AIPRO 2013 Annual Report

2013AnnualReport

President’s Message

Mark ThomasAIPRO President

It seems like only a blink

or two ago that I was writing about beginning year one of my two-year term as President of AIPRO. As predicted, the task has been thrilling. I am proud of our association and its efforts on behalf of everyone

involved in producing oil and natural gas for an energy-thirsty country. Arkansas’s diversity in production—from the Arkoma Basin in the western areas, to the South Arkansas “oil patch” and the Fayetteville Shale development in North Central Arkansas—creates challenges and opportunities for AIPRO. We are proud to represent all three distinct regions, and with excellent leadership that is balanced among these areas, we continue to develop and implement opportunities for education, communication and representation.

Throughout this Annual Report, you will read about programs and activities that ensure we continue to be a well-respected voice for our community. You will see a review of this year’s legislative session and information about an exciting new educational program.

Although Arkansas, like other oil- and natural-gas-producing states, has seen a decline in activity, AIPRO is engaged on numerous fronts. With a shift of some of the rigs and services—which came in droves with the development of the Fayetteville Shale, to other newly discovered plays and opportunities—we continue to see an exit of important infrastructure goods and services. As a third-generation and life-long participant in oil and natural gas production, we have experienced these swings in the past. The much-needed resources we have in the Natural State will still be here and be available when markets change.

Now, on to our blessings and a reflection on what our industry has to be grateful for. At or near the top of the list is the sustained price of a barrel of crude oil.

For more than 10 years, this has enabled companies to do what they are built to do. Wells can be properly maintained and produced at the optimal rate to an increased economic limit. New wells are being drilled and new oil is being found. The large resource plays such as the Bakken and Eagle Ford would have never begun without sustained high oil prices.

An often overlooked part of the increased price of oil is the old wells that have been placed back into production. Many wells, and in some instances entire fields, have been saved from plugging and are providing income to working interests and royalty owners. Untold goods and services have gone into the refurbishment of these properties—pumping units, tanks and separators, rods and tubing, and more. Well servicing contractors, wireline companies and other service providers are once again busy with work, much of which comes from the old fields.

As the rest of the country languishes in a “jobless recovery,” the oil patch is in a boom. The mentioned goods and services directly used by these activities help many families make a better-than-average income. Indirectly, communities that have oil and natural gas activity receive more money for local projects, better roads and, of course, more funds for school districts.

Our industry teams with good people— positive men and women with a sense of self-worth that, in many ways, comes from the kind of work we do. We prove daily that we persevere and even thrive in adverse situations. We see the opportunities in the problem not the problems in the opportunity. These workers know we are only entitled to a fair chance and I feel fortunate to spend my life working with them.

America has been providentially provided for in the vast amounts of natural gas in our lands—enough gas for many lifetimes in known and booked proven reserves. The price of gas is adversely low, but at some point, this will come into balance. The actual finding and lifting costs of the commodity will cause equilibrium in the price equation.

What will this huge reserve base mean

to our country, states and towns? This depends greatly on the type of leaders we choose at the ballot box. These elected officials will set the stage for our future.

If the United States seeks a path of sensible natural gas development, our position in the world will be strengthened. In a consumer-based economy, manufacturing is the base from which economic activity stems. The broadened labor force, coupled with a greater-than-living wage, is the driver. Support businesses spring up, more are hired, money turns over and the economy grows. Money is not really created when the finished product hits the shelves, but when the raw material is produced. Production is the key—something new being brought forth into usefulness. The wealth begins when the tree is planted, not when the board is sold. To bring this growth about, abundant, fairly-priced energy is imperative. With natural gas all the requirements are met—energy to power our electric generators, to power the factories, light the homes and schools, and make steam for a multitude of manufacturing processes. It can all start when that first MCF is brought to the surface and used. Something new, something powerful—a blessing.

If, on the other hand, we continue on our current path, the road may be more uncertain. Delays and excuses seem to be tolerated by some and even supported by others. Job-producing pipelines pushed aside postpone further energy security for our nation. In many avenues of our life, a fog of negativity has descended, hindering progress. I am hopeful it is lifting now as we see the failure of the dependency mentality. I am confident America will embrace the “can-do” spirit that makes us the greatest country ever known.

