August 2020 Wellhead

Pre-Statehood Territory for the Five Tribes

Seminole

MCGIRT V. OKLAHOMA

Chickasaw

Cherokee

Creek

Choctaw

Impacts on Oil & Natural Gas

Petroleum Alliance Expresses Disappointment in U.S. Supreme Court Ruling 46

Petroleum Alliance Praises Stitt’s Move to Ensure State Regulatory Primacy 47

McGirt v. Oklahoma Impacts on Oil & Natural Gas 50

AUGUST 2020

David D. Le Norman Chairman

TABLE OF CONTENTS

Brook A. Simmons President

06

Natalie Kinmonth Senior V.P. - Membership & Development Jon Bargas Senior V.P. - Public & Government Affairs Teresa Yoder V.P. - Finance Ellis Ebel Director of Operations/HR

Little Economic Relief for Oklahoma’s Largest Industry in June Sponsored by BITCO

11 Oklahomans are on the Move as Long Recovery Begins

Lauren Burnett Director of Events

20

Bud Ground Director of Regulatory Affairs

Treasurer Says Oil and Gas Bust is Challenge for State Budget

Madison Miller Committee Coordinator & Policy Analyst

34

Annie Parks Membership & Marketing Coordinator

Financial Outlook: Oklahoma Natural Gas Production and the State of the Current Market

Marcy Ayers Partners Program Consultant

46

Valerie Flaherty Receptionist

Petroleum Alliance Expresses Disappointment in U.S. Supreme Court Ruling

This newsletter is produced by

47 Petroleum Alliance Praises Stitt’s Move to Ensure State Regulatory Primacy

500 N.E. 4th St. Oklahoma City, OK 73104 405-942-2334 contact@okpetro.com www.thepetroleumalliance.com

50 McGirt v. Oklahoma Impacts on Oil & Natural Gas

August | 3

A

LETTER

FROM

THE

PRESIDENT

B ROO K A .

SIMMONS The August issue of Wellhead marks a seasonal turning point and, hopefully, the beginning of what may be a long, slow recovery for the industry as its business and funding model evolves.

We pray we have seen the floor for Oklahoma rig activity. Companies that had shut-in production are talking about restarting, with prices hovering around $40.

Morning Fuel guests Chad Michael of Tudor, Pickering, Holt & Co.; Michael France of Intrepid; and Chuck Yates formerly of Kayne Capital Advisors, L.P., spoke in late July about the beginning of forward-looking conversations and “green shoots.”

The mere shock of 2020’s OPEC+ and COVID-19 double black swan events is beginning to wear off. Companies are pivoting to new business models.

Sadly, job losses continue to mount as companies downsize for 2021’s reality. There’s good talent on the street for teams planning something new. The oil and gas sector’s unemployment rate was the second-highest unemployment rate across all sectors of the economy in July, according to a Forbes review of U.S. Bureau of Labor Statistics data. The oilfield services sector continues to be hardest hit.

The Alliance team has been hard at work to create the right Oklahoma and national policy environment to limit above-ground risk going forward.

We pivoted off the landmark U.S. Supreme Court decision in McGirt v. Oklahoma and informed members about its potential consequences through a five-part webinar series featuring Oklahoma Gov. Kevin Stitt, Attorney General Mike Hunter and three panels of legal experts. Simultaneously, we pushed to your leadership, legal, tax and regulatory teams the best legal commentary for planning and budgeting.

The Alliance moved quickly with state officials to tap into a 2005 federal law triggering Oklahoma primacy for the purpose of EPA regulations in Indian country, saving operators tens of millions of dollars and countless manhours over the next three years. We reprint the governor’s letter inside.

Lynn H. Slade, Indian law and oil and gas attorney with Modrall Sperling of Albuquerque, expands on McGirt in this edition.

By the time you read this, The Alliance already will have submitted comments to the Oklahoma congressional delegation to educate and focus our leaders on a legislative solution.

Inside this edition, you’ll also find data for decisions, updates on our opponents’ attack on midstream infrastructure, fresh insight from Capitol Hill and information on members-only programs to help your business cut costs.

Finally, our allies at the Domestic Energy Producers Alliance (DEPA) share details about the fascinating effort to create a waterborne benchmark for U.S. crude oil: American GulfCoast Select.

Read on. Tune in. Be well.

August | 5

LITTLE ECONOMIC RELIEF FOR OKLAHOMA’S LARGEST INDUSTRY IN JUNE Oklahoma Energy Index shows recovery still over the horizon

OKLAHOMA ENERGY INDEX DATE

ENERGY INDEX

Base Year, 2000

100.0

May-19

177.7

Apr-20

101.3

May-20

95.6

1 Month Change

-5.6

1 Month % Change

-5.6%

1 Year Change

-82.1

1 Year % Change

-46.2%

The Oklahoma Energy Index contracted sharply again in June as employment and rig activity fell to levels rarely seen in the 20-year window of the index. What started nearly two years ago as a mild industry contraction matured into a bust of historic significance when paired with a global pandemic.

The most recent great oil boom concluded in the fall of 2014 before yielding to 20 months of contraction with the energy index falling an average of 3.1% per month. The ensuing recovery was less than robust, recovering only a portion of the jobs and income lost in the downturn.

The recovery turned to contraction in 2019 and is now 21 months long, with an average monthly index contraction of 3.4%.

6 | thepetroleumalliance.com

“Unfortunately, it is increasingly difficult to see a quick path to a bottom and even more difficult to see a robust recovery in the near future,” said Dr. Russell Evans, executive director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University.

The index of oil industry activity was down 5.6% in May led by sharp falls in employment and rig activity.

“The industry is shedding jobs with new activity on hold,” said Petroleum Alliance of Oklahoma President Brook A. Simmons. “It could be months until operators can identify an economic and price path forward in which they can have confidence. In the meantime, activity likely will stay muted while companies cut jobs, assets and costs to better align with limited cash flow.”

The early response to the coronavirus pandemic was to close economic and social activity with safer-at-home

and shelter-in-place orders. Crystal Laux, south regional manager with BITCO, said that one consequence of the policy was to immediately impose a broad-based recession on the U.S. economy.

“As states have moved to re-open, the hope is that any recession will go away as quickly as it appeared,” Laux said. “Those who hope for a quick return to economic normalcy, however, may be disappointed. Even without the current widespread increase in positive cases, the economic damage already incurred would take years to fully undo.

“The unfortunate reality for Oklahoma’s oil and natural gas industry is that the U.S. recession is just beginning.

It will be months, at least, before the economy is firmly on the path to economic recovery and energy demand is sufficient to provide prices that will support Oklahoma activity once again,” concluded Laux.

OKLAHOMA ENERGY INDEX SUMMARY DATE

NATURAL GAS PRICE/MMBTU (Monthly Avg.)

BAKER-HUGHES RIG COUNT (Monthly Avg.)

ENERGY PROD. EMPLOYMENT (Thousands)

ENERGY PROD. OK WTI SUPPORT EMPLOYMENT SPOT PRICE (Thousands) (Monthly Avg.)

OK ENERGY PORTFOLIO (Monthly Avg.)

May-19

$2.64

103

50.4

31.4

$60.83

166.5

Apr-20

$1.74

25

38.7

22.0

$16.55

24.2

May-20

$1.75

13

36.1

21.2

$28.56

24.2

1 Month Change

$0.01

-12

-2.60

-0.80

$12.01

-0.1

1 Month % Change 0.6%

-48.0%

-6.7%

-3.6%

72.6%

-0.2%

1 Year Change

-$0.89

-90

-14.30

-10.20

-$32.27

-142.4

1 Year % Change

-33.7%

-87.4%

-28.4%

-32.5%

-53.0%

-85.5%

Source: Steven C. Agee Economic Research and Policy Institute

300 250 200 150 100

May 20

May 19

May 18

May 17

May 16

May 15

May 14

May 13

May 12

May 11

May 10

May 09

May 08

May 07

May 06

May 05

May 04

May 03

May 02

0

May 01

50 May 00

ENERGY INDEX, BASE = 100 IN YEAR 2000

OKLAHOMA ENERGY INDEX

The Oklahoma Energy Index is a comprehensive measure of the state’s oil and natural gas production economy established to track industry growth rates and cycles in one of the country’s most active and vibrant energy-producing states. The current index is a joint project of BITCO, The Petroleum Alliance of Oklahoma, and the Steve C. Agee Economic Research and Policy Institute. *The commentary expressed reflects the opinions and perspective of Dr. Russell Evans, Ph.D., Executive Director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University.

August | 7

2 2 1

3

3 STATE ROUNDUP 1 | Colorado Oil and Gas Sector Blames Democrats for Some of the Industry Decline Some oil and gas leaders in Colorado say COVID-19 has damaged their industry, but they also blame Democrats in the state legislature for the decline in the sector.

Their charge came in a recent virtual roundtable on the industry held by the Northern Colorado Legislative Alliance.

BizWest previously reported oil producers in Weld County cut production by around 60% and plugged thousands of wells between March and April, as the COVID pandemic and resulting stay-at-home orders reduced the need for fuel to power cars and planes and destabilized transport and freight supply chains.

That sudden and dramatic drop in domestic demand was matched by a two-month production and price war between Saudi Arabia and Russia, the world’s secondand third-largest oil producing nations behind the U.S., further depressing global oil prices.

Dan Haley, president of the Colorado Oil and Gas Association (COGA), said there were about 20 rigs drilling new wells across the state at the start of 2019, but between COVID and the implementation of sweeping oil regulations from Senate Bill 181, those active rigs have fallen to five across Colorado. He attributes that decline to Gov. Jared Polis and SB 181 supporters.

“We have more rulemakings happening in downtown Denver than we have rigs running across the state,” he said.

8 | thepetroleumalliance.com

Several local operators in the beginning of the pandemic said they cut drilling rig numbers down to save cash, including Noble Energy Inc. (Nasdaq: NBL) and PDC Energy Inc. (Nasdaq: PDCE).

Doug Dennison, director of community affairs for Denver-based oil exploration firm Highpoint Resources Inc., said the lower interest in drilling has caused layoffs and salary cuts at his company but has hurt vendors and contractors down the chain even harder.

He believes the industry can survive the current drop in oil prices, but uncertainty over how strict the state’s regulatory environment will become is putting additional pressure on producers already hit hard by forces outside state government.

“I hope folks at the Colorado Oil & Gas Conservation Commission and within the governor’s administration recognize this is not the time to keep kicking the gas industry, because we’re just about kicked out,” he said.

Rich Werner, president and CEO of Upstate Colorado Economic Development, said the oil and gas industry has shed about 5,000 jobs since March. The job decline is causing a ripple effect in his region, where service jobs and other commerce that popped up to serve oil workers are feeling squeezed by the loss of customers.

He argues the oil industry will rebound once demand for travel returns in a post-pandemic time, but those companies are becoming more likely to look at setting up new rigs in more friendly states like Wyoming or Texas, and bringing their mobile workforce with them.

“As companies are making immediate decisions on where to invest their resources, they are going to take the path of least resistance,” he said.

