Wellhead February 2020

State Tax Revenues from Oil & Gas Down for Fifth Straight Month | 32 2020 Legislative Priorities | 34 Alliance Members Push Back on ‘Environmentalists’ Dream Bill’ | 38

FEBRUARY 2020

APRIL 20, 2020 | OAKTREE GOLF & COUNTRY CLUB

About the Alliance Open The Petroleum Alliance of Oklahoma invites both members and non-members who are involved in the oil and natural gas industry to participate in the Alliance Open presented by BK Equipment.

This event is not only designed to be a fun, networking opportunity, but to also educate members and prospective members about the numerous members-only benefits the Alliance has to offer.

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REGISTER ONLINE AT WWW.OKPETRO.COM

David Le Norman Chairman

TABLE OF CONTENTS

Natalie Kinmonth Senior V.P. - Membership & Development

08

Jon Bargas Senior V.P. - Public & Government Affairs

February Energy Index

Zack Lee V.P. - Government & Legal Affairs Teresa Yoder V.P. - Finance

Sponsored by IBC Bank

10 Industry Implores Legislators to Heed Stitt’s Warning

Ellis Ebel Director of Operations/HR

22

Lauren Burnett Director of Events

Rep. Horn Heeds Call to Oppose Fracking Ban

Bud Ground Director of Regulatory Affairs Madison Miller Committee Coordinator & Policy Analyst Annie Parks Membership & Marketing Coordinator Valerie Flaherty Receptionist

32 State Tax Revenues from Oil & Gas Down for Fifth Straight Month

34 2020 Legislative Priorities

36 This newsletter is produced by

Legislative Kickoff Reception Includes Discussion of Industry’s Economic Impacts

44 EIA’s Outlook: Natural Gas & Oil Remain Integral to U.S. 500 N.E. 4th St. Oklahoma City, OK 73104 405-942-2334 Fax: 405-942-4636 www.thepetroleumalliance.com

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2 1 STATE ROUNDUP 1 | TEXAS Plains All American Pipeline Volumes Get Boost from Cactus II Plains All American Pipeline LP said crude volumes on its Permian basin systems rose during the fourth quarter, thanks in part to higher flows on the Cactus II pipeline, which went into service in August.

However, transportation segment earnings were down compared to the previous quarter, primarily due to lower long-haul movements on the Basin, Bridgetex and Red River Pipeline systems, Plains said during its earnings call.

Plains said the Wink-to-Webster Pipeline, a joint venture among affiliates of Exxon Mobil Corp, Plains All American, MPLX LP, and Delek US among others, is expected to be in service during the first half of 2021.

Enterprise Products Partners LP said last week it will own a 29% undivided joint interest in the Wink-to-Webster crude pipeline system, and construction on the segment to Webster, Texas, is expected to be completed by the end of 2020.

The pipeline system is expected to transport more than 1 million barrels of crude oil and condensate per day from the Permian Basin in West Texas, the biggest U.S. oil basin, to the Texas Gulf Coast.

For 2020, Plains said it expects Permian production to grow, on average, about 400,000 barrels per day (bpd).

A shale boom has helped make the United States the world’s biggest oil producer, but growth is expected to slow as producers follow through on plans to slash spending on new drilling for a second consecutive year in 2020.

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“Our discussions with producers led us to the Permian production growth that we talked about,” a company executive said during the call.

“I think largely in the last month, 25 additional horizontal rigs have been added to the Permian, so our forecast is consistent to slightly higher than it was, but it’s still moderated from expectations earlier in the year.”

If prices fall to $40 a barrel, the production forecast would change, Plains said.

Oil prices have plummeted since the beginning of this year, with U.S. crude futures falling more than 20% to below $50 a barrel this week for the first time in a year.

2 | NEW MEXICO Bill Calls for $320 Million ‘Trust Fund’ for Early Childhood Education Early childhood education in New Mexico could get a big boost during the 2020 legislative session. A proposal to establish an early childhood education “trust fund” would be funded entirely by New Mexico’s oil and natural gas industry, according to the bill’s author.

House Bill 83 would set aside $320 million to be used on early childhood education.

Democratic state Rep. Doreen Gallegos is sponsoring the bill in the House. She said people can think of it as a trust fund for New Mexico’s children.

The money would be available if there is a budget shortfall. Gallegos said it would prevent cuts to early childhood education during that time.

“It’s not the silver bullet, but I want to make sure people know is it’s like all of a sudden you have an aunt that you didn’t know about and you ended up inheriting some

money and she invested that money early on,” Gallegos said. “Well, it may not pay all your bills but maybe it’s going to pay your mortgage, and so you’ll have that nest egg to draw from and be working on.”

Gallegos said the money would come from oil and gas revenues.

A similar bill is being proposed in the Senate.

3 | WYOMING Wyoming’s Governor Vows to Protect Oil and Gas and Coal While environmentalists are applying more pressure to convince state leaders to eliminate fossil fuel and coalmining operations, Wyoming’s Gov. Mark Gordon is pushing back.

In his recent State of the State address, Gov. Gordon told legislators the state has enough savings to take time about future spending cuts as revenue declines from fossil fuels.

Yet Gordon promised not to dither amid what he described as efforts by other states to boost renewable energy sources at the expense of the coal, oil and natural gas industries.

Wyoming produces energy more safely and with more concern for the environment than anywhere else in the world, said Gordon, a Republican.

“And yet our industries are still discriminated against, maligned and decried as dead. Well, not on my watch,” Gordon said to applause and cheers from a joint session of the overwhelmingly Republican Wyoming Legislature.

The address by the first-term Republican kicked off a month-long legislative session dedicated primarily to the state’s next two-year budget cycle, which begins July 1.

Budgeting has been tight for several years now amid a decade-long downturn in revenue from the state’s oncebooming natural gas industry and declining demand for coal to generate electricity, a result of low natural gas prices.

Last year was especially tough for coal. Two of the biggest coal mines in the U.S., Eagle Butte and Belle Ayr, shut down for over three months while its owner, Milton, West Virginia-based Blackjewel, went through bankruptcy and sold them.

Combined with weak prices for natural gas — by some measures the lowest in over 20 years — a more than 40% decline in coal production in recent years has left Wyoming in difficult shape, Wyoming House Speaker Steve Harshman, a Republican from Casper, said in a news conference.

“We’ve went through the steepest, sharpest, fastest revenue decline in the state’s history,” Harshman said.

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Now, Wyoming’s savings during a decade or so of boom times starting in the late 1990s gives lawmakers room to continue to reduce spending, Harshman said.

“We’re trying to use every tool we can,” said Harshman.

Democratic lawmakers want to at least consider raising taxes and implementing a state income tax to keep Wyoming students among the top-funded in the U.S. per pupil.

Other priorities of Gordon’s include planning to protect big-game migration routes, improving water-supply systems like one in Goshen County that experienced a costly irrigation tunnel collapse in 2019, and suicide prevention.

Yet defense of fossil fuels was the predominant theme of his address.

In January, Wyoming and Montana asked the U.S. Supreme Court to rule on the state of Washington’s denial of an environmental permit for construction of a shipping terminal that would enable more overseas exports of Powder River Basin coal, Gordon noted.

“Know this: Wyoming will always advocate for our industries. Whether it be to protect against unconstitutional restraints of trade, or in their endeavors for cleaner, more dependable and more affordable energy to our nation,” Gordon said.

Gordon also listed additional funding for promoting Wyoming’s coal industry, which supplies almost half of the nation’s coal for power plants, as a priority.

“Time is of the essence. We must act now if we are to stop coal mines from being closed,” Gordon said.

4 | NORTH DAKOTA North Dakota Oil Production Slipped in December North Dakota regulators say oil production in December was down about 3% from November.

The Department of Mineral Resources says the state produced an average of 1.47 million barrels of oil daily in December. That’s down from 1.51 million barrels from the prior month.

North Dakota also produced about 94.8 billion cubic feet of natural gas in December, up from 94 billion cubic feet in November.

Statewide, companies flared 16% of all gas produced in December, above the 12% target.

There were 15,979 wells were producing in December, down from a record 16,110 in November. The December tallies are the latest figures available.

There were 56 drill rigs operating February 14, up one from the December average.

