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The Energy Question Episode with Kathleen Sgmma – Final Cut.mp4

David Blackmon [00:00:09] Hello. Welcome to the interview question with David Blackmon. I am your host, David Blackmon, and my special guest today is Kathleen Sgamma, the president of the Western Energy Alliance, a regional trade association based in Denver. That represents mainly independent producers. But I think also represents some of the big independents as well. Kathleen, how are you?

Kathleen Sgamma [00:00:33] Right. How are you, David?

David Blackmon [00:00:35] I’m great. I’m great. It’s been too long since we talked. I, kind of embarrassed about that, frankly.

Kathleen Sgamma [00:00:41] Now I know. And, you know, you come, came and spoke to us, David. And, you know, it’s been a while, and and it’s great to reconnect.

David Blackmon [00:00:49] Really is, you you do such great work at the Alliance. I wanted to give you a chance, before we go into Q and A to talk about the association. Come here. Give us a little background on its history, its membership, and your mission.

Kathleen Sgamma [00:01:04] Great while we are celebrating our 50th anniversary this year. So we represent, independent oil and gas producers all across the Rocky Mountain West. Our primary states out in the West when it comes to oil and natural gas, of course, are North Dakota, Wyoming, New Mexico, Utah, Colorado, Montana and Nevada. So we are, a regional trade association. We focus on federal issues. So that involves a lot of public lands and tribal air quality. Water quality. Obviously, methane is the thing that, we needs to be especially concerned about, you know, things that, cross over, state boundaries. You know, we work really closely with the state trade associations, but we don’t do state specific issues. So, yeah, dumpster fire that is Colorado is not something I actually report directly.

David Blackmon [00:01:59] Well, you are blessed with that, that’s for sure.

Kathleen Sgamma [00:02:02] I know it’s kind of funny because I’ve been doing this for about, 18 years now. And we really do a lot on public lands issues. And it’s really pathetic that, public lands look better than, operating in Colorado on private lands. It’s pretty sad. State of affairs, actually.

David Blackmon [00:02:20] It really is. And it’s so it is sad because, I mean, you know. Even as recently as a dozen years ago. Even as recently as Governor Hickenlooper, Colorado was a great place to do business. And and now it’s just. But anyway, we’re not going to talk about that. So, you also, have a very active president presence in Washington, DC, don’t you?

Kathleen Sgamma [00:02:45] That’s right. Since we do focus on those federal issues, what our role is within the ecosystem of oil and gas trade associations is to bring the voice of the Western producer to Washington, DC. We also, you know, ally with states and governors and AG all across the West as well. But we bring that outside the Beltway experience to Washington, D.C..

David Blackmon [00:03:10] Yeah. You do a lot of testifying before Congress, don’t you? Personally?

Kathleen Sgamma [00:03:14] Yes I do.

David Blackmon [00:03:16] So we’ve had this, recent trend here, over the last couple of months where, witnesses who were scheduled to testify at some of these hearings simply don’t show up. What’s going on there? And how did they get away with that?

Kathleen Sgamma [00:03:34] Well. I think they just don’t they? Yeah. You know, it’s kind of like the disdain that the three university presidents gave to Elise Stefanik during a hearing. You know, they act as if they don’t have to be accountable to, Congress. If it’s Republicans they’re talking to, they only have to talk to their echo chamber on the left. And so they don’t even feel the need to engage with those with different opinions. So you saw with those university presidents, they absolutely were looking at her with disdain, as if she was a complete idiot. Right. And getting their wokeness and, it backfired big time on them. I’m only disappointed because my university president is the only one who survived that. And despite my, you know, needling on social media and, the like and the fact that I’ve withdrawn any support to my alma mater, is absolutely no, I mean, I just don’t have the pull of Dave Ackerman, so, you know.

David Blackmon [00:04:41] So I’m trying to remember is. Is that MIT

Kathleen Sgamma [00:04:44] Yeah. That’s right. Bluff remains in her position. And, you know, we see the dumpster fire that’s on campuses all across the country regarding, you know, these pro Hamas demonstrations and, you know, the university presidents can’t even figure out how to get over their DUI.

David Blackmon [00:05:03] Yeah.