So you can see we have many things to be grateful for. Hopefully you will join me in being thankful for a wonderful association that represents our diverse and thriving industry. We are fortunate to have a great staff and I am especially thankful for my fellow board members who share in the ongoing leadership. Let’s continue to work together to make 2014 another productive year that we can all to be thankful for!

2013 AIPRO Annual Report — 3

After 100 days, the

89th General Assembly session adjourned sine die (formal closing) on May 17. Following is a list highlighting measures of

interest to our members. Of

special note is that six of the 10 pieces of legislation related to Compressed Natural Gas (CNG) were enacted. AIPRO hopes to report in the near future on the availability of some funds to help with vehicle conversions and CNG fueling infrastructure development.

This year’s session paled in comparison to the outright attacks we faced two years ago. Continuing our public education and outreach efforts—coupled with a united front and active membership—has served Arkansas’s oil and natural gas production community well. AIPRO will continue to be active in the public policy arena.

Thanks so much for your ongoing support; we are thankful for our members and hope that each of you feels well-served. Please plan on becoming even more involved in AIPRO through our various committees, meetings and other opportunities. It is a privilege to represent such an important industry!

Bills of InterestSurface & Mineral RightsHB1889 - Rep. Bob Ballinger. Attempts to revert severed minerals interests to surface owners. AIPRO opposed. Died in committee.

HB1890 - Rep. Bob Ballinger. Attempts to revert severed minerals interests to surface owners. AIPRO opposed. Died in committee.

HB2001 - Now Act 1299 - Rep. Greg

Executive’s MessageLeding. This act requires a one time, 14-day pre-operation notification to surface owners in AOGC’s B-43 area (Fayetteville Shale), if there has been no other contractual agreement between an operator and surface owner.

Royalty PaymentsHB2198 - Now Act 1062 - Rep. Jeremy Gillam. Increases the annual minimum royalty payment amount from $100 to $150, but allows a royalty owner the option of receiving the payments when the amount owed reaches $50; establishes a “minimum-minimum” royalty payment amount of $10, i.e. a producer does not have to make a royalty payment to a mineral owner until such time as the amount owed equals $10. This would end the current requirement that requires annual royalty payments regardless of the amount owed, e.g. two-cent checks paid once a year. Also, this act allows a producer to remit both royalty payments and statement information electronically if desired by both the producer and royalty owner.

Severance TaxHB1692 - Rep. Joe Jett. Died in House. Drafted and pursued by the Arkansas Municipal League (AML), would have allowed cities to use natural gas severance tax revenues for purposes other than transportation—the current direction for the use of such funds. An interesting development, given that AML was a vocal proponent the past two years for a dramatic increase in the natural gas severance tax, citing the need for more funds for local road and transportation.

HB2102 - Rep. Jonathan Barnett. Attempts to amend severance tax law. Died in committee—shell bill

Property Tax

HB1766 - Now Act 1279 - Rep. Lane Jean. This act establishes a process whereby county collectors can garnish future royalty payments for delinquent property taxes on producing minerals.

SB817 - Now Act 1520 - Sen. Bruce Maloch. Establishes an annual valuation process for establishing property tax

values for producing minerals. AIPRO supported.

PipelineHB1582 - Now Act 1343 - Rep. Jonathan Barnett. (See information below HB1583.)

HB1583 - Now Act 1344 - Rep. Jonathan Barnett. Introduced at the behest of the Public Service Commission (PSC). The purpose is to bring Arkansas statutes in-line with federal laws/regulations. This is particularly important for PSC’s efforts related to pipeline safety and the One-Call programs, which receive roughly one-half of their funding through the U.S. Department of Transportation. To continue to receive such funding, states are required to update related rules/regs/laws to the federal standards.

HB1922 – Now Act 1484 - Rep. John Edwards. Written like a resolution, encouraging pipeline operators/owners to communicate and work with water resource personnel on pipeline safety issues.

CNG/LNG IncentivesSB125 - Now Act 152 - Sen. Bobby Pierce. The impact of this legislation is to include propane/LP gas in a listing of alternative fuels found in an existing statute and it expands a currently unfunded program to all vehicles instead of just school buses.

SB435 - Now Act 611 - Sen. Larry Teague. Establishes a $5 million appropriation for CNG vehicles/stations.

