American Oil and Gas Reporter - August 2015 - 125

ConventionSection: Petroleum Association of Wyoming

Wyoming O&G Industry
Remains Confident
By Del Torkelson

DENVER-Making a career in the oil
and gas business seems to require unflagging confidence, reflects Petroleum
Association of Wyoming Chairman Randy
Harris, director of corporate development
at Black Hills Corp. in Denver. When
commodity prices slip and activity follows,
he reflects, hearty industry veterans remember it is part of the paradigm.
"I have been in this industry 35 years,"
he reflects in advance of PAW's annual
convention, Aug. 25-26 in Casper, Wy.
"Anybody who has spent a fair amount
of time in this industry has lived through
the inevitable ups and downs. It is all
driven by supply and demand. As drilling
subsides, demand begins to erode the
oversupply and, (eventually) prices rise
and everybody gets back to work again."
Even so, he allows, some new factors,
including the lower risk profile but higher
costs associated with resource plays, perhaps make today's market more intriguing
and less predictable.
Moreover, notes PAW President Bruce
Hinchey, even if some traditional barometers of industry health seem to bode ill,
they also do not necessarily carry the
significance they once did.
In early July, when Wyoming's rig
count stood at 22, Hinchey observed that
constituted the state's fewest active rigs
since World War II. Nonetheless, he
pointed out, 22 rigs can drill a lot more
footage in 2015 than they could in the
1940s. "Pad drilling means multiple wells
are drilled from one location," he reflected.
"And although these laterals extend for
miles, the rigs are so fast and efficient
that one rig can drill more wells than
two-four could have 30 years ago."
New Templates
According to Harris, Wyoming oil and
gas producers have been enduring a summer of uncertainty with regard to product
prices. "We really would like to see more
predictability," he acknowledges.
But even as they strive to calculate
project economics in a market that makes
it difficult to do so, Hinchey says PAW

members remain resilient. After all, he
considers, making a living in oil and gas
requires an optimistic temperament. "Without it, there would not be very many
people in this industry," he muses. "People
may lose money from time to time, but
the optimism is always there. That is
why independents continue to explore in
areas most people will not, and from
time to time they find major fields."
Hinchey points to applications for permits to drill at the Wyoming Oil & Gas
Conservation Commission as a sign that
producers are moving their figurative
pieces into place so they will be poised
to strike as soon as conditions warrant.
"I know a lot of APDs have been submitted," he reports. "A lot of that is jockeying for position, but it reveals an interest
that tells me if prices rise a little, we are
going to see a lot of activity in a hurry."
Much of that interest is concentrated
in eastern Wyoming, Hinchey says, where
some operators are reporting initial production rates of 1,000-1,500 barrels a
day. "These are deeper horizontal wells
in the Shannon, Parkman and Sussex, as
well as the Codell," he relates.
But the x-factor continues to be the
impact of lackluster commodity prices
on resource play drilling and completion
economics, Harris considers. Even so,
some aspects of those calculations may
be encouraging, he says, even if the first
consideration most people mention is cost.
"It continues to boggle my mind how
much a horizontal well costs to drill and
complete," he describes. "Well costs are
significantly more than we ever had in
the days of vertical exploration."
On the other hand, he says, companies'
break-even estimates for unconventional
projects cannot ignore the merits of those
plays. Although producers may spend
more on each unconventional well, he
reasons, they also do so with more assurance that each one will provide at least
some return, as opposed to the risk of a
dry hole.
"There is a real contrast in how a
company looks at a horizontal resource
play, compared with traditional, vertical
wildcat or exploration drilling," Harris

allows. "When you drill an exploration
test in which the chances of success are
1-in-15 or 1-in-20, that risk profile raises
your rate-of-return expectations. The geologic risk is so much lower for a shale
play, it allows companies to accept lower
rates of return."

American Marvel
Surging U.S. energy output is changing
the outlook well outside the industry,
Harris goes on. After he learned the U.S.
Energy Information Administration projected in July that U.S. crude oil production
this year would be the highest in 45
years, Harris says he could only marvel.
"That is simply amazing," he characterizes.
"I always tell my kids that the oil and
gas industry has done a marvelous job of
keeping energy affordable."
In those conversations, Harris says he
points to the value a gallon of gasoline
provides at a price that seems remarkable
in comparison with many other necessities
of modern life. "Look at any other commodity," he urges. "This industry has
done a marvelous job."
He suggests commodities traders have
absorbed that lesson to the point that
they have become nonplussed at geopolitical events that once may have sent oil
prices soaring. Whereas headlines about
Russian saber rattling or Middle Eastern
civil wars once would have contributed
to a "fear premium" that often caused oil
prices to exceed calculations based solely
on fundamentals, now U.S. producers
seem to have made traders almost unflappable. "Imports continue to decline
as the United States relies less on foreign
crude," Harris observes. "That means
those types of geopolitical events impact
the price far less than they used to."
Annual Convention
Wyoming's oil and gas producers will
have an opportunity to ponder and discuss
a range of subjects when PAW gathers
for its annual meeting in late August. "It
is a great opportunity to learn more about
the issues and visit with peers, play some
golf, and maybe do a little fishing,"
Hinchey describes.
AUGUST 2015 125

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