American Oil and Gas Reporter - June 2015 - 119

to both the 1986 and 2014 price shocks.
By this admittedly crude measure, Friesen
revealed, "We could be at 6 or 7 percent
decline, which is significant."
Finally, he pointed to market uncertainties that could be bullish for prices.
Russia, he contended, is critical. "I believe
Russia will surprise to the downside this
year," Friesen said. "To move from its
Soviet-era brownfields to green-fields,
Russia needs technology and capital, and
both are being held up because of sanctions."
While he expressed doubt that OPEC
members would reach agreement on production cuts, he said there was some risk
of a supply disruption caused by lower
prices exacerbating internal political problems. With only 1 MMbbl/d-2 MMbbl/d
of spare capacity, "if a Nigeria or
Venezuela went off line, that would put
much more stress on shale oil to ramp up
again, which would be bullish for prices,"
Friesen concluded.
Mezzanine Capital
As banks conduct redeterminations
on their production loans with today's
lower-price parameters, Five States' Stone
said many oil and gas companies could
find their loans out of compliance. One
possible option, he said, is mezzanine
capital.
Among the qualifications a mezzanine
capital provider will look for, Stone advised, are cash flow sufficient to cover
both the senior and secondary lines of
credit as well as overhead, plus solid
drilling prospects. "If you have good
acreage with proven assets to drill, you
are more likely to get the backing to continue to develop the properties," he assessed. "If you have goat pasture, don't
expect it."
Secondary loans generally have threesix year terms, with interest rates between

Operators may find a wealth of useful
information on the Texas Railroad Commission's website, suggests Brian A.
Miller, president of Miller Consulting Inc.,
and chairman of the Texas Alliance's
Railroad Commission Committee.

10 and 15 percent, Stone described. "Secondary lenders are going to want some
sort of kicker on the back end," he said.
"When that loan pays out, we would like
to have a 25 percent working interest in
the property, or something of that nature."
He said the loan would be a perfected
second security. "If things aren't performing as they should, we will have a
right to buy out your senior bank and
take over the properties," he explained.
"There are other solutions," Stone allowed. "But most of them involve sales.
You also may get new equity from companies that back management teams, but
that is much harder to do at $50 a barrel
than it is at $100 a barrel."
RRC Website
Three searches of the RRC's website
that Miller suggested operators ought to
perform are the annual Form P-5 organi-

zation reports, monthly operator proration
schedule, and operator lease/well severance
queries.
In addition to company addresses,
telephone numbers and names of officers,
which are available on Form P-5, Miller
said the monthly operator proration schedule on the RRC website included a list
of leases and wells carried under an operator. Within the proration schedule, he
added, an operator can ascertain that all
completion, plug and abandonment, and
operator transfer reports have been filed
properly and processed by checking both
the monthly allowables assigned and the
lease/wells listed. "If somebody is going
to take over my well, I want to make
sure it dropped off (his monthly operator
proration schedule) within the next few
months to make sure the change of operator was processed," he commented.
Severance queries will turn up any
current and/or past violations, Miller continued. "If I am going to buy some wells,
I can get their histories and see what
problems they have or have had," he
said.
Miller said other sections of the RRC
website contained well logs from July
2004 forward, surface commingling permits (Form P-17), oil and gas production
reports, completion/plugging reports, and
groundwater protection determination letters since 2009. Also available are disposal/injection permits and mechanical
integrity tests (Form H-5 1985-1994), as
well as other valuable information, he
added.
All the RRC's oil and gas forms can
be found listed in alphabetical order,
Miller said, along with the statewide rules
that apply to each. By going to the legal
section, he said, one can view current
and proposed rules, draft rules for informal
comment, comment forms for proposed
rule makings, and emergency rules. ❒

INFRASTRUCTURE. . . . . . . . . . . . . . . . . . . . .
FROM PAGE 107

to be prepared for and open to opportunities to educate a misinformed public
about the oil and gas industry."
The association expects around 100
attendees for this year's meeting, Stockner
says, adding that she considers the banquet
and awards ceremony a particular attraction. "We are all one big family in the
industry," she comments. "That is why it
is important that we make our annual
summer meeting so family-friendly."
Archer says he hopes public officials

and members of other state associations
will consider attending to expand the opportunity to learn about and discuss the
industry's situation. "We really want to
cast a broad net," he explains. "If local
or state officials want to learn more, we
would love to have them. The same is
true for our counterparts at other oil and
gas associations. Not only will they be
able to learn about things in Virginia, we
will be able to learn from them what is
going on in their states."
❒

Consulting Petroleum Engineers
Water Flooding - Evaluations
Cost Estimates - Design - Installation
Reservoir Studies - Simulations

STEPHENS & JOHNSON OPERATING CO.
Drilling & Completion
Supervision - Lease Operations
811 6th Street - P.O. Box 2249
Wichita Falls, Texas 76307-2249
(940) 723-2166

JUNE 2015 119

American Oil and Gas Reporter - June 2015

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