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REGULATORYColorado Officials to Ramp Up Ozone Controls on Natural Gas, Oil Industry

Colorado officials have agreed to enact more stringent regulations on ozone emissions from sectors including oil and natural gas at the instruction of Gov. Jared Polis.

The commitment follows a review of air quality data from 2018-2020 which showed that despite a downward trend in ozone concentrations, the Denver Metropolitan/

North Front Range (DMNFR) area remains a trouble spot for ground-level ozone, the main component of smog.

The area is likely to receive a status downgrade under the ground-level ozone standards outlined in the Clean Air Act (CAA), Polis said in a Dec. 15 letter to the Colorado Air Quality Control Commission (AQCC).

OUTLOOKU.S. Executives Identify Natural Gas as Essential to Energy Transition

Natural gas remains essential to the global energy transition, according to most U.S. executives, but many see a reduced or evolving role as renewables gain and the energy transition accelerates.

That’s according to Deloitte, which recently issued its 2021 industry outlook after surveying a broad array of U.S. executives. Following the presidential election, the consultancy in November queried more than 350 execu-tives in the energy, resources and industrials industries to get their take on the opportunities and the challenges for 2021.

Views were a bit murky because 2020 was a

E&P NEWSCalifornia Resources Garners Climate Accolades; CEO Departing at Year-End

California’s largest oil producer, which cleared Chap-ter 11 bankruptcy reorganization earlier this year, has gained national recognition for its decarbonization efforts just as its CEO Todd Stevens, 53, is leaving.

Under the global environmental disclosure system administered by the non-profit Carbon Disclosure Project (CDP), California Resources Corp. (CRC) has received an “A-” rating for its 2020 climate disclosure, which CRC spokesperson Richard Venn described as a “top score at CDP’s leadership level.

“CRC once again received the highest ranking among all U.S. oil and gas companies,” Venn said, tying for the top spot with another U.S.-based exploration

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Tuesday, December 29, 2020 - Vol. 11, No. 60

Trade Date: Dec 28; Flow Date(s): Dec 29Basin/Region Range Avg Chg Vol Deals

Gulf CoastBarnett 1.980-2.080 2.000 -0.295 419 44Eagle Ford 2.155-2.240 2.170 -0.345 235 41Haynesville - E. TX 2.030-2.180 2.065 -0.345 1,543 194Haynesville - N. LA 2.050-2.160 2.110 -0.360 70 10Permian1 2.050-2.180 2.130 -0.265 1,228 205Tuscaloosa Marine Shale 2.190-2.265 2.215 -0.370 432 59

MidcontinentArkoma - Woodford 2.070-2.110 2.085 -0.360 78 21Cana - Woodford 1.965-2.100 2.070 -0.415 23 6Fayetteville 2.110-2.130 2.125 -0.325 95 22Granite Wash* 2.040-2.120 2.090 -0.330 378 62

NortheastMarcellus - NE PA2 1.880-2.020 1.955 -0.185 331 66Marcellus - NE PA: Other3 1.880-2.020 1.960 -0.200 181 34Marcellus - NE PA: Tenn4 1.900-2.000 1.945 -0.135 151 32Marcellus - SW PA/WV 1.920-2.120 2.000 -0.285 1,381 260Utica5 1.870-2.135 2.055 -0.200 515 95

Rocky Mountains / WestBakken -- -- -- -- --Green River Basin* 3.300-3.450 3.390 0.260 1,013 188Niobrara-DJ6 2.090-2.130 2.110 -0.330 265 50Piceance Basin* 2.300-2.350 2.320 -0.160 116 32Uinta Basin* 2.300-2.300 2.300 -- 10 2San Juan Basin* 2.380-2.520 2.435 -0.065 290 58

Notes: Table represents fixed-price delivered-to pipeline transactions in USD/MMBtu. These data are comprised of deals that NGI believe represent trading activity in the respective resource plays and may contain gas that was produced from conventional formations. * Denotes a tight sands formation. Volumes may not total due to rounding. For more information, please see NGI’s Shale Price Methodology.

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year like no other, and 2021 remains a bit of a mystery. Covid-19 has impacted all corners of the globe as consumption was decimated. Con-sumption is forecast to accelerate in 2021, but executives remained unsure about the pace.

The Lower 48 exploration and production (E&P) sector has fallen into an “altered landscape,” with the financial outlook and portfolio options now less certain, executives said.

Since Deloitte published its midyear outlook in July, the global economy and capital markets rebounded “faster than expected” during the third quarter, said Deloitte’s Duane Dickson, U.S. Oil, Gas & Chemicals leader.

“However, the pace of recovery in the coming months remains highly uncertain as mounting Covid-19 cases amid winter conditions, especially in Europe and the United States, may trigger another round of shutdowns and restrictions.”

When economic activity normalizes depends on how the pandemic evolves and how soon vaccines reach the general public, he said. That likely could lead to a “muted business investment on the labor market and consumer spending” next year.

Optimism On Natural GasFor natural gas, about 58% said they believe the com-

modity remains key as operators position their portfolios for lower carbon resources. Another 42%, however, see a reduced or varied role as renewables markets strengthen and industries regionalize.

