FEBRUARY 2020

CHAIRMAN’S LETTER 3

GOVERNMENTAL AFFAIRSREPORT 4

USMCA AGREEMENT 5

UNLOCKING MORE OIL & GAS 6

GROWTH OF CRUDEPRODUCTIONI THROUGH 2021 7

DRILLING PERMITS 8DRILLING LOCATIONS 8MARKET GRAPHS 8

LIVING LEGEND BANQUETREMINDER 9 CASENOTE 10

WHAT IF HYDRAULIC FRACTURING WAS BANNED? 11

SUCCESS BRINGSA NEW SET OF ISSUES 13

WHY A BAN ON FRACKINGWILL NEVER HAPPEN 14-15

ENDANGEREDSPECIES WATCH 17

DRILL BITS 19

RRC 10 DATA 20

ThE NEWSlETTER oF

PPROA Pipeline February 2020PPROA Pipeline February 2020

OUR BUSINESSIS BUILT ONTHE EARTH’SGREATEST UNTAPPEDRESOURCE:OPPORTUNITIES.

Join our team at FourPointEnergy.com

100 St. Paul Street, Ste. 400Denver, CO 80206

Join our team at FourPointEnergy.com

100 St. Paul Street, Ste. 400Denver, CO 80206

PPROA Board Chairman

- 2 - - 3 -

FROM THE WELLHEAD

If you have questions, comments or suggestions – please email me at dana@valpointoperating.com!!!

Dana Newsome

PPROAPercentage Depletion is a big buzz term in the TX Panhandle but what does it mean? The National Stripper Well Association (NSWA) has conducted and is continuing to do extensive research on what this particular allowance means to independent producers. Some of the highlights are below.

Percentage depletion is a tax provision that allows oil and natural gas producers to recoup some of the costs in exploring for and producing oil and natural gas. This allowance was first established in 1926. The President’s 2015 budget proposal, and several comprehensive tax reform drafts from leaders in the House of Representatives, have called for the elimination of the percentage depletion allowance for oil and natural gas producers.

How exactly does percentage depletion help stripper well producers? The tax reduction is calculated by applying a 15% reduction to the taxable gross income of a productive well’s property. The reduction is determined on individual property and is limited to the taxpayer’s first 1,000 barrels of oil or 6,000 mcf of natural gas production per day. There is cap at the net income of a well and is limited to 65% of the taxpayer’s net income. More information is available at nswa.us, along with a percentage depletion calculator.

The National Stripper Well Association defines a stripper well as any oil or natural gas well property whose maximum daily average oil production does not exceed 15 bbls of oil, or any natural gas well whose maximum daily average gas production does not exceed 90 mcf, per day, during any 12-month consecutive time period.

The elimination of this allowance changes economic profitability for independent producers. According to the October 2014 NSWA study, if percentage depletion were eliminated, by the end of 2025 we would see:

• Provide a full-time governmental affairs representative• Producing wells decrease by 4.2%• Daily oil production decrease by 3.9%• Daily gas production decrease by 2%• New wells drilled decline by 23.5%

According to the data over the decade (2015-2025), there are an average of 178,206 jobs lost each year, and by 2025, labor income will be $20.8 billion less without the percentage depletion allowance than it would be with the tax deduction. The extraordinary dollar amounts grow quickly when independent producers who typically invest a large portion of their revenue into new exploration and production no longer have that money to reinvest.

The change in incentives by the elimination of percentage depletion has huge consequences on many small independent businessmen and women who own stripper well properties, and PPROA’s stance is to be an advocate in protecting those rights.

The following is a list of meetings/events that PPROA has and will be represented. A report will be provided each month for the Board and membership to review.

Jan 15 Texas Groundwater Protection Committee, TCEQ, Austin

Jan 22 Jt Interim Hearing of Senate Water Com and Senate Natural Resources

Jan 23 RRC Open Conference

Jan 23 Mtg on Emissions in Permian Basin with TCEQ Com Lindle

Jan 27 Alliance Corporate Issues Group Mtg

Jan 28 Presentation to Media of Texas PetroIndex, Houston

Jan 28 Special Election Voting House Districts 28, 100, 148

Jan 29 Alliance Environmental Energy Round Table, Austin

Jan 30 TxOGA Methane/Flaring Workshop, Austin

Jan 31 World Oil Forecast Breakfast, Houston

Feb 3 Eagleford Seismicity Working Group, Houston

Feb 4-7 NAPE, Houston

Feb 5 RRC Open Conference (Weds)

Feb 6 Industry mtg at TxOGA re: Inaccurate Info (Judy to attend)

Feb 10 Alliance Corporate issues Group Mtg, Austin

Feb 17-18 Groundwater Protection Council UIC mtg, San Antonio

Feb 18-21 Permian Basin Water in Energy Conference, Midland

Feb 20 PPROA Legends Gala, Amarillo

Feb 24 Alliance Corporate Issues Group Mtg, Austin

Feb 26 RRC Open Conference

Feb 26 Interim Hearing of Senate Transportation Committee

Mar 1-3 IPAA Policy Forum, Washington, D.C.

Mar 2 Texas Independence Day

In addition, there are multiple political receptions and fundraisers which I also attend. I list PPROA as client when it is appropriate.

