Midland Energy Expo 2015

Expanded Program Features Latest Products, Services, Technology

UPDATE (2017): Midland Energy Expo is now Permian Basin Oil and Gas Conference and Expo.

Building on last year’s momentum, the Midland Energy Expo 2015 drilled a little deeper this year complementing the sold-out exhibit hall with a dual educational track.

Visitors to the April 14^th event at the just-opened Midland Horseshoe Pavilion were treated to an experience-packed offering with 100 exhibitors sharing the latest in industry goods and services along with a full roster of speakers focusing on the administrative and technical sides of the job.

“I’ve talked more to others about my business today than I have in the last 18 months,” shared Shane Horner of Whitaker Services, based in Midland. Whitaker, which offers welding and disposal services, positioned their booth just outside the pavilion entrance where an enthusiastic trio greeted attendees with refreshments and an introduction to their locally owned business.

Finley Investigations and Security Inc., a Midland Energy Expo sponsor, greeted hundreds of visitors from their expansive display located just inside the busy exhibit hall.

“We appreciate the opportunity to reach the public with the services we offer,” declared Margaret Watson of Finley. Additional Expo sponsors included Knighten Industries, Tetra Tech, James Environmental Management, Hy-Lok, Burmass Permian Basin Oil & Gas Directory and Permian Basin Oil & Gas Magazine.

“After a sold-out trade show, the Midland Energy Expo saw an increased growth over previous years,” noted Sarah Lazarowitz, event manager. “The networking opportunities provided by the Expo allowed vendors to make deals while attendees learned about the latest products and services in the Permian Basin market.”

Networking was not limited to the exhibit hall. New this year, attendees were offered a slate of educational courses in a comfortable classroom setting with plenty of time for follow-up Q&A and business-card exchanges.

“The educational sessions started their first year on a high note with eight great speakers sharing their knowledge in the administrative and technical sessions that ran throughout the day,” Lazarowitz reported.

Education Recap – Technology Track:

 

Bridging the Gap in Flow Management

“No matter what role you play in our industry, it’s all about the money, and money is dictated by the flow of hydrocarbons,” said Henk Kool, global director for Technical Sales and Marketing for Halliburton’s Well Testing product service line in Houston. “This implies an inherent need for understanding how much oil, gas and water the well is flowing.”

Traditionally, the flow rates of well fluids have been measured by separating the phases, utilizing separation equipment, and measuring the outputs of the separated fluids by conventional, single-phase techniques. Test separators sometimes prevent complete separation of the fluid phases and require frequent maintenance and calibration.

If the system is not maintained, these conditions cause errors in separator instruments, which are designed to measure streams of single phase gas, oil or water. Moreover, obtaining reliable measurements from test separators requires relatively stable conditions, which can take a great deal of time. Therefore, it is highly attractive to have a relatively simple, suitable instrument – a multiphase flow meter (MPFM) – which is capable of measuring the flow rate of each component directly without separation in all conditions.

Some 15 years ago, MPFM technology appeared on the market, and these meters are now becoming more and more accepted by the industry, Kool explained.

An MPFM allows real-time well monitoring, individual well testing, production allocation, and reservoir surveillance, and also provides critical information on well performance such as water breakthrough, gas coning and inflow characteristics. MPFM applications are diverse, ranging from onshore to offshore, from new development projects to retrofits of declining fields, and from wet gas to heavy-oil streams.

Kool focused his discussion on the non-radioactive MPFM, which offers several advantages including:

• Less intervention during operation since no PVT analysis is required.
• No radiation-risk-related challenges with regards to transportation and logistics.

In the case of a solids-laden environment, Kool noted that the MPFM does not have any intrusive parts. When significant solids are present, sampling should be performed to check the amount and the density of the material so this can be entered into the calibration of the meter. In addition, Kool said, a non-intrusive solids detection device can be installed upstream of the meter.

The multiphase meters are easily deployed in land applications using a variety of trailer- or skid-mounted solutions based on specific local or customer requirements, Kool indicated. These types of setups allow for quick mobilizations and minimal rig-up times on location.

