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U.S. Oil Industry Has Bigger Problems than Biden Fracking Ban

The U.S. oil business has bigger potential problems than Joe Biden’s promised fracking ban. There is no doubt that the Biden/Harris promise to ban hydraulic fracturing on federal lands and waters would severely hamper the nation’s oil and gas business sector.

In addition to curtailing about 20% of U.S. oil production that comes from federal leases, such a move would cause capital flight away from oil projects in the U.S., regardless of land type since it would send a signal that government policy in a Biden administration would present a high degree of risk and uncertainty. This is an outcome an already capital-strapped industry can ill-afford.

But as impactful as that potential problem would be, U.S. oil and gas producers face an even larger looming headache this morning: Uncertainty about the continuation of the OPEC+ agreement, the deal among large oil producing countries to limit output and exports onto the global market. The existence of that agreement currently has its member nations withholding about 7.7 million barrels of crude per day from the market. It is the main reason why the current U.S. benchmark price for West Texas Intermediate, which currently hovers above $45 per barrel, hasn’t collapsed back down below the $20/bbl mark.

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America Is About To Have Its First Fracking Election

This has never happened before. The oil and gas business – the industry, its health and its impact on inflation and consumer prices – has always played some small role in presidential politics, at least since the oil shocks and embargoes of the 1970s. Most times in the past, the key issue surrounding oil and gas has related to the price of gasoline and what the candidates planned to do about it.

The issue of oil and gas has only arisen whenever gas prices were considered to be too high, never when consumers were benefitting from them being historically low, as they are today. Yet, suddenly this year, this key industry is playing a huge role in the 2020 presidential politics, and it is wholly unrelated to anything having to do with prices at the pump.

The issue in this election campaign is fracking, and whether or not it will remain legal should Democrat candidate Joe Biden become our next president. While this longstanding and well-regulated industrial process has hovered around the periphery of presidential politics since 2008, when the anti-development lobby decided to politicize it with a focused and highly-organized demonization campaign, it has suddenly become one of a handful of crucial issues that dominate the political landscape this year due to its job-creating and economic impacts in a single swing state: Pennsylvania.

How important is it? Early Monday morning, the Trump Campaign announced that President Donald Trump would be holding three separate campaign rallies that day. This is nothing unusual, given that the President has made a habit of holding multiple rallies each day during both of his presidential efforts. On Saturday alone he held rallies in the state of Florida, North Carolina, Ohio and Wisconsin.

What is unusual about Monday, though, is that all three of the Trump rallies will be held in Pennsylvania, which has become perhaps the single most crucial swing state in the 2020 election. Biden is also paying special attention to the Keystone State, holding events there on Friday and Saturday, and sending both ex-President Barack Obama and Senator Bernie Sanders there to campaign on his behalf over the weekend.

Pennsylvania was certainly a key swing state in 2016, but its importance was equaled by Florida, Wisconsin, Michigan and North Carolina as the race played out. This year, though, it has become increasingly difficult to see how either major candidate can prevail in the Electoral College without having Pennsylvania’s 20 electoral votes included in his total.

All of which explains why the issue of fracking and its continued legal deployment has become so elevated in the national discourse this year. Pennsylvania is, after all, the fulcrum for the development of the enormous Marcellus Shale/Utica Shale resource plays, the largest natural gas reserve in the Western Hemisphere.

 

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Did BP Really Say That Global Oil Demand Has Peaked? No, Not Really.

During a panel discussion in which I participated recently with three energy experts, the moderator asked us if we agreed with the recent projection by British oil giant BP that oil demand may have already peaked during 2019. Everyone on the panel answered with a firm “no.”

From my own perspective, I gave that answer in large part because all of the dozens of previous “peak oil” predictions – whether from the supply side or the more recent demand side reasoning – have turned out to be entirely wrong, often in hilarious fashion. From an historical perspective, it just seems like the safer position to take.

That’s not to downplay the position assumed by BP, whose internal expertise is undeniable. But it’s key to note that much of the media coverage the company’s findings have received portrays BP’s position as being far more absolute than it really is. The company’s position on “peak oil” is in fact highly-qualified.

As a part of its recently-released Global Energy Outlook study, the company ran three scenarios based on differing assumptions regarding how rapidly governments around the world would attempt to move to adopt emissions-reducing policies and subsidize renewables. The cases were labeled “Rapid” (the most aggressive assumptions), “Net-Zero” (assuming most governments would adopt ‘net-zero by 2050’ policies) and “Business as Usual”, in which progression would continue on the slower path seen to date.

