In its infinite wisdom (OK, I’m kidding just a little here), the Texas Legislature showed great foresight during its 1981 session, creating what the state calls the Texas Economic Stabilization Fund but what has since come to be commonly known as the Rainy Day Fund. At the time, policymakers took advantage of a great boom time in the petroleum industry, using the state’s oil and gas severance tax receipts as the funding source for virtually the entire fund balance.
Over the last 36 years, the Rainy Day Fund has proved to be exactly what it was billed to be back in 1981: a fund that has had the effect of stabilizing the state’s budget situation. As an example, the Great Recession created huge revenue shortfalls for the state government going into both the 2009 and 2011 legislative sessions, forcing policymakers to cut spending on state services deeply. But the ability to take billions of dollars from the Rainy Day Fund ensured that cuts to the bone did not become cuts into the marrow of those services.
The Rainy Day Fund has also allowed legislators to address other pressing state issues without impacting the budget’s General Fund. The 2013 session of the legislature funded the state’s entire $50 billion State Water Plan by tapping the Rainy Day Fund for $2 billion, establishing a revolving line of credit that will be used to finance a large variety of dams and other water projects in the coming decades. That same session also, with the approval of the state’s voters, tapped the Rainy Day Fund for $2.25 billion to fund much-needed road improvement projects all over Texas.
Even after all those and other large, special withdrawals over the last decade, the Rainy Day Fund today retains a balance of over $10 billion, money that is available to help Houston and other areas of Southeast Texas rebuild from Hurricane Harvey. In short, the Texas Rainy Day Fund is a pretty phenomenal success story for which the oil and gas industry rarely receives much credit.
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I’ve written entirely too much about the Jones Act this year, but like a bad penny, it just keeps turning up in the public discourse. Last time I addressed this subject, it was over an effort by the U.S. shipping industry actually expand this pernicious and archaic protectionist law, an effort that thankfully failed thanks to some last minute interventions by a few members of the Texas congressional delegation.
That was back in May. Now, here we are four months later and the Jones Act has once again become the subject of national media coverage, this time mainly because President Trump keeps having to suspend it in order to help save lives after major hurricane events have devastated the U.S. and its territories. That sentence alone should make any observer wonder: After all,
Before we get into that, let’s review what the Jones Act actually does. Fellow Forbes contributor Ted Loch-Temziledes, in an excellent piece on the Act, sums it up thusly:
The act regulates all maritime commerce in U.S. waters and between U.S. ports. It requires that shipping of all goods transported between U.S. ports be carried out by ships under the U.S flag. The ships must be constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. Furthermore, the steel used in any foreign repair work on a Jones Act vessel must be less than ten percent of the ship’s total weight. Waivers are only possible on a temporary basis, in cases involving national defense, or other emergencies, such as hurricanes.
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In news that is certain to upset adherents to the never-dying cult of Peak Oil, IHS Markit released a study on Sept. 25 indicating that, per their analysis of data from more than 440,000 oil wells in the Permian Basin, the basin still has somewhere between 60 and 70 billion barrels of producible oil to give up in coming years. That’s not exactly the “near-infinite resource” view of the Permian held by Allen Gilmer and his staff at DrillingInfo, but it certainly supports the notion that the basin will remain a very active area for oil and gas development for decades to come.
“The Permian Basin is America’s super basin in terms of its oil and gas production history, and for operators, it presents a significant variety of stacked targets that are profitable at today’s oil prices,” Prithiraj Chungkham, director of unconventional resources for IHS, said in the statement.
The IHS Markit study is the latest in a string of resource estimates in the past year that have produced a growing understanding of the true magnitude of the resource in place in the Permian. Last November, the U.S. Geological Survey (USGS) issued its own resource estimate that a single formation in the Permian, the Wolfcamp Shale, contains 20 billion barrels of technically recoverable oil, by far the largest such estimate ever issued for any single formation by the USGS. Most in the industry understand that this is actually a conservative resource estimate because USGS limits its resource assessments to reserves that are producible using current technology. Given that technology advances in the oil and gas industry every day, such estimates, while useful markers, are out of date before they are even released.
