Low oil prices chill a once-hot oil town in North Dakota

Repost from The Christian Science Monitor
[Editor: Significant quotes: “The cost of getting oil out of the ground is high here. Unless the price of oil tops $73 a barrel, producers in Divide County can’t break even.”  …and… “In Bakersfield, Calif., Canadian oil company Ensign Energy Services Inc. has already laid off 700 workers.” – RS]

Low oil prices chill a once-hot oil town in North Dakota

Just months ago Crosby, N.D., a small town on the Canadian border, was booming. Now it’s hunkering down to ride out the oil bust that has the US energy industry reeling. 

By Jared Gilmour, January 24, 2015
Josh Young and his daughter Ava walk past the post office in Crosby, N.D., where falling prices have turned an oil boom into a bust. | Andrew Cullen/Special to The Christian Science Monitor

Crosby, N.D. — An empty strip of gravel – lined with streetlights and unused utility hookups – runs next to the highway, south of a once-booming oil town.

A few years ago, city officials anticipated oil field companies and other businesses would fill up the 230-acre strip. The city spent $1.7 million on the land, with another $9 million coming from state oil impact grants. There was talk of 300 housing units popping up in the fields behind the commercial street. The former mayor said the 1,300-person town was preparing to potentially double or triple in size.

But there is only one building along the road today. At night the streetlights shine on the gravel, illuminating flurries of snow that semi trucks have whipped off the nearby highway down onto the deserted street. To the south, farmland rambles into the middle distance, dotted with nodding pump jacks extracting oil, flares burning off gas, and idle, darkened drilling rigs.

“The year they proposed this they could have gotten quite a bit of commerce in there – but now? It’s like a street to nowhere. You’ve got streetlights on and nobody’s home,” says Cecile Krimm, editor of the county’s newspaper, The Journal.

Emptiness along the newly built road is a portrait of the “echo economy” – an America that looks at plummeting oil prices not as a sign of savings at the pump, but as potential trouble ahead. They are towns as remote as Crosby, where the recent oil boom drove rents to San Francisco levels, or as familiar as Houston, a metropolis bracing for as many as 75,000 layoffs.

This is the country’s echo economy. While the rest of the country struggled through a recession, these beneficiaries of the shale boom helped prop up the economy. The oil and gas industry created more than 100,000 US jobs between 2007 and 2013 – a 40 percent increase in US energy industry jobs and a 1 percent boost in total US employment. But as the national economy has found firmer footing, the drop of oil prices to five-year lows has begun to turn the tables on towns like Crosby.

In many ways, this lonely swath of North Dakota is a bellwether for America’s energy economy. Twenty-two of the 65 American counties that had fully recovered from the recession by 2014 were in or bordering North Dakota, according to a study by the National Association of Counties. Only Texas (with 24) accounted for more. So when Crosby’s once-bustling Main Street is less harried than it once was, and when fewer landmen are crowding into the rotunda of the county courthouse to scour mineral rights records for Divide County, it is a hint that oil-dependent towns from Ohio to California might soon be feeling the pinch.

For Crosby, the oil boom of the past decade has come with a catch: The cost of getting oil out of the ground is high here. Unless the price of oil tops $73 a barrel, producers in Divide County can’t break even. For years, that’s hardly been a problem, with oil consistently trading for more than $100 a barrel. As of mid-January, however, US crude is below $50 a barrel.

Oil production is costly in Crosby because it sits on the very fringe of North Dakota’s oil-rich Bakken region. The Bakken is essentially a bowl beneath North Dakota’s northwestern quadrant with more oil concentrated in the center where the bowl is deepest. Crosby is perched on the frigid northern rim, a few miles from Canada.

Being at the rim means less oil.

“We’re on the edge, and that won’t be to our advantage if oil prices continue to go down,” says Bert Anderson, Crosby’s affable mayor for most of the past 30 years.

Oil has revived his town, Mayor Anderson says, sitting in a sturdy wooden chair and peering at Main Street through the window of his shop, Bert’s Woodworks. The surroundings are a portrait of the modest farming town Crosby once was. Newspaper clippings from The Journal yellow on the door that opens to the back room, and a rainbow of paint chips hang on one wall. On another wall are a series of bald eagle prints next to a portrait of Cosmo Kramer from “Seinfeld.”