Barbara Kirkmeyer, a Weld County commissioner and a Republican candidate for a state Senate district covering Broomfield and parts of Larimer and Weld counties, said the loss of operating remittances from producers in Weld County will cause severe revenue drops to the highly oil-reliant county and the local taxing bodies there.

Oil operators in Colorado remit their property taxes to Colorado counties on a two-year lag, so while the immediate government revenue impact won’t be felt in 2020, the next two years are expected to require deep spending cuts from Weld County.

“So, when they’re talking about the recession that they’ve entered in, they try and say it’s from COVID-19, but it’s really because of the drop-off in oil and gas and those permits,” she said.

appeal his orders.

Energy Transfer has appealed and estimates it would take three months to empty the pipeline of oil and complete steps to preserve it for future use.

The line was the subject of months of sometimes violent protests in 2016 and 2017 during its construction near the Standing Rock Sioux Reservation that straddles the North Dakota-South Dakota border. The tribe took legal action against the pipeline even after it began carrying oil from North Dakota across South Dakota and Iowa to a shipping point in Illinois in June 2017.

The $3.8 billion, 1,172-mile pipeline crosses beneath the Missouri River, just north of the reservation. The tribe draws its water from the river and has concerns about pollution. The company maintains the line is safe.

Originally published by Associated Press/Bismarck Tribune

Kirkmeyer said the county is prepared to make its stances known during a series of rulemakings at the COGCC, but she expects state officials to ignore her and other oil and gas advocates. However, she said the county is prepared to sue the state if it believes it committed errors in the rulemaking procedures.

3 | Nebraska

Originally published by BizWest Media

Nebraskans know well the destructive power of weather.

2 | North Dakota

Take the catastrophic flood in 2019 that caused $3.4 billion in damage, or the 2012 flash drought that sucked $4 billion out of the state. Or the 2.5-mile-wide tornado that smashed into Hallam in 2004.

North Dakota Joins Fight Against Pipeline Shutdown Ordered by the Courts North Dakota officials contend a court-ordered shutdown of the Dakota Access Pipeline will be devastating to the state’s economy and its people. That’s why the state is urging a federal appeals court to block a judge’s order to shut down the controversial pipeline that drew the protests of thousands a few years ago.

North Dakota Solicitor General Matt Sagsveen filed a document Monday supporting operator Energy Transfer’s efforts to keep the oil line open while the Texas-based company appeals.

Sagsveen argued a shutdown will devastate the oil industry and cost North Dakota billions of dollars in tax revenue, hurting programs and residents.

“These definite consequences vastly outweigh the entirely speculative potential harm of a spill or leak while the [study] proceeds,” Sagsveen wrote.

Last week U.S. District Judge James Boasberg ordered the pipeline shut down by Aug. 5 for an additional environmental assessment more than three years after it began pumping oil. Boasberg later rejected a request

by Energy Transfer to halt his order to shut down the pipeline during the lengthy environmental review.

Federal officials who approved the pipeline’s permit to cross the Missouri River notified the U.S. Court of Appeals for the District of Columbia Circuit that they also plan to oppose the judge’s order, The Bismarck Tribune reported.

Boasberg previously ordered the U.S. Army Corps of Engineers to conduct an environmental review that is expected to take more than a year. Department of Justice attorneys representing the Corps notified Boasberg on Monday that the government also plans to

Nebraska Legislators, Scientists make 11th-hour Bid for Climate Change Study

But that’s not what keeps Nebraska’s climate scientists up at night. Instead, it’s the knowledge that as bad as things have been, Nebraska’s weather will become more extreme because of global warming. And the state needs to prepare.

For that reason, Nebraska youths and others have joined with a group of state senators to make an 11th hour push for the Legislature to pass a climate action plan this session, which resumes Monday. And they’re seeking the public’s help, asking that people contact their senators to support Legislative Bill 283, which would fund a study that has stalled for a number of years.

“The implications of this are just incredible for our state — our economy, our social fabric, the health and well-being of Nebraskans,” said Don Wilhite, a retired University of Nebraska-Lincoln (UNL) climate scientist who founded UNL’s Drought Mitigation Center.

“We are going to see more and more extreme events,” he said. Devastating summers like 2012 will become routine in the lifetime of today’s children, he said. Extreme rains, which generate flooding, are already on the increase, research and experience has shown, as the atmosphere becomes soggier as a result of global warming.

To pass, the proposal needs the votes of 25 of the 49 state senators, and it would need 33 votes to overcome a filibuster.

“We need people to support this. We’ve seen what extreme events can do to Nebraska,” said Sen. Patty Pansing Brooks, the original sponsor of the bill.

Young people have been doing just that, said Kat Woerner, a 20-year-old UNL junior from Bellevue.

Letters, cards, phone calls, personal visits and even a

August | 9

so-called climate strike have been used over the past year to promote LB 283. Elementary school children have also contacted legislators, she said.

“LB 283 is so important,” she said. “Not only is it putting us with the 30-plus states that already have one, but it gives young people in Nebraska more hope for the future. This is something we actively think and worry about.”

The planet’s climate systems have entered uncharted territory in the human record, Wilhite said. The Earth’s atmosphere has more heat-trapping carbon dioxide in it than it has in at least 3 million years, and those gases have to fully convert to heat (research buttressing those findings has been aided by UNL).

The study would be conducted by UNL at an estimated $250,000 cost. It might look at a range of things: Should bridges and levees be built higher and wider? What can be done about the increasing risk of fatal heat stress to cattle? How nimbly could agriculture switch to alternate crops if corn is no longer viable? And what happens to the Ogallala Aquifer if Nebraska becomes as hot as southern Texas over the next 80 years?

And then there is the potential of growing the state’s economy, jobs and property tax revenue by cultivating Nebraska wind and solar energy, rather than importing coal from Wyoming.

Nothing in the study would be binding, Pansing Brooks said.

The study is meant to help people plan, said Alan Moeller, a retired assistant vice chancellor of UNL’s Institute of Agriculture and Natural Resources, who is on the team pushing for the plan.

“If we don’t have a plan, then it’s business as usual, and things will continue to get worse,” he said. “People will not have the information and tools they need to adapt…we’re not going to eliminate...damage. But if we can significantly reduce it, we save dollars, we save lives and we protect the environment.”

LB 283 has made it out of committee and is Sen. John McCollister’s priority bill, which means it’s guaranteed an airing over the remaining 17 days of the session.

“This is analogous to the COVID-19 issue, but unlike COVID-19, there’s no vaccine,” he said. “Climate change truly is an existential threat. It’s something we need to deal with...sooner rather than later ,because it only gets more difficult the longer you wait.”

Originally published by Omaha World-Herald

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OKLAHOMANS ARE ON THE MOVE AS LONG RECOVERY BEGINS By: Brook A. Simmons

The Petroleum Alliance of Oklahoma’s headquarters is situated near downtown Oklahoma City’s highway interchanges. It is a good location from which I can attest Oklahomans are on the move again. Post-lockdown traffic is swelling on Interstates 35, 235 and 40. Traffic delays are becoming more frequent.

We welcome the noise – semi-trucks moving consumer goods, breadwinners headed back to the office, buses moving small-town JV basketball teams to big-city clinics.

The anecdotal evidence backs up hard data from Apple showing a statewide 49% increase in Oklahoma driving activity as of June 13 from a mid-January benchmark, surpassing the 32% increase in nationwide driving activity over the same period.

The Energy Information Administration reports gasoline inventories dropped 1.7 million barrels last week and are about 9% above the five-year average for this time of year.

We are hopeful Oklahoma can continue to demonstrate that it can safely reopen. After an increase in new cases, face masks that perhaps had been pocketed last week are again coming out.

Reopening challenges remain a fixture of the pandemic, with Texas now pausing its drive to reopen.

Commercial air traffic in Oklahoma has increased gradually since April but remains significantly below historical average daily departures. According to the Bureau of Transportation Statistics, U.S. domestic airlines carried 96% fewer scheduled service passengers in April than a year ago. Cargo airlines, meanwhile, carried 21% less cargo by weight between U.S. and foreign ports in April compared to the year prior.

For the week ending June 20, the Association of American Railroads reports U.S. rail traffic carloads and intermodal units down 12.9% compared with the same week in 2019, with total North American rail volume down 19.3%.

The EIA reports U.S. crude oil refinery inputs averaged 13.8 million barrels per day for the week ending June 19 – 239,000 barrels per day more than the previous week’s average.

Meanwhile, U.S. commercial crude oil inventories increased by 1.4 million barrels from the previous week.

Inventories are now 16% higher than the five-year average at 540.7 million barrels, not counting the Strategic Petroleum Reserve.

None of us know what challenges the pandemic may yet reveal, but we are cautiously optimistic our increased mobility will yield improved economic results for Oklahoma.

If your employees recently lost health care coverage, they have options.

Help them get the health care coverage they need What is a special enrollment period?

A Special Enrollment Period allows them to sign up for health care coverage outside the regular Open Enrollment window, if there’s been a qualifying event, such as a job loss, getting married, or addition to the family.

What do they need to qualify?

All they need is proof of a qualifying event, such as loss of job, marriage, addition to the family, or other life change. They can see if they qualify at bcbsok.com/SEP.

Can they get financial help?

They may be able to get a premium tax credit or other financial assistance based on their income and family size. They can see if they qualify at bcbsok.com/SEP.

How long do they have to enroll?

Blue Cross and Blue Shield of Oklahoma (BCBSOK) offers different plan options to meet budget and needs.

If your employee(s) recently lost their job and need health coverage, BCBSOK may be able to provide the coverage that’s right for them and their families.

THEY MAY EVEN QUALIFY FOR FINANCIAL HELP. Visit NeedCoverageNowOK.com

or call 844-689-2227 today.

They have 60 days from the date of their qualifying event to enroll in a health plan.

12 | thepetroleumalliance.com

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August | 13

ENERGY INDUSTRY DEDICATED TO SUPPORTING NATION’S INDEPENDENCE By: Mindy Stitt, Executive Director, OERB Celebrating our nation’s independence reminds us to be thankful for the efforts of those who help ensure our continued freedom, especially the men and women in our military. The people of Oklahoma oil and natural gas are also playing a role in supporting this mission by producing essential resources that have made our country energyindependent.

As the third-largest producer of natural gas and fourth-largest producer of oil, every Oklahoman can take pride in the role our state plays in U.S. energy independence. Innovative technologies like hydraulic fracturing and horizontal drilling have led to producing more oil and natural gas more efficiently than ever before while protecting our local communities every step of the way.

Domestic production provides cheaper and cleaner energy here at home while also helping our nation become a net oil and natural gas exporter, something that was once thought impossible. Because of these advancements, our nation is no longer reliant on foreign, and often unfriendly, regimes to supply the energy that fuels our quality of life.

While there may not be any “Made in Oklahoma” stickers attached, the resources produced here are shipped to countless homes and businesses beyond our state lines, powering American progress. Byproducts are used to create 96% of manufactured goods, from cutting-edge technologies to uniform materials like Nomex and Kevlar, which help keep the brave men and women of our nation’s military safe.

Our industry is going through a challenging time right now, but just like our nation’s forefathers, they won’t give up.

