Can Politics Help the Permian Basin in 2019? - September 20th Petroleum Club of Midland - Weaver

Can Politics Help the
Permian Basin in 2019?

        September 20th  Petroleum Club of Midland

  January 31, 2019      Petroleum Club of Midland

Who is the PBPA

          The Voice of the Permian Basin

 Our Mission…
 To advocate for safe and responsible oil and gas development and to
 provide education on safety, legislation, regulation, and support
 services for the industry.

PBPA Offices

   Midland, Texas
   Austin, Texas
   Santa Fe, New Mexico

The Permian Basin

   As of last week, there were 492 rigs operating the Permian Basin of West
    Texas and Southeast New Mexico.
     46% of all rigs in the United States
     73% of all rigs in Texas

     97% of all rigs in New Mexico

   Through 2017, just in Texas
     30 billion barrels of crude
     75 trillion cubic feet of natural gas

                                                   Santa Rita #1

Permian Basin Production

                                            Oil & Natural Gas
          4,000,000

          3,500,000

          3,000,000

          2,500,000
BOE/Day

          2,000,000
                                                                                      Crude Oil

          1,500,000

          1,000,000
                                                                                Natural Gas Equivalent
           500,000

                 -
                      2009   2010   2011   2012   2013           2014   2015   2016        2017      2018   2019

                                                  Data from U.S. EIA

Barriers to Continued Growth

The Permian Basin

Periskope Shale Oil Report - January 2019
   2018 was another outperforming year for U.S. shale oil production,
    but 2019 faces much more challenges:
       The Q4 18 oil price decrease has been a game-changer for small- and mid-
        sized companies: completion activity is down more than 20%, while the rigs count was
        stable until recently. Halliburton highlighted last week a modest improvement in
        completion activity in Q1 19.
       Bottleneck issues are still present and, even if the risks decreased, they
        will limit the production upside potential until autumn 2019. Right now,
        Midland WTI is trading at the smallest discount to benchmark Nymex crude futures since
        March 2018. WTI Midland +$1.30/bbl. to $2.25 under WTI at Cushing. Port capacity is the
        next bottleneck by 2021.
       Last, but not least, with 2018 as a big vintage on production growth, so
        will the depletion be in 2019: More than two thirds of capex allocated to shale would
        be used to offset the production decline in our view. Capex increases for Big Oils and
        decreases for others.

Infrastructure/Safety

Planned Investment in Energy Sector Corridor

               For FY 2019 – FY 2028

Abilene                             $538   million
El Paso                             $612   million
Lubbock                             $718   million
Odessa                              $1.1   billion
San Angelo                          $486   million

             Total planned investments equals

                $3.4 billion

Safety Statistics in Energy Sector Areas (2010–2017)

                   Reportable Motor Vehicle Traffic Fatalities in Energy Sector Regions
             450

             400

             350

             300
Fatalities

             250

             200

             150

             100

              50

               0
                   2010             2011             2012           2013             2014            2015             2016    2017
                                            Eagle Ford Shale                                      Permian Basin

                          The Permian Basin contains 2% of Texas’ population but has 10% of the state’s traffic fatalities.

PBPA Takeaway Task Force

PBPA Takeaway Task Force

                           NGL
   Gas

           Crude

State Legislative Review

   2017 Texas Legislature
       6,499 bills were filled before deadline
       Tracked over 400 bills, focused on 123
       RRC Sunset and Funding

   2017 New Mexico Legislature
       507 bills passed by legislature
       No bills were passed directly impacting O&G

Texas Focal Points for PBPA

   Railroad Commission Budget

   New State Road Projects and Funding

   COL Increase for RRC, TxDOT & DPS Employees

   Physician Education Loan Repayment Program

   Family Medicine Residency Program

   Eminent Domain

   School Finance

Texas Legislative Action So Far

   Railroad Commission Budget
       House & Senate both Cut RRC request

   New State Road Projects and Funding
       HB 42 – White – Severance Tax Allocation

   COL Increase for TxDOT & DPS Employees
       HB 917 – Craddick – Truck Safety

   Physician Education Loan Repayment Program

   Family Medicine Residency Program

   Eminent Domain
       HB 991 & SB 421 (companion bills)

Texas Legislative Action So Far Continued

   Taxes and Revenues
       Property Taxes
         Around 100 property tax bills introduced so far
         1/3 deal with exemptions
         Tax rate transparency and the creation of real-time tax notices
         Reduction in roll back rates
       School Finance
         Stated to be a priority by the Governor, Lt. Governor, and Speaker of the
          House
         House budget – adds $7 billion (no earmarks)
         Senate budget – adds $4.3 billion (with earmarks)
         HB 569 – Capriglione – School Finance
         HB 665 – K. King – School Finance
         Still awaiting bill containing recommendations from the School Finance
          Commission final report
     Sales Tax
     Franchise Tax

New Mexico Legislative Focal Points

Stem the bleeding. All statewide office holders, and the
majority in both the House and the Senate are of the same
party.

New Mexico Legislative Action So Far

   HB 6 – Tax Changes
   HB 17 – Water Leases & Use of Leased Water
   Road Funding
     HB 188 – Motor Vehicle Excise Tax to State Road Funds
     HB 189 – State Road Fund
     HB 201 – County Road Fund Tax Refund Donation

   HB 206 – Environmental Review Act
   HB 213 – Paid Family and Medical Leave Act
   Renewable Energy
     HB 283 – Increase Renewable Portfolio Standards
     HB 289 – Fund Investment in Renewable Energy
     HB 291 – Renewable Use of Energy Act Changes

   SB 186 – Oil Conservation Division Powers & Duties

January 31st  Petroleum Club of Midland