Tag Archives: Oil Industry

Bakken Crude, Blowouts, Fracking, North Dakota's Williston Basin, Oil Industry, State regulation

New York Times: The Downside of the Boom (Part 1)

Repost from The New York Times
[Editor: This is an INCREDIBLE, intimate portrait of the lives and times of those living through the nightmare of the crude oil boom in North Dakota.  Due to it’s GORGEOUS and informative interactive imagery, the Benicia Independent can only repost a small portion of this lengthy and immersive article.  Get started here, then click on MORE.  – RS]

The Downside of the Boom

North Dakota took on the oversight of a multibillion-dollar oil industry with a regulatory system built on trust, warnings and second chances.
By DEBORAH SONTAG and ROBERT GEBELOFF NOV. 22, 2014

NYT The Downside of the BoomWILLISTON, N.D. — In early August 2013, Arlene Skurupey of Blacksburg, Va., got an animated call from the normally taciturn farmer who rents her family land in Billings County, N.D. There had been an accident at the Skurupey 1-9H oil well. “Oh, my gosh, the gold is blowing,” she said he told her. “Bakken gold.”

It was the 11th blowout since 2006 at a North Dakota well operated by Continental Resources, the most prolific producer in the booming Bakken oil patch. Spewing some 173,250 gallons of potential pollutants, the eruption, undisclosed at the time, was serious enough to bring the Oklahoma-based company’s chairman and chief executive, Harold G. Hamm, to the remote scene.

It was not the first or most catastrophic blowout visited by Mr. Hamm, a sharecropper’s son who became the wealthiest oilman in America and energy adviser to Mitt Romney during the 2012 presidential campaign. Two years earlier, a towering derrick in Golden Valley County had erupted into flames and toppled, leaving three workers badly burned. “I was a human torch,” said the driller, Andrew J. Rohr.

Blowouts represent the riskiest failure in the oil business. Yet, despite these serious injuries and some 115,000 gallons spilled in those first 10 blowouts, the North Dakota Industrial Commission, which regulates the drilling and production of oil and gas, did not penalize Continental until the 11th.

In 2011, Andrew J. Rohr and two other workers were badly burned when a towering derrick erupted into flames and toppled. “I was a human torch,” Mr. Rohr said. | Rich Addicks for The New York Times
 

The commission — the governor, attorney general and agriculture commissioner — imposed a $75,000 penalty. Earlier this year, though, the commission, as it often does, suspended 90 percent of the fine, settling for $7,500 after Continental blamed “an irresponsible supervisor” — just as it had blamed Mr. Rohr and his crew, contract workers, for the blowout that left them traumatized.

Since 2006, when advances in hydraulic fracturing — fracking — and horizontal drilling began unlocking a trove of sweet crude oil in the Bakken shale formation, North Dakota has shed its identity as an agricultural state in decline to become an oil powerhouse second only to Texas. A small state that believes in small government, it took on the oversight of a multibillion-dollar industry with a slender regulatory system built on neighborly trust, verbal warnings and second chances.

In recent years, as the boom really exploded, the number of reported spills, leaks, fires and blowouts has soared, with an increase in spillage that outpaces the increase in oil production, an investigation by The New York Times found. Yet, even as the state has hired more oil field inspectors and imposed new regulations, forgiveness remains embedded in the Industrial Commission’s approach to an industry that has given North Dakota the fastest-growing economy and lowest jobless rate in the country.

For those who champion fossil fuels as the key to America’s energy independence, North Dakota is an unrivaled success, a place where fracking has provoked little of the divisive environmental debate that takes place elsewhere. Its state leaders rarely mention the underside of the boom and do not release even summary statistics about environmental incidents and enforcement measures.

Over the past nine months, using previously undisclosed and unanalyzed records, bolstered by scores of interviews in North Dakota, The Times has pieced together a detailed accounting of the industry’s environmental record and the state’s approach to managing the “carbon rush.”

The Times found that the Industrial Commission wields its power to penalize the industry only as a last resort. It rarely pursues formal complaints and typically settles those for about 10 percent of the assessed penalties. Since 2006, the commission has collected an estimated $1.1 million in fines. This is a pittance compared with the $33 million (including some reimbursements for cleanups) collected by Texas’ equivalent authority over roughly the same period, when Texas produced four times the oil.

“We’re spoiling the child by sparing the rod,” said Daryl Peterson, a farmer who has filed a complaint seeking to compel the state to punish oil companies for spills that contaminated his land. “We should be using the sword, not the feather.”

