Oil -- More Domestic Oil is the Answer

We can drill for oil in Texas, and we can use the hydraulic fracturing process to extract it from the rocks it's in. Or we can go for the easy stuff in the Artic National Wildlife Refuge, off the coast of California and in a lot of other places that are now officially off-limits to drillers.

Why is the nation determined to bankrupt itself while enriching the people who want to provoke our collapse? Crazy.

Shale Boom in Texas Could Increase U.S. Oil Output

May 27, 2011

CATARINA, Tex. — Until last year, the 17-mile stretch of road between this forsaken South Texas village and the county seat of Carrizo Springs was a patchwork of derelict gasoline stations and rusting warehouses.

Now the region is in the hottest new oil play in the country, with giant oil terminals and sprawling RV parks replacing fields of mesquite. More than a dozen companies plan to drill up to 3,000 wells around here in the next 12 months.

The Texas field, known as the Eagle Ford, is just one of about 20 new onshore oil fields that advocates say could collectively increase the nation’s oil output by 25 percent within a decade — without the dangers of drilling in the deep waters of the Gulf of Mexico or the delicate coastal areas off Alaska.

There is only one catch: the oil from the Eagle Ford and similar fields of tightly packed rock can be extracted only by using hydraulic fracturing, a method that uses a high-pressure mix of water, sand and hazardous chemicals to blast through the rocks to release the oil inside.

The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas. As evidence mounts that fracking poses risks to water supplies, the federal government and regulators in various states are considering tighter regulations on it.

The oil industry says any environmental concerns are far outweighed by the economic benefits of pumping previously inaccessible oil from fields that could collectively hold two or three times as much oil as Prudhoe Bay, the Alaskan field that was the last great onshore discovery. The companies estimate that the boom will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas.

“It’s the one thing we have seen in our adult lives that could take us away from imported oil,” said Aubrey McClendon, chief executive of Chesapeake Energy, one of the most aggressive drillers. “What if we have found three of the world’s biggest oil fields in the last three years right here in the U.S.? How transformative could that be for the U.S. economy?”

The oil rush is already transforming this impoverished area of Texas near the Mexican border, doubling real estate values in the last year and filling restaurants and hotels.

“That’s oil money,” said Bert Bell, a truck company manager, pointing to the new pickup truck he bought for his wife after making $525,000 leasing mineral rights around his family’s mobile home. “Oil money just makes life easier.”

Based on the industry’s plans, shale and other “tight rock” fields that now produce about half a million barrels of oil a day will produce up to three million barrels daily by 2020, according to IHS CERA, an energy research firm. Oil companies are investing an estimated $25 billion this year to drill 5,000 new oil wells in tight rock fields, according to Raoul LeBlanc, a senior director at PFC Energy, a consulting firm.

“This is very big and it’s coming on very fast,” said Daniel Yergin, the chairman of IHS CERA. “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

In the most developed shale field, the Bakken field in North Dakota, production has leaped to 400,000 barrels a day today from a trickle four years ago. Experts say it could produce as much as a million barrels a day by the end of the decade.

The Eagle Ford, where the first well was drilled only three years ago, is already producing more than 100,000 barrels a day and could reach 420,000 by 2015, almost as much as Ecuador, according to Bentek Energy, a consultancy.

The shale oil boom comes as production from Prudhoe Bay is declining and drilling in the Gulf of Mexico is being more closely scrutinized after last year’s Deepwater Horizon disaster.

What makes the new fields more remarkable is that they were thought to be virtually valueless only five years ago. “Everyone said the oil molecules are too large to flow in commercial quantities through these low-quality rocks,” said Mark G. Papa, chief executive of EOG Resources.

EOG began quietly buying the rights to thousands of acres in the Bakken and Eagle Ford after an EOG engineer concluded that the techniques used to extract natural gas from shale — fracking, combined with drilling horizontally through layers of rocks — could be used for oil. Chesapeake and a few other independents quickly followed. Now the biggest multinational oil companies, as well as Chinese and Norwegian firms, are investing billions of dollars in the fields.

The new drilling makes economic sense as long as oil prices remain above $60 a barrel, according to oil companies. At current oil prices of about $100 a barrel, shale wells can typically turn a profit within eight months — three times faster than many traditional wells.

