that oppose the companies that compose its membership. 

As 1stSgt Benny once yelled at a young Corporal for agreeing with a Lieutenant, "whose side are ****ing you on" it might be time to ask the crew over at the OIPA the same question, but in an "inside cat" tone of voice.

More to follow,

Berlin

Canadian County, Oklahoma SITREP

Oklahoma Oil and Gas Mineral Owners,

Because of its premier position in the heart of the STACK, leasing and transaction activity has not slowed in Canadian County, Oklahoma in 2016 despite the lower oil prices. To date in 2016, there have been 1014 oil and gas leases filed of record in El Reno by numerous operators and brokers. Because bonuses have remained competitive, the most important question that you should ask before leasing is how likely the lessee is to drill your lease during the primary term. The path to generational wealth is not periodic lease bonus payments, but the passive cash flows generated by regular royalty checks. The lessee should be a stable company focused in Oklahoma and not a fly-by-night lease flipper.

That being said, there have been only 8 companies this year who have been granted Pooling Orders in Canadian County by the Oklahoma Corporation Commission. For this discussion, Pooling Orders will be our metric to measure presence and activity level in Canadian County. The Companies and the number of Pooling Orders issued are detailed on the chart below.

Company	Number of Pooling Orders
Chaparral Energy, LLC	2
Cimarex Energy Co.	5
Citizen Energy II, LLC	6
Devon Energy Production Company	3
Felix Energy, LLC	5
Newfield Exploration Mid-Continent, Inc.	14
Payrock Energy, LLC	14
SCOOP Energy Company, LLC	8

The chart deserves a bit more analysis. Chaparral Energy, LLC declared bankruptcy which we have previously written about. SCOOP Energy Company, LLC is affiliated with American Energy Partners. As it was announced here in the Wall Street Journal, that all non-spun off entities will shut down. As SCOOP Energy Company has not been spun off, it is expected to shut down this summer. As an Oklahoma Oil and Gas Mineral Owner, I would not expect Chaparral or SCOOP to drill any wells in the foreseeable future.

Felix Energy was purchased by Devon Energy so Felix can also be struck from the list. Some in the industry say that Devon got out a bit over their skis with the purchase price and it might affect their ability to fully develop the acreage. Cimarex, the plodding tortoise of the group, moves extremely slowly. Their insistence on risk mitigation severely limits the amounts of exploratory drilling they are willing to conduct. It was well detailed in the 2016 company guidance presentation that they will focus on in-fill drilling in their East Cana field.

Newfield Exploration announced that it is closing its Tulsa, Oklahoma office this summer. With its staff mired in the morass of the Houston metro-plex, the company will be less competitive in the Mid-Continent region and will continually find excuses in the future to commit capital to other projects.

With those dominoes down, it appears that Payrock Energy, LLC and Citizen Energy II, LLC will be the development leaders going forward in Canadian County in 2016. Both appear to be accelerating their drilling to take advantage of the publicly traded companies hesitation in committing drilling dollars and other finite resources to the development of Canadian County, Oklahoma.

It's worth it as an Oklahoma Oil and Gas Mineral Rights owner to consider your lessee's plans for development before executing your oil and gas lease.

More to follow,

Berlin