DEPA REPORT ON INDUSTRY, LEADERSHIP, LEGISLATION AND ENERGY REGULATION

DOMESTIC ENERGY PRODUCERS ALLIANCE May 2020

The CFTC Issues a Strong Advisory Letter to Several of Their Divisions

he U.S. Commodity Futures Trading Commission

(CFTC) issued a stern advisory to the Designated Con-

tracts Markets (DCMs), The Futures Commission Mer-

chants (FCMs) and the Derivatives Clearing Organizations

(DCOs) on May 13, 2020 using the subject line “Staff Ad-

visory on Risk Management and Market Integrity under

Current Market Conditions”

DEPA applauds this unusually forthright communica-

tion which was a reminder of the obligation to ensure or-

derly trading and commodity pricing after April 20’s high

volatility and negative prices in the light sweet crude oil

futures contract (WTI) for delivery in May.

This public warning to the Chicago Mercan-

tile Exchange (CME) appears to underscore the

Commissions concern about the events April

20, and its determination it will not be allowed

to happen again. The very detailed letter,

printed in full beginning on page 3, reminds

the Designated Contract Markets (DCM) of

their obligations to prevent market disruption,

adopt position limits and protect market partic-

ipants. Telling them, “it is critical that DCMs remain

mindful of their obligations under the Core Principles es-

tablished in the Commodity Exchange Act.”

The advisory reminds the Futures Commission Mer-

chants (FCMs) “During periods of extreme market volatili-

ty, it is imperative that FCMs engage in robust risk man-

agement to manage effectively their activities of operating

as FCMs and to protect customer funds.”

John Kemp, a Reuters columnist stated “Since last

month’s upsurge in volatility, some futures commission

merchants have already prohibited smaller customers from

opening new positions in June and July WTI futures.”

Kemp felt the decision to restrict trading to the liquidation

of existing positions reflects a concern that risks arising

from congestion at Cushing have become unmanageable for

smaller and less sophisticated customers and that the Com-

mission’s warning will likely cause more brokers to limit

trading by smaller customer accounts in WTI contracts near

expiry.

"The sanctity and trust in the oil and all commodity fu-

tures markets are at issue as the system failed miserably,

and an immediate investigation is requested and, we sub-

mit, is required," DEPA Chairman Harold Hamm said in an

April letter to the CFTC in which he detailed the unprece-

dented activity.

Hamm's Continental Resources filed the first complaint

with the CFTC. They ask that an investigation of West

Texas Intermediate crude oil futures traded on the Chicago

Mercantile Exchange be investigated for possible market

manipulation, failed systems, possible misconduct or failure

to follow their own rules by the CME, or computer pro-

gramming failures in the WTI prompt month May (20), and

oil futures contracts on the CME. DEPA followed with a

letter to CFTC Chairman Heath Talbert. (Read the full let-

ter on page 2.) Other state oil and gas organizations and

companies of every size sent their comments and demand

for an investigation at the beginning of May as well.

The agency's chairman Heath Tarbert told Reuters the

volatility in oil prices is due to fundamental supply and de-

mand issues, not a financial markets issue.

DEPA Staff Executive Board of Directors

Dan Boren Director

Ed Cross Director

John Schmitz Director

Bill Stevens Director

Harold Hamm Chairman

Mike McDonald President

Don Montgomery Vice President

Berry Mullennix Secretary/Treasurer

Jerry Simmons Executive Director

Peter Regan Congressional and Alliance Liaison

David Crane Lobbyist

Cynthia Simonds Marketing and Communications Dir.

Sarah Reece Executive Assistant

DEPA believes in seeking

common ground, through

common sense solutions,

to the challenges facing

our industry. Our biparti-

san approach provides a

uniquely powerful voice

for our members at the

state and national level.

Our work is critical.

Your support is vital.

PO Box 33190 Tulsa, OK 74153 405-669-6646 Info@DEPAUSA.org

I am writing to request the Commodity Futures Trad-

ing Commission (CFTC) initiate an investigation of West

Texas Intermediate (WTI) crude oil futures traded on the

Chicago Mercantile Exchange (CME) for possible market

manipulation, failed systems, possible misconduct or fail-

ure to follow their own rules by the CME, or computer

programming failures in the WTI prompt month May

(20), and oil futures contracts on the CME.

On April 20, 2020, the WTI prompt month May (20)

crude oil contracts closed down $55.90. This marked a

306 percent drop in price from the April 17, 2020 closing

price of $18.27 resulting in a negative value of $37.63 per

barrel. This is the first time in history that WTI fuel oil

futures have traded at negative levels. The CME issued a

release on April 8, 2020 setting forth a plan to address

possible negative pricing and then failed to follow or im-

plement that plan. Given the extraordinary nature of this

event and associated activities I am asking you to examine

several developments surrounding trading activity leading

up to and on the day of April 20, 2020, including but not

limited to:

• The sudden change in computer models used by the

CME during a time of increased volatility.

• The $40.00 drop in the last 22 minutes, including a

$25.00 drop in a 3-minute span just before trading

closed to settle.

• The issuance of new products on WTI trading the day

after April 20.

Clearly there are market forces contributing to the de-

cline in oil prices. However, given the unprecedented

event of negative valuation of WTI futures, the highly

unusual steps taken by the CME in the lead-up to May

(20) WTI futures trading designed to facilitate negative

value trading, and comments made by the CME during

trading hours on April 20, 2020 that sent a clear signal to

markets that WTI futures could trade in negative territory

and which appear to have triggered a concentrated period

of high volume trading that drove prices into negative val-

ue in the final minutes of trading, an examination of these

events is warranted.

Free markets depend upon trust. This is especially true

during difficult economic times. As such it is absolutely

critical to investigate any evidence that points to potential

market manipulation or systems failures that undermine

market integrity.

I thank you in advance for your consideration and action

on this matter.

Letter signed by DEPA Executive Director Jerry Simmons

DEPA’s Letter Requesting an Investigation of the Chicago Mercantile Exchange

Sent to CFTC Chairman Heath Talbert April 30

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 3

I. Introduction

The onset of the COVID-19 pandemic in late 2019 has

adversely affected the economies of the United States

and other major countries. Global markets, including

those regulated by the Commodity Futures Trading

Commission (the Commission), have been affected by

both fundamental and technical factors this year as econ-

omies and industries have slowed dramatically or shut

down completely—resulting in unprecedented market

impacts. This economic downturn has coincided with

substantially increased market volatility in key agricul-

tural, energy, and financial sectors, including the futures

and options on futures markets regulated by the Commis-

sion. The impact of fundamental and technical factors

has been particularly acute for contracts that call for

physical delivery of the underlying commodity as

demonstrated by the unprecedented price moves in cer-

tain contracts.

The Divisions of Market Oversight (DMO), Swap Deal-

er and Intermediary Oversight (DSIO), and Clearing and

Risk (DCR) (collectively, the Divisions) issue this advi-

sory to remind DCMs, FCMs, and DCOs that they are

expected to prepare for the possibility that certain con-

tracts may continue to experience extreme market vola-

tility, low liquidity and possibly negative pricing.

We note that we are issuing this advisory in the wake of

unusually high volatility and negative pricing experi-

enced in the May 2020 West Texas Intermediate (WTI),

Light Sweet Crude Oil Futures contract on April 20 (the

penultimate day of trading and expiration of the con-

tract). The Divisions wish to emphasize that the subject

of this notice applies equally to trading in other com-

modities, and registrants should remain vigilant and pre-

pare accordingly.1 In addition to considering risk con-

trols and related issues, DCMs, FCMs, and DCOs are

encouraged to ensure their customers and members have

appropriate information on the risks and technical ele-

ments of contracts and trading around upcoming expira-

tions.

In light of these considerations, the Divisions remind

DCMs, FCMs, and DCOs of their obligations to assess

changing market conditions and take appropriate

measures in response as contracts approach expiration.

Given current market conditions, DCMs, FCMs and

DCOs are encouraged to regularly assess whether their

risk controls and related mechanisms are reasonably de-

signed, fit for purpose, and appropriately implemented.

II. DCM Obligations to Prevent Market

Disruption, Adopt Position Limits and

Protect Market Participants

In periods of market volatility such as those recently

experienced, it is critical that DCMs remain mindful

of their obligations under the Core Principles estab-

lished in the Commodity Exchange Act.2 In particular,

we remind DCMs that Core Principle 43 requires them

to have the capacity and responsibility to prevent ma-

nipulation, price distortion, and disruptions of the de-

livery or cash-settlement process through market sur-

veillance, compliance, and enforcement practices and

procedures. To this end, with respect to physically-

delivered contracts, Commission regulation 38.2524

requires each DCM, among other things, to: (a) moni-

tor the convergence between the contract price and the

price of the underlying commodity; and (b) monitor

the supply of the commodity and its adequacy to satis-

fy the delivery requirements and make a good-faith

effort to resolve conditions that threaten the adequacy

of supplies or the delivery process. 1 For the sake of clarity, this Advisory is issued as a prophylactic measure.