MEASURE ANALYZE PREDICT MEASURE A PREDICT MEASURE ANALYZE PREDICT ANALYZE PREDICT MEASURE ANALYZE PRE MEASURE ANALYZE PREDICT MEASURE A PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRED MEASURE ANALYZE PREDICT MEASURE ANA PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRED MEASURE ANALYZE PREDICT MEASURE ANA PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRED wellcaddie.com MEASURE ANALYZE PREDICT MEASURE ANA PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRE MEASURE ANALYZE PREDICT MEASURE ANALY PREDICT MEASURE ANALYZE PREDICT MEASUR ANALYZE PREDICT MEASURE ANALYZE PRE MEASURE ANALYZE PREDICT MEASURE A PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRED MEASURE ANALYZE PREDICT MEASURE ANA PREDICT MEASURE ANALYZE PREDICT MEAS ANALYZE PREDICT MEASURE ANALYZE PRED

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WARNINGS OF ECONOMIC DOWNTURN CONTINUE Energy Index Indicators See Steep Drop at Year End OKLAHOMA ENERGY INDEX

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DATE

ENERGY INDEX

Base Year, 2000

100.0

Dec-18

228.9

Nov-19

194.5

Dec-19

190.7

1 Month Change

-3.8

1 Month % Change

-1.9%

1 Year Change

-38.1

1 Year % Change

-16.7%

Oklahoma’s energy industry continues to contract, with the latest release suggesting a pickup in the pace of job losses in the sector. The Oklahoma Energy Index fell by 1.9% and is now down 16.7% from a year ago. The index was developed as a coincident indicator of industry activity as well as a leading indicator of future economic activity in the state.

“The index continues to send warning signs of an economic soft patch moving into the state,” said Kyle McElvaney, IBC Bank’s Oklahoma City market manager.

“The move down in December was led by sharp reductions in both primary and support employment and accompanied by a further contraction in the spot price of natural gas,” explained McElvaney.

Rig activity held mostly steady (up 1 rig from November), while spot prices of crude oil and the Oklahoma Energy Portfolio (an equally-weighted basket of stock prices) moved modestly higher. The move up in oil prices will reverse abruptly as coronavirus fears restrict both general economic activity and air travel — a major consumer of petroleum products.

A look at previous periods of industry contraction may help to anchor expectations of future conditions. The

energy index last reached its current level in August 2015. From there, the contraction ran another 11 months before moving into recovery. Prior to the 2015 experience, the index reached current levels in January 2009 and continued to contract for 8 more months before moving into recovery.

“If prior cycles inform current expectations, the industry is unlikely to move into recovery before the fall of 2020,” concluded Russell Evans, executive director of the Steven C. Agee Economic Research and Policy Institute. “The current economic weakness that is just now becoming broadly apparent in the state will likewise run through at least the first half of the year.”

The current economic outlook predicts a modest contraction in the state’s economic performance through the third quarter of 2020.

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 energyproducing states. The OEI is a joint project of IBC Bank, the Petroleum Alliance of Oklahoma, and the Steve C. Agee Economic Research and Policy Institute.

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.)

Dec-18

$4.04

141

55.5

34.8

$49.52

976.8

Nov-19

$2.65

51

50.1

32.1

$57.03

1,075.9

Dec-19

$2.22

52

48.6

31.3

$59.88

1,115.7

1 Month Change

-$0.43

1

-1.50

-0.80

$2.85

39.8

1 Month % Change -16.2%

2.0%

-3.0%

-2.5%

5.0%

3.7%

1 Year Change

-$1.82

-89

-6.90

-3.50

$10.36

138.9

1 Year % Change

-45.0%

-63.1%

-12.4%

-10.1%

20.9%

14.2%

Source: Steven 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.

300 250 200 150 100

Dec 19

Dec 18

Dec 17

Dec 16

Dec 15

Dec 14

Dec 13

Dec 12

Dec 11

Dec 10

Dec 09

Dec 08

Dec 07

Dec 06

Dec 05

Dec 04

Dec 03

Dec 02

0

Dec 01

50 Dec 00

ENERGY INDEX, BASE = 100 IN YEAR 2000

OKLAHOMA ENERGY INDEX

*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.

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INDUSTRY IMPLORES LEGISLATORS TO HEED STITT’S WARNING B Y : D AV I D D . L E N O R M A N

Oklahoma’s oil and natural gas industry was listening closely to Gov. Kevin Stitt’s State of the State address, and we’re pleased to hear him echo the warning that our industry has been sounding for months: Without proper planning, the current downturn in Oklahoma’s largest industry could have a detrimental effect on our state budget.

In his remarks, Stitt recognized the central role of our industry, saying “Oklahoma’s economy, and quite frankly our state budget, is built on the backs of the hardworking men and women in the oil and natural gas industry.”

Every measure of economic data backs up this claim. Whether it’s contribution to the state’s GDP, jobs, or tax revenue that funds education, Oklahoma is more dependent on the oil and natural gas industry than ever before.

Our industry remains by far the largest contributor to the state budget, but there is reason for concern. As the governor pointed out, we’ve seen a dramatic decline in the state’s rig count over the past year. This drop, combined with historically low commodity prices, puts the industry in a precarious position. We hope our lawmakers understand that now is not the time to push for increased tax burdens, unnecessary regulations, or policies that unfairly advantage one energy source over another.

The Petroleum Alliance, whose members include individuals and companies of all sizes from every segment of the industry, echoes the governor’s warning and asks that the Legislature refrain from any action that would compound the already difficult environment in which Oklahoma’s oil and natural gas producers are currently operating.

Our industry is proud to work alongside Gov. Stitt as he continues to make Oklahoma a Top 10 State, and we appreciate his unapologetic support for the hardworking men and women who are driving Oklahoma’s economy and providing the energy on which our state and our nation depend.

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SENATORS SEEK APPEAL OF 10TH CIRCUIT RULING FAULTING THE EPA'S RENEWABLE FUELS BLENDING EXEMPTION PROGRAM

BY JAC K M O N E Y

T H I S A R T I C L E WA S O R I G I N A L LY PUBLISHED IN THE OKLAHOMAN.

A group of U.S. Senators are upset with a court's decision regarding renewable fuel blending.

Refiners across the nation are being asked to blend increasingly large amounts of fuel from renewable sources like ethanol into the nation's supply of retail gasoline that is sold to consumers, from 4 billion gallons in 2006 to nearly 10 times that amount by the end of 2022.

A decison made in late January by the U.S. Court of Appeals for the 10th Circuit stopped an Environmental Protection Agency program used to offer exemptions from these requirements.

Oklahoma senators James Lankford and Jim Inhofe are joined by 11 other senators who are urging the Trump administration to appeal the decision and seek to reallow the exemptions.

Federal law initially exempted all small refineries from having to comply with blending requirements through 2010, then, allowed the EPA to issue exemption extensions through 2012 to refiners who could prove the blending requirements would cause financial hardship.

Beginning in 2013, refiners could petition the EPA to further extend exemptions that were effective through 2012.

EPA data shows 16 sought extensions in 2013. Only eight were granted (the EPA's website doesn't show how

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many exemptions were in place for 2012). In Fiscal Year 2017, 37 sought extensions of exemptions, and the EPA granted 35.

petition for an extension to the EPA in January 2018, as did 41 other refiners. The EPA granted extensions to 31, including CVS.

Renewable fuels advocates challenged the EPA’s decision to allow three small refiners (including one in Oklahoma) to avoid blending requirements set by the Clean Air Act by the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007.

The senators’ letter states the judges erred in their ruling because the Clean Air Act includes language that states a small refinery may apply for hardship relief from the blending requirements “at any time.”

The court ordered the EPA to re-evaluate decisions to extend exemptions to the CVS Refinery in Wynnewood, as well as two other small refineries owned by HollyFrontier in Wyoming and Utah.

A panel of three judges ruled the exemption extensions were invalid, given that the owners didn’t have standing exemptions in place when they asked for relief.

HollyFrontier Cheyenne Refining in Wyoming, which submitted its petition for an extension in March 2017, had been awarded an exemption in 2011 and 2012, but hadn’t sought an extension of the 2012 order until 2015.

That request was denied by the EPA under the Obama administration.

“If allowed to stand, the decision will put a dozen small refineries in the 10th Circuit under severe financial strain and thousands of jobs at risk,” the senators’ letter stated, noting that efforts already are underway in a federal district court in Washington, D.C., to get the 10th Circuit decision enforced nationally.

“We urge you, in the strongest terms, to file a petition for a rehearing en banc and, if necessary, seek review by the U.S. Supreme Court.”

Besides the Oklahoma senators, the letter was signed by Sen. John Barrasso, R-Wyoming, who chairs the Senate Environment and Public Works Committee.

HollyFrontier Woods Cross Refining in Utah, which submitted its petition for an extension in September 2017, never had been granted an exemption beyond 2010.

Other senators who signed the letter include James E. Risch, R-Idaho; Michael B. Enzi, R-Wyoming; Mike Crapo, R-Idaho; Shelley Moore Capito, R-West Virginia; Steve Daines, R-Montana; John Kennedy, R-Louisiana; and Mike Lee, R-Utah.

CVS Refinery in Wynnewood received an exemption in 2011-2012, but not in subsequent years. It submitted its

U.S. Sens. Ted Cruz, R-Texas; Pat Toomey, R-Pennsylvania; and Roger Wicker, R-Mississippi; also signed the letter.

