Ok, I admit. Clooney, CNN, O’Reilly and the rest of you got it dead on right. You caught us. Yep, I’m talking about the massive conspiracy us oilmen engage in to manipulate oil prices. Ongoing. Deliberate. I know, because I was there at the beginning.
The Scene of the Oil Price Fixing Crime
I will never forget that first meeting. A Wednesday in late September. The year, 1982. A smoke filled, wood-paneled room. Whiskey and brandy gulped down by the fat cat CEOs of America’s oil companies and their senior aides. I was one of the aides.
In fact, it was quite a logistical ordeal cherry paneling the entirety of the Astrodome, and we aides nearly passed out trying to get that damn ol’ barn smoke filled. Sucking on 20-30 cigars at a time, because we were told “It better damn well be smoke filled”. The CEOs had to be comfortable because the business of screwing the consumer is a serious one, and all of us in the ‘bidness’ know that we perform best in dark, wood-paneled smoke filled rooms. The Astrodome? Well, it was the logical venue after all. First, it was in Houston, the center of the universe for oilmen and, second, we needed a venue to fit all 18,000 CEOs plus their aides and attendants. The Men’s Club had not yet opened, you see.
All of us there were sworn to secrecy. The sign outside the ‘dome told the passers-by on the 610 loop that a “Monster Truck Show” was taking place that Wednesday afternoon. Perfect cover for the thousands of limousines and hundreds of copters lining the expansive parking lot, regurgitating their payload of spats-wearing oilmen. Our game? Driving the Monster Truck that is the U.S. oil and gas industry over the unsuspecting Pintos that are the American Consumer.
You see, we had no choice. We had to beat the damn Opec-kers in their own game because THEY wanted to keep prices high too, and here WE were trying to infringe on their turf. It couldn’t have been any more serious if it had been Crips and Bloods; west coast, east coast, albeit with more pasty complexions and lacking the prison yard ink and definition.
It was there amongst the 40,000 or so close friends that we set in motion perhaps the most diabolical plan to manipulate markets ever envisioned in the history of this cash trough we oily-garchs sneeringly call “capitalism”. “More money from unsuspecting chumps” is more like it.
The plan, when presented, was so amazingly flawless, the simple genius of it so compelling, that we quickly voted unanimously to adopt it, along with a blood oath of secrecy from everyone present to NEVER reveal to the outside world what was formulated on that fateful day.
Nobody Expects Exxon!
It was Lawrence Rawls, then CEO of Exxon, who first outlined the plan. But many fellow conspirators point the finger at Chester Dupree, then a young Rawls protégé, for being the REAL brains and architect of our “Final Consumer Solution”. I will never forget the words or that moment.
“Gentlemen, we are now enjoying oil prices in the high $30 range, and the analysts say nothing on the horizon is keeping us from $100 per barrel! (Author’s note: $35 in 1982 is maybe $100 in 2013 dollars). I look around and note with great satisfaction that we are all fat and happy and we all are in agreement that we should do WHATEVER IT TAKES to make sure we stay here!” he roared to thundering applause.
“First, my company, Exxon, will intentionally crash an oil tanker in Alaska resulting in a horrible dystopic public relations nightmare for our industry. Although I deeply regret that the environmental impact will, in fact, be quite minimal, we have spoken discretely to select journalists and environmental activists to get their assurances that the public perception of this ‘disaster’ will be that it is far greater than reality, so that many new and expensive regulations will be passed. This, of course, is just a pirouette to keep the average American sucker consumer off balance”, he chuckled dangerously.
“Then, we follow up this little deception by cutting the price of oil in half starting in late 1983. This will throw the ‘consumer advocate’ swine totally off the scent. While they sit in their ergonomically correct chairs enjoying the booming economy and $4 lattes we provide via our ‘low oil price’ deception, little will they suspect what is really coming”, Rawls continued to our rapt attention.
“Next, we quit hiring young people in our industry for more than a decade, creating a bigger and bigger professional experience gap, while affording us the double benefit of decimating the Petroleum Land Management, Petroleum Engineering and Petroleum Geology departments across US universities.” The man was emerging before our very eyes that late September day 31 years ago as the father, really, of U.S. energy hegemony.
“Third, in four years, we cut the price in half again! To $10 dollars a barrel! If we can just keep the price rolling around in the teens for the next decade, we win on all sides! Not only do we lose 80% of our workforce, the oil spill issue from our Alaska sleight of hand will drive the U.S. government and its environmental lackeys to restrict drilling in all the best domestic places we have not yet touched! By ceding our energy security to dictatorial and politically unstable countries, we will set the stage for the most amazing PRICE MANIPULATION of all time! With no one suspecting! Most of us in the room will go bankrupt during this initial phase. I suggest we do a high card to see who stays in business. Aces survive, all the rest go under. 4 of 52. Remember, it will only be for 20 years or so.”