Please let me know if you have other meetings/events which you would want me to attend and represent PPROA.

Bill StevensLegislative Consultant

PPROA Governmental Affairs ReportJanuary/February Schedule

President Donald J. Trump signed the United States-Mexico-Canada Agreement (USMCA). Mexico and Canada have become our largest trading partners, and no state benefits more from that trade than Texas. This modern trade agreement is a win for American jobs, farmers, families, and businesses. I am proud to have been a supporter of this important agreement and will continue to advocate for a strong American economy.

Under the previous trade agreement, NAFTA, all agricultural tariffs were phased out to zero except for certain products, which include U.S. imports from Canada of dairy products, peanuts, peanut butter, cotton, and sugar, and Canadian imports from the United States of dairy products, poultry, eggs, and margarine. All food and agricultural products that have zero tariffs under NAFTA would remain at zero under USMCA, and market access would be expanded for the additional agricultural products traded between Canada and the United States.

How will this agreement affect you?• Eliminates the NAFTA loophole that exempts purchases by

the Transportation Security Administration (TSA) from the “Buy American” requirements known as the Kissell Amendment, affecting cotton. TSA will now be required to purchase uniforms made of American-grown cotton. In Fiscal Year 2017, TSA purchased

approximately $34 million worth of textile and apparel products.• Texas currently exports more than any other state to Mexico and is

second in exports to Canada. This totaled $137 billion worth of products to North American partners in 2018.

• More than 950,000 jobs in Texas are supported by trade with Mexico and Canada including 60,400 jobs supported by exporting agriculture products.

• The annual value of Texas’ agricultural exports to our North American neighbors total more than $7.2 billion.

• Economy-wide models estimate that USMCA will increase America’s GDP by about $68.2 billion and employment by 176,000 full-time jobs.

• Wages are expected to increase for workers in all fields by .27 percent or $150 per worker per year.

• U.S. agricultural exports to Mexico and Canada would increase by $2.2 billion, when the exports are implemented.

• U.S. Trade Agency Sees 76,000 New Auto Jobs from North American Trade Deal: Within five years as automakers invest some $34 billion in new plants to comply with the pact’s new regional content rules.

• Dairy Exports to Canada Would Grow $227M Under New Deal: The ITC estimated American dairy exports to Canada would increase by $227 million annually approximately by 43.8 percent.

United States-Mexico-Canada AgreementWhat It Does For the American People

PPROA Pipeline February 2020 PPROA Pipeline February 2020

happybank.comMember FDIC

RyanMonroe

RyanEvans

JimBryan

JeffIrwin

ChrisMorris

GregGraham

Making you

- 4 - - 5 -

In the January 2020 update of its Short-Term Energy Outlook, the U.S. Energy Information Administration forecasts that U.S. crude oil production will average 13.3 MMbpd in 2020, a 9% increase from 2019 production levels, and 13.7 MMbpd in 2021, a 3% increase from 2020.

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020

U.S. crude oil production growth slows because of a decline in drilling rigs during the past year. EIA expects this trend will continue through most of 2020. Despite the decline in rigs, EIA forecasts production will continue to grow as rig efficiency and well-level productivity rise, offsetting the decline in the number of rigs until drilling activity accelerates in 2021.

EIA’s U.S. crude oil production forecast is based on the West Texas Intermediate price forecast in the January 2020 STEO, which rises from an average of $57/bbl in 2019 to an average of $59/bbl in 2020 and $62/bbl in 2021. The price forecast is highly uncertain, and any significant divergence of actual prices from the projected price path could change the pace of drilling and new well completion, which would, in turn, affect production.

Crude oil production in the Lower 48 states has a relatively short investment and production cycle. Changes in Lower 48 crude oil production typically follow changes in crude oil prices and rig counts with about a four- to six-month lag. Because EIA forecasts WTI prices will decline during the first half of 2020 but begin increasing in the second half of the year and into 2021, EIA forecasts U.S. crude oil production will grow slowly until the end of 2020.

Crude oil production in Alaska and the Federal Offshore Gulf of Mexico—which collectively accounted for about 19% of U.S. total crude oil production in 2019—is driven by long-term investment that is typically less sensitive to short-term price movements.

Once final data are available, EIA expects the data will show that Lower 48 crude oil production reached its largest annual average volume of 9.9 MMbpd, and EIA expects it to increase further by an average of 1.0 MMbpd in 2020 and 0.4 MMbpd in 2021.

EIA forecasts that production from the Federal Offshore Gulf of Mexico will grow by 0.1 MMbpd in 2020 to 2.0 MMbpd and to remain relatively flat in 2021 because several projects expected to come online in 2021 will not start producing until late in the year and will be offset by declines from other producing fields. Alaska’s crude oil production will remain relatively unchanged at about 0.5 MMbpd in both 2020 and 2021.

The Permian region that spans western Texas and eastern New Mexico remains the most prolific crude oil production growth region in the United States. Favorable geology combined with technological improvements have contributed to the Permian region’s high returns on investment and years of remaining oil production growth potential.

