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The Double-Edged Sword of Low Oil Prices

Posted By Lyndsey Kleven, Communications Coordinator, Wednesday, February 4, 2015

The ebb and flow of oil prices is nothing new to anyone who has monitored the oil and gas industry for a length of time. The last peak in oil prices was seen in June 2014, when crude oil was selling for nearly $110 a barrel—fast forward six months and we’re looking at average prices below $55 a barrel. In July 2008 the national average price of regular gas was $4.06 and today it’s just over $2 ($2.05). With prices plummeting by half, there are going to be some clear winners and loser. 

The obvious winners are consumers that are saving money at the gas pump. Prices at the pump have dropped drastically as a direct result of lower crude oil prices. Cheaper oil is giving money back to the consumer that in turn, boosts spending and the economy elsewhere.

Ohio was among the first states in the US to see gas prices drop below $2 in mid December. The last time prices dropped below $2 a gallon was nearly six years ago in early 2009. Low crude oil prices have paid dividends at the pump, what is equivalent to a $750 tax cut for the average American household.

Lower pump prices are nice but people aren’t realizing the cost that it is taking the industry. The prices continued to drop following the Organization of Petroleum Exporting Countries (OPEC) meeting late in 2014, when the group opted not to cut production. The ramifications vary among countries, crippling to some nations while lifting others. In the United States, it’s most adversely impacting the American shale oil and gas producers responsible for the domestic energy boom.

Shale oil, which is extracted from the ground through horizontal drilling combined with advancements in hydraulic fracturing technologies, is a relatively expensive process, requiring oil to sell around $70 a barrel to be economical. When drilling new wells no longer makes economic sense, many companies will decide to pull back their drilling programs. Ohio has already begun to see this take place. With investment being dramatically cut back, the U.S. and Ohio are losing some of its high paying energy jobs.

The ripple effect is being felt across the whole energy industry, affecting thousands of people—including Ohio’s conventional operators. Revenue from higher oil prices isn’t there and all producers are tightening their belts and watching every penny they spend.

While prices are low, drilling new wells will also remain low. As long as conditions in Ohio remain favorable to oil and gas exploration, drilling activity is expected to flourish once the market rebounds. 

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Member Spotlight: Steve Downey, EnerVest Operating, LLC

Posted By Lyndsey Kleven, Communications Coordinator, Tuesday, January 27, 2015

Background information:

Steve Downey has a B.S. degree in Accounting from West Virginia Institute of Technology and passed the certified public accountant exam in 1989. Starting his career as an internal auditor for a bank, Downey would have never thought he would spend the majority of his nearly 30-year career in the oil and gas industry out of Charleston, West Virginia. Fresh off the CPA track, Downey left the finance sector of Columbia Gas Transmission in 1990 and never looked back taking positions in strategic planning, marketing, and facility sales. Columbia Gas transmission is a midstream company that provides storage and gas transportation services and was looking for someone with banking experience; Downey spent the next 18 years working there.

“I think being a CPA does give me a different perspective than engineers and geologist, the real scientist behind the industry, who are just brilliant,” said Downey. “I look at things a little bit differently at times and it is a healthy balance.”

After leaving Columbia, Downey went to work for Triana Energy, a production company that purchased the former affiliate of Columbia ultimately purchased by Chesapeake where he worked until leaving for EnerVest Operating, LLC. in March 2006.

About EnerVest:

EnerVest is an exploration and production company that was formed in 1992 and currently operating in 15 states, owning 6 million acres. EnerVest employs 1,300 people and has more than 28,000 wells that they operate with an interest in approximately 6,000 more as a non-operator, having a stake in both conventional and horizontal wells. EnerVest has an interest in most of the large production basins throughout the United States Its Appalachian assets are located in Ohio, West Virginia, Pennsylvania, Michigan and New York.    

EnerVest operates as two entities, private equity and a publically traded MLP, EnerVest Energy Partners. The private equity model is working out of Fund XIII right now, which will make $3 billion in assets acquisitions and is kicking off its next fund, Fund XIV, which will be a $2.5 to $3.0 billion fund.

Downey is the Vice President of Marketing and Business Development for EnerVest. His region covers the Appalachian states that EnerVest’s operates in (Ohio, West Virginia, Pennsylvania, New York, and Michigan), and includes 13,000 wells and 1.5 million acres. Much of Downey’s time is spent in Ohio being that a million (one sixth) of EnerVest’s total acreage is here.

“I’m responsible for selling the gas that EnerVest produces on a daily basis,” said Downey. “The business development role wears a lot of hats. I had the pleasure of working with our midstream investments in the Utica with Cardinal Gas Services and Utica East Ohio, seeing the projects through the negotiation of contracts, the building of the actual facilities, the operations, and ultimately the divestiture of the facilities.”

Downey is also involved in joint venture transactions at EnerVest and acquisition and divestitures transactions. He described his role as pretty varied, with a lot of flexibility to be involved with the state associations where he represents EnerVest currently in Ohio and formerly as an officer of the West Virginia Independent Oil and Gas Association. EnerVest encourage its employees to not only be members of the associations, but also to be actively involved in the association.

