Tuesday, September 22, 1998

Capital big topic at WeCTOGA fall meeting

By SCOTT SCHOLTEN

Staff Writer

The money of oil and gas was the focus of attention at the annual fall meeting of the West Central Texas Oil and Gas Association Monday.

Venture capital and effective crude marketing took center stage in the morning, while barbecue and golf filled the afternoon.

Toby Neugebauer of Quantum Energy Partners, a Houston-based venture capital firm partly owned by Albany oilman A.V. Jones, discussed the venture capital aspect of the oil business.

Spencer Falls of Dallas-based EnMark Services, an energy marketing firm, discussed with members three strategies for marketing crude.

"When it comes to marketing crude ... Producers must not rely on buyers to determine the value of their production," stated a flier distributed by Falls.

Falls told oilmen how to distill the true market value of a barrel of crude from New York Mercantile Exchange futures prices, posted prices, premiums oil buyers pay for oil on top of the posted price, reseller margins and transportation costs.

Producers need to carefully evaluate market conditions before deciding how to sell oil - whether on a fixed premium basis or a floating premium basis, Falls said.

Falls explained how margins between NYMEx prices and posted prices fluctuate. In part, the differential between futures prices and posted prices varies with inventories.

"If inventories drop, we'll see spreads drop," Falls said.

The spread used to be about $1, recalled one oilman. Recently, the spread increased from $2.08 in July 1997 to $2.68 in August 1998, Falls said.

Properly pricing oil is considerably more complex than it once was.

"Gone are the days of looking at our gauge books," said Bill Core, president of WeCTOGA.

Neugebauer discussed the role of venture capital in helping oil companies put growth strategies to work.

Neugebauer said companies like General Motors invest money with Quantum, which in turn invests in oil companies with solid leaders.

"Quantum invests in exceptional people," Neugebauer said.

Additionally, Russ Taylor discussed Rule 8, the Texas Railroad Commission's pit liner rule.

Taylor said there are some areas of Texas that may see changes in Rule 8. There may be exceptions based on what type of well was being drilled, how long the pit would be used, a field's drilling density and a lease's soil type.

Sandy soil, which readily absorbs water, may merit a pit liner while clay-like soil may not since it won't absorb water as readily, Taylor said.

Taylor said Texas Railroad Commission officials are considering pit liner exemptions based on well type: wildcats.

Wildcats are typically made in less densely drilled areas, where there wouldn't be as much well mud and, as the Texas Rail Road Commission fears, possibly seeping through the ground and into aquifers. The wildcat exception, though, would still take soil conditions into account, Taylor said.

Bill Stevens, WeCTOGA's executive vice president, discussed the organization's currently shrinking membership ranks, but also said he expected to replace lost members and add an additional 10 percent.

Stevens said when he began his duties at WeCTOGA, there was no official industry or organization position on issues facing the oil industry. Those are issues such as government royalties, marginal well tax credits and such.

Boosting membership is important for WeCTOGA. More dues will enhance WeCTOGA's ability to gather and disseminate information. Essentially, more money means more opportunities to network and express views to law makers.

One such issue is the proposed compulsory unitization legislation circulating around Texas' six professional organizations.

Greg Pitzer, head of WeCTOGA's unitization committee, said the committee decided it would postone a recommendation for the proposed legislation until it's closer to a final draft.

Currently, the legislation is in its 11th version, and four of Texas' petroleum organizations have endorsed the measure.

WeCTOGA and the Panhandle Producers and Royalty Owners Association are the last groups to endorse the compulsory unitization effort.

If all six organizations approve of the legislation, they've agreed none of them would oppose it in the legislature.

Stevens said WeCTOGA will likely decide whether it endorses the state legislative proposal in December.

Scott Scholten may be contacted at (915) 676-6737 or at scholtens@abinews.com.