“Then we manipulate our politician puppets to strongly encourage Venezuela and Saudi Arabia to buy as much U.S. refining capacity as possible, all the while making sure through the combination of environmental regulations and grandfathering that no one can build more on our shores! And the crowning touch? Wait folks, this is REALLY brilliant … we will secretly lobby every municipality to create its own blend of gasoline so we can bring about the most inefficient mechanism for distributing our end product! With this plan in place, we should be looking at clear sailing to $100 per barrel and beyond in 2007 or so, all while keeping the unsuspecting consumer public in the dark about our nefarious deed!”
We sat there in stunned silence, allowing the brilliance of this message to seep in like oil on a pristine duck pond. Then you could hear it. One fella in a light blue leisure suit and an unlikely shade of electric blue ostrich boots jumped up clapping and whistling, yelling “Yeeee haww!” Next thing you knew, the crowd went wild. Stomping and hooting and hollering and yelling “Thank you Jesus!” Everyone was grabbing and hugging each other like an old time tent revival meeting, or a typical Offshore Technology Conference party circa early 1980’s.
So, gentle readers, that is the God’s honest truth about the diabolical conspiracy by the oil companies to control oil prices. No one, as far as I know, has ever breathed a word of it, though there was a rumor that Delbert Jones, one of the original “Group of 40K” as we called ourselves, told his nephew Mike McCullers about the meeting several years later. His nephew referred to it obliquely in a movie he co-wrote called Austin Powers where Dr. Evil, the bad guy, holds the world ransom for $1 million dollars after being frozen for 40 years. I am not sure why that is funny.
And ol’ Chester Dupree? In order to obfuscate the massive conspiracy, Exxon promoted Lee Raymond to be Rawls’ “successor”, while Chester was moved to being a waiter in the Petroleum Club, a sure sign of the amazing lengths everyone went to maintain deep cover for this world-changing conspiracy. I have it from inside sources that there exists a twice life size commemorative statue of Chester, along with a pair of stolen Aggie senior boots, in a special hardened titanium vault deep in the bowels of the soon to be vacated ExxonMobil building in downtown Houston. Ironically, the one that has the Houston Petroleum Club on top.
We all did our part, the “Group of 40k”. Most went broke, many lost their families and some committed suicide on instruction, just to maintain the conspiracy of a better tomorrow for us greedy oilmen.
I feel compelled to break my vow and tell the world this story because I cannot live with the guilt any longer. Let the chips fall where they may.
Now is the time I usually ask my readers to chime in with their thoughts in the comments below. But, of course, if any of you admitted you were there too, I’d have no choice but to kill you.
Humans have a tough time quantifying risk or perceiving proportionality. We tend to overstate some risks while ignoring others based upon a variety of factors…things like “what scares us”, “what motivates us” and “what we DON’T know we don’t know”.
Another reality is that our emotions are largely fed by fear. We tend to act more quickly and instinctively to fear or pain. A person holding his or her hand over a flame will move it away quickly to avoid pain, far faster than someone seeking to touch a fine leather or satin. People trying to sell us stuff know this. Not just people selling us goods and services, but ideals and values. In America, selling ideals and values is a pretty big business in itself…tens of billions of dollars per year. Although fear clearly sells, it rarely buys us something we really want to own. There is no real joy in the state of NOT burning your hand…you just avoid the pain.
As I studied the arguments for and against hydraulic fracturing, or frac’ing for short (fracking if you are an opponent, so that you can use the old f and ck in a word), it struck me how much breathless fear is being used to sell us on the idea that frac’ing is somehow bad. If we only look at costs and discount b, we make benefits to zero, we tend to make bad decisions. When we look at all the “could POSSIBLY be” costs and none of the benefits, we make even worse decisions. All decisions are best made by balancing both costs and the benefits.
I decided to create a fear-based campaign on something OTHER than frac’ing, just to see how easy it would be, using actual data and academic studies, as flawed as they may be. Then I decided to frame frac’ing as a pitch to both a Silicon Valley VC and the Governor of California circa 2005. In a pitch, you focus on the benefits, and minimize the risks, although you have to acknowledge and counter the challenges.
So let’s start with fear. Who here likes puppies? Most of you? Good.
When Adorable Attacks
America is killing its young people. The killer? Vicious young dogs. Predators that prey preferentially on our kids. Dog bites occur every 75 seconds and over 1,000 citizens require emergency care EVERY DAY as a result of this deadly scourge. In 2012 alone, over 37 people, half of them children, were KILLED in vicious young dog attacks, ranking puppies higher than baby snatchers in childhood mortality.
Worse, over 50% were kids under 8 years old. More disturbingly, over 32% of these vicious attacks were on people LIVING with the dogs in question! Our “best friends” are killing us! Worse, these vicious killers tend to attack in packs. 34% of all fatalities last year were caused by gangs of marauding young dogs, and 58% of these killers were “family” dogs. Equally disturbing, your home is no protection. Over 80% of those killed were killed on their own property!
