An Insiders ENERGY REPORT: State Federal Policymakers Challenge EPA Regulations
By Alex Mills
AUSTIN Texas (Texas Insider Report) While economic conditions in the domestic oil and gas industry have improved since February many executives have decided to move cautiously into the last half of 2016. There are signs the deep freeze in oil-industry spending is beginning to thaw.
Crude oil prices have increased from $27 in February to almost $50 today and natural gas is up from $2 per thousand cubic feet (mcf) to roughly $2.75 on the NYMEX for 30-day delivery.
The industry has made big strides in adapting to lower crude prices by cutting costs as much as 40 and improving productivity according to a report by Wood Mackenzie. The report said shale now makes up the bulk of the 9 million barrels per day (bpd) of new oil it considers commercially viable based on an assumption of Brent oil prices averaging about $60 per barrel. That is 1.5
million bpd more than last year and higher than any point since 2009 the report said.
U.S. oil production is down seven straight months and recently dropped below the 9 million barrel mark for the first time in nearly two years.
The U.S. pumped 8.9 million barrels per day in April according to recently-released stats from the U.S. Energy Information Administration. That leaves output at a 20-month low and down by nearly 8 from April 2015 the best month for U.S. oil production since 1971.
The decline is the result of a decision by OPEC to continue production at current levels and further creating an oversupply of crude oil on the international market. But OPEC has hardly dealt the U.S. oil boom a death blow. Production is still twice what it was in 2008 and there are early signs of a rebound thanks to the rally in oil prices.
Goldman Sachs recently predicted American production will continue declining this year but then resume growing in 2017 and beyond. The U.S. is sitting on 264 billion barrels of oil reserves more than Saudi Arabia Russia or any other country on the planet according to Rystad Energy.
Chevron Corp. Exxon Mobil Corp. and several partners recently committed $37 billion to expand an oil project in Kazakhstan known as Tengiz one of the biggest investments since crude prices collapsed two years ago.
BP PLC also gave the green light to a multibillion-dollar gas export expansion complex. It follows the U.K. oil giants announcement in June that it is fast-tracking a major offshore gas discovery in Egypt. Italys Eni SpA is moving ahead on an Egypt field as well.
Since the start of 2015 Chevron and other big oil firms have slashed their budgets by a quarterexceeding $30 billion overalland cut more than 30000 jobs to endure a prolonged period of low prices.
Independents have started to implement exploration efforts onshore U.S. and in the Gulf of Mexico.
Volatile oil and natural gas prices have accelerated planning by energy executives to change their business models according to KPMG Global Energy Institutes annual survey of US senior energy executives.
Of more than 150 executives responding 94 said commodity pricing coupled with the regulatory environment will require significant changes to their business models in 3-5 years. Executives said their top organizational priorities for the next 2 years are developing new growth strategies and implementing changes to their business models.
Nearly 40 believe Brent crude oil prices will stabilize during 2017 although 26 believe this will happen by yearend 2016. Brent prices are expected to average less than $50/bbl for 2016 said 88 of those surveyed. In addition natural gas prices are viewed as continuing to stay low for the remainder of 2016.
When asked about mergers and acquisitions 92 of respondents expect to be involved in a merger or acquisition in 2 years with 38 saying asset acquisitions are more likely than acquiring an entire company.
Slightly more than half of oil and gas executives surveyed about 51 said they believe restructuring or bankruptcies primarily will drive acquisitions.
State Federal Policymakers Challenge EPA Regulations
The massive release of new regulations on the nations oil and gas producers has caught the attention of state and national elected officials and they have stepped up their questioning of federal bureaucrats.
The U.S. House Energy and Commerce Committee called Environmental Protection Agency Assistant Administrator Janet McCabe to testify on July 6 regarding the regulations under the Clean Power Plan.
Two Republican members of the committee from Texas Joe Barton from Ennis and Pete Olson from Houston challenged McCabe to explain the rationale EPA uses to pick energy winners and losers.
Rep. Bill Johnson (R-Ohio) told McCabe that EPA is draining the lifeblood out of our businesses" through its regulations adding that I think its absurd I think its irresponsible I think honestly its un-American. Your department doesnt have a concern for the very people who create jobs in this country."
While these comments and questions were indications of the displeasure toward the rash of new regulations issued by federal agencies recently by some members of Congress Texas Railroad Commission Chairman David Porter told committee members that EPA has circumvented both the authority delegated to it by Congress and the rights of state regulatory agencies to establish
their own rules."
Porter (left) said that the RRC which has regulated the oil and gas industry for more than 100 years takes its role as a steward of state resources very seriously. That said our rulemaking decisions are based on sound science and potential economic impacts to all Texans mindful that it is from industry that these entrepreneurial ideas emerge.
When businesses are forced to operate as bureaucracies which EPA seems intent on achieving through its unwarranted and overreaching rules innovation is stifled leaving both consumers and environment to pay the price" Porter said.
EPAs policies under the Obama administration have consistently striven to eliminate competitive energy markets while ignoring engineering realities sound science and economic impacts" he said.
Porter noted that EPAs recent changes in air emission regulations have caused grave concern in Texas because it underestimated compliance costs to the oil and gas industry and it overestimated and exaggerated regulatory and environmental benefits.
Porter said that increased regulatory and economic burden on operating companies particularly the smaller operators who
make up an overwhelming majority of the industry in Texas" will be especially difficult.
The Commission supported exemptions for low production well sites of less than 15 barrels of oil equivalent or less per day" he said. The Commission also urged EPA to establish other exemptions for small oil and gas sites based on reasonably limited emissions or equipment and is disappointed that EPA included low production well sites in the final rule."
Porter pointed out that Texas has regulated air emissions for many years but EPA had minimal interaction and consultation with Texas and other state regulatory authorities.
Oil and gas operations represent only 3.5 percent of overall domestic greenhouse gas emissions and these new rules will produce no meaningful climate benefits according to a letter sent to EPA Administrator Gina McCarthy by U.S. Sen. James Inhofe D-OK. chairman of the Environment and Public Works Committee on May 24. He said even if the EPAs goal of reducing emissions by 40 percent by 2025 the reduction would yield only an estimated 0.004 degree Celsius reduction in global temperature by 2100.
The Texas Alliance of Energy Producers is an oil & gas trade association that represents some 3000 members. It has offices in Austin Houston Fort Worth & Wichita Falls. Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely those of the author.