Kathleen Sgamma [00:05:04] Don’t. Yeah, it’s just terrible. So that’s all. I’m sorry. Go down that tangent. But I think that’s what you see is like this. This. But you know, this disdain for anybody with a different opinion. And I think they do it at their peril. So I was at this hearing recently, and the subject was natural capital accounting, which is a fairly wonky thing that comes out of, the two bin center at Yale. Specifically, there’s one economics professor who’s been really pushing that in the United States. It’s also being pushed by the U.N., which, you know, of course you want to know, but this one professor is really pushing this, and he’s gotten, the whole of government approach. Biden administration had 27 different agencies all figuring out how they can work natural capital, accounting into everything they do, just like they’re working day in or climate change. It’s all everything is always climate change, right? And so he wouldn’t even show up for this hearing. And as a result, he didn’t defend his academic ideas, like, how pathetic is academia that they’re afraid to appear before Congress, in a hearing on a policy issue? You know, this was not a gotcha year.

David Blackmon [00:06:20] Well, it is a shame and it makes it a lot more difficult to do intelligent formulation of policy. When, you know, when part of the argument won’t talk to you. Yeah. And of course, it works the other way, too. Right. I mean, we’ve always, as an industry, been able to talk with policy makers, at, the Department of Interior, the EPA, or whatever federal federal agency and most state agencies do, to at least get in and tell your side of the story. And, unfortunately, I think in this administration that’s gotten an awful lot harder to do, hasn’t it?

Kathleen Sgamma [00:07:01] I think they will. And I do a lot of work with the Interior Department, and I think they realize that they do. They can’t just shut us out. Right? Right. Sit and meet with us. But I don’t always know how effective it’s going to be because it’s really run by the environmental left, right? That’s fine. You know, that’s what happens with Democrat administrations. However, you know, sometimes you’re just like, well, I can sit there and talk to them, but I know that they’re going to do a conservation or preservation only agenda, despite what their, laws say. So we look at, for example, the Bureau of Land Management and Conservation rules. This is a rule that, it should publish in the Federal Register at any point. It upends the balance on federal lands so that it elevates conservation above productive uses of federal lands like mine. And she and, you know, this is on lands that are appropriate. They’re working landscapes. We’re not talking about national parks and wilderness areas and the like, but they’re trying to make all public lands, even those working landscapes, basically off limits to, productive uses of those lands.

David Blackmon [00:08:21] Yeah, they’ve kind of got to rush that up now, right? Because they’re running out of time, right? I guess they need to get it finalized because they’ll have to have it finalized by July 1st. Right. Or or it will be subject to recall, by the next Congress.

Kathleen Sgamma [00:08:37] Even earlier than July 1st. I’m thinking that date, for the Congressional Review Act is more like the beginning of June. End of May.

David Blackmon [00:08:46] Okay. Okay. Yeah. It’s it. Yeah. Anyway, it’s hard to keep up with. And we saw that when when President Trump came in in 2017, there were quite a number of regulations that had been done in the last six months of the Obama administration that that ended up being taken off the books, through the Congressional Review Act. Do you think, let’s say Trump wins? You know, and you end up with a Republican majority, which would have to, you know, obviously be very narrow, in both houses of Congress, you know, do you anticipate there’d be a similar kind of activity going on early next year?

Kathleen Sgamma [00:09:29] Absolutely. However. Well, Trump was the first president that really use the credit. Yeah. Yeah. It was the first time it had only been used once. And I think something like 16 times, something or I mean, it was used way more than it had ever been used. And so this administration is extremely cognizant of that fact and is indeed trying to jam through so many things before a potential CRA deadline. So perhaps there won’t be as many things that would be, overturned that way, but they can’t get everything in under the day. They just can’t. Well, I would think that it would be used to some extent. And, you know, the good news is it’s been used already at least a couple of times, even with a Democrat majority in the Senate. We have overturned a couple of things, one of which was the Department of Labor’s investment duties rule, which would have, it which does, elevate ESG factors over material financial factors when it comes to everybody’s investment plans for one case pension plans. So that was overturned with bipartisan support. Of course, it was vetoed by President Biden, but it’s just a good sign that even, you know, moderate Democrats are pushing back on some of the overreach of the Biden administration.

David Blackmon [00:10:56] How big a loss is Joe Manchin to efforts like that in the future? You know, he’s not running for reelection. He’s been a strong advocate for the oil and gas industry in his position as, as chairman of the Energy Resources committee in the Senate. I mean, that’s kind of a big loss in that, assuming the Democrats, you know, end up with a 51, 49 majority next time. Without Manchin, you know, there’s no telling if we’re going to have any support in the Democratic Party, right?

