In this episode, David and Ryan why the oil market seems overly jittery now that it appears the market is back in balance after three years of chronic over-supply. They also discuss how super tankers co-loaded with crude from both the U.S. and Mexico have helped open up Asian markets to U.S. producers, why solar really isn’t cheaper than coal despite all the hype in the media, and celebrate the fact that Shell has now restored its full cash dividend thanks to its strengthening bottom line.
It has been a year now since we all awoke on Nov. 9, 2016, to the reality that, against all odds and all predictions by the polls and political “experts,” Donald J. Trump had somehow defeated Hillary Clinton in the race to become the 45th President of the United States. It was a stunning outcome to a seemingly endless campaign, one that had turned into the most vicious and personal presidential contest in modern times.
The oil and gas industry had not supported Trump’s candidacy during the Republican Party’s primary and nominating process, when most contributions from industry executives and company employee PACs flowed to more conventional politicians like Wisconsin Gov. Scott Walker, former Florida Gov. Jeb Bush, and Sens. Ted Cruz of Texas and Marco Rubio of Florida. The same held true in the general election, during which the vast majority of contributions from industry executives flowed to Clinton.
Despite that slight, Trump made the promotion of policies that support a healthy oil and gas industry a centerpiece of his campaign strategy from beginning to end. During his speeches, the primary and general election debates, and the hundreds of rallies he conducted before crowds of thousands of supporters, candidate Trump talked about issues all too familiar to those in and around the nation’s oil patches: the Keystone XL and Dakota Access pipelines, EPA’s Waters of the United States regulatory scheme, the Clean Power Plan and the Bureau of Land Management’s (BLM) hydraulic fracturing rule.
At a September 2016 rally in Pittsburgh, Trump made a speech that was very typical to what he said throughout his campaign: “I am going to lift the restrictions on American energy and allow this wealth to pour into our communities — including right here in Pennsylvania. The shale energy revolution will unleash massive wealth for American workers and families.”
It was an extraordinary thing. No candidate in modern times from any political party had worked so hard to make energy in general, and the oil and gas industry specifically, such a major part of his or her campaign’s messaging. When seeking support from the oil and gas industry and many others, though, Trump turned off many people with his rhetoric and antics on other matters. His unpredictability made millions of Americans simply uncomfortable with the idea of having this person occupying the highest office in the land. This factor remains true a full year after his election.
Episode 5 – Debating energy-related issues based on facts and reality rather than hyperbole
Show Notes: In this episode David and Ryan discussed the pending deal between Russia and OPEC to extend their export limitation agreement through the end of 2018, and how crucial that deal is for the direction of crude oil prices on the global market. Also discussed: natural gas production in the Permian Basin; what’s next for the Keystone XL Pipeline; the ongoing revival of Alaska’s oil and gas industry; and why renewables won’t be crowding fossil fuels out of the energy markets anytime soon.
Energy Week, Episode 4: Why the majors aren’t worried about “Peak Oil” but the markets are worried about events in Saudi Arabia.
Show Notes: In this episode, David Blackmon and Ryan Ray discussed how the ongoing upheaval in Saudi Arabia is impacting oil markets, and the impacts it all could have on the planned IPO for Saudi Aramco. Next, they talked about the reasons why the various “Peak Oil” theories and narratives are wrong, and why the big oil companies aren’t really worried about them. Finally, David talked about the reasons why he thinks the U.S. industry just might not mess up the current positive oil price situation in 2018.
Links to articles referenced in Episode 4 of Energy Week:
A good friend of mine who runs the government affairs shop at a large independent producer has a favorite saying: You can always count on the oil and gas industry to mess up a good thing. The last time he said that to me was about this time a year ago, when it was apparent that, after a terrible year during which the oil price for West Texas Intermediate (WTI) had sunk as low as $26/bbl, the price would top $50 by the end of the year in the wake of the agreement between OPEC, Russia and several other non-OPEC nations to curtail exports.
We were discussing the probability that, in response to that higher commodity price, the upstream segment of the industry would respond by activating a large number of idled drilling rigs early in 2017 and drill its way right back down to a lower price. Which, of course, is exactly what happened: The industry brought more than 200 additional rigs online during January and February, and another 100 or so during the next couple of months, and the market responded by trading for WTI at $43/bbl by the end of April, even as OPEC and Russia reported high levels of compliance with their lower production quotas.
Now here we are, coming toward the end of another year, and once again we have a situation in which crude prices are ramping up to an even higher level, thanks to steadily rising demand, anticipation that OPEC and Russia will renew their export agreement through 2018, and other favorable market signals. One of those other favorable signals is the fact that the rig count in the U.S. has fallen off by about 70 rigs in the last seven weeks, as shale producers have executed on more conservative drilling budgets during the second half of the year. As a result, the rate of increase in overall domestic oil production has basically leveled off at levels the market can absorb.
So will the U.S. industry mess up a good thing again in 2018? It might surprise my good friend that this time I don’t think it will, at least not to the extent that it did over the first half of 2017. This view could change by the end of December, but right now there are several factors that indicate that, while drilling will definitely pick up again after January 1, it will be a more muted response than we saw this year.
The popular joke about Tesla founder and CEO Elon Musk is that every time his company reports another quarterly operational loss, he makes another high-profile speech about creating a human colony on Mars. After last week, Musk may need to consider making a series of such speeches.
Not only did Tesla report another quarterly loss last week, it reported its biggest single-quarter loss since starting business in 2009. Its Q3 2017 loss of $619 million almost doubled its previous record quarterly loss, which came in Q2 2017. That second-quarter loss barely exceeded the company’s Q1 loss of $330 million. 2017 has not been kind to Tesla.
