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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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 – , and thus almost never appeared in headlines, articles or movies.)
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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
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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There is no question that , 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.
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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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For most of the past year, the ongoing boom in the Permian Basin has sucked all the oxygen out of the room in terms of media reporting on the oil and gas industry in Texas. The mergers and acquisitions frenzy of 2016 raised per-acre acquisition costs to $40,000, and that in turn led a rapid rise in the Permian’s rig count and subsequent drilling boom to take advantage of the higher oil prices that came about at the end of the year. That story, which has resulted in the Permian’s becoming not only the nation’s largest oil producing basin, but also it’s second largest natural gas producing basin (more on that next week), is very compelling and needed to be told.
But the last year has seen another compelling growth story come about in the state’s other major oil play, the Eagle Ford Shale region of South Texas. It’s a story in which the region’s rig count has more than tripled in a year, from less than 30 to more than 90, in which new-well productivity has more than doubled in less than two years, and in which the economic driver that turned this historically poor region into the nation’s hottest economic development area from 2011 thru mid-2014 has begun to rise again.
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