“The technology behind the MPFM bridges the gap in the ability to deliver more advanced functions and provide accurate measurements on a consistent basis,” Kool summarized. The technology is very robust when it comes to variations in configuration parameters, unlike conventional multiphase flow metering technology. Extremely fast measurements can accurately capture rapid fluctuations in the flow.

“Add to that the ease of installation, in-situ verification and self-diagnostics functions, and you have a winning concept,” Kool concluded.

 

Storm Water Pollution & Environmental Compliance

Mike James, owner of James Environmental Management Inc., based in Round Rock, Texas, has successfully developed and implemented multi-media Environmental Compliance Assurance Programs for many manufacturing facilities across the country.

James provided attendees with a history of stormwater regulation, which began in 1970 amid growing concerns of environmental conditions in urban areas. Consequently, the Nixon administration formed the U.S. Environmental Protection Agency (EPA) to establish and enforce protection standards for the environment.

In 1972, the Clean Water Act was passed, and the EPA was granted the authority to regulate water discharges through the National Pollution Discharge Elimination System (NPDES). At this time, stormwater was generally exempted. In 1987, the Water Quality Act was passed, which provided the fundamental basis for how stormwater is currently regulated in the United States.

Next came implementation of the EPA “stormwater rule” in 1990, launching the regulation of stormwater at industrial facilities nationwide. Some eight years later, the Texas Commission on Environmental Quality (TCEQ), formerly identified as the Texas Natural Resource Conservation Commission, began administering the EPA’s NPDES program.

In 2011, stormwater permits were issued in approximate five-year intervals. The current permit is scheduled to expire in August of 2016, James sated.

Stormwater permits are requirements related to water quality permitting for stormwater runoff from construction sites, industrial facilities, and publicly operated storm drains.

The hierarchy of stormwater compliance is as follows:

1. Federal – U.S. EPA
2. State – (TCEQ, etc.)
3. Local (cities and counties)

SWPPPs, or Storm Water Pollution Prevention Plans, are a requirement of the stormwater regulatory programs that help document:

• stormwater flow and surface receiving water(s);
• materials management;
• fluids management;
• pollution prevention; and
• routine facility inspections.

Although many oil and gas operations are exempted from stormwater regulations, any secondary activity that is best defined by another Standard Industrial Classification Code, such as manufacturing or transportation, likely requires regulation under the stormwater rules, James clarified.

Spill Prevention, Control and Countermeasure (SPCC) Rules are more wide-reaching and lack some of the oil and gas exemptions that apply to stormwater regulation, he added.

SPCCs are an EPA requirement for facilities storing 1,320-plus gallons of petroleum products. These plans help to document:

1. Storage containers and contents

• Oils
• Gasoline/diesel fuels
• Produced water

1. Secondary containment structures/methods

• Spill response procedures and reporting requirements

Key exclusions include:

• Natural gas
• Liquid petroleum gas and liquid natural gas
• Fuels tanks which power mobile equipment

“EPA’s regulations reach as far as the formations that drive your industry,” James claimed. “Storm water compliance is not about moving dirt,” he continued. “It’s about improving quality with the best management practices.”

Using the city of Odessa as an example, James drew several conclusions and offered common sense tenets when it comes to compliance, what he described as “simple, not complicated and fairly inexpensive.”

“Now, during a slowdown, is the time to get it cleaned up,” James suggested.

Failure to comply can result in fines up to $37,500 per day per violation; inability to obtain licenses and/or permits; and the inability to secure contracts with larger corporate entities.

Compliance cannot be accomplished with a professional, alone, James emphasized. Rather, “it takes the professional helper plus you!”

 

Gas Life Optimization and Troubleshooting

“You can increase production and extend the life of a well through gas lift optimization,” stated Matt Young, technical sales manager for Flowco Production Solutions based in Spring, Texas.

Maximizing artificial lift value is an important but often difficult task to complete for oil and gas operators. Optimizing well production through the use of gas lift on a well-by-well basis is a way to improve field output, but this approach can be limited by constraints from other wells and facilities. There are many ways to look at gas lift optimization including troubleshooting and entire production system evaluation. Depending on the approach, many constraints can be identified and eliminated.