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Just a few days ago, I wrote a piece commenting on the rarity of an oil and gas operator ― in this case Cabot Oil & Gas ― aggressively pursuing litigation in court instead of taking the path of least resistance. Imagine my surprise ― maybe even delight ― when, just hours after that piece was published, I read the news that Energy Transfer Partners, the builder of the Dakota Access Pipeline, had filed suit in Federal District Court against Greenpeace, EarthFirst and others who organized and participated in the long protest action and subsequent efforts to damage that pipeline.
The complaint, according to the company’s press release, “alleges that this group of co-conspirators (the ‘Enterprise’) manufactured and disseminated materially false and misleading information about Energy Transfer and the Dakota Access Pipeline (‘DAPL’) for the purpose of fraudulently inducing donations, interfering with pipeline construction activities and damaging Energy Transfer’s critical business and financial relationships. The complaint also alleges that the Enterprise incited, funded and facilitated crimes and acts of terrorism to further these objectives. It further alleges claims that these actions violated federal and state racketeering statutes, defamation, and constituted defamation and tortious interference under North Dakota law.”
Robert Duval’s character in “True Grit” might look at that paragraph and call it “bold talk for a one-eyed fat man,” and no doubt proving these claims against well-financed conflict groups like Greenpeace and EarthFirst, which we can be sure will be very effective represented in court, will present a high bar. But we can also be sure that no corporation would pursue such controversial litigation unless its management and legal teams believed there was a strong opportunity for success. The real monetary costs and potential for reputational damage are too high to risk on a case with a low prospect for success.
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Allen Gilmer, Co-Founder and Executive Chairman at DrillingInfo, Inc., is not a man who minces words, an attribute that has served him well during a long career in the oil and gas industry. When it comes to the Permian Basin and the amount of oil and gas resource contained in it, he becomes positively loquacious.
“We should view the Permian Basin as a permanent resource,” he says, “The Permian is best viewed as a near infinite resource – we will never produce the last drop of economic oil from the Basin.”
No one disputes that the resource in the Permian is huge, but ‘infinite’ is a big word. I asked him to expand on that concept. “That is the practical reality with the amount of resource that is in the ground,” he says, “The research we’ve done indicates that we have at least half a trillion barrels in the Permian at reasonable economics, and it could be as high as 2 trillion barrels. That is, as a practical matter, an infinite amount of resource, and it is something that has huge geopolitical consequence for the United States, in a very good way. It has a huge consequence in terms of GDP, and right now it is creating an American energy global ascendancy.”
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Last Friday, the American Statesman published a piece titled “About 100 Protesters Call For Austin To End Fossil Fuel Use For Power”. Being from Texas, I read the piece and viewed the video attached to the story with great interest. The City of Austin – Texas’s capital city – maintains its own power utility that is separate from the power grid that provides electricity to most of the rest of the state.
The protesters were on-hand to oppose a proposed plan that would increase the city’s use of renewable fuel to 65% by 2027. In a state rich in natural gas resources for power generation, this goal wasn’t aggressive enough for these 100 souls.
My first thought upon seeing the group of protesters was to wonder how many of them drove to the site of the protest in gasoline-powered cars, which make up about 99% of automobile fleet in Texas? I wondered further if any of them understand that many of the components in the cars they drive – even Teslas – are made from petroleum-derived products?
Many in the group were wearing sneakers. I can’t help wondering if they know that those shoes are in part made from petroleum products? Some carried backpacks – do they know that parts of many such items are to some extent made from petroleum products?
It was a prosperous-looking bunch, most of whom no doubt practice sound dental hygiene. I couldn’t help wondering if they know there’s a very good chance their toothpaste – and their toothbrush, for that matter – is largely derived from petroleum? I wonder if the women among the group realize that their makeup and lipsticks are most likely derived from petroleum as well?