In a COVID-19 hampered world in which governments across the globe are teetering on the brink of insolvency, the “Business as Usual” scenario certainly appears to be most likely to persist for the time being, given the multi-trillion dollar costs involved in the other two cases. Under that scenario, BP in fact projects that global demand will not only recover to pre-COVID levels seen late last year, but continue to grow through the year 2030.

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Biden Tries Again to Clarify His Fracking Stance, and Fails Again

The Biden/Harris ticket has been the source of a great deal of confusion during this campaign related to the candidates’ stances on the subject of hydraulic fracturing. Senator Kamala Harris firmly stated several times in the past that she is absolutely in favor of banning fracking, but has been attempting to walk all of that back in recent weeks as the polls have tightened in oil and gas states like Pennsylvania and Michigan.

Former Vice President Joe Biden, meanwhile, has been all over the place on this issue, promising repeatedly to ban fracking in whole or in part during the primary season, and more recently joining Harris’s efforts to modify that position in order to shore up his chances in those and other crucial swing states. Biden was asked the question again by an undecided voter during his CNN town hall appearance in Moosic, Pennsylvania this week, and again attempted to modify and clarify his position. Unfortunately, a reading of the transcript of that exchange doesn’t really clarify much at all.

Here is that transcript:

QUESTIONER: Good evening Mr. Vice President, Mr. Cooper. With the abundance of natural gas in northeast Pennsylvania. Do you support the continuation of fracking safely and with proper guidelines, of course, and growing the industry (garbled) additional jobs to our region?

BIDEN: Yes, I do. I do. In addition to that, we can provide for right now, as you know, for thousands of uncapped wells because a lot of companies gone out of business. Whether they’re gas or oil facilities, we can put to work right away 250,000 people from iron workers and other disciplines, making union wages. Capping those wells that are leaking methane and their danger to the community. And so, not only do I continue to support it.

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Chesapeake Energy Finally Succumbs With Chapter 11 Filing

One of the longest-running dramas in corporate oil and gas history finally came to a climax on Sunday when management for Chesapeake Energy announced it would seek Chapter 11 protection under the U.S. bankruptcy code. The company has traveled a long and winding road to reach this point.

Rumors about the company’s pending bankruptcy have run rampant over the past year as it teetered on the financial brink. But in reality, Chesapeake’s financial troubles go back much further, to the early years of this century, when founder and former CEO Aubrey McClendon famously made a bet on natural gas continuing to be a scarce resource in high demand whose price would remain strong for decades. Based on that market view, the company then went on a buying spree for the next several years, buying up natural gas assets and companies at very high prices. In one acquisition in which the company I worked for – Burlington Resources – was the second high bidder, Chesapeake’s winning bid was $3 per MMBTU equivalent higher. That’s a lot of excess capital deployment.

None of his assumptions about the future for natural gas turned out to be accurate, of course, but it must be pointed out that McClendon certainly was not alone in making them. For example, I personally played a leadership role in a 2003 National Petroleum Council study which attempted to project natural gas supply, demand and prices through the year 2025. The study was led by ExxonMobil and Anadarko Petroleum (acquired last year by Oxy), and included participants from many other industry companies, the Energy Department, the Department of Interior and environmental NGOs.

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The fundamental conclusions and projections of that study basically supported McClendon’s view of natural gas remaining a scarce resource with pretty high commodity prices as far as the statistical models we used could project. It was in fact the prevailing common wisdom in the industry at that time.

The NPC study projected that imports of Liquefied Natural Gas (LNG) would in fact have to make up an increasingly high percentage of U.S. natural gas supply. That incredibly wrong projection led to the building of a series of LNG import facilities in the U.S. and helped compel ExxonMobil to invest billions in its own fleet of new LNG tankers to help supply America’s coming needs.

While other operators held similar views about the future for U.S. natural gas, Chesapeake was without doubt the most aggressive in terms of pursuing new reserves. In addition to arguably over-paying for acquisitions of other companies or their assets, Chesapeake became infamous for radically driving up lease bonus prices in every new shale play, in the process running up a prodigious level of corporate debt. At one point, Chesapeake’s corporate debt exceeded that held by ExxonMobil, a company many times its size.