The purposes of gas lift optimization are to increase production, extend the life of the artificial lift system, better utilize compressor Hp and gas volumes, reduce operating cost, and lower capital expenditures, Young listed, with a special emphasis on reducing operating cost.

Once a well has been selected, the following may ensue:

• adjustment of injection gas;
• removing or reducing surface pressure restrictions;
• system redesign; and/or
• introduction of secondary artificial lift system.

As explained by Young using detailed charts and graphs, adjustment of injection gas involves utilizing tubing critical velocity charts, building a NODAL analysis model to predict gas volume, and conducting multi-rate well tests.

Removing or reducing surface pressure restrictions calls for opening/removing wellhead chokes, reducing the number of 90-degree elbows used in the flow line, and setting the wellhead compression.

System redesign involves running a flowing pressure/temperature survey, redesigning for optimal injection point and lowest FBHP, adjusting for surface or facility conditions, moving the injection point and EOT deeper into the well, and/or applying a special application gas lift.

Finally, introduction of a secondary artificial lift system may involve plunger assisted gas lift or surfactant or form injection.

The benefits of plunger assisted gas lift include:

• Helps to maintain production on high GLR gas lift wells.
• Reduces fluid fallback in both continuous and intermittent gas lift wells.
• Improves efficiency of the gas lift system by cutting back on required injection gas volumes.
• Minimizes paraffin, scale and other deposits build up on the tubing walls.

Problems with a gas lift system are often associated with three areas, as described by Young: 1) inlet (surface); 2) outlet (surface); and 3) downhole.

More often than not, the problem can be found at the surface, Young continued. Thoroughly explore all potential surface problems before incurring the expense of a rig to investigate downhole causes, he suggested, and keep in mind that poor optimization is most often caused by inaccurate gauge readings that can occur due to gauge malfunction or blockage.

Young advised the audience to “always troubleshoot your well at the surface before you call a rig.” The remainder of his presentation focused on:

• Tuning in the Well
• Troubleshooting Diagnostic Tools
• Bottom Hole Pressure Test Procedure
• Gas Lift Troubleshooting Check List
• Where to Install a 2-Pen Recorder
• Interpretation of Pen Recorder Charts
• Continuous Flow Problems and Solutions
• Intermittent Flow Problems and Solutions
• Gas Lift Equipment Components

To view Young’s presentation in full, along with the other technical sessions, go to http://midlandenergyexpo.zacpubs.com/agenda/.

 

Education Recap – Administrative Track:

Motivating and Retaining Employees

As mentioned previously, the administrative track of speakers ran concurrently with the technical track, and so the beginning session for the administrative track began at 8:30 a.m. with a presentation from Dr. William Price on “Motivating and Retaining Employees.”

Dr. Bill Price is Dean of the College of Business and Engineering at the University of Texas of the Permian Basin. His first teaching position was as an assistant professor of business at Howard Payne University. He subsequently progressed to the University of Texas of the Permian Basin, where he became an associate professor and associate dean, serving in those capacities for several years. He instructed a variety of management courses for undergraduate and graduate students. Dr. Price received his MBA from Gonzaga University.

“Motivation is inner power—a quality that is intrinsic in someone, a quality that pushes to action. It is something in you that makes you want to move ahead, to accomplish something. It is desire, ambition.” Price outlined several reasons why employee motivation is essential for employers and managers:

Will increase productivity

Improved work performance

Reduced turnover

Reduced sick leave

Reduced accident rate

Stronger company culture

Much of the talk revolved around perceptions. Managers have perceptions about what will motivate employees. Those perceptions are sometimes ill-founded or perhaps overly valued or under-valued. There are realities that exist when it comes to the things that truly motivate workers. Finding out how one can motivate by tapping into those true motivators is a key to winning employee buy-in and motivation.

Incentives are another key area. Different types of incentives work for different levels or types of employees. What motivates a salaried executive is not necessarily what motivates an hourly worker. Price outlined various incentive programs to appeal to different groups—including even some “unusual” or non-traditional incentives, which often can be some of the most effective.

