Windows on the World of Raymond Plank
Founder, Apache Corp
Vol. 2012 No. 2
 

ENERGY JOBS & DEFICIT REDUCTION 

Simple logic, reinforced by knowledge, mandate that the world’s largest industry has the most to offer the world in well paying jobs while concurrently reducing global debt away from the precipice of economic disaster.

In this Windows we start with a little recognized reality and build the case for a reversal in our economic crisis. 

Few Americans are aware that in 2008 the National Association of Royalty Owners (NARO) completed a survey in which they found that 8,440,755 landowners from all U.S. states owned a fractional interest in the royalty revenues from beneath the earth’s surface, comprised largely of oil and gas plus all other mineral interests.  This phenomenon is by and large unique to the United States, where I prefer the nomenclature of land owners’ royalty interest which generally follow the ownership of largely agricultural lands plus federal offshore and surface interests vital to the education of students across the U.S. from assets deemed the property of state with combined governments receiving in excess of a billion dollars monthly.  


"NARO estimates the number of royalty owners in each state to be:
AK 13,600 AL 33,150 AR 155,000 AZ 144,500 CA 510,000
CO 654,500 CT 17,000 DC 17,000 DE 2,550 FL 161,500
GA 85,000 HI 8,330 IA 33,150 ID 35,700 IL 76,500
IN 27,200 KS 14,790 KY 11,050 LA 125,800 MA 30,600
MD 35,700 ME 5,525 MI 44,200 MN 47,600 MO 110,500
MS 39,100 MT 4,760 NC 67,150 ND 24,650 NE 19,550
NH 13,600 NJ 47,600 NM 161,500 NV 44,200 NY 127,500
OH 30,600 OK 1,691,500 OR 51,000 PA 119,000 RI 5,525
SC 22,100 SD 5,525 TN 59,500 TX 2,975,000 UT 39,100
VA 85,000 VT 2,550 WA 39,100 WI 39,100 WV 19,550
WY 30,600
TOTAL NATIONWIDE: 8,440,755
Remember, these are estimated numbers of royalty owners.  The total number of mineral owners is much greater, as vast areas are unproductive or have not yet been explored and developed."


The 8.4 million landowners do not include the numbers growing when lands are passed on through sales, bequests, and inheritance from generation to generation. Were they to be included, the total might well reach 12 million Americans, or approximately 4% of the U.S. population.

Question:  Whom would you believe better qualified to represent the stewardship and sustainability of America’s lands and its ownership into the future?  How could you choose the Environmental Protection Agency on the one hand, over the landowners on the other?

Having been in the oil and gas industry from 1946 to 1954 before Apache Corporation was formed for a total of 66 years, that question is easier for me to answer than for most Americans.  Among landowners who are also royalty owners by a margin of at least three to one, in the election process the vote ought to be 8 million for the land and a questionable 4 million for the E.P.A. – a landslide political victory. 

Were the landowners better informed and better enabled to choose, the margin might be even higher to the concern of our sovereign leaders who may have yet to draw a non-political breath on this subject. 

I am of the view that the U.S. Congress and office of the President have been and remain highly confused concerning one primary component within the world’s largest industry that of oil and natural gas in the quality of human life, the world over.  “The devil is in the details” is an alternative way of stating the problem.

There is a marked distinction between that which we have been taught to believe and the present macro reality.  Perhaps where we began to run amuck can be traced to the1978 Sunday night television program “Dallas,” which may have sourced through its glorious female stars and abundant affluence of the evil oil rich, “the industry we most love to hate.”  Or was it the continuing pattern that we were globally observing during the period of emphasis of “peak oil,” where after a long increase in annual oil consumption growing with the world population (now some seven billion mortals) we were reaching the point of maximum daily production, from which we could only decline.

The specific conclusion was predicated on the point that no major world oil fields had been found in recent years, which extrapolated to the conclusion that the dwindling of the resource base was nearby headed into a slow, irreversible decline.  Wars would be fought, governments would fall, and the predicated decline was imminent. In the interim, confusion predominated.  Drinkable water was threatened as was earth-warming, hurricanes, and glacial melting would raise the ocean’s water by several feet causing humanity, literally, to “head for the hills.” 

In reality a simple delineation between coal bed methane and shallow depths from the surface within the potable water zones, and deeper hydrocarbons found thousands of feet beneath the surface where the hydrocarbons have been cooking for millions of years was not understood or made.