OOGA Involvement:

Downey became involved with the Ohio Oil and Gas Association (OOGA) after he reacquainted with Ohio producers in his business development role. In 2008 he was asked to run for the Board of Trustees and much to his surprise, was elected on the first ballot. He will hold his current position as Secretary/Treasurer of the Executive Committee until the 2015 election. 

“I was surprised because I was a West Virginia guy with a background in working in the pipelines business, which is not always embraced by producers, but I’ve really been welcomed by all of the Ohio folks.”

In addition to his integral role on the Executive Committee, Downey was also appointed as the Commerce Committee chair. Downey’s background in midstream and pipeline has brought great value to OOGA, and he has even spearheaded the formation of the midstream subcommittee that was recently given full committee status given its importance in the development of the Utica Shale.

“Once we saw midstream growing in Ohio—pipelines, gathering lines, processing and fractionation plants—it became necessary for us to get our arms around that side of things and understand it better and be in a position to lobby for it. I was able to organize the midstream subcommittee with the movers and shakers of that segment including MarkWest, Blue Racer, Utica East Ohio, Cardinal Gas Services, EnLink, just to name a few, and I think we’ve been able to do some really good things to help the development of the shale in Ohio. Moreover, there are also opportunities for the conventional producers in this regard that the Association is focused on.”

When asked what value being a member of OOGA brings, Downey said, “The OOGA benefits are amazing, quite frankly.” Downey described OOGA as always keeping a watchful eye to see what’s happening to associations and the industry in other states, and being able to use what it has gleaned in shaping tax policy and rule making to the benefit of Ohio.

“OOGA put a lot of things in place very early in Ohio, through its public policy efforts, in case the shale revolution came to Ohio,” said Downey. “More importantly, OOGA has never forgotten its mission of representing all Ohio producers by equally representing both conventional and shale producers—and has always done a good job of taking both those players into account.”

EnerVest not only has interest in shale, but they are also the largest conventional operator in Ohio. It is just as important for EnerVest, as well as OOGA, to also make sure shale regulation is not adversely affecting the conventional producers.

Shale development’s impact on business:

Working for EnerVest, Downey has a lot of interactions with people and businesses in Ohio and other states. His experience of seeing the Shale revolution in other states has been a great asset to bring to the OOGA Board of Trustees.

“I have seen it in other states and I have been involved with many of the people who have prior experience in other states with the development of the shale. I think that interaction and the experience it has afforded me that I can share with the Board is mostly what I have brought to the table at OOGA.”

Downey credited Ohio as being one of the more proactive states when it comes to shale development and balancing it with the needs of the conventional producers. He also sees the things impacting Ohio that are also impacting EnerVest’s other operating areas. Part of the job is to leverage what is impacting each area that EnerVest operates in, and to stay ahead of it.

“The OOGA, to its credit, really got out in front of the shale development,” Downey said. “Tom Stewart and all of the OOGA officers were masterful at looking at what was happening in other states and its impact on all facets of the Industry. They did this with the thought that there could be shale in Ohio, and really did a wonderful job of foreseeing the future and balancing the needs of its members.” 

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State of American Energy 2015

Posted By Lyndsey Kleven, Communications Coordinator, Tuesday, January 20, 2015

The United States Congress has assembled for the 114th session to kick off 2015. In a unique occurrence at the federal level, as well as in Ohio, republicans have now assumed the majority party in the House and Senate. Key issues expected to arise federally in 2015 are lifting the ban on U.S. crude oil exports, protecting IDCs and percentage depletion, and Endangered Species Act issues.

Last week the American Petroleum Institute (API) reported on The State of American Energy 2015 in its annual report. The report covers all sectors of energy ranging from solar energy, natural gas, hydropower, to petroleum, using government data to highlight the growth in each area. Each segment is contributing to the U.S. energy portfolio and the future has a strong outlook.

Jack Gerard, API’s CEO, says, “Today the United States is the world’s top producer of natural gas, the world’s leading refiner of petroleum products, and very soon could be the leading producer of oil. These developments are strengthening America’s energy and economic security and benefitting tens of millions of individuals.”

This is part of the larger story, coupled with rising use of renewable energy and increased oil and natural gas production; the U.S. is emerging as a global energy giant. Public policy choices that enable domestic energy opportunities will allow the U.S. to thrive, as economic growth and job creation are the backbone of energy creation.

The API report inherently starts by highlighting America’s petroleum renaissance, saying that “oil represents the lifeblood of the U.S. economy and provides more than one-third of our current energy needs—which is not expected to change significantly over the next quarter century.”

Hydraulic fracturing has brought us the technology innovations to surpass Russia in becoming the world’s largest natural gas producer (with projections of becoming a net exporter). According to the report, the natural gas industry adds about $385 billion to the national economy each year while supporting nearly 3 million jobs. In addition, the average U.S. household had an additional $1,200 in disposable incoming in 2012 from lower energy costs thanks to hydraulic fracturing—a total expected to grow to $3,500 in 2025.