But water remains a key issue. In addition to possible contamination of surface and underground water from fracking fluids, the sheer volume of water required poses challenges, especially in South Texas, which faces a severe drought and rapidly diminishing water levels in the local aquifer.

At the rate wells are being drilled, “there’s definitely going to be a problem,” said Bay Laxson, a local water official.

Dave Thompson, regional production superintendent for the oil company SM Energy said the industry knew that water issues were “an Achilles heel.” He said his company was building a system to reuse water in the field.

But unlike Pennsylvania and New York, where fracking for natural gas has produced organized opposition, the oil industry has been mostly welcomed in western and southern states.

Thanks to the drilling boom, the recession bypassed North Dakota entirely. Here in Dimmit County, Tex., the unemployment rate has fallen in half, and sales tax receipts are up 70 percent so far this year, allowing the county to hire more police officers and buy sanitation and road repair equipment.

“In my lifetime, this is the biggest thing I’ve ever seen,” said Jose Gonzalez, 78, a retired teacher and son of migrant farm workers, who leased mineral rights to Chesapeake for $27,000 and sold another plot for $100,000 to a company building an RV park for oil workers. “You can see I’m happy.”

Oil -- the new Tobacco

Has the Obama administration decided to partner with the oil industry the same way the government has a partner in the tobacco industry? Looks that way. How long will it take for Obama to expand its new revenue-raising rules to include the entire oil industry?

U.S., BP Near Deal on Fund

Gulf of Mexico Oil Production Would Secure Company's $20 Billion Recovery Plan.

WASHINGTON—The Obama administration and BP PLC are close to a deal to use future revenues from the oil giant's Gulf of Mexico operations to guarantee its $20 billion cleanup and compensation fund, a move that would give both sides an incentive to continue production in the Gulf, scene of the U.S.'s worst-ever offshore oil spill.

The Justice Department and BP announced Monday they had completed talks to establish the fund, which is designed to cover damage claims from residents and businesses hurt by the oil spill. At the same time, BP paid $3 billion into the fund ahead of schedule.

Discussions continue, however, on how BP will guarantee its remaining obligation of $17 billion. At one point in the negotiations, the two sides discussed securing the fund with BP's oil fields in the Gulf, but the government didn't want to end up owning wells, said one person familiar with the situation.

BP has said it expects to be able to make the required payments to the $20 billion fund through its ongoing operations and asset sales. However, the administration wanted security in the form of collateral in the event that BP couldn't meet its obligation due to financial or legal problems.

The issue of collateral is the last detail to be ironed out. It is a prickly political issue because it could make the administration and BP partners of sorts in developing the Gulf.

Such a deal could provoke a backlash on Capitol Hill, where some lawmakers are moving to bar BP from operating in the Gulf. Legislation approved by the House of Representatives in July would effectively prohibit the government from issuing new offshore oil leases or drilling permits to the oil company by adding a roster of requirements BP couldn't satisfy.

BP currently is the operator of 89 producing wells in the Gulf and a stakeholder in 60 other wells operated by other companies. Of these 149 producing wells, BP's share of the production is 400,000 barrels a day. BP isn't currently drilling any new Gulf wells, other than a relief well for the plugging operation.

Under the latest negotiations, BP would use production payments from its producing Gulf wells as collateral for the fund, and would provide quarterly production updates to the government. The collateral requirements would be reduced as BP pays money into the fund.

A White House official called the oil revenue "one option" for collateral, adding that the administration needed to do more work on the "financial reliability of well production" in BP's Gulf operations. The Gulf region accounts for about 10% of BP's production of oil and gas and is one of the company's most profitable areas of business.

The two sides met Monday at the White House. BP's soon-to-be chief executive Robert Dudley and another BP executive sat down with White House Chief of Staff Rahm Emanuel and the White House energy and climate change adviser Carol Browner. The administration officials "impressed upon BP the importance of living up to their commitment to long-term recovery, and underscored that the Administration will remain vigilant in ensuring that promise is met," the White House said in a written statement.

It's unclear how any agreement on collateral would affect the administration's moratorium on exploratory deep-water drilling in the Gulf. The Interior Department issued a new ban in July after its initial order was struck down by a federal judge. The Obama administration estimates the ban has idled 33 drilling rigs; the oil industry says it has resulted in millions of dollars in lost wages. Rigs currently producing oil aren't affected.