This Advisory is designed to remind registrants and market participants

that continued assessment, preparation and planning is warranted in times

of market volatility occasioned by COVID 19. This Advisory does not sug-

gest any element of compliance, or lack thereof, by any registrant. Similar-

ly, this Advisory is not intended to suggest that any particular markets or

contracts will experience fundamental or technical issues going forward. 2

7 U.S.C. §7(d). 3 7 U.S.C. §7(d)(4). 4 17 CFR 38.252; see also 17 CFR 38,

app. B.

With respect to cash-settled contracts, Commission

regulation 38.2535 requires the DCM, among other

things, to demonstrate that it monitors the pricing of

the index to which the contracts will be settled and

also the continued appropriateness of the methodology

for deriving the index. Commission regulation

The Full Advisory Letter

4 Domestic Energy Producers Alliance

38.2556 requires that a DCM establish and maintain

risk control mechanisms to prevent and reduce the po-

tential risk of price distortions and market disruptions,

including (but not limited to) market restrictions that

pause or halt trading in market conditions prescribed by

the DCM. Commission regulation 38.2587 refers

DCMs to the guidance and acceptable practices in Ap-

pendix B of Part 38 to demonstrate compliance with the

requirements of Core Principle 4.8

Furthermore, Core Principle 59

requires each DCM to adopt for

each contract of the board of

trade, as is necessary and appro-

priate, position limitations or

position account-ability for

speculators in order to reduce

the potential threat of market

manipulation or congestion—

especially for outrights or

spread trades involving the de-

livery month. Additionally,

Core Principle 1210 requires

each DCM to establish and en-

force rules to, among other

things, promote fair and equita-

ble trading on the contract market. In particular, Com-

mission regulation 38.65111 requires, among other

things, that a DCM have and enforce rules that are de-

signed to protect the market and market participants

from abusive practices including fraudulent, noncom-

petitive or unfair actions, committed by any party.

Moreover, DCMs are reminded of their obligations un-

der Core Principle 612 to adopt and maintain rules to

provide for the exercise of emergency authority, as is

necessary and appropriate, including the authority to

liquidate or transfer open positions in any contract; to

suspend or curtail trading in any contract; and to re-

quire market participants in any one contract to meet

special margin requirements. A DCM that adopts a rule

or rule amendment in response to an emergency must

file such rule or amendment with the Commission prior

to implementation or, if not practicable, at the earliest

possible time after implementation, but in no event

more than twenty-four hours after implementation in

accordance with Commission regulation 40.6 (a)(6).13

Appendix B’s guidance, referenced in Commission reg-

ulation 38.35114 under Core Principle 6, provides that

a DCM, “[i]n consultation and cooperation with the

Commission… should have the authority to intervene

as necessary to maintain markets with fair and orderly

trading and to prevent or address manipulation or dis-

ruptive trading practices, whether the need for inter-

vention arises exclusively from the DCM’s market or

as part of a coordinated, cross-market intervention.”15

5 17 CFR 38.253. 6 17 CFR 38.255. 7 17 CFR 38.258. 8 As to Core Princi-

ple 4, Appendix B provides that risk controls must be adapted to the unique

characteristics of the markets to which they apply and must be designed to

avoid disruptions without unduly interfering with that market’s price dis-

covery function. 9 7 U.S.C. §7(d)(4). 10 7 U.S.C. §7(d)(12). 11 17 CFR

38.651. 12 7 U.S.C. §7(d)(5).

III. Risk Management Program for FCMs

During periods of extreme mar-

ket volatility, it is imperative

that FCMs engage in robust risk

management to manage effec-

tively their activities of operat-

ing as FCMs and to pro-tect

customer funds. DSIO reminds

FCMs of their obligations to

maintain effective risk manage-

ment programs. Commission

regulation 1.1116 requires each

FCM carrying customer ac-

counts to establish, maintain

and enforce a system of risk

management policies and pro-

cedures designed to monitor and manage the risks as-

sociated with the activities of the FCM. Regulation

1.11 further provides an FCM’s risk management pro-

gram must take into account market, credit, foreign

currency, liquidity, legal, operational, settlement, seg-

regation, technology, capital, and any other applicable

risks to the FCM.

As part of its risk management responsibilities, an

FCM must monitor its customer ac-counts to ensure

that the FCM is collecting appropriate levels of initial

margin to protect against a customer becoming under-

margined or defaulting on its positions. An FCM also

must monitor the amount of residual interest that the

firm maintains in customer segregated accounts to en-

sure that it holds sufficient funds in such accounts at all

times to meet its total obligation to all customers.

Each FCM that is a clearing member of a derivatives

clearing organization (Clearing FCM) is required by

Commission regulation 1.7317 to establish risk-based

limits in proprietary and customer accounts based on

position size, order size, margin requirements, or simi-

lar factors. Regulation 1.73 further requires each Clear-

ing FCM to screen orders for compliance with the risk-

based limits, and monitor for the adherence to the risk-

based limits on an intra-day and overnight basis. Each

Clearing FCM also is required to conduct stress tests

“We are issuing this advisory

in the wake of unusually high

volatility and negative pricing

experienced in the May 2020

physically-delivered WTI

contract, and related

reference contracts,

on April 20. “

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 5

under “extreme but plausible conditions” at least once

each week on positions in its proprietary account and

on positions in each customer account that could pose

material risk to the FCM.18 Lastly, regulation 1.73

requires each Clearing FCM to evaluate its ability to

meet initial and variation margin obligations in cash at

least once per week, and to evaluate its ability to liqui-

date the positions in its proprietary accounts and cus-

tomer accounts in an orderly manner at least quarterly.

Given the market volatility over the last several

months, FCMs should assess the effectiveness of the

performance of their risk management programs, in-

cluding the risk management requirements under regu-

lations 1.11 and 1.73, and make any revisions that are

necessary to help ensure that risks are appropriately

addressed and customer funds are properly safeguard-

ed.

13 17 CFR 40.6(a)(6). 14 17 CFR 38.351. 15 17 CFR 38, app. B. 16 17

CFR 1.11. 17 17 CFR 1.73.

In light of recent events, DSIO reminds FCMs to be

particularly diligent in monitoring and assessing risks.

FCMs should prepare for the potential that certain con-

tracts may experience significant price vola-

tility and, possibly, negative pricing. An

FCM with proprietary or customer positions

in such a futures contract or options on such

contract should carefully monitor the contract

as it gets closer to the expiration date to en-

sure that the FCM and its customers can meet

their respective financial obligations and ful-

fill their obligations to make or take delivery

on the futures contract.

IV. Risk Disclosures by FCMs

Commission regulation 1.55 generally requires

FCMs to provide each customer with the risk

disclosure specified in paragraph (b) of such

regulation prior to opening a futures trading

account for such customer. Paragraph (1) of such

risk disclosure states:

You may sustain a total loss of the funds that

you deposit with your broker to establish or

maintain a position in the commodity futures market,

and you may incur losses beyond these amounts. If the

market moves against your position, you may be called

upon by your broker to deposit a substantial amount of

additional margin funds, on short notice, in or-der to

maintain your position. If you do not provide the re-

quired funds within the time required by your broker,

your position may be liquidated at a loss, and you will

be liable for any resulting deficit in your account.

DSIO advises each FCM that it may be prudent to re-

familiarize customers with this part of the required risk

disclosure, especially the warning that customers may

incur losses beyond amounts deposited with the FCM

and that this may occur in the event of negative con-

tract prices. DSIO believes it may also be prudent to

ensure that customers understand the mechanics of

contract settlement at negative prices.

18 17 CFR 1.73(a)(4).

V. Risk Management Program for DCOs

Commission regulation 39.13 requires a DCO to have

the ability to manage the risks as-sociated with dis-

charging its responsibilities through the use of appro-

priate tools and procedures. In particular, Commission

regulation 39.13(g)(2)(ii) requires that a DCO use

models that generate initial margin requirements suffi-

cient to cover the DCO's potential future exposures to

clearing members based on price movements in the

interval between the last collection of variation margin

and the time within which the DCO estimates that it

would be able to liquidate a defaulting clearing mem-

ber's positions.

A DCO is required by regulation 39.13(g)(7)(i) to con-

duct back tests on a daily basis with respect to products

that are experiencing significant market volatility—

especially in con-tracts that call for the actual delivery

of the underlying physical commodity—to test the ade-

quacy of its initial margin requirements. In light of re-

cent events, DCOs should pre-pare for the potential

that certain contracts may experience significant price

volatility, and that negative pricing is a possibility.

6 Domestic Energy Producers Alliance Cont’d on Page 9

In this role, Joshua Sterling

is in charge of overseeing the

financial services firms that

participate in our derivatives

markets by applying DSIO’s

extensive resources in a

smart, effective, and practi-

cal manner. He is responsible

for the performance of

DSIO’s examination, report-

ing, guidance, referral, and

rulemaking programs, which

serve the goal of ensuring

that those firms play by the

CFTC’s rules. Mr. Sterling is

also responsible for coordi-

nating the CFTC’s relation-

ship with the National

Futures Association, with

which DSIO shares frontline

responsibility for regulating

registered firms, and for

liaising with the Chicago

Mercantile Exchange in its

oversight of clearing firms.

In her role, Dorothy DeWitt

is responsible for the over-

sight of derivatives platforms

and swap data repositories,

and the CFTC’s market intel-

ligence initiatives.