For now, Anderson is confident oil prices will rebound. Almost everyone in Crosby is optimistic. Anderson notes that several vacant lots along the empty road south of town are sold. They’re just waiting for development.

And even as drilling slows down, Anderson is grateful for how the boom reversed Crosby’s trajectory of decline and depopulation.

Before the boom, Anderson says, “Crosby was tearing down houses.” The population was dwindling. There was even a December when the city ran out of money before the end of the year, and had to take out a loan to make payroll.

Now, with rents rivaling those in San Francisco and new housing crowding the outskirts of town – from two-story tan condos to an RV park where newcomers camp out in “winterized” RVs – “we don’t have that problem anymore,” Anderson says.

But what if oil prices stay low? For years, Crosby has watched from afar as construction booms in Nevada, Arizona, and Florida went bust in the housing crisis, leaving unwanted and overvalued homes. Crosby isn’t there yet. A temporary slowdown could bring sky-high rents back to earth and give the town time to catch up on construction projects, Anderson says.

Still, oil prices are notoriously unpredictable. Most analysts say it’s unlikely that the US oil boom, fueled by the hydraulic fracturing of shale, will stop altogether. But oil prices stuck at $50 a barrel would challenge towns that live in the echo economy the shale boom has created, both in the Bakken and beyond.

Sweetwater, Texas, for one, is already facing Crosby-like problems. Expecting oil workers to flood its shale fields, the town spent nearly $50 million renovating its courthouse, building a law enforcement center, and improving the hospital. With the collapse of oil prices, however, those plans have not come to fruition, leaving the town of 11,000 facing layoffs and budget cuts.

“Here we are trying to figure out, is this a six-month problem or is it all over?” said Greg Wortham, head of the Cline Shale Alliance, which was formed to prepare the region for oil workers, to The Associated Press.

In Bakersfield, Calif., Canadian oil company Ensign Energy Services Inc. has already laid off 700 workers. Even in Ohio – hardly an oil mega-producer – U.S. Steel has warned of layoffs for 614 workers at a pipe plant, citing low oil prices.

In the Bakken, falling oil prices mean producers retreat to safer areas, like the counties at the epicenter of the Bakken boom: “places like McKenzie County and Dunn County, where break-even prices are $30 and $29, respectively,” says Alison Ritter, a spokeswoman for the North Dakota Department of Mineral Resources.

That could spell trouble for Crosby, which has invested millions in new infrastructure – from a multimillion-dollar hospital expansion to new housing for recently hired schoolteachers. And it’s unclear just when prices will rise, or at what range they’ll settle and find equilibrium.

“That’s just how oil works. Everyone’s seen it happen multiple times,” says Matt Nystuen, an oil rig worker whose jacket and hat, worn atop a mat of blond hair, give away his employer, Ensign Energy Services, before he can with his “Fargo”-worthy accent.

Mr. Nystuen was three years out of high school when an oil price slump during the recession slowed drilling. “I saw all of my friends lose their jobs,” he says.

Prices rallied, with oil trading at over $100 a barrel until this summer. Then crude oil production in Libya and Iraq began picking up and US production also surged, filling the global market with a glut of crude. At the same time, demand was down in recession-racked Europe and Asia, and the Saudi-led Organization of the Petroleum Exporting Countries decided to maintain production levels to hold their market share and drive down prices. Many interpreted it as an effort to drive US shale drillers, who rely on high prices, out of business.

All that pushed prices down, and when they began falling, the rig count in Divide County tumbled, too – from 12 in the late summer to just three active rigs in December. Prospects for the first half of 2015 are dimmer: Continental Resources alone, a major player in the Bakken, has slashed its 2015 capital expenditures budget from $5.2 billion to $2.7 billion.

In late December, Nystuen received his own surprise: He was laid off from his job on a rig in Divide County.

In Houston, the story is the same. Since 2011, Houston has added 100,000 new jobs every year on the strength of the energy economy, according to Forbes. By 2016, it could have lost 75,000 over two years, writes Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.

“Given Houston’s dependence on oil exploration and production, there is never a good time to see oil prices fall as far and fast as they have in recent months,” his study says. But a construction boom in the city and the improvement of the national economy should help, it adds.

In Crosby, the situation is not yet dire, either. Since oil production slowed, the town has gotten sleepier. It’s more like it was in the decades before oil transformed Crosby from an idyllic farm town into a boomtown, says Ms. Krimm, the newspaper editor.