Kathleen Sgamma [00:11:26] That’s true. Yes, I agree. Senator Manchin is, I think, he’s just he’s he’s a treasure for this country. He has enabled us to have more balance in our policy from all sides. You know, I deflects both. Like, I think you really want a country where one side rules everything in general because, you know, there’s a balance between different opinions. And Joe Manchin is just a moderate that really represents that. But boy, does he take so much more. He really takes more flak from the left than he does from the right.

David Blackmon [00:12:00] He does? Yeah, yeah. Yeah. You know, he’s he’s such a a mixed bag, though. His cave in on the IRA to me was was the end of his career. I mean, I think he was the most powerful political figure in Washington, DC on domestic policy before that moment in time.

Kathleen Sgamma [00:12:20] Yes. He chose to give away his power, which was a little puzzling to me. I think my interpretation is he just didn’t want to be the one who basically ruined the Biden administration and needed to show something, right, and he just wasn’t willing to take it. He took a lot, a lot of, you know, brief, but that that was just a bridge too far. You know, that’s a good point. And so your original question was how much of a loss will be? Well, I mean, at least the Republicans will have another seat. Right. So is a Republican seat out of West Virginia more valuable than a Senator Manchin? You know, maybe, maybe not just because having somebody who can provide some balance for both parties. I think the loss of Kirsten Cinema is also.

David Blackmon [00:13:07] Oh, it’s huge.

Kathleen Sgamma [00:13:08] Is also that, you know, because she, you know, she stood up against things like, you know, stacking the Supreme Court or packing the Supreme Court and getting rid of the filibuster. Do we like her? You know, votes on everything? No, but that’s not the point. The point is like working together with both sides.

David Blackmon [00:13:27] Yeah. And that’s such a shame, because she has so much courage. She displayed so much political courage during her, you know, brief. It’s going to end up being a brief time in the Senate. That is a very rare commodity in Washington, D.C. these days. She she just she, acted on her beliefs. I didn’t agree with a lot of them, but you had to at least respect the way she conducted herself, where, you know, with some of these members. And I won’t name names, but it’s pretty hard to respect a lot of them.

Kathleen Sgamma [00:14:02] Absolutely. Absolutely.

David Blackmon [00:14:05] Yeah. Well, let’s talk about, you know, you you deal a lot with the Department of Interior, as you said. And we just have this new set of rules come out, governing royalty rates and bonding requirements and other, issues on, BLM lands. You know. Isn’t that. To me? I looked at that set of new, new requirements, and it seemed to be really aimed at your members more than anybody else. Because it’s going to disproportionately impact smaller independents.

Kathleen Sgamma [00:14:36] I think it is going to price the small producer, the market.

David Blackmon [00:14:41] Yeah.

Kathleen Sgamma [00:14:42] The bonding increases are 24, 15 to 20 fold increases in bonding amounts. The small producer cannot access the surety market at the same rates that a large company can. So they have so much more collateral. And in fact, in many cases, they can’t even get a bond. So they’d have to put up 100% of the, you know, of these bonding amounts. And they they add up really quickly on federal lands, to the tune of millions of dollars. If you have multiple wells in the state, you know that. So, the thing about it, and the reason we feel confident we are going to announce litigation as soon as the rule is finalized. But we feel confident about that because what BLM has done is increased funding rates 15 to 20 fold, when there are 2.04% of forfeit of wells on federal lands are orphans. So you have just with that proportion alone, you have such a small percentage, yet you’re going to response 20 fold. So that’s way out of proportion. It’s so arbitrary and capricious that we feel really confident about, you know, successful litigation on that on that front.

David Blackmon [00:15:58] Yeah. What about the royalty rate? You know, one six when you look at it. Of course, it’s been 12.5% for a long, long time going to 16.67. You know, when you look at the standard royalty rate on a Phillies, you. Yeah, you’re talking more in the 20 to 25% range. So just taking in isolation with that comparison, people think, well that’s not unfair right.

Kathleen Sgamma [00:16:24] Right.

David Blackmon [00:16:25] But but again, it’s something that’s going to really disproportionately impact these small producers. And it it feels to me almost like there’s a conscious effort by this administration to crowd smaller independents completely out of the industry.