The economic scale of the human carnage wrought by puppies (for the purposes of this campaign, we define “puppies” as young dogs and adult young dogs), attack victims suffer losses of between $1 billion and $2 billion per year. All statistics are from dogsbite.org
These vicious puppies are growing in number every day, and we are now using well over 5% of our croplands to feed these voracious hounds in what some refer to as “protection payoff” in order keep them from attacking us humans as we sleep. New Zealand scientists report that the ecological Footprint of just ONE puppy is nearly TWICE the footprint of an SUV. Not only are these beasts deadly, they are destroying the environment AND our precious water supply with the massive amounts of bacteria-infested fecal waste generated from the some 70 million puppies that ravage our US communities. This does NOT include the over 21,000 leukemia-related deaths per year from people with known, verifiable exposure to these vicious puppies.
Even with regulations in place by over 600 communities, the killings and attacks and suspicious leukemia continue and the filthy waste keeps piling up. Clearly, these regulations are falling far short of protecting us. Nothing less than a total ban on puppies and puppy mills is acceptable in protecting our environment, water, children and elderly.
The Pitch of a Lifetime
Now let’s go with the “opportunity case”…The pitch to a Silicon Valley VC and the Governor of California back in 2005 about a new and sustainable alt energy.
Gentlemen, we are looking at an exciting new energy source based upon the convergence of two proven technologies, one that has been tested and used for close to 70 years, and the other for the last 90 years. Each, on their own, have been niche technologies that generated marginally better economic returns under certain conditions using traditional energy feedstock. The breakthrough came from discovering that when you combine these technologies, we are able to generate not only superior economic margins, but could do so with feedstock that was considered waste in the past. The amount of such waste feedstock is now understood to contain centuries of low cost energy at projected demands, and is completely scalable!
These technologies have been extensively studied over the last 70 and 90 years. They have, in fact, been used separately over 1,000,000 times and have performed at better than 6 Sigma in regards to performance and environment risk exposure. As such, the industrial process defined by combining these two technologies poses negligible risk to the environment, although they may cause remediable problems on a local basis, not unlike or outside the scale of any other highly-tuned industrial processes. Substantive regulatory infrastructure is already in place on a State by State basis, although additional regulatory burden may be placed to prevent pure “Black Swan” events.
In the US alone, we have identified an energy supply potential that exceeds over 100 years along the demand curve thus far from what was previously considered “waste”. By 2012 it will be generating an aggregate of $300 million per day, or $110 billion per year in gross revenues and growing in excess of 10% per year. The US domestic market can consume all we make of this new alt energy up to $300-400 billion per year before we would need to explore exporting the energy. And, unlike nearly all alt energies, we will be able to due to its form, which allows easy transportation and storage as an energy liquid.
Getting this alt energy to market can be done with existing infrastructure, and supplementary infrastructure can be paid for out of cash flow. This infrastructure expansion will have both single purpose AND broad general use that will survive the manufacturing process.
This industrial process is “shovel ready” and it will initially require the use of between 1.5% and 3.2% of the freshwater available when operating at peak, which we will buy at full market price. A hidden benefit of the market pricing mechanism for fresh water will be the ancillary efforts in research and development to reduce the cost of treating wastewater by 50% or more from existing technologies, resulting in several novel breakthroughs that will transcend our industry.
One of the waste streams of our alt energy process is Natural Gas and it will drive the cost of this important portion of our domestic energy mix by 75% for the foreseeable future. It will help drive what bankers will call “an industrial renaissance” in the US in less than ten years. It will directly employ several hundred thousand domestic workers and nearly 2 million overall domestic workers during that time frame. Additionally, this renaissance is predicted to create 2-3 million more manufacturing jobs. It will also lower the cost of moving goods to market in the US by 40% or more. On a combined basis, it will keep inflation in check for US goods and make them competitive in the world markets again. If that isn’t enough, it will also reduce US greenhouse gas emissions by 13% over the same period, allowing the US to become a world leader in reducing greenhouse gas emissions.
The principal product we manufacture will single-handedly and directly cut the US trade deficit by more than 12% from what it would otherwise be for 2012. It also makes us less strategically vulnerable to the politics of the Middle East. As for good corporate citizenry, our output is taxed, all totaled (Federal, State and Local), at over 44% higher than nearly any other industrial good. Not only that, but we will manufacture our product throughout great swatches of the US and our feedstock value will go up. This will result in one time transfer payments to US citizens, mostly rural, of hundreds of billions of dollars. It will create ongoing royalty streams of $20-30 billion per year to many millions of individual citizens across every voting district in the country.
We will make the US energy infrastructure the envy of the rest of the world.
Other countries around the globe will find substantive hurdles to cross in order to compete with the US in this arena thanks to the maturity of pre-existing infrastructure that provides investors substantive first revenues quickly. Investors will also experience a superior return on exposed capital that can’t be met in the less mature areas of the world, as well as the NIMBY resistance and political delays due to the differences between how the US and the rest of their world administer and hold their feedstock.
This might be the most compelling pitch EVER in the history of business. What’s even more compelling? It’s really not a lie.
In fact, NEITHER of these cases are lies (except that the New Zealand university ecologic impact study has been thoroughly refuted on a number of issues).
To the Moon, Alice
One is presented specifically to scare us, while the other celebrates the opportunity.