EIA forecasts that Permian crude oil production will average 5.2 MMbpd in 2020, an increase of 0.8 MMbpd from 2019 production levels. For 2021, the Permian region will produce an average of 5.6 MMbpd. EIA forecasts that the Bakken region in North Dakota will be the second-largest growth area in 2020 and 2021, growing by about 0.1 MMbpd in each year.

Growth Of U.S. Crude ProductionWill Slow Through 2021

PPROA Pipeline February 2020 PPROA Pipeline February 2020- 6 - - 7 -

What if gasoline prices doubled? In other words, if you had to pay $5.00 per gallon, how much would that hurt your life?

That’s what happened during the 1970s oil crisis. The Middle East-led Organization of Petroleum Exporting Countries (OPEC) weaponized oil by embargoing the United States twice. At that time, America lacked the capacity to make up for the lost oil. In 1978, the average price per gallon was around 60 cents. By 1981, it reached $1.35. The economy went into severe recession and millions lost their jobs.

But more recently, major unrest in the Middle East has not affected Americans as strongly as it used to.

On September 14, 2019, Iranian-backed militias attacked the world’s largest oil refinery, in Saudi Arabia. The attack cut the refinery’s capacity in half.

But despite some expert predictions, oil prices barely flinched. Americans saw no price spike at the pump.

Iran escalated the violence. Its proxies assaulted the American embassy in Baghdad just before New Year’s Day. This attack could have sent fuel prices through the roof, hurting our economy. But even after the United States responded by killing the Iranian terrorist general who orchestrated the attacks, fuel prices rose a little and then dropped back to where they were before the hostilities. If you blinked, you missed it.

The likelihood that Iran or any other bad actor can use violence or weaponize oil to hurt the global economy has dramatically receded. Why?

American energy leadership is why. As the chief regulator of oil and gas production in Texas, I am on the front lines of American energy production. And I am seeing a revolution that helps all Americans.

Our modern economy needs energy. From the smart phone in your hand to the lights in your home to the electric cars more Americans drive, we depend on affordable and reliable energy. We have vast proven oil reserves, we have the technology to extract it, and under the Trump administration we have the freedom to produce it and get it to market. Americans produce oil and gas more affordably and reliably than anyone else.

This affects everything for the better, including the environment. When I was building my business, I visited about half the world’s refineries. No one produces energy more cleanly than Americans do. Some point to flaring natural gas as an issue. Natural gas is a by-product of oil production. No one likes flaring, but producers are flaring just one to three percent of the total natural gas produced in Texas.

The solution to flaring is not to slow down oil production, or ban fossil fuels as some suggest, but to speed development of pipelines and other capacity to get natural gas to market. America has actually reduced emissions faster than any other industrialized country, thanks to the market-driven switch to natural gas. We just need to get more of it to market here and around the world.

The United States was once desperately dependent on foreign oil. In 1973 we imported about 35% of our oil from the Middle East. In 2019, the United States became a net oil exporter. Now, we produce 12 million barrels per day (5 million in Texas alone) and import less than 10% of our oil from the Middle East.

We have diversified our other foreign sources. When we were dependent on Middle Eastern oil, American forces had to stand cop on the beat to keep the oil flowing through chokepoints such as the Straits of Hormuz. This made us more likely to get into wars. Now our energy sources are more stable and reliable than ever.

Energy is one cost that no one in our modern economy can avoid. Unlocking America’s energy makes us safer and richer. For the teacher or nurse making $60,000 per year, at current gas prices you’re paying about $2,600 per year for gas if you commute 25 minutes to and from work every day. A 1973-size gas price spike would raise your costs significantly, to around $4,000 per year – just to drive to work. The price of the electricity to power your home would also rise significantly. You’d feel that pinch right in the wallet. I’m working every day to make sure that doesn’t happen.

What do Americans really want from oil and gas producers? Affordable and reliable energy produced as cleanly and safely as possible. How do we get that?

Drill baby drill. Right here in America.By Ryan Sitton

January 17, 2020

Why Unlocking More Oil and Gas is Good for Every American - And the Environment

Drill baby drill. Right here in America.

PPROA Pipeline February 2020 PPROA Pipeline February 2020

Panhandle Producers and Royalty Owners Associationcordially invites you and your staff

to the eighth quadrennial

Living Legend Banquet & Honorsrecognizing the contributions and service

of

Harry H. PhillipsThursday, February 20, 2020

Amarillo National BankSkyline Room – 16th Floor

5:30 – 6:30 Cocktails Banquet & Honors following

RSVP @ $55 per person (credit card or check)by February 13, 2020, to PPROA at 806-352-5637.

No payments accepted at door.

