April 2015

The last barrel

Industry’s innovations belie low prices, public perceptions
Kurt Abraham / World Oil

While reviewing the final assortment of features going into our April issue, I couldn’t help being impressed with the vast assortment of technical advances chronicled in this magazine. Yes, given this month’s OTC theme, many of these items are offshore-related, particularly for deepwater and subsea usage, but a few are also onshore-specific. What makes this ongoing R&D and commercial advancement all the more special is that it comes during a time of low commodity prices and instability for the global industry. The funding of these advances is money well-spent, as technology will be one of the prime forces that eventually move the industry out of this downturn.

Yet, while those of us within the industry hear about these advances with regularity, and appreciate them, the fact is that very few folks in the general public (U.S. or Europe) have any inkling of this great progress. Indeed, if you go ask any 50 random people on the street about their perception of the E&P industry—whether in the U.S. or elsewhere—chances are high that 48 or 49 of them are going to characterize it as “low-tech,” “dirty,” “old industry,” “harmful to the environment,” and on and on. The situation is even worse in the public schools, particularly in the U.S., where kids are not hearing about the high-tech achievements of our industry, even though these youngsters represent potential employees for the future. There is virtually no appreciation of how well the oil and gas industry does its job as the engine of various countries’ economies.

Who is to blame for this state of affairs? First, one has to apportion some blame to our own industry, for doing a relatively poor job of telling its story, even though it is essential to disseminate the details of achievements and competence widely, if one hopes to influence public perception and governmental policy. Second, much responsibility for the distorted picture rests with the national and local media. Most of the time, reporters, anchors and editors will paint the industry in a negative manner, because they think it’s the popular thing to do and/or it’s the easy way to do a story, rather than research the facts.

Third, one can never fault the more extreme environmentalists enough. They do an injustice to the public every single day, putting out selective, distorted information about E&P activities while taking advantage of people’s collective ignorance. Fourth, one can blame the vast number of left-wing teachers in the public schools, who have pushed an anti-industry agenda—quite effectively—in classrooms for the last 30-plus years, with very little push-back from E&P companies. Last, and certainly not least, great fault lies with the U.S. federal government, particularly the Executive Branch. Much of the current disinformation and distortion on oil and gas comes from various federal agencies, particularly the “attack dogs,” such as the Environmental Protection Agency and the Bureau of Land Management.

What can be done about this mess? Simply put, the industry, itself, must take charge and mount a vast, long-duration dissemination of “correct” information about upstream activity. Nothing short will do. This means money, and lots of it. Yes, this is not a popular thing to say during a period of low prices, but consider that the environmentalists are pouring literally millions upon millions of dollars every month into anti-industry propaganda (and legislation). In turn, they share these materials with their buddies in the media, government and schools. If the industry hopes to safeguard a wide arena of opportunities and prosperity for the next 50 years, particularly in the U.S., it had better begin fighting the battle now.

It would be nice to see leadership in this industry formulate some very well-funded and well-conceived campaigns, before the other side gains the upper hand for good.

West Virginia sees money under the Ohio River. In a story receiving scant national attention, West Virginia officials have gone where few states would tread, finalizing two of what will be several recent leases to drill for shale oil and gas under the Ohio River. In late March, the West Virginia Division of Natural Resources approved two initial leases with Statoil, to drill under the Ohio in Wetzel County. The operator will pay $8,125 per acre for drilling rights between mile markers 124 and 125, and $9,000 per acre for rights between mile markers 125 and 127, along with a 20% gross royalty for both tracts. The leases cover 474 acres and will generate more than $4 million for the state government.

In addition, state officials have reached tentative agreements to drill under the Ohio, on state-owned tracts, with Noble Energy and Gastar Exploration, potentially for millions of dollars. However, the amounts were not yet confirmed at press time, as officials were finishing their negotiations with the companies. The Intelligencer/Wheeling News-Register newspaper quoted Gastar Senior V.P. and COO Mike McCown as saying that his deal, alone, could eventually yield $40 million in revenue for the W.V. treasury. However, he also said that drilling just one Utica shale well under the river will cost “much more than $10 million.”

So, what gave W.V. officials the courage to do what few states would ever consider doing, and risk the wrath of environmentalists? Well, it simply boils down to money. Thanks to federal actions, coal mining is down and so are state coal royalties. Several months ago, state Commerce Secretary Keith Burdette was quoted by AP as saying that drilling under the Ohio “creates what could be a substantial revenue stream, at a time when budgets are very tight.” Indeed, the state used $100 million from its Rainy Day Fund to balance its fiscal 2015 budget last year, and Gov. Earl Ray Tomblin expected to borrow another $25 million for fiscal 2016, until improved investment returns narrowed the gap to just $15.5 million last month. wo-box_blue.gif  

About the Authors
Kurt Abraham
World Oil
Kurt Abraham kurt.abraham@worldoil.com
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