Mankind is driven to create and innovate, not sit on his or her thumbs in caves. We were not scared to go out because of dangerous animals and we were not scared to create a fire because it might suffocate us.
John F. Kennedy, in a famous speech at my alma mater, Rice University, in September 1962, said, “Why go to the moon? … Why does Rice play Texas? … Because we choose to.”
What he DIDN’T say was, “It is very dangerous and carries a lot of risks and we don’t know how. Therefore, I propose we put a complete ban on going to the moon”.
JFK made a call to action for a noble, some might say quixotic goal that could be undertaken by our government. Similarly, I don’t oppose an effort on our nation’s part to find cheap, inexhaustible energy. In fact, according to NASA, we spent roughly $150 billion on 2011 dollars (roughly $24 billion in 1969 dollars) to send a man to the Moon. According the Brookings Institute, the US will have spent roughly $150 billion between 2009 and 2014 in Green Energy programs. The projects break down as $100 billion for renewable supply, $15 billion in conservation research, $10 billion in electric cars research and subsidy, $10 billion in high speed rail research and subsidy, $6 billion in “smart grid” research and $6 billion in nuclear power research and subsidy.
The difference? The government has competition for making energy available and low cost. The people of the US oil and gas industry stood up and took on the kind of challenge that President Kennedy laid down. In the last decade, they have raised the bar for what success looks like. The benefits are myriad, although they sadly seem to be lost on musicians, entertainers and armchair epidemiologists of various stripes.
Having said all that, let’s take a step back and look at a thorough cost/benefit analysis.
|Deaths per year
|Deaths per year (sensational)
|Ecological Impact (acres)
|Global Warming (real alternatives)
|Decreasing OPEC Dependency
|Likelihood of War
||12% and growing to US favor
|Annual Tax rate
|Spark Manufacturing Renaissance
(1) Unless we could sell puppies to Northeastern and Southern China. I heard somewhere that they prefer white puppies.
(2) Puppy mills? Sounds kind of manufacturer-y.
Clearly hydraulic frac’ing is the American energy dream come true. And we don’t even have to board the workforce when we go on vacation…though I’ve met a few roughnecks that I might not let stay in the house.
What do you think? How would you pitch today’s American energy revolution if you could go back in time? Please leave a comment below.
I love reading about the oil business in the press. You know, “Big Oil,” popularly portrayed as a monolithic behemoth run by fat American men that rule the world and screw consumers while gleefully counting their vast supplies of money? Well, that’s the Hollywood version of the world that defines what a typical American thinks. I have spent my entire adult life working in this industry, several years of it with “Big Oil,” and have never seen anything that even remotely resembles this cartoon ‒ except for the fat American man part, but that’s just me.
So, truth seekers, here is “Big Oil” from a puny insider American Producer of American Energy point of view. Be patient.
The REAL BIG International Oil Business
The Big Picture is that over 70% of the world’s reserves are produced by National Oil Companies (NOCs). These are companies with reserves and production that dwarf those of ExxonMobil or Shell, and with names you have probably never heard unless you are in the bidness. These are companies like PDVSA, Aramco, PetroBras, CNOOC, Gazprom, Yukos, and Pemex.
Some of these companies are owned by countries that enjoy membership in the Organization of the Petroleum Exporting Countries (OPEC), some by those that don’t. Of course, being “National Oil Companies,” i.e., those owned ostensibly by “the people,” but controlled by the “people’s representatives” who are generally either politicians or despots, profitability and sustainability aren’t necessarily the rule of the day. Whereas many are well run and have fantastically smart employees and management, others are so laughably inept they couldn’t run in any other way than as Wards of the State.
“The people” as shareholders have a very different ethic from “the people” as “owners” of something nebulous that they cannot sell or control. This leads the politicos to often view these NOCs as golden geese to provide noble things, like infrastructure and food, and sometimes less noble things, ranging from vote-buying as a “Friend of the Poor” from the more flamboyant or self-involved leaders, to the more mundane efforts of the less visionary leaders, like stuffing Swiss Bank Accounts to the bursting point with “the people’s” cash flow. Another popular practice is to use NOCs to “provide employment,” an especially enticing carrot to the command and control types, which, ironically, actually minimizes the value of labor. Unfortunately, these latter foci result in the long term squandering of the wealth provided by the oil in the ground… companies large in reserves but low in production or the capacity to produce in the future. If you don’t do the maintenance, the house eventually collapses. It is far more fun to buy handguns and candy than to fix your septic system.
Out of the Mouths of Babes
A quick example of the inverse reasoning of jobs before productivity… I was vacationing in Central America last year. An old man was sweeping the street with a stick with three twigs nailed to it. I suggested to my friend I was visiting, a Wharton grad and part-time resident of the picturesque village we were visiting, that a village investment in a whisk broom might provide much higher productivity.
“Oh, no, no,” replied my friend smilingly. “If he had a whisk broom, then the village couldn’t provide jobs for the other 8 old men it has hired to sweep streets.”