Signs advertising available lots are posted in the fields that abut the empty new street. And companies have begun layoffs, though Nystuen found a new job within days. All the same, he doesn’t expect to stay in the industry long – maybe a couple years.

If the boom ends, he says he’d happily move on to something else. For him and for so many others in Crosby, the oil wealth is useful so long as it lasts. The boom has its drawbacks: There’s crime, pollution, and the soaring rents. Above all, there’s an uneasy sense that Crosby has lost the charm of a windswept prairie outpost where doors were never locked.

But that place had been vanishing, anyway. All things considered, an oil boom – no matter how long it lasts – seems better than nothing. “You get it while the getting’s good,” Nystuen says.


Valero Crude by Rail ranked #1 news story in Benicia for 2014

By Roger Straw, January 30, 2015

The Benicia Herald published a separate section today, “The Year 2014 In Review.”  Counting down dramatically from #14, the #1 story of the year was “Opponents, supporters of Crude-by-Rail Plan square off as city leaders mull decision.”  Subtitle: “For second straight year, Valero Refinery’s permit request dominates Benicia news.”

Editor Marc Ethier will not be publishing the special section online.  When asked, he indicated it would only be for print subscribers.

The article bends over backwards to present a balanced view of the controversy, giving Valero’s perspective and naming our local organized opposition, Benicians For a Safe and Healthy Community and other groups and government entities that were critical of the project and/or it’s environmental review.

It’s appropriate that our local paper recognized the controversy as the City’s #1 story last year.  Benicia finds itself in the crosshairs of a growing nationwide debate, and Valero’s dangerous and toxic proposal would, if approved, affect communities all up and down the rails.

The Benicia Herald’s #6 story of 2014 was “Mayor, city attorney in free speech flap.”  For more on this, see our Local Media page.

Environmentalists sue to stop crude-by-rail terminal in California

Repost from Reuters
[Editor: See also excellent coverage on YubaNet, The Sacramento Bee and Public News Service.  Read the legal document filed here.  Read the public records request here.  – RS]

Environmentalists sue to stop crude-by-rail terminal in California

By Rory Carroll, Jan 29, 2015
An oil train moves through California’s Central Valley. The newly opened Bakersfield Crude Terminal has the capacity to receive two 100-car unit trains a day. Credit: Elizabeth Forsyth / Earthjustice

Environmental groups on Thursday sued a California regulator that permitted trains carrying crude oil to begin making deliveries at a terminal in Bakersfield, arguing the permit was issued in secret and the volatile crude could cause explosions.

The plaintiffs asked the California Superior Court to stop operations at the newly opened Bakersfield Crude Terminal in Taft until a full environmental review is conducted. The terminal, located in Kern County, began receiving crude in November from North Dakota and Canada and is owned by Plains All American Pipeline LP.

In their complaint, the groups point to emails obtained through a public records request that they say show the San Joaquin Air Pollution Control District helping the company avoid environmental and public reviews of the project.

The terminal can currently receive one 100-car unit train a day carrying crude from the Bakken shale formation as well as heavier tar sands crude from Canada. The terminal will ultimately expand to receive two unit trains per day, carrying as much as 61 million barrels of crude a year, making it one of the state’s largest crude-by-rail terminals, the groups said.

Crude oil shipments by rail in California have jumped in recent years as producers seek to move cheap, landlocked crudes from North Dakota and Canada to refineries along the West Coast.

The increase has raised environmental and safety concerns due to a series of fiery derailments, most notably the Lac-Mégantic rail disaster in Quebec in July 2013, which killed 47 people.

“The Bakersfield Crude Terminal evaded both state and federal environmental review and was permitted largely in secret. Given the potentially catastrophic damage from derailments of these tank cars full of volatile crude, these permits must be cancelled,” said Vera Pardee, senior attorney for the Center for Biological Diversity, one of the five environmental groups who are plaintiffs in the case.

Annette Ballatore-Williamson, an attorney for the air district, said the lawsuit misrepresents the nature of the permit, which only covered the construction of a couple storage tanks that emit about a half a pound of air pollution per day.

The facility and the rail terminal underwent significant environmental review and analysis by Kern County several years ago, she said.

“The problem from (the plaintiff’s) perspective is the statute of limitations on their claim against Kern County expired quite some time ago so now they are just looking for a target,” she said.