North Dakota’s oil and gas regulatory setup is highly unusual in that it puts three top elected officials directly in charge of an industry that, through its executives and political action committees, can and does contribute to the officials’ campaigns. Mr. Hamm and other Continental officials, for instance, have contributed $39,900 to the commissioners since 2010. John B. Hess, chief executive of Hess Oil, the state’s second-biggest oil producer, contributed $25,000 to Gov. Jack Dalrymple in 2012.

State regulators say they deliberately choose a collaborative rather than punitive approach because they view the large independent companies that dominate the Bakken as responsible and as their necessary allies in policing the oil fields. They prefer to work alongside industry to develop new guidelines or regulations when problems like overflowing waste, radioactive waste, leaking pipelines, and flaring gas become too glaring to ignore.

Daryl Peterson taste-tests the residue left by a wastewater spill on land he farms. The highly saline spill rendered the land useless. | Jim Wilson/The New York Times

Mr. Dalrymple’s office said in a statement: “The North Dakota Industrial Commission has adopted some of the most stringent oil and gas production regulations in the country to enhance protections for our water, air and land. At the same time, the state has significantly increased staffing to enforce environmental protections. Our track record is one of increased regulation and oversight.”

Researchers who study government enforcement generally conclude that “the cooperative approach doesn’t seem to generate results” while “the evidence shows that increased monitoring and increased enforcement will reduce the incidence of oil spills,” said Mark A. Cohen, a Vanderbilt University professor who led a team advising the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.

With spills steadily rising in North Dakota, evidence gathered by The Times suggests that the cooperative approach is not working that well for the state, where the Industrial Commission shares industry oversight with the state’s Health Department and federal agencies.

One environmental incident for every 11 wells in 2006, for instance, became one for every six last year, The Times found.

Through early October of this year, companies reported 3.8 million gallons spilled, nearly as much as in 2011 and 2012 combined.

Over all, more than 18.4 million gallons of oils and chemicals spilled, leaked or misted into the air, soil and waters of North Dakota from 2006 through early October 2014. (In addition, the oil industry reported spilling 5.2 million gallons of nontoxic substances, mostly fresh water, which can alter the environment and carry contaminants.)

The spill numbers derive from estimates, and sometimes serious underestimates, reported to the state by the industry. State officials, who rarely discuss them publicly, sometimes use them to present a rosier image. Over the summer, speaking to farmers in the town of Antler, Lynn D. Helms, the director of the Department of Mineral Resources, announced “a little bit of good news”: The spill rate per well was “steady or down.” In fact, the rate has risen sharply since the early days of the boom.

Presented with The Times’s data analysis, and asked if the state was doing an effective job at preventing spills, Mr. Helms struck a more sober note. “We’re doing O.K.,” he said. “We’re not doing great.”

He noted it is a federal agency, the Pipeline and Hazardous Materials Safety Administration, that regulates oil transmission pipelines. “You can’t use the spills P.H.M.S.A. was responsible for and conclude my approach to regulation is not working,” he said.

[Editor:  MORE – click here to continue – GREAT INTERACTIVE GRAPHICS, DON’T MISS THIS – RS]

Export of North American crude, Oil imports, Oil Industry, Oil prices

Nationwide trend: oil imports slowing down

Repost from Bloomberg Business Week

Oil Import Decline to U.S. Revealed by Louisiana as Truth

By Dan Murtaugh, Zain Shauk and Lynn Doan, Nov. 05, 2014
Oil
A four-decade ban on exporting most U.S. crude has stranded the bulk of America’s surging production within the nation’s borders, blocking inbound global shipments. Some cargoes permitted for export, such as those from Alaska, have begun moving overseas. South Korea last month received its first shipment of Alaskan oil in more than a decade. Photographer: Curtis Tate/MCT via Getty Images

Things are slowing down at the U.S.’s largest oil-import hub.

Just six years after importing more than 1 million barrels a day from countries including Saudi Arabia, Nigeria and Iraq, the Louisiana Offshore Oil Port is receiving just half of that from overseas, highlighting a nationwide trend at harbors from Mississippi to Pennsylvania. What’s more, with U.S. output soaring to a 31-year high, neighboring Texas has become the port’s second-biggest supplier.