“But isn’t there a more productive use for them,” I asked?
“Welcome to the third world, amigo! Jobs are what is important, not what they produce with the jobs. This is what you get with that mindset… a country where people pay to become cops and villages provide toothbrushes to old men to clean the sidewalks,” he replied.
Wow. Paying people to do something, anything, as an end and not the means, without any thought to productivity. This is why the Soviet Union had the dubious distinction of selling a loaf of bread for less than the component cost of the grain. Value destruction all along the production chain. In the words of my environmentalist brethren, “This isn’t ‘sustainable.’”
In any case, it is these nation-owned companies that provide the vast bulk of the world’s hydrocarbons and together dictate the raw commodity price of oil.
“But, but … third worlders, those ‘live off the land’ victims of Western imperialism wouldn’t manipulate prices for economic gain … like, like … filthy business men, would they?” One might ask with quivering chin.
Holding the Purse Strings
Oil price manipulation isn’t a huge secret. There is a little cartel that was created to do just that. Its name is OPEC and its official publicly-stated mandate is to “Manipulate world oil prices.” Last I checked, none of the hated major oil companies were members. They were buyers of that oil.
Saudi Arabia, being the world’s supposed swing producer, meaning it can single handedly raise or drop the price of oil by merely by turning a valve (ok, maybe 3,000 valves) is even rumored to have hedged a significant portion of its production before it tanked oil prices in the early 1990′s. Ahhh, to make no-risk money in high price and low price environments! The sweet perquisite of being the swing producer.
Why would anyone in their right mind take a futures contract position opposite Saudi Arabia? Basically, because Saudi Arabians, not being stupid, supposedly made those contracts through hundreds of intermediaries with shadowy ownerships. In other words, no one knew they were betting against the bank!
So why would Saudi Arabia lower the price of oil? Well, as I just pointed out, they can do so with only minor revenue repercussion to themselves. In the early 1990′s, OPEC was watching its pricing power deteriorate due to significant North Sea production being brought online, and many OPEC members were cheating on their production quotas, as is their wont. Saudi Arabia, in addition to being the world’s swing producer, has by far the lowest lifting costs per barrel of oil. Production costs them maybe $0.25 per barrel compared to $10 per barrel or higher for the Western world (this does not count finding costs). Therefore, once their hedges were in place, they announced they would increase production by 2-4 million more barrels per day. The price dropped to $10 dollars per barrel, OPEC cheaters were chastised and financially hurt, worldwide capital projects for new oil came to a screeching halt because no one wanted to invest in money-losing capital projects, the bankers of the world were reminded once again of the risk endemic to oil investment, and Saudi Arabia was banking close to the old price per barrel of oil. The world was brought to heel once again and all was well again in the Kingdom of Heaven. Some analysts believe a reprise of this may be in the making ‒ the threat being Unconventional Hydrocarbons.
When Matt Simmons questioned Saudi reserves and deliverability in the early naughts (00′s), the Saudis responded by sending their Oil Minister and the head of Aramco to discretely meet with oil producers, bankers, and engineers to talk up their 300-year plus reserve life. I attended one of those meetings at the Dallas Petroleum Club, all the while choosing which fellow husky white man I was going to dive under to provide me with a human shield if some sort of Jihadist burst in given the minimal security. “Business card, please. Ok, yes, you are on the list.” Such was the mood in those paranoid days following 9/11.
There is huge political value in the Saudis preserving at least the illusion of swing producer status, whether they actually are or not. I mean, how satisfying to have the leaders of the free world bow to you on command? An interesting aside, the Texas Railroad Commission was the most powerful political entity on earth until 1973 because, up until then, it was regarded as the world’s Swing Producer based on its control of Texas production allowables. Remember those days? When we shut in portions of our production? Some are saying that Unconventional Liquids are today’s Swing Production. Interesting.
So, why would Saudi ever let the price get higher? Well, you can’t hedge forever. You want to maximize your cash flow, but you don’t want to let it get so high that alternatives are given much financial traction.
We Have Met BIG OIL and He is NOT Us
So when I think “Big Oil,” I think of a couple of Middle Eastern countries and one or two South American ones. Fat Not White Men, so to speak, with NOCs that are NOT necessarily run for a long-term, sustainable production regime, but for reasons that don’t necessarily engender confidence in future supply.
What I DON’T think about is ExxonMobil or Shell or the like. Maybe at the turn of the Century, and maybe as late as the early 1970′s, but for the last 40 to 50 years, these companies have been stripped via “nationalization” of the contractually-secured product of their investment and intellect, often without compensation, and nearly all without fair compensation, because armed robbery is perfectly legal once your assets are big enough and you are a government.
All of this reminds me of a couple of stories, one true and the other possibly true. The possibly true story was when Lee Raymond, then CEO of Exxon, was introduced to the head of the Soviet Oil and Gas Ministry. Raymond introduced himself as CEO of the “largest oil company on Earth.” His Soviet counterpart countered by introducing himself as “head of the largest oil company on Earth.”
