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Gilmer: We Should View The Permian Basin As A Permanent Resource

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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Do Fossil Fuel Protesters Know How Much Those Fuels Impact Their Lives?

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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Everyone Chill Out, OK?

Just a little perspective on the current situation, and then I’ll shut up for the day:
 
  • The current effort by the fake media/Democrat Party ministry of disinformation to tar President Trump as a racist and run him out of office is just a repeat of the playbook they used against Ronald Reagan in 1981-84. Same tactics, same false claims, same inflammatory protests and rhetoric. We have, in other words, seen this movie before.
  • We should all remember that the ending to that movie in 1984 was the single greatest landslide re-election of any sitting president in the history of the American Republic. The average American is much more perceptive than Democrats believe they are.
  • We also need to remember this key difference between 1984 and today – The Democrat Party’s status has radically changed:

    • The Democrat Party in 1984 was a majority national party in almost every respect outside of the Oval Office.  It controlled both houses of congress, a majority of state governorships and a majority of state legislative houses.  It was the majority party in the West, the majority party in the Rust Belt, the majority party in the Midwest, and the majority party in the Northeast.  It had real leadership in congress, and a strong bench of younger, upcoming leaders.  What it didn’t have was a strong candidate to challenge Reagan, whose popularity boomed along with the national economy, which had come roaring back in response to his program of tax cuts.
    • By contrast, The Democrat Party today is in complete and utter disarray. It has no leadership that is attractive outside one fringe group or another.  It is now nothing more than a regional party comprised of an often-conflicting collection of single-issue grievance constituencies.  Its only unifying core philosophy is one of hate:  Hate Trump, hatred of white men, hatred of the police, hatred of the military, hatred of fossil fuels and pipelines.  It has no real leadership outside of the evil George Soros and the termed-out Barack Obama and the twice-failed presidential candidate Hillary Clinton.  It has no bench of young, upcoming stars to replace its current sclerotic leaders.  It is the majority party only on the West Coast and in some of the Northeast.  It controls neither house of congress, only 4 of 9 seats on the Supreme Court, only 15 of 50 governorships, and an even smaller number of state legislatures.  It is an utterly corrupt and dying entity.
    • Even better for the Republicans, the termed-out Barack Obama, whose feckless and corrupt rule from the radical left and deployment of Alinskyite tactics against his political enemies led directly to the fall of the Democrat Party, is promising to move back onto the political stage this fall.  This can only work to the GOP’s advantage.
  • So tonight, when you turn on CNN or MSNBC (for what reasons I can’t even fathom at this point other than self-abuse)  and see a panel made up of 4 squealing liberals, 2 pontificating fake Republican Trump-haters, and a token real Republican who is there for “balance”, realize that fewer than 1 out of 3000 other Americans are joining you in that inexplicable activity.  Most of them are hopelessly lost souls, but they do not a majority make.
  • Meanwhile, the U.S. economy continues to heat up; the FBI and Justice Department appear to be turning back into real, functioning law enforcement entities again; U.S. foreign policy is working again, even at the previously worthless United Nations; the swamp creatures who have infested and corrupted the State Department, the IRS, the Interior Department, the Energy Department, the EPA and the Department of (no) Education are being run off in droves; the rapidly rising production and exports of oil, coal and liquefied natural gas are turning the U.S. into an energy powerhouse on the international stage; and there have been more than 1 million new jobs created in our country during the first half of 2017.
  • As we sit here today, all of these factors and many more mean it is very likely, given good health, that Donald Trump will be a two-term president.  So do what I’m going to do this evening:  stop worrying and be happy.

That is all.

 

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“Fracking” Has Lost Its Faddish Sex Appeal

Every fad runs its cycle:  The ’50s gave us the hula-hoop, the ’60s gave us tie-dyed t-shirts, the ’70s gave us leisure suits, the ’80s gave us Cabbage Patch Dolls, the ’90s gave us Pokemon, and the ’00s gifted us with The Atkins Diet (on which I once lost 36 pounds and then gained it all back in a single year).  Fads come and fads go, but the thing that they all have in common is that, when we look back from the viewpoint of history, we wonder how they ever became so popular to begin with?