Oil demand in 2021 is expected to climb, but consump-tion is forecast to be lower than before the pandemic. Natu-ral gas, meanwhile, “seems trapped” between operators’ “decarbonization strategy of focusing on low-carbon fuels and the broader impetus to replace gas with renewables for electricity generation,” according to Deloitte.

“Other challenges include the ongoing problem of fugitive methane emissions associated with gas, as well as the growing electrification of the broader energy system.”

Across the oil and gas (O&G) complex, look for the downturn to challenge not only demand but the size of the workforce.

U.S. E&Ps, along with the oilfield services sector, recorded massive layoffs during 2020. That “heightened cyclicality” in the workforce will “continue to challenge the industry’s reputation as a reliable employer,” Dickson said.

U.S. oil and gas operators “laid off about 14% of permanent employees in 2020, and our research shows that 70% of jobs lost during the pandemic may not come back by the end of 2021.”

‘Great Compression’The energy sector is familiar with rollercoaster com-

modity cycles, but the 2020 downturn was unique.“In fact, it’s the ‘great compression’ of the O&G

industry,” said Dickson. “With the survival of many com-panies at risk, and the longer-term decline in petroleum demand, the next decade could look very different for the entire O&G value chain.

“2021 will either be a leapfrog year or a test of endur-ance for many.” The traditional methods of production are evolving, which will determine the industry’s direction, “separating the pioneers from the followers.”

The Lower 48 operations are forecast to dramati-cally transform in the next few years in size and could be dominated by “data-driven” operators with integrated portfolios. The future of the U.S. shale industry specifi-cally could “hinge on how successfully it can insert itself into a greener future,” according to Deloitte.

The outlook for oil remains tricky too. Oil was the worst performing commodity in 2020, even trailing coal. Executive teams remain “short of confidence and capital to invest.”

The vaulted Lower 48 basins have fallen from fa-vor, according to the executives. Only 7% quizzed by the consultancy believe keeping a “domestic, …cont' pg. 3

U.S. Executives Identify Natural Gas as Essential to Energy TransitionContinued from Page 1

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shale-focused strategy” is going to be the “right choice” going forward.

Keeping the U.S. onshore afloat, said executives, will require decapitalization, particularly of the 5,500 DUCs, or drilled but uncompleted wells, along with metadata analytics and a “rigorous operational diagnosis.”

Across the energy landscape, the race to achieve lower carbon and net zero emissions moved front and center. Planning for a lower-carbon future, however, won’t be easy.

Operators have myriad green portfolio options, “but not every choice will likely be fiscally prudent or give consistent results over the years and across regions,” ac-cording to Deloitte.

In addition, the downstream and midstream sectors faced a reckoning in 2020 too, challenged by overbuild-ing as demand diminished. In addition, the petrochemi-cal sector confronted “growing competition from mega downstream complexes in the Middle East and Asia.”

January will bring a wave of change in Washington, DC, too, as President-elect Biden ushers in an adminis-tration attuned to climate change and alternative energy.

On the new administration’s radar are likely to be policy changes that include “methane restrictions, oil and gas leasing and permitting within federal areas, fuel-econ-omy standards, and investment in building a nationwide integrated zero-carbon value chain and infrastructure.”

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Source: Tallgrass Energy LP, NGI calculations. For more info and daily 10am ET updates of this chart, go to natgasintel.com/rextracker.

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Don’t Mess With TexasIn another survey, the Texas Alliance of Energy Pro-

ducers took the pulse of 160 O&G professionals between Nov. 9 and Nov. 25. A broad spectrum of the Texas indus-try was surveyed, led by independent producers (44%), energy service companies (13%) and professional services firms (16%).

Three-quarters of the executives believe 2021 “will be better or about the same for the industry,” but they are concerned about more stringent federal oversight as a Democratic administration takes office. The overall view, however, was positive.

“Our industry is resilient, and the optimism reflected here shows that,” said Alliance President Jason Modglin. “Concerns about economic conditions and burdensome federal overreach are very real, but these results and com-ments demonstrate a determination to fight and persevere.”

The biggest macro-level concerns for 2021 voiced by the executives were the price of oil (59%), demand for oil and gas (47%) and federal overregulation (43%). The biggest “business challenges” were led by maintaining the operations (46-56%), also was the top priority overall (33%). Other challenges ahead were growing the business (34%) and lack of a budget (29%).

Independents chose increasing production as their No. 60 priority for 2021 (62%), while improving project margins” was tops for 30%.

“Despite the issues confronting the industry, 75% of respondents believe the industry will be better (44%) or about the same (31%) one year from now,” the Alliance noted. Regarding their business outlook for 2021, about 70% were neutral (38%) or positive (33%), while nearly one-third were negative.

California Resources Garners Climate Accolades; CEO Departing at Year-EndContinued from Page 1and production (E&P) company with global operations.

