American Oil and Gas Reporter - May 2016 - 81

ConventionSection: Oklahoma Independent Petroleum Association

Oklahoma Industry Looks
Forward To Recovery
By Del Torkelson
OKLAHOMA CITY-Jeffrey McDougall proposes the following thought
experiment: Pretend a formally-organized
bloc of countries, some of them unfriendly
toward the United States, undertakes an
open campaign to control the smartphone
market and undermine the U.S. companies
in that industry.
"If there was foreign collusion about
iPhones, everyone would be up in arms,"
muses McDougall, president of JMA Energy Company LLC in Oklahoma City
and chairman of the Oklahoma Independent Petroleum Association. "The
government would be compelled to react
with sanctions."
As OIPA approaches its 2016 annual
convention, scheduled for June 10-13 at
the Four Seasons Hotel and Resort in
Las Colinas, Tx., its members face open
collusion to undermine it by the Organization of Petroleum Exporting Countries,
McDougall contends, and U.S. policymakers make no move to penalize the
participants.
"Our country imposes no consequence
on OPEC for pulling the rug out from
under us," McDougall characterizes. "The
country sits back and accepts a foreign
entity manipulating the market to stop
our energy renaissance and return us to a
past that was not very popular."
As if slack commodity prices were
not enough, Oklahoma oil and gas companies also must withstand a flurry of
unwelcome federal regulatory developments at the same time their state walks
the uncertain path of addressing increased
seismic activity that many link to wastewater injection. Can OIPA President Mike
Terry recall a tougher time for Oklahoma
oil and gas producers?
"Never," he says without hesitation.
"Not even close."
Even so, he affirms, most OIPA members
have stayed afloat in choppy waters before.
"It is their livelihoods, and they are fighters,"
he reflects. "They know what to do."
Presidential Piling On
OIPA members are survivors, Terry

describes. Nevertheless, he continues, it
certainly does not help when policy-level
evidence strongly suggests the president
of the United States wants to see their industry perish. "All the federal regulatory
issues make it extraordinarily tough,"
Terry assesses. "The Obama administration
has done its best to kill the coal industry,
and oil and gas are next. From day one,
this president has shown he is no friend
to this industry."
It should come as no surprise that
President Obama has not responded to
OPEC's predatory strategy with any
measures to mitigate the damage to U.S.
producers, McDougall observes. Instead,
the president piles on. "Since these countries are so interested in our markets,
we should impose an import fee on their
oil when they attempt things such as
this," he advocates. "However, the administration has sought a $10-a-barrel
production tax to kick us while we are
down. That tax should go on imported
crude as a response to OPEC's market
manipulation."
Although the production tax Obama
seeks has little hope of becoming law,
McDougall suggests the gesture is not
entirely empty, since it exemplifies the
hostility the country's independent producers can expect from the White House.
Nevertheless, he acknowledges genuinely
good news can find its way out of even
Washington, citing Congress' vote at the
end of 2015 to lift longstanding statutory
restrictions on U.S. crude oil exports
(AOGR, Jan. 2016, pg. 26).
"Now that the export ban is gone, the
United States has entered the global
energy competition," McDougall reflects.
"That levels the playing field for oil, and
if the administration would be quicker
about permitting liquefied natural gas
terminals, we could export more of that
while our country still has a price advantage."
Slow Recovery
According to McDougall, an extensive
hedging program has helped protect JMA's
balance sheet, but the company also has
had to reduce staff and trim compensation.

Fortunately, he says employees also seem
to recognize that evolving conditions require such adaptations.
Even though JMA Energy has tapped
its brakes, he acknowledges, it has not
stomped on them. "We are still drilling,"
McDougall reports. "Finding costs are
half of what they used to be, or lower.
We are making economic choices, but
we are inside cash flow, which makes it
a lot easier to handle times such as
these."
Throughout a history that runs more
than three decades, JMA Energy has a
longstanding taste for drilling horizontal
wells in conventional reservoirs, he reveals.
"We were drilling this stuff before prices
went down," he reflects. "We have drilled
a lot of Oklahoma's first horizontal wells
in every horizon, so we are able to pick
and choose what we like. Our property
base is pretty broad, without any particular
core that we require to make things
happen. We are agnostic on what to drill,
and go wherever the economics say by
using an internal high-grading process to
decide what gets capital."
McDougall acknowledges times have
proven more difficult for some Oklahoma
companies, as a shrinking number of
new projects renders many of them overstaffed. Yet, the fact that booms do not
last forever also proves downturns eventually end, too, he considers. "All these
factors start pointing to a bottom," he
suggests.
Even if hindsight eventually shows
this price cycle's low point indeed has
passed, McDougall is quick to counsel
against expectations for a sharp, v-shaped
recovery. The industry's underinvestment
may linger, he allows. "We are at the
bottom of a 15-year cycle," McDougall
assesses. "We have to digest the oversupply, then we will head back up on another 15-year cycle. Will oil and gas
prices be higher in the long run? Yes, but
it is going to take a while."
Moreover, he advises, companies must
approach the next era with a new template
that incorporates lower finding costs and
stronger balance sheets. "Debt is an accelerant on the way up and a millstone
MAY 2016 81

American Oil and Gas Reporter - May 2016

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