Thus begins the saga of “Fracking” and its application to the very safe, heavily-regulated industrial process of hydraulic fracturing by activist conflict groups, the news media and the entertainment industry that has run a similar course over the past ten years.  Starting around early 2008, we began to see groups like the Natural Resources Defense Council (NRDC), the Sierra Club and other major environmentally-focused conflict groups using the term “Fracking” ubiquitously in their messaging campaigns to oppose the oil and gas industry the U.S.

The use of the term – which is adopted from the remake of the Battle Star Galactica series that aired during the early years of this century – quickly spread into the media, which is not surprising.  After all, the term is stark, it is sexy, and it is adopted from a cuss word (In Battle Star Galactica, the term “Frakking” was used to describe the act of sexual intercourse) that had become well-known in pop culture.  We first began seeing the term used in left-wing media outlets like ProPublica, but it quickly spread to the mainstream outlets, as journalists and editors began to see the use of the term attracted traffic to their websites.

Over the following few years, the use of the term expanded almost exponentially in the media and then into the entertainment industry, as the public became increasingly aware of the boom in shale oil and natural gas that “fracking” had made possible.  (Nevermind, though, that “fracking” had to be wedded to horizontal drilling in order to achieve that feat – “horizontal drilling” wasn’t sexy enough to be used as a way to attract clicks on news stories , and thus almost never appeared in headlines, articles or movies.)

 

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The Oil And Gas Situation – Confusion Reigns In The Energy Media

If you read the Dallas Morning News for information about the oil and gas industry, you’d be best advised to do more than just scan the headlines.  Here are two examples of headlines that just don’t really match the content of the articles:

Trump Won’t Declare Dallas Firm’s Dakota Access Pipeline A Major Disaster – Well, no, that’s not at all an accurate description.  The state of North Dakota’s governor – Doug Burgum – did not ask President Trump to declare the Dakota Access Pipeline to be a “major disaster”.

Governor Burgum did ask the President to declare the site of the months-long protest/riot action against the Dakota Access Pipeline to be a “major disaster” in an effort to seek federal help in footing the $38 million bill for policing the often-violent protesters and cleaning up the epic mess they left behind when they finally cleared their illegal site.  Given that it was the federal government, under Barack Obama, that allowed these rioters to illegally occupy the site for half a year, it would seem that the Governor had a valid complaint.  President Trump disagreed, which is his right.  Either way, it would have been nice for the headline writer to accurately portray the content of the article.

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The Trump Energy Policy Revolution Creates Its Own Set Of Challenges

There is no question that President Donald Trump and his Administration are bringing about a real sea change in federal energy policy , one that can legitimately be referred to as a revolution.  Though the national news media, with its myopic focus on presidential tweets and scandal-mongering, has largely missed it, there is no denying that our energy policy world has had a radical shift since last November 8.

For the oil and gas industry, this shift has been mostly positive:  the rollback of a series of ill-advised, poorly-constructed, often unnecessary regulations, the opening up of new tracts of federal lands and waters to leasing, the speeding up of permitting processes and lease sales are all policies designed to stimulate the production of U.S. oil and gas resources, in keeping with the Administration’s “America First Energy Plan”, and the President’s goal of U.S. “Energy Dominance.”  After eight years of little but bad news coming out of Washington, DC, the industry has been very grateful for these and other efforts by the Administration to encourage increased domestic production, the industry’s new-found optimism reflected in the rising rig counts and drilling permit applications of the first 6 months of 2017.

But all of this change, even when positive, does bring a downside for an industry that places a high priority on its ability to plan its business :  Uncertainty.  Anytime you have rapid and radical change, whether positive or negative, confusion and uncertainty are going to result.  There is no question that the industry experienced a great deal of rapid, radical change of the negative sort over the last eight years, but when companies knew what was coming, they could at least plan for compliance and work the costs into their projected economics for planned capital spending.

 

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U.S. Shale Industry Is Nimble, Except When It Isn’t

Last Friday I wrote about the single rig-drop in the Baker Hughes U.S. rig count, noting that it could be an early harbinger of a second-half 2017 slowing of the somewhat frantic pace of drilling we saw during the year’s first six months.  We’ll need to wait to see what happens in the next two weeks to be fairly sure whether or not that is the case.