As natural gas prices collapsed in the late ‘00s, McClendon next turned to sales of his own company’s assets or portions of working interests in big play areas as a means of continuing to finance and pay down that debt. He sold shares of the company’s working interests in the Barnett, the Eagle Ford, the Marcellus and the Haynesville to various other players, like BP and CNOOC, but every sale also meant less and less cash flow coming into the company itself. Many in the business during that time joked about it being a sort of a pyramid scheme in which the debts would ultimately end up outstripping the company’s income and ability to pay.

 

 

 

 

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$70 Oil by the end of the Year? It Could Happen.

What a difference three months makes. Three months ago today, Russia and Saudi Arabia had just embarked on a completely irrational effort to flood the global oil markets after Russia had basically blown up the OPEC+ supply limitation agreement when it balked at making an additional few hundred thousand barrels of oil per day (bopd) in cuts.

But on Saturday, those same two big producers cajoled the rest of the countries participating in OPEC+ to extend the deep, 9.7 million bopd May/June supply limits through the end of July. The cuts had been scheduled to scale back to a combined 7.7 million bopd on July 1. Reuters reports that Saudi Arabia has now reduced its daily production by 2.24 million bopd from its market-flooding level in April, while Russia – which could not stomach a reduction of about 200,000 bopd back on March 4, has cut its own daily production by more than 900,000 barrels.

It’s pretty amazing how single digit – and even momentary negative – crude prices will change an oil minister’s perspective on what constitutes an appropriate level of output.

The OPEC+ members also pledged to monitor and reassess appropriate supply levels on a monthly basis, beginning with their next meeting, which is scheduled for June 18.

Combined with dramatic reductions in crude output in the U.S. and Canada and a more-rapid-than-expected recovery in demand, the extension of the OPEC+ May/June quotas sets the stage for a more rapid re-balancing of the global markets. Bjornar Tonhaugen, Rystad Energy’s head of oil markets, said that “Today’s deal is a positive development and, unless a second Covid-19 wave hits the world, it will be the backbone of a quick recovery for the energy industry. That is due to the oil stocks decrease that we will see as a result of the production deficit. Stocks are now what keep prices at relatively low levels and the quicker they fall, the faster we will see prices rise.”

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Texas Oil Regulator Poses The Fundamental Question: “How Do We Start?”

After taking more than 10 hours of verbal testimony from more than 50 witnesses at Tuesday’s hearing, the three members of the Texas Railroad Commission tabled any decision on whether to move to limit oil production from Texas wells through its power of prorationing. During the course of the hearing, Commissioner Christi Craddick hit on the fundamental impediment that will likely prevent the RRC from any quick implementation of limits: There is no institutional memory on how to do it.

“We don’t know how to do it at the agency anymore,” Craddick said to one witness who was around during the last time the RRC enforced prorationing back in 1972. “Do we start on Jan. 1? Where do we start? How do we start?”

Exactly. As much as many struggling independent producers would like to think the Commissioners possess some magic bullet power that would boost prices and help them survive the most severe oil industry downturn in modern times, reality tells a different story. No one working at the RRC today was there in 1972, and even if they were, the industry the Commission regulates has fundamentally reinvented itself at least half a dozen times since then. The Commissioners and their current staff can read all the history books on the market about the golden age of prorationing, but that wouldn’t be much help to them in implementing new production limits soon.

Commissioner Craddick’s mention of a possible January 1 date for trying to implement the change is very telling. If professional industry analytical firms like Rystad EnergyIHSMarkit and Wood MacKenzie are accurate, the immediate crisis in global oil over-supply will have been resolved well before then, and oil prices should be well on their way back up to higher levels. It is equally likely that dozens of Texas oil producers will have been forced into bankruptcy in the meantime.

Another potential logical date of implementation would be September 1, which is the start of Fiscal Year 2021 for the Texas government. Even if the RRC currently possessed the budget and staff to meet that quick goal (it possesses neither) it is quite likely that the Texas industry will have already lost upwards of 2 million barrels of daily oil production by that time due to dramatically-lowered drilling activity and voluntary shutting-in of production.

Then there is the other practical limiter that the commissioners must consider: The budget. The Texas government famously operates on a two year budget cycle, with the legislature meeting for 140 days in odd-numbered years to make biennial adjustments. The RRC is currently operating under a budget that does not expire until August 31, 2021. Any upward adjustments to that budget designed to enable the Commissioners to hire in additional staff and build new computer systems to implement and police prorationing would have to be authorized by a special session of the Texas Legislature, subject to a call by Governor Greg Abbott.

