D. Dowd Muska


Hot and Cold Running Petroleum

June 30, 2011

A severe drought and temperatures soaring past 100° F make it tough to be a roughneck in the Eagle Ford this summer.

But at least there’s job security.

The Eagle Ford, a shale formation that starts at the Mexican border southwest of San Antonio and meanders in a northeasterly direction through 14 counties, is nirvana for those in the black-gold business. In the last few years, the hydrocarbon industry has fine-tuned horizontal drilling and hydraulic-fracturing techniques. It finally makes economic sense to assault shale deposits. Natural gas garners most of the press coverage of the “fracking” revolution, but the process is used to harvest crude, too. So swaths of oil-rich shale in North Dakota, the Rockies, and the Southwest suddenly have scores of new best friends.

The San Antonio Express-News reports that the Eagle Ford, “the hottest play in the country,” has “brought newfound prosperity to South Texas’ hardscrabble farming and cattle country.” Investors and landowners are benefitting, to be sure, but so are rig workers and the substantial number of support staff needed to provide housing, food, clean clothes, and entertainment. U.S. Bureau of Labor Statistics data show that since bottoming out in September 2009, employment in the San Antonio region has risen by more 19,000.

For the moment, there’s no end in sight. At a Houston conference in March, Pioneer Natural Resources CEO Scott Sheffield predicted that the Eagle Ford will surrender 800,00 barrels a day within five years. That’s 70 percent of the Lone Star State’s total 2010 production.

But shale isn’t the only reason for the rebirth of Texas Tea. Enhanced oil recovery (EOR) is bringing “played-out” fields back on line. The tactic is being employed both east and west of the Eagle Ford. Conventional drilling sucks a small share of a cavity’s potential -- as little as 10 percent. EOR pumps carbon dioxide (yes, the same stuff that hysterical warmists say is frying the planet) down into older wells to reduce the latent crude’s viscosity. Denbury Resources has used the process to boost extraction rates eightfold in previously tapped fields. The company is building a 320-mile, $825 million pipeline to funnel carbon dioxide from Louisiana to a site south of Houston. On the other side of the state, in the Permian Basin, EOR improves yields for Occidental Petroleum, Kinder Morgan, and ExxonMobil.

Oil’s on fire in sizzling Texas, but it’s also poised for a comeback in icy Alaska. In May, President Obama, blundering into a sound energy decision, directed the Department of the Interior to sell leases in the National Petroleum Reserve-Alaska (NPR-A). The tract’s 23 million acres probably do not contain as much crude as the Arctic National Wildlife Refuge -- sacred ground for elites in Manhattan and Malibu -- but drilling in the NPR-A would help stem Alaska’s oil implosion. The Trans-Alaska Pipeline System’s throughput is 600,000 barrels a day. That’s a 71 percent decline since its 1988 peak. According to the Alaska Dispatch, “at some point in the near future … flow is expected to dwindle enough to cause potentially major operational issues.”

The NPR-A has enthusiasts and skeptics in the industry, but no oilman questions the potential of Alaska’s offshore reserves. In 2008, the U.S. Geological Survey estimated that the Arctic Circle contained 90 billion barrels, with more than 80 percent found beneath water.

The oil is there for the taking, but bureaucracy, as well as eco-obstructionism -- it won’t be long before professional alarmists claim that offshore drilling in the Arctic threatens The Island of Misfit Toys -- have caused delays. A recent report by the U.S. House of Representatives Committee on Oversight and Government Reform described one multinational’s nightmare: “Shell has spent more than $3 billion on leases, environmental analyses, and permitting so far with no return on their investment. The company holds 137 leases in the Beaufort Sea and 275 leases in the Chukchi Sea alone. Initially, Shell planned to begin drilling in 2007 in the Beaufort Sea, just north and east of the North Slope and the Trans-Alaska Pipeline and associated infrastructure. Because of regulatory and legal challenges, its schedule slipped to 2010, and then 2011, and now 2012.”

New technologies and investment-inducing high prices raised U.S. crude production in both 2009 and 2010. It was the first back-to-back annual increase since the mid-1980s.

With the right policies in place at the state and federal levels, America can pump petroleum for decades, if not centuries, to come. Sorry, peak oilers, but the profit motive, innovation, and geologic realties always trump apocalyptic fantasies.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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