Sheila McNulty

Jim Mulva, chief executive of ConocoPhillips, has been in a hurry to establish his legacy. In the beginning, it was going to be as the head of one of the world’s biggest international oil and gas companies. And he got there, boosting Conoco into 5th place, in terms of production.

But then the economic downturn hit, and the weaknesses in his grow-through-acquisition strategy were exposed. It was no longer enough to be big, and Conoco was forced to slash capital spending, lay off staff and sell billions of dollars in assets.

Sheila McNulty

Several years ago, analysts covering the oil industry were raising alarm bells about how the major oil groups would be making money in the decades to come. With conventional oilfields maturing and no sign of the shale gas revolution at that point, there was pressure from shareholders for them to get into renewables. The majors responded by delving into projects to extract biofuels from chicken fat and soybeans. But that phase is over.

The major oil groups found salvation in unconventional oil and gas production. By unconventional, I mean new ways of getting to oil and gas. In conventional production, drilling a hole into the ground is enough to get oil and gas to flow to the surface. And over the years, as that flow slowed, the industry turned to technology to help the fuel along, for example, by pumping in water and carbon dioxide. But it did not seem that alone was going to produce enough to sustain the majors decades down the road.

Sheila McNulty

The weekend oil spill by ExxonMobil  into Yellowstone River gives environmentalists more ammunition in their long-running battle against granting the oil industry increased access to US oil resources.

While only the final investigation will prove whether Exxon failed to do some maintenance or take other measures that could have prevented the spill, one thing is certain: the US continues to have an unacceptable number of spills on both oil and natural gas pipelines.

Indeed, one of the key reasons raised by environmentalists to block the Keystone XL pipeline from bringing oil sands fuel from Canada’s tar sands across the US to Texas is the high number of spills on the first stage of that pipeline – the Keystone - in its first year of operation. The company says they are not significant. And Exxon might well be able to contain this spill so that it is not a massive environmental disaster.

But why does it seem regulators tend to wait until disaster strikes before taking appropriate action? There had long been signs that the Gulf of Mexico offshore was not being sufficiently regulated, yet the issue of permits continued at a rapid pace until Macondo struck.

The bottom line is that the US has had a number of red flags this past year on the need to improve pipeline safety. Perhaps the biggest of these was the fatal explosion of a gas pipeline in a California residential area.

But, less than a year later, Exxon is the latest to suffer a spill. Its reaction:

No cause has been identified for the release of oil from the pipeline, which met all regulatory requirements and has undergone inspection most recently in December. A field audit of the pipeline’s integrity management program was undertaken by US Department of Transportation Pipeline and Hazardous Materials Safety Administration in June.

So if regulators just inspected the pipeline, the question is whether they missed something? 

Ray LaHood, US secretary of transportation, late last year sent Congress proposed legislation to provide stronger oversight of the nation’s pipelines and increased  penalties for violations of pipeline safety rules.

Congressman Fred Upton, chairman of the House Energy and Commerce Committee, in June signalled his committment to updating and improving US pipeline safety:

Pipeline safety is a serious matter of protecting human life and our environment.  Our nation’s nearly half a million miles of pipeline infrastructure play a critical role in delivering vital energy supplies to southwest Michigan and the rest of the country.  Disasters like last summer’s Enbridge pipeline rupture underscore the unacceptable costs of failure and the need for meaningful updates to our current pipeline safety laws.

Representative Ed Markey, the top Democrat on the Natural Resources Committee and a senior member of the Energy and Commerce Committee, called on Tuesday for investigative hearings to be held into the Exxon spill and related safety and environmental issues:

 

ExxonMobil has turned parts of the Yellowstone River black with their spilled oil. Just as BP was held to account for their accident in the Gulf of Mexico, ExxonMobil should appear before Congress so that we can examine the holes in oil pipeline safety that led to this incident and how we might prevent another spill in the future. Several aspects of pipeline safety regulations may need review based on this disaster.

Mr Markey noted that Exxon had said that the pipeline had been examined within the five-year increments as required by law. He said that timeline may need to be reduced, in light of this accident and the others over the last few years. 

On top of that, higher penalties would help pay for better enforcement.  Surely, given all its budget issues, Congress can see the benefit of this?

Sheila McNulty

Alaska’s decision to host the largest oil and gas lease sale of any US state this year is good news for the oil and gas industry, which has been pressing for more access. And while the resulting exploration and production certainly will be good for the overall economy – creating jobs and boosting activity – it is a pity that it is not against a backdrop of better news on the environmental front.

By this I mean concerted steps by the US government to reduce the use of oil as part of a larger effort to curtail carbon emissions. This issue has long disappeared from the political radar, despite being a key platform on which President Barack Obama was elected.

Sheila McNulty

The issue of hydraulic fracturing, or fracking, has taken on a life of its own. But with so much misinformation, it is hard for the general public to know whether it is a good thing or a bad thing. The truth is – as with any polarising issue – somewhere in the middle. New York appears to have accepted that and decided to move forward to permit fracking in all but the most sensitive areas of the state.

But even as New York is poised to lift its moratorium on fracking, New Jersey’s legislature has moved to impose one. What this illustrates is just how divisive this issue has become.