SB439 - Now Act 613 - Sen. Larry Teague. Establishes the authority to transfer up to $5 million to the Clean-Burning Motor Fuel Development Fund for rebates, grants, and incentives for CNG and LNG refueling stations and qualified clean-burning motor vehicle property.

SB711 - Now Act 901 - Sen. Jim Hendren. Appropriates $5 million for a

J. Kelly RobbinsExecutive Vice President

Continued on back page


Annual Meeting

Approximately 100 attended AIPRO’s 5th Annual Meeting,

held October 8-9, at the Embassy Suites in Little Rock. Many thanks to the sponsors and exhibitors for helping to make it a successful event! Following is a highlight of the program.

Erik Milito, Director of Upstream and Industry Operations for the American Petroleum Institute, spoke about how unconventional development is driving our nation. Energy jobs have increased faster than all other sectors, with a 40% increase between 2007-2012, when the rest of the U.S. jobs increased by only 1%. Thanks to U.S. energy production, our trade deficit has been reduced, and we are now an energy superpower.

State Rep. Jeremy Gillam discussed the improved environment in this year’s General Assembly in relationship to the 2011 Legislative Session. He stated that it is a definite goal of the upcoming sessions to make Arkansas more favorable for business by not attempting to make significant changes to taxes or regulations each session, thereby creating a more stable environment for business.

Dr. Mary Barrett wrote her dissertation on the Smackover Formation, its reservoir development and fluid-rock interactions. She gave a fascinating historical review of the area and the project to plant salt resistant grasses to help reclaim the damaged lands.

Ann McElhinney, who, along with her husband, Phelim McAleer, directed the documentary FrackNation, which was shown to meeting attendees. She spoke to the group about the dangers of the lies being spread by many environmental groups and how she and her husband are working to combat those lies around the world.

Arkansas Oil and Gas Commission Director Larry Bengal provided an update on the past year in the Arkansas regulatory environment and a few changes on the horizon. One of the changes is regarding a classification

Diamond SponsorsSouthwestern Energy

XTO Energy, Inc.

Gold SponsorsInsurance Center

Stephens Production Company

Silver SponsorsANGA

ARKLATX Operating CompanyBonanza Creek

Cornerstone EnergyHampel Oil Distributors

Bronze SponsorsBerkley Oil and Gas

Corley TrustFoundation Energy Management

Hanna Oil and GasJ. David Reynolds Company

PetroCapPremier Well Service

Spectra EnergyWeiser-Brown Operating Company

Friend of AIPROLion Oil

Perkins & Trotter, PLLC

ExhibitorsAmerican First Response

Harbor Environmental and SafetyHampel Oil Distributors

Insurance Center

of “crude oil” in hydraulic fracturing, which could have significant impact in Arkansas.

Energy Economist Jim Williams gave a detailed presentation with data about the history and future of energy production, consumption, and prices.

Marty Durbin, ANGA President & CEO, spoke about ANGA’s changing focus from increasing production of natural gas to increasing demand for natural gas in the U.S. for power generation, transportation, and exports. He stated that the U.S.’s ability to be a player in the export market will be a net gain for the U.S. market. Mr. Durbin also stated that energy must do a better job of telling our good story.

Murray Williams, Southwestern Energy, provided an update on state taxes.

As a part of each Annual Meeting, AIPRO’s Nominating Committee presents a slate of recommendations to the membership for the Board of Directors. Special thanks to this year’s committee members: Andy Miller, Southwestern Energy; Bill Hanna, Hanna Oil & Gas; Rick Bauman, ARKLATX Operating Co.; Brooke Tharp, XTO Energy, Inc.; and Terry Horton, FTN Associates. See a list of the 2014 officers and board members on the back page. AIPRO would like to extend a special“thank you” to Mark Boling, SouthwesternEnergy, and Lindsey Dingmore, XTO Energy, both charter AIPRO board members, as well as Gerry Lundy, Hogback Exploration, who represented the Arkoma Basin. Their service is greatly appreciated and we thank them for their support.

(Left to right) Mike Todd, XTO Energy, Inc.; Ruth Whitney, inVeritas; Danny Ferguson, Southwestern Energy; and Jay Robbins, inVeritas.

(Left to right) Ross Bunting, Spectra Ener-gy; Andy Miller, Southwestern Energy; and Anne Moore, Spectra Energy.