In his role, Clark Hutchison

manages a team of roughly

80 employees at the CFTC’s

Washington, DC and

Chicago offices that are

responsible for the agency’s

supervision of derivatives

clearinghouses and their

members, including over-

sight of clearing processes

through risk assessment and

surveillance.

Joshua B. Sterling Director Division of Swap Dealer and Intermediary Oversight

Dorothy DeWitt

Director Division of

Market Oversight

Clark Hutchison

Director Division of

Clearing and Risk

Who Wrote The Advisory Letter? The Opening Statement of Chairman Tarbert before the Energy and Environmental Markets Advisory Committee

Health Talbert

CFTC Chairman

Delivered May 7, 2020 Position limits are not a silver bullet, but they can reduce volatility caused by excessive levels of speculative trad-ing. Position limits can also help prevent corners and squeezes, as well as disruptions in delivery under futures contracts. At the same time, speculative position limits by their very nature can limit market activity. Derivatives markets need speculative traders to provide liquidity for the producers and end-users using the markets to hedge. Without market mak-ers and other speculative traders, these markets will become illiquid. The producers, intermediaries, refiners, and end-users that rely on derivatives markets to hedge their com-modity price risk will find hedging that risk to be more ex-pensive in illiquid markets. So the Commission needs to be mindful of the balance we must strike. First, our limits should be high enough to per-mit liquidity provision and a healthy level of speculative trading. But second, the limits should be low enough to prevent that speculative trading from disrupting delivery, effecting a corner or squeeze, or otherwise causing exces-sive volatility. I applaud Commissioner Berkovitz in calling this meeting to discuss both the levels to be set and the scope of the bona fide hedge exemption. We at the Commission all under-stand the importance of getting the bona fide hedge exemp-tion right so that this rule does not inadvertently harm the ability of producers, intermediaries, and end-users to hedge their risks on physical commodity positions. Given the complexity of supply chains, this is especially pertinent to our energy markets. Recent Volatility in the Energy Futures Markets Of course, we should also look at position limits through the prism of recent price moves, particularly in energy mar-kets. In the May WTI physically delivered contract, we have just witnessed one of the fastest and sharpest changes in supply and demand for any major commodity. The market saw two periods in particular—mid-March and

April 20—where prices for crude oil futures moved dramati-

cally downward. In mid-March, that movement was across

the curve and included two days with downward moves of

over 20% in the front month. The movement in relative and

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 7

2020 on Pause

Postponed Cancelled

• DEPA DC Fly In

• Utah Petroleum Association

Award Gala

• Indep. Petroleum Assoc of

New Mexico 2020 Annual

Meeting. Rescheduled event

will be a FREE day-only

meeting for members in Au-

gust or September pending

the reopening of businesses

in New Mexico

• PAOGA Ted Cranmer

Memorial Golf Outing

rescheduled from June 1

until October 8.

• The Alliance Open,

The Petroleum Alliance of

Oklahoma until June 29

• National Stripper Well

Association 14th Annual

Energy Gala until

August 28

• Texas Alliance of Energy

Producers Expo & Annual

Meeting

• 4 Corners Oil & Gas

Conference

• Williston Basin Petroleum

Conference until

September 1-3

• Kansas Independent Oil

& Gas Association

Midyear Meeting

• Michigan Petroleum

Conference & PTTC

• Council of Petroleum

Accountants Society

National Spring

Meeting

• Tennessee Oil & Gas

Association Annual

Convention

• Association of Energy

Service Companies

Summer Meeting

• Kentucky Oil & Gas

Association 2020

Annual Conference

Still On

June 4-7

California Independent

Petroleum Association

Annual Meeting

June 12

Southeastern Ohio Oil &

Gas Association

Spring Clay Shoot

June 15-17

Montana Petroleum

Assoc. Annual Meeting

July 16

Council of Petroleum

Accountants Society

Summer Meeting

July 22-24

Independent Petroleum

Association of New

Mexico Annual Meeting

July 27-30

Petrol. Alliance of Ok.

Annual Meeting-with July

29 Golf Tournament

August 2-4

Independent Oil and Gas

Association of

West Virginia Annual

Summer Meeting

August 12-13

NAPE Summer

August 16-18

Kansas Independent Oil &

Gas Association Annual

Convention & Expo

August 17-19

The Energy Summit

(Denver)

August 21

Southeastern Ohio Oil &

Gas Association Fall Golf

Outing

August 31-Sept 2

Montana Petroleum Assoc.

Fall Annual Meeting

September 10

Council of Petroleum

Utah Petroleum Association

Golf Tournament

September 21-25

Council of Petroleum

Accountants Society Fall

Meeting

September 24 2020

Southeast Ohio Oil & Gas

Association Annual Trade

Show

Follow us on your favorite social media platform. Share our posts to help us grow!

We have an updated Linked-In profile. Connect with us!

Let us know! Email csimonds @depausa.org with your update so we stay connected.

8 Domestic Energy Producers Alliance

The COVID-19 pandemic coupled with the concurrent

and resultant global overstock of crude oil and crude oil prod-

ucts has placed a tremendous strain on American energy of

almost historic proportions. Energy companies across the

USA are struggling to maintain the American energy renais-

sance that is crucial to our nation’s security. The Domestic

Energy Producers Alliance (DEPA) has compiled the follow-

ing list of strategic emergency measures that would provide a

degree of relief to the American producer during this period

of economic difficulties. Some of these measures are current-

ly under review in the form of proposed rule

makings, so that our recommendation or re-

quest is that they be expedited and imple-

mented. Most measures can be implemented

under the current rules and statutes on an

emergency. Where emergency measures are

required, DEPA is requesting relief only dur-

ing the duration of the emergency.

I. Royalty Bearing Flared Gas and Waste

Minimization: Pending Sundry Notices

The BLM has a backlog of nearly 8,000 Sun-

dry Notices for flaring dating back to 2012

and operators have been carrying these on

their books as a liability during that period

with minimal response from the BLM. DEPA requests that

the BLM act on these aging Sundry Flaring Notices while

suspending any rules or policy requiring payment of royalties

on gas that was flared (from federal minerals) due to lack of

adequate pipeline capacity or processing infrastructure.

II. “Waste Prevention, Production Subject to Royalties,

and Resource Conservation; Rescission or Revision of

Certain Requirements” 43 CFR Part 3179

This proposed rule supersedes the Flaring Sundries submitted

under NTL4. DEPA requests that the BLM expedite this rule

so that the industry may have regulatory certainty going for-

ward in the treatment of venting and /or flared gas with the

assurance that our members can plan and operate accordingly.

III. Three stream reporting: ONRR 2016 valuation rule

implementation process and timeline - 30 CFR Part 1290,

Subpart B – Marketing Condition Rule

This rule has caused operators to add extensive research and

reporting duties to their already stressed standard business

operations. DEPA requests that the DOI-ONRR suspend this

rule and relieve operators of this added burden during the

current economic crisis. “The “marketable condition rule” is

labor intensive and requires considerable coordination among

personnel. DEPA suggests that the federal regulations per-

taining to the “marketable condition rule” or otherwise re-

quiring royalty valuation of oil or gas based on downstream

markets beyond the wellhead be temporarily suspended. DE-

PA further requests that, Federal royalty payors be permitted

to calculate and pay royalties on the basis of the market value

DEPA Recommendations for Emergency Measures

Submitted to Secretary Bernhardt April 28, 2020 of production at the wellhead.

IV. Metering Requirements Under New Onshore Order

No. 5 - 43 CFR Part 3175

43 CFR Part 3175 requires the operator to install, maintain

and operate an additional gas meter in their sales stream. The

addition of an extra meter coupled with the required increase

in inspections and calibrations will not necessarily result in

increased revenue for ONRR and may in fact error on the

side of the operator. The management of these meters has

heretofore been delegated through

private gas contracts. Under this

new scenario, the operator will pay

royalties from one meter and re-

ceive revenue based on another.

The rule will further require opera-

tor to add additional personnel as a

gas metering team to their labor

force during these already trying

times. DEPA requests that the

BLM modify this rule by removing

the metering requirement, thereby

allowing the operators to continue

to operate under their existing gas

contracts.

V. 25 CFR § 211.44 - Suspension of operations & 43 CFR

§ 3103.4-4 - Suspension of operations and/or production

In order to prevent waste in oil and gas production operations

involving Federal minerals, DEPA requests that the BLM

grant the industry the ability to suspend production and per-

petuate and preserve leases under an emergency where af-

fected under the provisions of both of the above referenced

rules. DEPA further requests that the BLM adopt an interim

policy allowing abbreviated reporting and documentation of

any suspension of operations requests so that operators may

forego the current costly and time-consuming application and

review requirement of 25 CFR § 211.44.

VI. Stipulations for Preforming Work in Habitat.

Wildlife habitat stipulations for blackout periods have been

adopted as part of the mitigation and habitat conservation

measures for species of concern listed under authority of the

Endangered Species Act. These stipulations are based on best

available science and may extend for periods of several

months, during which oil and gas development work may not

be performed. DEPA request that the DOI-USFW work

through their local offices with operators in areas where ex-

tensive blackout periods have been imposed to allow for pro-

jects involving infrastructure development, drilling opera-

tions and facility construction to move forward during these

blackout periods. After the wells have been drilled and com-

pleted, the operator would honor the blackout stipulations

and work around them during normal production operations.