As if to heap insult onto injury, just a couple of days after Musk had to acknowledge his company’s worst financial quarter, the Republican-dominated House of Representatives unveiled its proposed tax overhaul for both individual and corporate taxpayers. While the GOP plan would lower the corporate tax rate on corporate profits to 20%, from its current 35%, that is hardly relevant to Tesla, which has never reported an annual profit in its history and in fact has only twice reported a quarterly profit.
Making matters even worse, not just for Tesla but for all other manufacturers of electric vehicles in the U.S., the GOP tax plan would repeal the existing $7,500 tax credit available to purchasers of these cars. This credit, along with similar credit and rebate programs available in the various states, has enabled EVs to be at least somewhat price competitive with gasoline and diesel cars. Were the credit to go away, it is very likely that sales of EVs would plummet, a reality that no amount of speeches or press releases about Mars could hope to offset.
In Episode 2 of Energy Week, David Blackmon and Ryan Ray discuss current dynamics with the domestic rig counts and prices, and the implications they pose for the rest of this year and into 2018. Other topics of discussion include:
- Why electric vehicles still aren’t making a dent in U.S. demand for gasoline-powered cars;
- The heinous abuse of the court system by a professional protester who caused a riot a year ago at the site of the Dakota Access Pipeline; and
- Blackmon’s Forbes article advocating for an increase in the federal gasoline tax.
It was great to be able to write this issue’s cover feature on the South Texas Energy & Economic Roundtable (STEER) and its outstanding staff, including President and CEO Omar Garcia. Watching the organization have so much success has been very rewarding, since I played a minor role in its creation back in 2012; and writing the piece provided a chance to reflect on the STEER business model and why the oil and gas industry should try to replicate it in other parts of the country.
By late 2011, it had become obvious to everyone that the Eagle Ford Shale was a world-class resource that represented an unprecedented opportunity for economic development in South Texas. Shortly after a lunch during which I and a group of colleagues talked about how best to go about protecting this opportunity, I got on a conference call with the Haynesville Shale Operators’ Committee (HSOC). This coincidence of timing was what spurred my involvement in the germination of STEER.
HSOC was the brainchild of the Louisiana Oil & Gas Association (LOGA) and its President, Don Briggs. Created during the height of the development of the Haynesville Shale natural gas development, the organization served as an extremely effective voice for the industry in what was at the time the busiest shale development region of the country. The challenge the Haynesville Shale presented to LOGA was its concentration in the northwest corner of the state, hundreds of miles from the state capital of Baton Rouge, where LOGA’s offices were located.
Rather than have its staff constantly travel back and forth between Baton Rouge and Shreveport to help its members address community and regulatory issues, LOGA came up with the model of establishing a committee within its organizational structure that essentially functioned as a separate trade association. To become members of HSOC, companies paid separate dues, and the committee itself had its own separate staff.
To further distinguish HSOC as a separate entity, the HSOC staff seldom became engaged in the single most crucial role of any state trade association — lobbying the state’s legislature. Instead, HSOC focused on helping members with community and media relations, functions that have not traditionally been strong points for the industry’s legacy associations.
The model worked. HSOC was a tremendous asset for producers, the media and communities in the region, all of whom needed an honest-broker intermediary to help understand and communicate with one another.
Seeing no reason why this model wouldn’t work just as well in South Texas — where the sudden, massive growth in oil and gas activity was very predictably creating lots of friction and challenges in the local communities — I took the idea to Rob Looney, then-President of the Texas Oil & Gas Association (TXOGA), one of the industry’s largest trade associations, headquartered in Austin. My involvement ended there, since I had a conflicting role with one of the industry’s national trade associations at that time.
A Sleeping Giant Beneath The Chalk
Nestled in a quiet area of suburban Dallas, just off the intersection of Texas State Highway 12 and Interstate 30, lies the neighborhood of Eagle Ford. At one time an incorporated city, Eagle Ford was annexed in the mid-1950s by the city of Dallas, whose city center skyscrapers can be seen just 6 miles away.
Originally settled by the family of Enoch Horton in 1844, the community soon became known as an important crossing of the West Fork of the Trinity River. The Horton family established a grist mill; and within a few years they donated land to establish the town’s first cemetery and for the right of way and depot for the Texas and Pacific Railway. As was the case for hundreds of communities in Texas’ early decades, the establishment of a rail depot led quickly to rapid population growth. By the 1870s, Eagle Ford had become a key shipping point for the cattle industry, and its population had grown to several thousand.
The death of the trail drives led to the collapse of the cattle business, and by the 1890s, Eagle Ford’s population hovered around 50 citizens, where it remained well into the mid-20th century. Memory of the community’s heyday was largely lost to history, where it remained until late 2008.
Not far from the location of the original Horton grist mill, a small cliff face reveals an out-cropping of the Austin Chalk formation, which had become famous during the 1970s and again in the 1990s for the production of prodigious amounts of crude oil. Indeed, the Chalk is experiencing a bit of a third revival today.
Immediately beneath the Chalk outcropping, another formation displays what seems to be a rocky, clay-like profile. This formation is actually a shale formation, one that happens to be the source rock for the Austin Chalk. It was the oil migrating up from the Eagle Ford that made the Chalk such a prodigious formation to begin with.
Like the Austin Chalk, the Eagle Ford Shale extends deep into South Texas and even under the Rio Grande into northern Mexico. Unlike the Chalk, however, this formation had received scant attention until October 2008, when Petrohawk (now a part of BHP Billiton) drilled what is credited as the first commercial horizontal well completed in the formation in La Salle County. The well, completed with a 3,200-foot horizontal lateral involving a 10-stage frac job, produced at an initial flow rate of about 7,600 MMBTU of natural gas per day, and the race was on.