Public Outreach

Over the past year, we have continued to reach out to various

communities—giving presentations at civic clubs and school groups, meeting with community leaders and presenting updated information to groups like the Arkansas Governor’s School this summer and the Arkansas Gas Association at its annual meeting.

With the help of the Arkansas Petroleum Council, we have developed Arkansas Energy Rocks!—a program to reach children across the state from K through 12th grades. This program has several components. The centerpiece is ArkansasEnergyRocks.com.

The site, which went live in late October, features a good deal of Arkansas-specific information about oil and natural gas exploration, production and usage. Serving teachers and students in separate sections, there are “Bits of Information” and educational videos that classes can watch together or students can watch at home. There are also lesson plans and activities for teachers. These lesson plans, which are correlated to the Arkansas standards, were developed by Arkansas teachers and through the generosity of staff at the Oklahoma Energy Resources Board, who spent hours sharing information with us about their education program. Please visit the site when you have a chance and feel free to send suggestions. We want this to be a ever-changing and evolving site that keeps teachers and students coming back frequently!

Another component of the program is holding Teacher Workshops. The first event was held in May at Southwestern Energy Company’s headquarters in Conway. The purpose of this workshop was to have teachers in K-8th grades attend and learn about the industry and then help us develop the website by writing lesson plans after the meeting. The response to the workshop was overwhelmingly

positive and resulted in our being asked to be the luncheon speaker at the Arkansas Curriculum Conference, held in late October. Participating teachers also developed excellent lesson plans.

The next workshop, planned for this winter, will invite teachers of 9-12th grades to participate and aid in developing lesson plans for the upper grades. In the summer of 2014, we are planning a multi-day Teacher Immersion Workshop that will bring in teachers from all across the state to Conway to not only hear from industry professionals, but also to tour drilling and production sites in the Fayetteville Shale area. There is a similar program in North Dakota and their industry organization has also been generous in sharing information as we plan this workshop.

Finally, a major part of the Arkansas Energy Rocks! program is connecting directly with students by having a speaker go into classrooms at the teacher’s request to give a presentation on the industry that is based on the science, social studies and math concepts used in the exploration and production of oil and natural gas. We have already presented at a couple of Science Camps and expect new requests to start picking up now that the website is active and has a section where teachers can make the requests directly. We are also getting the message out to students

that the industry in Arkansas is rich in job production in the state and will be for decades to come.

To further that effort, we spoke at several Career Day programs in the state in the spring and have a couple of more scheduled before the end of the year. Our message is clear: the oil and natural gas industry is thriving in Arkansas and around the country and we will need a continuous supply of students trained to work in the industry in good-paying, benefit rich jobs, so they need to start studying now!

Arkansas Energy Rocks! has already been featured in an article in October’s American Oil & Gas Journal. We will keep you posted on this exciting new effort as it grows and begins showing a positive effect on perceptions of the industry in Arkansas.

ArkansasEnergyRocks.com


STEPS Network

Arkansas STEPS Network (Service, Transmission, Exploration and

Production Safety) served as a host site for the National STEPS Network and Occupational Safety and Health Administration (OSHA) webcast of the National Safety Stand Down kick-off in November. More than 250 people participated in the event at the Heber Springs Community Center—the largest attendance of all of the STEPS chapter locations. The purpose of the Stand Down was to raise awareness of health and safety issues, and to improve the safety on job sites for each employee.

In 2011, the Arkansas STEPS Network—a chapter of the National STEPS Network—was created to meet a need expressed by producers attending AIPRO’s Regulatory Committee for more consistent safety and regulatory training for vendor companies. Arkansas STEPS provides monthly safety training classes for all oil and natural gas industry employees. Classes are provided for free thanks to volunteers and the annual sponsorships by participating companies.

Representatives from Southwestern Energy, XTO Energy, BHP Billiton, AIPRO, OSHA, Harbor Environmental and Safety, and Redland Energy serve

on the all-volunteer STEPS board. OSHA continues to be a great partner and provides training and support.

2013 STEPS classes were primarily held in Conway at the University of Central Arkansas; however, 2014 classes will be split between Conway and Heber Springs.