This measure will allow projects to be completed and reve-

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 9

nues generated sooner with mini-

mal impact to the habitat.

VII. Mechanical Integrity Testing

(MIT) on Shut in wells

Shut in or otherwise idle wells are required to conduct me-

chanical integrity testing to assure the integrity of the well

bore according to 43 CFR § 3162.4-2 - Samples, tests, and

surveys. Such testing may require the involvement of per-

sonnel and services from outside the work area or even

across state lines and create more opportunities for human

contact. DEPA requests that this requirement be temporarily

suspended.

VIII. Plug or Produce Notices Regulations at 43 CFR 3162.3-4(a) state that, "The operator

shall promptly plug and abandon, in accordance with a plan

first approved in writing or prescribed by the Authorized

Officer, each newly completed or recompleted well in which

oil or gas is not encountered in paying quantities or which,

after being completed as a producing well, is demonstrated

to the satisfaction of the Authorized Officer to be no longer

capable of producing oil or gas in paying quantities..." DE-

PA requests that this requirement be temporarily suspended.

IX. 3 CFR § 3103.2-2 - Annual rental payments DEPA requests that the BLM suspend of the requirement for

rental payments on federal leases where minimum royalty is

not being paid.

Chairman Tarbert’s Comments Cont’d from page 6 absolute dollar terms was even sharper on April 20. On that

day, the sharpest movement—and the only move into negative

pricing—occurred in the front month contract. April 20 also

happened to be the penultimate day of trading before the fu-

tures contract was settled, and after options had settled.

Position Limit Proposal’s Focus on Spot Month

Trading in Energies

The most extreme volatility that we saw in energies

occurred during the spot month, which is where the current

proposal is also focused. Spot month trading for physically

delivered futures has always posed unique challenges. If a

party is unable to make or take physical deliver and gets stuck

holding a position during the delivery period, it can cause dis-

ruption to the market. Short sellers could get squeezed, driving

up the price of the cash market. Or, as may have been the case

with WTI, long holders could face difficulty in finding storage

for delivered goods. This could put downward pressure on the

cash markets. These issues had not occurred in non-spot

month contracts or in purely financially-settled contracts. For

instance, the cash-settled May WTI contracts did not experi-

ence negative prices on April 20 or 21, 2020.

Our proposal would put federal position limits in energy, met-

als, and non-legacy agricultural products only for the spot

months. The proposal did not include federal non-spot month

limits for these products. The proposal asked for public com-

ment on that decision and I look forward to today’s first panel

and to comment letters on that topic.

Scope of Bona Fide Hedge Exemption

Of course, we need to focus on the bona fide hedging exemp-

tion. The proposal enumerates a number of trading strategies

as bona fide hedges. As the proposal makes clear, this list is

non-exhaustive. The proposal includes what I think is a practi-

cal and workable solution for non-enumerated hedges to be

recognized.

However, it will be more straightforward for hedgers to access

the markets through an enumerated bona fide hedge, which

means the scope of those enumerated hedges is still im-

portant. The current proposal includes a number of enumerat-

ed hedges that the energy industry had asked for in prior pro-

posal, including in particular anticipatory merchandising.

I think all of us at the Commission are still interested in under-

standing if there are additional hedging strategies that should

be enumerated. The energy industry, where we are proposing

federal position limits where none currently exist, has very

unique hedging needs. We have to make sure our markets still

work for people hedging price risks in the cash markets. So we

need to make sure our definition of bona fide hedging covers

all legitimate hedging strategies. So I am looking forward to

today’s second panel—and to comment letters—on the scope

of the bona fide hedging exemption.

These comments can be found at www.cftc.gov/PressRoom/SpeechesTestimony/

10 Domestic Energy Producers Alliance

crude oil contracts to protect against a negative pric-

ing situation, like what occurred April 20.

DEPA believes producers should insist on two

main concepts within the pricing provisions of their

crude oil contracts: (1) the calendar month average

(CMA) should be based on

the daily volume-weighted

average prices throughout

the trading day (as op-

posed to only the daily

settlement price), exclud-

ing any negative trades;

and (2) under no circum-

stances should the pur-

chase price to be paid for

any crude oil delivered be

less than zero dollars.

The following sample

pricing provisions address

these two main concepts:

Daily Volume-Weighted Average Pricing – Excluding Negative Trades

The price per net U.S. barrel shall be calculated as

the sum of the following items:

(a) The calendar month average (CMA) of the dai-

ly volume-weighted average prices for the

[__________] prompt month future contracts

reported by the New York Mercantile Ex-

change (NYMEX) from the first day of the

calendar month of delivery through and includ-

ing the last day of the calendar month of deliv-

ery (excluding weekends and holidays), plus

(b) [Trade differential], plus

(c) [Premium/Offset, if any].

(d) Notwithstanding anything to the contrary in this

contract, in the event one or more trades to be fac-

While the world is social distancing, DEPA joined

the virtual meeting army and began hosting private

invitation video conference meetings with Chairman

Harold Hamm and various oil and gas leaders. This

temporary new normal in business has allowed us a

unique opportunity to make

new friends and collaborate

with companies about the

current state of oil and gas so

we can continue our work on

behalf of the American do-

mestic energy producers.

It is important during any

crisis that communication is

strong and talent is pooled to

find the best path forward.

We are very appreciative of

our partners in this communi-

cations effort, Bill Stevens,

Stephanie Canales, Vignesh

Veer, Fred Toney, Rock

Zierman, Blu Halsey, Harold

Hamm, and John Schmitz

who stepped up to help us

make the most of our meet-

ings.

In our eleven years DEPA has successfully tackled

some huge tasks on behalf of the oil and gas industry

to aid the push toward American Energy Independ-

ence. Recently our mission has been working to re-

claim the energy security and prosperity developed

prior to Covid-19. Behind the scenes the past few

months DEPA has been especially active communi-

cating with the Department of the Interior, the EPA,

the Bureau of Land Management, Collaborating As-

sociations, the Commodity Futures Trading Commis-

sion and even the White House.

Part of our tasks these past few weeks has been

learning from this crisis to protect the future for our

members. Understanding that crisis is often “danger”

and “opportunity” merged, we want to offer sample

pricing provisions that producers can include in their

"When written in Chinese, the word crisis is composed of two characters, one represents danger, and the other represents opportunity." John F. Kennedy

危机 CRIS IS

DANGER OPPORTUNITY

Staying Productive, Positive, Connected, and Looking Toward the Future

Protecting Against Negative Pricing in Crude Oil Contracts

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 11

Regulatory Committee Calendar 2020

⚫ December 17

Regulatory Committee Co-Chairman, Roger Kelley, Continental Resources) and Rusty Shaw, Denbury Resources

Meetings are held by teleconference and are open to anyone who would like to attend.

Please email SReece@depausa.org to be included in call in information. Dates are subject to change.

WWW. DEPA USA. ORG

Our Work Is Critical.

Your Support is Vital.

Share this newsletter.

Sponsor a DEPA event.

Follow us on social media.

Get involved.

⚫ September 17 ⚫ June 18

tored into a daily volume-weighted average price

under paragraph (a) above is negative, then such

trade(s) will be removed from the daily volume-

weighted average price calculation for the applicable

day. Should this result in the removal of all trades to

be factored into the daily volume-weighted average

price for the applicable day, then such day will be

removed from the CMA.

Purchase Price Not Less than Zero The parties recognize that volatility exists in the

crude oil market but in no situation should crude be

sold for a negative price as set forth in paragraphs

(a) through (c) above. In the event the price per net

U.S. barrel from such calculation results in a value

less than zero dollars, the buyer will still be required

to receive the full contracted volume of the product,

but in no event will the seller be liable to pay the

buyer for receiving the product. In all cases of a neg-

ative price there will effectively be a “price floor” of

zero dollars, meaning the buyer will pay nothing for the

product and the seller will not be required to pay the

buyer to receive the product.

DEPA recognizes these pricing concepts differ from

the current industry standard and that crude oil purchas-

ers evaluate their purchases based on a variety of differ-

ent risk factors. However, most industry participants will

agree what took place on April 20, 2020 is clear evi-

dence of a flawed pricing structure in domestic crude oil

markets and a change is necessary to restore confidence

in these vital markets. It is imperative producers take the

lead in implementing these changes and DEPA is com-

mitted to assisting its coalition members in these efforts

and continuing the current renaissance in American oil

production.

To get this pricing provisions language in a word

document that you can use more easily contact our

office by email info@depausa.org.

12 Domestic Energy Producers Alliance

-John Maxwell

Cye Wagner

Elected New

Board Chair

for the Texas

Alliance of

Energy

Producers Written by

Bill Stevens,

Chief Lobbyist,

Texas Alliance of

Energy Producers

The Alliance is excited to have a new generation

of leadership as Cye Wagner moved into the

Chairmanship. Her bio speaks for itself. In her

two years as Vice-chair, Cye has worked on policy

at the State and Federal levels, including trips to

national conferences, direct contact with leaders in

EPA and DOE, the Texas congressional delegation

and attendance at DEPA fly-ins. She has worked

directly with Texas state leaders on policy and pol-

itics. She is a complete package of education and

experience with industry knowledge of both large

public companies and small traditional independ-

ents.