Dr. Price has published 40-some articles and columns related to business strategic management and human resource management and made numerous presentations at academic conferences. Price’s service to the profession includes serving as a reviewer for dozens of manuscripts at academic journals, and he has served on the program committees for major academic conferences. He served on the board of directors of American Airpower Heritage Museum, Permian Basin SHRM, and Abilene Civic Center as well as active involvement in several other charities. Dr. Price also writes the HRIQ column that appears monthly in this magazine.

 

Mergers and Acquisitions: Preparing for Change 

Bryan K. Livingston and Paul Puri, Capital Alliance, both of Dallas-based Capital Alliance Corporation, opened the 9:30 a.m. session with their discussion of how businesses can be favorably poised, where the possibilities of mergers or acquisitions are concerned. It was a topic of special interest because of the current softened economic climate in the oil patch, due to the downturn in the price of crude oil.

Bryan Livingston is executive vice president and principal of Capital Alliance. He is also the Global Leader of the M&A International, Inc., Construction and Engineering Services industry group. Livingston has ongoing projects in the fields of civil engineering applied to telecommunications structures, heavy civil construction and engineering, energy infrastructure construction and engineering, electrical transmission and distribution, aerospace manufacturing, environmental engineering and remediation services, and deregulated energy retail sales. His primary responsibility at Capital Alliance is providing mergers and acquisitions advisory services to the shareholders of middle market companies.

Paul Puri is executive vice president and principal of Capital Alliance. He is also Global Head of M&A International Inc.’s Energy Industry Group, a multinational group of energy investment bankers located in 41 countries. He has over 10 years of experience advising clients in complex M&A transactions that demand his critical analysis and guidance, industry relationships, negotiating skills, and his intention to exceed shareholder objectives.

Opening the session, Livingston remarked, “We’re not pitching for your business and we are aware that not everyone attending the session has a business to sell. We’re consultants and advisors, not a listing service.”

With that, he and Puri, working in tandem, took the room through a revealing Powerpoint presentation that had a “focus on lessons learned.”

Said Livingston: “We want to look at things that make sales processes go well. Also at things that don’t go so well, so as to be able to prepare for that.”

Capital Alliance is part of M&A International, the world’s leading mid-cap investment banking organization, with about 600 investment bankers. “We are able to leverage a lot of the accounts we have around the world to bring players to the table,” Livingston said. “Our global connections… help us to get a global picutre of what is happeneing, which is beneficial to clients we serve here in the Permian Basin. We work on projects of all sizes. We don’t have a sweet spot. We’re a full service investment banking firm.”

Some of the topics that the pair covered included:

Transition planning

Management readiness

Financial readiness

Operational readiness

Said Puri: “Get the right people in place who can run the business, and I guarantee that adds a lot of value when you get ready to sell the company. So that you are not the only one quarterbacking the company when the time is right.”

Another nugget from Puri: “Some of the best entrepreneurs we work with understand their limits.”

Livingston: “In the patch, deploying technology so that you have a back office system that has near real-time information… is absolutely critical. There are so many solutions out there at affordable cost. You need your back office to be delivering value.”

He offered, as a case history, or a cautionary tale, an anecdote about a company that didn’t follow the sort of procedures that Capital Alliance recommends.

“They had $125 million in revenues and had no accounting systems,” Livingston said. “We advised them against [rushing into negotiations]. They went ahead anyway. Six months later, we were still trying to get them prepared, but they pushed the button anyway, and the buyers backed away, because they were just was not confident enough.”

Asked how inadequate the company’s accounting was, Livingston said: “It was like bar napkins and envelopes. They had a general ledger—some of what they needed—but not enough. Having those systems in place and having good financial records, audited books, is of paramount importance. If you don’t have those systems in place at the beginning of the process you are just rolling the dice.”

More advice:

“If 50 percent or more of your revenue is coming from a single client, that is a problem you have to grapple with and solve. Because it will always be a problem.”

Puri added this:

“What is the quality of the financial statements you have in place today? It is important that you have credentials and backstop. And that your data [including your backward-looking data] won’t be called into question when the time of the transaction comes. Getting audited accounting records is an investment, but it takes a lot of risk off the table, and adds to the value of the transaction. Good quality CFOs are worth their weight in gold.”

“It goes without saying: taxes filed, paid. We want to be sure we are rock solid in everything we can check off prior to beginning the sale process.”

