A free-market energy blog
Random header image... Refresh for more!

Category — Energy Companies

Repsol, Burned in Argentina, Comes to Alaska (but will the state’s tax reform survive referendum?)

Would you rather invest your money in a safe or an unsafe place? Spanish oil and gas company Repsol, the 15th largest hydrocarbon entity in the world, has answered that question by shifting its attention from Argentina to Alaska and other areas inside the Organization for Economic Cooperation and Development.

Background

In 1998 Repsol paid $13 billion for nearly 60% of YPF, the Argentine oil company.  In 2010, Repsol discovered a significant oil shale play in an area called Vaca Muerta. All seemed well for the investor and for locals for greater economic activity and more energy.

But in 2011, Argentine President Cristina Fernández de Kirchner nationalized 51 percent of YPF, leaving Repsol with 6.4 percent ownership . Repsol wants $10.5 billion in compensation; Argentina’s most recent offer is $1.5 billion. There is a chance that Repsol could get less or nothing.

Production has declined with the fight, eight percent in 2012 alone. The EU, UK, Mexico, Chile and Colombia have condemned Argentina’s action, as has the U.S. State Department.

Senate Bill 21: Alaska Oil Open for Business

In 2011, Repsol acquired a large lease position in Alaska given the rich prospecting and the upside of positive tax reform in the state. The latter occurred in mid-2013 with the passage of Senate Bill 21, the More Alaskan Production Act, signed into law by Governor Sean Parnell.

The pro-reform, pro-production bill, while an improvement over the prior regime, is still complicated. The new law: [Read more →]

October 25, 2013   No Comments

Dear Big Oil: Stop Acting Like Big Tobacco

The following is the beginning of “The Moral Case for Fossil Fuels: the Key to Winning Hearts and Minds”—my soon-to-be published manifesto on how fossil fuel companies can neutralize attackers, turn non-supporters into supporters, and supporters into champions. I’ve been been circulating it among our clients.

If you know someone in the industry who would benefit from this, please share it with them.

_____________________________________________________

Imagine that you are talking to the CEO of a tobacco company. He is trying to deal with the endless political and legal attacks on his industry. He tells you that he can win back the hearts and minds of the public by doing the following:

  • “We need to stress to the public that we are an economically important industry that creates jobs and tax revenues.”
  • “We need to link the industry to our national identity.”
  • “We also need to stress to the public that we are addressing our attackers’ concerns—by lowering our emissions.”
  • “We need to do all this using the best ad agencies, polling firms, and media gurus, so we can make our case in the most wide-reaching and most emotionally compelling way.”

What would your response be?

I’m guessing you would say that there’s no way this will work—because none of these address the fact that the public views their core product as a self-destructive addiction. The industry, accordingly, is viewed as an inherently immoral industry. So long as that is the case, all other communications efforts can only accomplish so much.

For example, critics would ask, in response to the industry’s communications tactics: Do we want economic growth tied to poison? Do we want more jobs where the workers are doing harmful things? Do we want our national identity to continue being associated with something we now know is destructive? Do we want to settle for making a deadly product 20% less deadly? Obviously not.

Everything above applies exactly to your industry, the oil industry. Your attackers portray your core product as a self-destructive addiction, and you as a fundamentally immoral industry. They’re wrong—but you wouldn’t know it from the public discussion of oil and, indeed, the entire fossil fuel industry. [Read more →]

October 10, 2013   6 Comments

Keystone XL: Safe and Prepared (TransCanada)

“For more than 60 years, TransCanada has been a leader in the safe and reliable operation of North American energy infrastructure, including a vast array of natural gas and oil pipelines, along with natural gas storage facilities and nuclear, wind, hydro and solar power-generation facilities”  (TransCanada).

“It’s our commitment to you that the Keystone XL pipeline will be the safest pipeline ever built.

It’s good to have reality on your side. The Keystone XL pipeline has a ready builder and ready customers. It employs state-of-the-art technology. It integrates North America. It transports a precious energy. It is modern transportation to make modern petroleum products for an energy hungry world.

Like the Shell commercial says, Let’s Go!

TransCanada in its series, Just the Facts, recently presented this analysis regarding three key issues: spill response, emergency response, and pipeline integrity.

Oil Spill Response

The fact of the matter is – pipelines are the safest, most reliable, economical and environmentally favorable way to transport oil, petroleum products and other energy liquids.  Nearly every gallon of gasoline or diesel fuel used in Nebraska is transported through pipelines. In addition to demands for petroleum for transportation, petroleum hydrocarbons are used by many other industries to produce valuable materials, including drugs and pharmaceuticals, plastics, chemicals and construction materials. [Read more →]

October 3, 2013   No Comments

Taking the Moral High Ground on Fossil Fuels

“The ideal source of energy is not some ‘sustainable’—i.e., endlessly repeatable—form, but the best, cheapest, ever-improving form human ingenuity can devise. . . . An oil industry is ideal in the same way the iPhone is an ideal for so many. It may not be the best forever, but it is the best for now and we should be grateful to have it.”