Kathleen Sgamma [00:16:42] Well, I think that comes from, those administrations like the current one that believe that the government is the font of all knowledge. That’s good. Right. So you have, a very statist. Mentality. Everything should be from the federal government. You know, states doing their own, they want one, whatever it is, one abortion law, one, you know, you know, one way to control air quality, one way. There’s one way for everything, one way for, you know, managing sage grouse, even though it habitat differs from state to state, it’s all top down. And so when you have that mentality, then what you want is a few large companies that you can control. You want everything to be, large companies that are at the trough of the federal government. So you want to make things more difficult for the free market to operate. And oh, yeah, all these large companies, you know, maybe they’re regulated more heavily, but, you know, we’ll also give them something. You know, there’s this is an administration that wants to give corporate welfare as well to wind and solar or whatever. They even included and, you know, this is from Senator Manchin, that he included, money to go to oil and gas companies to help capture methane emissions. We’ve been doing that for decades. We don’t want a handout. Handout. But you’re putting so many new requirements on that. Yeah. Almost like then there’s this. Well, we’ll we’ll do this to you, but we’ll give you money too. So they want companies feeding at the trough and they want source companies that they can control. So it is not surprising that a statist bent, you know, an administration with the statist mentality wants a few companies to control in all aspects, right? They’re driving small producers, small businesses all out throughout the economy because you just can’t handle all that regulation. So it’s not surprising that they’re trying to do that on federal lands as well. But you know, the law is on our side. And I really do think we can prevail. I just like to emphasize with this BLM leasing rule, there are 37 orphan wells on federal lands. There are 90,250 federal producing wells. So. 37 wells out of 90,000 plus is a very tiny problem, right? And most of those wells are getting unplugged and reclaimed by other companies who might operate in those areas. So the industry is already. Taking care of reclaiming wells. The other side will act as if, oh, this orphan. Well, issue the taxpayers being stuck with the bill. The taxpayer isn’t stuck with the bill. There are so few bond calls and so few orphan wells, and most of them are going to get reclaimed by other companies. So, you know, it’s not falling on the taxpayer as it is, but yeah, they’re going to increase bonding amounts 20 fold. So it’s just way out of proportion.

David Blackmon [00:19:57] Methane regulation. You know, we we’ve had a series of new regulations, trying to to regulate emissions. I wonder how. Yeah, again, this is another set of regulations, I believe, that, have to disproportionately impact smaller companies who don’t, you know, necessarily have a lot of staff to deal with requirements like that.

Kathleen Sgamma [00:20:22] Right. The new EPA methane rules. And even by their own admissions, there are about 700,000 stripper wells or marginal wells in the United States. These are low producing wells. But the EPA rules, admittedly, that are now going after eating these small, producing, small emitting wells are going to put about 350,000 of those, you know, they’re going to have to be shut in to regulate. They’re too expensive. And it sounds like, well, they’re really small wells, but together, these these marginal wells produce about 10% of our production. And so would we rather have that 10% coming from small companies with a well already there? Right. You know, the environmental impact has already been taken. Right. So why would you want to prematurely, retire those wells? It was like the cash for clunkers program. Remember that when you put it like it’s so wasteful to take a car off the road with, you know, because it’s like all the metal, all the mining, all the environmental impact from that car. You’re now going to have to buy a new car which has more environmental impact. It’s the same thing with the marginal well, you’re going to put all these wells, all these small companies out of business. And to what environmental benefit? No environmental because now you have to develop new ones.

David Blackmon [00:21:51] Well, it’s it’s, it just all seems so counterproductive to me, and it really just flies in the face of common sense. I laughed this week, when I read an article, I think it was that, I think it was a Bloomberg piece talking about a senior official at the United Nations who was, complaining about the fact that the term net zero by 2050 has now become a PR liability for the movement. Right. Does that surprise you that that, the public is beginning to take a negative view of all of this?

