Issue #54 | Turbulent Oilfield Waters

Oilfield Water Weekly

Wednesday April 15, 2020

We checked in with Michael Blankenship and Isaac Griesbaum at Winston & Strawn LLP to get some perspective for this week’s Downturn Dialogue installment.

Since they are plugged-in to water deal flow, regularly advising on some of the sector’s biggest transactions, we asked them what their clients are seeking help with on the commercial side of water midstream in these turbulent times.

Their answers revealed some great insight on market trends in this space. Here’s what they shared about what they are being asked to work on for oilfield water companies these days:

“The midstream company’s rights under their customer contracts and applicable law in the event of a customer’s bankruptcy and understanding the steps they can proactively take to mitigate the risk of rejection or renegotiation in bankruptcy, including, understanding:

    • commercial risks and likelihood of a third party midstream water company being able to offer better terms based on the contract rates, service level, available capacity, capital flexibility, asset locations and other key commercial and operational concerns;
    • the potential impacts of bankruptcy of their customers and the associated timeline and analyzing whether their agreements may be subject to rejection in bankruptcy based on the guidelines outlined in recent bankruptcy court decisions; and
    • the available steps and options to shore up credit support and provide the best negotiating position, including demands for adequate assurance and engaging proactively to cement relationships prior to any potential insolvency events.

The strength of the midstream company’s relative negotiating position when customers request fee reductions, which focuses on:

    • commercial risks and likelihood of a third party midstream water company being able to offer better terms based on the contract rates, service level, available capacity, capital flexibility, asset locations and other key commercial and operational concerns; and
    • the contract terms that would present hurdles to the customer terminating outside of bankruptcy, including liquidated damages, MVCs, dedication provisions, termination rights and other key terms.

In most cases we are finding that midstream companies are willing to discuss fee reductions, although they may insist on limiting to a specific time period, tying the reduction to the price of oil and/or requiring other changes to the agreement that improve their position beyond the economics, including inserting adequate assurance provisions, shoring up the dedication language, extending the term of the agreement, expanding the AMI and others. We have found producers generally willing to engage on these points in connection with the discussion on fees.”

Read the full update here for more of the team’s thoughts on the water midstream deal landscape…

-written by Michael Blankenship and Isaac Griesbaum, Winston & Strawn LLP, for Infill Thinking & Oilfield Water Connection readers April 2020 You’ll be able to hear directly from Eric Johnson, a partner at the firm, when we are able to convene our postponed Oilfield Water Markets Conference

And now for this week’s news and analysis…


News Digest

Turbulent Waters: A Commercial Landscape Update For Water Midstream

Many thanks to Michael Blankenship and Isaac Griesbaum for sharing their views and insights from the front lines of the oilfield water marketplace in these turbulent times. What they shared with us illuminates how fast the tide has turned from a white hot M&A market fixated on infrastructure buildout to risk mitigation strategies as produced water volume projections plunge...

Surge Energy US Announces Commitment to Sustainability

Surge Energy US Holdings Company ("Surge Energy") is renewing its focus on sustainability through emission control, conservation and corporate responsibility....

OPINION: Coronavirus May Kill Our Fracking Fever Dream

Together, this industry's innovators will very likely prove the doubters wrong again! But this piece raises some good points, and while we don't believe shale is going away here at Oilfield Water Connection, we can imagine a future that looks different than the past. Bethany McLean writes: "America’s energy independence was an illusion created by cheap debt. All that’s left to tally is the damage."...

Covid Health Order To Stop Extraction Flowback Operations NOT Approved

Last week, Broomfield City Council did not approve a public health order that would have forced a temporary suspension of flowback operations at the Extraction Oil & Gas, Livingston Pad well site during the novel coronavirus pandemic....

Want To Improve Your Online Marketing Acumen? Here Are The Most Followed "Water Industry" Hash Tags On LinkedIn

Take a guess before you look at this list of water related LinkedIn hashtags with +1,000 followers?...