Cye Wagner enjoyed over 10 years with Cooper

Oil & Gas, Inc. She graduated from Texas A&M

University with a Bachelor of Science degree in

Petroleum Engineering and a minor in Business.

After completing internships with Burlington Re-

sources, Chevron and EOG Resources, she chose

to work for EOG in the Fort Worth Division upon

graduation. Cye enjoyed her tenure there in com-

pletions and production engineering until making

the move to the family business. At COGI, Cye

serves in an executive management role over the

exploration, accounting, human resource, and reg-

ulatory departments.

The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.

Two State Organizations Have New Leadership

Brooke Simmons Joins

The Petroleum Alliance of Oklahoma Written by David Le Norman, Chairman of the Petroleum

Alliance of Oklahoma

After an exhaustive search for a new organization Presi-

dent Brook Simmons is selected and began in his position

May 1.

Brook is a native Oklahoman with deep roots in our indus-

try. He’s spent his career at the nexus of Oklahoma’s govern-

ment and her largest industry, ensuring that those who pro-

duce the energy that powers our state and our nation are treat-

ed fairly by our elected officials and other policymakers. No

other individual has the unique background and skill set that

Brook brings to the table. In fact, he is alone in the depth of

involvement he had in the two organizations that merged to

form the Petroleum Alliance. Not only did Brook serve on the

Executive Committee of the Oklahoma Oil & Gas Associa-

tion, he was also an active member of the Oklahoma Inde-

pendent Petroleum Association, and even served on the steer-

ing committee that oversaw the merger of these two historic

organizations.

Brook is passionate about

the vital work being done eve-

ry day by the hardworking men

and women of Oklahoma oil

and natural gas, and he will be

an unapologetic, thoughtful,

and articulate advocate for our

industry. Despite the very real

challenges we face, I’m confi-

dent that under his leadership,

Oklahoma will emerge as the

real hero of this story – a story

of tribulation and heartache, but also one of hope.

So we welcome Brook back to Oklahoma at a time when

our industry and indeed our entire state must unite and work

as one to recover. These are without doubt uncertain times,

but rest assured that united under the Petroleum Alliance ban-

ner and with Brook Simmons at the helm, the resilient people

of the oil field will continue to provide the fuel and raw mate-

rials Americans are relying on to rebuild our economy.

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 13

You have been on my mind lately. Like everyone else in this

field, you have been waiting for your pink slip. I certainly hope

it doesn’t come.

I believe everything we do matters. It is up to us to move the

needle and make sure we do not lose a generation of workers

and students involved throughout this powerful industry. Right

now, the industry is faced with the unique challenges that came with the world-wide pandemic of COVID-19, the

illegal dumping of crude oil by Saudi Arabia and Russia, and the historic decline in market prices. The next few

months will be difficult as companies evaluate storage situations and demand fluctuates. Although the U.S. oil and

gas industry will not be restored overnight, it will survive these challenges.

Since January when COVID-19 hit the U.S. the collaboration of companies and individuals taking on this pan-

demic has given us many reasons to be proud to be an American. Companies nationally have donated protective

equipment to healthcare professionals and millions of dollars in support of disaster relief efforts.

Alongside COVID-19, Russia and Saudi Arabia unleashed an unprecedented broadside to global markets by

opening the taps on their storage tanks, threatening American security and jobs. Shortly after, many U.S. Senators,

with the Domestic Energy Producers Alliance’s (DEPA) support, encouraged the U.S. Department of Commerce

and the U.S. International Trade Commission to pursue a Section 232 investigation into the deliberate and illegal

acts of antidumping (AD) and countervailing duty (CVD) on these foreign nations. A few weeks later, the Organi-

zation of the Petroleum Exporting Countries (OPEC) and Russia committed to cut production. Turning the U.S.

from a net importer to a net exporter of oil to years. There will be another boom on the other side of this, and you

will be a part of it.

April 20th, for the first time in history crude oil prices settled below zero. With the rest of America paused in

disbelief, Representative Alexandria Ocasio-Cortez (AOC) (D-NY) expressed her feelings on the market via Twit-

ter, “You absolutely love to see it…” she said. She went on, “This along with record low interest rates means it’s

the right time for a worker led, mass investment in green infrastructure to save our planet.” AOC, now is not a

time to push a progressive agenda that is dangerous and unfeasible for our country. Representative Kelley Arm-

strong (R-N.D.) said it best, “Openly celebrating the economic destruction of families and communities because it

fits a political narrative is unacceptable and unbecoming of a member of Congress.” Now is a time to come to-

gether as a country effected by this industry every day.

Engineering Students, oil and gas interns, and my fellow industry workers, we are the people especially affect-

ed by the ramifications of COVID-19, oil dumping, and volatile markets. We must all rise together and stay sup-

portive of this industry in conservation of national security interests. No matter what you have touched, you have

touched the American oil and gas industry. I encourage the students who are set on a course to go into the oil and

gas field to continue on your path. Workers, don’t flee our industry. Oil and gas is cyclical. You have learned

about the ebb and flow of the industry from mentors to Wildcatters. American oil will boom again. If we have a

little faith and give everyone time, I am confident we will see a positive come back in the way this great and resili-

ent industry has historically proven.

Dear Shalennials,

DEPA’s Staff Millennial

14 Domestic Energy Producers Alliance

It isn’t a surprise to find out that video conference soft-

ware downloads are at an all-time high. Chances are you

have participated in more video interactions in the last

month than you ever have before, perhaps in your whole

career. From regular business meetings and distance

learning to doctor’s appointments, music concerts, and

even social hangouts, right now, we see each other mostly

on video. That will change as our states open up in the

coming weeks, and we all head back to our office build-

ings, but will it change back completely? Even the most

tech resistant executives have

spent 60 days getting familiar

with the various video plat-

forms. Before the start of a

DEPA webchat, a committee

member commented that he

had taken “the full tour of

video conference software”

using three different plat-

forms just that week. Will

our brief stint in quarantine

change the oil and gas indus-

try’s love of in-person meet-

ings? Will it kill the confer-

ence call?

“Our weekly Morning

Fuel webinars were con-

ceived in response to the

COVID-19 pandemic in an effort to bring our members

timely and relevant information at a time when we are

unable to interact with them in person. With an overload

of information being disseminated via email and social

media, we felt like this was a valuable alternative to keep

our members informed during these unprecedented

times,” said Jon Bargas The Petroleum Alliance of Okla-

homa Senior Vice President of Public & Gov. Affairs.

According to a report by App Annie, video software

downloads were up 45% from the week before, and up

90% from the pre-Covid-19 weekly download average.

Business application downloads represent the highest

growth in any category in both the iOS and Google Play

stores.

Computer World reported, “Microsoft Teams and

Google Hangouts Meet both jumped in the rankings, with

Zoom Cloud Meetings the undisputed winner; it saw large

numbers of downloads in the U.S., U.K., and across Eu-

rope.” According to App Annie, “during the week of

March 14-21 Zoom was downloaded 14 times more than

its 2019 Q4 weekly average in the U.S.; 20 times more in

Will Video Kill the Radio Star, Again?

the U.K.; 22 times more in France; and a huge 55 times

more in Italy. In an important note on the statistics, the

higher numbers are in areas that began lockdowns earlier,

making it clear our spring shut-in drove the data. During

the same period, Hangouts Meet saw 30 times the weekly

level of downloads compared to the last quarter of 2019 in

the U.S. while Teams saw an 11-fold increase.”

Video conferencing is easy to maneuver, easy on the

schedule, and free to use in many instances. “We believe

the more personal interaction that the video/webinar for-

mat provides is more appeal-

ing to our membership,” said

Bargas when asked why The

Petroleum Alliance chose to

go with a video platform over

a traditional conference call

for their Morning Fuel

events.

Will video conferences

take the place of conference

phone calls and even in-

person meetings? The Petro-

leum Alliance of Oklahoma

plans to continue their Morn-

ing Fuel video chats, hosted

by their Board Chairman Da-

vid Le Norman. “Because the

response has been so posi-

tive, we hope to continue providing this service to our

members for as long as they find it valuable,” said Bargas.

“I don’t see the majority of large in-person meetings,

conferences, moving to an online video platform. The

networking aspect is too important,” said DEPA Executive

Director Jerry Simmons. “Our work, in particular, repre-

senting companies and associations has to be done face to

face, to really be effective,” added Simmons.

However, meetings intended to hammer out committee

details and next steps are more likely to go video than be a

call like they were in the past. This temporary new busi-

ness world has forced us to experience video meetings out

of necessity and in the process has broken down some per-

sonal reluctance to use a video platform. “The ability to

see everyone does offer the feeling those participating are

more like a team. I think our video meetings in April were

very beneficial to our productivity, and getting to know

our committee members better. I hope it does continue,”

said DEPA Director of Marketing and communications,

Cynthia Simonds.