“U.S. oil production has significantly changed the flows of oil around the world and LOOP is at the fulcrum,” Jamie Webster, head of global oil markets at IHS Inc., said by telephone from Washington Nov. 3. “We’re now essentially receiving nothing from Nigeria. This is a huge change. I’m an oil markets man and not an economist, but in general, this is a big stimulus” for the U.S.

Oil Prices

Booming oil and gas production created more than 159,000 jobs between 2007 and 2013, Bureau of Labor Statistics data show. The country will be self-sufficient in energy by 2030, BP Plc says.

A four-decade ban on exporting most U.S. crude has stranded the bulk of America’s surging production within the nation’s borders, blocking inbound global shipments. Some cargoes permitted for export, such as those from Alaska, have begun moving overseas. South Korea last month received its first shipment of Alaskan oil in more than a decade.

U.S. Consumers Benefit

Oil that the U.S. once imported now floods world markets, driving down prices 28 percent since June. That’s helped bring $3 gasoline back to U.S. pumps and provided what Citigroup Inc. describes as a $1.1 trillion boost to the global economy. Lower energy prices will translate into savings for Americans and will probably boost spending, said Amy Myers Jaffe, executive director of energy and sustainability at the University of California at Davis.

“It’s not just that people will have this benefit of lower gasoline prices, they’ll have this whole benefit of having a stronger U.S. economy and more jobs,” Myers Jaffe said.

Oil prices have maintained their decline as OPEC, the supplier of 40 percent of the world’s oil, resists pressure to curb production and help eliminate a global surplus. On Nov. 3, Saudi Arabian Oil Co. cut prices for all of its crude grades to the U.S., an e-mailed statement from the company showed.

WTI for December delivery rose $1.49 to settle at $78.68 a barrel on the New York Mercantile Exchange. Brent gained 13 cents to $82.95.

Lower Prices

A sustained stretch of low prices is unlikely to stop soaring output from major U.S. fields, with executives of oil companies including Continental Resources Inc. Chairman Harold Hamm and Occidental Petroleum Corp. Chief Executive Officer Stephen Chazen saying last month that production could be sustained even if prices fall lower.

“Oil prices are lower, but they’re not low enough to really put a big pinch on that activity,” said Ken Medlock, senior director of the Center for Energy Studies at Rice University’s Baker Institute in Houston. “You probably would need to see oil prices come off another $10 to $20 to see that fade.”

Horizontal drilling and hydraulic fracturing have drawn crude from previously inaccessible formations in Texas and North Dakota, propelling U.S. output to 8.97 million barrels a day, the highest level since 1983. Restrictions on exports have made U.S. oil cheaper than global crudes, so imports have fallen 31 percent since 2005 to 7.5 million barrels a day.

Supertanker Port

“Why is oil $80 instead of $95?” said David Hackett, president of Stillwater Associates LLC in Irvine, California. “All of a sudden all this oil is getting to the coast and pushing back world supplies.”

The shift is being felt 20 miles (32 kilometers) offshore in the Gulf of Mexico at the LOOP. Built in 1981, it’s the only U.S. port that can unload the world’s largest supertankers.

Shipments into the port peaked in 2005 at 1.18 million barrels a day, according to Louisiana state records. Imports have fallen to 510,000 barrels a day this year, and since May the port has received more oil from Texas than any country other than Saudi Arabia.

The U.S. Customs district in Morgan City, Louisiana, where the LOOP’s barrels are tallied, had 46 percent less petroleum import tonnage in September than the year before, according to Datamyne Inc.

Refining Profits

Morgan City has plenty of company. Philadelphia, home to the East Coast’s largest refining complex, had a 31 percent drop. Pascagoula, Mississippi, shipments declined 35 percent. Port Arthur, Texas, which brings in oil for some of the oldest refineries in the U.S., saw a 32 percent decline.

Returning to its roots, Exxon Mobil Corp. (XOM:US)’s Beaumont refinery is now processing more domestic crude. It imported 32,000 barrels of oil a day in July, down from around 220,000 in 2012. The refinery was built in 1903 by John D. Rockefeller’s Standard Oil Co. to process crude from the Spindletop gusher 4 miles away.

Third-quarter refining profit climbed to $1.02 billion from $592 million a year earlier, the Irving, Texas-based company reported (XOM:US) Oct. 31. That more than offset a $297 million decline in earnings from oil and gas production.

American refiners from Marathon Petroleum Corp. (MPC:US) to Phillips 66 have said in conference calls within the past week that they’re buying fewer expensive foreign crudes and more oil from the Bakken in North Dakota and Eagle Ford in Texas.

