In the News: Price Declines Lower Tax Revenues in Production States

April 2015, Vol. 242, No. 4

The Energy Information Administration reported March 12 that the decline in spot oil prices in the last half of 2014 and first month of 2015 has reduced oil and natural gas production tax revenues in some of the largest oil- and natural gas-producing states.

Texas, North Dakota, Alaska, and Oklahoma are four of the five top oil-and natural gas-producing states and derive a significant share of their unrestricted operating revenues from taxes on oil and natural gas production. Although California produces more oil than Alaska and Oklahoma, its economy is much larger, making it relatively less affected by changes in oil and natural gas prices and production.

  • Texas collected $583 million in tax receipts from oil and natural gas production in August 2014, but tax revenue declined by 40% to $352 million in January 2015, based on data from the state’s comptroller. EIA estimates crude oil and lease condensate production in Texas also increased through December, rom 88 MMbbls to 107 MMbbls from January to December 2014.
  • North Dakota’ s tax revenue from oil and natural gas production decreased from $323 million in August 2014 to $254 million in January 2015, a 21% reduction. Monthly production has continued to increase through December even as prices declined, according to the latest production data.
  • Alaska relies on revenue from crude oil production for 90% of its operating budget. The state’s 2015 revenue projections assumed oil prices at $105/bbl. According to initial oil and natural gas production tax receipts received by the Alaska Tax Accounting System, monthly oil and gas production tax revenue in August 2014 was $108 million. In January 2015, revenue from these taxes was $26 million.
  • Oklahoma collected $62 million in funds from production oil and natural gas taxes in August 2014. This value declined to $43 million in January 2015, a drop of roughly 30%, based on information from the Oklahoma Tax Commission. Production was relatively flat during this period.
  • The production estimates and tax data referenced in this story are preliminary and are subject to change.

    Federal Coordinator’s Office Closes; Persily Takes Job with Alaska Borough

    The Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects was closed on March 7 due to lack of federal funding,. News and other information will continue without interruption from a new home, courtesy of the Kenai Peninsula Borough government.

    Larry Persily, former federal coordinator for Alaska gas line projects, accepted a position with the Kenai Borough government with similar duties, including sharing information with the public about the Alaska LNG project and oil and gas issues in general. He will distribute the twice-a-week summaries in his new capacity. His office had provided a daily update service that will continue free of charge to readers.

    EQT to Sell West Virginia Gathering System for $1 Billion

    EQT Midstream Partners, LP will acquire its Northern West Virginia Marcellus Gathering System, along with a preferred interest in an EQT subsidiary, for $1.05 billion. In addition, the Partnership will fund $370 million of system expansion projects over the next several years.

    The gathering system was designed and constructed to gather natural gas production in the wet gas and dry gas regions of the Marcellus, specifically in the Saturn, Mercury, Pandora and Pluto development areas. The system includes 70 miles of gas-gathering pipeline and nine compressor units with 25,000 horsepower of compression. The system includes a 30-mile, high-pressure wet gas header pipeline that moves wet gas from the development areas to the MarkWest Mobley processing facility. EQT contracted for 10 years of firm capacity on the system.

    EQT Midstream Partners expects to install 100 miles of gathering pipeline and five compressor units with 23,700 horsepower of compression over the next several years. Ongoing maintenance capital expenditures related to the system are forecast to be less than $5 million per year.

    EQT holds 76,000 net acres in northern West Virginia that surround the acquired gathering system including 59,000 net undeveloped acres. As of Dec. 31, there were 199 Marcellus wells and 20 Upper Devonian wells serviced by the gathering system with an average volume of 410 MMcf/d.

    Exelon Generation Exploring LNG Export Terminal in Texas

    Houston-based Annova LNG, LLC filed a request with the Federal Energy Regulatory Commission to begin a review for a mid-scale natural gas liquefaction and transfer facility at the Port of Brownsville, TX. Exelon Generation is majority owner of the Annova LNG Brownsville Project.
    “The project represents a potential opportunity to diversify Exelon’s role in the energy business in an area that shows strong growth potential: natural gas exports,” Exelon Generation President and CEO Ken Cornew said.

    “Exploring LNG exports is a natural evolution of Exelon’s diversification strategy,” Cornew said. “The U.S. offers some of the most competitive supplies of natural gas in the world, and this project provides Exelon an opportunity to continue the growth of our wholesale gas businesses.”

    The project is contingent upon Annova obtaining all necessary local, state and federal permits; acquisition of sufficient long-term customer commitments to buy LNG from the facility; and broad public support of the project in South Texas. A decision whether to build the facility is expected by the end of 2017. The filing marks the beginning of the projected two-year permitting process. The facility would be operational by 2020. The site could accommodate three stages of development, each capable of producing 2 million tons of LNG annually.

    ExxonMobil to Rely on U.S. Shale to Fund Overseas Projects

    ExxonMobil is looking to boost its output from shale fields in Texas, Oklahoma and North Dakota in the next three years to support funding for its major overseas projects in the future, Chairman, President and CEO Rex Tillerson said recently. He said profits from domestic shale allow the company to be more flexible to delay larger projects while waiting for a market recovery. A “significant portion” of domestic shale plays also have a global competitive edge at low oil prices because of cost reduction efforts and improvement in production efficiency, Tillerson said.