Think of how unlikely that is to take place at a time when Texas is currently functioning under an executive order to avoid gatherings of more than 10 people due to the COVID-19 pandemic. Also consider how unlikely Gov. Abbott and the legislature would be to agree to increase any agency’s budget during this time of massive economic destruction.

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OPEC+, G20 Produce A Very Dim Light At The End Of A Long, Dark Oil Price Tunnel

After the OPEC+ countries produced an oil supply reduction agreement on Thursday that amounted to a half-measure at best, industry observers had pinned some hope on a firm commitment to further cuts coming from G20 call that took place on Friday. Those hopes were not fulfilled, as the G20 communique included only vague language indicating those nations would work towards “market stability.”

The language in the comminique reads as follows: “We commit to ensure that the energy sector continues to make a full, effective contribution to overcoming COVID-19 and powering the subsequent global recovery. We commit to work together in the spirit of solidarity on immediate, concrete actions to address these issues in a time of unprecedented international emergency. We commit to take all the necessary and immediate measures to ensure energy market stability.”

In this political season in the U.S., that reads like issue-specific talking points from a candidate trying to say something to placate the public and media without really taking either side of the issue.

Leaving matters even more up in the air, Mexico refused to commit to its full share of the OPEC+ cuts, saying it could only reduce its own production by 100,000 barrels of oil per day (bopd). U.S. President Donald Trump intervened to commit to his country to supporting Mexico’s part of the deal by supplying 250,000 bopd in cuts of its own, but left the process of how he would achieve that level of firm supply reduction unclear. This is a key question since the national U.S. government has very limited power to force firm reductions in production by the private companies that operate all wells in the country.

Canada, which has not been a participant in any previous efforts to control supply, also remained non-committal in terms of committing to any firm reductions of its own.

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The OPEC++ Deal: Calling it a Half-Measure is an Exaggeration

Let’s be honest: The so-called OPEC++ agreement to cut 10 million barrels of oil per day from global crude oil supply is a half-measure. Really, with Rystad Energy reporting that demand for oil will drop by 27 million bopd from January 1 levels during April, calling it a half-measure is an exaggeration.

Even this half-measure has still not been finalized, as Mexico’s government still has not committed to holding up its end of the bargain as of this writing on Friday morning. So, anything could still happen. All of which explains why the oil markets reacted negatively to the OPEC++ announcement, with oil prices dropping by more than 15% in just a few hours.

But here at least are the parameters of the agreement that are being reported Friday morning:

– OPEC++ (the OPEC nations plus Russia, Mexico, Canada, Brazil and several others) agree to cut 10 million barrels per day of exports from April through July;

– The cuts drop to 8 million bopd from August 1 through December 31;

– The cuts further fall to 6 million bopd beginning January 1, to continue for the next 16 months;

– The cuts include no formal contribution from the U.S. oil and gas industry.

President Donald Trump will discuss his views of America’s contribution to a reduction in global supply in a call involving the Group of 20 – or G20 – on Friday.

 

Read the Rest at Shalemag.com

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Russia’s Skepticism Over U.S. Oil Production Cuts Is Well-Grounded

Bloomberg reported Wednesday that Russian oil representatives are expressing skepticism about the potential for the the U.S. oil industry to participate in global deal to cut crude production in a real, sustaining way. That skepticism is well-grounded in reality.

With the Trump Administration thus far offering only what it calls “automatic” cuts that will take place in the U.S. as drilling activity drops and oil wells are shut-in as the result of low demand, Russian government spokesman Dmitry Peskov told reporters, “You are comparing the overall demand drop with cuts aimed at stabilizing the global market. These are completely different things.”

He’s right.

The problem is, as I pointed out over the weekend, is that, absent quick and certain action by regulators in Texas and other states or an emergency declaration by the Trump Administration designed to shut down production in the Gulf of Mexico and on federal lands, any U.S. contribution to a global supply reduction deal must by law be market-based, and thus, temporary. Unlike Russia, Saudi Arabia and many of the OPEC nations, the U.S. oil industry consists of thousands of companies competing in a free market, and the national government cannot cause production to rise or fall on a whim. The situation is further complicated by the fact that any such move by the federal or state governments would be politically controversial and opposed by certain segments of the U.S. industry itself.