In addition, with thousands of feet of soil and rocks between drinkable water, where millions of pounds of “overburden” have squeezed and compressed the thousands of feet of soil and rocks into less permeable, less porous containment than that associated with shallower wells closer to the surface.

By 1950 when I headed the nineteen employee small accounting and tax firm, Plank & Somekawa, our clients were drilling wells between the fresh water aquifers through vertical holes in which the shallow fresh water aquifers were protected by larger casings cemented in place.   Before starting Apache in1954, wells drilled in the shadow of storage and refining facilities of Cushing, Oklahoma, into tight rocks in the Red Fork formation were fracture treated and special sands were hydraulically forced into non-commercial tight sands, creating a pathway to the surface from the bottom of the hole through which higher and commercial flowing rates were achieved; even at the price of oil at that time of $2.75 per 42-gallon barrel. Since we utilized water in the drilling phase, we frequently drilled shallow water wells and left them for the farmers’ livestock, who also used natural gas from the wells before 50,000 miles of pipelines were built to transport gas and oil which were separated and prepared for growing heating, air conditioning, and cooking purposes.  

Until the market for natural gas was developed, it was flared into the atmosphere where my initial exposure was in army air corps training cross country night flights as the sky lit up by burning flares, seventy years ago.

To summarize:  most coal bed methane is found in shallow reservoirs associated with coal in the fresh water zones, while most oil, natural gas, and attendant condensate is located thousands of feet deeper, millions of years older and not associated with fresh water.

Once the above is understood by those who govern or would govern us, in ever narrower rules, it is a relatively short step to the next reality – that of the hydraulic fracture treatment of deeper oil and gas bearing horizons separated by thousands of feet from the shallower gas and oil zones.     

As I have been writing the above paragraph, the President of the United States has been on my television set claiming that it is the Republicans running for office to succeed him who want higher gasoline prices and the Bush administration which was gleeful as gasoline prices rose, perhaps it was unfortunate that the president did not look down from Air Force One and note the amount of land drilling activity where hundreds of rigs were drilling thousands of hydrocarbon wells far beneath the surface and coal bed methane shallow wells.  The president had already changed his mind once when he called for drilling in areas previously restricted when a deep-water rig far from shore had caught fire, and exploded releasing oil to the surface some of which floated to shore.  Prior to that accident the president had called for opening restricted lands to exploration and development, the development of nuclear power, and oil made from corn to augment petroleum supplies.  When tsunamis knocked out the Japanese nuclear plants, the U.S. was to develop its nuclear capabilities to generate more “clean electricity” as a substitute for oil and natural gas. 

Meanwhile Goldman Sachs prepared to win more dollars both ways. While some of its “experts” were predicting oil prices to reach $200 per barrel (and gasoline in excess of $5.00 per gallon) other Goldman experts were predicting oil prices could drop to $30.00 per barrel (approximately half).  Goldman would win either way.   The accident in the Gulf of Mexico temporarily halted production, no deep-water wells were to be permitted and the G.O.M. turned quiet on the southern front, halting drilling in its tracks despite the G.O.M. producing approximately a quarter of the oil and natural gas provided by the United States for domestic use.  Three major hurricanes had hit the shores of the G.O.M. temporarily limiting capacity from Louisiana and Texas, even as European nations shared their stored oil with the U.S., as we drew some oil from our emergency storage facilities. 

An energy crisis was averted, although oil prices and Apache shares both crossed the line of $140 per barrel and $145 per share in mid 2008.

The President on February 23, 2012 overlooked one other fact.  Throughout the exporting nations of the world, oil has largely been denominated in U.S. dollars.  As the dollar declined in value the oil exporting nations became awash in Petro dollars which bought less U.S. imports for them and the Euro rose from 80¢ to $1.40, approximately two thirds, and in Australia their dollar rose from 60¢ to exceed $1.00, another 60% increase, as the dollar even lost purchase power against the British pound; Britain having returned full-bore to socialism following the reign of the “Iron Lady,” Margaret Thatcher and the tremendous benefit Britain had derived from the oil of the North Sea until it went into decline. 

What about China and India, which between them have populations of over one third of the world’s seven billion population?  In the U.S. with 5% of the globe’s population we consume approximately 25% of the world’s energy, and with .8 of an automobile per capita there are 240 million cars and trucks, exceeding the rest of the globe. 