If this unusual collateral arrangement is inked, it would represent a new level of interaction between BP and the federal government. Both sides have been tied together, for good and bad, since the Deepwater Horizon rig sank in April.

The escrow fund has become a focus of both the White House and BP now that the runaway well is close to being permanently sealed. President Barack Obama, who announced the $20 billion fund earlier this summer after meeting with BP executives, wants to show he's holding the oil giant responsible for the environmental and financial mess caused by the spill.

BP, for its part, wants to dispel rumors it's dragging its feet on helping the Gulf. "Establishing this trust and making the initial deposit ahead of schedule further demonstrates our commitment to making it right in the Gulf Coast," said Mr. Dudley, the recently named BP chief executive, in a written statement.

In a written statement Monday, Associate Attorney General Tom Perrilli said: "We have made clear that the company still needs to ensure that the necessary funds will be available if something happens to the subsidiary that established the trust, and we look forward to completion of an appropriate security arrangement in the near future."

In setting up the escrow fund Monday, BP named two individual trustees, a former federal judge and a law-school dean. It also selected Citigroup as the corporate trustee. BP also has retained former Deputy Treasury Secretary Roger Altman to advise on how the oil giant can pledge oil revenue to the U.S. government as collateral.

BP is scheduled to make the next payment into the fund of $2 billion in the fourth quarter of this year. After that, $1.25 billion will be deposited per quarter until the total $20 billion has been paid.

Separately, BP said early this week that an operation to plug the troubled well, called a "static kill," was successful. Now BP is in the final days of drilling a relief well as a precaution. This "bottom kill" operation will pour heavy drilling fluid and cement into the well to ensure that it never again spills oil into the Gulf.

It's the Oil Industry. We gotta do something, anything, says Obama

The Obama administration wants proof that oil companies can respond to oil well disasters. How will Ken Salazar at the Interior Department know if a plan to cap a well blow-out will work? What's wrong with the current method? Based on anecdotal evidence, existing blow-out preventers have handled the job almost flawlessly for decades.

Okay. Something went terribly wrong on the Transocean rig that was destroyed in April. Seems most likely that existing blow-out preventers need some improvements to end a repeat of the Gulf disaster. But overall, BP jumped in and after working endlessly at a site a full mile below the waters' surface, it stopped the leak. I think the results speak for themselves. Pretty impressive.

Anyway, it is obvious that when it comes to the oil business -- any business -- the Obama administration has no idea what it's doing.

Obama Oil-Spill Commission Questions Drilling Halt

Aug 9, 2010


The presidential commission investigating BP Plc’s Gulf of Mexico oil spill has asked the Obama administration if a temporary ban on deep-water drilling should be lifted for certain rigs.

The commission wrote to Michael Bromwich, director of the Interior Department’s Bureau of Ocean Energy Management, on Aug. 6, seeking information on the moratorium, according to a letter released today. President Barack Obama suspended drilling in waters deeper than 500 feet though Nov. 30.

The moratorium has been criticized by the oil industry and Gulf Coast lawmakers such as Senator Mary Landrieu, a Louisiana Democrat, who told the commission last month that the ban would lead to rising unemployment in the region. Bromwich last week said drilling might resume sooner than the end of November.

“We are particularly interested in whether individual rigs, or categories of rigs, subject to the moratorium are sufficiently safe to allow the moratorium to be lifted,” the commission said in the letter.

The suspension will remain in place until companies can show they are able to prevent and contain spills such as BP’s, which spewed an estimated 4.9 million barrels of crude after an April 20 explosion aboard the Deepwater Horizon drilling rig, Interior Secretary Ken Salazar has said. Salazar told the House Oversight Committee on July 22 that he would consider modifications based on new information.

Bromwich last week began a series of public hearings on the moratorium with industry officials, academic experts and environmentalists.

Cut Short

“We may be able to cut short the moratorium,” Bromwich told reporters Aug. 3 at a briefing in Washington.

The National Commission on the BP Deepwater Horizon Spill and Offshore Drilling, which held its first hearing in New Orleans July 12, has asked Bromwich for information on how the agency is evaluating rig safety, according to the letter. Bob Graham, co-chairman of the commission, had said the panel wouldn’t have the resources to evaluate the safety of the rigs or the ability of the oil industry to respond to another spill.

The panel might use its “bully pulpit” to ensure that the Obama administration knew the region’s concerns about the drilling ban, Graham said.