Let us look at some of the pros: Hydraulic fracturing in a series of stages, combined with horizontal drilling, has given the US oil and gas industry a new lease of life. After years of declining production, the technology has enabled the country to grow not only natural gas but oil production. And with a country that consumes so much energy and has yet to make any serious attempt to scale back its usage, this can only be a good thing. It means more domestic supply to meet demand, which translates into less money leaving the country for imports and heightened energy security. And more drilling, of course, means more jobs and more economic activity.

Now here are the cons: if drillers are irresponsible about how they use the technology – and with far more than 1,000 operators drilling and producing across the country there will always be some who are – it hurts everyone. The damage to the environment and people could be very real. One only needs to think of Macondo, BP’s well at the centre of last year’s accident in the Gulf of Mexico.

As the EPA investigates the environmental risks associated with fracking, the industry must ensure it has no Macondos. By proving the industry can safely and responsibly develop the US’ domestic resources, companies eventually win over the public, and politicians, who are so afraid of the technology they are banning it outright.

But the industry cannot do this if it is not permitted to frack at all. Take New Jersey, which has just  passed a ban on fracking this week. While New Jersey is not a major gas producer – and does not seem to have the geology ever to be – this is, nonetheless, a symbolic gesture that might well ensure that what it does have is never developed.  That leaves the burden to other states, such as Texas, to continue producing the gas used by those in New Jersey.

While this is not fair, the industry will say it would rather deal with states individually than have a restrictive federal law passed down that might, in the end, restrict the use of fracking in industry-friendly places such as Texas.

Certainly there are risks of that happening, but it seems to make the most sense for the US to approach this issue on the federal level. If a fair, science-based investigation can be conducted, and the industry be given an opportunity to defend itself against the charges of environmentalists, perhaps a workable solution can be found - one that permits fracking to continue across the country with the necessary safeguards to prevent a disastrous onshore event, such as Macondo was to the offshore industry.

That way states like New York – which was among the first of a string of places to put a temporary ban on fracking - and New Jersey will not scare off the public and politicians in other states from permitting something that might well be done safely  – and limit imports and grow energy security as much as possible. For a country that consumes so much energy and cannot seem to get its arms around a comprehensive plan to reduce carbon emissions with a real committment to renewables and energy efficiency, this seems the best course to take.

Sheila McNulty

While oil patches from the Bakken shale to the Eagle Ford have been getting a lot of attention in recent years, the oil industry is focussed increasingly on one of the oldest and richest basins in the country – the Permian Basin. Permian formations have long trapped hydrocarbons in shale and other tight sands and rock in what was formerly the Permian Sea, an area of what is now 110-degree-heat desert that stretches 100,000 square miles across West Texas and Southeastern New Mexico.

The attention there is not coming so much from companies going out in search of new acreage. Many of them have held acreage in the Permain for decades. Others have accumuated it over the years through a series of mergers and acquisitions. Everyone has known the area held oil – lots of oil – and it was just a matter of time before advances in technology meant they could get a little bit more of it out.

Sheila McNulty

The technological advances in the oil and gas patch just keep coming. While everyone has been scrambling to catch up with the shale gas revolution, the industry has been working on another potentially significant breakthrough in gas. This one is in producing gas that has long been stranded offshore in areas too far or too small to warrant a pipeline to shore.

Royal Dutch Shell recently announced it would be the first producer to invest in a multibillion dollar project to capture this gas. The project will be a floating liquified natural gas terminal – known as a FLNG terminal in the industry – that makes it economic to get at such gas fields. No pipelines need to be built. Shell just produces the gas until it runs out and then moves along to the next field.

Sheila McNulty

A shale gas wellAs questions about hydraulic fracturing – fracking as it is known in the industry – continue to build, the oil and gas industry is finding investors asking for more transparency as to how companies are going to face the growing risks to production.

France has banned fracking, and US federal regulators are investigating the safety of the process.

But the real risk to the industry at this point is how some US states and cities have taken the issue into their own hands: Pittsburgh has banned such drilling, and the New York State Assembly approved a temporary moratorium. There are other efforts under way in pockets across the US to further control or bar the process.

Sheila McNulty

Oil sands fieldControversy about importing fuel from Canada’s vast oil sands has been swirling for some time. It is an issue environmentalists seized on with great hope when President Barack Obama came into office, given his pledges to work to reduce the country’s carbon footprint and the fact that oil from tar sands, as environmentalists refer to it, has a higher carbon intensity than that from traditional crude.

But the weakness in the US economy, high unemployment and rising petrol prices have combined to give the oil industry the edge. Indeed, even back in 2009, the Obama administration approved a pipeline to carry oil-sands fuel from Canada into the US, saying its action was designed to send “a positive economic signal in a difficult economic period”. The Keystone pipeline also was approved.

Sheila McNulty

The amount of private equity moving into the US oil and gas sector has risen dramatically over the past year, drawn by a long-term bet on rising commodity prices and heightened demand for energy infrastructure. This is according to PwC, the consultancy, which put out a report on US energy sector deals on Tuesday.

Overall, there were eight private equity-backed transactions in the first quarter of this year, representing $4.8bn, or 9 per cent of total deal value, compared to just one during the same period last year, worth $767m, the report said.

Chart showing overall value of PE-backed oil and gas deals

Figures from PwC

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