2013 Topics

• First Aid/CPR/AED Certification• Severe Weather Safety/Tornado

Awareness• Emergency Action Plans• Emergency Shelters• Creating Effective Safety Meetings• Risk Tolerance/Influencer Training• Safety Culture• Policing vs. coaching for safety• OSHA Inspections – What To

Expect• Trenching and Excavation

Awareness• DOT• Cargo Securement• Hours of Service• Roadside Inspections• Job Safety Analysis• Global Harmonization System• Industrial Hygiene• Recent incidents discussed at each

meeting• OSHA statistics and materials

2014 Topics• Waste Management • SPCC • Spill Response• Internal Audits • Fall Protection• Walking Working Surfaces• Harness Inspections• Competent Person Awareness• Competent Person Training

Certification• Incipient Fire Fighting• Fire Extinguisher Training• Flammable Combustible

Materials• Emergency Action Plans• Incident Investigation• Confined Space Rescue• Hot Work• Monitoring and Calibrations• Permitting• Moving vehicle safety• Suspicion Awareness Training• First Aid/CPR Certification

The Arkansas STEPS board is working with OSHA and a producer to establish a South Arkansas STEPS group to provide monthly classes, which will improve safety training for the southern part of the state.

Class registration:arsteps2014.eventbrite.com

Arkansas STEPS:arstepsnetwork.org

More than 250 people participated in the National Safety Stand Down at the Heber Springs Community Center in November.


Witness Reward Program

The state’s oil and natural gas fields have

experienced threats and damages from drilling equipment and supply theft, illegal dumping, and vandalism. Such acts have a serious impact on our state’s economic and environmental health, and generate a financial loss for the oil and natural gas production community.

To combat these activities, AIPRO established a Witness Reward Program that provides rewards up to $2,500 for information leading to the arrest and conviction of persons willfully involved in these crimes on AIPRO members’ property.

“Our goal is twofold,” said AIPRO Executive Vice President Kelly Robbins. “We want to protect our members’ property, as well as provide law enforcement officials with an effective tool for getting information that will help them solve cases.”

AIPRO has $7,500 available to pay for earned rewards (up to $2,500) for information leading to the arrest and conviction of theft, vandalism or dumping on members’ properties. Sheriffs in all 25 oil-and-natural-gas-producing counties have been made aware of this program.

Special thanks to these reward fund contributors: Atlanta Exploration, Columbia Oil Co., Corley Trust, Dan Reynolds Co., Four R Operating Co.,

Insurance Center, Liberty Supply, Smith Exploration and XTO Energy, Inc.

AIPRO members may purchase program signs and stickers and contribute to the reward fund.

Newsletters Members receive a periodic email newsletter highlighting issues of importance, meetings and more. During legislative sessions, members receive a weekly email update about bills of interest and activities at the State Capitol.

CNG Rebate Program AIPRO is participating in ongoing discussions with the Arkansas Energy Office to establish procedures for awarding rebates for CNG fueling stations and vehicle conversions, per legislation that appropriated $1

Representation & Communicationmillion-plus for such activities.

ESA Comments AIPRO worked within a group—including Farm Bureau, Association of Arkansas Counties, Poultry Federation, Environmental Federation and State Chamber of Commerce—to submit comments on establishing a critical habitat designation for the Neosho mucket and rabbitsfoot mussels.

Arkansas Supreme Court Amicus Brief AIPRO submitted an amicus brief to the Arkansas Supreme Court in support of a

request for a rehearing in a case (Walls v. Humphries) regarding competing interests in mineral interest/ownership. The Court did not rule as hoped.

Representation AIPRO has represented members at various meetings, including: Arkansas State Chamber of Commerce, Arkansas Assessors Association, Arkansas Society of Association Executives, Arkansas Society of Professional Lobbyists, formation meeting of an Arkansas Council of Petroleum Accountants Societies, and Political Animals Club, and responded to many media requests.

Networking & MembershipThe South Arkansas Fish Fry was

held April 22 at the Arkansas Museum of Natural Resources in Smackover.

Thank you to Lion Oil for co-sponsoring this event, which drew 45 participants. AIPRO’s Regulatory Committee met earlier that day, prior to the fish fry.

The program included a discussion of recruiting new members in South Arkansas and the newly formed Witness Reward Program. Union County Sheriff Mike McGough was on hand and briefly discussed thefts that have been occurring in the area and what law enforcement officials are doing to stop them.