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There is little doubt that, should current market dynamics persist into the third and fourth quarters of this year, overall U.S. crude production will drop dramatically, with Citigroup, Inc. projecting it to be down by over 1 million barrels per day by October. Frankly, that seems to be a conservative estimate. The trouble in the context of this envisioned global agreement is that, once demand is to a large extent restored, the U.S. industry would simply come roaring back to fill the void, absent some artificial governor on its activities.

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State Regulators Hold The Key To U.S. Participation In A Global Oil Supply Deal

The energy media was filled with speculation on Friday and Saturday about how much higher crude prices might spike on Monday as OPEC and Russia prepared to hold an emergency conference call meeting that day. That speculation has now evaporated as the call has been postponed, now scheduled to take place on Thursday.

As the Wall Street Journal reported on Sunday, “Saudi Arabia and Russia have said privately they are unlikely to cut oil output unless North American producers join in.” While Canada has signaled its willingness to be a part of a larger, global approach to cutting supply, it is unclear how exactly officials from Russia and Saudi Arabia envision the United States joining the party.

I’ve written about this several times in the past, but it deserves repeating here: America is simply not like these other countries. It is called the “United States” for a reason. The federal government of the United States has no existing authority to just cause oil wells to be turned off and on at the snapping of a president’s fingers.

Yes, as we saw in the wake of the tragic Macondo blowout and spill in April, 2010, a president can declare an environmental emergency and cause all production to be shut in in the Gulf of Mexico. But beyond 3 miles of the coastline (roughly 12 miles offshore Texas) the Gulf of Mexico is a federal province. The order issued on May 27, 2010 by President Barack Obama to shut-in Gulf of Mexico production applied only in waters of 500 feet or more in depth, limiting it to areas safely within the federal province. In this way, he avoided challenges from state governors that would have certainly resulted had he attempted to shut down the entire Gulf, including all state waters.

This is what the United States calls “federalism,” and it is a concept that leaders in many other countries appear to have a very difficult time grasping. Given that the great preponderance of U.S. oil production comes mainly from beneath state and private lands, solving the conundrum of any U.S. participation in any global agreement to limit oil supply will necessarily involve participation from key state regulators.

In states like Texas, North Dakota, Oklahoma, Wyoming and New Mexico, which together are producing the preponderance of U.S. crude oil, regulatory bodies possess various authorities to limit production within their state borders. Those states combined to produce about 68% of the oil produced in the U.S. in January, the latest month for which the U.S. Energy Information has data. Another 15% was produced in federally-owned waters in the Gulf of Mexico and off the Pacific coast.

Thus, at least in theory, roughly 83% of U.S. oil production could be artificially limited by the federal government and state regulators on a coordinated basis. It is important to note that this kind of coordination is the only real way for the U.S. to become a meaningful part of any such deal.

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Putin Is Ready To Cut Oil Supply, But Demand Destruction Still Grows

Russian President Vladimir Putin said on Friday that, after sending the oil markets into a massive crash a month ago by blowing up the OPEC+ exports limitation agreement, his country is now ready to work with OPEC and other countries to implement far deeper cuts to crude production than OPEC+ had ever envisioned.

Speaking in a televised video conference, Putin proposed an arrangement that would result in removing 10 million barrels of crude oil per day from global supply. As reported by the Khaleej Times, “Putin’s dramatic change of tack from his unyielding stance of non-cooperation with the Opec in further output cuts came in the wake of a truce brokered by US President Donald Trump ahead of the upcoming Opec plus meeting scheduled for April 6.” The price for West Texas Intermediate closed at $28.34 per barrel on Friday, up by 40% since Wednesday, when news of Trump’s engagement with Putin and Saudi leader Mohammed bin Salman became public.

Has President Trump, the famous deal-maker, worked a deal that will save the U.S. domestic oil and gas industry? Let’s don’t get ahead of ourselves. While a global deal that would remove 10 millions barrel from daily oil supply would certainly help firm up oil prices, we have to remember that the effort by Russia and Saudi Arabia to flood the market only impacted the supply side of a two-sided equation. Crude prices had already dropped by more than 30% into the low-$40 range in early March before OPEC+ blew up, thanks to massive global demand destruction caused by the COVID-19 pandemic.

With the U.S. intentionally shutting down its own economy during March in a strategy to slow the spread of the virus, that demand destruction has only intensified over the past 30 days, with some projecting as much as 25% of world-wide demand for crude oil having been lost, or about 25 million barrels per day. We should also realize that, with so much anticipation now focused on it, if the upcoming emergency meeting of the OPEC+ countries should somehow fail to bear fruit along the lines proposed by Putin, then the price will come crashing back down.