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Don’t look now, but the national news media finally appears to be catching onto the fact that, amid all the chaos within the Trump White House and the media’s own hyper-focus on the Russia Collusion narrative, the Trump Administration is actually producing a sea-change in energy and environmental policy. While I and other contributors here at Forbes.com have been chronicling this massive shift in federal public policy throughout the year, the rank and file reporters at national media outlets appear to have finally awakened to this phenomenon late last week.
David Graham at The Atlantic started things off on August 2 with a piece titled “Trump Has Quietly Accomplished More Than It Appears.” The piece broadly chronicles the achievements of the Trump Administration’s first 200 days in an array of policy areas, one of which is energy and the environment:
The most prominent move was Trump’s June 1 announcement that the U.S. will withdraw from the Paris climate accord. But the EPA is moving on other fronts as well. It’s working to dismantle Barack Obama’s Clean Power Plan, a signature policy aimed at reducing greenhouse-gas emissions. In June, following a February executive order from Trump, the EPA began the process of rescinding the 2015 Waters of the United States rule, which aimed at protecting smaller bodies of water and streams in the same way that larger ones had been. In December, in the closing weeks of his administration, Obama banned drilling in the Arctic and parts of the Atlantic Ocean; the Trump administration promptly set about undoing that ban.
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I had an interesting email inquiry from a reader over the weekend. I don’t know if he’d want to be identified by his full name, so let’s just refer to him as Sergio. The email poses an interesting question that has not received much, if any, public discussion, so I decided to address it here.
The note was fairly long, but here are some excerpts that capture the essence of his inquiry:
“I read with interest your recent article in OilPrice about the US achieving “energy dominance”. You note that what the US oil and gas industry most needs is sustainable prices for oil and gas. I suspect that having some certainty that oil prices will not drop below a certain sustainable level would be of immense benefit to the industry, even more so than having higher prices that may not last for long.
It seems to me that this could be achieved by the US govt setting a price floor for crude oil sold in the US, at a level that is at least sustainable for most of the shale oil industry. A price floor of say $45 – $50 per barrel might do the job at the moment, and because that is about the current oil price it could probably be imposed by the govt without any large political backlash. After all it would not raise the current gasoline price. In fact it could even be a popular move if sold to the public in an intelligent manner.”
Ok, let’s stop there. Any such policy would naturally be a proposal by the Republican Party, given the long history of the Democratic party of opposing any policy that might benefit the oil and gas industry. That eliminates any thought of such a proposal being “sold to the public in an intelligent manner”, right? I mean, these are Republicans we’re talking about.
Let’s move on.
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Ben Van Beurden, the CEO of Royal Dutch Shell, set off a minor media firestorm last week in an interview with Bloomberg TV when he made the following remarks:
- “The whole move to electrify the economy, electrify mobility in places like northwest Europe, in the U.S., even in China, is a good thing.”
- “We need to be at a much higher degree of electric vehicle penetration — or hydrogen vehicles or gas vehicles — if we want to stay within the 2-degrees Celsius outcome.”
Following the interview, a spokesman for the company told Bloomberg that Mr. Van Beurden plans to purchase an electric car as his next personal automobile. It’s great that a CEO of a major integrated oil company makes enough money to afford a Tesla or one of the other very expensive electric vehicles being turned out by European and U.S. automakers.
We can all hope that, over time, the technology will advance to the point where it is competitive with cars powered by internal combustion engines, and thus become affordable to the masses in the middle- and lower-classes of the developed world. But we’re not there yet. For proof, one only needs to look at the lesson Tesla learned when it tried to market its electric vehicles in Hong Kong, where the government ended its substantial subsidies for EVs in April of this year. There, the company registered zero sales in April, after having sold more than 3,000 of its Model S cars during the first quarter of the year. These subsidies matter, bigly.
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