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Some thoughts on the oil and gas situation as we approach the end of May...
How will the anti-fossil fuel lobby demonize this?
The Associated Press reported on Monday that Hilcorp, LLC is going to great lengths to protect a pregnant polar bear who has established a den in a snow bank near one of its operations off the northern coast of Alaska.
Hilcorp, of course, was the subject of a great number of negative stories filed by anti-fossil fuel websites like EcoWatch during March and April, as it worked cooperatively with both state and federal regulatory agencies to resolve a leak in a natural gas pipeline it operates in the Cook Inlet. As I wrote at that time, the demonization of Hilcorp was a part of the larger strategy of the anti-fossil fuel lobby to shift much of its collective resources away from demonization of Fracking to their new boogeyman, pipelines.
As the AP details, a Hilcorp employee noticed a hole in the snow bank in December, and, after he was able to prove that it had been created by a nesting polar bear, reported the situation to the U.S. Fish and Wildlife Service (USFWS). Hilcorp then worked with USFWS to develop and execute a plan to ensure that the mother was left undisturbed for three months, until she and her cub emerged and eventually left the area to go hunt for food.
The conflict groups who make up the anti-fossil fuel lobby will have a hard time coming up with a negative angle to this story, though they will no doubt try their best. This may be the first time in history that images of cuddly animals are actually on the oil industry's side. Go figure.
"Ok, on energy policy, let's just throw out a bunch of terrible ideas and see how many people we can alienate."
The formal Trump Administration budget proposal rolled out on Tuesday contains an array of provisions designed to increase revenues from oil and gas to the federal government. That concept is ok, as far as it goes. But it won't go very far in this budget.
The problem is, in pursuing that concept, the Administration's budget writers have come up an array of proposals that are either a) absolutely awful ideas, or b) bound to die on the vine due to the massive opposition they will engender, or c) both.
Option c) would apply to the proposal to sell off yet another huge chunk of the nation's Strategic Petroleum Reserve (SPR). The proposal would sell off 270 million barrels of oil from the SPR, which currently contains about 688 million barrels today, or enough to supply the nation's needs for a very brief 34 days or so. Add that 270 million barrels to the already-existing plan to sell off 190 million barrels between 2017 and 2025, and you leave the SPR with about 260 million barrels remaining, which accounts for injections that will take place over the next decade.
Why is this an awful idea? Well, because the SPR exists in order to ensure the nation's military and economy can continue to function in the event of a major oil shock, like those we experienced in the decade of the 1970s. The U.S. uses more than 20 million barrels of oil each day, and currently produces a little over half that much, if we include condensate in that number. Let's just round off and say we'd need to extract 10 million barrels a day from the SPR in the event of an interruption of imports, which means our heavily oil-dependent economy could keep humming right along for all of 26 days.
A second reason this is an awful idea is that you're proposing to sell off all of this oil into an already over-supplied market, at prices that are half of what they were 3 years ago. Dumping millions of additional barrels from the SPR onto the market is just going to further lower the price. It's dumb. Not what you'd expect an administration full of businessmen to be doing.
A second oil-related proposal in the budget would end the long-held practice of the federal government sharing a portion of its revenues from offshore oil and gas production with the adjacent states. Thus, you'd be taking money away from Texas, Louisiana, Mississippi, Alabama and Alaska, and transferring it to the federal budget.
Look closely at the names of those states - what do they all have in common? You got it - they are all heavily Republican states that voted for Donald Trump in the 2016 election. You know what else they will soon all have in common? Every member of their congressional delegations - Republicans and Democrats alike - will soon be screaming from the rafters in opposition to this proposal. Bad idea. Massive opposition. Calling in fire on your own position. How did this get into this budget?
Speaking of that very question, you also have an item that would yet again propose to allow drilling for oil in the Alaskan National Wildlife Refuge. Why is it that every time a new Republican president assumes office, we must litigate this 40-year-old failure one more time? We've been doing this since Ronald Reagan was President. It may or may not be a good idea, but it is pretty much a dead, certain loser, and let's face it, the Trump Administration really didn't need anymore losing propositions on its very, very busy plate at this moment in time.
I know nothing about the rest of the Administration's budget proposal, but if the energy section is any indication, we won't have to worry about it for very long.
More good news for the Permian Basin
The USGS released another in its ongoing series of updated resource updates late last week, this one for the Spraberry formation in the Permian Basin. This estimate now assesses the recoverable resource using current technology in the Spraberry at 4.2 billion barrels of oil and 3.1 trillion cubic feet of natural gas. That oil number represents a 700% increase from the agency's circa-2007 estimate.
To give you some context for that oil number, the East Texas Field, which is to date the largest producing oil field ever discovered in the lower 48 states, has since the early 1930s produced a little more than 7 billion barrels of oil. The East Texas Field's production was derived almost entirely from a single oil-producing formation.
The Spraberry is just one of more than half a dozen formations in the Permian Basin with significant oil-producing potential, and not even close to the biggest. So if you've been wondering why some people have begun referring to the Permian as a "super basin" , now you know.