(Reporting by Rory Carroll; Editing by Andrew Hay and Lisa Shumaker)

Oil corporations cutting back due to low oil prices

Repost from The Wall Street Journal

Chevron Posts Lowest Quarterly Profit in Five Years

Oil Major to Pare Capital Budget by 13%, End Buybacks to Offset Low Crude-Oil Prices

By Daniel Gilbert and Chelsey Dulaney, Jan. 30, 2015
Gas prices are displayed at a Chevron fueling station in Richmond, Calif. in April Photo: Bloomberg News

Chevron Corp. said it would trim ambitious spending plans and stop buying back its shares as the collapse in oil prices erased billions of dollars from the company’s cash flow.

The San Ramon, Calif., company on Friday reported $3.5 billion in profit for the last three months of 2014, down 30% from a year ago and its lowest since the 2009 recession.

It also outlined plans to spend $35 billion this year to find and tap oil and gas, a 13% cut from last year’s budget, in response to oil prices that have slumped more than 60% since the summer to under $50 a barrel.

With less cash coming in, the company is suspending its share buyback program for 2015, which had cost $5 billion a year since 2012. Repurchasing shares shrinks the number available to the public and tends to increase their value. Its shares were down 67 cents at $102.33 in recent trading.

John Watson , Chevron’s chief executive, said the company remains on track to pump the equivalent of about 3.1 million barrels a day by 2017—20% more than its current levels—despite spending less. Oil prices must rise, he said, because companies won’t invest enough to make up for the natural declines of existing oil and gas wells, eventually reducing supplies.

“The projects that are going to meet demand going forward are more complex than 20 or 30 years ago, and so the costs of the projects will be higher, and will require a higher price than we’re seeing today,” Mr. Watson said.

Chevron’s spending plans remain ambitious relative to its rivals and its shrinking cash flow. On Thursday, Occidental Petroleum Corp. said it would spend a third less on producing oil and gas this year; ConocoPhillips said it would chop 15% off its capital budget, on top of a 20% cut in December; Royal Dutch Shell PLC said it would spent $15 billion less than planned over three years. Exxon Mobil Corp. , the biggest U.S. energy company, reports results on Monday.

Chevron generated $6.5 billion from its operations in the fourth quarter of 2014, down 38% from a year ago, but still better than analysts’ expectations. Unless oil prices rebound significantly, that rate of cash generation isn’t likely to cover the company’s spending on exploration and production, plus dividend payments that totaled $7.9 billion last year.

Even before oil prices fell, Chevron had been spending at a deficit, dipping into its pile of cash and borrowing more money. The company’s debt rose to $27.8 billion by the end of 2015, doubling in two years and marking the highest it has been in at least 20 years, according to data compiled by S&P Capital IQ.

The company still has $12.8 billion in cash, but that is about $3.5 billion less than at the beginning of 2014. Patricia Yarrington, Chevron’s finance chief, said it could borrow “tens of billions of dollars” more. And Mr. Watson, the CEO, said that while acquisitions aren’t a priority, “We are actively screening opportunities that are out there and we’ll take advantage of opportunities that we see.”

Overall, Chevron reported earnings of $3.47 billion, or $1.85 a share, down from $4.93 billion, or $2.57 a share, a year earlier. Results included a net $570 million gain on asset sales. Revenue fell 18% to $46.1 billion.

Analysts polled by Thomson Reuters had forecast earnings of $1.63 a share and revenue of $30.65 billion.

Chevron’s bottom line was helped by foreign-currency effects, which have been a drag on many U.S. companies’ results recently. Chevron said foreign currency helped its earnings by $432 million in the quarter, up from $202 million a year earlier.

The pain from lower oil prices was cushioned by Chevron’s business of refining crude into fuels like gasoline and diesel. The refining business, which in recent years has accounted for less than 15% of its profits, provided $1.5 billion in earnings–44% of the company’s total. Refining profits nearly quadrupled from a year ago, due to a combination of better margins and asset sales.

The fall in oil prices masked the company’s success at pumping more oil, as it began reaping petroleum from two major projects in the Gulf of Mexico’s deep waters in the last months of 2014. But overall, Chevron’s oil and gas output slipped about 1% from a year ago. On Friday, the company said production could increase up to 3% this year.