Oilfield Hiring Is Frozen With One Exception… [Chartbook]

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Texas Production Cut Talks Yesterday

The Railroad Commission, which oversees the state's oil and gas industry, took more than 10 hours of testimony about whether the agency should lower production as the coronavirus lowers demand...

Hearing Date Set On Oklahoma Producers’ Request For Reduced Oil Production

Members of the Oklahoma Energy Producers Alliance, who filed a request last Friday asking the Oklahoma Corporation Commission to adopt a mandated production of crude oil in the state will get a hearing next month.

Analysis Of Drought Impact On Texas Surface Water [New Map Issued By TCEQ]

This new visual resource was posted on April 7, 2020...

'Sometimes I Have To Pinch Myself:' Essential Houston Energy Workers Put In Lonely Hours

A 29-year-old Navy veteran and former Houston Ship Channel dock worker started a new job March 12 as a master control operator at EVX Midstream, the largest operator of wastewater pipelines in the Eagle Ford Shale of South Texas. It was a routine first day filled with paperwork, shaking hands, learning new names and figuring out where the printers, bathrooms and break room are. Then everything changed...

B3 Insight Officially Announces Oklahoma Platform

We are excited to announce the newest B3 Insight solution: the Oklahoma OilfieldH2O Platform...

Formation Fluid Management Inc. Announces Completion of Private Placement

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WATER TALENT POOL: MFG Chemical Names Jonathan O ’Dwyer VP Commercial Operations

Jonathan comes to MFG Chemical after a successful 15 year career with Albemarle, serving as Senior Global Director of the bromine and bromine derivatives business, and prior to that, as Global General Manager, Energy Solutions, focused on Albemarle’s high-growth bromine businesses such as oilfield, water treatment, and other markets.

Oil And Gas Cos. Must Prepare For Counterparty Bankruptcies

The magnitude of the downturn means many U.S. producers, their midstream company counterparts and related oil field service companies will not survive. ...

Trump’s big oil deal won’t save the weakest of shale producers

President Donald Trump said the “big Oil Deal” sealed on Sunday will save hundreds of thousands of American jobs. But the agreement he brokered depends on a sharp downturn in shale that will likely bring about a wave of bankruptcies and job cuts....

Houston-based service companies take more hits as oil industry weakens

The three largest oilfield service companies continue to face economic difficulties even as OPEC, its allies and other nations reached a milestone deal over the weekend to cut production.

Enservco Receives Audit Opinion with Going Concern Qualification

Enservco Corporation has received an audit opinion with a going concern qualification. This additional disclosure is required pursuant to NYSE American listing requirements...

Letter: Storage Facility Could Be A Big Nuclear Battery

HI-STORE CISF (a proposed storage facility for spent nuclear fuel in southeast New Mexico) in could be considered the world’s largest man-made nuclear battery. Its stored heat energy from the spent nuclear fuel rods could be locally transferred to purify used fracking waste water in the Permian Basin. The stored spent fuel rods in this huge battery can also be recycled and completely used up as new liquid nuclear fuel for centuries with molten chloride salt fast reactor technology....

No-Holds Barred Guzzling Of Groundwater In Silica Sand Washing Plants

In a report submitted by a panel constituted by NGT, it was recommended for making it mandatory upon silica sand washing units to obtain clearance from the CGWA before exploiting groundwater...

Permian Highway Project Work Halted As Groups Threaten Legal Action

Work on Kinder Morgan’s Permian Highway Pipeline (PHP) is halted near where the project will cross the Blanco River, the company says, as it continues to review the next steps “with our consultants, the water district and regulatory agencies.”...

Shooters – A “Fracking” History

The evolution of technologies for fracturing geologic formations to increase oil and natural gas production...

Business Insider Has Fun With Formation Fluid Visuals

Business Insider put together this slideshow showing what oil and produced water look like when they hit the surface in different basins...

OPINION: Oil prices will be $65 per barrel by the end of 2020

Since we could all use a little good news this week... here's a prediction you might like.

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