- 8 - - 9 -

COUNTY CONTRACTOR OPERATOROKLAHOMA

Ellis Power Rig LLC Fourpoint Energy, LLCPower Rig LLC Fourpoint Energy, LLCTEXAS RRC DISTRICT 10

Ochiltree Patterson-UTI Drilling Company, LLC Mewbourne Oil Company

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Crude Oil - Texas Panhandle All Fields 2017

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Rig Count - United States 2017

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MA

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ugh

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ust 2

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DRILLING PERMITS BY COUNTY: DISTRICT 10

ACTIVE DRILLING LOCATIONS BY COUNTY

MARKET ANALYSIS

Data provided by Enverus.com : February 3, 2020

Data provided by RigData.com : January 24, 2020

Through January 2020

OPERATOR LEASE DATE ISSUED TDGRAYSeek Energy Ruth 23 #702 12/30/2019 9,252HEMPHILLPresidio Petroleum LLC Alexander #4 1/8/2020 13,457Upland Resources Lockhart 58 #1A 1/22/2020 7,600MOOREScout Energy Sneed P #S1 12/30/2019 4,000

Sneed P #S5 12/30/2019 4,000Sneed C #7B 12/30/2019 4,000

OCHILTREEMewbourne Oil Milledge-Pshigoda 28/37 A #M005CN 1/7/2020 7,223POTTERScout Energy Mgmt Bivins #S2 1/6/2020 4,000

Bivins #S4 1/6/2020 4,000Bivins #S5 1/8/2020 4,000Bivins #S3 1/15/2020 4,000

ROBERTSTexahoma McMordie Crosby #2 1/23/2020 11,000WHEELERPresidio Petroleum R. Moore #101 1/6/2020 18,0004P Energy Britt 15X26C #1HC 1/7/2020 13,100Presidio Petroleum Coltharp #1058 1/28/2020 17,700Templar McCoy 27 #3 1/28/2020 15,180

Janie ArnoldMike ConnorLani Hall�omas JustissGary MitchellSteve Shennum

• Assurance / Auditing Service

• Tax Preparation

• Tax Consulting / Planning

• Litigation Support

• Business Valuations

• Oil & Gas Taxation

801 S. Fillmore, Suite 600Amarillo, Texas 79101

806 373-6661www.cmmscpa.com

Connor McMillon Mitchell & ShennumCertified Public Accountants & Consultants

Where more than numbers Count!

®

WHAT IF HYDRAULIC FRACTURING WAS BANNED?

THE ECONOMIC BENEFITS OF THE SHALE REVOLUTION AND THE CONSEQUENCES OF ENDING IT 19 MILLION JOBS Starting in 2021, a ban would cost the economy 4 million jobs in 2021 alone, and 19 million jobs by 2025. GASOLINE PRICES DOUBLE Consumers would pay 37 percent more for petroleum products such as gasoline and diesel in 2021, with prices continuing to rise through 2025, when they would be roughly double what they are today. This is largely driven by skyrocketing oil prices that will exceed $130 per barrel in 2025. NATURAL GAS PRICES INCREASE 324 PERCENT The price for U.S. natural gas – currently the largest source of power generation in the country – would surge, increasing costs for American families, businesses, and power generators. Our analysis finds that natural gas prices would be $12.30 per million British thermal unit (MMBtu) in 2025, an increase of 324 percent over the baseline or the Business As Usual (BAU) scenario. HOUSEHOLD POWER PRICES QUADRUPLE U.S. households would pay over four times more for their electricity in 2025, driven in large part by rising natural gas prices. HIGHER OVERALL COST OF LIVING Through 2025, consumers would pay $5,661 more per capita in higher prices for energy and other goods and services. Over the same period, nationwide household incomes would fall by $3.7 trillion, leaving consumers to pay higher bills with less income. NEARLY $1.9 TRILLION IN LOST TAX REVENUE Local, state and Federal tax revenues would decline by nearly $1.9 trillion through 2025.

$7.1 TRILLION LOSS OF GDP GDP would immediately decline by $523 billion in 2021 relative to a world where the shale revolution is allowed to continue. This decline in GDP escalates to $2.3 trillion in lost GDP in 2025 — a loss of 11 percent of our 2018 GDP ($20.5 trillion). Through 2025, GDP would decline by $7.1 trillion. ENERGY AND MANUFACTURING DEVASTATED In this report, we take a closer look at five states with large energy economies, including Ohio, Pennsylvania, Colorado, Texas, and New Mexico, and two other states with significant manufacturing sectors, Michigan and Wisconsin. Below is a snapshot that a ban on hydraulic fracturing would have on these states in 2025 due to higher prices for petroleum products, natural gas, and electricity. INCREASED IMPORTS AND REDUCED ENERGY SECURITY A ban on hydraulic fracturing would be a geopolitical setback for the United States, which would return to reliance on international suppliers of oil and natural gas, including Russia and members of OPEC, giving these countries greater clout in international energy markets. Higher global prices because of reduced U.S. production would benefit our economic and geopolitical competitors and cede valuable market share to countries like Venezuela, all at a time when demand for oil and natural gas is set to grow considerably around the world, according to the International Energy Agency (IEA).2

This Information was reprinted from the Global Energy Institute U.S. Chamber of Commerce

Spellman v. Love, No. 534 S.W.3d 685 (Tex. App.—Corpus Christi 2017, pet. denied) held that there could be no recovery for money had and received when the owner of a term non-participating royalty failed to establish that the non-participating royalty was still in force and effect.

Simplified, Spellman conveyed 253 acres to Kenneth (who was then married to Janet), reserving a term non-participating royalty interest to Spellman. Kenneth and Janet got divorced, resulting in Janet having a non-executive mineral interest. Kenneth owned the rest of the minerals and all of the executive rights. Kenneth leased to Matador. Matador was drilling the first of four successful wells, when Spellman’s term non-participating royalty interest terminated, because there was then no producing well on the land. The royalty stream from the property was approximately $20 million.