After reaching the CDP leadership level for the past two years, CRC has shown its value as a “dedicated and dependable energy producer for Californians,”

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said Venn, adding that the exploration and production company’s 2030 sustainability goals are aligned with

state goals. CDP supports thousands of companies, cities, states

and regions in measuring and managing their risks and opportunities on climate change, water security and deforestation at the request of investors, purchas-ers and city stakeholders. The scoring measures the comprehensiveness of disclosure, awareness and manage-ment of environmental risks and best practices associated with environmental leadership, such as setting ambitious and meaningful targets.

Stevens said the ranking underscores CRC’s strong en-vironmental, social and gover-nance (ESG) principles, and the dedication of its workforce to “safely, responsibly and sustain-ably meet California’s energy de-mand while abiding by the high standards Californians expect.

“Our 2030 Sustainability Goals and ESG principles are a strategic differentiator among Global and North American en-ergy producers, and we look for-ward to advancing our industry-leading sustainability projects that we believe are integral to achieving California’s climate goals under the Paris Climate Accord.”

Stevens is leaving CRC at the end of the year, accord-ing to an 8K filing by CRC to the Securities and Exchange Commission. Executive board chairman Mark McFarland is set to become interim CEO while the board conducts a search for Stevens’ replacement. Stevens spent more than 20 years with Occidental Petroleum Corp. (Oxy) and another six years heading CRC after it was spun off in 2014 by Oxy.

CRC filed for …cont' pg. 6

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The DMNFR area currently is in serious nonattain-ment status for the 75 parts per billion (ppb) standard, with an attainment date scheduled by July 2021.

Based on the review, “it is apparent that the DMNFR area will not meet the standard in time for the attainment date, even excluding the days of high pollution from wild-fires in Colorado in 2020,” said Polis. “As a result, state agencies and stakeholders should plan for the downgrade of the DMNFR nonattainment area to a severe status fol-lowing the attainment deadline…”

Polis said Colorado will not seek a waiver for the downgrade, despite an option in the CAA to show that ozone exceedances are caused by international emissions.

Economic impacts of the downgrade will include “a requirement for federal reformulated gasoline in the non-attainment area during the summer months,” Polis said. “The state is concerned about the potential costs, as well as the limited environmental benefits of this requirement.”

As a result, Polis said he has asked the state’s De-partment of Public Health and Environment (DPHE), the Energy Office and the Department of Transportation “to explore other options both for more effective and cost-effective means of reducing emissions.”

In response to the directive, the AQCC on Dec. 18 approved a proposal from DPHE’s Air Pollution Control Division (APCD) to change Colorado’s Serious Ozone State Implementation Plan under the CAA along with several revisions to rules related to ozone emissions from several sources, including oil and gas.

“There are some questions still to be answered, but the data is clear,” said DPHE’s John Putnam, director of environmental programs. “We’ve done important work reducing ozone pollution in the Front Range, but we know we need to reduce emissions even more.

“We’re committed to continuing the action we need to take to bring the Front Range into attainment, includ-ing rulemakings in 2021 on oil and gas, transportation and other sources.”

DPHE highlighted “significant steps” taken in 2019 and 2020 to curb ozone pollution. “Those included groundbreaking, first-in-the-nation rules to reduce emis-sions at oil and gas sites, a new zero-emission vehicle standard and volatile organic compound [VOC] limits for consumer products and architectural and industrial coatings,” DPHE said.

The downgrade to severe nonattainment status would reduce the threshold for a major source of VOCs or oxides of nitrogen from 50 to 25 tons/year “and will require these major sources to offset any proposed increase in emissions with even more emission reductions,” DPHE said.

APCD Director Garry Kaufman, said, “We’ll continue to push forward aggressively on multiple fronts to reduce ozone pollution and improve air quality for Coloradans living and working in the nonattainment area.” …cont' pg. 7

Chapter 11 last July and emerged with a reorganized bal-ance sheet and new stock in early November. For 3Q2020, CRC reported a $29 million loss (minus $2.20/share),

compared with net income of $94 million ($1.89) for the same period in 2019.

Colorado Officials to Ramp Up Ozone Controls on Natural Gas, Oil IndustryContinued from Page 1

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NGI's Shale Daily™

Tuesday, December 29, 2020

Vol. 11, No. 60

ISSN 2158-8023 (print)

Industry RespondsIn response to the amended implementation plan,

American Petroleum Institute (API) Colorado Executive Director Lynn Granger thanked APCD and the Regional Air Quality Council “for their hard work and collabora-tive pursuit of ozone reduction policies which will benefit Colorado in a feasible, practicable manner.”

She also praised regulators for acknowledging “that many proposals…did not demonstrate the emission reduc-tions achieved or consider the potential economic impacts to existing and new businesses in the 10-county ozone nonattainment area.”

Granger added, “The Commission’s continued efforts

to attain the national ambient air quality standards are valuable, however, the fact remains that many emissions that cause exceedances of the ozone standard in Colorado originate from sources outside of the state.”Further, emis-sions in the state have fallen significantly in recent years, even as population, economic development and natural gas and oil production have increased…Our industry is steadfast in its commitment to continuously improve and innovate, and we always stand ready to work with the state and other parties in pursuit of policies and outcomes which advance our shared goals.”