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RIG DROP DECLINING PRICES SHOULD BRING CAUTION TO BUDGET PROCESS

$9.4 MIL

BY: Z AC K LE E With the 2020 legislative session, policymakers are turning their attention to the complicated and often contentious process of determining the state budget. As the largest contributor to that budget, Oklahoma’s oil and natural gas industry is encouraging our state’s leaders to proceed with caution.

Last month, the State Board of Equalization met and certified an estimated $8.3 billion in state funds available in the budget year that begins July 1, 2020. That’s a 0.1%, or $9.4 million, increase over the current year’s $8.3 billion budget. Current projections, however, indicate Oklahoma’s general revenue fund could collect $245 million less than what was estimated at the Board’s June meeting.

This would represent a drop of 3.5%, due to a nearly 50% projected decrease in taxes collected from natural gas production. Oil gross production taxes projections are also falling short.

The 2020 budget was predicated on a natural gas price of $2.71 mcf. Industry leaders were concerned at the time that this estimate was overly-optimistic; however, even we did not foresee such an extreme drop in natural gas prices that began in 2019. As I type this, the natural gas price is at historic lows of around $1.85 mcf and keeps falling due to demand reduction coupled with abundant supply. To make matters worse, natural gas prices are historically higher in the winter due to peak usage to keep homes warmer. There is concern it could drop further in warmer months. Because of this extreme drop-off in the price of natural gas, the State Board of Equalization had to amend its projected price point for natural gas for the next six months of FY 2020 all the way from $2.71 to $1.44 to make the budget work.

This is the difficulty of having an economy that is overly reliant on highly volatile commodities. As it stands, Oklahoma’s rig count has held steady around 48 rigs for the last few months after having a severe drop off in the months prior, going from more than 140 to 50 in less than a year. Production numbers have held strong, in large part due to companies completing wells that were previously drilled but uncompleted (DUC). We will, however, likely see production numbers start to wane, which in combination with historically low natural gas prices, should be a sign of caution when crafting a budget for FY 2021.

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0.1% INCREASE in state funds available in the budget over previous year

50% PROJECTED DECREASE IN TAXES collected from natural gas production

$2.71 MCF NATURAL GAS PRICE 2020 budget prediction

$1.85 MCF NATURAL GAS PRICE historic lows and continuous falls due to demand reduction and abundant supply

48 OKLAHOMA’S RIG COUNT holding steady after a severe drop from 140 to 50 in less than a year

GOVERNOR STITT’S PLEDGE TO REDUCE REGULATIONS A WELCOME MESSAGE TO STRUGGLING INDUSTRY BY: J O N BA RGA S When the 500 attendees of a recent luncheon hosted

by The Petroleum Alliance of Oklahoma heard keynote speaker Gov. Kevin Stitt’s pledge to reduce state regulations, the applause was deafening. Cheering the Governor’s plans were those most directly affected by the oil and natural gas downturn, which has already led to a significant drop in the number of Oklahoma rigs, and a corresponding decline in revenue that portends a potential state budget crisis. Knowing that the leader of the state has a plan to relieve at least some of the pressure on Oklahoma’s largest industry and tax source was welcome news.

While the bulk of the blame for the current industry downturn can be placed on historically low natural gas prices and multiple tax increases imposed prior to Stitt’s election, the chilling effect of overly burdensome (and often redundant) regulations from every level of government is hard to overstate. Oil and natural gas producers support reasonable regulations to protect the health and safety of our workers, the environment, and the communities in which we operate. We are proud of our record of working closely with policymakers to ensure that these regulations are properly applied and enforced.

Unfortunately, there are many existing regulations that simply do not make sense, serving no purpose besides keeping bureaucrats employed while adding to the already overwhelming amount of red tape with which companies of all sizes must deal. Oklahoma has roughly 145,000 state regulations, which as Gov. Stitt pointed out, is double the number of regulations in neighboring states like Kansas, Missouri, and Arkansas. These hurdles are making Oklahoma less attractive for those looking to invest in or relocate here. That’s why we applaud the Governor’s efforts to examine the effectiveness of these regulations and to do away with those that no longer make sense.

The men and women of Oklahoma’s oil and natural gas industry are thankful for a governor who understands that if Oklahoma’s businesses are not successful, Oklahoma will not be successful. As the largest taxpayer, our industry applauds the Governor’s efforts to make Oklahoma a Top 10 State where businesses can thrive, and we stand ready to assist in his efforts toward common sense regulatory reform.

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OIL AND NATURAL GAS PRODUCERS SUPPORT REASONABLE REGULATIONS TO PROTECT THE HEALTH AND SAFETY OF OUR WORKERS, THE ENVIRONMENT, AND THE COMMUNITIES IN WHICH WE OPERATE.

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DESPITE RATE INCREASES, GPT RECEIPTS DROP BY: Z AC K LE E For the first time in more than two-and-a-half years, record low natural gas prices and a dramatic drop in rig count have resulted in monthly gross receipts to the state treasury being less than collections from the same month of the prior year. According to the latest report from Oklahoma State Treasurer Randy McDaniel, the last time monthly gross receipts were less than the same month of the prior year was in March 2017.

The drop in GPT receipts is not the only problem Oklahoma’s budget may be facing. Tax records also show a downturn in sales and use taxes, reflecting the spillover effect of reduced oil field activity due to a drop off in the buying of drilling equipment and related purchases. According to McDaniel, “Recent economic trends appear to be primarily related to low oil and gas prices. We are seeing both a direct and spillover effect on some tax collections due to suppressed energy prices.”

For months, the Petroleum Alliance has been sounding the alarm on the effect that the dramatic drop in natural gas prices and the number of rigs operating in the state would have on Oklahoma’s budget. Natural gas prices are significantly more relevant to Oklahoma than WTI crude oil prices. Consider our current output measured in barrels of oil equivalent (BOE); natural gas dwarfs crude oil, accounting for 71% of Oklahoma production, while crude oil accounts for only 29%.

With the myriad of tax increases on our industry in recent years, Oklahoma is now more reliant on oil and gas production than ever before. It is important, therefore, to be mindful of all market indicators, including commodity prices and the national and state rig counts. The tax revenue from the oil and natural gas industry remains critical for the operation of our state, and we can’t take it for granted. We need to create the right environment for economic growth and the means working to attract capital, not scaring it away with high taxes and overlyburdensome regulations.

THE DROP IN GPT RECEIPTS IS NOT THE ONLY PROBLEM OKLAHOMA’S BUDGET MAY BE FACING.

18 | petroleumalliance.com

UNFAIRLY ADVANTAGING UNRELIABLE ENERGY SOURCES ARE ENDANGERING STATE BUDGET BY: Z AC K LE E With the 2020 legislative session well underway, Oklahoma lawmakers are facing some tough decisions when it comes to dealing with the state budget and the way in which the treatment of varying energy sources are affecting revenue to the state. A brutal combination of increased tax rates and historic low natural gas prices have led to a drop in drilling, which in turn has caused a decline in tax revenue to state coffers. According to the state treasurer’s latest report, gross production tax revenue alone, which brought in $88.3 million in January, is down by $11.8 million, or nearly 12% in just one month. January marked the fifth consecutive month of contraction in these revenues.

NATURAL GAS MORE THAN DOUBLES OIL, ACCOUNTING FOR 71% OF OKLAHOMA PRODUCTION WHILE OIL ACCOUNTS FOR JUST 29%.

Our legislators need to remember that in Oklahoma, natural gas is king, and the price of natural gas is the real driver of our economy. In fact, natural gas prices are significantly more relevant to Oklahoma than crude oil prices. Consider our current output measured in barrels of oil equivalent (BOE): natural gas more than doubles oil, accounting for 71% of Oklahoma production, while oil accounts for just 29%.

When our legislators approved the state budget for the current fiscal year, they based estimates on GPT income on natural gas prices of $2.71. Unfortunately, this prediction woefully missed the mark, with natural gas prices currently hovering around $1.80. This 20-year low price has been caused by two main factors: over-production and a smaller share in the electricity generation market due to displacement by other, less reliable energy sources like wind and solar. While legislators have no control over the former, they are a significant contributor to the latter.

3 important things to review every year A lot can happen in a year. Make sure your retirement plan stays on track by sitting down with your financial professional for an annual review. Here’s a checklist that can help you get the most out of your meeting:

1

Review any life changes that took place in the last year – such as buying a house or having a baby. You may need to adjust your strategy to better fit your situation.

2

Amazingly, wind and solar are still being heavily subsidized

by Oklahoma taxpayers even though they are lowering demand (and consequently, prices) for the resource that provides by far the largest share of our state budget.