The parties aligned as successors-in-interest to Spellman, Kenneth and Janet. Spellman asserted multiple claims (breach of fiduciary duty, constructive fraud, and negligence) against Kenneth related to Kenneth’s alleged wrongful delays in drilling and producing. There were multiple amended petitions, but the definition used therein for “Defendants” included only the Kenneth defendants. There were no claims against Janet, except the equitable claims of money had and received, unjust enrichment, and constructive trust. Spellman settled with the Kenneth defendants and non-suited the claims against them.

The equitable claims were the only claims asserted against Janet in the Second Amended Petition when summary judgment was granted for Janet. The Order of Nonsuit as to the Kenneth defendants preserved whatever claims had been or could be asserted against Janet. Nevertheless, the subsequent amended petitions did not include Janet in “Defendants,” and thus there were no other claims against Janet.

In essence, Spellman claimed Janet knew what Kenneth was up to, but she nevertheless accepted the royalty payments. The court affirmed summary judgment for Janet.

Here, the record conclusively showed that Spellman’s non-participating royalty interest expired. “A cause of action for money had and received is not based on wrongdoing but instead, looks only to the justice of the case and inquires whether the defendant has received money which rightfully belongs to another” (citing Doss v. Homecoming Fin. Network, Inc., 210 S.W.3d 706, 711 (Tex. App.—Corpus Christi 2006, pet. denied).

The record conclusively showed Spellman no longer held an ownership interest. Unjust enrichment is not an independent cause of action but applies the principle of restitution when the receiving party has no right to the benefit. Here, Janet did have the right to the royalties. Although not discussed, apparently the same reasoning applied to the claim for a constructive trust.

The significance of the case is the holding that there can be no equitable claim on the proceeds of a non-participating royalty interest, if the non-participating royalty interest is shown to have terminated.

The foregoing is not a legal opinion.You should consult your attorney

if this may be of some significance to you.

- Jeff McCarn may be contacted at (806) 350-5418 or

jmccarn@mwlawfirm.com

PPROA Pipeline February 2020 PPROA Pipeline February 2020PPROA Pipeline- 10 - - 11 -

CASENOTE

- 11 -

Comprehensive Protection That Could Pay Dividends

The Panhandle Producers & Royalty Owners Association has endorsed multiple insurance programs that offer rate discounts to members on premium and the possibility to earn dividends* based on the loss history & experience of the members. Your association offers:

• Property, general liability, business auto, oil lease property and umbrella liability from BITCO Insurance Company;

• Follow-form excess coverage over BITCO’s program from One Star Insurance Solutions;

• Workers’ compensation insurance from Texas Mutual Insurance Company; • Energy Program offers 10% discount on: control of well, care custody &

control, and rig physical damage; *Dividends are not guaranteed. Past dividends paid are not a guarantee of future dividends.

HOW DO YOU GET STARTED? You, or your agent, can contact Curtis Heptner with One Star Insurance

Solutions at Curtis@1starins.com or 940-397-2771

PPROA Pipeline February 2020 PPROA Pipeline February 2020

The exploration-and-production (E&P) sector of the U.S. oil and gas industry faces many financial hurdles this year as forecasts of stagnant demand with increasing supplies give the appearance that prices for crude oil and natural gas will be flat.

The Energy Information Administration (EIA) at the Department of Energy reported last week it expects West Texas Intermediate (WTI) crude oil prices will average about $55 throughout 2020. Oil traded on the New York Mercantile Exchange on Wednesday closed at $53.

EIA forecasts that Henry Hub natural gas spot prices will average $2.33 per million British thermal units (MMBtu) in 2020, down from $2.57 in 2019.

The American Oil and Gas Reporter said in its January issue other analysts have similar opinions about oil and natural gas prices. The national trade publication reported these predictions by industry analysts:

• Evercore – $60;• Raymond James – $65;• Petrie – mid $50s to mid $60s;• Platts – break through $60 early 2020 and

dropping to the high $50s; and• Goldman Sachs – averaging $58.50.

The AOGR conducted its own survey in November/December of independent producers and the average response was $55.59. With these prices the consensus is another declining year for capital expenditures, also called capex. Raymond James projects U.S. capex to decline 15 percent. Drilling budgets will decline 7.1 percent in 2020, and the drilling rig count will drop another 10 percent, according to Evercore, which conducts research about oil field activity.

“The oil and gas industry is at a crossroad,” James West, senior managing director and partner at Evercore, said. “Investor demand for returns has turned off the capital spigot for U.S. shales, the main driver of global oil growth the past decade. At the same time, the oil price crash of 2015 cut nonshale E&P spending by almost 40 percent, and the industry is barely off the budget bottom.”

West said in the AOGR report total shareholder return in the energy sector during the past decade stands at zero versus 290 percent for the S&P 500.

“Praveen Narra, senior oil field service analyst at Raymond James, observes that the E&P industry has underperformed the broader S&P eight of the past 10 years – even in periods of $100 oil,” the AOGR story stated.