The people of Oklahoma oil and natural gas are hardworking, resilient and dedicated to this state and our country.

They will continue to find a way to keep producing the resources that fuel our way of life and support our nation’s independence.

OUR INDUSTRY IS GOING THROUGH A CHALLENGING TIME RIGHT NOW, BUT JUST LIKE OUR NATION’S FOREFATHERS, THEY WON’T GIVE UP.

14 | thepetroleumalliance.com

2020 EVENTS With the ever-changing landscape of 2020, our events program for the remainder of the year will look a little different. Our top priority remains the safety and well-being of our members. In consultation with our Executive Committee, we have made the decision to cancel some of our favorite events. Fortunately, we are moving onto an exciting, new virtual platform for other events where we will continue providing vital and timely information. We greatly appreciate your patience and ongoing support while we navigate these waters and hope we can come together in person again soon.

Please visit www.thepetroleumalliance.com for updated events information and the latest Alliance news.

August | 15

JOIN US FOR MORNING FUEL WEBINARS During this period when we can’t gather in large groups, the Alliance is still dedicated to giving you access to leaders and experts to help you understand our complicated economic environment and manage your teams.

Join us for our weekly Morning Fuel webinars in which we invite guest speakers to discuss how the COVID-19 pandemic affects our industry and state government.

The webinars are a free benefit for our members!

Visit ThePetroleumAlliance.com for the latest schedule and to register.

16 | thepetroleumalliance.com

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PETROLEUM ALLIANCE URGES CARES ACT FUNDS TO PLUG WELLS Plugging abandoned wells boosts economy, puts oilfield workers back to work

The Petroleum Alliance of Oklahoma is urging the Oklahoma Corporation Commission (OCC) to request Governor Kevin Stitt direct federal funding provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to plug abandoned wells — helping to restore jobs for oilfield service workers displaced by the pandemic-driven price crash.

Oklahoma received $1.2 billion in federal funds to be used for COVID-19-related expenses, emergencies and pandemic preparedness.

Governor Kevin Stitt formed a bipartisan legislative advisory work group, Cares Forward, to effectively distribute the CARES Act funds. The formal process to be considered for these funds began June 1.

In a recent letter to the OCC, Alliance president Brook A. Simmons made a formal request for the Governor’s task force to grant a portion of CARES Act funds to the orphan well plugging program. He notes other states are utilizing CARES Act funds to directly support the oil and gas sector. North Dakota approved $33.1 million of its $1.25 billion total CARES Act aid for the state’s oil and natural gas sector, which includes support for plugging orphaned wells. Other oil and gas states also are considering using CARES Act funds to plug wells.

“Oklahoma’s economy is intricately tied to the success of crude oil and natural gas producers, midstream companies, refiners and hundreds of service companies that support the industry or help turn commodities into consumer products,” Simmons said.

“For a state so dependent on the oil and natural gas industry, we should leverage CARES Act funding to support Oklahoma’s bedrock industry and restore jobs for oilfield workers impacted by the COVID-19 pandemic.

It’s a clear way to boost Oklahoma’s economy, with the added benefit of improving our environment and preparing the state for future drilling activity as we recover.”

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TREASURER SAYS OIL AND GAS BUST IS PROBLEM FOR STATE BUDGET In spite of a sharp downturn in oil and gas production tax collections, the Oklahoma economy displayed signs of resiliency in June, State Treasurer Randy McDaniel said as he released the monthly Gross Receipts to the Treasury report this week.

But the June collections continued showing how weak Oklahoma’s oil and gas industry has become in the COVID-19 pandemic and resulting low energy prices.

June collections from the gross production tax, Oklahoma’s severance tax on oil and gas extraction, totaled $19.6 million, down by $72.5 million, or 78.7%, compared to the same month of last year. Compared to May 2020 reports, gross production collections are down by $18.6 million, or 48.7%.

Oil and gas gross production tax collections brought in $829.2 million during the 12 months, down by $323.9 million, or 28.1 percent, from the previous 12 months.

Total receipts in June topped $1.1 billion and were below collections from June 2019 by $56.4 million, or

20 | thepetroleumalliance.com

4.9%. This is marked improvement from April and May, when receipts were below the prior year by 31.8% and 14%, respectively.

“The state economy showed strength in a number of key areas last month,” Treasurer McDaniel said. “However, the large drop in gross production tax receipts due to a decline in global demand shines a light on the challenges faced by a key Oklahoma industry.”

June severance tax receipts are paid on oil and gas production that occurred during April, when the price per barrel of crude oil averaged $16.55 and included an unprecedented drop to negative $36.98 on April 20. Prices have since rebounded to more than $40 per barrel. Nevertheless, June extraction tax receipts are the lowest monthly total in more than 10 years.

In addition to extraction taxes, individual income and sales tax collections were below collections from June of last year. Sales tax was down by 1.9% and individual income tax was off by 0.3%. Corporate income, use and motor vehicle tax receipts were all up by double digits.

June marked the reopening of many businesses that had been closed since mid-March, and state residents had the benefit of $1,200 stimulus payments from the federal government. Even so, the state unemployment rate was last reported as 12.6% with more than 200,000 Oklahomans out of work.

Twelve-month collections, reflecting economic performance during Fiscal Year 2020, total $13.01 billion and are down by $585.5 million, or 4.3%, from Fiscal Year 2019.

The only major revenue source showing growth for the year is the use tax, paid on out-of-state purchases including internet sales.

Economic Indicators The unemployment rate in Oklahoma was reported as 12.6% in May, down from 14.7% in April. The seasonally adjusted number of Oklahomans listed as jobless increased by 170,265 over the year, according to figures released by the U.S. Bureau of Labor Statistics. The U.S. unemployment rate was listed at 13.3% in April.

The Oklahoma Business Conditions Index rose above growth neutral in June, following three months of numbers indicating expected economic contraction. The June index was set at 53.1, up from 43 in May. Numbers above 50 indicate economic expansion is expected during the next three to six months.

an increase of $8.2 million, or 2.1%, from the previous June.

Individual income tax collections for the month are $326.2 million, down by $1 million, or 0.3%, from the prior year. Corporate collections are $81.1 million, an increase of $9.2 million, or 12.8%.

Combined sales and use tax collections, including remittances on behalf of cities and counties, total $470.8 million in June. That is $575,475, or 0.1%, less than June 2019.

June sales tax collections total $404.8 million, a drop of $7.7 million, or 1.9%, from the same month of the prior year. Use tax receipts, collected on out-of-state purchases including online sales, generated $66 million, an increase of $7.2 million, or 12.2%, over the year.

Motor vehicle taxes produced $75.6 million, up by $8.1 million, or 12%, from the same month of 2019.

Other collections composed of some 60 different sources including taxes on fuel, tobacco, medical marijuana, and alcoholic beverages, produced $121.6 million during the month. That is $290,517, or 0.2%, more than last June.

Fiscal Year 2020 Collections Gross revenue totals $13.01 billion during Fiscal Year 2020, July 2019 through June 2020. That is $585.5 million, or 4.3%, below collections from the previous fiscal year.

Gross income taxes generated $4.37 billion for the fiscal year, reflecting a decrease of $226.8 million, or 4.9%, from the prior 12 months.

Individual income tax collections total $3.86 billion, down by $220.8 million, or 5.4%, from the prior fiscal year. Corporate collections are $511 million for the period, a decrease of $5.9 million, or 1.1%, over the previous 12 months.

Combined sales and use taxes for the 12 months generated $5.47 billion, a decrease of $100.8 million, or 1.8%, from the prior fiscal year.

Gross sales tax receipts total $4.73 billion, down by $158.8 million, or 3.2%, during the period. Use tax collections generated $742.8 million, an increase of $58 million, or 8.5%, over the previous 12 months.

Motor vehicle collections total $784.3 million for the fiscal year. This is a decrease of $185,861, or 0.02%, from the trailing period.

June Collections

Other sources generated $1.55 billion, up by $66.1 million, or 4.5%, from the previous period.

June gross collections total $1.1 billion, down by $56.4 million, or 4.9%, from June 2019.

Originally published by OK Energy Today

Gross income tax collections, a combination of individual and corporate income taxes, generated $407.3 million,

August | 21

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OERB SPOTLIGHT OERB CONTINUES EDUCATION MISSION AMID PANDEMIC

The people of Oklahoma oil and natural gas are awarding $205,500 in scholarships to 69 students at state universities for the 2020-2021 academic school year.

The scholarship recipients include freshmen through seniors majoring in petroleum engineering, geosciences or energy management at the University of Oklahoma, Oklahoma State University and the University of Tulsa. The scholarship amount increases annually, with a $5,000 maximum scholarship for seniors. Since 2005, the Oklahoma oil and natural gas industry has provided more than $5 million in scholarships.

OERB Petroleum Scholars also receive exclusive access to industry networking events and educational activities.

The scholarship application period for the 2021-2022 school year will open on Nov. 1. For a list of criteria and to apply online, visit oerb.com/scholarships.

OKLAHOMA OIL & GAS EXPO CANCELED

The 2020 Oklahoma Oil & Gas Expo has been canceled to protect the health and safety of exhibitors and attendees. Originally set for October 15, the event is annually hosted by Sustaining Oklahoma’s Energy Resources and is the largest expo of its kind in the state. This would have been the 24th year.

“The Oklahoma Oil & Gas Expo is a staple in our industry. Despite the difficult decision to cancel, we remain steadfast in our commitment to serve the oil and natural gas industry and will continue to support local businesses and their teams,” said Mindy Stitt, OERB executive director.

The John C. Godwin Memorial Golf Tournament, held along with the Expo, will still occur on October 8 with safety protocols in place according to CDC guidelines. This year the golf tournament will offer unique benefits, including allowing a limited number of participants to exhibit at every other hole, uploading promotional videos to the digital program and hosting a free-to-attend webinar.

“We believe providing a safe way to network is more important now than ever,” said Stitt.

All oil and natural gas companies will also have the opportunity to add their company name and description in a digital directory located on the event website. For more information on registering for the digital program or the golf tournament, visit okoilexpo.com.

26 | thepetroleumalliance.com

OERB WELCOMES NEW MEMBERS TO BOARD OF DIRECTORS

Two new members have joined the board of directors at the Oklahoma Energy Resources Board (OERB): Allen Wright and Christopher Hyde.

Wright is Vice President of Public and Government Affairs at Oklahoma City-based Devon Energy.

“I’m excited to join the OERB’s mission of demonstrating the importance of oil and natural gas to Oklahoma, as well as its strong support of education and environmental stewardship in our great state,” said Wright.

His career spans more than three decades of senior leadership in the public and private sectors, with expertise in stakeholder engagement, reputation development, crisis management and government relations. He oversees teams building Devon’s brand through its relationships with communities and with local, state and federal governments.

Wright has a bachelor’s degree in political science from the University of Oklahoma and a master’s degree in political science from the University of Central Oklahoma (UCO). In 2013, he was honored as a distinguished alumnus of UCO. Wright served on the presidential election campaigns of Ronald Reagan in 1984 and George H.W. Bush in 1988. A lifelong Oklahoman, his public service also includes working as an assistant to Gov. Henry Bellmon, administrative aide to Corporation Commissioner J.C. Watts and chief of staff for Congressman Frank Lucas.