When Apache first explored for oil in China, that became the world’s largest consumer and it wants to sustain the growth of its economy based on all the petroleum and minerals it can import while the U.S. busily tells them how to run their economy. 

Meanwhile, back on the farms and ranches of America, a “funny thing happened on the way to the Forum,” which apparently our government chose not to note. 

Rather than running out of oil and gas, despite the rig count being down by half in the G.O.M., the enterprising industry has accomplished two major feats.  By horizontal drilling on land coupled with the increasingly widespread use of hydraulic fracture treatment utilized by many operators in over half the wells drilled, so much natural gas has been found that the price of the well had declined from $10 per thousand cubic feet to $3.00 or 70%.  No longer are we importing double-hulled tankers of liquefied natural gas at four major receiving points, but at some locations excess natural gas is being flared and burned until there is enough take-away capacity in the form of plants, and pipelines to enable the gas to reach markets.  Meanwhile, the oil and gas condensate are captured and trucked to pipelines.

The second phenomenon is that over the past three decades it has been determined that the U.S. and Canada have enough oil and condensate in deeper tight shale to meet our estimated requirements for a century more than enough time to develop alternative fluids even beyond several bungling administrations possibly bent on political mischief.  

In the President’s commentary earlier this evening, a “pinko” noted that even if the president had allowed a north to south pipeline to be built, it would only have enabled 3,000 more jobs to become available.  In my opinion there are more jobs available in Williston, North Dakota.  Energy is the world’s largest industry and the U.S. from a relatively limited percentage of the shale bearing oil and gas, I would believe a million jobs not at $45,000 per person but jobs at $80,000 to well above $100,000 at present dollar values could be created.  Around the world of deeper tight shale reservoirs, the indirect number of jobs which will be created are more likely in the range of five million.  North Dakota is presently the U.S. “poster child.”

The oil, gas and condensate bearing shale rocks are deeper, compressed by weight above them, and more labor intensive than in traditional reservoirs.  Along the Canadian border tight shale have already been found productive in the provinces of Saskatchewan, Manitoba, Ontario, Alberta, and British Columbia, as well as the U.S. states of Montana, Ohio, New York, and beyond to the east.

Not only is the Keystone pipeline warranted, which even Bill Clinton blurted out on February 28th, 2012, over 5,000 miles of new infrastructure to connect resource bases to markets will result in Europe including Poland, Russia, China, India, and the Far East.  In British Columbia and Alberta fossil fuel beds are thicker by far than the reservoirs now being found in Texas, Oklahoma, and perhaps Montana.

The president’s angry rejection of the Keystone pipeline would shut off the N. D. economy, decrease jobs in the states, and send the jobs across the border to Canada, which illustrious workers would sell back to the US, further draining the US dollar which is so absurd that one is inclined to stop wondering what the motives of the president are and arrive at unflattering conclusions.   

In N.D. large industry such as Caterpillar and John Deere have built recent plants, precut and fabricated houses likely to be used longer periods of times due to the reservoirs found in the Bakken and beyond, heavy and light trucks are in strong demand, and fast food restaurants such as McDonalds have paid $5 above minimum wage to their food serving employees as well as bonuses of $100 each; hospitals, schools, doctors, and probably an excess of lawyers will relocate.

Will our government remain in denial and the job opportunities lost a few miles across the border?   That is the multi trillion-dollar question. 

I doubt whether the men and women on the street understand that when our politicians speak of deficit reduction it is really comparing rotten apples to rotten oranges.  Many believe that if we have an acknowledged deficit of about 16 trillion dollars that sum is the deficit we’re addressing.  Unfortunately that’s not how our government looks at deficits.  Not only are the country’s deficits not recognized currently but our politicians consider the current deficit plus incremental increases for known expenditures into the future – combining the two and treating as a reduction of spending (a possible reduction in future years) while in present years the deficit (in each current year) is going to increase therefore causing the decline to occur at a more rapid pace.  It is DECEITFUL!  It is that larger number against which debt reduction is normally compared, rather than the acknowledged current 16 trillion.  It is the larger number that is backed by the full “faith and credit of the Yankee dollar.”  What full faith and credit?  Many economists regard the U.S. as an undeclared bankrupt.

When I began this Windows it was my intention to delve more deeply into where our governments are leading the lambs to slaughter.  Another Windows seems the better part of valor.