Oklahoma is more dependent on the oil and natural gas industry than ever before.

All economic indicators point to a slowdown that will extend beyond our industry. On behalf of our over 1,300 member companies, the Petroleum Alliance urges our lawmakers to recognize the unintended consequences of unfairly advantaging one energy source over another and be ever aware that the decisions they make will not only affect the budget, but also the state’s largest industry and tax source.

Review your investment strategy and current allocations.

Your investment portfolio should reflect your goals, risk tolerance and time horizon. If anything has changed, you may want to make adjustments that align with current strategies.

3

Decide if you can afford to save more.

While you may not have a lot of extra money to save, every little bit helps.

Keep in mind that even a small increase can really add up over time.

Take the next step and contact me today to schedule a meeting.

John Sullivan CFP®, CLU®, RICP Sullivan and Associates Tel: (405) 285-4500 John.Sullivan@axa-advisors.com

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INDUSTRY NEWS REP. HORN HEEDS CALL TO OPPOSE FRACKING BAN P R O P O S A L W O U L D A M O U N T T O A N AT I O N W I D E B A N O N D R I L L I N G F O R O I L A N D N AT U R A L G A S After calls from Oklahoma’s oil and natural gas industry, Rep. Kendra Horn has publicly opposed her party’s radical plan.

“I do not support this proposed ban on fracking. The oil and gas industry has fueled economic development and new opportunities in Oklahoma since statehood,” Horn said. “Our energy policies should be based on the facts and take a balanced approach to sustainability, job creation, conservation, and affordable energy for all Americans. Natural gas production is critical to American energy independence and is one of the most significant contributing factors in reducing greenhouse gas emissions in the United States. In Oklahoma, our state implemented new rules over the past four years that have made the industry safer and more sustainable.

That is the kind of state-led, intentional approach we should take towards energy policy.”

Rep. Alexandria Ocasio-Cortez (D-NY) and Sen. Bernie Sanders (I-VT) have introduced legislation that would outlaw use of the technology that is used in virtually every producing basin in the U.S. As the nation’s third largest producer of natural gas and the fourth largest producer of oil, Oklahoma would be disproportionally harmed if this proposed ban were to become reality.

“We hope that Rep. Horn will take this opportunity to carefully consider the negative impacts her party’s proposed policies would have on the environment, our national energy security, and the economy of her district,” said David D. Le Norman, Chairman of the Petroleum Alliance of Oklahoma.

As the largest industry in the state, this proposal would have a devastating impact on hundreds of thousands of Oklahoma families.

“It’s time for Rep. Horn to decide — is she going to side with the coastal elites set on completely altering our way of life, or will she join other reasonable members of her party like Rep. Conner Lamb (D-PA) and fight for the working families of Oklahoma’s largest industry?” said Le Norman.

Rep. Lamb recently sent a letter to House Speaker Nancy Pelosi saying that the hydraulic fracturing ban bills are seemingly “only designed to make headlines” and score political points with elite environmentalists while compromising working-class families.

“We hope that Rep. Horn will find the same courage as Rep. Lamb, stand up to her party, and defend the men and women of her district who are working to ensure that our nation has the energy it needs to fuel our way of life and remain energy independent,” continued Le Norman.

The Petroleum Alliance of Oklahoma has joined the myriad of business organizations and government entities in pointing out some of the unintended consequences of a ban on hydraulic fracturing.

A ban on hydraulic fracturing would harm national security. After decades of dependence on foreign (and often unfriendly) sources of oil and natural gas, our nation is now a net exporter of both energy sources for the first time in over 70 years. This could not have been achieved without the unprecedented advancements in technology, namely horizontal drilling and hydraulic fracturing, that has been pioneered by companies right here in Oklahoma.

A ban on hydraulic fracturing would disproportionately hurt the most vulnerable members of society. The Council of Economic Advisers reports that lower energy prices due to the use of fracking save U.S. consumers $203 billion annually, or $2,500 for a family of four. Low-income households benefit the most from these savings because they spend a bigger portion of their income on electric and heating bills. Currently, there is no energy source that could replace the loss of cheap, abundant oil and natural gas. Therefore, energy prices would skyrocket, hurting our poorest and most vulnerable citizens the most.

A ban on hydraulic fracturing would hurt our environment. Due in large part to the use of natural gas produced by hydraulic fracturing, greenhouse gas emissions have fallen to their lowest levels since 1992. The switch to natural gas in power generation resulted in 60% of the U.S. power sector’s CO2 emissions reductions from 2005 to 2015. Any realistic plan to continue towards a cleaner energy future will have natural gas as a foundation.

“While proposing a ban on hydraulic fracturing may play well to a narrow political base, the dire consequences it would have on Oklahoma are hard to overstate. We sincerely hope Rep. Kendra Horn will choose the working families of Oklahoma over the extremists in Congress,” Le Norman concluded.

22 | petroleumalliance.com

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ON CLEAN ENERGY DAY, OKLAHOMANS CELEBRATE ABUNDANT SUPPLY OF CLEAN NATURAL GAS T H E B A C K B O N E O F O K L A H O M A’ S E C O N O M Y N E E D S N O TA X PAY E R PAYO U T S

As legislators mark “Clean Energy Day” at the State Capitol, the Petroleum Alliance of Oklahoma is reminding our state’s leaders that natural gas is the only clean energy source actually paying taxes and putting Oklahomans to work.

Oklahoma is the nation’s third largest producer of clean, abundant natural gas, thanks to companies located right here in Oklahoma. These companies employ more than 350,000 Oklahomans and together comprise the largest source of tax revenue for the state. Unlike other less reliable energy sources like wind and solar, Oklahoma’ natural gas producers are making our air cleaner and driving our economy without being subsidized by Oklahoma taxpayers.

Increased production and use of Oklahoma natural gas is generating both economic benefits for the United States and clean-air benefits for the world. Data from the International Energy Agency released this month shows the United States recorded the largest decrease in carbon dioxide emissions of any country last year, due to the continued transition to natural gas for power generation. U.S. emissions were down 2.9% in 2019 compared to the year before. Natural gas has cut 50 percent more emissions in the United States than wind and solar combined since 2005.

The men and women of Oklahoma oil and natural gas live, work, and raise their families right here in our great state. We are proud of the clean energy we provide for America, and we are proud to be the engine driving Oklahoma’s economy. Our industry is part of the solution to a cleaner energy future, which must have as its foundation clean-burning natural gas.

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The Petroleum Alliance is constantly working on your behalf to ensure that you have a voice at the State Capitol. But there’s no substitute for having our lawmakers hear directly from you—the men and women whose livelihoods depend on a strong and vibrant oil and natural gas industry. That’s why we need you to join us for Oklahoma Oil & Gas Day at the State Capitol on March 25.

This is a chance to talk directly to your representatives and remind them that with industry in a precarious position, now is not the time push for increased tax burdens, unnecessary regulations, or policies that unfairly advantage one energy source over another.

Let’s show our elected officials how passionate the men and women of Oklahoma oil and gas are about the important work we do every day. Register now so we can pack the Capitol and make our voice heard on March 25!

Register at okpetro.com

25 | petroleumalliance.com

JANUARY EVENT RECAP GOV. STITT THANKS STATE’S LARGEST INDUSTRY AT WILDCATTERS WEDNESDAY LUNCHEON At January’s Wildcatters Wednesday luncheon, Gov. Kevin Stitt recognized the important role Oklahoma’s oil and natural gas industry plays in making us a Top 10 State.

“You are providing jobs, which is education, which is roads and bridges, which is health care, which is everything that we need to be a great state and great country. You are providing energy to the world,” Stitt said, acknowledging Oklahoma’s contribution to American energy independence.

“It’s so exciting. Oklahoma plays a huge part in America’s independence in foreign oil,” said Stitt.

This accomplishment, like many others, is thanks to the hard working men and women of Oklahoma’s oil and natural gas industry.

“Oklahoma has reduced our emissions by more than double the national average, and this is all while we have the cheapest electricity cost of any state in the country, which is huge,” said Stitt.

Although the oil and gas business is in the middle of another downturn, Stitt is confident a rebound is coming.

“I know it’s a tough time right now for the industry as prices are not where we want them to be, but I just want everybody to hang in there,” said Stitt. “This industry is very resilient and they’re going to be great.”

Looking ahead to legislative session, Stitt reassured the room he will have the energy industry’s back.

“I don’t want to cut core services, and I certainly will not raise taxes,” said Stitt. “The oil and gas industry is so important to Oklahoma. One in five jobs are directly impacted by this industry.”