The longstanding, singled-minded focus on growing production is giving way to creating value through return on capital invested, West said.

The industry has achieved remarkable production growth. Since 2010, oil production has more than doubled, and natural gas has increased 60 percent. EIA expects domestic oil production to set another record this year averaging 13.3 million barrels per day (bpd), which is up from 12.2 million bpd in 2019 and 10.9 million bpd in 2018.

U.S. dry natural gas production also set a new record in 2019, averaging 92.0 billion cubic feet per day (Bcf/d). EIA forecasts another record year in 2020 with production rising to 94.7 Bcf/d in 2020.

Oil & Gas Producers’ SuccessBrings a New Set of Issues

- Alex Mills former president,Texas Alliance of

Energy Producers.

The oil and gas industry is at a crossroad

consensus is another declining year for capital expenditures

focus on growing production isgiving way to creating value through

return on capital invested

- 12 - - 13 -

Products derived from refined crude oil form an integral part of our lifestyles. From the asphalt and bitumen used on highways to the gasoline and diesel that fuel the vehicles we drive, it is safe to say that the refining of crude oil has profoundly impacted our evolution. Today, refined oil remains one of the main drivers of the economy, with fluctuations in price affecting significant industries such as aviation and transportation.

Estimations by the American Petroleum Institute, API, show that the oil and gas industry accounts for roughly 8% of the Gross Domestic Product of the U.S., with approximately 10.3 million people contributing to the workforce.

The industry has progressed significantly since the initial establishment of a pumped oil well in the year 1845 by Samuel M. Kier, from Pennsylvania. In the 1850s, Kier went on to create the first petroleum refinery in the U.S. in Pittsburg. Since that time, there have been several events that have shaped the oil industry into its current state.

Key Events in History that Defined the Oil Industry

The Pennsylvania Rock Oil Company of Connecticut was one of the first oil corporations to be developed. Under the supervision of William Smith, oil was discovered through drilling at a depth of 69 feet. This discovery led to a surge in the standard of living in Titusville and neighboring locales.

Building on this, John D. Rockefeller constructed a refinery in 1865 and later became the founder of the Standard Oil Company. His goal was to create the best merchandise for the lowest price so that products from refined oil would be readily available for persons from all walks of life. From his refining process, he was able to reduce the amount of waste produced using by-products to create naphtha for gas plants, lubricating oil, and Vaseline.

In Beaumont, Texas, a mound known as Spindletop would become the site of one of the most noteworthy oil strikes in the U.S. The mound was discovered in 1901 and within just one year more than fifteen hundred companies were started in the area, only a few of which would survive.

By 1909 oil production in the U.S. would be equal to that produced by other nations combined. The main drivers of the

industry were the demand for electricity and the growth of the automobile industry. In 1930, another vast oil discovery would be made, this time by Columbus Joiner. This discovery of about 5 billion barrels is one of the most massive hauls of all time.

The second world war led to the expansion of the by-products produced from the refining of oil, to include explosive TNT and artificial rubber. The Allies were supplied with gasoline from oil tankers by the U.S. During this time gas was rationed and oil prices were controlled by the government, meaning the U.S. did not possess an unlimited supply of the product.

During the 1950s, key players began to shift their mindset within the world’s oil industry operated, leading to the eventual formation of the Organization of the Petroleum Exporting Countries (OPEC) in 1960. At this time, countries involved in OPEC included Saudi Arabia, Venezuela, Kuwait, Iraq, and Iran, with the group controlling the world’s oil prices.

OPEC flourished in the 1970s due to the increase in demand for energy, renegotiation of business in Libya, and the war between Israel and the Arabs. The U.S. support for the Israelis, along with Nixon’s Removal of the U.S. from the gold standard led OPEC to place an embargo on the export of oil to the U.S. The prohibition resulted in the price of oil rising to four times its value, from $2.90 to $11.65 a barrel.

Domestic oil reserves began to see major depletion during the 1990s and early 2000’s due to high energy demands. The U.S. relied heavily on international imports of oil as the local industry reached all-time lows in 2005.

Fracking operations arose in the late 2000s, allowing the U.S. to regain its role as one of the world’s top oil producers. In 2014 it was noted by the U.S. Energy Information Administration that the U.S. outproduced countries such as Saudi Arabia and Russia.

The Effect of Regulations on the Oil Industry and Consumers

The restriction placed by OPEC on the U.S. played a significant role in the recession that occurred in the 1970s. U.S. citizens were faced with increased gas prices which resulted in less available income for the purchase of goods. The chain reaction

ultimately resulted in a reduction in the demand for products and services, and consumers were forced into altering their spending habits. Lines for gas would span for blocks, and the government imposed a reduced speed limit to save on fuel usage.

As the industry continued to run rampant, it became clear that regulations were necessary for continued success, especially in the area of environmental impacts. The Exxon Valdez oil spill in 1989 off the Alaskan coast was one of the worst spills in U.S. history. There were severe impacts on the environment, including the death of numerous species, pollution of coastlines, and a huge impact on the livelihood of fishermen and economies of surrounding towns.

The oil spill birthed the Oil Pollution Act, which implemented an increase in penalty fines for companies responsible for discharge and demanded a new regulation that all tankers required double hulls to lessen the likelihood and effects of spillage.