Christopher Hyde currently manages the Health, Environmental, Safety, and Security (HESS) organization for Marathon Oil’s Oklahoma Resource Basin Asset, which includes drilling, completions, production, maintenance and construction operations. He has more than 12 years’ experience with Marathon Oil, both domestically and internationally.

“I am proud to work with the OERB to help serve the people of Oklahoma through the organization’s education and well site cleanup programs, which have had huge impacts across our great state,” said Hyde.

Born and raised in Norman, Oklahoma, Hyde holds a bachelor’s degree in fire protection and safety technology from Oklahoma State University and a master’s degree in energy management from Oklahoma City University. He is also a designated Certified Safety Professional through the Board of Certified Safety Professionals and has completed the Executive Education: Leading Innovative Change course via the University of California, Berkeley.

Created by the Oklahoma Legislature in 1993, the OERB is funded voluntarily by oil and natural gas producers and royalty owners through a 0.0001% assessment on the sale of oil and natural gas. The OERB’s purpose is to conduct environmental restoration of historic well sites and to educate Oklahomans about oil and natural gas.

For more information, visit OERB.com.

August | 27

PAID EDITORIAL Downturns are always rough, but this one feels a little worse. It seems like it was just months ago that we gained independence from OPEC, and here we go again. Experience has proven that when the economy is this slow, D.C. is not likely to do anything that might cause an upward move in the price of crude or natural gas. So, this time feels a little worse.

It is too early to know the number (it will certainly be too big) of dedicated men and women that fought long and hard to help our industry learn to drill sideways and extract hydrocarbons from shale which gained us independence. No doubt they were advocates for higher and stable product prices when they were Oilies. But will they still be advocates?

More and more I am hearing a very bitter tone from good solid folks that had planned to retire as Oilies. There is likely a father of three who has been a roustabout for years and is now forced to sell his welding rig for a down payment to buy a pizza shop. You probably know a very accomplished oil field service sales rep who is now studying to get her real estate license because there is just nothing else available and her bills didn’t stop when her paycheck did. You can’t blame the displaced for feeling that the industry abandoned them, but you can help change that feeling.

Even if there is no need for their experience and knowledge in the field, we still need their support at the polls. Please do what you can to seek them out and do business with them. When you do, you will be reminding them that they are still valued by the industry.

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August | 29

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The Land Doctors have listed three contiguous ranches that offer a unique blend of features. These three ranches are located just north of Ada, OK, 90 miles from OKC, 120 miles from Tulsa and 180 miles from Dallas, making it an easy drive from metro areas. In total, the three ranches contain 1195 acres of land with no public roads passing through it. The ranches can be accessed by paved road frontage along the south boundary and for a very short distance on the eastern edge. There are no major transmission lines crossing the properties while a major pipeline runs along the eastern edge of the ranches. Mostly hidden from view and shielded from the world by other ranches, these properties feel much more remote than they are.

• The 28 acre Eagles Nest provides over one mile of frontage on the South Canadian River.

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30 | thepetroleumalliance.com

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August | 31

EIA OUTLOOK SHORT-TERM ENERGY OUTLOOK Forecast Highlights • The July Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the COVID-19 pandemic continue to evolve. Reduced economic activity has caused changes in energy supply and demand patterns in 2020. Uncertainties persist across the U.S. Energy Information Administration’s (EIA) outlook for all energy sources, including liquid fuels, natural gas, electricity, coal and renewables. The STEO is based on U.S. macroeconomic forecasts by IHS Markit, which assumes U.S. gross domestic product declined by 6.4% in the first half of 2020 from the same period a year ago before rising from the third quarter of 2020 through 2021.

• Daily Brent crude oil spot prices averaged $40 per barrel (b) in June, up $11/b from the average in May and up $22/b from the multiyear low monthly average price in April. Oil prices rose in June as numerous regions worldwide began to lift stay-athome orders and as global oil supply fell as a result of production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+). In June, OPEC+ announced they extended through July their period of deepest cuts that had been set to relax on July 1. EIA expects monthly Brent spot prices will average $41/b during the second half of 2020 and rise to an average of $50/b in 2021, $4/b and $2/b higher than forecast in last month’s STEO, respectively.

• The forecast of rising crude oil prices reflects EIA’s expectation of declines in global oil inventories during the second half of 2020 and through 2021. EIA expects high inventory levels and surplus crude oil production capacity will limit upward price pressures in the coming months, but as inventories decline into 2021, those upward price pressures will increase. EIA estimates global liquid fuels inventories rose at a rate of 6.7 million barrels per day (b/d) in the first half of 2020 and expects they will decline at a rate of 3.3 million b/d in the second half of 2020 and then decline by a further 1.1 million b/d in 2021.

• EIA expects annual average U.S. crude oil production to fall in 2020 and 2021 as forecast West Texas Intermediate (WTI) spot prices remain less than $50/b through

2021. EIA forecasts that U.S. crude oil production will average 11.6 million b/d in 2020 and 11.0 million b/d in 2021. These levels are 0.6 million b/d and 1.2 million b/d, respectively, lower than the 2019 average of 12.2 million b/d. EIA finalized this month’s forecast before a U.S. District Court ordered on July 6 the temporary closure of the Dakota Access Pipeline. The operators of the pipeline have announced they will file a motion to stay the decision.

• EIA forecasts U.S. liquid fuels consumption will average 18.3 million b/d in 2020, down 2.1 million b/d from 2019. Declines in U.S. liquid fuels consumption vary across products. From 2019 to 2020, EIA expects jet fuel consumption to fall by 31% and gasoline and distillate fuel consumption to both fall by 10%.

The declines reflect travel restrictions and reduced economic activity related to COVID-19 mitigation efforts. EIA expects the largest declines in U.S. liquid fuels consumption have already occurred and consumption will generally rise through the second half of 2020 and in 2021. EIA forecasts U.S. liquid fuels consumption will average 19.9 million b/d in 2021.

• EIA expects U.S. dry natural gas production to average 89.2 billion cubic feet per day (Bcf/d) in 2020, down from 92.2 Bcf/d in 2019. This 3% decrease is the result of falling natural gas prices that caused a decline in drilling activity and production curtailments. EIA expects annual average dry natural gas production in the United States will decline by 6% in 2021 to 84.2 Bcf/d. However, EIA expects production to increase during the second half of 2021 as natural gas prices in the forecast rise.

• EIA expects U.S. natural gas consumption will decline by 3% in 2020. The main driver of the decline is lower consumption in the industrial sector because of COVID-19 mitigation efforts and related reductions in economic activity. Forecast U.S. natural gas consumption declines by 5% in 2021 as a result of expected rising natural gas prices. The rising prices will reduce the use of natural gas in the electric power sector, which will more than offset increases in natural gas consumption in the industrial, commercial and residential sectors.

• The Henry Hub natural gas spot price averaged $1.63 per million British thermal units (MMBtu) in June, the lowest inflation-adjusted price going back to at least 1989, as a result of low demand. EIA expects falling production will put upward pressure on natural gas prices through the end of 2021. EIA forecasts that Henry Hub spot prices will average $1.93/MMBtu in 2020 and $3.10/MMBtu in 2021.

• EIA forecasts working natural gas in storage will reach 4,039 billion cubic feet (Bcf) at the end of October, which would be the most U.S. natural gas in storage as of the end-of-October on record. This forecast

level surpasses the previous end-of-October record of 4,013 Bcf reached in October 2016.

• EIA forecasts total U.S. coal production will decrease by 29% to 501 million short tons (MMst) in 2020. This decline largely reflects less demand for coal from the electric power sector and the coal export market. In 2021, EIA expects coal production to increase by 7% to 536 MMst because of forecast rising natural gas prices that make coal more competitive in the electric power sector.

• EIA forecasts 4.2% less electricity consumption in the United States in 2020 compared with 2019. The largest forecast decline occurs in the commercial sector, where EIA expects retail sales of electricity to fall by 7% this year because of COVID-19 mitigation efforts.

Forecast electricity sales to the industrial sector fall by 5.6%. EIA forecasts that residential sector retail electricity sales in 2020 will be similar to 2019 as less electricity use for heating in the first quarter is offset by more consumption during the rest of the year as a result of people spending more time at home. EIA forecasts total U.S. electricity consumption will rise by 1.5% in 2021.

• EIA expects the share of U.S. electric power sector generation from natural gas-fired power plants will increase from 37% in 2019 to 41% this year. In 2021, the forecast natural gas share will decline to 36% in response to higher natural gas prices. Coal’s forecast share of electricity generation falls from 24% in 2019 to 18% in 2020 and then increases to 21% in 2021.

Electricity generation from renewable energy sources rises from 17% in 2019 to 20% in 2020 and to 22% in 2021. The increase in the share from renewables is the result of expected additions to wind and solar generating capacity. The forecast nuclear share of generation averages about 21% in 2020 and will be slightly less than 21% by 2021, which is consistent with upcoming reactor retirements.

• EIA forecasts that energy-related carbon dioxide (CO2) emissions, after decreasing by 2.8% in 2019, will decrease by 12.2% in 2020 and increase by 6% in 2021.

This forecast is highly dependent on assumptions regarding the economic impact and subsequent recovery from COVID-19 mitigation efforts. In addition to economic growth, energy-related CO2 emissions are sensitive to changes in weather, energy prices and fuel mix.

Originally published Administration (EIA)

by

U.S.

Energy

Information

$40 PER BARREL up $11/b from the average in May

19.9 MILLION BARRELS consumption of U.S. liquid fuels

41% GAS-FIRED POWER PLANTS increase from 37% in 2019

August | 33

FINANCIAL OUTLOOK OKLAHOMA NATURAL GAS PRODUCTION AND THE STATE OF THE CURRENT MARKET By: Dr. Dean Foreman, Chief Economist, American Petroleum Institute (API) As U.S. oil and natural gas markets are evolving in response to the COVID-19 pandemic, Oklahoma’s policies have attempted to balance supporting local prices with concerns with the state’s competitiveness, drilling and investment activity and ultimately tax revenues from oil and gas production.

It’s no easy task, however, since Oklahoma’s severance tax revenues fell by nearly $50 million year-over-year in Q1 2020, largely before the onset of COVID-19, and there were only 10 rigs running in the state as of July 24.

When producers are striving to make ends meet in a low-price environment, every penny can matter. Recent events stresses have divided the industry in ways that have been atypical, as producers large and small usually share much common ground when it comes to sound energy policy, infrastructure and markets.

Let’s zoom out and look objectively at where Oklahoma currently stands.