Yesterday, I discussed the idea that fossil fuels actually improve the planet for human life. This idea has major implications for how the fossil fuel industry represents itself to the public.

Because of the narrative that fossil fuels harm the planet, the industry has tended to fight for its existence defensively, with the argument that it is a necessary evil, to be tolerated because of the jobs it creates, or because of other economic benefits.

But that approach doesn’t work, and it shouldn’t work. To their credit, most people are unwilling to tolerate something they consider immoral. To win the hearts and minds of the public, the energy industry needs to present itself as a necessary good, because taking the moral high ground in the fossil fuel debate is the only winning strategy.

Taking the Moral High Ground

Imagine you are an advertising executive, and a CEO asks you: “Do you think you can help improve the reputation of my industry?”

You respond, “Sure, what are some ways your industry makes people’s lives better?”

He replies, “Well, actually, our product helps people in just about everything they do. This past year, it helped take 4 million newlyweds to their dream destinations for their honeymoons. It helped bring 300 million Americans to their favorite places: yoga studios, soccer games, friends’ houses. It made possible the bulletproof vests that protect 500,000 policemen a year and the fire-resistant jackets that protect 1,000,000 firefighters a year.” [1][2]

“If you do all that, how could you be unpopular?”

“We’re the oil industry.” [Read more →]

August 28, 2013   2 Comments

Offshore Alaska Drilling: Private Effort versus Regulatory Constraints

Royal Dutch Shell has spent billions of dollars over six years preparing to drill for new oil in Alaska. The hidden treasure is an estimated 20–25 billion barrels of oil beneath the Beaufort and Chukchi seas.

Not surprisingly, drilling for oil in Alaska is complicated and expensive (See map of proposed offshore exploration and drilling in Alaska). Part of the complexity is the distant Arctic location and short summer exploration and drilling window, and part is caused by drifty U.S. federal regulations.

Oil exploration and production is never easy (as in “the ‘easy oil’ has been found”), and new frontiers, technological and geographical, are always the challenge. And in this case, federal regulation from an anti-oil administration is at work.

Shell’s Coming Restart

on Shell’s suspended Arctic drilling operations for 2013, the company hasn’t given up. Shell just needs time to repair its ships. U.S. government agencies will continue review and regulation while Shell ships are repaired. As reported in the New York Times: “The Interior Department, the Coast Guard and the Justice Department are reviewing Shell’s operations, which have included groundings, environmental and safety violations, weather delays, the collapse of its spill-containment equipment and other failures.”

The NYT article also reports: [Read more →]

July 17, 2013   1 Comment

Rex Tillerson (Exxon Mobil) on Climate Change (energy/climate realism trumps alarmism)

At the May 29, 2013, annual meeting of Exxon Mobil in Dallas, CEO Rex Tillerson adroitly responded to questions concerning the human influence on climate and energy choices in light of climate science. His points? The science is uncertain as to the magnitude of change; there has not been warming in the last decade; and fossil fuels are necessary for the masses, particularly the energy poor. As he asked a questioner:

How do you want to deal with that great social challenge to what good is it to save the planet if humanity suffers in the process of those efforts when you don’t know exactly what your impacts are going to be?

Friendly Floor Comments

Some statements from the floor were friendly. “It’s funny,” said one. “You have helped to find enough oil and gas in this country so that the protestors here [could] leave their heated and air conditioned homes and fly and drive here so they can protest the way Exxon runs their business.” Said another:

We wish to commend the company’s management in this regard for not surrendering and for standing up for what not only is good for this company but quite literally to the United States itself. We urge our fellow shareholders to stand up for liberty lower taxes, government accountability and free markets….

In this regard, Tillerson did not state any need or preference for a unilateral U.S. carbon dioxide emissions tax (carbon tax) as a way to address emissions. Resting his case on climate realism, he defused a controversy and made his opponents look like a fringe, religious group in the court of public opinion.

Climate Views

These comments (emphasis added) are taken from the entire transcript of the May 29th meeting. [Read more →]

June 4, 2013   5 Comments

McClendon’s Price Lesson at Chesapeake (“Depletable” resources expand)

“[Free energy] markets tend not only to clear, but to clear faster and at lower prices than anticipated.”

The resignation of Aubrey McClendon as CEO of Chesapeake Energy provides a good case to study in corporate strategic planning. Ignoring his financial side deals, for which he has received a good share of criticism, the wisdom of his primary strategy, the aggressive pursuit of shale resources, is an open question to many. Although he has been hailed as a pioneer and risk taker, clearly those risks have gone bad and should be examined.

Higher Prices: A Bad Bet

The core failing was his decision to bet the firm (essentially) on high natural gas prices. From 1997 to 2005, wellhead prices had increased from $3/Mcf to $8/Mcf (2010$), the highest level historically. This, combined with a neo-Malthusian mentality, convinced him and many others that prices would not be mean-reverting, but remain at levels from two to three times the historical average.