 

Allocation Wells and What Makes Them Different

The assigned speaker for the first afternoon session was a familiar face to PBOG readers. She was our columnist Angela Staples, whose “From the General Counsel” column regularly appears in the magazine.

Angela Staples moved to Midland in 2003, after graduating from the University of Texas at Austin School of Law. She has focused her practice on oil and gas matters, and is admitted to both the Texas and New Mexico bars, and is board certified in Oil, Gas, and Mineral Law by the Texas Board of Legal Specialization. Prior to moving to Tall City Exploration, LLC, as vice president of land and legal, she practiced oil, gas, and mineral law privately. Staples currently serves as the general counsel to the Permian Basin Petroleum Association, Her monthly articles for this magazine typically consist of recent case law review and analysis that relates to the oil and gas industry.

The subject of allocation wells is of rising importance to oil and gas operators, and to minerals owners as well.

Operators can, for now, get permits for horizontal allocation wells without getting consent of all mineral interest owners. The growth of horizontal drilling has been a factor in the new rules. While once it was necessary for operators to get sign-offs from all lessors if the operator wanted to pool leases to unitize it for drilling a well that extends across multiple tracts, that’s no longer the case. What does this mean for royalty owners? For operators? It’s a new world for both.

Staples kicked things off with a definition. An allocation well is a well which fits the following parameters:
A horizontal well-by-well
Permitted by the Texas Railroad Commission
Allows an operator to drill across several tracts of land
No clear pooling authority or consent of the lessors.

She touched upon the history of pooling, which itself is connected to the “rule of capture.” In essence [paraphrasing here] he who captures the minerals is the owner of the minerals. Ownership of land is not necessarily ownership of the minerals, because hydrocarbons can migrate from one property to another.

Another important element in this context is the well spacing rule. The practice of pooling, for instance, came into existence as a solution to the hindrances brought about by the well spacing rule.

But pooling is not the same as allocating.

Staples: “Most operators in the industry are aware that this is a new thing in the oilfield, which is the permitting of allocation wells.” She cited the changing definition of a “drillsite tract,” which is a horizontal wellbore that penetrates multiple tracts, creating the possibility of having multiple drillsite tracts, within a horizontally pooled unit.”

“You cannot pool royalty interests without permission,” Staples said.

“Pooling clauses began to appear in leases. They were used by lessors to let lessees pool their lands with other lands to create a drillable unit.”

Obviously, pooling presents complications. Various questions have had to be met and answered. One such question was the following: Do vertical well pooling/allocation rules apply to horizontal wells?” The Non-Apportionment Rule held that production is allocated according to the ownership of the minerals at the location from which the production is obtained.

Now, if the vertical rules are to apply, then this situation would exist: Without pooling agreements (or production sharing agreements), an operator could be made to pay the owners of each tract that the wellbore traverses royalty on 100 percent of the production from the well.

Clearly, that could not work. Allocation wells became, by necessity, the only plausible answer to these quandaries.

Describing more than one court case that dealt with matters in this vein, Staples came to the case of Spartan Texas Six Capital Partners, Ltd., et al, v. EOG Resources Inc., a case that could perhaps have brought a ruling on allocation wells—had it gone to a verdict—but did not because the case was settled out of court.

She concluded her talk with this observation: “We do not have any judicial determination as to whether or not allocation wells are proper. So the next step—there still is hope—lies in the fact that there is a draft of House Bill 1552, which aims to amend a portion of the Texas Natural Resources Code.”

This bill verbiage addresses the question of allocation:

“In order to prevent waste, promote conservation, or protect correlative rights, the commission may issue a permit to an operator or lessee to drill an oil or gas well that traverses multiple tracts. If there is not an agreement with one or more owners of royalty or mineral interests in the tracts traversed by the well regarding the manner in which production from the well shall be allocated among the tracts, the operator or lessee shall allocate to each of those tracts its share of the aggregated production from the well as determined by the operator or lessee with reasonable probability.”

Said Staples: “If passed in this form, or some substantially similar form, operators will have the comfort of legislative authority to drill allocation wells. [Currently] a lot of companies, including the company I work for, will not drill them, because of the conflict and uncertainty.