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THE OIL AND GAS INDUSTRY IS SO IMPORTANT TO OKLAHOMA. ONE IN FIVE JOBS ARE DIRECTLY IMPACTED

BY THIS INDUSTRY. GOV. STITT

ALLIANCE SUPPORTS STITT’S PROPOSAL FOR INCREASED OCC FUNDING The Petroleum Alliance is pleased to see that in his proposed budget, Gov. Kevin Stitt is pushing an increase of $7.7 million in funding to the Oklahoma Corporation Commission through appropriated dollars from FY2019, and total increase of funding to the Commission from $74.5 million in FY2019 to $89.7M in FY2020. A growing and vibrant oil and natural gas industry requires a well-funded and well-staffed regulatory agency.

The Oklahoma Corporation Commission (OCC) is currently attempting to regulate 21st century industries with 20th century technology. Providing appropriate funding for critical technology upgrades at the OCC is a benefit for all Oklahomans. For those in the industry, it means additional resources and manpower are available to meet the regulatory requirements of oil and natural gas exploration and production without delays that could stifle development. For those outside the industry, it ensures the commission can more easily meet its mission of developing the state’s oil and natural gas resources in a fair and orderly manner while protecting the environment and ensuring public safety.

27 | petroleumalliance.com

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Contact the Petroleum Alliance of Oklahoma office at 405-942-2334 or you can find a BITCO agent near you by visiting BITCO.com today.

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INDUSTRY PARTNERS WITH AG TO GIVE BACK TO LOCAL COMMUNITIES Oklahoma’s oil and natural gas industry is dedicated to serving the communities in which we operate, and we value our friends and allies in the agricultural community.

“Teaches you a lot of hard work, responsibility, a lot of work ethic and it keeps you busy,” said Callen Oldenburg, a student/competitor in the SCOOP Winter Classic.

This event is a great way to showcase the industry while supporting local students.

“The Oklahoma oil and natural gas industry wants to invest in the students in all of Oklahoma, but specifically those operating areas because we know the impact we have on the community.” said Bray Haven, event coordinator.

Thanks to our sponsors and The Oklahoma Youth Expo, over $10,000 was invested in Oklahoma’s youth through prizes for students that competed.

“It’s such an honor for you guys to put this on for us,” said Shaylee Maddox, a student/competitor.

“It’s good to see people that come from all over come show here.”

“It means a lot to me because without them, we would not be able to show in some of these facilities,” said Oldenburg. “We wouldn’t have the awards that we win and everything.”

Congratulations to all of the winners!

We hope to see you at the next Stack Summer Classic.

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ZAMARIN BRINGS MESSAGE OF HOPE TO WILDCATTERS WEDNESDAY The February Wildcatters Wednesday was held at the Tulsa Country Club with featured guest speaker Chad Zamarin, senior vice president of corporate strategic development for Williams. Chad provided an informative overview of our nation’s energy infrastructure and explained the importance of having a proactive messaging strategy in order to improve our public image. He told the crowd of 200 that it’s time to push back on industry critics with facts that tell the story of the good we do, such as improving energy security and providing abundant, affordable energy that supports a high standard of living.

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STATE TAX REVENUES FROM OIL AND GAS ARE DOWN FOR FIFTH STRAIGHT MONTH Oklahoma has marked the fifth straight month of declines in revenue from gross production taxes on oil and gas.

Total receipts from the past 12 months were reported as $13.73 billion, an increase of $660.2 million, or 5.1%, over the trailing 12 months.

Oklahoma Treasurer Randy McDaniel says it’s another indication of what the oil and gas industry slowdown is doing to the state’s revenues.

The Oklahoma Business Conditions Index for January rose above growth neutral for the first time since October of last year. January’s rate of 52.2 is up from 48.4 in December. Numbers above 50 indicate economic growth is anticipated during the following three to six months.

Gross production taxes on oil and natural gas generated $88.3 million in January, a decrease of $11.8 million, or 11.8%, from last January. Compared to December 2019 reports, gross production collections are up by $14.1 million, or 18.9%.

Oil and gas gross production tax collections brought in $1.01 billion during the 12 months, down by $113.2 million, or 1.3%, from the previous 12 months.

Collections of the use tax on out-of-state sales, including online purchases, set a record high in January, while total revenue remained relatively flat, McDaniel announced.

January total monthly collections were $1.26 billion, up by $17.4 million, or 1.4%, from January 2019. Use tax receipts generated $83 million, up by almost 19% from the prior year. However, collections from four of the six major revenue streams were less than the same month of the prior year.

Only use tax and corporate income tax receipts rose above prior year levels during the month. Individual income, sales, gross production, and motor vehicle taxes saw decreases ranging from 11.8% to 0.1%.

January sales and use tax collections reflect purchases made during most of December, a majority of the holiday shopping season. When combined, they are up by 1.7% from January of last year.

“As Oklahoma weathers an ongoing slowdown in oilfield drilling activity, it is encouraging to see total consumption taxes remain positive,” said Treasurer McDaniel. “Retail sales, both at brick-and-mortar stores and online, reflect healthy consumer confidence.”

Sales tax collections for the month were down from the prior year — as has been the case in seven of the past eight months — but analysis shows most of the slowdown is spillover from reduced spending in the oil and gas industry.

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The seasonally adjusted jobless rate for Oklahoma in December was unchanged from the prior month at 3.4%. The U.S. unemployment rate in December also held steady from the prior month at 3.5%, according to figures released by the Oklahoma Employment Security Commission.

January gross collections total $1.26 billion, up by $17.4 million, or 1.4%, from January 2019.

Gross income tax collections, a combination of individual and corporate income taxes, generated $470.3 million, an increase of $10.9 million, or 2.4%, from the previous January.

Individual income tax collections for the month are $412.4 million, down by $527,320, or 0.1%, from the prior year. Corporate collections are $57.9 million, an increase of $11.4 million, or 24.6%. Wide monthly variances are common for corporate income tax collections.

Combined sales and use tax collections, including remittances on behalf of cities and counties, total $498.3 million in January. That is $8.5 million, or 1.7%, more than January 2019.

Sales tax collections in November total $415.3 million, a drop of $4.6 million, or 1.1% from the same month of the prior year. Use tax receipts, collected on out-of-state purchases including online sales, generated $83 million, an increase of $13.2 million, or 18.9%, over the year.

Motor vehicle taxes produced $66 million, down by $2.1 million, or 3.1%, 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 $136.1 million during the month. That is $11.8 million, or 9.5%, more than last January.

$17.4 MIL

TWELVE-MONTH COLLECTIONS Gross revenue totals $13.73 billion from the past 12 months, February 2019 through January 2020. That is $660.2 million, or 5.1%, above collections from the previous 12-month period.

UP 1.4% total monthly collections as of January 2020, from January 2019

Gross income taxes generated $4.76 billion for the 12 months, reflecting an increase of $356.2 million, or 8.1%, from the prior 12 months.

Individual income tax collections total $4.18 billion, up by $275.8 million, or 7.1%, from the prior period.

Corporate collections are $584.9 million for the period, an increase of $80.4 million, or 15.9%, over the previous 12 months.

Combined sales and use taxes for the 12 months generated $5.59 billion, an increase of $123 million, or 2.2%, from the prior period.

0.1% INDIVIDUAL INCOME TAX down by $527,320 from the prior year

Gross sales tax receipts total $4.86 billion, up by $9.7 million, or 0.2%, during the period. Use tax collections generated $728.2 million, an increase of $113.2 million, or 18.4%, over the previous 12 months.

$660.2 MIL

Motor vehicle collections total $792.4 million for the 12 months. This is an increase of $6.7 million, or 0.9%, from the trailing period.

GROSS REVENUE TOTALS 5.1% above collections from previous 12-month period

Other sources generated $1.57 billion, up by $187.4 million, or 13.6%, from the previous period.

$123 MIL COMBINED SALES AND USE TAXES increase of 2.2% generated from prior period

$4.86 BIL GROSS SALES TAX RECEIPTS up by $9.7 mil during the period

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LEGISLATIVE PRIORITIES

The 2020 Oklahoma legislative session began on Monday, February 3, and this year as always, the Petroleum Alliance is focused on advocating for policies that promote the development of our state’s vast oil and natural gas resources. Our members, who include both vertical and horizontal drillers and companies from every segment of the industry, support protecting and strengthening Oklahoma’s business environment and making it easier for our members to operate in Oklahoma.

To that end, we are reminding lawmakers that with the historic challenges currently facing our industry, they need to be mindful of the effects that changes in the tax and regulatory structure could have on our state’s largest industry, and consequently the Oklahoma economy. All economic indicators point to a slowdown that will extend beyond our industry, so on behalf of our members, we simply ask that the Legislature refrain from any action that would compound the already difficult environment in which Oklahoma’s oil and natural gas producers are currently operating.

There are some specific issues of particular importance to our members at this time: For the 2020 legislative session, the Alliance will be focused on legislation that modernizes our state’s Production Revenue Standards Act (PRSA), which is currently archaic in nature and needs to be updated to reflect the modern oil and natural gas industry.