And even if a new deal does get done, it will only address one side of the equation. There will still be much work to be done to return the domestic oil and gas industry to some level of health.

Read the Rest at Forbes.com

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The Shale Daily Update – 4.3.2020

Here are 10 things you need to know about oil and gas for April 3, 2020:

Trump calls on Russia and Saudi Arabia to cut oil production – Excerpt:

The Trump administration is pressing OPEC to hold an emergency meeting as early as next week to try to end the standoff in the oil market that has threatened to cripple the U.S. oil industry, three industry and government officials familiar with the talks said.

The U.S. pressure is aimed at persuading Saudi Arabia — which has also called for a meeting — and Russia to declare a ceasefire and reverse the export increases that have drowned the global market in crude even as the coronavirus pandemic has decimated international demand.

The White House has not yet decided who, if anyone, it would send to a possible OPEC meeting next week, the industry and government officials said. Candidates included Secretary of State Mike Pompeo, Department of Energy Secretary Dan Brouillette and Trump’s son-in-law and adviser Jared Kushner, the people said.

Oil Extends Gains As OPEC Leaders Call Emergency Meeting To Discuss Trump Production Cuts – Well, guess the pressure from the President worked, as OPEC called a special meeting overnight. The cartel will hold its meeting next week via “emergency teleconference,” which one supposes must be more urgent than just your ordinary, everyday OPEC teleconference.

OPEC+ Debates Biggest Ever Cut as Virus Destroys Oil Demand – It’s worth noting that Russia’s oil minister denied the narrative told in this New York Times report, but Russia says all sorts of things that end up not being accurate. Let’s hope this is one of them.

 

Read the Rest at Shale Magazine

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Why Does Joe Biden Ignore Fracking Science ?

Today’s Campaign Update, Part II (Because the Campaign Never Ends)

Joe Biden and his fellow Democrats are fond of pointing fingers at others and accusing them of ignoring science. They resort to this canard whenever they are trying to avoid having to form a rational, fact-based argument around “climate change,” but they like to use it as a crutch against logic on other topics as well.

But in Sunday night’s debate, when Biden once again demonized hydraulic fracturing – or “fracking” – and promised his administration would invoke a “no new fracking” policy should he actually stumble into the White House next January, it was Biden and no one else who was ignoring real, actual science.

Ironically, in ignoring the actual science around the very safe, well-regulated industrial process of fracking, Biden was ignoring the advice of the senior officials who held regulatory sway over oil and gas-related activities while he served as Vice President. These officials include, but are far from limited to:

Steven Chu, Stanford PhD. Nobel Prize Winner (Physics) DOE Secretary

U.S. Senator Ken Salazar, (Juris Doctor from University of Michigan) DOI Secretary

Sally Jewell (Mechanical Engineering, University of Washington) DOI Secretary

Gina McCarthy (Master of Science in Environmental Health Engineering and Planning and Policy, Tufts University) EPA Administrator

Lisa Jackson (Master of Science in chemical engineering from Princeton University) EPA Administrator

Each and every one of these cabinet-level appointees by President Barack Obama testified and commented on the record on multiple occasions throughout the Obama/Biden administration that hydraulic fracturing was a safe and well-regulated process that offers no threat to groundwater and produces very little air emissions. These senior Obama-era officials were literally forced to make these admissions after spending years in the conduct of a vain search for examples of fracking polluting groundwater or releasing major, harmful air emissions.

The effort at the EPA rose to such hyperbolic levels that one EPA Region 6 administrator, former SMU professor, Dr. Al Armendariz, was removed after his allegations of groundwater contamination by Range Resources were proven to be false. However, that proof did not prevent the State of New York from using Armendariz’s findings in its own doctored report that was used to justify banning fracking within its state borders.

Mr. Biden loves to talk about his years of serving as Vice President to President Obama. Yet, when it comes to fracking and the science his own administration developed and communicated during those 8 years in office, the former VEEP seems to have developed a mental block.

But no worries – we will continue to remind him – and you – of the real, extremely well-developed body of science that surrounds this safe and well regulated industrial process. Because facts are stubborn and important things, especially during troubling times such as these.