In nearly my entire working career, energy executives have complained that prices for energy were too low for them to successfully invest. At one energy economics conference, the moaning about inadequate prices was so frequent that the award winner for contributions to the profession, Richard Gordon of Pennsylvania State University, reminded the audience that markets tend not only to clear, but to clear faster and at lower prices than anticipated.

In a more practical sense, there is a tendency to ignore the fact that mineral and energy prices are both cyclical and mean-reverting, despite being “finite” and thus “running out.” Numerous market analysts have been criticized for excessive bullishness about prices in the past decade, but many have correctly described the situation as one of cyclical behavior, not of a permanent shift to a high price environment. [Read more →]

February 28, 2013   1 Comment

Dominion Virginia’s “Green” Solar Program: Bad Economics for a Misplaced Cause

“[T]here is no companion prerequisite that such renewable programs be cost-effective or deliver reliable power…. This program appears designed for the privileged few to enjoy a subsidized electric energy existence, provides those ‘green bragging rights’ mentioned by a solar installer in this courtroom last September, but little else.”

Last May, Dominion Virginia Power petitioned the Virginia State Corporation Commission to introduce a voluntary ratepayer program to support up to 3 MW from distributed solar installations. Dominion seeks to offer the public an alternative to an existing, net-metering, residential solar panel program. This voluntary test Solar Panel Program would be guaranteed for five years at a “buy all/sell all” $0.15/kWh. It would be limited to an initial maximum scale of 0.2 percent of 2010 peak load.

Solar is an intermittent power source that would require storage to be on a stand-alone basis. The Dominion program offers a solar energy buyback on a firm (non-interrupted) basis, which requires cross subsidization from conventional energies.

The $0.15/kWh price is below what the U.S. Energy Information Administration estimates to be the cost of distributed solar, which is north of $0.25/kWh. Multiple tax breaks explain the difference ($0.022/kWh production tax credit; accelerated depreciation, etc.). Solar executive David Bergeron has estimated that the as much as 90 percent of lifecycle solar costs are hidden, due to special government subsidies. [Read more →]

February 27, 2013   4 Comments

‘Let’s Go’ … Game On for Shell in the Arctic (a milestone in the still maturing hydrocarbon energy era)

“I can’t downplay this. It’s obviously very exciting for us…. This is opening up a new chapter in Alaska’s oil and gas history that is literally starting today.”

- Pete Slaiby, Shell Alaska. Quoted in Jennifer A. Dlouhy,Shell Begins Drilling Well off Alaska,”  San Francisco Chronicle, September 9, 2012.

Profit-seeking, consumer-directed business is proper, necessary, and heroic. Free-market-based energy enterprises (oil, gas, and coal) are quite unlike government-dependent (crony) businesses (ethanol, windpower, and on-grid solar). Ken Lay’s Enron is (was) a leading example of the latter; Koch Industries’ Charles Koch, writing in the Wall Street Journal yesterday, epitomizes the former.

Shell has scaled back its (scarcely profitable) renewable energy investments and is back to its oil and gas roots. Its advertising is no longer about pie-in-the-sky energies and more about here, now energy. LET’S GO! The company found out the hard way that self-styled environmentalists are really anti-industrial and obstructionist when it comes to producing the energy needed by world consumers.

The expense and delay of Shell’s ambitious plans to drill offshore Alaska have been huge. But that chapter is largely over. It is GAME ON for Arctic drilling. LET’S GO!

[Weak] Opposition

The argument against drilling is hypothetical and borders on postmodernism. Stated Greenpeace: [Read more →]

September 11, 2012   4 Comments

Fraying Support for Windpower: Exelon Does the Math

The coalition in support of wind power’s Production Tax Credit (PTC) has always had a bit of a Bootleggers and Baptists flavor: environmentalists making a clean and green argument in favor of wind power and the multinational wind power development corporations funding the political muscle needed to get things done.

The coalition has proven durable even as wind power took a few environmental hits, but now the business side of the coalition is beginning to fray. The PTC will expire at the end of 2012 unless Congress acts to extend it, and some interesting positions are being advertised as the tax-cliff approaches.

For example, the Chicago Tribune reports that Exelon Corp., a large electric power company that owns a significant amount of wind power and is a member of the American Wind Energy Association, is opposing efforts to renew the tax credit (sub. req.).

“The (production tax credit) has been in place since 1992, I believe,” Exelon Chief Executive Christopher Crane said in a conference call with investors and analysts Wednesday. “And I think that’s enough time to jump-start an industry, 20 years.”

The economic logic behind Exelon’s position is clear: ”with nearly half of its profits coming from its nuclear fleet and low-cost wind power cutting into its margins, Exelon is in Washington leading a fight to kill a tax credit the wind industry says is crucial to its survival.”

Note that “low cost wind power” is referring to the low marginal cost of production, not the total cost per MWh of energy produced. Most of Exelon’s generating assets are in markets with energy prices driven toward the marginal cost of production, and additional wind power in these markets tends to push average prices down. [Read more →]

August 15, 2012   5 Comments