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Vol. 231 No.2 |
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| DAVID MICHAEL COHEN, MANAGING EDITOR |
US operators unfazed by political rhetoric
Call me crazy, but from where I sit, this doesn’t look like such a bad time to be in the upstream oil and gas business in the US. I know many consultants for the industry would disagree, saying that the current political environment has E&P companies looking for the exits. But here’s the thing: I don’t see them walking out the door. In fact, despite all the political factors that the US upstream pessimists point to—the Obama administration’s failure to open the Outer Continental Shelf to exploration, its general hostility toward the oil industry, state and federal efforts to more tightly regulate hydraulic fracturing and, above all, the hovering twin specters of cap-and-trade and increased taxation of oil companies—it seems like the whole world is trying to find its way into the US upstream sector.
Of course, most of the buzz is about the US shale plays. Witness ExxonMobil’s blockbuster purchase of US unconventional gas producer XTO in the fourth quarter of 2009. The $41 billion acquisition was the largest upstream transaction since Chevron merged with Texaco in 2000, and accounted for almost two-thirds of the total value of transactions announced last year. The deal took Wall Street by surprise; investors were used to thinking of the world’s biggest oil company as focused on large-scale projects in other countries, not unconventional resources in the US. The XTO purchase makes ExxonMobil a large interest holder in major US shale, tight gas and coalbed methane plays as well as the Bakken Shale oil play.
Also getting into the US shale scene late last year was France’s Total, which entered the market through a $2.3 billion joint-venture agreement in which Total received 25% of Chesapeake Energy’s Barnett Shale assets in Texas. Norway’s StatoilHydro (now just Statoil, again) had already entered the US shale gas scene back in 2008 when it joined a strategic alliance with Chesapeake, acquiring 32.5% of Chesapeake’s 1.8 million acres in the Marcellus Shale.
Accelerated activity in the shale plays was largely responsible for launching US gas output above that of Russia last year, making the US the world’s biggest producer of natural gas, according to new data from the Department of Energy.
And the growing international interest in US resources isn’t confined to unconventional plays. Statoil has been very active in acquiring licenses in the Gulf of Mexico over the last few years, and is now among the largest owners of deepwater leases, with more than 400 licenses. In October 2009, the company agreed to sell part of its interest in four of those leases to China National Offshore Oil Corporation—finally lending some truth to the oft-repeated urban legend about China drilling off the US coast.
One of the latest Gulf of Mexico acquisitions was by Danish shipping and oil conglomerate A. P. Moller-Maersk, which agreed in December to buy Devon Energy’s stakes in three Lower Tertiary development projects in the Gulf for $1.3 billion. The deal is the first of Devon’s planned Gulf of Mexico and international divestitures as the Oklahoma City-based company restructures to focus on North American onshore development with a heavy emphasis on—you guessed it—US shale gas.
Looking forward, the upstream outlook in the US is at least as optimistic as the forecast elsewhere in the world. According to Barclays Capital’s annual survey of E&P companies, oil and gas producers plan to increase their spending in the US by 12% this year, slightly more than the increase planned by operators worldwide (see pp. 45–51). In the same vein, World Oil’s 2010 drilling forecast predicts a rise of more than 14% in wells to be drilled this year in the US, more than double the number of new wells expected outside the US (see pp. 53–56, 69–72). The state agencies that respond to our survey base their 2010 predictions on the number of drilling permits that they have issued to operators, so the numbers are reflective of companies’ drilling plans for the year ahead.
Meanwhile, our survey of 164 major and independent oil and gas companies working in the US found even more optimistic results. The companies said they planned to increase their US drilling by more than 40% this year. Granted, these operator surveys have overshot the mark year after year, but the point is that they reflect the companies’ confidence that it is safe and profitable to expand their upstream operations in the US.
All of this E&P investment and planning is hard to square with assertions—some of which have been printed recently in this publication—that Congress is a bill or two away from tanking the entire US upstream sector. Having access to lots of oil and gas reserves doesn’t mean a whole lot if you can’t turn a profit. Either the operators are underestimating the chances of cap-and-trade or a tax hike passing, or the doomsday prophets have overstated the potential impacts of these and other measures. Given the amount of money that they’ve put on the line to invest in the US, I’m betting on the operators.
This doesn’t mean that there aren’t serious political challenges facing our industry in the US. To cite a timely example, President Obama was completely tone-deaf in his January State of the Union address when he said that “tax cuts for oil companies” were something “we just can’t afford”—as if the 93-year-old exemption he plans to eliminate for intangible drilling costs (e.g., wages, fuel, repairs, drilling mud, chemicals, cement) were a luxury.
But everything must be considered in context, in this case the context being the tax and regulatory environments of large-resource-holding countries worldwide. In this context, the US still ranks as one of the best places to develop oil and gas resources, thanks largely to its political stability and the relative openness of its upstream sector to oil and gas companies of all stripes.
And, as our Washington editor, Roger Bezdek, demonstrates in this issue (see pp. 41–44), the various interests at work in the US political process have a way of mitigating the worst excesses of anti-oil politicians, even during times of single-party control.
The US oil industry must do its part to oppose anti-oil legislation, but it would be a shame if, by overstating the potential impacts of such legislation, we scared off future investment in the US upstream. 
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