PresidentMark Thomas

Cornerstone Energy

SecretaryAndy Miller

Southwestern Energy

Past PresidentBill Hanna

Hanna Oil & Gas

South ArkansasAlan Ribble, Atlanta Exploration

David Reynolds, J. David Reynolds Co.Rick Bauman, ARKLATX Operating Co.

ArkomaMike Carter, Stephens ProductionGayle Mason, Mid-States Energy

Howard Vernon, Foundation Energy Management

Fayetteville ShaleDanny Ferguson, Southwestern Energy

Danny Games, BHP BillitonKeith Simpson, XTO Energy, Inc.

StaffJ. Kelly Robbins

Executive Vice [email protected]

Michele EasterAdministrative Director

[email protected]

1401 W. Capitol Ave. Suite 440

Little Rock AR 72201

Telephone: (501) 975-0565

AIPRO.orgTwitter @AIPROorg

facebook.com/AIPROorg

2014Officers and BoardCNG school bus pilot program.

SB792 - Now Act 532 - Sen. Larry Teague. Creates a clean-burning motor fuel development fund.

SB1103 - Sen. Jason Rapert. Died in committee—shell bill. Creates CNG incentives.

SB1104 - Sen. Jason Rapert. Died in committee—shell bill. Promotes conversion of public transportation fleets to CNG and a network of refueling stations.

SB1146 - Now Act 1195 - Sen. Jim Hendren. Matching grant program to provide 10 school CNG buses to one school district in each of the four congressional districts if the school district purchases 10 such buses.

Other IssuesHB1742 - Now Act 1466 - Rep. Kelley Linck. Ensures that AOGC can continue to collect fees for fluid transportation tanks, pipelines & the mailing of hearing applications/orders..

SB762 - Sen. Jeremy Hutchinson. Died in committee. Would have prohibited the inclusion/enforcement of indemnity language in contractual agreements between shippers and transporters. AIPRO opposed.

SB791 - Now Act 1411 - Sen. Bill Sample. Reduces the sales tax on natural gas and electricity sold to manufacturers to 0% beginning July 1, 2014. It also reduces the excise tax rate on the purchase of natural gas used in the production of electricity to 1% beginning January 1, 2015.

SB796 - Now Act 1302 - Sen. Ronald Caldwell. Prescribes responsibilities of the Department of Environmental Quality and the Pollution Control and Equality Commission related to adoption of state implementation plans to comply with federal clean air standards. AIPRO supported.

SB970 - Now Act 1262 - Sen. Bruce Maloch. This act enables AOGC to increase the fines/penalties on those who illegally dump or dispose of substances at a well or well site. AIPRO supported.

Ethics/Campaign/Constitutional Amendments HJR1009 - Rep. Warwick Sabin. One of the three referred constitutional amendments to be considered by voters on the November 2014 ballot. This proposal addresses five areas related to ethics, elected officials’ salaries and term limits. Those areas include: gifts to legislators; bans corporate contributions; enacts a two year “cooling off ” period before some elected officials can register to lobby; establishes a citizens commission on salaries; and, modifies term limits to a total of 16 years.

SJR7 - Sen. Jonathan Dismang. This referred amendment pertains to the legislative review process of the implementation of state agency rules and regulations.

SJR16 - Sen. Bill Sample. This referred amendment on the November 2014 General Election ballot. Addresses requirements for submitting signatures gathered for initiated acts and constitutional amendments by requiring at least 75% of the submitted signatures to be valid/legal before additional time is allowed to “cure” or add additional signatures.

SB821 - Now Act 1413 - Sen. Kent Ingram. Makes it a Class A misdemeanor to knowingly sign a fictitious name or someone else’s name on a petition to get a measure on the ballot. The bill requires paid canvassers to register with the Secretary of State’s office and receive training on the initiative process. Canvassers would also be committing a crime if they provide compensation to someone in exchange for a signature. This legislation is a direct result of fraudulent signature collections and numerous violations and irregularities during last year’s efforts to place various initiatives on the ballot, including the ill-conceived effort to increase the severance tax on natural gas.

Executive’s MessageContinued from page 3

AIPRO 2013 Annual Report

Documents

Transcript of AIPRO 2013 Annual Report