It’s raining at the Duck Club. I can’t catch dragonflies, fish with dry flies or photograph anything in a hard rain, so Dave and I are sitting in the old schoolhouse. We were planning to go fishing, but now we are having to entertain ourselves indoors. Having stacked wood, killed flies, swept and cleaned, fixed lunch and drank tea, we ventured into a discussion of the oil and gas industry. These discussions between Dave, a lobbyist and policy wonk for The Wilderness Society, and yours truly, an attorney often perfectly proud to represent many responsible oil and gas operators and service companies, are always lively but never heated. We disagree about a lot of things, but we are good friends.
One of our often featured topics is the subject of schizophrenic government energy policy and regulation. Officially announced public policy favors energy independence and local job opportunities. Someone forgot to tell that to the EPA. The energy industries think that the same someone forgot to tell the BLM, which regulates nearly all federal energy properties in the on-shore USA. Oil and gas trade groups and spokesmen decry the failures of the BLM to issue leases after lease sales, next decry failures to issue drilling permits, then lament multi-year delays in issuing permits, finally cursing and grumbling about BLM’s refusal to allow drilling activity during most of the year.
Chief among the reasons for these delays and refusals are the objections of a multi-faceted array of environmental groups who want to protect wildlife, protect water, protect air, in short, protect undisturbed Nature, without much apparent regard for the economic impacts caused by these objections. The BLM, stung repeatedly by lawsuits, delays leases and permits while it attempts to analyze these issues. The enviros, stung by industry criticism that they are depriving industry of access to public resources on every front, point out that thousands of leases expire without drilling and permits are often abandoned without development.
“How can industry, which sits on a massive portfolio of undeveloped leases, seriously contend that we are depriving them of access to federal minerals?” they ask, my friend Dave conspicuously among them.
“But, but, but,” sputter industry spokespersons, “you’re mixing apples and oranges! That isn’t a fair analysis.”
Well, is it?
The mixed fruit analogy may be useful. There are many more actors in the energy field than just a couple of types of apples and oranges. One might want to mention such things as prunes and rotten apples. Maybe throw in banana peels. The oil industry is anything but monolithic. (For example, companies sue each other all the time.) Some participate in trade groups while others do not. For every few who get along, there are many who do not.
The “industry,” in a made-up sort of descending order, includes well-heeled companies which drill and develop blocks of leases, companies which buy leases in the hope of developing a profitable project in the face of changing regulations and economics, companies which buy leases in the hope of selling them at a profit, speculators, middlemen and crooks. Once there is production, a huge range of companies become involved in different phases of marketing, transporting, storing, refining, selling, hedging and re-selling products.
On the outside are investors who funnel money to wildcatters and promoters who drill in unproven areas; these folks, too, play an important role in defining the geographic and geologic boundaries of oil and gas reserves. These investors are motivated to take their hard-earned dollars and risk them in speculative adventures largely due to favorable federal tax incentives. If you don’t like risky capitalism you can take these incentives away. If you want people to explore unproven areas for new reserves, in the name of jobs and reducing foreign oil imports, maybe you (President Obama and Harry Reid) should not take away these incentives. Dave and I disagree about this.
All of these companies need access to oil and gas reserves through leases. If it takes three to five years to figure out the geology, get permits, raise the money, find the right consultants, hire the rig and start “turning to the right” in drilling parlance, they have to tie up the leases ahead of time. If any of those prerequisites to development fall through, that lease will likely then expire.
Even if such events occur on a seemingly large scale, that is not evidence that industry is mothballing leases, or keeping them from their competitors. When oil prices drop $30 per barrel, drilling money dries up. When the tax laws change so that doctors and Realtors won’t put up money for wildcat drilling, that slows down the independents. When the BLM requires two years of wildlife studies with a permit application and then takes two years to review the studies, that slows down drilling. Avoiding eye contact, Dave goes for more tea and I head to the outhouse. We are having consensus-avoidance here.
We don’t have to make value judgments and call people names here; these are facts. Some people are glad these events slow down drilling and some people are distinctly not happy.
Then, when gasoline prices go up a buck a gallon, do you think that industry can just turn on the spigot like the Arabs? Do leases and permits suddenly get issued so that production can ramp up to meet demand? No, those things happen slowly, even in the face of urgent demands. But the public gets mad and industry takes a bad rap.
The oil and gas industry can legitimately complain about regulatory uncertainty, delay, expense and frustration. On the other hand, it would be easier to defend the industry if people did not cut corners and blow out wells in the Gulf, or dump frac waste fluid in a municipal water treatment facility in Pennsylvania or blow up gas pipelines with frightening frequency from California to my friends’ ranch on Wild Horse Creek. One stupid act by a bad operator can poison the regulatory and public-goodwill atmosphere for everyone. Here, Dave and I agree.
Then there are the Canadian Tar Sands. The amount of crude hydrocarbon “oil” produced from these resources is immense. The scale of destruction of forests and tundra to extract millions of tons of low-grade “ore,” and the scale of the energy consumed to convert this “ore” to a marketable liquid product, pretty much blow your mind. On this, Dave and I agree.
“Let’s drill more wells in the lower 48 and build some new refineries which are NOT dedicated to Canadian oil imports; create jobs and reduce foreign trade deficits,” I boldly declare, having tired of tea and strayed into the exquisite selection of Scotch whiskeys left over from opening day. Dave looks uncomfortable.
A good story writer is supposed to tie everything together at the end. I never formally studied creative writing, which probably shows sometimes. (Whoa, say alert readers, you can say that again.) My cherished former editor, Rone Tempest, told me that if you brandish a firearm at the beginning of the story, someone has to use it by the end. Writing about rain leads to no dramatic ending. Writing about energy is like writing about the rain; it changes momentarily, no one can control it, mostly people complain about it, and everybody needs it.
Next year Dave and I are going to hike to Blair Lake. We will talk about fishing, grizzly bears, oil and gas and whiskey. Again.