Domestic Crude

Instead of bringing in oil by ship, refiners have turned to pipelines and rail. Phillips 66 used 3,200 rail cars to get more of its crude from U.S. sources.

The company said 95 percent of its oil in the third quarter was either domestic or heavy oil priced below benchmarks. Phillips 66 will add 500 rail cars to its fleet by early next year, and expects to use only the less expensive crudes by the end of 2015, CEO Greg Garland said on an Oct. 29 conference call.

Back at LOOP, Terry Coleman, the port’s vice president for business development, said equipment has been reconfigured to accommodate smaller tankers and the shift in flows. On top of tanker unloadings and receipts from offshore drilling platforms, the company is now linked to an onshore pipeline operated by Royal Dutch Shell Plc, he said by phone yesterday.

“Given its size and its historical importance, LOOP is really the bellwether of the structural change that has taken place,” Darryl Anderson, managing director of Wave Point Consulting in Victoria, Canada, said by phone Nov. 3. “What it’s telling us is that there has been a fundamental change in U.S. energy sources.”

Electoral politics, Oil Industry

Richmond California to Chevron’s $3 million campaign, loud and clear: NO THANKS!

[Editor: After Election Day on Nov. 4 , local and national news media covered the incredible David and Goliath story out of Richmond, California.  I will link to several here.  My favorite was the Rachel Maddow story about Richmond’s new Mayor, Tom Butt.  Apologies for the video’s commercial ad.  – RS]

RACHEL MADDOW:
Small victories, silver linings seen in lopsided election

COMMON DREAMS:
Voters Reject Oil Titan Chevron, Elect Progressive Bloc in Richmond, California
Tom Butt elected mayor and slate of progressive candidates all win city council seats after grim battle with corporate power  [MORE]

CONTRA COSTA TIMES
Anti-Chevron candidates sweep to victory in Richmond races
In a race that received national attention thanks to big money from Chevron, a slate of candidates on shoestring budgets swept their oil titan-backed opponents on Tuesday night in a resounding political defeat for the company and its campaign tactics.   [MORE]

COUNTERPUNCH:
Big Oil’s “Air War” Fails to Sink Richmond Progressives
Election day, 2014, was not ending well for Nat Bates, a mayoral candidate in this largely non-white city of 100,000 long dominated by Chevron.  [MORE]

BILL MOYERS / PETER DREIER
Corporate Triumphs, Progressive Victories and the Roadmap for a Democratic Revival
Tuesday’s Republican wave of election victories did not reflect public opinion or the public mood….One of the most significant victories occurred in Richmond, California, where progressives defeated a slate funded by Chevron, the nation’s third largest corporation, which poured at least $3 million (about $150 for each likely voter) into this municipal election in this working class Bay Area city of 105,000 people.  [MORE] Two more stories on BillMoyers.com: “Bernie Sanders: Stand Up to Corporations Like Chevron” and “Chevron’s ‘Company Town’ Fights Back: An Interview with Gayle McLaughlin”

 

Bakken Shale, Oil Industry, Oil prices, Tar sands crude

Wall Street Journal: Big Oil Feels the Need to Get Smaller

Repost from The Wall Street Journal

Big Oil Feels the Need to Get Smaller

Exxon, Shell, Chevron Pare Back as Rising Production Costs Squeeze Earnings
By Daniel Gilbert and Justin Scheck, Nov. 2, 2014
Shell_Ft.McMurrayAlberta_Bbrg500
Extracting oil from Western Canada’s oil sands, such as at this Shell facility near Fort McMurray, Alberta, is a particularly expensive proposition. Bloomberg News

As crude prices tumble, big oil companies are confronting what once would have been heresy: They need to shrink.

Even before U.S. oil prices began their summer drop toward $80 a barrel, the three biggest Western oil companies had lower profit margins than a decade ago, when they sold oil and gas for half the price, according to a Wall Street Journal analysis.

Despite collectively earning $18.9 billion in the third quarter, the three companies— Exxon Mobil Corp. , Royal Dutch Shell PLC and Chevron Corp. —are now shelving expansion plans and shedding operations with particularly tight profit margins.

The reason for the shift lies in the rising cost of extracting oil and gas. Exxon, Chevron, Shell, as well as BP PLC, each make less money tapping fuels than they did 10 years ago. Combined, the four companies averaged a 26% profit margin on their oil and gas sales in the past 12 months, compared with 35% a decade ago, according to the analysis.