There have been continued efforts to ensure that emissions from the refining of oil are kept at a low. Standards are implemented by the U.S. Environmental Protection Agency to see this to fruition. Fuels are now cleaner, and there are reduced methane emissions.

The U.S. continues to lead the way in both production and environmental consciousness in the oil refining industry; technological advancements are being made to guarantee that the U.S. is poised to maintain this level in the years to come.

This article is a reprint fromThomas Insights: Staff Writer

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Why A Ban On FrackingWill Never Happen

How Oil Refining Transformed U.S. History & Way of Life

Since the passing of the Endangered Species Act, only 3% of species

listed under the Act have been delisted

House committee votes to block ESA revisions. The House Natural Resources Committee preliminarily approved a bill this week that would reverse the Trump administration’s changes to the Endangered Species Act (ESA). H.R. 4348 passed in a 21-16 roll call, with California Rep. Jim Costa being the only Democrat voting against it after a lengthy and spirited debate that lasted nearly an hour. Costa said that, although he does not support the Trump administration rules, the ESA needs updating and lawmakers from both parties, as well as other stakeholders, need to work together on sensible revisions.

Those supportive of the administration’s proposed changes pointed to the 1973 law’s need for modernization and the benefits of the proposed amendments. Rep. Paul Gosar (R-AZ.) said the revisions make a flawed Endangered Species Act “more transparent (and) efficient,” noting that it has failed to improve the status of the vast majority of species it aims to protect. “Since the passing of the Endangered Species Act, only 3% of species that had been listed under the act have been delisted,” Gosar said. “If only 3% of patients admitted to a hospital walked out healthy, that hospital would be shut down immediately.”

In contrast, opponents of the revisions claimed the administration’s changes would negatively impact the environment. Committee Chairman Rep. Raul Grijalva, (D-AZ) sponsored the bill and insisted that with the impacts of climate change and a decline in wildlife species worldwide, Congress must stop implementation of the Trump administration rules. “In all honesty, I wish we didn’t have to have this conversation, but here we are,” Grijalva said. “It’s outrageous that at a time when we are facing such an alarming rate of biodiversity loss, the Trump administration decided to gut the most successful wildlife law on the books, causing even more harm to species.”

Gosar tried to amend Grijalva’s bill to cement the administration’s changes to the ESA in place, but it failed on a 15-22 vote. Committee ranking member Rob Bishop (R-UT) also voted against Grijalva’s bill, saying it will not go anywhere in the GOP-majority Senate. But Bishop, like Costa, also called for more work on the effort. “There is a way forward to trying to find a middle ground on endangered species,” he said. “There is a way forward to trying to do the right thing. This bill does not do it.” Trump Administration Moves to Ease Rules Against Killing Birds. New York Times. The Trump administration will move on Thursday to weaken a century-old law protecting migratory birds by dropping the threat of punishment to oil and gas companies, construction crews and other organizations that kill birds “incidentally” in the course of their operations. The proposed regulation, if finalized, would cement a legal opinion that the Department of Interior issued in 2017. The agency’s top lawyer argued that previous administrations had interpreted the Migratory Bird Treaty Act of 1918 too broadly, and that only actions explicitly intended to kill birds should be forbidden under the federal law. The death of a bird from an oil slick, the blade of a wind turbine or the spraying of illegal pesticides would no longer trigger penalties.

Landowners sue for FERC oversight of natural gas pipeline. E&E News, Sub req’d. A group of landowners is challenging a major natural gas pipeline that will serve the Permian Basin oil field in Texas, saying the project’s developers skirted federal environmental law. In a lawsuit filed Friday in the U.S. District Court for the Western District of Texas, the landowners said the project should be classified as an interstate pipeline and subject to regulation by the Federal Energy Regulatory Commission. The Permian Highway pipeline would carry gas 430 miles from the Permian Basin in West Texas to the Houston area. Its route crosses through the Texas Hill Country and the Edwards Aquifer, a water table that provides water for about 2 million people in and around Austin. The project currently is classified as an intrastate pipeline, meaning it’s governed by Texas’ environmental and siting rules, rather than stricter federal standards.

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JUDY STARKPPROA President

PPROA Pipeline February 2020PPROA Pipeline February 2020 - 19 -- 18 -

NM cashes in on the world’s most productive oil field. New Mexico Political Report. The Permian Basin became the world’s most productive oilfield in 2019, and New Mexico is reaping the financial benefits. The state saw a significant revenue surge this year, resulting in a projected $7.8 billion collected. The New Mexico Oil and Gas Association estimates the state produces 900,000 barrels of oil a day. It anticipates the state will surpass 300 million barrels of oil in 2019, the third year in a row for the state for record-setting production.

The growth in activity centered around the Permian Basin in southeast New Mexico and West Texas. But many state and local officials, and industry leaders, worried that a potentially prohibitive and complex regulatory environment in the Land of Enchantment could lead oil and gas companies to move their businesses just over the Texas State Line, preventing New Mexico from gaining much-needed revenue. That’s why New Mexico Rep. Cathrynn Brown (R-55) and Rep. Greg Nibert (R-59) sponsored House Bill 28, intended to exempt growing oil and gas developments from some state regulations.