    Questar Closes on Eagle Mountain City’s Municipal Gas System

    Questar Gas Co. completed a transaction with Eagle Mountain City, UT to purchase the city’s municipal natural gas system. The distribution lines extend to communities on the east, north and west boundaries of Eagle Mountain City. By purchasing the municipal system and tying into it, Questar said it can enhance the reliability of service for new customers, and improve operating efficiencies for serving one of Utah’s fastest-growing areas.

    Eagle Mountain was incorporated in 1996 when the city’s population was 250. As the state’s third-largest city geographically – 44 square miles – Eagle Mountain has 24,000 residents and considerable space for growth. The gas system is 15 years old and consists of 6 miles of steel, high-pressure pipeline and 120 miles of intermediate high-pressure main lines and service lines.

    SwRI Wins EPA Contract for Emissions Testing, Analytical Services

    Southwest Research Institute (SwRI) was awarded a five-year, $20.16 million contract by the Environmental Protection Agency (EPA) to provide testing and analytical services related to vehicle emissions and fuel consumption. Key areas of support include emissions characterization and technology assessment. SwRI can develop test procedures and equipment for regulated and unregulated emissions in light- and heavy-duty vehicles and components as well as marine, railway, aircraft, small engine and other non-highway propulsion systems.

    “The scope of this contract is quite broad,” said Patrick Merritt, principal scientist in the Engine, Emissions and Vehicle Research Division. “It encompasses 25 areas, from fuels and lubricants to engine and emissions characterizations, as well as economic studies, general rule-making support, and coordinating peer review meetings.”

    Project to Examine Polymer-Lined Pipes in Sour Hydrocarbon

    A joint industry project (JIP) has been launched between Swagelining Ltd., Saudi Aramco and The Welding Institute (TWI) to conduct investigations into the use of polymer lining in carbon steel pipelines. The JIP will examine the extent of corrosion incurred in a polymer-lined pipeline when subjected to a sour hydrocarbon fluid environment. The project will last 30 months.

    NGL Energy Completes Acquisition of Magnum’s NGLs Storage Assets

    NGL Energy Partners LP completed acquisition of Magnum NGLs LLC from Magnum Development LLC, a portfolio company of Haddington Ventures LLC. Magnum owns and operates a natural gas liquids storage facility with multiple existing salt caverns and a potential capacity of greater than 10 MMbbls. The facility is located southwest of Salt Lake City with rail and truck access to western markets.

    Chesapeake Utilities Acquires Gatherco

    Chesapeake Utilities Corp. agreed to acquire midstream company Gatherco Inc. and will merge it into Aspire Energy of Ohio LLC, a wholly owned subsidiary of Chesapeake Utilities. Gatherco was established in 1997 with the acquisition of Columbia Gas Transmission’s gas-gathering assets in Ohio. Gatherco’s assets include 16 gathering systems and over 2,000 miles of pipelines in Ohio. Gatherco provides gathering services and natural gas liquid processing services to 300 producers and supplies gas to over 6,000 customers in Ohio through the Consumers Gas Cooperative.

    Transco Pipeline Delivers Record Volumes in Early January

    Williams has delivered a record amount of natural gas on its Transco interstate gas pipeline to meet demand driven by cold weather in markets on the eastern seaboard. Two recently completed expansions of Transco, totaling 315,000 Dth/d of capacity, contributed to the volume record in January.

    The nation’s largest-volume natural gas transmission system, Transco delivered a record-breaking 12.6 MMdth on Jan. 7 for its Zones 4-6 market, stretching from Mississippi to New York City. The new peak-day mark surpasses the previous high of 11.9 MMdth set one year earlier. Transco also set a three-day market area delivery record Jan. 7-9, averaging 12.2 MMdth. The Jan. 7 record volume represents enough gas to heat about 50 million homes.

    Total peak-day deliveries across the entire Transco system stretching from South Texas to New York City totaled 13.4 MMdth on Jan. 7. Williams expects deliveries to increase substantially in the coming years as additional planned Transco projects go into service.

    DCP Midstream Partners Announces Board and Management Changes

    Denver-based DCP Midstream Partners has made changes to its board of directors and executive management team. Fred J. Fowler will return to the board as an independent director, replacing Paul F. Ferguson and Stephen R. Springer.

    Fowler has a 47-year energy career, having been president and CEO of Spectra Energy and in prior senior roles at Duke Energy. Before 1997, he served in various leadership roles at PanEnergy and its predecessor companies. Bill Waldheim, president of the Partnership, has also announced plans to retire on May 1 following a 37-year career in the energy industry.

    ISHM Presents Squyres Laurence S. Reid Award

    The International School of Hydrocarbon Measurement will present its Laurence S. Reid Award to Flow-Cal Inc. President Mike Squyres, who has 30 years of experience in design and development of software applications. Each year the honor is given in recognition of outstanding individual contributions to the measurement and control of hydrocarbon fluids.

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