Oklahoma has recently seen its drilling activity level and natural gas market share decrease As Oklahoma’s drilling rig count fell to a record low in Q2 2020, the state’s marketed natural gas production decreased, and its share of total U.S. production dropped fell below 8.0%

Oklahoma marketed natural gas production and share

Natural gas spot prices and drilling rig count Drilling rigs 200

Dollars per million Btu 5

Billion cubic feet per month 300

% 12

275

4

11

150 250

10

3 100

225 9

2 200 1

0 Jan-15

50 Natural gas spot prices at Henry Hub Oklahoma average natural gas spot prices* Oklahoma drilling rig count

Jan-16

Jan-17

Jan-18

* Oklahoma average based on daily spot prices at five trading hubs: OneOK OGT, Panhandle Eastern Pipeline, Southern Star - TX/OK, NGPL MidContinent, and ANR Pipeline Southwest – Kansas sources: Bloomberg, BEA, Baker Hughes

Jan-19

175 0 Jan-20

150 Jan-15

Oklahoma marketed natural gas production Oklahoma share of U.S. marketed natural gas production

8

7 Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

source: EIA

Natural gas prices generally decline as storage builds this time of year, but have been unusually low at below $1.70 per million Btu in July. However, the relative prices that producers in Oklahoma have received has improved, compared those at Henry Hub, over the course of this year.

Specifically, natural gas in Oklahoma traded at an average of $0.53 per million Btu below Henry Hub in December 2019, but this discount steadily fell (that is, relative Oklahoma prices strengthened) so far through 2020: $0.41 per mmBtu in January, $0.32 per mmBtu in February and less than $0.20 per mmBtu in June and July.

These prices have evolved in response to countervailing factors; lower demand due the COVID-19 pandemic has spurred lower prices and subsequently lower production in Oklahoma and elsewhere. The Oklahoma Corporation Commission (OCC) has also prorated natural gas production more stringently since April 1 from unallocated natural gas wells. However, expanded pipeline egress via the Cheniere Midship pipeline with new capacity of 1.1 billion cubic feet per day in April 2020 also came on stream and enabled better market access and more efficient pricing. So, Oklahoma’s natural gas price differential versus Henry Hub has narrowed due to the combination of factors.

34 | thepetroleumalliance.com

It’s notable, however, that Oklahoma’s share of U.S. marketed production fell in April to its lowest level (below 8.0%) since 2013 according to the U.S. Energy Information Administration (EIA). This tells us that natural gas production in Oklahoma has fallen relatively faster than it has in other regions.

One reason for this is the heightened competitiveness of U.S. natural gas markets. Historically, natural gas associated with oil production has been considered the lowest-cost source, but now appears to be on decline with oil production having fallen due to the pandemic. Consequently, this has brought tectonic shifts in recent drilling activity, where for the first time about 90% of U.S. natural gas drilling has become concentrated in Appalachia (Ohio, Pennsylvania and West Virginia) and the Haynesville (east Texas and Louisiana).

With a rise in productivity, nearly 90% of U.S. natural gas drilling is concentrated in Appalachia and the Haynesville BTU Analytics estimates breakeven prices in Appalachia and the Haynesville formation were competitive at recent prices EIA reported record gas well productivity, and with recent market events Appalachia and the Haynesville rose to account for nearly 90% of U.S. natural gas drilling activity

Natural gas estimated breakeven prices – June 2020* Dollars per million Btu (mmBtu) 0 1 2 3 Haynesville Appalachia Northeast PA

June 2020

Natural gas well productivity – production per rig

Natural gas-directed drilling activity

Thousand cubic feet per day nat. gas-equivalent

Drilling rigs

25,000

250

20,000

June 2019 Henry Hub spot price July 20, 2020

Appalachia Southwest PA Appalachia Ohio *Half cycle breakevens assuming 10% discount factor and play-specific costs source: BTU Analytics

200

Appalachia

15,000 Haynesville

10,000 5,000

150

All other

100

Haynesville

50

0 2016

2017

2018

2019

source: EIA Drilling Productivity Report

2020

0 2016

Appalachia 2017

source: Baker Hughes

2018

2019

2020

The shift in drilling activity doesn’t appear to be a fluke. Improvements in dedicated natural gas drilling (that is, largely without associated liquids) have led to record high well productivity per EIA and low estimated breakeven prices for drilling a new well, ranging range between $1.46 per million Btu (mmBtu) and $1.91 per mmBtu in June per BTU analytics. Consequently, Appalachia and the Haynesville represented about 90% of U.S. natural gas drilling in June — the highest ever.

For Oklahoma, these market developments present fiscal challenges. In Q1 2020, severance taxes in the state contributed $246 million, or about 10% of the state’s total tax revenues, according to the U.S. Census Bureau.

But these tax revenues fell by $49 million, or 16.7%, from Q1 2019, largely before the recent market fallout from COVID-19 and other factors.

The outlook for U.S. natural gas prices looks brighter with futures prices on July 28 at $2.76 per mmBtu for December 2020 delivery. Oklahoma needs to participate in a price recovery with increased production, taking measures that encourage, unite and enhance the industry’s ability to help itself and the state. The future is before us.

August | 35

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PIPELINES HAVE A PLACE IN CLEAN ENERGY Efforts to block new natural gas infrastructure are misguided By: Anne Bradbury, CEO, American Exploration and Production Council Last month, two U.S. energy groups gave up their sixyear battle to build a natural gas pipeline, despite fighting all the way to the U.S. Supreme Court to obtain a permit.

Dominion Energy and Duke Energy canned the Atlantic Coast Pipeline just weeks after their high court victory.

They estimated that constructing the 600-mile project, which would have stretched from West Virginia through Virginia to North Carolina, would have created 17,000 jobs and $2.7 billion in economic activity and generated $28 million in annual property tax revenue for local governments.

And, once operational, the pipeline could have reduced energy costs for families and businesses across North Carolina and Virginia as regional coal-fired electric plants were retired in favor of new ones powered by lower-cost natural gas, the companies said. This is especially important during our economic recovery.

But misguided opposition from environmental groups means the pipeline will not happen. That is a shame.

Green activists are wrong to insist that building pipelines is incompatible with improving the environment. Michael Shellenberger argues in an article summarizing his new book, “Apocalypse Never,” that it is unrealistic to expect that we can rely entirely on renewables because that would “require increasing the land used for energy from today’s 0.5% to 50%.”

We must replace dirtier fuels with clean ones. Natural gas, when combusted, has a lower emissions profile than coal, especially when it comes to pollutants that can make people sick at certain levels.

gas for electricity, heating, cooking and other purposes.

By cutting off the distribution of Appalachian natural gas by stopping the pipeline or seeking to ban it from new construction in New York, activists are prioritizing short-term wins at the expense of long-term reductions in emissions.

The demand for fuel will be filled, but not with renewables.

One can see this in the Northeast U.S., where liquefied natural gas was imported from Russia in 2018 to meet power needs. Perversely, restricting natural gas supply is likely to lead some fuel users to switch back to coal, a clear loss for the environment.

The Atlantic Coast Pipeline, and pipelines like it across the nation, is the infrastructure needed to continue to derive benefits from the U.S. shale revolution, which has powered our economy, supported good jobs and strengthened our national security.

Natural gas use has also furthered actual improvements in the environment. According to the U.S. Energy Information Administration, American natural gas consumption increased by 3% in 2019, reaching a record 85bn cubic feet per day. Natural gas now accounts for the largest share of electricity generation, after first surpassing coal in 2016. Between 29,000 and 62,000 miles of new pipeline will be needed over the next 25 years to accommodate rising energy demand.

Yet the Atlantic Coast Pipeline experience shows that the U.S. will struggle to develop the necessary gas pipeline.

In that case, the real losers will not be “big oil.” Rather, they are the consumers who will have fewer choices for their power sources and the environment if more people turn to more polluting choices.

Increasing use of natural gas has caused U.S. carbon dioxide emissions to reach their lowest levels in a generation, principally a result of coal-to-gas switching by power plants.

It is time to step back, reassess the way we are approaching this issue and hold a data-based debate grounded in the realities of the possible. Without it, we are delegating our environmental policy to activists who are singularly focused on what they do not want rather than open to all options.

About half of all American homes already use natural

Originally published by Financial Times

38 | thepetroleumalliance.com

HOUSE DEMS USE ANNUAL SPENDING BILLS TO ADVANCE ANTI-HYDROCARBON AGENDA By: Tim Stewart, President, U.S. Oil and Gas Assocation

The 2020 election is just around the corner, and the New Green Deal (NGD) has landed. The Democratic U.S. House and the Biden-Sanders Unity Platform is feeling giddy and has used the Fiscal Year 2021 appropriations process to move into the early implementation phase for a post-November Biden-Sanders Administration.

No, they don’t like oil and gas. Yes, House Democrats have used the spending bill that funds operations of the U.S. Department of the Interior to restrict development of the next five-year plan and Outer Continental Shelf seismic testing, as well as to cut Bureau of Land Management’s oil and gas management programs. Bill authors also have increased funding for inspections and enforcement for oil and gas operations. No surprises there.

Our congressional opponents have used budget sleight-of-hand to (in some cases) double the budgets for agencies to begin implementing the NGD and Unity Platform priorities. By piggybacking the use of “emergency” spending authority on top of the annual appropriations for agencies, House Democrats are attempting to fund multiple NGD priorities using COVID-19 as cover.

The use of this gimmick provides the Environmental Protection Agency (EPA) with $13 billion in “emergency” funding alone, a number greater than the agency’s entire annual budget — which it also receives.

An additional $23.5 billion in “emergency” spending nearly doubles the Department of Energy (DOE)’s budget in response to the pandemic. The bill proposes upgrades to the grid and other avenues to promote clean energy adoption, which its authors are selling as a real “emergency.” Approximately $7.5 billion would be provided for efficiency and renewable energy projects — all under the guise of “pandemic” spending.

Don’t worry, though, because this new money does come with instructions.

For example, in House Democrats’ Energy and Water Appropriations bill — which funds the U.S. Army Corps of Engineers, U.S. Department of Energy and several smaller agencies such as the Bureau of Reclamation — Congress instructs the DOE to remove barriers for the adoption of “renewable energy and other low emissions technologies for low-income households” and to include an update on its electric vehicle community

partner project that “supports charging infrastructure deployment in disadvantaged communities.”

The lack of charging infrastructure for Teslas in lowincome communities is definitely an “emergency.” Sure.

Within the Interior and Environment Appropriations bill we find report language instructing the EPA to develop a new definition of environmental justice for disproportionately exposed communities. From the committee report instructing a redefinition of environmental justice to classify which communities receive priority: “The definition should include: communities in which climate change, pollution, or environmental destruction have exacerbated systemic racial, regional, social, environmental, and economic injustices by disproportionately affecting indigenous peoples, communities of color, migrant communities, deindustrialized communities, depopulated rural communities, the poor, lowincome workers, women, the elderly, the unhoused, people with disabilities, or youth. The Agency is expected to incorporate this definition into its ongoing environmental justice work.”

It is not hard to read between the lines on this one and make a connection between billions in new spending and redefining priority constituencies.

Fortunately, the Republican-controlled Senate should put the brakes on this overreach, but we now have a small preview of what the taxpayer can expect if November brings a new direction.

We could go on, but this nugget from page 109 of the Department of Defense spending bill pretty well sums it up: “COMPOSTING OF SHREDDED GOVERNMENT DOCUMENTS The Committee encourages the Secretary of Defense to study the financial and environmental impacts of composting shredded government documents.”

