Oil Production and Obama

Under fire for surging gas prices in an election year, President Obama this week predictably trotted out his three year old energy speech and mocked republicans for their belief that increased domestic oil production would lead to decreased dependence on foreign oil.  


Pause for effect.  


There are so many ways we could go with this, but let's focus on one way.  In his remarks, the president stated:


Now, we absolutely need safe, responsible oil production here in America. That’s why under my Administration, America is producing more oil today than at any time in the last eight years.

It was painful to hear his stand-in press secretary try to explain later that President Obama wasn't really trying to take credit for the increased domestic production.  


Which is understandable in light of recent developments, such as:


1. Blocking the Keystone Pipeline.  Desperate to keep this loser issue off the table, congressional democrats have thrown all manner of disruptions and distractions into the effort to get Keystone up again, including, strangely, an effort to make sure that none of the Keystone oil goes outside the country.  Its not really clear why petroleum exports would be a bad thing... other than it involves US oil companies making money... never mind.  


2. My personal favorite... the Gulf of Mexico moratorium and slowdown following the Deepwater Horizon blowout, imposed on the industry across the board regardless of the facts.  I have blogged about this ad nauseum so I'll stop now.  


3. The real reason production is up... Obama and the EPA have been slow to throw up barriers to fracking, which is where all the increases in production are coming from. 


Now let me be clear.  All of this tripe sounds great rolling off the teleprompter, but the same plan rehashed over the course of three years is not a plan, it is a speech.  And time has borne that out.  


If only he were serious.    

Change you can believe in

If a picture is worth a thousand words, this picture will not need much introduction.  This is an aerial shot of one section of Fourchon, Louisiana, drilling central for the Gulf of Mexico, taken on the 27th of October, 2011, over a year after the gulf was long since cleaned up.  


Boats.  Parked.  Everywhere.  In better days, these boats would be out supporting drilling operations and only in port to load and unload.  Unfortunately, this has been the scene since shortly after the Deepwater Horizon disaster.  Followed by an initial uptick in business for Deepwater Horizon response, and followed by a very long and ongoing period of governmental interference with drilling operations in the gulf.  


This is the "boot on the neck", the "boot on the throat", and the tough talking administration judging "whose ass to kick".  Unfortunately, the rest of the industry, and particularly the third party providers like these boat companies are still feeling the pain, and do not factor into the new jobs bill or the 99%.  


By the way, BP just got a new permit to drill in the gulf.  Better luck next time, guys.  

Deepwater Horizon and the moratorium - a year later

Over a year after the Deepwater Horizon disaster, the Department of the Interior is issuing drilling permits as never before!  Oil companies are back to work!  And oil production in the gulf is at a high not seen since... um, 2003!!!


Err... not so much.  


Nearly all of the "new" deepwater permits being issued are resumptions of existing permits that were suspended after the Horizon disaster.  It took nearly a year for the Department of Interior to issue the first of these, and unimpressed Louisiana Senators have since resorted to hardball tactics in order to speed up the pace of permitting.  More often than not, when Interior speaks of "offshore permits", they are likely referring to shallow water permits rather than the high yield deepwater permits that were disproportionately affected by the moratorium.  


With a high unemployment rate and one of the lowest per capita income figures in the lower 48, Louisiana cannot afford to let their relatively highly paid oil and gas work force remain idle.  Since the moratorium, estimates range from 8,000 to 18,000 jobs lost as a direct result of the moratorium.  A year ago, Lafayette hosted a "Rally for Economic Survival" in an attempt to shine the media spotlight on the economic devastation of the spill brought on not by the Horizon disaster, but by the arbitrary government imposed moratorium.  As the argument goes in the oil industry, the overreaction by the Interior Department largely ignores the lack of major spills in the gulf over decades of drilling and production, and shutting down all drilling in the gulf is much like grounding all domestic passenger flights after a single airline crash.  But for as much noise and congressional pressure that the region has put out, Interior still makes the rules, and that is where their leverage ends.  


As a part-time resident of Louisiana and employee of the gulf oil industry, I don't need any further proof beyond what I see with my own eyes on a daily basis... third party support contracts at their lowest point since the early 90s, idle infrastructure and equipment everywhere you look, contracts, equipment, and personnel going overseas, and rounds of layoffs that just keep on coming.  


So far as production being way up and oil companies not exercising existing lease blocks, it is difficult to separate the ignorance from the distortion of those making these statements.  


There is PRODUCTION, which involves existing wells pumping oil for years on end, and there is EXPLORATION, which involves high dollar and high risk new projects where the lease of the drilling rig alone can be over half a million dollars a day.  This is where most of the money is made, particularly for third party support contractors in the oilfield who have been hit hard by the moratorium.  Killing off exploration while pointing to increased production can be likened to choking somebody by the neck while stating that their increased heart rate shows that they are doing just fine.  


And why exactly would companies not exercise leases that they already own and are sitting on?  If they were not allowed to drill on the leases they hold, that would be one reason.  If they were not allowed to bid because future lease sales were suspended that would be another.  But the most likely reason is that companies won't drill if they think there is nothing down there.  With the cost of each new drilling project easily reaching into the millions and an oversupply of natural gas, drilling for anything short of large oil finds makes little economic sense.  Add to the mix that Interior keeps on moving the goal and changing the rules, and now you are living in the Gulf of Mexico.  


I am not knocking green energy or thinking that my oil and gas job will be around forever.  But I believe that we should, particularly in a down economy, be rethinking energy subsidies of all kinds, and let the markets determine what is a viable energy source and what is not.  Like it or not, right now it is oil and gas.  The infrastructure that brings you relatively cheap oil from across the world is not going away, but if you make it hard enough for energy to be produced here in the US, the exploration assets will go overseas and take the US jobs with them.  In fact, it is already happening.  Drilling rigs which lose hundreds of thousands of dollars a day when idle will not choose to remain idle indefinitely.  


"Big Oil" lives in an effective 40-50% tax bracket.  The more they make, the more revenue that pours into the government.  What do they do with much of their "record windfall profits"?  More exploration of course, so that they can make MORE money, which generates MORE federal taxes.  Furthermore, one of the largest non-tax sources of federal revenue remains oil and gas leases, the bulk of which comes from offshore sources.  


In conclusion, the Department of Interior's promise to keep their "boot on the neck" of BP manifested itself as a "boot on the throat" of the entire US offshore industry.  Arguing that boosting domestic production will not help our current economic situation is moronic.  If the president truly wakes up thinking about how to get people back to work, he can put ideology aside and put 13,000 people in Louisiana back to work tomorrow.  And then he can go back to sleep.  


Since being issued a resumption permit, Exxon Mobil a couple of weeks ago announced one of the biggest finds in the gulf in years.  The oil is here, folks... lets produce it with US labor for US consumption.  


For a slightly less editorial view of things we can do TODAY to fix the current US energy crisis, check out the below PM article.  


10 fixes for the New Energy Crisis

Please watch this space for a future rant on the effect of the oil industry and the BP spill on the Louisiana marshes and coast.