We will also be supporting legislation that encourages recycling of water produced during oil and gas operations, which would make the current issues associated with water disposal less significant. Other states have made great strides on this issue recently, and we are committed to ensuring that Oklahoma continues to be on the cutting-edge of technology and practices that further reduce industry’s environmental footprint.

We will also be supporting legislation to protect essential oil and natural gas assets such as pipelines and storage facilities (like those in Cushing) from drones, which could potentially cause massive damage.

Finally, because we are not a single-issue organization, but rather one which supports a wide range of probusiness issues, we will be focused on preventing harmful rollbacks to our state’s workers’ compensation laws and will be advocating for reform to Oklahoma’s judiciary to ensure that the maximum number of qualified candidates are available to serve on the bench.

If you have questions about a specific bill or would like to join the Legislative Committee, please reach out to our Vice President of Government and Legal Affairs Zack Lee at zack@okpetro.com.

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$65.4 BILLION OIL AND NAUTRAL GAS INDUSTRY GENERATED IN STATE GDP IN 2018 representing 1/3 of Oklahoma’s total economic output

135,300 OKLAHOMA JOBS directly employed in the oil and natural gas sector

$6.6 BILLION

+

GROSS PRODUCTION TAX revenue over past decade with 1/3 of revenue supporting education

221,850

$1.13 BILLION

LAND AND MINERAL OWNERS RECEIVED $30.4 BILLION IN OIL AND NATURAL GAS ROYALTIES SINCE 2003

ADDITIONAL JOBS across economy supported by oil and natural gas activity

GENERATED FROM GPT from July 1, 2018 to June 31, 2019

$245 MIL

$726 MIL

$104 MIL

DIRECTLY FUNDS SCHOOLS AND HIGHER EDUCATION

SUPPORTS OKLAHOMA’S BUDGET

RETURNED TO COUNTIES TO IMPROVE ROADS AND BRIDGES

1,594 HORIZONTAL WELLS

DRILLED IN OKLAHOMA IN 2018 PRODUCED $4.73 BILLION IN TAXABLE PURCHASES AND $402 MILLION IN STATE LOCAL SALES AND USE TAX

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LEGISLATIVE KICKOFF RECEPTION INCLUDES DISCUSSION OF INDUSTRY’S ECONOMIC IMPACTS The Petroleum Alliance of Oklahoma welcomed members, lawmakers, state officials, and guests to the Alliance’s 2020 Legislative Kickoff reception at the Baker Hughes research center in Oklahoma City to mark the beginning of this year’s legislative session.

Attendees, including nearly one hundred of our state’s legislators, heard Alliance Chairman David Le Norman and economist Dr. Mark Snead report on a new study showing that the oil and natural gas industry remains by far the state’s most important economic driver.

“This in-depth study provides real data to back up what we all know — that the success of Oklahoma’s economy is dependent on the success of our industry,” said Le Norman.

According to the study, which was commissioned by the Oklahoma Energy Resources Board (OERB), the industry accounted for $65.4 in Oklahoma’s gross domestic product, $36.8 billion in household earnings, and 357,000 jobs in 2018. In addition, the state’s oil and natural gas sector has contributed $6.6 billion in gross production tax revenue ($663 million annually) to the funding of Oklahoma state government in the past decade, with $2.1 billion being apportioned strictly for common and higher education.

“It’s hard to overstate how important the oil and natural gas industry is to Oklahoma’s economy,” said Dr. Mark Snead, author of the study. “Oil and gas is to Oklahoma what Hollywood is to Los Angeles, Silicon Valley is to Northern California, and tourism is to Miami Beach.”

“Even with the challenges our industry is currently facing, we are still the backbone of Oklahoma’s economy,” said Le Norman.

“We can’t overlook the contribution that each and every member of the oil and natural gas community is making to our state and to our nation. Their work ethic and perseverance will continue to make Oklahoma great.”

36 | petroleumalliance.com

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ALLIANCE MEMBERS PUSH BACK ON ‘ENVIRONMENTALISTS’ DREAM BILL’ The Petroleum Alliance’s government affairs staff is constantly monitoring the thousands of bills filed each year in the legislature while analyzing the potential effect new laws could have on our industry. Rarely do we call on our members to actively oppose legislation, but a time has come when we must give particular scrutiny to bills that are obviously designed to stop Oklahoma’s oil and natural gas production. Such was the case with a bill filed by Sen. Paul Scott, a Republican representing the heart of Oklahoma oil and natural gas production.

by the Corporation Commission until setback stipulations are satisfied as approved by the Commission.”

Sen. Scott’s offensive language states that “the legislature finds and declares the proximity to oil and gas extraction can adversely impact public health and safety.” Further, the bill requires that “beginning Jan. 1, 2021, any new permit to authorize an intent to commence oil and gas development in this state shall not be issued

Unsurprisingly, our members were not hesitant to make their voices heard. Sen. Scott’s inbox was quickly filled with urgent requests that he not move his bill forward. Currently, the bill has not been assigned to a committee and is not expected to advance during this legislative session.

38 | petroleumalliance.com

Sen. Scott's intent seems clear: follow the “keep it in the ground” mentality of those who hate the oil and natural gas industry. We have already seen what happens in states like Colorado when jobkilling setbacks are imposed. Oklahoma cannot afford to keep kicking its oil and natural gas producers when they are down, and SB 1736 puts the state’s largest industry and biggest source of revenue directly in the crosshairs.

ENVIRONMENT REGULATORY UPDATE TA K E O F M I G R AT O R Y B I R D S The U.S. Fish and Wildlife Service proposes to adopt a regulation that defines the scope of the Migratory Bird Treaty Act as it applies to conduct resulting in the injury or death of migratory birds protected by the Act. This proposed rule is consistent with the Solicitor’s Opinion, M–37050, which concludes that the MBTA’s prohibitions on pursuing, hunting, taking, capturing, killing, or attempting to do the same, apply only to actions directed at migratory birds, their nests, or their eggs. Comments on this proposed rule will be accepted until March 19, 2020.

E N V I R O N M E N TA L I M PA C T S TAT E M E N T O N T H E TA K E O F M I G R AT O R Y B I R D S The U.S. Fish and Wildlife Service intends to prepare a draft environmental impact statement pursuant to the National Environmental Policy Act of 1969 to evaluate the potential environmental impacts of a proposal to adopt a regulation that clarifies that the Migratory Bird Treaty Act’s prohibitions on pursuing, hunting, taking, capturing, killing, or attempting to do the same, apply only to actions directed at migratory birds, their nests, or their eggs, and, therefore, do not extend to incidental take, which occurs when injury or mortality to migratory birds results from, but is not the purpose of, an activity.

The review will analyze the environmental effects of the proposed approach and will provide detailed analysis of the environmental effects of the proposed rule.

Multiple public scoping webinars will be held to inform the public about the proposal. Public scoping will begin with the publication of this document in the Federal Register and will continue through March 19, 2020.

40 | petroleumalliance.com

ECONOMY OIL & NATURAL GAS REMAINS THE ECONOMIC ENGINE OF OKLAHOMA The people of Oklahoma oil and natural gas are a catalyst for the state’s economy, providing one-third of the total economic output and more than 350,000 jobs. They are also having a big impact on funding for state and local services, contributing millions of dollars to education and roads.

A new report completed by RegionTrack Inc. for the Oklahoma Energy Resources Board (OERB) found that the oil and natural gas industry generated $65.4 billion in state GDP in 2018. That makes the industry the largest private-sector contributor to Oklahoma’s economy, far surpassing other sectors.

The oil and natural gas industry is also the largest taxpayer. Across all tax revenues, the industry contributes more than $2 billion in taxes each year for state and local use. This significant economic impact is also yielding huge benefits for schools and roads at the local level. In fiscal year 2019, $245 million was apportioned to education-related funds and $104 million was returned to counties for roads.

The oil and natural gas industry also supports hundreds of thousands of families across the state, generating $36.8 billion in household earnings in 2018. That’s nearly one in three dollars earned in income. In addition, oil and natural gas provided nearly $2.5 billion in royalty payments to Oklahomans.

For more on this report, visit OERB.com/impact.

EDUCATION TEACHERS LEARN ABOUT OIL AND GAS FROM OERB More than 30 Oklahoma City Public Schools (OKCPS) teachers participated in an immersive professional development day hosted by the people of Oklahoma Oil and Natural Gas this week. The day included hands-on learning, a keynote speaker, and a tour of a drilling rig.