But here’s the funny part:  as they are wont to do, many “experts” in the energy media are already telling their audiences that the trend is already here (which, again, is possible), which means the domestic industry is going to slow rapidly (not likely at all), which in turn means the crude price is about to rise back up above $50 in short order (again, not likely at all), which in turn means that, after a month or two, the U.S. industry will then again begin activating a bunch of additional rigs and drilling a bunch more wells before the end of 2017.

That last part is really, really unlikely, given current circumstances.

First, there was the report on Monday that OPEC’s June production rose significantly, to its highest level of 2017.  This indicates that more OPEC member countries are beginning to exceed their agreed-to quotas as time goes on.  Given that this has been a consistent OPEC pattern throughout its history, this comes as no surprise.

Second, as I wrote a couple of weeks ago, my belief based on discussions with industry contacts, and on 38 years of participating in oil and gas industry corporate budgeting processes, is that, barring a true price collapse into the $30s that lasts for at least a couple of months, the rig count will not fall rapidly, as some are predicting today.  Instead, we will most likely see a stagnation or very modest decline in the rig count in coming weeks as companies begin to execute on revised, lower capital budgets for the second half of the year.

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Rig Streak Ends, Oil Price Streak Maintains – What Does It All Mean?

Friday marked the end of the 23-week streak of uninterrupted gains in the U.S. rig count , as the overall count fell by 1, according to the Baker Hughes survey.  Meanwhile, the price for crude oil rose for the sixth consecutive trading session, the longest such streak of the year .  Though the price for WTI still hovers around a modest $46/bbl, both events were encouraging signs to an industry that had not had much to celebrate throughout most of the month of June.

On June 19, I wrote about my belief  that we would see the U.S. drilling rig count level off and even begin to fall slowly as U.S. producers readjust their drilling budgets for the 2nd half of 2017.  The rate of increase in the rig count has been slowing for several weeks as these budget adjustments began to kick in, and this week’s single-rig decrease is a sign that the overall count may have peaked or is close to doing so for the remainder of 2017.

This is a good thing for the future of oil prices, because the U.S. shale industry had heated up so rapidly over the first six months of the year that a cooling off period as become needed.  The rapid rise in overall U.S. oil production had inhibited the effort by OPEC and Russia to re-balance global supply and demand and greatly diminished investor confidence in the commodity.  If Friday’s slight decline does signal a peak or near-peaking of the rig count, that will serve as a bullish price signal in coming weeks and months.

As well, the six-day rise in the global crude prices is a positive sign, but no one should celebrate too strongly over the July 4 holidays, since all that really happened was an uptick from a very low WTI price of around $43/bbl up to Friday’s still-low $46 finish.  That price is still not at a level necessary to sustain current levels of new drilling in most U.S. oil-producing basins.
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Is The U.S. Close To Achieving ‘Energy Dominance’?

 

If you hadn’t heard, the Trump Administration has declared this week to be “Energy Week”, a week during which the President and his senior officials are focusing on the theme of “U.S. Energy Dominance.” Not “energy independence” or “energy security”, both themes past presidential administrations have focused upon – “energy dominance.”

So, what does it all mean, and can the United States actually achieve it? Good questions. Here are some answers.

First, when President Trump talks about his goal of Energy Dominance, he’s referring to a plan that envisions implementing policies that encourage four major elements:

 • Taking full advantage of America’s amazing abundance of oil, natural gas and coal;

• Increasing exports of all three of those fossil fuels and their related products;

• Relying more on imports of oil from Canada, Mexico and other Western Hemisphere nations, and less on imports from the Middle East and North Africa; and

• Leveraging all of those three elements to enhance U.S. bargaining positions in its foreign policy initiatives.

Right on cue, we saw the President engage in a bit of energy-leveraging during his discussions this week with Indian Prime Minister Narendra Modi, folding India’s growing reliance on U.S. LNG imports into his request for a lessening of the rapidly growing nation’s import tariffs on U.S. goods. We should expect to see the President rely more and more on this sort of leverage as U.S. exports of oil, LNG and coal continue to rapidly grow in coming years. This, more than anything else, is what the President means when he talks about Energy Dominance.

Critics point to the reality that the U.S. currently imports about half of its daily crude oil needs, but they miss the point. This is not a discussion about energy “independence” – the President clearly understands that the U.S. will always be a net importer of crude oil.

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