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For the U.S. Oil and Gas Industry, the Time for Alarm Has Arrived

Today’s Energy Update 

I’m no fan of alarmism, whether it be about energy, the environment or any other subject, but the situation for the domestic oil and gas industry has grown somewhat alarming over the past two months. Since early January the S&P Oil & Gas Index has plunged 32%. Investors appear convinced not just that there is oodles of oil in the world but that the spread of Coronavirus brings the risk of economic flatlining in the biggest growth market for oil — China.

With the virus set to spread and the OPEC+ group running out of options to contain the oil glut, the price of West Texas Intermediate (WTI) crashed through the important $50 level this week, and promises to slide further. Chevron yesterday sent home 300 workers in London over virus fears. Thus, a year that began with a fairly promising outlook is rapidly devolving into one that will present a fight for survival for some domestic producers.

The statement on Tuesday by Dr. Nancy Messonnier, an official at the U.S. Centers for Disease Control and Prevention (CDC), that spread of the Coronavirus in the U.S. was “inevitable,” and that citizens here should begin preparing for an outbreak will certainly work to further inflame the markets. President Donald Trump has reserved television time for a statement designed to calm the situation on Wednesday night, but it could come too late to prevent further disruption in the commodity and financial markets.

Meanwhile, the U.S. market for natural gas remains chronically over-supplied with no real relief in sight. Although the NYMEX price per MMBtu has remained fairly stable during the first two months of the year, it is stable at a price that is far too low for many natural gas producers to remain profitable.

All of these factors now combine to create a precarious situation for heavily-leveraged companies as they head into debt re-determination season. Chesapeake Energy is a good example. When I wrote about that company’s long, difficult struggle to survive last November, Morgan Stanley had just lowered its price target for CHK stock from $2.25 per share to $1.25.

But it isn’t only independent producers who are finding the current market conditions to be challenging: Even ExxonMobil, despite its prime position in the Permian Basin and major international discoveries over the past two years, is experiencing a disturbing rate of value destruction. As noted by Bloomberg, XOM stock dropped to a 15-year low on Monday and fell further on Tuesday, “just over a week before Chief Executive Officer Darren Woods is scheduled to present the oil explorer’s long-term strategic plan to investors and analysts.” For the year, XOM is now down by almost 25%.

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Democrats Present a Stark Reality for the Oil Industry in 2020 Elections

The time has come for people in the oil and gas business — especially its senior executives and those who do government affairs work within the larger companies — to wake up to the reality of the Democratic Party as it exists today, as exemplified by its current crop of presidential contenders and caucuses in both houses of Congress.

Simply put, this is not your father’s Democratic Party.

Gone are the days when there existed a subset of fairly moderate Democratic members of Congress in both the House and Senate who could be classified as strong supporters of the oil and gas industry. There are no more Mary Landrieus in today’s United States Senate, nor even a Heidi Heitkamp to be found. In the House, you still have one identifiable Democrat — Texas Rep. Henry Cuellar, who can be said to be a real supporter of the oil and gas industry, but that’s pretty much it. And even Rep. Cuellar was so cowed by Speaker Nancy Pelosi that he cast a “yes” vote to impeach the most pro-oil and gas president in U.S. history on the flimsiest grounds imaginable in December.

Gone are the days when a startup industry trade association, America’s Natural Gas Alliance (ANGA), could be effective by hiring a former Clinton operative to be its president and hiring a raft of pro-Democrat contractors to shape its messaging. ANGA, created at the outset of the Obama Administration in early 2009, was able to quickly become a force for promoting the benefits of natural gas using that model a decade ago. A decade later, pretty much none of the Democrat senators and congressmen with whom ANGA formed effective working relationships remain in Congress. All have been replaced by Republicans, or by more radical left-wing, anti-oil and gas members.

While ANGA and other industry trade associations were able to form working relationships with many Democrats of the time — even in those years, those Democrats could not be counted on for industry support on the truly big votes. ANGA and the rest of the industry, for example, were unable to secure a single Democratic vote during the battle over the national carbon cap-and-trade bill that barely failed in 2010.

I know all of this to be true because I was intimately involved in ANGA’s work during those years when I was Director of Government Affairs at El Paso Corporation. Working to form those relationships with Democrats in Congress made sense at the time since a number of them really were pro-oil and gas, at least to some extent, and because there was a Democratic administration in place that was decidedly hostile to the industry’s interests.

