Perspective on Peak Oil Theory

Think back to where you were at the beginning of 2008.  What was your outlook on fossil fuels?  Did you subscribe to the "peak oil theory?"  The peak oil theory is an idea published in the middle of the 20th century that, similar to the lifespan of an oil well, the world's production of oil will experience exponential growth until peak oil production (thought to be near the turn of the 21st century), and then, in apacolyptic horror, production will decelerate almost as quickly.  A graph of estimated production figures, according to this theory, looks like a standard normal curve with a more elongated (taller) peak.  Does this theory still have validity to you today?  Maybe you need to reconsider your outlook.

If you're like me, back in 2008 you didn't know anything about the oil and gas industry except for what you gleaned from popular media.  Well, back then peak oil theory had serious traction.  People everywhere, even the experts, were sure we were going to deplete the worlds fossil fuel reserves in the next 25 years.  That fear permeated American society.  It likely played an major role in the election of Barack Obama, and is perhaps the reason the American media never made a big deal of him sinking billions of taxpayer dollars into "green companies."  http://tinyurl.com/greenfails 
 That is not the case today.  There has been a near 180 degree change in attitude about oil.  Part of that is due to the fact that American consumption of oil peaked about 5 years ago, but most of the attitude adjustment is due to the innovations in well completion technology.

I was reminded of this change by my oil and gas law casebook.  Our class uses this book http://tinyurl.com/oilcasebook The foreward is dated November 2007.  The author states at the beginning of Chapter 6: 

"Discoveries of new major oil and gas reserves on privately owned lands in the United States are becoming less and less likely.  The last frontiers for major domestic discoveries are generally believed to be on public lands..."

The discovery of the Cline Shale and formations like the Bakken in the last five years render this statement absurd today.  Consider that the Cline was discovered in West Texas not far from Midland, a city that has more oil and gas experts per capita than probably any other city in the world.  Drilling operations have been ongoing in that region for at least 100 years.  How could a formation like that go unnoticed for so long, especially considering its vast size?  It's as big as the state of Vermont for crying out loud!  The answer is pretty simple.  We likely knew of the Cline formation for years; heck, the Bakken was discovered in the 1950s.  But with the technology available in the 20th century these shale formations were considered "dry."  Nothing came out of your well-head at those depths.  But now with fracking we are able to unlock the oil trapped in these formations. 

Experts now say there is located in North America enough recoverable hydrocarbons to meet American energy demands for the next 200 years. http://www.businessinsider.com/us-200-year-supply-oil-2012-3

Peak oil theory is on its heals today, but like any idea with a political taint it will likely refuse to die.  All you have to do is google "peak oil theory" and you can find blogs and articles written by "peak truthers" (or "peakers") declaring the theory is still very much in tact.  If you choose to read their stuff pay attention to the ways they try to "move the goal-post" by modifying the theory ever so slightly. 

In Cline Shale Country Again

For the second weekend in a row I found myself driving through Cline Shale country.  Last weekend I went to Colorado City for the Cline Shale Summit.  To get there I took major highways, so I didn't really notice any drilling action as I drove through.  This weekend, however, I had to get off the main thoroughfares to go to a ranch about a half hour northwest of Abilene.  I saw this rig about 20 miles east of Snyder in Fisher County.  The name on it is Ringo Drilling.

I also noticed several pits like the one to the left of the rig.  They were lined with black plastic and all of them sitting adjacent to flattened, hardpacked, dirt pads.  I'm guessing the surface owners in this area are not too keen on drillers using a caliche floor for their drilling site like they usually do.  I must have seen four or five pits next to pads.  I wonder if those pads are all waiting for this rig.

Cline Shale Summit

I went to the "Cline Shale Summit" in Colorado City, Texas last Friday.  Here's a local news segment about it http://tinyurl.com/bzz2srj . Below are my thoughts on the event.  I would summarize this meeting as "interesting and exciting, but something less than what I was hoping for."

1: I think most people didn't really know what to expect at this thing.  Information about the meeting was hard to come by.  I learned about the existence of the meeting in a local newspaper article, but it seemed like no other information was available, not even online.  I only learned of the location of the meeting after I made a phone call to the Colorado City Chamber of Commerce.  So I'm sure there were a handful of people in the audience of about 250 who felt like the lady sitting next to me who asked rhetorically under her breath "Where are all the oil companies?" She was under the impression that some of the operators in the area would be present and taking resumes or looking to "talk shop."  Honestly I was hoping for something like that too, and in fact, that is the main reason for my less than stellar summation of the meeting mentioned above.

2: Though there was no theme or slogan, the speakers all shared the same general message: "Get ready."  Also I heard several variations on the statement "We have learned so much from the Barnett and Eagle Ford plays, let's all try to not repeat our mistakes there."  Most of the speakers were there representing state agencies (Texas Worforce Commission, Texas Commission on Environmental Quality, Texas RailRoad Commission, just to name a few).  To me they seemed to be targeting the city council members and other government leaders in the room with the information they shared.  Some advice that stood out to me: 1) don't prevent the man-camps from locating inside city limits because you need to have some control over them so they don't get out of hand; 2) get a hotel occupancy tax because you will need the funding for a bigger police force and other services, 3) watch the state legislature because there have already been bills introduced this session that affect the hotel occupancy tax; 4) cities need to get ready to exorcize their extra-territorial jurisdiction regarding roads because counties wont have the budget to maintain them well enough.