Yes — China, Iran, Russia, drug cartels, pandemics and other national security issues are important. Is the same really true of composting? We must keep our priorities in line.

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American GulfCoast Select

Establishing a New Benchmark to More Accurately and Reliably Price Crude Oil in America

O

n a Board of Directors conference call in early June, Domestic Energy Producers Alliance (DEPA) Chairman Harold Hamm laid out a plan to move the trading of American crude oil to a new market. American GulfCoast Select (AGS) was being formed, and his hope was to have this new platform trading by the end of the year. Two weeks later two leading oil price reporting agencies, Argus and Platts, separately launched new U.S. crude benchmarks as part of an effort to reflect the growing importance of the U.S. Gulf Coast as a major export hub.

The Reasons are as Follows: • • • • • •

The current benchmark is landlocked and not reflective of the migration to a waterborne marketplace.

It is pipeline-constrained, not accurately accounting for new available infrastructure.

The current benchmark is too disconnected from the actual physical and world markets.

Cushing has a finite storage capacity, while the Gulf Coast offers near limitless storage options.

The Gulf Coast represents both the domestic market and international market.

It is imperative to have water access to make a viable market.

What’s Changed?

America is once again an energy superpower. Thanks to the American energy renaissance, the U.S. is the number one producer of oil and natural gas on the planet.

In 2015, the oil export ban was lifted and America began to participate in the global markets rather than being landlocked within the U.S. In 2019, we achieved energy independence and became a net exporter of oil and petroleum products. Our role as an energy exporter has grown exponentially and has the potential to double in the next five years.

We need a pricing mechanism as an option to better serve the American market, recognizing two factors: the epicenter of American energy has migrated to the Gulf

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Coast, and we are now exporters to the global markets of highly sought-after light, sweet crude.

Why Now? It’s a natural migration from land-locked to waterborne.

The existing WTI/Cushing market is one of two remaining land-locked benchmarks. Storage issues disappear as a result of being on the Coast. The amount of liquids flowing in and out of the complex, as well as the storage, far exceeds Cushing. As the demand for energy increases, so too will the Gulf Coast infrastructure.

The Gulf Coast is now home to the largest refining and petrochemical complex in the world, with billions of dollars more in projected investment. The pipelines, refining, shipping, transport and intellectual capital have all migrated here. The new benchmark would provide more transparency, more efficiencies and better reflect actual market conditions. In short, it would better align with where we are headed in the future. It is imperative to have a viable delivery period with multiple delivery points or a cash settlement.

Migration to the Gulf Coast Over the last decade, the majority of infrastructure that supported the resurgence of American energy migrated from middle America to the American Gulf Coast.

Tens of billions of dollars of investment in production, pipelines, storage and refining have created a new epicenter of hydrocarbon energy, replacing the obsolete and landlocked past. Many refineries in the Midcontinent have shut down, resulting in approximately 50% refinery capacity in the Gulf Coast, creating the largest refinery complex in the world.

The inflow of daily volumes of light, sweet crude oil into the Gulf Coast eclipse the Cushing market. Storage in Cushing, exempting line fill, is 76 million barrels, while storage on the American Gulf Coast is nearing 391 million barrels. Of that capacity, refiners hold 73 million and tank farms hold 317 million, and with available waterborne vessels, storage becomes nearly limitless.

Issues with WTI Have Impacted Transparency, Liquidity, and Market Accuracy In early March came the COVID-19 shock. Global markets entered a period of volatility and chaos. Demand was crushed as governments around the world ordered shutdowns. Then came the destructive, ill-timed decisions by the Saudis and Russians to temporarily flood the market by increasing production. Long standing issues with the West Texas Intermediate (WTI) benchmark have impacted transparency, liquidity and market accuracy.

What happened on April 20 is being investigated by the Commodities Futures Trading Commission (CFTC), and the CFTC issued an advisory on May 13, 2020 reminding exchanges of their obligations under the Core Principles of the Commodities Exchange Act due to the “unusually high volatility and negative pricing experienced in the May 2020 physically delivered WTI contract…on April 20 (CFTC Letter 20-17).” Regardless of the outcome, what is clear is that these events exposed serious concerns about whether the WTI benchmark is outmoded or flawed. On April 20, WTI actually closed at minus $37 a barrel. There are serious concerns that an anachronistic system may have resulted in incorrect signals and information that did not accurately reflect the actual physical marketplace and conditions.

“T

his is a pivotal step for the oil and gas industry as a new, waterborne benchmark is necessary to competitively market America’s growing crude oil supply.

We appreciate the work Platts and others have put forth to move American oil and gas to a more competitive market. Since the oil export ban was lifted in 2015, American producers began migrating to global markets rather than being landlocked in the U.S.,” said Chairman Harold Hamm.

Changes since 2004

+2 million bbls/day -2 million bbls/day On June 25, S&P Global Platts announced the creation of Platts American GulfCoast Select, a new benchmark which will serve as a more accurate and reliable source for pricing crude oil in America.

On June 26, Argus Media announces it is also seeking to break away from the traditional landlocked system.

The Domestic Energy Producers Alliance is a proud member of the AGS Best Practices Task Force Association, in which DEPA chairman Harold Hamm is also serving as chairman.

“America remains the number one producer of oil and natural gas on the planet, and this new benchmark better aligns with where American energy is headed in the future. I commend Platts as well as the other members of this task force for recognizing the need and moving expeditiously to better unleash American energy to the world,” Hamm added.

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www.lagoonwater.com info@lagoonwater.com (405) 900-6900

Servant Mindset Focus on People Stewardship Safety Integrity

Serve our customers, our community, and our employees Treating others with dignity and respect Be good stewards of our environment and corporate resources Keeping safety at the forefront of everything that we do Doing the right thing, even when no one is looking and even when it’s difficult

August | 43

Downstream Update

RFS TARGETS ARE BASED ON OUTDATED PROJECTIONS — NOT AMERICA’S REALITY Corn farmers and ethanol producers continue to claim small refinery exemptions have undermined the Renewable Fuel Standard — the federal law that requires increasing amounts of biofuels to be blended into the motor gasoline and diesel supply. The corn perspective is that it’s possible to blend at least 15 billion gallons of ethanol into the fuel supply this year and small refinery exemptions are what’s getting in the way of that evasive target.

Small refinery exemptions (SREs) are not the problem. EPA could mandate a full 15 billion gallons with zero SREs and the fuel supply would still only be able to accommodate about 14.3 billion gallons of ethanol.

The limiting factor for ethanol consumption is, and has always been, the blend wall — a term signifying the limit to how much ethanol the fuel supply can actually handle, based on fuel and vehicle infrastructure and consumer demand.

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The blend wall can change as infrastructure and demand change, but through the course of RFS it’s been roughly 10 percent of the motor gasoline supply. This makes sense given that roughly 95 percent of gas sold in the U.S. is E10 (gasoline that is 10 percent ethanol), a fuel compatible with almost every car on the road.

The overarching problem with an RFS program that mandates more and more biofuel blending every year is that gasoline demand today is much lower than government projected 14 years ago. When the RFS was written, Congress thought the U.S. would be consuming about 165 billion gallons of gasoline this year instead of the approximately 140 billion gallons we’ve actually used in recent years (which is even lower now due to COVID-19). RFS volume targets in the 2007 law are based on projections that haven’t come to pass. If the U.S. was consuming 160 billion gallons of gasoline, we would easily consume 15 billion gallons of conventional corn

ethanol and likely more. But with today’s fuel consumption, there’s literally nowhere for extra ethanol to go once the blend wall is hit.

When those guiding projections are considered, it is clear Congress never intended RFS volume mandates to exceed the E10 blend wall.

Denying relief to small refineries and making the RFS mandate bigger through volume reallocation will not change the reality of the blend wall, grow the capacity of the fuel supply or inspire more consumers to buy E15 and flex fuels. That’s the hard truth about RFS volume reallocation.

It’s not going to deliver a meaningful uptrend in ethanol consumption.

It will lead to higher compliance costs and more imports of foreign biodiesel, neither of which support the aims of the RFS’s parent bill, the Energy Independence and Security Act of 2007.

Originally published by American Fuel & Petrochemical Manufacturers (AFPM)

Midstream Update

PIPELINES CAN HELP US BUILD A BETTER TOMORROW By: Rob Benedict, Senior Director of Petrochemicals, Transportation and Infrastructure, American Fuel and Petrochemical Manufacturers Although the notion of strengthening U.S. infrastructure is generally met with broad support, pipelines are one key component of our energy infrastructure that face growing misconceptions. Pipeline projects have faced increasing activist opposition, and this year we’ve seen these projects litigated at all levels of the courts. As one of most contentious elections we’ve seen in decades approaches this November, pipelines will continue to be a divisive issue. But whatever the outcome, the president and U.S. policymakers must fully recognize the importance of energy infrastructure, including pipelines, and strike a balance between effective environmental stewardship and America’s need for reliable and affordable energy.

U.S. refineries and petrochemical facilities rely on midstream infrastructure — the integrated system of pipelines, storage facilities, railroads, ports, waterways and roads — as a vital link to sources of crude oil and other feedstocks.

This same infrastructure also connects downstream facilities to regional storage terminals, and ultimately to retail outlets. It

connects our supply chains, ensures Americans have reliable access to energy and provides drivers with the affordable transportation fuels they rely on every day. During the recent COVID-19 pandemic, the midstream system has been critical in helping our industries continue to supply medical equipment and other critical products used in the battle against COVID-19.

The ongoing pipeline debate and associated policies are bound to have significant impacts on the U.S. refining and petrochemical industries. In 2019 alone, U.S. refineries received over 4.4 billion barrels of crude oil via pipeline, almost 72% of their total crude receipts . While a robust network of over 224,000 miles of pipeline in the U.S. serves as the indispensable vessels and veins of American energy, a multitude of experts, academics, industry leaders and government officials argue that additional pipeline capacity is still needed.

Experts continue to underscore that pipelines are safer than other modes for transporting energy products. Jude Clemente, an energy academic and frequent contributor to reports commissioned by the U.S. Department of Energy and the International Energy Agency,

wrote in Forbes last year that “pipelines are easily the safest and most economical way to transport energy.” For example, a 2018 report authored by the Department of Transportation indicates that pipelines result in less spillage on a percentage basis than any other major shipping mode, including rail and trucking .

Pipelines are also more economical, allowing for the transport of energy products at a much lower cost and the potential for lower energy prices for consumers. Lawmakers on both sides of the aisle have argued that pipelines can often be a help to lower income communities, which simply cannot bear the burden of higher energy costs. Despite abundant U.S. production of petroleum products, policies unsupportive of pipeline projects in places such as California and New England can mean that buyers turn to imported sources from overseas, often at higher cost than would otherwise be available via a pipeline.

For the sake of a healthy U.S. economy and the ongoing strength and vitality of the U.S. petroleum sector, which creates millions of jobs both upstream and downstream, we need to ensure that the rules and statutes addressing pipelines and energy infrastructure projects reflect the requirements of today and tomorrow, not outdated policies that date back to the 1960s and 1970s.

Such policies should strike a balance between thorough environmental reviews and timely approvals to ensure adequate investment in and the success of pipeline projects.

