Future tax issues, pricing, drilling questions asked during Energy Chat
Participants in June’s Energy Chat on NewsOK.com Tuesday had questions about future tax issues, how steel tariffs might impact energy industry costs and others that werefielded by Energy Editor Adam Wilmoth and Business Writer Jack Money. Here is a transcript of the chat, edited for clarity and space.
Q: What do you think will be the main energy issues at the State Capitol this year?
Wilmoth:The oil and natural gas gross production tax appears to be settled, for now, but there could still be some changes to how wind is taxed. I’d also expect horizontal and vertical oil and natural gas producers to continue sparring with legislators and before the Oklahoma Corporation Commission as the drilling of large, horizontal wells expands into more areas.
Q: Where are oil prices headed?
Wilmoth: Oil prices are at their highest since November 2014 as world markets have worked through surplus created both by U.S. oil production and OPEC’s decision to increase its production. Domestic production continues climbing while global
production has slowed. President Donald Trump has asked Saudi Arabia to boost its production to hold down prices. While the Saudis have said they will, it is unclear how much they are willing or able to do. So oil prices have continued to strengthen in recent weeks, and the discount U.S. oil receives to the global benchmark has shrunk.
Q: With higher prices, do you expect oil companies to increase drilling?
Wilmoth:In a previous year, a 76 percent run-up in the price of oil like we’ve the past 12 months would have led to sharp drilling increases. But this time, companies seem much more reserved, using surplus revenue to pay down debt and in some cases, buy back shares and increase dividends to shareholders. If the oil price stays at its current level or continues to strengthen, it will be interesting to see what companies choose to do in 2019.
Money:We continue to have more rigs running now than we did a year ago, but not that many more. Baker Hughes reported July 6 Oklahoma’s weekly count of working rigs had climbed by one to 141, up five comparedwith the year before. Interestingly, the number of rigs working in the Cana Woodford Basin, where the state’s SCOOP and STACK fields are located, had dropped by six. Still, that basin remains the third-most active play in the nation, behind the Eagle Ford Shale in south Texas and the Permian
Basin in southwest Texas and eastern New Mexico.
Q: When can we expect Sandridge to announce a successful buyout/merger?
Wilmoth: I’m not aware of a deadline. Activist investor Carl Icahn now controls five of eight seats on SandRidge’s expanded board, which continues to solicit and evaluate offers to buy or partner with the company. As of June 29, SandRidge had received 26 bids. Ten offer to buy the entire company, while 16 seek the company’s Colorado assets. Three more companies were in the process of making bids. It’s a critical time for SandRidge and its future.
Q: What are your thoughts on the Arkoma Woodford Basin in southeast Oklahoma? I’ve read there is oil in various layers, yet no oil completions in the past year.
Wilmoth: The Arkoma historically has been produced by vertical natural gas wells, but companies have tested the area the past two years or so by drilling modern horizontal wells. I’m hearing positive things from area producers, and midstream companies have pledged to build billions of dollars in pipeline, processing plants and other infrastructure, anticipating production will increase throughout the field. The rock layers in the Arkoma are the same as further west in the SCOOP and STACK plays, but it is early to compare it to more mature modern developments.
Money: The latest drilling data from Baker Hughes stated there were eight rigs running in the Arkoma, down two from a year earlier.Oil brings profit, but natural gas mostly brings expense, so oil is what producers are seeking.