Video conferencing has grown from 10 million daily meeting participants in December to more than 200 million in March.

89% of users say video conferencing helps them feel connected 87% of employees not physically present for a meeting report feeling better engaged with colleagues through video

82% of video users are less likely to multitask (as compared to just audio)

Adding video to meetings improves

productivity by up to 50%

Data from LifeSized.com

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 15

⚫ ⚫

A Webinar with Harold Hamm

June 10 July 15 August 12

This summer webinar series

will be an opportunity to par-

ticipate in a high level

discussion on the current

state of oil and gas.

DEPA Chairman Harold

Hamm will be hosting these

special events for our

members and their guests.

These free events will

offer insight into the issues

of the day while the oil and

gas industry is in such a

unique climate. There are

several interesting and im-

portant threads to be follow-

ing right now. From the

Commodity Futures Trading

Commission advisory and

possible investigation, to the

status of the current supply and

demand markets, to various

political happenings, we will

be working to offer what you

need to know as an oil and gas

executive.

Join us for one, or each of

the webinars we have planned.

All of the webinars will begin

at 11:00 am Central Time. We

will be using the WebEx video

platform and attendees will not

be seen. We encourage our

attendees to submit questions

in advance during registration.

Registration is required and

will be limited.

Register to participate in our webinars at

www.depausa.org/events .

REQUEST A RATE CARD!

CSIMONDS@DEPAUSA.ORG

Network

Collaborate

Grow

Advertise In The

DRILLER

16 Domestic Energy Producers Alliance

YEARS 5 EARTH DAY 2020

Earth Day 2020 celebrates fifty years of taking time to consciously recognize the wonder, beauty, and boun-ty of our planet. For each of those fifty years Earth Day has overlooked one of the most amazing natural wonders- the oil and gas that is given to us from the earth. Fossil fuels are as natural as mountains, streams, trees and rainbows. Why are these resources vil-lainized? Especially during Earth Day. These unsung heroes of the current pandemic are providing lifesav-ing, everything. The list is enormous. It starts with the electricity that runs every ventilator and mask making sewing machine; it includes the plastic that creates eve-ry face shield and latex glove. The list includes the fuel that propels every simi-truck down the empty highways to bring toilet paper and hand sanitizer to grocery stores shelves. It doesn’t stop at your front door. It produces the TV, computer and cell phone components keeping you hopefully informed, entertained, close to your loved ones. For many of the lucky, this same technolo-gy is keeping them employed during this quarantine. It fills homes with synthetic materials to wear, sit on and sleep in. It has made this quarantined Earth Day beara-ble. Fossil fuels would never brag, but they offer more versatility to create modern comforts than probably any other natural resource. (No disrespect water, wood, air and plants.)

The oil and gas community is full of people who appreciate, respect and celebrate our planet’s natural wonders. In our ranks are hikers, cyclists, hunters, gar-deners, animal lovers and recycling enthusiasts. With-out a poll, I’m confident that one hundred percent of the oil and gas community enjoys breathing, drinking clean water, and partaking in healthy crops as much as any other person. Fossil fuels, and the people who develop them are not an enemy of the earth, despite the drum beat of Greta and her Gen Z followers. This Earth Day 2020, while we distance celebrate the bounty of Mother Earth’s resources, let’s include the industry that has offered the life connection to keep our world functional during this pandemic. Let’s put down the drums and offer a tip of the hat to the indus-try literally saving lives everyday by the ingenuity and “petropreneurship” of its people, and a nod to the natu-ral resource that gets scowled at most all the while be-ing an essential part of modern life. If Earth Day is about “Fighting for a better tomor-row”, then let’s also remember who provided a better today so you can fight for tomorrow.

Of Overlooking Fossil Fuels

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 17

Proud supporter of DEPA. Thank you for what you do for our country.

Let us help you diversify.

WWW.OMEGACAPITAL.COM

9 1 8 - 2 9 3 - 3 9 2 5

M E M B E R S P O T L I G H T

Edward Cross serves as President of the Kansas Independent Oil & Gas Association (KIOGA) where he is responsible for public policy advocacy and interaction with external stakeholders including elected officials, regulators, government decision-makers, and com-munity thought leaders. At KIOGA, Cross is director of staff, editorof the Association’s publications, serves as an industry spokesperson to media outlets and other forums, and is an industry advocate as a registered legislative agent. On behalf of KIOGA members, Cross lobbies in both Topeka and Washington, D.C. Cross serves as an execu-tive board member to the Domestic Energy Producers Alliance and a board mem-ber of the Council for a Se-cure America. He is an ac-tive member of the Inde-pendent Petroleum Associa-tion of America (IPAA) and serves as an advisory board member to the Tertiary Oil Recovery Program (TORP) and the Chemical & Petrole-um Engineering Department at the University of Kan-sas. In 2005, Cross was elect-ed to serve as Secretary/Treasurer of the Liaison Committee of Cooperating Oil and Gas Associations (Liaison Commit-tee), a network of state and regional trade associations that represent the independent oil and natural gas exploration and production industry in the United States. Cross is re-sponsible for coordinating the organization’s efforts. Cross is a Kansas appointee to the Interstate Oil & Gas Compact Commission (IOGCC). The IOGCC is a national organization representing the Governors of 37 oil and natu-ral gas producing states. At IOGCC, Cross served from 2005-2007 as Chair of the Public Outreach Committee, one of the eight standing committees of the Compact. In January 2013, Cross was selected by the Kansas City business magazine, Ingram’s, as one of “50 Kansans You Should Know”. Cross has published 8 peer-reviewed pa-pers on economic, environmental, and energy education issues facing the independent oil and gas industry. He is a licensed professional geologist and certified school business official holding a B.S. in Geology and an M.B.A. from Southern Illinois University.

Ed

Cross

18 Domestic Energy Producers Alliance

rule that its interpretation of the scope of WOTUS was based

on the information and conclusions detailed in

the Connectivity of Streams and Wetlands to Downstream

Waters: A Review and Synthesis of the Scientific Evi-

dence (Connectivity Report) even though the Connectivity

Report clearly states, “…it

neither considers nor sets

forth legal standards for

CWA jurisdiction, nor does it

establish EPA policy.” 1 It is

the opinion of the Western

Energy Alliance, AXPC, DE-

PA, and IPAA the agencies

misused the Connectivity

Report to supersede the CWA

and affiliated case law.

The letter to Administra-

tor Wheeler offered, the 2015

WOTUS rule contained inter-

pretation“ of “significant

nexus” to navigable waters, “adjacent waters” and tributaries

that are clearly at odds with the Supreme Court’s rulings

in Rapanos v. the United States and SWANCC v. U.S.

EPA. These decisions show the implementation of the 1986

rule expanded beyond its original intent even before the

promulgation of the 2015 WOTUS rule. In practice, Army’s

use of preliminary jurisdictional determinations has ignored

the narrowing demanded by the decisions

in Rapanos and SWANCC. As others have noted, “It is diffi-

cult to imagine that Justice Scalia could have envisioned that

six years after the Rapanos decision the Corps would have

developed an administrative process that not only complete-

ly negated both the Scalia and Kennedy Opinions but actual-

ly resulted in Step Two - Proposed Revised Definition of

WOTUS expanding its jurisdiction.” 2 The agencies have

been disregarding the law and court rulings for some time,

and the 2015 WOTUS rule went beyond the legal and statu-

tory foundation.

Jointly, the Western Energy Alliance, American Ex-

ploration & Production Council (AXPC), Domestic Energy

Producers Alliance (DEPA) and the Independent Petroleum

Association of America (IPAA) provided comments on the

Environmental Protection Agency (EPA) and the Department

of Army’s proposed revisions to the definition of Waters of

the U.S. (WOTUS) April 15. Stating in the letter, “We think

the agencies are headed in the right direction, and the revised

definition of WOTUS (proposed rule) will provide greater

clarity, predictability, certainty, and consistency for federal

agencies, states, tribes, the regulated community, landowners,

and the general public.”

Specific recommendations were also provided in the let-

ter to further clarify the revised rule to make it more practical

and implementable. Additionally, the four organizations re-

quested the agencies move

quickly to finalize the proposed

rule which clearly provides a

“bright line” of jurisdiction that

follows the Clean Water Act

(CWA) and case law as over

40 percent of the states are

currently required to follow the

overreaching 2015 Clean Wa-

ter Rule (2015 WOTUS rule).

Our industry has great in-

terest and supports the pro-

posed rule to narrow and clari-

fy WOTUS. It can impact our

industry regarding several sec-

tions of the CWA, including

Section 404 permitting, Spill Prevention, Control, and Coun-

termeasure (SPCC) planning, stormwater permitting, and oil

spill reporting. The definition of WOTUS also impacts the

surface owners we work with to develop oil and natural gas,

including family farmers and ranchers.

The four associations wrote that they agree with the

agencies' thorough explanation of the deficiencies of the 2015

WOTUS rule. As finalized, the 2015 WOTUS rule failed to

follow the CWA and related case law, was overreaching in its

scope, failed to follow the Administrative Procedures Act

(APA), and was fraught with technical shortcomings. Even

the U.S. Court of Appeals for the Sixth Circuit, the District of

North Dakota, and the Southern District of Georgia found it

likely to be overturned on its merits.