Issues on the table dealing with federal policy are expediting the approval of liquefied natural gas (LNG) facilities and exports. To maximize the domestic supply of natural gas, the U.S. needs to act quickly and join the global race in building infrastructure and allowing for exports. API projects with the U.S. becoming an exporter, a reduction in the nation’s trade deficit, increased government revenue, a growing the economy with millions of jobs. Gerard concludes, “With our abundant array of resources, technological expertise and skilled workforce, the United States stands on the threshold of energy self-sufficiency at a level unthinkable just a few years ago. With America’s diverse and plentiful range of resources, our energy renaissance is only beginning.”  

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OOGA Converts to New Website and Membership Software

Posted By Deneen Welker, Operations Managing Director, Director of Finance, Monday, January 12, 2015

The Ohio Oil and Gas Association is pleased to announce its conversion to a new membership platform and website powered by YourMembership.com.  The new software integrates membership data seamlessly within the website allowing ease of use for members and the ability for increased communications. The new system is secure as members must sign-in for access.  In addition, all financial transactions comply with Industry Data Security Standards (PCI Compliance) and allows for payments to be received using Visa, MasterCard, American Express, Discover, and ACH/E-check processing.

Each individual member and corporate member account contact has been sent an announcement email, including a username and password, requesting that current membership information be reviewed and updated (if necessary).  The information can be viewed and edited through the “Manage Profile” page under “Edit Bio” tab in the “Information & Settings” section on the site. If this email has not been received, please double check to ensure that this message has not been filtered as spam, and if needed, contact the Association’s office.

In addition to allowing members to manage membership contact information and search for other members online, membership dues can be renewed online through the software.   Additional software features will roll out during the next several months and will be communicated to our members through email blasts and additional Bulletin articles.  

We look forward to your comments, suggestions and patience as we continue to strive to improve your member experience with the Ohio Oil and Gas Association.

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What’s Going Down in Eastern Ohio, Unemployment

Posted By Lyndsey Kleven, Communications Coordinator, Tuesday, January 6, 2015
Updated: Wednesday, January 7, 2015

Extracting oil and gas safely and responsibly has left Eastern Ohio with the great fortune of employment opportunities. This is largely in thanks to the huge deposits of shale rock formation that sit beneath much of the eastern half of the state. The shale gas industry is creating new jobs and helping to restore economic prosperity to much of Eastern Ohio. This has not always been the case, look back a few years and many of these areas were struggling.

Spanning some of the highest unemployment rates in 2011, Ohio saw an annual average unemployment rate of 9.2 percent (not seasonally adjusted)—ranking it in the lower third of highest unemployment rates in the United States. Many Eastern Ohio areas saw unemployment rates in double digits, well above the state average. The shale revolution started to take off around this time and the level of unemployment in Ohio’s struggling Eastern region started to shrink, significantly.

Look ahead to November 2014, and Ohio’s unemployment rate fell below 5 percent. The state, as a whole, is on an economic upswing, seeing the lowest rates in 13 years. It is expected to see improvement in all areas, but some of the areas with the highest unemployment have managed to bounce back, exceedingly well. With the shale revolution and oil and gas jobs becoming available, the Eastern Ohio counties hit hardest by unemployment have surpassed the Ohio average unemployment rate (data from Ohio Department of Jobs and Family Services, Labor Market Information).

 

Eastern Ohio unemployment percentage rates, June 2011 compared to November 2014:

June 2011 November 2014
Carroll County 10.4 4.5
Columbiana County 10.7 4.8
Stark County 10.0 4.5
Tuscarawas County 9.1 4.0
Guernsey County 10.4 5.1
Noble County 12.7 5.7
Morgan County 12.7 6.7
Washington County  8.3  3.9

The US Department of Labor provides statistics of unemployment from June 2011 to November 2014 by metropolitan area; also reflecting Ohio areas with oil and gas activity seeing significant decreases in unemployment. For example, Canton-Massillon was at a 10 percent unemployment rate (above the state average 9.2 percent) and dropped by 5.5 percent in 2014. Another region impacted by shale development, Youngstown-Warren-Boardman area; saw a 9.7 percent unemployment rate in 2011, which dropped by 4.7 percent in 2014, below the state average.

Aaron Dodds, Economic Development Director of Carroll County said in the Youngstown Business Journal, “The impact over the last three years is clearly transformative. Farmers who once struggled have now paid off their debts, preventing foreclosures or sales of their assets. Cash flows at a rate never before experienced in the history of the county. Equipment dealerships, restaurants, service businesses flourish; manufacturers have moved into the area; and new construction is visible along the major business corridor in Carrollton. People are starting to spend money, no longer waiting for a knock on the door with someone saying they want their check back.”

As we ended 2014, Ohio doubled the number of horizontal shale wells in the state over the course of the year—with 650 shale wells in 2013, reaching 1,300 wells to end 2014, concentrated in the eastern part of the state. As the industry is starting to mature in Ohio, 2015 is expected to bring an investment in processing facilities and pipelines to create a more efficient means of transporting Ohio’s resource. Ohio manufacturing and shale-drilling jobs will continue to increase in 2015, as constructing this infrastructure will surely secure jobs for many years to come.

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