Bayside Petroleum Company, Inc.

INDUSTRY OUTLOOK LONG TERM IS VERY POSITIVE 

Crude oil prices have traded in the $70-85 range in recent months. Many observers believe, as we at Bayside do, that the crude oil price will remain in the $65-90 level in the next few quarters, but we do not discount the possibility that crude oil could exceed $100 in 2010 if global economic recovery surprises on the upside.  

Notwithstanding the extreme oil-price volatility over the past 12-18 months, steadily rising long term demand for imported oil by China, India and numerous other developing countries is forecast by many to keep upward pressure on global crude oil prices longer term. For many years now, the shortfall in domestic oil and gas production has ensured a ready market for all domestic production, and that is not expected to change in the decades ahead.   

POLITICAL SUPPORT FOR THE OIL & GAS REWORK INDUSTRY

In July, 2008, Senator Jim Inhofe and Congressman Dan Boren (both of OK) introduced the “Bi-partisan Marginal Well Production Preservation and Enhancement Act.” Regarding this important bill, NSWA (The National Stripper Well Association), a nonprofit trade association which represents producers and operators of marginally economic crude oil and natural gas wells in the United States noted: “Specifically the Inhofe-Boren legislation would increase the percentage depletion allowance for marginal (stripper) wells to 27.5 percent from 15 percent. The passage of this bill would reduce the U.S. dependence on foreign oil by clarifying and streamlining government regulation, prolonging economic feasibility in the life of the well (making it profitable for a longer period of time), and enhancing production volumes from marginal wells.”

Response to this bill was immediate and supportive:

Oklahoma Independent Petroleum Association: “The Oklahoma Independent Petroleum Association appreciates the bipartisan leadership of Senator Inhofe and Congressman Boren as they work to make America more energy secure,” said OIPA Chairman John Pilkington. “By fixing the marginal well percentage depletion rate at 27.5 percent, eliminating the net income limitation for percentage depletion, allowing the accelerated depreciation of tertiary injectant properties, and providing common-sense regulatory relief, this bill would help independent producers more effectively meet the demands of operating marginal wells and enhance producers’ ability to develop new domestic crude oil and natural gas resources.”  

National Stripper Well Association: “The National Stripper Well Association would like to thank Congressman Boren and Senator Inhofe for sponsoring the Marginal Well Production Preservation and Enhancement Act,” said NSWA Chairman Dewey Bartlett Jr. “America’s marginal wells collectively produce half as much oil as America imports from Saudi Arabia each year and are an important part of the domestic energy security equation. We hope Congress will consider this bipartisan bill as part of a comprehensive solution to our nation’s energy supply challenges.” 

Oklahoma Commission on Marginally Producing Oil and Gas Wells: “The State of Oklahoma Commission on Marginally Producing Oil and Gas Wells would like to express its appreciation on behalf of Oklahoma marginal oil and gas well operators to Senator Inhofe and Congressman Boren for their bipartisan leadership as they work to make America less dependent on foreign oil and improve national security,” said Marginal Well Commission Executive Director James M. Revard.  “At this critical time, this bill will help the independent producer more effectively meet growing market demands while operating in a cost-effective manner.  This bill will allow operators to offset the rising cost of operations while making it possible to reinvest in new development of domestic oil and gas.”   

Independent Petroleum Association of America: “With approximately 20 percent of American oil production and 10 percent of American natural gas production coming from marginal wells, they are America’s true strategic petroleum reserve. However, they remain America’s most vulnerable production assets faced with the highest operating costs. This legislation is designed to encourage and protect continuing operation of these essential American resources,” said Barry Russell, President and CEO of the Independent Petroleum Association of America.” About 80 percent of the roughly 500,000 producing oil wells in the United States are classified as stripper wells.

Bayside Petroleum Company, Inc. welcomes the bi-partisan Marginal Well Production Preservation and Enhancement Act and looks forward to the support and encouragement that passage of this bill will bring about for all rework Oil & Gas operators as they seek to increase efficiencies in U.S. crude oil and gas production.

Despite the emerging focus towards the development of clean, sustainable and renewable energy, data shows that fossil fuels (Oil, natural gas and coal,) will continue to provide, in various forms, the largest component of U.S. energy consumption for several decades. Accordingly, Bayside management believes that the long term outlook for profitable oil & gas operations in the U.S. will remain positive, and that rework projects will play an increasingly important role in achieving energy security and self-sufficiency.