The 2015 WOTUS rule is an unreasonably broad inter-

pretation by the agencies of their regulatory authority. The

agencies clearly stated in the preamble to the 2015 WOTUS

DEPA Comments On

Proposed WOTUS Rules

1Connectivity of Streams & Wetlands to Downstream Waters, EPA, Jan. 2015 2 Gale, Barry, “Six Years After RAPANOS – What’s Changed? (Answer: Not

Much)”, Federal Regulation of Cultural Resources, Wildlife, and Waters of the U.S., Paper No. 13, Pg. 16-17 (Rocky Mt. Min. L. Fdn. 2012) 3 EPA Docket # EPA-

HQ-OW-2017-0203-15104, Regulations.gov, 2018 4 Restoring the Rule of Law…by Reviewing the WOTUS Rule, 82 FR 12497, February 2017

“We support the direction the agencies

are headed concerning the concepts

provided for in the proposed rule.

The improved jurisdictional clarity not

only benefits regulated entities, it

improves protection of water resources

and regulators’ ability to ensure

programs are effectively implemented.”

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 19

In addition to the substance of the 2015 WOTUS rule it-

self, the rulemaking process followed by the agencies was

procedurally deficient. The agencies failed to provide an op-

portunity for public comment on distance limitations for ter-

minology like “adjacent waters” and “significant nexus.” By

circumventing the public process, the agencies promulgated a

final rule that significantly overstepped their authority and

violated the APA requirements for proper notice and comment

rulemaking. This deficiency alone is a valid reason to repeal

and/or replace the 2015 WOTUS rule.

The letter urged the quick adoption of the proposed recodi-

fication of the preexisting WOTUS rule since it would end the

untenable situation of having different definitions of WOTUS

in effect in different states across the nation.

The letter stated the groups support the direction the agen-

cies are headed concerning the concepts provided for in the

proposed rule. The improved jurisdictional clarity not only

benefits regulated entities, it improves protection of water re-

sources regulators ability to ensure programs are effectively

implemented. Indeed, CWA’s water quality objectives are best

met through clear jurisdictional boundaries that can be admin-

istered in a way that promotes accountability and preserves

resources for actual environmental protection. These important

water quality objectives are certainly not met by ignoring

CWA’s mandated approach to cooperative federalism. They

support the agency's narrowing of WOTUS to account for the

role of states and tribes in the management and protection of

water.

In general, they stated they support the comments filed by

the Waters Advocacy Coalition concerning this matter; how-

ever, the letter did offer substantive comments on a limited

amount of issues within the proposed rule for the Administra-

tor’s consideration. Those comments were as follows.

I. General Areas of Support

We strongly support the changes to the proposed rule and

appreciate the agencies working toward a definition of

WOTUS that improves jurisdictional certainty and clarity. The

proposal follows the legal underpinnings of the CWA and

implements the overall objective of the CWA to restore and

maintain the integrity of the nation’s waters while providing a

clear definition of WOTUS. The proposed rule:

• Strikes a balance between state and federal jurisdiction of

waters, acknowledging the important role of the states in man-

aging and protecting their land and water resources

• Is consistent with Executive Order 137784

• Is easier to implement for the regulated community, land-

owners, and the agencies with the removal of ephemeral fea-

tures along with the other exemptions

• Clarifies which waters are and are not WOTUS by relying

upon direct hydrologic surface connections

• Removes subjective interpretations by eliminating vague

concepts such as significant nexus and ecological considera-

tions as criteria used in case-by-case analyses of jurisdiction.

II. Suggestions for Improvement

While the proposed revisions to the definition of WOTUS are

a huge step toward creating clear and discernable criteria for

determining federal jurisdiction, there are still some opportu-

nities to improve clarity of the proposed rule. Specifically, we

recommend the agencies:

• Use the USGS Topographic Maps as a more practical ap-

proach and a primary reference tool to determine the maxi-

mum extent of federal jurisdiction. Such an approach will pro-

vide the regulated community, landowners, and general public

with a clearer and more certain understanding of potential

WOTUS jurisdictional extent unless site specific situations

suggest otherwise.

• Maintain the need for direct hydrologic surface connections,

while excluding groundwater connections from consideration,

when determining adjacency between wetlands and jurisdic-

tional waters.

• Remove bed, bank, and ordinary high-water mark (OHWM)

from the criteria used to determine jurisdictional tributaries.

• Include all three wetland criteria (hydrology, hydrophytic

vegetation, hydric soil) in the regulatory text. These are clear

indicators of consistent, non-episodic, water.

III. Specific Comments on Categories of Water

Traditional Navigable Waters (TNW’s)

While this category has not seen much change in this re-

definition, we appreciate the focus on ensuring that TNW’s

are actually involved in interstate commerce. The preamble

clearly states that a water qualifies as a TNW based on its nav-

igability, which in turn is directly tied to its transport ability in

interstate commerce. The preamble roots TNWs in the concept

of navigability and we would recommend that the agencies

clarify that recreational use alone would not be enough to es-

tablish jurisdiction.

Making the distinction that real commerce takes place on

permanent waters is needed to constitutionally authorize feder-

al regulation of the water. Such a stance avoids many of the

issues associated with the SWANCC decision. Using migratory

birds or aquatic birds (per the 2015 WOTUS rule) as the nexus

to bring more waters under federal jurisdiction was an over-

reach that caused much of the legal troubles that precipitated

this redefinition. Establishing an appropriate, consistent with

Congressional intent, definition for this category is of tremen-

dous importance as the other categories of water in the pro-

posed rule are jurisdictional due to their physical connection to

TNW’s.

Tributaries to TNWs

We strongly support the proposed changes to the tributary

category which would eliminate the most confusing and legal-

ly problematic sections of the overreaching 2015 WOTUS

rule.

Ephemeral Features

The exclusion of all ephemeral features (e.g. surface flow only

in direct response to a precipitation event) is a particularly

20 Domestic Energy Producers Alliance

welcome change that requires a complete removal of past guid-

ance coming from the SWANCC and Rapanos decisions. Includ-

ing ephemeral features would have been especially acute in the

West, where arid conditions and seasonally fluctuating rainfall

are commonplace. Many ephemeral water features would have

been subject to the 2015 WOTUS rule despite being dry for

much of the year or even for many years.

Bed, Bank, and Ordinary High-Water Mark

The removal of beds, banks, and ordinary high-water marks as

defining features of a tributary is key in making the revised defi-

nition of WOTUS clearer and more consistent as well as provid-

ing predictability in the implementation.

Typical, Certain Times of a Typical Year, and Rolling Thirty-

year Period

The agencies propose to use “typical” and “certain times of a

typical year” in the definition of perennial and intermittent. The

agencies also propose to define “typical year” to mean within the

normal range of precipitation over a rolling thirty-year period for

a particular geographic area. Under this proposed definition, a

typical year would generally not include times of drought or

extreme flooding. The use of these terms and the determination

of a rolling thirty-year average is too complicated for the regulat-

ed community and is unnecessary. As described in the Suggested

Improvements above and in the Geospatial Datasets for WOTUS

below, we recommend the use of the USGS Topographic Maps

as a more practical and implementable approach to determine

and document the maximum extent of jurisdiction, with field

work to conclude the presence (or absence) of a WOTUS tribu-

tary.5 However, if the agencies ultimately decide not to use these

maps as a more practical and implementable approach, terms

such as “typical year,” “geographic area,

Ditches

We support maintaining the separate category for ditches. It

provides much needed clarity that only those ditches built in

tributaries or wetlands already determined to be WOTUS will

also be WOTUS. While we agree with the agency’s preamble

language that the burden of proof in determining jurisdiction in

respect to the ditches category rests with the agencies, we submit

that agencies should clarify what the expectations are for the

permittee, what are the evidentiary thresholds, and establish a

time period for making such determinations.

Lake/Pond

We recommend keeping lakes and ponds as a separate catego-

ry. Keeping these features as their own category once again pro-

vides the clarity that they are only WOTUS if they are directly

connected via intermittent or perennial surface hydrology to

other WOTUS.

Impoundments

We support maintaining a separate category for impound-

ments or combining it with lakes and ponds. What is important is

that only those impoundments that are directly connected via

intermittent or perennial surface hydrology to other WOTUS

would be considered WOTUS as well.

Adjacent Wetlands

We support the concept of adjacent wetlands needing a direct

hydrologic surface connection that abuts or is physically adjacent

via intermittent or perennial surface hydrology to other WOTUS.

The removal of ecological considerations or groundwater con-

nection as defining criteria is a positive decision which greatly

clarifies the definition of WOTUS for the regulated community

and is a more practical and implementable approach. We also

recommend the agencies include the wetland criteria of hydrolo-

gy, hydrophytic vegetation, and hydric soil in the regulatory text.

For enhanced clarity, we recommend that the agencies clarify the

phrase, “direct hydrologic surface connection,” by further deline-

ating the concept of inundation.

Interstate Waters

We support the removal of Interstate waters as a separate cat-

egory. As mentioned with other categories, water features should

only be considered WOTUS if they meet the criterion of at least

an intermittent direct hydrologic surface connection to other

WOTUS.