The second story, absolutely true, was the rage expressed by the Saudi oil minister at an OPEC meeting after several Western European countries instituted gasoline taxes greater than the price of the raw commodity. “Britain and France make more off of a barrel of Saudi oil than we do,” he exclaimed. Given that fact, and the fact that, say, ExxonMobil pays twice as much in taxes, duties, and tarriffs than they have in profit, I would characterize Governments of all sorts as BIG OIL much more than ExxonMobil. How would you like to get taxed or “fee’d” at 90%, then get back 40% of that as some sort of deduction or credit, and have that 40% derided as “Corporate Welfare”? If you appreciate the irony of that sort of thing, welcome to the Oil Bidness!
What about you? What do you think when you hear the term “Big Oil”? Please leave your thoughts in the comments below.
I want to wish all of you Happy Holidays and a fantastic 2013!
What better way to close out 2012 than to recap what we did this past year, and what you can expect from us in 2013?
2012 was the year of the Pirate Ship! We took a crack team and put them in their own skunk works with the explicit instructions to “reimagine” Drillinginfo as a platform for 2013 and beyond. We have run the course with our existing architecture. As I like to joke, our mapping is the finest 1999 technology.
Given the rate we are developing new products, this has become a problem and created several development bottlenecks. With new products, such as interpreted well logs, all sorts of regional and local maps, geochemical survey maps, and our analytics products, like land grades for various unconventional plays, we needed an extended platform to quickly make new features available to our members.
In any case, the results were fantastic. You will see the first bit of this re-architecture, dubbed “DI 2.0”, on January 21, 2013 or thereabouts with the rollout of the Rig Location feature.
New Rig Location Feature Coming in January 2013
The Rigs layer uses our new mapping engine, and it will allow you to view GPS-derived locations, as well as the permit locations. What a great Quality Assurance/Quality Control tool! You will also be able to access the permit document and get details about the rig itself. Watch for some really exciting enhancements to DI 2.0 throughout 2013, with a target for complete migration by the beginning of 2014.
Now, let’s get started and look back on the year great that was, and the exciting year that will be.
There were a number of data enhancements in 2012, almost too many to mention. But, here are some highlights.
- We added deep North Dakota completion data.
- We deployed enhanced export functionality that allows exports of our tabular, well header and production data. We took it from 1,000 rows of data, all the way up to 250,000+. No choke on that pipe!
- We rolled out two mobile apps. DI Social consolidates all of our social media feeds into one convenient location. DI WellSpot 1.0 allows you to see wells that are on the horizon. It has a cool “augmented reality” feature where you can point your phone’s camera in any direction, and it will show you where and how far away the nearest well is based on the direction you are pointing.
DI Geology LAS Log Coverage in the Gulf Coast Region
We have released the DI Geology module and one of the Pro-level feature cornerstones that contains some 60,000 (and growing rapidly) LAS logs. These are already allostratigraphically interpreted for your quick ingestion into Kingdom, Petrel, Landmark and other products. We are adding some 1,000 to 3,000 wells per month.
- We moved our entire Help Text system into Adobe RoboHelp to make answers, definitions and how-to’s much more accessible.
- We researched and corrected 28,000 data errors, 1,600 which were user-reported, and most of which were due to bad source data from regulatory agencies.
- We released DI Desktop, our macro production analysis tool, as a part of a DI Basic membership to our Tier 3 and larger members. It’s the easiest and best way to create and compare production type curves across companies and plays.
- We got Texas allocated production into DI Desktop, so you can also analyze production on a well-by-well basis.
- We added Estimated Ultimate Recoveries for every well in the US to DI Desktop. EURs are re-calculated every month, along with various curve parameters. This feature is available on all DI Pro accounts.
- We re-architected the communications portion of DI Desktop to work behind nearly any firewall.
- We revamped our Virtual Scout architecture and increased performance by 75%.
- We added new land grids for Michigan, West Virginia, Montana, California and Kansas.
- We added Michigan, California, Montana and Kansas to our leasing coverage.
- We released our Eagle Ford Production Analytics and Acreage Grading to much interest and fanfare. This is a module on top of DI Plus, or included as a cornerstone element in a DI Pro license.
- We added 587,913 leases, 365,587 LandTrac mineral lease polygons, 70,739 Pipelines, 67,417 new wells, 138,596 permits, 82,691 completions, 67,293 well operations, and over 10 million production records in 2012 to date.
- We re-architected our system to recognize and render tens of thousands of new drilling unit outlines.
- We placed GPS units on some 1800 North American rigs to monitor actual validated locations and time spent on location.
So, what is coming in 2013?
- We are accelerating delivering deep completion data.
- We are digitizing and will start delivering directional survey data.
- We will add lease coverage in two new States.
- We will release our online well-based cross-section and picking tools.
- We will release our dynamic allostratigraphic framework within the DI 2.0 platform.
- We will release our subsurface 3-D visualization environment.
- We will release seismic data rendering (either through DI’s cloud or client desktop or server) in DI’s 2-D and 3-D visualization environment.
- We will deliver a low cost appliance behind client firewalls that integrates client data with DI data.