Stephanie Bradley, Senior Environmental Advisor at Enbridge, served as the keynote. She provided an overview of Enbridge’s operations and environmental programs, including their most recent efforts to support monarch butterfly habitats. The teachers also visited a rig operated by Unit Drilling Company near Calumet, Oklahoma. This opportunity provided educators a real-world experience and enhanced their knowledge of Oklahoma’s largest industry and the associated career opportunities.

The teachers were also given more insight into STEM applications in the oil and natural gas industry through hands-on activities in three of the OERB’s curricula.

At the end of the day, each teacher received a kit of materials to be used in their STEAM center. STEAM is the correct acronym because some schools have incorporated art into their technical programs.

Through the OERB, the people of Oklahoma oil and natural gas previously contributed $300,000 to create 10 STEM labs in OKCPS elementaries.

Hosting this professional development day was a continued commitment to ensure educators have the knowledge and resources they need to inspire the next generation of our workforce.

41 | petroleumalliance.com

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EIA’S OUTLOOK

NATURAL GAS AND OIL REMAIN INTEGRAL TO U.S.

The federal government’s latest energy projections are out, and they portray a U.S. energy future that continues to be driven by natural gas and oil.

It’s a future noteworthy for continued production growth, greater efficiency, the U.S. as a net energy exporter and emissions progress. All are connected in various ways to shale reserves and safe, modern hydraulic fracturing — and are at risk if fracking was banned, as some have advocated.

Americans understand how far the United States has come in the past decade and a half, thanks to shale and hydraulic fracturing, helping advance the goal voiced by U.S. presidents since Jimmy Carter of seeing this country end its reliance on foreign energy. Indeed, in December the U.S. Energy Information Administration (EIA) confirmed the United States as a net exporter of energy in total for the first time since the 1950s.

This is an historic sign of new U.S. global energy leadership, and it shouldn’t be thrown away with foolish policy choices.

Now, some highlights from EIA’s Annual Energy Outlook 2020: PRODUCTION/GLOBAL LEADERSHIP EIA projects the U.S. will continue to produce historically high levels of natural gas and crude oil. U.S. oil production reaches 14 million barrels per day by 2022 and remains near that level through 2045. EIA’s chart:

As the graphic shows, this production growth is directly tied to energy that’s developed from shale and other tightrock formations. By 2050, tight oil produced with fracking accounts for 73% of total U.S. oil production. Similarly, by 2050 natural gas developed from shale with fracking accounts for 91% of total U.S. natural gas production. This is reflected in the charts on the following page: 44 | petroleumalliance.com

EIA says this production, coupled with slower growth in domestic demand, will lead the U.S. to increase its exports of crude oil, petroleum products and liquefied natural gas (LNG).

The U.S. becomes a net exporter of petroleum by volume after 2020.

EIA projects the U.S. will export more petroleum and other liquids than it imports annually starting this year, with domestic production continuing to rise and decreased domestic consumption of petroleum products. EIA says net exports of U.S. petroleum and petroleum products will peak at 3.73 million barrels per day in 2033 before gradually declining as domestic consumption rises.

The U.S. became a net natural gas exporter on an annual basis in 2017, exporting more natural gas than it imported in 2018 and last year. EIA projects U.S. LNG exports to more distant destinations will increasingly dominate the U.S. natural gas trade, and the United States is projected to remain a net natural gas exporter through 2050. To the right, EIA’s chart:

45 | petroleumalliance.com

EIA Administrator Linda Capuano: “With continued technologically enabled growth in domestic oil and natural gas production, we see the United States remaining a net exporter of energy for some time.”

EMISSIONS EIA’s reference case assumes trend economic growth over the forecast period — and with it, corresponding efficiency improvements through technological change and demand for energy from the industrial and transportation sectors.

That’s the context for EIA’s projection of an uptick in U.S. energy-related carbon dioxide emissions in the 2030s. The overall perspective is that by 2050, EIA says, these emissions still will be 4% lower than 2019 levels. EIA’s infographic:

In the electric power sector, CO2 emissions will decline through the 2020s largely because coal continues to decline as a fuel for generation. Emissions from the sector, with natural gas playing a leading role, are relatively flat out to 2050.

Many of these data points underscore the reality of American global energy leadership. Again, this is leadership that would suffer a heavy blow if hydraulic fracturing were banned.

Mike Sommers, API president and CEO: “For decades, American presidents across the political spectrum have outlined their policy proposals to Congress at the State of the Union. Ideologies come and go with each transition of power. But every president, from Jimmy Carter to Donald Trump, has agreed that affordable, reliable, and homegrown energy is essential to the country’s economic growth, national security, and overall prosperity. To further develop our energy resources and strengthen environmental performance, it’s imperative that the White House and Congress prepare for the projected growth in global energy demand with forward-looking policies that support safe and responsible natural gas and oil production.”

46 | petroleumalliance.com

New Association Benefits Plan Available

As the leading energy insurer in Oklahoma, Blue Cross and Blue Shield of Oklahoma provides the strength, service and quality your employees deserve.

We are excited to announce the introduction of the Association Benefits Plan — an exclusive benefit package available only to Petroleum Alliance members effective March 1.

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DEPA CONGRATULATES TRUMP ADMINISTRATION ON FIGHTING RUSSIAN GAS LINE S O U R C E : D E PA A N N O U N C E M E N T

The Trump administration is getting encouragement from the Domestic Energy Producers Alliance (DEPA) to carry out threatened U.S. sanctions over the pipeline carrying Russian natural gas to Germany.

The Nord Stream 2 line runs from Russian gas fields to Germany, and the president has threatened sanctions against all international companies working on the line.

“This action tells the world that the U.S. is the world’s economic and energy superpower,” stated a press release from the Alliance.

The administration has repeatedly encouraged Germany to not accept the Russian Nord Stream 2 gas pipeline.

“The Russians have used their natural gas as a political tool and have limited supply and manipulated prices to several European countries. Additionally, the Nord Stream 2 pipeline is being laid under the Black Sea, bypassing several Baltic countries as a political ploy by Moscow,” continued the statement from the Alliance.

It stated that the U. S. is more than able and anxious to supply Germany and all of its allies with American natural gas and oil.

“We are reliable and can be trusted on our pricing.”

This week, the Russian pipeline parent company, Gazprom, announced it will attempt to finish the Nord Stream 2 project without the international companies they had been relying on up to this point.

“We believe the administration deserves congratulations on it’s ability to redirect construction partners on this project. This move away from the project by international companies indicates that the U.S. is THE economic and energy superpower,” added the Alliance.

The DEPA is a nationwide collaboration of 34 coalition associations representing individuals and companies in domestic onshore oil and natural gas exploration and production.

50 | petroleumalliance.com

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ALLIANCE BOARD MEMBER DAVID FERRIS LEADING RONNIE K. IRANI CENTER FOR ENERGY SOLUTIONS AT OU’S MEWBOURNE COLLEGE OF EARTH AND ENERGY THE NEW YEAR BRINGS A NEW DIRECTOR, A LARGER SCOPE AND A PLAN TO EQUIP BUSINESSES AND STUDENTS ALIKE .

David Ferris, a University of Oklahoma (OU) alumnus with experience developing multi-billion-dollar strategic plans for large energy-related corporations, has been named the inaugural director of the Ronnie K. Irani Center for Energy Solutions in the Mewbourne College of Earth and Energy at OU. First envisioned by alumnus Ronnie K. Irani, the Irani Center for Energy Solutions provides OU students the opportunity to participate in real-world, real-time industry projects. As the center’s new director, Ferris is expanding the Irani Center’s focus to also include community engagement initiatives and the Energy Institute of the Americas, the college’s professional energy education and development department.

Ferris holds a bachelor’s degree in petroleum engineering and a master’s degree in natural gas engineering from the Mewbourne College, as well as a master’s degree in business administration from the Price College of Business at OU. He earned a doctorate in organizational change and leadership from the University of Southern California. For the past 11 years, Ferris has served on the Mewbourne School of Petroleum and Geological Engineering Industry Advisory Board and was chairman from 2017 to 2019.

“With degrees in energy-related engineering fields and business, I share Ronnie Irani’s strong affinity for how we think about energy, how we think about business and how we combine those to really power the future of our industry,” explained Ferris.

In addition to his involvement with large corporations, Ferris also has worked with smaller companies, serving in a number of roles, including drilling, completion and production operations to reservoir engineering and collaborating with geoscientists on new prospect development.

“Coming out of the last 20 years, I’ve learned how to operate like a small company where every dollar and every minute matters. However, my experience in large companies has given me a perspective of the massive

52 | petroleumalliance.com

scale and integrated planning needed in unconventional energy endeavors to provide a meaningful return for stakeholders,” said Ferris.

It is that combination of experience that Ferris hopes to leverage for OU students and the community. He looks forward to sharing with students his unique experiences in the industry, which began during a college internship when he worked in the field as a roustabout.