IV. Specific Recommendations

Categorical Exemptions

The agencies propose eleven exclusions from the definition of

WOTUS. This provides additional clarity to the regulated com-

munity, landowners, and the general public and is more straight-

forward for the agency staff to implement. We support these

exemptions and provide the following comments.

5) Revised Definition of WOTUS, 84 FR 4177, February 2019 “certain times of the year,” “intermittent,” and “perennial” must be clarified to ensure the

consistency the agencies have been espousing. 6) USGS Topographical Maps, USGS, 2019 State and Federal Lands Protection

DEPA Report on Industry, Leadership, Legislation, and Energy Regulation May 2020 21

Groundwater

The agencies state that they have never interpreted WOTUS to

include groundwater and would continue that practice through

this proposed rule by explicitly excluding groundwater. We

strongly agree with this position.

Ephemeral Features

We support the exclusion of ephemeral features and diffuse

stormwater run-off. The harm caused by the overreaching 2015

WOTUS rule is especially acute in the West, where arid condi-

tions and seasonally fluctuating rainfall are commonplace.

Many ephemeral water features would be subject to the 2015

WOTUS rule despite being dry for much of the year or even for

many years. Also, as discussed above regarding tributaries, we

support removing the presence of bed/banks/OHWM as a crite-

rion to identify a WOTUS tributary.

But if these features are absent it

indicates that it is an ephemeral fea-

ture and not a WOTUS tributary.

Artificial Lakes and Pond

The agencies propose to exclude

artificial lakes and ponds construct-

ed in uplands, including water stor-

age reservoirs, farm and stock wa-

tering ponds, settling basins, and log

cleaning ponds, as long as they are

not jurisdictional impoundments.

The agencies recognize that artifi-

cial lakes and ponds are often used

for more than one purpose and can

have a variety of beneficial purpos-

es. We agree with this proposed

exemption.

Wastewater Recycling Structures

The agencies propose to exclude wastewater recycling struc-

tures constructed in uplands such as detention, retention and

infiltration basins and ponds, and groundwater recharge basins.

We strongly agree with this exemption, as it encourages the

recycling of produced water that is such a challenge in our in-

dustry. It promotes innovation and provides greater clarity on

which waters are and are not federally regulated under the

CWA.

Geospatial Datasets for WOTUS

The agencies solicit comment as to how they could establish

an approach to authorize states, tribes, and federal agencies to

develop geospatial data tools to help identify WOTUS. The

development of new geospatial data tools will be extremely

costly, take a significant amount of time and effort to develop,

lead to inconsistencies across the nation, and would likely in-

troduce interpretations that stray far from the CWA and case

law. The regulated community needs tools that are available

immediately to make informed decisions on what waters are/are

not WOTUS. Step Because tools already exist, there is no need

to create new ones that will take years to develop. We recom-

mend the widely used USGS Topographic Maps be used as a

primary reference tool to determine and document the maxi-

mum potential extent of federal jurisdiction.6 As discussed pre-

viously, the rule should allow supporting information (e.g., air

photos, historical knowledge) and field work to subsequently be

utilized to determine whether the water is WOTUS or not. Such

an approach would provide the regulated community, landown-

ers, and the general public with a practical tool and a more cer-

tain understanding of WOTUS jurisdictional extent along with a

regulatory pathway to demonstrate a reduced jurisdictional ex-

tent if site conditions suggest otherwise. We anticipate there will

be many comments attempting to show that the narrowing of the

definition of WOTUS will leave certain waters unprotected. We

work with state agencies on a continual basis and know that wa-

ters of the state can still be protected under state jurisdiction. The

proposed rule simply designates which waters are regulated by

the federal agencies, and which are left to the states to manage.

We support this approach as it

comports with the intent of the

CWA – specifically the idea of

cooperative federalism – whereby

states, tribes and the federal gov-

ernment work in partnership.

Burden of Proof Concept

We also submit that for con-

sistency in interpretation the

agencies clarify in the final rule

that the burden of proof for juris-

dictional determinations rests

with the agencies across all juris-

dictional categories of water.

Placement in the Code of

Federal Regulations (CFR)

The agencies propose to locate the proposed definition of

WOTUS in eleven different locations within the CFR. We sup-

port this effort and think it would be more straightforward ap-

proach for the regulated community.

Rapanos Guidance

Finally, the agencies solicit comment on whether they should

revoke their 2008 Rapanos Guidance, should the agencies final-

ize the proposed rule, because existence of the final rule may

mean that guidance on Rapanos may no longer be needed. The

2008 guidance has presented implementation challenges to oil

and natural gas development.

CWA jurisdiction has been an inconsistent concept in agency

interpretations for years. It is often addressed in a case-by-case

manner with individual interpretations of guidance documents

and the term WOTUS. Often, agencies’ case-by-case determina-

tions skew towards an overly broad interpretation of authority.

We agree with analysis that finds that, “The irony in the prelimi-

nary jurisdictional determination process is that by assuming that

all water bodies on a site are jurisdictional, the Corps is actually

extending its jurisdictional reach beyond what it was regulating

prior to the Rapanos decision.”7 Ultimately, that overreach was

codified in the 2015 WOTUS rule. We recommend this guidance

be revised consistent with the finalized revisions to the definition

of WOTUS or be revoked.

Our Newsletter will resume being printed in July. Current DEPA members will receive

our newsletter both electronically, and in the US mail.

If you are interested in finding out more about advertising in the DEPA DRILLER

contact Cynthia Simonds, csimonds@depausa.org, or 405-669-6646.

Size 1 month 3 months 6 months 9 months 12 months

Full

Page

$1,000

$2,640 $880 per ad. Save $360

on the total contract, or

$120 per ad from the

one month rate.

$4,920 $820 per ad. Save $1,080

on the total contract, or

$180 per ad from the one

month rate.

$6,750*

$750 per ad. Save $2,250

on the total contract, or

$250 per ad from the one

month rate.

$8,400** $700 per ad. Save $3,600

on the total contract, or $300

per ad from the one month

rate.

Half

Page Horizontal

$500

$1,320

$440 per ad. Save $180

on the total contract, or

$60 per ad from the one

month rate.

$2,460

$410 per ad. Save $540

on the total contract, or

$90 per ad from the one

month rate.

$3,375*

$375 per ad Save $1,125

on the total contract, or

$125 per ad, from the one

month rate.

$4,200**

$350 per ad. Save $1,800

on the total contract, or $150

per ad, from the one month

rate.

Half

Page Vertical

$500

$1,320

$440 per ad. Save $180

on the total contract, or

$60 per ad from the one

month rate.

$2,460

$410 per ad. Save $540

on the total contract, or

$90 per ad from the one

month rate.

$3,375* $375 per ad. Save $1,125

on the total contract, or

$125 per ad from the one

month rate.

$4,200**

$350 per ad. Save $1,800

on the total contract, or

$150 per ad from the one

month rate.

Banner

Third

$336

$887

$296 per ad. Save $123

on the total contract, or

$41 per ad from the one

month rate.

$1,653

$275.50 per ad. Save $363

on the total contract, or

$60.50 per ad from the one

month rate.

$2,268

$252 per ad. Save $756

on the total contract, or

$84 per ad from the one

month rate.

$2,823

$235.25 per ad. Save $1,209

on the total

contract, or $100.75 per

ad from the one month rate.

Quarter

Page

$252

$665

$221 per ad. Save $93

on the total contract, or

$31 per ad from the one

month rate.

$1,239

$206.50 per ad. Save $273

on the total contract, or

$45.50 per ad from the one

month rate.

$1,701

$189 per ad. Save $567

on the total contract, or

$63 per ad from the one

month rate.

$2,117

$177 per ad. Save $900

on the total contract, or $75

per ad from the one month

rate.

Banner

Quarter

$252

$665 $221 per ad. Save $93

on the total contract,

or $31 per ad from the

one month rate.

$1,239

$206.50 per ad. Save $273

on the total contract,

or $45.50 per ad from

the one month rate.

$1,701

$189 per ad. Save $567

on the total contract, or

$63 per ad from the one

month rate.

$2,117

$177 per ad. Save $900

on the total contract,

or $75 per ad from the

one month rate.

Eighth

Page

$126

$333

$111 per ad. Save $45

on the total contract,

or $15 per ad from the

one month rate.

$620

$103 per ad. Save $138

on the total contract,

or $23 per ad from the

one month rate.

$850

$94 per ad. Save $288

on the total contract,

or $32 per ad from the

one month rate.

$1,059

$88.25 per ad. Save $453

on the total contract, or

$37.75 per ad from the

one month rate.

18% Discount 25% Discount 30% Discount

*In addition to the print ad, get acknowledged as a DEPA event sponsor, for one event in the 12 months after contract execution.

**In addition to the print ad, get acknowledged as a DEPA event sponsor, for one event in the 12 months after contract execution

AND have your company logo placed on our website for consecutive 3 months as a DEPA supporter.

Thank You for Reading

Domestic Energy Producers Alliance PO Box 33190 Tulsa, Ok 74153 405-669-6646 info@depausa.org