- We will release Contouring.
- We will release dynamic mapping, table and charting functionality.
- We will integrate our County Scans databases with DI products so you can access complete lease and deed history by clicking on DI land outlines.
- We will begin initial integration of County Scans lease tract data to enable 3-D visualization of held versus open acreage at depth.
- We will extend our Unconventional Play Geological Grading of Acreage and Best Practices Quantification to 3 additional plays, along with a discussion on similarities and differences between such.
- We will digitize and integrate the massive paper old scout card and log data we have with our digital database.
- We will clean up the “old API” well header issue in Texas.
- We will normalize Global Production to “Best of Breed”, and we will deliver the same through all systems.
- And much, much more…
As you can see, while 2012 was an amazing year for Drillinginfo, looking at our roadmap for 2013, I can confidently say the Oil & Gas industry ain’t seen nothing yet!
Now it’s your turn. What else would you like to see from Drillinginfo in 2013? Please, leave a comment below.
US commodity industry A is dominated by huge concerns. 10% of the overall number produces 72% of all the output, and that number is increasing. In all, it accounts for 0.065% of the US economy. Every American is a consumer of its products.
US commodity industry B is dominated by small concerns. The small concerns produce in excess of 50% of the output, and is increasing its take. It accounts for 0.09% of the US economy (50% more than Industry A). 70% of Americans are direct consumers of its product.
Question 1. One of these industries is honored for its small producer grassroots and its importance to the US economy. Choose: Industry A or Industry B.
Question 2. One of these industries continuously characterized by politicians and the press for being big, voracious, and greedy and heavily subsidized, that subsidy being very occasional breaks on an overall tax burden that approaches 50%. Which industry is it? Choose: Industry A or Industry B.
Question 3. One of these industries is supported by musicians and entertainers with an annual picnic that raises some $1,000,000 per year to support the small producer. Choose: Industry A or Industry B.
Question 4. Which one of these industries directly supports the other to the equivalent tune of some 25,000 of these Picnics per year? Choose: Industry A or Industry B.
Question 5. Which one of these industries pays little or no tax on its output, and even gets tax credits? This same industry also receives money from the Federal Government NOT to produce output? Choose: Industry A or Industry B.
Question 6. Which one of these industries provides federally subsidized fuel to US motorists in order to support American production? Choose: Industry A or Industry B.
Question 7. One of these industries is protected by a 14% tariff. The other, a federal tax on imported commodity equal to 0.02%. Which industry has the 14% tariff protection? Choose: Industry A or Industry B.
Question 8. Which industry has an image more diametrically opposite reality? Choose: Industry A or Industry B.
ANSWERS – 1. A, 2. B, 3. A, 4. B, 5. A, 6. A, 7. A, 8. What the hell do you think?
Selling the Farm
We are, of course, comparing farm agriculture (Industry A) and Oil & Gas production (Industry B). Farming is firmly fixed in the public’s eyes as little family farms, when, in fact, its output is dominated by big concerns with massive lobbying support that very effectively use the “poor ol’ family farmer” to extract an amount of corporate welfare so large an entire Federal Department exists to handle the payments. Mind you, I am not being critical. I look in awe and with envy at how an industry can wrap a government around its little finger and make it dance the Macarena on demand.
Alternatively, US Oil & Gas production is truly dominated by the little guys, and it is getting more so every year. We are among the most heavily taxed industries in the country, and if we make a profit margin approaching the average industrial margin, we are attacked for making “Windfall Profits” – a term invented and only applied to our industry! When politicians, press, and public think of us, the image of fat men in 1900’s bankers stripes and spats and top hats mouthing cigars with the name “ExxonMobil” printed on the side like a muckraking cartoon comes to mind. (But, even they don’t fit that stereotype.)
So, no corporate welfare here, and a US Department of Energy (DOE) which is gutting US University education in Petroleum Geology, Geophysics, and Petroleum Engineering by zeroing out all research dollars for Oil & Gas from now on. While Oil & Gas provides the majority of our energy mix, the government is expanding research dollars on coal through the roof.
Yes, that’s right. The DOE will no longer have much knowledge or input into Oil & Gas as a fuel source. We have been orphaned on the side of the road by our parents who like their new babies better. More terrifying, we will be without knowledgeable Federal advocates in the near future. These people are the last blocks to the extensive havoc politicians can reap on our industry as they eye our output for more slop in the tax trough. And, they only get away with it because Big Oil does not want to be beholden to the Feds.
Whereas Big Agriculture has maximized its positive public personae and its time at the subsidy table by hiding behind the image of the family farm, we do the exact opposite. Time and time again, Big Oil clumsily trots out its consistently defensive and arrogant message that couldn’t do a better job of making people think our industry is really full of “arrogant greedy pigs” if it had been designed by Earth First!
If you were a conspiracy theorist, you might even think they wanted the US oilpatch to be the most highly regulated and taxed commodity in the country, while ensuring that we have no more pipeline of University-trained expertise to carry on our industry after another generation or two, while strangling domestic competition from the small producer as an added bonus!