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The Oil and Gas Situation: Reviewing 6 Predictions

Today’s Energy Update
(Because Energy Fuels Our Lives)

As Q1 2019 comes to a close, it is time to review the status of some predictions I made here the day after Christmas for what we would see during the first half of 2019. Accurately gauging where the industry will be several months into the future is always a crap shoot, and as usual, I find myself feeling glad I didn’t go out and bet the farm on any of these.

First, let’s look at what I had to say about the domestic rig count as calculated by the folks at DrillingInfo:

…my first prediction is that we will see a gradual fall in the domestic U.S. rig count throughout the first half of 2019. Indeed, the DrillingInfo Daily Rig Count already fell by about 3% during December, from 1160 to 1120 on December 25. I’m betting that, by June 30, that measure will be below 1050…

This particular count finished the quarter at 1049, after falling slowly but steadily throughout the first three months of the year. This represents a 9% drop since Christmas day, and there is no real reason to expect this trend to change during the second quarter, with so many upstream companies prioritizing stock buybacks and other programs designed to return capital to investors and lenders over the mad rush to increase production we saw throughout 2017 and the first 8 months of 2018.

A reasonable updated guess would be that we will see the DrillingInfo count fall to right around 1000 by the time June 30 rolls around.

What about crude prices? Here’s what I predicted they would do in Q1:

…my second prediction is that the price for WTI will rise again, but will not exceed $60 during the first half of 2019.

As things turned out, I had the general direction of crude prices right, but underestimated how rapidly they would rise, as WTI closed at $60.14 in Friday’s trading. The basic market dynamics that advocated in December for what has been a 20% recovery in the WTI benchmark remain in place today. Global demand continues to rise more rapidly than all the experts thought it would at the first of the year, and the OPEC-plus nations still maintain pretty strong compliance with their export quotas.

 

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Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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Is an Oil Price Train Wreck Hiding Around the Bend?

Today’s Energy Update
(Because Energy Fuels Our Lives)

The energy media has recently featured headlines that seem at odds with one another and that, when taken together, portend the possibility of a coming train wreck somewhere down the road where crude oil supply and prices are concerned. Let’s look at some of the more recent headlines as examples:

“The U.S. Shale Boom is About to Get a Major Upgrade” – Investors Business Daily, Feb. 19

“Wall Street Calls for Better Returns; Shale Gets Thrifty” – Gulf Times, Feb. 17

“OPEC Cuts Send Crude Exports to Lowest Since 2015” – Financial Times, Feb. 19

“U.S. shale oil output to hit record 8.4 million bpd in March: EIA” – Reuters, Feb. 19

That Investor’s Business Daily story begins by stating “The U.S. shale oil boom is about to get a whole lot bigger. The reason: Giant oil companies like Exxon Mobil (XOM) are leveraging their massive scale to unleash more production from the top-producing shale oil formation.”

The EIA projects that the domestic industry will push U.S. oil production past the 12 million barrels of oil per day (bopd) level for the first time in the nation’s history in March, with 70% of that coming from shale plays. Fully 1/3rd of all oil produced in the U.S. in March will come from the Permian Basin alone.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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The Best Energy Policy Is To Let Markets Work Freely

America’s ongoing oil and natural gas revolution is delivering big benefits to our economy, our environment and to our nation’s security. As the world’s top energy producer, America is leveraging this position of strength to grow good-paying jobs and economic opportunity here at home while firming up important trading partnership with key allies abroad. The increasing use of natural gas in power generation is also improving our environment at the same time.

This positive shift is a win for the America people and a blow to nations that previously used their energy resources against the U.S. as a political weapon.

Thankfully in Washington, American energy dominance is a central focus of the Trump administration’s policy priorities. With smart, jobs- and consumer-focused policies at the federal level as well as in energy-producing states, our economy and global political muscle will only grow stronger.

Anyone who follows energy trends hears a lot of debate around new pipelines, and how anti-fossil fuel activists want to stop infrastructure development that’s critical to creating jobs and boosting America’s manufacturing sector. We see much less discussion in the energy-related news media about how refineries and existing pipelines are responding to energy revolution’s shifting market dynamics and the benefits these actions bring to consumers.

In the Midwest, refineries have made massive new investments – literally billions of dollars in capital – to expand operations to process more North American crude in recent years. According to Morningstar, these refiners can now process 300+ more mbopd today compared to 2010. And it’s a trend that will likely continue forward.

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STEER: A Business Model That Works

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.

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