During his campaign for the presidency, Donald Trump repeatedly promised he would save the nation’s struggling coal industry by rolling back regulations enacted during the Obama years, and he has made strong efforts to keep his word. But the extent to what the President would be able to do to keep this pledge was always severely limited, by the constitutional limits on presidential powers, the vagaries of the regulatory process, the ability by opponents of his priorities to tie anything he tries to do up in the court system for years, and by the realities of the marketplace.
So it was somewhat ironic and telling that the following two announcements came within a few days of one another:
- On October 6, Luminant announced it would be permanently closing its huge, 1800 mwh coal-fired Monticello power plant in Titus County, Texas by January 2018; and
- On October 9, EPA Administrator Scott Pruitt announced his agency would formally propose a new rule to replace the Obama era Clean Power Plan (CPP), following up on the executive order issued by President Trump on March 27.
Mr. Pruitt admitted his agency has no firm proposed substitute at this point, but rather will seek public comment and participation in developing a plan for reducing power plant emissions that would ultimately replace the CPP. Regardless of how that process of public input is conducted, the EPA’s action will be met by strong resistance, as evidenced by the typically inflammatory statement issued by Micheal Brune, Executive Director of the Sierra Club, as cited by the Washington Post:
“With this news, Donald Trump and Scott Pruitt will go down in infamy for launching one of the most egregious attacks ever on public health, our climate, and the safety of every community in the United States. He’s proposing to throw out a plan that would prevent thousands of premature deaths and tens of thousands of childhood asthma attacks every year.”
Mr. Pruitt can rest assured that his proposal to repeal and replace the CPP will be challenged in the federal courts at every conceivable opportunity not only by anti-development groups like Sierra Club, but also by the many Democratic state attorneys general who have already coordinated suits against several other Trump Administration energy and environment-related proposals.
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A headline in Tuesday’s online edition of The Houston Chronicle, “Drillers Choke Off Dollars To Permian Basin Operations,” may have unintentionally caused confusion regarding the current state of play in the country’s most active drilling and oil-producing basin.
The story to which this headline was attached references a report by the firm Wood MacKenzie that discusses how upstream merger-and-acquisition activity in the Permian has trailed off somewhat dramatically in recent months. This is entirely true. As The Chronicle points out, Wood MacKenzie’s data indicates: “Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion.”
Someone at The Chronicle apparently realized that the initial headline was somewhat confusing ― the Wood McKenzie report does not talk about any slowdown in drilling ― because the headline was later changed to read “Rising Costs, Land Prices Have ‘Taken The Edge Off’ Permian Basin.” It was inevitable that the upstream M&A fever that developed in the Permian last summer was bound to eventually slow down. As geographically huge as the Basin is, there is a limit to the amount of acreage within it that could rationally be evaluated to meet acquisition costs that in some deals exceeded $40,000 per acre. So it is not surprising at all that the pace of land and reserves transactions has slowed dramatically.
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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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