Federal, state and local governments need to continue working with private industry to invest in improvements, and our policies must do a better job of providing regulatory certainty and promoting innovation. Investments into U.S. energy infrastructure and pipelines are investments into our quality of life, our energy security and our ability to continue driving progress at home and abroad.

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Pre-Statehood Territory for the Five Tribes

Seminole

MCGIRT V. OKLAHOMA

Chickasaw

Cherokee

Creek

Choctaw

Impacts on Oil & Natural Gas

PETROLEUM ALLIANCE EXPRESSES DISAPPOINTMENT IN U.S. SUPREME COURT RULING INDUSTRY ASSOCIATION SAYS STATE MUST MAINTAIN PRIMACY IN OIL AND NATURAL GAS REGULATION Petroleum Alliance of Oklahoma President Brook A. Simmons released the following statement in response to the U.S. Supreme Court ruling in McGirt v. Oklahoma.

“The Petroleum Alliance of Oklahoma is disappointed in today’s majority opinion in McGirt v. Oklahoma, but we are moving forward to work with the state of Oklahoma, the tribes and Oklahoma’s congressional delegation to ensure that our members continue to have a stable, predictable regulatory and tax environment consistent with their interests,” Simmons said.

“It is critical for continued investment in Oklahoma that the state maintain primacy with regard to the regulation of oil and gas operations, and that issues of title with regard to real property remain unaffected.”

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PETROLEUM ALLIANCE PRAISES STITT’S MOVE TO ENSURE STATE REGULATORY PRIMACY Governor triggers federal law to prevent disruption and protect Oklahoma water, air and lands On July 22, the Petroleum Alliance of Oklahoma applauded Gov. Kevin Stitt’s quick action to protect Oklahoma’s water, air and lands by triggering a federal law ensuring state regulatory agencies have primacy in Indian country.

In response to a recent U.S. Supreme Court ruling, Stitt officially requested that the administrator of the U.S. Environmental Protection Agency (EPA) activate an Oklahoma-specific provision in the 2005 federal highway bill to give state agencies primacy on environmental regulations in Indian country.

“Governor Stitt delivered for all Oklahomans regardless of whether they are tribal members or non- Indians,” said Alliance President Brook A. Simmons. “He acted to make sure trusted and experienced state agencies like the Oklahoma Department of Environmental Quality; Oklahoma Corporation Commission; Oklahoma Water Resources Board; and Oklahoma Department of Agriculture, Food and Forestry can continue to enforce regulations delegated to the state by the EPA in Indian country.”

“This action was absolutely critical to provide regulatory certainty for businesses, farmers, ranchers, landowners and every state resident in the aftermath of the U.S. Supreme Court’s ruling in McGirt v. Oklahoma. We applaud Governor Stitt and his team, including Secretary of Energy & Environment Kenneth Wagner, for their leadership and decisive action.”

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THE STATE OF OKLAHOMA’S REQUEST TO ADMINISTER EPA-APPROVED ENVIRONMENTAL PROGRAMS IN AREAS OF THE STATE THAT ARE IN INDIAN COUNTRY Dear Administrator Wheeler: Consistent with the extent to which Oklahoma implemented environmental programs throughout the state prior to the U.S. Supreme Court’s recent decision in McGirt v. Oklahoma, 591 U.S. (2020), the State of Oklahoma requests approval to administer all U.S. Environmental Protection Agency (EPA) -approved environmental programs in areas of the state that are in Indian Country (except as outlined below under “Exceptions to Request”) pursuant to § 10211(a) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act of 2005 (SAFETEA), Public Law 109-59, 119 Stat. 1144 (Aug. 10, 2005).1 This request includes all Oklahoma environmental programs approved by the EPA and specifically includes but is not limited to the following programs: Oklahoma Department of Environmental Quality: Land Protection Division • Resource Conservation and Recovery Act (RCRA) Programs • Subpart C hazardous waste program, 40 C.F.R. Part 262, Subpart LL • Subpart D permit program, 59 Fed. Reg. (Aug. 16, 1994) • Coal Combustion Residual (CCR) State Program: program approval, 83 Fed. Reg. 30356 (June 28, 2018) Safe Drinking Water Act, 42 U.S.C. § 300h et seq., Underground Injection Control Programs • Underground Injection Control (UIC) for Classes I, III, IV and V wells, 40 C.F.R. Part 147, Subpart LL, § 147.1850 Air Quality Division • Clean Air Act Programs • State Implementation Plan (40 C.F.R. Part 52, Subpart LL, §§ 52.1920 – 52.1960) • State Operating Permits Program (Title V Program), 40 C.F.R. Appendix A-2, Part 70 (State of Oklahoma) • Standards of Performance for New Stationary Sources (NSPS), 40 C.F.R. Part 60, Subpart A, § 60.4(b)(38) • National Emission Standards for Hazardous Air Pollutants (NESHAP), 40 C.F.R. Part 61, Subpart A, §§ 61.04(b) (38) and 61.04(c)(6)(iv) • Approval and Promulgation of State Plans for Designated Facilities and Pollutants, 40 C.F.R. Part 62, Subpart LL, §§ 62.9100 et seq.

• National Emission Standards for Hazardous Air Pollutants (NESHAP), Delegation Status for Part 63 Standards State of Oklahoma, 40 C.F.R. Part 63, Subpart A, § 63.99(a)(37) • Lead-Based Paint Activities in Target Housing and Child-Occupied Facilities (Lead-Based Paint Program), 63 Fed. Reg. 49574 (Sept. 16, 1998) • Lead-Based Paint Renovation, Repair and Painting, and Pre-Renovation Education Activities in Target Housing and Child Occupied Facilities (RRP Program), 79 Fed. Reg. 1799 (Jan. 10, 2014) • Ambient Air Monitoring Reference and Equivalent Methods, 40 C.F.R. Part 53 and Ambient Air Quality Surveillance, 40 C.F.R. Part 58 Water Quality Division • Clean Water Act, 33 U.S.C. §1251 et seq., Delegated Programs • Water Quality Related Effluent Limitations, 33 U.S.C. § 1312 • Effluent Limits, 33 U.S.C. § 1311 • National Performance Standards, 33 U.S.C. § 1316 • Toxic and Pretreatment, 33 U.S.C. § 1317 • National Pollutant Discharge Elimination System, 33 U.S.C. § 1342 • Disposal of Sewage Sludge, 33 U.S.C. § 1345 • Safe Drinking Water Act, 42 U.S.C. § 300f, et seq., Primacy Programs • Interim Enhanced Surface Water Treatment Rule • Arsenic Rule • Stage 1 Disinfection Byproducts Rule • Public Notification Rule • Consumer Confidence Rule • Radionuclide Rule • Administrative Penalty Authority • Filter Backwash Recycling Rule

This request is only seeking approval to the extent that such approval is necessary for the state to administer a program in light of Oklahoma Dept. of Environmental Quality v. EPA, 740 F.3d 185 (D.C. Cir. 2014) and the Stigler Act, 25 U.S.C. §§ 331 et seq.

1

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• Long Term 1 Surface Water Treatment Rule • New PWS Definition • Lead and Copper Rule • Stage 2 Disinfection Byproducts Rule

• Long Term 2 Surface Water Treatment Rule • Ground Water Rule • Revised Total Coliform Rule • Variance and Exception Rule

Oklahoma Department of Agriculture, Food and Forestry • Clean Water Act, 33 U.S.C. §1251 et seq., Delegated Programs • National Pollutant Discharge Elimination System, 33 U.S.C. § 1342 (includes concentrated animal feeding operations, pesticides and storm water from agricultural construction) Oklahoma Water Resources Board • Clean Water Act, 33 U.S.C. §1251 et seq.

• Water Quality Standards and Implementation plans, 33 U.S.C. § 1313 Oklahoma Corporation Commission • State Underground Storage Tank Prevention Detection and Compliance (2 C.F.R. § 200; 2 C.F.R. § 1500; 40 C.F.R. § 33; 40 C.F.R. § 35(a)) • Leaking Underground Storage Tank Trust Fund Program (Corrective Action) (2 C.F.R. § 200; 2 C.F.R. § 1500; 40 C.F.R. § 33) • State & Tribal Response Program (2 C.F.R. § 200; 2 C.F.R. § 1500; 40 C.F.R. § 33; 40 C.F.R. § 35(a)) • State Underground Water Source Protections (2 C.F.R. § 200; 2 C.F.R. § 1500; 40 C.F.R. § 33; 40 C.F.R. § 35(a); 40 C.F.R. § 147.1851) EXCEPTIONS TO REQUEST This request does not seek approval to administer any programs in Indian country on lands, including rights-of-way running through the same, that 1. Qualify as Indian allotments, the Indian titles to which have not been extinguished, under 18 U.S.C. § 1151(c); 2. Are held in trust by the United States on behalf of an individual Indian or Tribe; or 3. Are owned in fee by a tribe, if the tribe • acquired that fee title to such land, or an area that included such land, in accordance with a treaty with the United States to which such tribe was a party; and • never allotted the land to a member or citizen of the tribe.

Furthermore, this request does not seek approval to administer the Oklahoma Corporation Commission (OCC)’s UIC Program for Class II wells (40 C.F.R. Part 147, Subpart LL, § 147.1851) in Osage County, Oklahoma.

The environmental programs covered by this request include but are not limited to programs administered by the following state agencies: the Oklahoma Department of Environmental Quality; the Oklahoma Department of Agriculture, Food and Forestry; the Oklahoma Water Resources Board; and the OCC. The State of Oklahoma reserves the right to amend this request or make future requests for approval pursuant to SAFETEA. Thank you for your consideration and action on this request. If you have any questions or need further information, please contact Kenneth E. Wagner, Oklahoma Secretary of Energy & Environment, at Kenneth.Wagner@ee.ok.gov or (405) 522-7099.

Sincerely, Kevin Stitt Governor of the State of Oklahoma

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MODRALL SPERLING LAWYERS ON MCGIRT V. OKLAHOMA By: Lynn H. Slade, Sarah M. Stevenson, Deana M. Bennett

We provide the following comments on the July 9, 2020, decision of the Supreme Court in McGirt v. Oklahoma, No. 18–9526, reversing a decision of the Oklahoma Court of Criminal Appeals, and Sharp v. Murphy, No. 17-1107, affirming a decision of the Tenth Circuit Court of Appeals.

As we know this opinion has been widely covered in the news, these comments focus on the points we expect to be of most interest to affected Oklahomans within lands now declared “reservation” lands and suggest ways to deal with this decision in daily work — recognizing, of course, that Congress, the state and the tribes may act to change the landscape.