Shell last week reported that its oil-and-gas production was lower than it was a decade ago and warned it is likely to keep falling for the next two years. Exxon’s output sank to a five-year low after the company disposed of less-profitable barrels in the Middle East. U.S.-based Chevron, for which production has been flat for the past year, is delaying major investments because of cost concerns.

BP has pared back the most sharply, selling $40 billion in assets since 2010, largely to pay for legal and cleanup costs stemming from the Deepwater Horizon oil spill in the Gulf of Mexico that year.

SqueezePlaysWSJ.500

To be sure, the companies, at least eventually, aim to pump more oil and gas. Exxon and Chevron last week reaffirmed plans to boost output by 2017.

“If we went back a decade ago, the thought of curtailing spending because crude was $80 a barrel would blow people’s minds,” said Dan Pickering, co-president of investment bank Tudor, Pickering, Holt & Co. “The inherent profitability of the business has come down.”

It isn’t only major oil companies that are pulling back. Oil companies world-wide have canceled or delayed more than $200 billion in projects since the start of last year, according to an estimate by research firm Sanford C. Bernstein.

In the past, the priority for big oil companies was to find and develop new oil and gas fields as fast as possible, partly to replace exhausted reserves and partly to show investors that the companies still could grow.

But the companies’ sheer size has meant that only huge, complex—and expensive—projects are big enough to make a difference to the companies’ reserves and revenues.

As a result, Exxon, Shell and Chevron have chased large energy deposits from the oil sands of Western Canada to the frigid Central Asian steppes. They also are drilling to greater depths in the Gulf of Mexico and building plants to liquefy natural gas on a remote Australian island. The three companies shelled out a combined $500 billion between 2009 and last year. They also spend three times more per barrel than smaller rivals that focus on U.S. shale, which is easier to extract.

The production from some of the largest endeavors has yet to materialize. While investment on projects to tap oil and gas rose by 80% from 2007 to 2013 for the six biggest oil companies, according to JBC Energy Markets, their collective oil and gas output fell 6.5%.

Several major ventures are scheduled to begin operations within a year, however, which some analysts have said could improve cash flow and earnings.

For decades, the oil industry relied on what Shell Chief Financial Officer Simon Henry calls its “colonial past” to gain access to low-cost, high-volume oil reserves in places such as the Middle East. In the 1970s, though, governments began driving harder bargains with companies.

Oil companies still kept trying to produce more oil, however. In the late 1990s, “it would have been unacceptable to say the production will go down,” Mr. Henry said.

Oil companies were trying to appease investors by promising to boost production and cut investment.

“We promised everything,” Mr. Henry said. Now, “those chickens did come home to roost.”

Shell has “about a third of our balance sheet in these assets making a return of 0%,” Shell Chief Executive Ben van Beurden said in a recent interview. Shell projects should have a profit margin of at least 10%, he said. “If that means a significantly smaller business, then I’m prepared to do that.”

Shell late last year canceled a $20 billion project to convert natural gas to diesel in Louisiana and this year halted a Saudi gas project where the company had spent millions of dollars.

The Anglo-Dutch company also has dialed back on shale drilling in the U.S. and Canada and abandoned its production targets.

U.S.-based Exxon earlier this year allowed a license to expire in Abu Dhabi, where the company had pumped oil for 75 years, and sold a stake in an oil field in southern Iraq because they didn’t offer sufficiently high returns.

Exxon is investing “not for the sake of growing volume but for the sake of capturing value,” Jeff Woodbury, the head of investor relations, said Friday.

Even Chevron, which said it planned to increase output by 2017, has lowered its projections. The company has postponed plans to develop a large gas field in the U.K. to help bring down costs. The company also recently delayed an offshore drilling project in Indonesia.

The re-evaluation has also come because the companies have been spending more than the cash they bring in. In nine of the past 10 quarters, Exxon, for example, has spent more on dividends, share buybacks and capital and exploration costs than it has generated from operations and by selling assets.

Though refining operations have cushioned the blow of lower oil prices, the companies indicated that they might take on more debt if crude gets even cheaper. U.S. crude closed Friday at $80.54 a barrel.

Chevron finance chief Patricia Yarrington said the company planned to move forward with its marquee projects and is willing to draw on its $14.2 billion in cash to pay dividends and repurchase shares.

“We are not bothered in a temporary sense,” she said. “We obviously can’t do that for a long period of time.”