He is already making a difference in the three focus areas for the Irani Center for Energy Solutions.

1 | PRACTICAL EXPERIENCE Since its inception in 2018, the Irani Center for Energy Solutions has provided practical experience to students at the university by partnering with companies to provide projects for student teams. The Irani Center now houses the capstone course taken by all petroleum engineering seniors. In previous years, capstone projects were often scenarios created by faculty or previous situations faced by companies.

Petroleum Alliance members who have sponsored student projects: Charter Oak, Mewbourne Oil Company, Kirkpatrick and Iron Wheel

Thanks to new industry partnerships established by Ferris, the spring 2020 semester marks the first time that 100% of the student groups will work directly with energy companies to assess real-world, real-time projects. Many of the sponsors are members of the Petroleum Alliance.

“Going forward, our seniors will be evaluating fields through the eyes of the industry and, in many cases, the student output will lead to commercial transactions, allowing students to see market validation for their work,” said Ferris. “We believe experience leads to opportunities, and our graduates will be well prepared to lead our industry.”

2 | COMMUNITY ENGAGEMENT Ferris wants the Irani Center for Energy Solutions to engage in meaningful dialogue about the importance of energy and stewardship on the OU campus and throughout the region.

“Oftentimes, public discourse becomes uncivil and clouded by polarizing rhetoric. Our hope is to reframe the conversation from talking about problems to working toward solutions, which steward our resources and provide energy and opportunity to all,” Ferris stated.

3 | PROFESSIONAL DEVELOPMENT For the past 25 years, the Energy Institute of the Americas has provided professionals with energy education and development opportunities to people around the world. Ferris and his team are offering courses ranging from Petroleum Engineering for NonEngineers to Advanced Machine Learning for Reservoir Characterization — popular with business, law and geosciences professionals — while also working with local businesses to identify knowledge gaps and retool existing courses.

“Under David’s leadership, we are expanding on the EIA’s decades of success and providing even more continuing education opportunities in the areas of petroleum engineering and geosciences for all manner of professionals,” said Mike Stice, Dean of Mewbourne College.

100% OF THE STUDENT GROUPS WILL WORK DIRECTLY WITH ENERGY COMPANIES TO ASSESS REAL-WORLD, REAL-TIME PROJECTS

Ferris is excited about the growth potential of the Irani Center as it moves toward developing partnerships with students and industries to enhance knowledge, advance careers, and provide greater opportunities for all.

More information about the Irani Center can be found at mcee.ou.edu/ices.

RONNIE K. IRANI CENTER FOR ENERGY SOLUTIONS

The UNIVERSITY of OKLAHOMA

53 | petroleumalliance.com

ALLIANCE MEMBERS HONORED AS LEADERS IN INDUSTRY Oil & Gas Investor Magazine and Hart Energy Conferences has put out its 25 Most Influential Women in Energy List for 2020, and several Petroleum Alliance members have been selected. The recognition is for women who have “risen to the top of their professions and achieved outstanding success in the oil and gas industry.”

CONGRATULATIONS TO

JAIME BUTLER

ANDREE GRIFFIN

JOHANNA HAGGSTROM

VP, Permian at Baker Hughes

Unconventional Development Manager at ExxonMobil

Director of Technology at Halliburton

CATHY LEBSACK

TIFFANY POLACK

VP of Land & Exploration at Devon Energy

Development Director at Marathon Oil Corp

HEATHER POWELL

KRISTIN THOMAS

President & CEO of Ventana E&P LLC

SVP, Public Relations at Continental Resources

THANK YOU FOR YOUR COMMITMENT TO OUR INDUSTRY! 54 | petroleumalliance.com

l a i c o s Get WITH THE

ALLIANCE @petroallianceOK

The Petroleum Alliance of Oklahoma is your go-to source for news and updates during the current legislative session. We

@petroallianceOK

provide the latest information on bills and issues we are tracking at the Capitol. From live videos

@petroallianceOK

on Facebook to real-time updates, we are working to keep our members informed.

The Petroleum Alliance of OKlahoma

55 | petroleumalliance.com

FOLLOW US ON SOCIAL MEDIA FOR MORE EXCITING INITIATIVES!

Timeline of 2020 Events JANUARY

FEBRUARY

MARCH

Scoop winter classic Livestock Show- January 4 Chickasha, Grady County Wildcatters WednesdaY - january 8

OKC, Embassy Suites

Wildcatters Wednesday - February 12 Tulsa, Tulsa Country Club Legislative kickoff reception - February 18 OKC, Baker Hughes, EIC

Wildcatters Wednesday - March 10 OKC, Embassy Suites Oklahoma oil and gas day - March 25 OKC, Oklahoma State Capitol

APRIL

Wildcatters Wednesday reception - April 8 Tulsa, Mayo Hotel the alliance open - april 20 Edmond, Oak Tree Golf & Country Club

MAY

Sine Die - may 4 OKC, The Harn Homestead Wildcatters Wednesday Reception - May 19 OKC, Skirvin Hilton

JUNE

Annual meeting - june 4-7

JULY

Stack Summer Classic Livestock Show - July 18 Kingfisher, Kingfisher County Fairgrounds

Irving, TX, Four Seasons Resort and Club Dallas at Las Colinas

AUGUST

Wildcatters Wednesday reception - AUGUST 6 OKC, Skirvin Hilton

SEPTEMBER

Wildcatters invitational Golf Tournament - SEPTember OKC Wildcatters Wednesday - september 9 OKC, Petroleum Club

OCTOBER

Wildcatters Wednesday - OCTOBER 7 Tulsa, Tulsa Country Club fall conferencE - October 26-29 Ridgedale, MO, Big Cedar Lodge

NOVEMBER

Wildcatters Wednesday - November 4 OKC, Petroleum Club

DECEMBER

Jingle Mingle - December OKC, Petroleum Alliance of Oklahoma Scoop Winter Classic Livestock Show- December Chickasha, Grady County Fairgrounds

56 | petroleumalliance.com For sponsorship

opportunities, please contact Natalie Kinmonth at natalie@okpetro.com

ANNUAL MEETING JUNE 4-7

This year’s Annual Meeting will showcase how the Alliance is proudly working on your behalf. The agenda is packed with informational speakers and panels, as well as multiple networking opportunities for our members at the Four Seasons Resort and Club in Los Colinas, Texas.

Featuring: Oilfield Services Auction Golf Scramble Casino Night Poolside Welcome Party Chairman’s Banquet Sporting Clays Tournament

Visit okpetro.com to reserve your spot today! For sponsorship opportunities, please contact Natalie Kinmonth at natalie@okpetro.com.

57 | petroleumalliance.com

TIM’S ALL ABOUT CCR AND E ISCHE N ’S CHICKEN!

TIM HALEY

1 2 3 4 5 6 7 8 9 10

C E O , R A F T E R H . O P E R AT I N G Who’s your favorite Oklahoman?

Tom Stafford (Actually hunted quail with him!)

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

Eischen’s chicken Mountains or beach?

Mountains by the beach

11 12 13 14 15

Have you met anyone famous?

George Strait

What’s your favorite drink?

Unsweet iced tea (with lemon)

Favorite college team?

OSU Cowboys (Go Pokes!)

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

Manage wells, minerals, farmland, commercial real estate, and my kids.

Make sure none of these balls hit the ground!

Favorite band in junior high?

Credence Clearwater Revival

Name of your pet?

Stella

What was your first job?

Velcroed to the back of a horse working cattle

58 | petroleumalliance.com

16 17 18 19 20

What was your first car? ’58 Chevy stepside pick-up

If you could have dinner with one person, alive or dead, who would it be?

George S. Patton — I’d bring a notepad!

What was your favorite TV show as a child?

Foreman Scotty

What’s the number one item you would save from your burning house?

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

The people interaction. Everyone here represents a link in a powerful “chain.” They are committed and work-ethic driven. By themselves, those links are an earring or a paperweight. Interconnected, they are now a formidable tool and a force that can deliver a baby calf into the world, or tear down the Berlin Wall! From land and geology to midstream, the connectivity and interdependence of all the links is the attraction for me.

What is your favorite holiday?

All with a three-day weekend

What is the best gift you have ever received?

All of my kids

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

Schedule an appointment with Father Rick Last movie you saw at the theater?

Once Upon a Time in Hollywood

What’s your favorite app?

Oklahoma Department of Wildlife

Our state hat.

The people of Oklahoma Oil & Natural Gas are building a better Oklahoma.

We hope you will follow the OERB, @oerbok, on social media and share the news with associates, friends, and family. Because our story is an extraordinary one, and it needs to be told across our great state. Thank you for all you do.

To learn more, go to oerb.com.

59 | petroleumalliance.com

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

Prsrt Std U.S. Postage Paid Permit No. 1541 Okla. City, OK