Jimcy McGirt was convicted in Oklahoma state court of three serious sexual offenses. He challenged his convictions on grounds he is an enrolled member of the Seminole Nation of Oklahoma, his crimes took place on the Creek Reservation and, under the Major Crimes Act, 18 U.S.C. § 1151(a) (MCA), which provides such crimes, if committed by an Indian “within the Indian country,” can only be prosecuted in federal courts. Mr. McGirt and the Muscogee (Creek) Nation, as amicus curiae, contended the lands set aside for the Creek by an 1833 treaty, reduced in size by agreement as reflected in an 1866 treaty, were a “reservation,” within the meaning of the MCA that Congress had not terminated or “disestablished,” so still “Indian country.” The two treaties promised that “no portion” of the Creek reservation “shall ever be embraced or included within, or annexed to, any territory or state.” The Supreme Court granted certiorari to review the Oklahoma Court of Criminal Appeals’ denial of Mr. McGirt’s post-conviction appeal, after it was unwilling to rule 4-4 on last term’s Sharp v.

Murphy case in which Justice Gorsuch recused.

The Majority Decision Justice Gorsuch’s majority opinion recognized that Congress had “the authority to breach its own promises and treaties,” but to “break the promise of a reservation, it must say so.” Op. 8. The arguments between Justice Gorsuch’s majority and the dissent of the Chief Justice and three other justices, with a separate dissent of Justice Thomas, square off over the weight to be accorded to statutory text, on the one hand, and history, on the other, in assessing whether Congress has so spoken, and just 50 | thepetroleumalliance.com

how overtly, and through what words, Congress must express such intent. The majority recognized Congress had abolished Creek communal landholdings, provided all tribal lands be transferred to tribal members who could then sell them within a few years, abolished tribal courts and taxing power, made non-tribal law applicable to all persons “regardless of race,” limited the Creek Council from sitting over 30 days a year, made its resolutions ineffective unless approved by the president and provided at one point the Creek government “shall not continue” past 1906 (though it ultimately was allowed to continue with severely reduced tribal powers). Nonetheless, the Supreme Court held these and other expressions did not provide the express statutory language found in some other cases it had decided, though those cases arose in very different circumstances.

The majority dismissed the state’s evidence all participants in the governance of the Creek former lands, as evidenced by federal administrative actions, state criminal prosecutions, the dramatic demographic shifts following statehood and even Creek leadership understood any reservation had been, or was being, terminated. Far more than in earlier decisions, Justice Gorsuch castigates the state and the dissent for “substituting stories for statutes.” Op. 21. The majority addresses each such “serious blow” to Creek sovereignty separately, bemoaning the absence of “a statute requiring that result.” Op. 20. However, it does not address their cumulative reflection on congressional intent. In a lengthy factually and legally detailed dissent, the Chief Justice dismisses these analyses “as a school of red herrings.”

Roberts, Dissent 9. Finally, the majority rejects the state’s arguments the Creek never had a “reservation” and the MCA did not apply in Eastern Oklahoma.

The majority decision is clear as to the decision’s criminal consequences: the Creek reservation is intact for criminal purposes under the MCA. As to concerns raised by the dissent, the state and some amicus briefs (including that joined in by the Petroleum Alliance) of unsettling civil law consequences, the majority recognizes specific federal statutes hinge jurisdictional consequence on “Indian country” status but sounds a skeptical note as to the magnitude of the decision’s effect on the many

non-Indians living on the great preponderance of nonIndian fee lands within the “reservation” area. Op. 39-42.

As to non-Indian residents, businesses and governments and their reliance on the non-reservation status of the area, Justice Gorsuch states: “Still we do not disregard the dissent’s concern for reliance interests…many other legal doctrines — procedural bars, res judicata, statutes of repose, and laches, to name a few — are designed to protect those who have reasonably labored under a mistaken understanding of the law.” Op. 41. Finally, the majority suggests cooperative agreements between the state and tribes may address difficulties the new jurisdictional pattern presents and “Congress remains free to supplement its statutory directives about the lands in question at any time.” Op. 41-42 The Decision’s Effect McGirt should not upset non-Indian titles to real property. However, it turns criminal law upside down within the Muscogee (Creek) area, and likely within the former areas of the four Five Civilized Tribes, which have very similar statutory and jurisdictional histories.

However, its civil implications are a far different story.

Although the general rule is that tribes are presumed to lack jurisdiction over non-Indians, particularly on non-member-owned lands, a determination the Creek reservation remains in place leaves several potential theories to assert tribal civil law authority. As the dissent develops, Roberts, Dissent 36-38, state regulation within “Indian country” is subject to challenge under a balancing-based federal preemption test. See White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) (prescribing a “particularized inquiry into the nature of the state, federal, and tribal interests at stake”). Under similarly subjective and unpredictable standards, Montana v. United States, 450 U.S. 544 (1981), can support tribal authority over a non-member, even on fee lands or state highways, entering into a “consensual relationship” with the tribe or its members — or if the nonmembers’ activities threaten the “the political integrity, the economic security, or the health or welfare of the tribe.” Although the court has set stringent burdens for tribes or their members to establish Montana-based tribal jurisdiction; it may extend to subjecting non-members to tribal taxation, regulation, and to tribal court jurisdiction over claims against non-members by the tribe or its members. See FMC Corp. v. Shoshone-Bannock Tribes, 942 F.3d 916 (9th Cir. 2019) (pet. for cert. pending) (tribal court jurisdiction under Montana first and second exceptions to enforce environmental fee agreement against nonmember company on fee lands within reservation); Hinkle v. Abeita, 283 P.3d 877, 883 (N.M. Ct. App. 2012) (state court lacks jurisdiction over non-Indian’s suit against tribal member for accident on state highway within reservation). Though any such authority would be fact-specific, resolving whether a Montana-based claim is meritorious can require complex litigation and appeals even before the merits may be addressed and, in many situations, must first be presented to a tribal court or agency under a “tribal exhaustion” doctrine. Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9 (1987).

In addition, numerous federal statutes affirmatively invoke federal jurisdiction where “Indian country” is a statutory jurisdictional hook, though the majority

narrowly focuses only upon opportunities such statutes provide for additional federal funding. Op. 40. However, certain federal statutes already provide for ouster of state authority, reversion to federal agency authority and possible delegation to tribal authority in “Indian country.” Those include regulation of liquor sales within “Indian country,” (see 18 U.S.C. § 1161; United States v.

Mazurie, 419 U.S. 544 (1975)), enhanced regulation of activities potentially affecting “historic properties” lying “within the exterior boundaries of any Indian reservation,” (see 54 U.S.C. § 300319) and certain environmental regulations (see 42 U.S.C. § 7601(d)(2)(B) (regulation under Clean Air Act). For example, McGirt could lead to divesting ODEQ of permitting jurisdiction over any Clean Air Act “minor source” on non-Indian lands within the now-declared Creek reservation, despite the state’s jurisdiction over such “non-reservation non-Indian lands” previously was confirmed by Oklahoma Dept. of Environmental Quality v. E.P.A., 740 F.3d 185 (D.C. Cir. 2014), in which we represented ODEQ and OIPA filed an amicus brief. Similar shifting of environmental permitting jurisdiction from ODEQ to EPA and potentially to the Muscogee (Creek) Nation or other Five Civilized Tribes may follow under provisions of the Clean Water Act, Clean Air Act, Safe Drinking Water Act, CERCLA and other statutes. McGirt may focus further attention on whether the Oklahoma Corporation Commission has jurisdiction over oil/gas conservation concerning tribal or allotted minerals within “reservation” lands.

Other such divestitures of state authority or potential delegations to tribes may exist.

Note, however, Oklahoma has special statutory authority under Section 10211 of the 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU Proviso”), requiring the EPA, if it has approved Oklahoma regulation generally under any environmental program, to approve the state’s regulation under any such program as to Indian country within Oklahoma. As the Alliance has noted, Governor Stitt of Oklahoma has advised the EPA administrator the state seeks to invoke the SAFETEA-LU Proviso with respect to certain EPA administered program authorities.

Dealing with McGirt-based Jurisdictional Concerns For Alliance members who now find their operations lie within a federal Indian reservation under McGirt, the jurisdictional consequences can be addressed to a certain degree by becoming informed on potentially applicable tribal laws — considering how they might structure agreements and dealings with the Muscogee (Creek) Nation (or other Five Civilized Tribes) or with tribal member individuals or their businesses, such as by forum selection provisions in agreements specifying exclusive state or federal court dispute resolution, and possibly by avoiding or siting elsewhere activities that could substantially affect the health or welfare of the applicable tribe or its members.

We also suggest supporting or coordinating with state officials seeking to secure cooperative agreements with the Tribes or supporting federal legislative efforts to address the changed jurisdictional pattern. The SAFETEA-LU Proviso, discussed above, provides one possible model for congressional action.

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52 | thepetroleumalliance.com

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DUSTY DARR

D I R E C T O R , G OV E R N M E N T R E L AT I O N S AT O N E O K , I N C .

1 2 3 4 5 6 7 8 9 10

Who’s your favorite Oklahoman?

It’s cliché, but I’d say Will Rogers.

If you could eat one food the rest of your life, what would it be?

Pulled pork BBQ. Mountains or beach?

Beach.

Have you met anyone famous?

Yes, I’ve been fortunate to meet Ben Stein twice.

What’s your favorite drink?

Single Malt Scotch.

Favorite college team?

The University of Oklahoma.

In one sentence, what do you actually do all day in your job?

I handle government relations (lobbying) for ONEOK in Oklahoma at the state and local level.

Favorite band in junior high?

Oasis.

Name of your pet?

We’re currently without a pet since our longtime dog, Maggie, passed away late last year.

What was your first job?

I worked for a small Seminole-based drilling company.

54 | thepetroleumalliance.com

11 12 13 14 15 16 17 18 19 20

What was your first car?

A 1998 Ford Mustang GT. If you could have dinner with one person, alive or dead, who would it be?

Winston Churchill.

What was your favorite TV show as a child?

Scooby-Doo! What’s the number one item you would save from your burning house?

Obviously, my wife and daughter! But if they were safe, it would be old family photographs.

What is your favorite thing about working in the oil and gas industry?

The industry is the backbone of our state and nation. Aside from providing countless highpaying jobs, the industry has made America stronger, more prosperous and more secure.

What is your favorite holiday?

The 4th of July!

What is the best gift you have ever received?

My first shotgun when I was 10 years old.

What is the first thing you would do if you won the lottery?

Retire and move to the beach.

Last movie you saw at the theater?

Frozen II What’s your favorite app?

Netflix

@petroallianceOK

@petroallianceOK

@petroallianceOK

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THE QUOTING PERIOD FOR THE NEW PETROLEUM ALLIANCE OF OKLAHOMA ASSOCIATION HEALTH & BENEFITS PLAN IS NOW OPEN! As a reminder, the Alliance has partnered with Blue Cross and Blue Shield of Oklahoma to help our members provide affordable benefit plans for their employees.

The new Petroleum Alliance of Oklahoma Association Health & Benefits Plan offers: • Access to the state’s largest preferred provider organization (PPO) • Providers you can trust • No medical underwriting • Multiple plan options with nationwide access • Dental, vision and prescription drug coverage • Seamless and intuitive benefits management Alliance member companies are eligible for these plans if they: • Have between 2 and 50 employees and are headquartered in Oklahoma • Elect medical, dental, vision and basic life coverage For more information, please contact benefits@okpetro.com.

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THE PETROLEUM ALLIANCE OF OKLAHOMA 500 N.E. FOURTH ST. OKLAHOMA CITY, OK 73104

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