Natural gas remains King in New England even as wind & solar climb. NHPR. New England used more wind and solar power than ever last year, but fossil fuels still make up half the electricity generated in the region. In new data, power grid operator ISO-New England says 49% of electricity generated in New England last year was from natural gas. Less than 1% was from coal or oil. Natural gas use has roughly plateaued in the region in the past few years. It peaked in 2015. Nuclear and hydropower use has remained more or less steady for decades. Nuclear covered 30% of the region’s mix last year, with hydro at about 9%.

Cheniere Energy’s 1,000th LNG cargo headed to France. Chron. Houston liquefied natural gas company Cheniere Energy hit a milestone 1,000th export shipment of LNG — and the cargo is headed to France. The Norwegian-flagged LNG tanker Hoegh Galleon left the company’s Corpus Christi LNG export terminal with the company’s 1,00th cargo on Monday morning. Cheniere Energy CEO Jack Fusco told the Houston Chronicle that the tanker is headed to France and that the milestone shipment comes less than four years after the company’s first cargo was sent out from Sabine Pass LNG in Louisiana in February 2016. The 1,000 cargoes, he said, carried enough natural gas to power all 7.4 million home in Texas for nearly five years.

USMCA Act signed causing many Texas government officials, Lone Star residents involved in Agriculture to celebrate. Concho Valley. The United States-Mexico-Canada Agreement was signed by President Donald J. Trump in Washington, D.C. on January 29, 2020. Many representatives and leaders from West Texas were present for the signing. Texas Governor Greg Abbott has been outspoken about his support for this agreement on Twitter. According to the Officer of the Governor, USMCA benefits to Texas include energy industry growth: Texas is the top energy-producing state in the nation and is the leader in both natural gas and crude oil production. In 2018, Texas exported a combined $22.8 billion in petrol and coal products and $10.8 billion in oil and gas to Canada and Mexico. USMCA opens up opportunities for Texas to create new energy partnerships and increase exports in energy, particularly natural gas, which accounts for a majority of Mexico’s electricity production and overall energy use. USMCA streamlines the regulatory process for U.S. LNG exports to Mexico and Canada, and provides new flexibilities in rules of origin certification requirements for oil and gas moving between the U.S., Mexico, and Canada. It also fixes a longstanding issue in allowing hydrocarbons transported through pipelines to qualify as originating, provided that any diluent, regardless of origin, does not constitute more than 40% of the volume of the good.

Study: Fracking ban would cost Texas 3.2 million jobs. The Center Square. Texas’ economy could suffer a severe blow if a ban on hydraulic fracturing were enacted, as some of the leading Democratic candidates for president have proposed, according to a study published by the U.S. Chamber of Commerce’s Global Energy Institute. Texas greatly benefited from the shale revolution of the last decade. If fracking were banned, the Lone Star State would suffer massive job losses and put a dent in the economy. “Increased oil and gas production driven by hydraulic fracturing has been fueling America’s sustained period of growth over the past decade, while making us both cleaner and stronger,” Marty Durbin, president of the U.S. Chamber’s Global Energy Institute, told the website WorldOil.com

Published ten times a year by the Panhandle Producers & Royalty Owners Association

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RRC District 10 Production DataNovember 2019 - December 2019

COUNTY Oil (BBL) CH Gas (MCF) GW Gas (MCF) Cond. (BBL)Armstrong 0 0 0 0Briscoe 0 0 0 0Carson 7,388 40,877 541,455 2,943Childress 250 0 0 0Collingsworth 0 0 62,460 0Dallam 0 0 0 0Donley 0 0 706 0Gray 70,567 82,592 420,226 51Hansford 15,718 80,348 646,261 2,487Hartley 15,456 6,927 77,107 0Hemphill 21,013 173,990 6,737,114 129,762Hutchinson 33,953 162,813 284,275 4,185Lipscomb 55,943 581,908 1,683,347 57,445Moore 13,933 76,256 1,768,278 482Ochiltree 246,758 1,178,337 796,162 12,923Oldham 5,967 375 3,740 0Potter 21,569 49,250 543,421 6,826Roberts 47,853 514,284 1,800,995 30,137Sherman 5,996 3,554 1,080,037 85Swisher 0 0 0 0Wheeler 80,371 750,725 7,029,043 142,348TOTAL 642,735 3,702,236 23,474,627 389,674

PPROA Pipeline February 2020

Dana Newsome Board Chairman ValPoint Operating, LLC

Todd Lovett Past Chairman Mewbourne Oil Company

Richard Beyea 1st Vice Chairman Remnant Energy, Inc.

Cooper Sanders 2nd Vice Chairman Quest Drilling Services, LLC

Leslie Weaver Secretary Amarillo National Bank

Ed Nichols Treasurer Brown Graham & Company, P.C.

Chris Appel Appel Consulting Solutions

Rob McGarraugh Badger Resources, Inc. Jason Manning Manning Land, LLC Cap Gillman North Country Energy William R. “Bill” Heck Independent Landman R. J. Cree Oilwell Operators, Inc

Patrick Weir McCarn & Weir, PC

Tyler Rufenacht Questa Energy

Judy Stark President

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