Kathleen Sgamma [00:22:26] Well, yeah. And it’s becoming particularly crystallized in the UK and Europe. Yeah. Because of course, they’re they’re kind of they bought into the whole energy transition net zero way before, you know, California and Europe bought into it hook line and say yeah yeah. So further along and their economies are further damaged by it. So the cost to the, you know, the citizen is becoming really clear in the UK and in Europe. And as a result, it’s the politicians are having to pull back on that net zero stuff. So yeah, it’s like ESG. You know, if all of a sudden with just good pushback on what it really means, it’s become a term that people don’t even want to use it for, right? Right. Then they’re going to turn around and say, well, you know, it’s just a PR problem. No, it is a substantive issue and you call it whatever the heck you want, but people get it when what, you’re going to make me suffer, you’re going to make me pay, and it’s going to affect 0.00 or whatever percent of global emissions. Like you look at the UK, they’re responsible for, you know, less than a percent. Oh yeah, greenhouse gas emissions. And they’re going to ruin their economy and shift all their manufacturing base to China. How is that helping the environment?

David Blackmon [00:23:46] Well, it’s obviously not. And you know, it it also comes I laughed again the last week or recalled in horror. I think, at another Bloomberg piece talking about the white House again, considering declaring a climate emergency. So, so that Biden would have all sorts of dictatorial powers over and to, to harm the oil and gas business. All right. To me, it all feels like when I read stuff like that, it really feels like the work you’re doing and I’m doing from a different angle. We’re really having an impact here. Right. Do you feel the same way, I think. I think we’re really starting to have an impact.

Kathleen Sgamma [00:24:26] I, I’m kind of surprised, too, because I did not think the ESG world would turn as soon as it did. Yeah, but, you know, it’s just like with net zero. Reality is on our side. We can talk about, oh, we’re going to get rid of oil and gas, or we’re all going to get rid of all of our greenhouse gas. And then when it comes time to actually you want to see the impacts of these policies, it’s just not going to fly. And then, you know, your normal citizen is going what they’re going to shove me into in the EV. I can’t charge it in the wintertime. You know, how is this going to actually work if I don’t hello. Or Chicago and I can’t charge my EV during, you know, a good portion of the year.

David Blackmon [00:25:10] Right? Yeah. You know, and you see it. The other thing that’s really encouraging to me is, is, you know, the EV markets collapsing in the United States, in Europe. And the wind, offshore wind is collapsing. And, so I just think the reality here is that people are coming to the realization, like you said, what reality really is, which is these alternatives we’re being offered don’t work, aren’t going to work. They’re not the real solution. And so people are beginning to reject them. And I think.

Kathleen Sgamma [00:25:45] We need to prove that government central planning doesn’t work this week because it was, you know, 40 years ago that the wall fell down and, you know, the Soviet Union collapsed. We’ve just forgotten how central planning didn’t work. But yet the government’s going to tell us what vehicles that we’re going to plant. Like they have forced these car companies to do something that doesn’t make any economic sense because people don’t want these vehicles. Unless you’re wealthy enough, you can afford Tesla. It’s your second sure hope for pop it around town, but when you go on a road trip, you’re going to get in your, you know, whatever your SUV or whatever you’re not. You know, it’s it’s a great product if that works for your lifestyle.

David Blackmon [00:26:29] Exactly, exactly. And for me and my wife, it would work great for a second car, you know, to drive around town and, if we could afford it. But we can’t afford it. So.

Kathleen Sgamma [00:26:40] Let me say something to you. I am so sick of hearing these called zero emissions. These cars on on natural gas and coal, primarily.

David Blackmon [00:26:49] Well in all the minerals mining you have to do just to build the batteries, right?

Kathleen Sgamma [00:26:53] Like, there have been lifecycle analyzes on EVs and it takes them several years because before they become zero emission. And of course they’re really never zero emission because the electricity is not generated from dolphin Smiles. So, you know, it’s I just hate the zero emission label applied applied to these. You know what? The oceans are somewhere else.

David Blackmon [00:27:16] You know, what they always leave out is, is the fact that by the time you get to the point where you’ve achieved net zero emissions with the Navy, it’s time to replace the battery. And oh, well, then you’re back over here again. Having to start all over.

Kathleen Sgamma [00:27:31] Right.

David Blackmon [00:27:32] So. Well, we’re running up against time. This has been great, Kathleen. I really appreciate it. It’s been great talking with you. And, let’s not let so much time go by again before we talk again.

Kathleen Sgamma [00:27:46] Sounds great. Thanks so much for having me.

David Blackmon [00:27:48] All right. Thank you. And thanks to our producer, Erick Parel, and to the Sandstone Group for producing our podcast. I’m David Blackmon, and that’s all for now.

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