To add even more insult to industry, we all now get the privilege of subsidizing corn as the US’s preferred fuel, even though it takes more energy to create than it releases. Now that’s what I call marketing! Put a tiger in that tank, you men that wear the Star!!
Just the Facts
Here is the raw data on how small farms economically stack up against smaller independent Oil & Gas operators.
Small Family Farms % of farms: 90% of US production: 28
Very Large Family Farms % of farms: 7% of US production: 58
NonFamily Farms % of Farms: 3% of US production: 14
Private Independents % of Producers: 97% of US Production (Gas); (Oil): 50; 45
Public Independents % of Producers: 3% of US Production (Gas); (Oil): 32; 23
Major Oil Companies % of Producers: .04% of US Production (Gas); (Oil): 18; 32
We as an industry would do very well to come down from our self-imposed ivory towers. We need to take a step back and help the average American see that the real face of the US Oil & Gas industry is comprised of small shops with a few guys, a drill and a dream. If we could successfully communicate that message, who knows, maybe Willy and friends would throw us an “Oil Aid” concert some day!
Now it’s your turn. What do you think our industry can do to better help Americans see the real face of the Oil & Gas industry? Please, leave a comment below.
As I was watching the election returns Tuesday night, it occurred to me that I LOVE Oklahoma! It might be the best state in the Union these days, and, as a Texan, I couldn’t be prouder than having them as a neighbor.
As I further reflected, it also occurred to me that two Oklahomans (at least on some dimension) are the architects of perhaps the biggest strategic geopolitical superiority our country has ever enjoyed – the benefit of cheap and green energy. As hard as it is for a Texan to admit it (something as difficult to wrap your head around as a Texas Aggie being the father of the French Wine Industry), these Oklahomans deserve to be recognized for the incredible contributions they have made, are making and will make to our lives.
Of course, I am talking about T. Boone “Oklahoma State” Pickens and Chesapeake’s Aubrey McClendon.
T. Boone picked up the political football of natural gas and made it a good word for our progressive politicians, no easy task. Who can forget Nancy Pelosi’s quote, “I believe in natural gas as a clean, cheap alternative to fossil fuels?” It “boggles the mind,” as Joe Biden might say.
Mr. McClendon has done something way beyond making royalty owners richer than Croesus. He has actually invested the money to make natural gas the cross-over transportation fuel it needs to be for the United States to fully take advantage of our advantage.
Building the Infrastructure
Let’s examine what Chesapeake’s non-E&P natural gas infrastructure investments promise to bring forward in 2013.
They have made a substantive investment in Sundrop Fuels, which uses a revolutionary technology to take cellulose-based waste biomass and natural gas to create tank-ready gasoline at under $2 per gallon. This makes natural gas available to all vehicles as gasoline.
Their investment in Peake Fuel Solutions has yielded, in partnership with GE, a new paradigm in “filling stations” where a skid mounted “box” of CNG can be dropped, with card operated dispensing and remote signaling when the box needs to be replaced. They anticipate having 250 units available by the middle of 2015, cutting fuel costs by 40% and CO2 emissions by 24%. That’s great, but what about engines? Who needs this unless they have a CNG/LNG vehicle? And who is going to get a vehicle unless they can easily fill up everywhere they go?
This leads to Peake Fuel Solutions’ Diesel Natural Gas conversion kits that allow your diesel engine to run on any combination of CNG, LNG or diesel. And it costs less than one year payout when fuel cost reduction is calculated at 20-30%. Currently designed for Class 8 engines, this same technology is also applicable to drilling rig conversions. Chesapeake is converting its Nomac Drilling rigs to this system. This gives truckers ultimate flexibility.
All great, but why would any trucker convert to CNG when the current delivery of CNG/LNG is so sparse?
Farm to Market
That question leads us to Chesapeake’s investment in Clean Energy LLC. Clean Energy met with the top 200 retailers and manufacturers of goods in the U.S. and mapped out their shipping routes under individual non-disclosure agreements. They then partnered up with Pilot Truck Stops, the popular chain with over 550 stations that sell 25% of U.S. heavy transportation fuels. The companies built 150 2-bay CNG fueling stations at $1.5 million apiece with the ability to double capacity for an additional $750 thousand per station along the routes that service the vast majority of goods in the U.S. 70 of these will be completed by the end of 2012 and the rest by then end of 2013. These retailers and manufacturers get the benefit of substantively lower trucking costs as they bid out transportation contracts. Typically, trucking is a few pennies per mile profit business. But truckers with CNG capacity will see profits soar to between $0.50 and $0.80 per mile by leveraging the differential between diesel and CNG fuels along these routes.
If you haven’t gotten the picture yet, this is a big deal. A very big deal. In fact, it is the biggest deal in our lifetime. The beautiful thing about all of this? It’s market driven. And it’s all thanks to a visionary Oklahoma businessman that will be remembered for a variety of things, but will be remembered by me as someone who changed the world as we know it, and for the better.
What do you think? Are you excited about America’s energy future? Please, leave a comment below.