“It may be many years before we have full settlement of this issue,” she concluded.

 

How Businesses Can Access Capital

Enrique Romero, who heads the UTPB office of the SBDC, was the afternoon’s final speaker, addressing the subject of “How Businesses Can Access Capital.”

Romero is a life-long resident of Odessa and brings over 20 years of diversified experience in retail, construction, oil and gas, international business, insurance, marketing, business consulting, and banking, which collectively has made him an effective and invaluable resource for UTPB Small Business Development Center clients. He has worked in the banking and lending industry for over seven years as a vice-president and client manager, and has specialized in commercial lending for middle-market companies.

This session covered the basics on how to obtain business loans. Information was provided on a variety of funding alternatives, including government-backed loans (SBA loans), equipments loans, working capital loans, factoring lines (similar to a line of credit), and more. Romero covered these topics:
Types of Financing Debt
Financing Equity
Financing Grants
The Business Plan

Romero said that when he speaks to groups, especially young groups, he sometimes leads with this statistic: “One in four individuals here will be an entrepreneur and start a business sometime during their life.”

He continued: “Some people are surprised to hear that, because they already are thinking to themselves that they are going into a profession—maybe medicine or law or something like that.”

That is true sometimes even of the one-in-four who eventually do start a business. They didn’t always seem themselves in that role.

“For the ‘most’ who don’t, it’s the human factor. It’s ‘I have a job and benefits, a guaranteed salary.’ They have a comfort zone. Yet those people can be pushed out of companies.”

Romero said that we’re seeing that now, with the downturn in oil prices.

“A lot of those people come into the SBDC door and say, ‘Now I’m going to act on [their idea of starting a business].”

He posed four questions that any such aspirant ought to be able to answer:

How much money will I need?
What will I use the money for?
Where will I find it?
How will I pay it back (a question that will be asked by the lender), or What is the rate of return on my investment (a question that will be asked by the investor)?

Romero was not a big fan of equity financing. “Generally, it means having to sell your soul away,” he said. “I had someone in my office who was looking to raise two million dollars [through equity financing]. I asked him how much of the company ownership he wanted to retain. He said, ‘I want 40 percent of the company.’ I asked, ‘How much of your own money did you put in?’ He said, ‘Nothing.’ He will be lucky if he gets 5 percent. Now he’s looking at it from a different perspective.”

Romero tells people like that to watch the television show Shark Tank. That brought a laugh, and Romero himself was amused, but he wasn’t kidding. The show helps to alter some misconceptions about what financing is all about.

“I tell them, ‘Friday 8 p.m. central time. Thats’ the game plan.’” (laughs)

He said that some companies today will actually help an individual to roll over his or her 401K to fund a business.

Romero cited these sources of debt financing, and spoke a little about each one:

Banks
Credit unions
Commercial finance companies
SBA-guaranteed loans
Family members, friends, and former associates.

Equity financing, on the other hand, can include the last-listed source, but more commonly comes from private investors or venture capitalists.

SBA, a source that Romero represents, as head of an SBDA office, is a source of loan guarantees. But “the place to start is your regular bank,” Romero said. “You will have to get their commitment before the SBA ever comes into the picture…. The main advantage to an SBA loan guarantee is that it extends the term of the loan, making the payments smaller.”

Like any insurance program, the SBA guarantee fee costs money.

He cited types of SBA Loans:
Express loans – $20k to $150 K
Lenders advantage – $150k to $350k
SBA 7a – $350k to $5mm
sba 504 – R200k to $5mm

In rounding out the talk, Romero discussed credit reports, non-bank alternative sources of funding, angel investors, and PEGs (private equity groups), among other subjects.

He ended with an outline of a business plan, which always has a place in the proceedings:
Executive summary
The business concept
The marketing plan
The operations plan
The financial plan
Appendix

The presentation was well received, as were all the sessions on the day, and questions were plentiful throughout.

Please go online to http://midlandenergyexpo.zacpubs.com/agenda/ for the full set of Powerpoint slides as well as videos of each talk. For information on next year’s event, log onto midlandenergyexpo.com. Be sure to sign up early next year, because seating will be limited.