3:  They fed the whole audience a good lunch of chicken fried steak, green beans and mash potatoes.  I particularly enjoyed the lunch break because it afforded me a chance to be in conversation with other audience members.  One guy I met said he was from Lufkin (East Texas).  He was a commercial real estate developer who learned he could do well following the major oil and gas plays building hotels early in the development and shopping centers later as the location matured.  The question he sought to answer at the Cline Shale Summit: "As a country and as a state, do we have room for more growth?"  His point being that there are several hot oil and gas plays right now.  Locally, there is the Barnett, and Eagle Ford and various formations west of Midland; nationally there is the Bakken, Marcellus, and Utica shale plays.  It may make no difference that there could be 3 times the amount of recoverable oil in the Cline Shale formation as the Bakken (the largest oil shale formation discovered in the U.S.).  If drillers have more on their plate right now than they can handle, the Cline may have to sit for a few years so drillers can get caught up.  Also the skills of the workforce in the U.S. may be an issue too.  Kids for the last 30 years have been taught to go to a 4 year college and get a degree so you can work a high paying job in an office somewhere, but what we really need to develop our national resources right now are "skilled laborers" - welders, roustabouts, roughnecks, etc.  The workforce may delay the development of the Cline as well.  I look forward to comparing the activity in the Cline Shale a year and two years from now.  My guess is there will be delays, but make no doubt about it for at least the next 10 years the area between Midland and Abilene will see crazy growth.  

As we were finishing our lunch a tall, older, goateed man in pressed jeans, boots, and cowboy hat came to our table and heartily greeted my friend the real estate developer.  The man said he was the mayor of Big Spring, Texas, and he and his friends on the city council see room for growth in their town.  They excitedly traded business cards.  Interested in Cline Shale, or Oil and Gas issues?  

TxDOT: in some places we can't get roads repaired fast enough. We've learned to tear the pavement up and reduce the speed limit #clineshale
— Matthew Zimmerman (@PnutBrother) February 8, 2013

Fracking In Lubbock

Well, my intention with this blog is to focus on the rising oil boom 150 miles to the south of my current locale, Lubbock, but I can't pass up the opportunity to write a post on an oil and gas issue in my own backyard.

Friday, the Lubbock Avalanche Journal ran this article http://lubbockonline.com/local-news/2013-01-30/council-consider-hydraulic-fracturing-city-lease .  The gist of it is that the City of Lubbock owns some land that contains a producing oil well.  The well operator has informed the city that it can increase the wells productivity by about 40 percent (from about $1 million/year production to $1.4 million/year) if the well is fracked, and the city council is going to vote to authorize the use of hydroclic fracturing. 

Here's a primer on hydrolic fracturing for the uninitiated http://fracfocus.org/hydraulic-fracturing-how-it-works/hydraulic-fracturing-process

I want to point out some things I noticed about this article.  I'm not sure the article shows bias, but I think the author could have done a better job to dispell the spectre of validity given the opponents of the proposed well fracking.

The author gives ear to several interested parties - it's a long article - but at the top of the list is David Hayes, director of the East Lubbock Community Development Corp. and resident of the neighborhood nearest the well.  David is against the proposed fracking.  He mentions earthquake danger and noise pollution as the main "cons" of the procedure.  But hey, he's not a party pooper, he's just concerned for the "growth in the neighborhood." 

First of all I'm not sure what the East Lubbock Community Development Corp does, but from the comments of its director I'm inclined to think it's a lefty political organization.  Secondly, earthquakes?  He thinks a little pressure created in a single oil well could cause earthquakes?  It's almost as if he found out about the ultra-conservative pipe casing job the operator has planned to quiet objections over ground water contamination, and he's just raising the next best fear-mongering argument in the anti-fracking playbook.  If earthquakes were a real possibility, I think we would have experienced them in Texas by now in some of the areas that have the maximum allowable wells drilled according to well spacing regulations.  Here's an unofficial map of well locations in several sections (that's 640 acres squared) in Howard County, Texas, a place I'm familiar with after doing land research there during an internship after my first year of law school.
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They're not afraid of fracking in that area, in fact they appreciate it for the good jobs and revenue streams it creates.  Despite the high density of wells in Howard County, no unusual tectonic activity has been reported from there.  I am aware that there is speculation that well activity may have caused mild tremors in the Barnett Shale area, but the fears those speculations have raised have not gained much traction, leading me to believe they're likely unfounded.  Plus the activity those speculators point to in the Barnett Shale is waste-water disposal wells, not fracking.  It's my belief that the origins of the earthquake fears originated when a company in Britain accepted partial responsibility for tremors in the Blackpool region a couple of years ago.  This caused Britain to implement a moratorium on fracking, which they recently lifted. http://edition.cnn.com/2012/12/13/business/uk-fracking

As for the noise, yes hydrolic fracturing does create a good bit of noise from the diesel engines pumping fluids, not unlike the engines on 18 wheelers.  But that doesn't stop people from buying houses along major highways.  And how close is the well to the neighborhood anyway?  The article doesn't say, just that it is on the other side of a road.  And the article quotes another man as being concerned for the students at Estacado High School, but it doesn't say how close the campus is to the well either.  It also doesn't mention that it almost always takes less than a week's time to complete a frack job, and that it is not an ongoing process as the two concerned Lubbockites imply.  With these considerations in mind, I highly doubt "noise pollution" is a reasonable objection to the proposeed frack job.

Nonetheless, despite the absurdity of the objections raised in the article, the comments section is an anti-fracking frenzie.  I did, however, notice one commenter strike back at the doom-sayers and make some excellent points with his first hand experience of geology and fracking.  That was refreshing.

Anyway, the "debate" (the quotation marks signify sarcasm) over fracking in Lubbock is likely to carry on for weeks.  The city council here is prone to raising issues and allowing more time for citizen feedback than is needed.  I anticipate the well will be fracked before summer, so I will probably only update the blog on this issue if something unusual happens, or maybe if there is a good concerned citizen rant at a city council meeting.  Which wouldn't be all that unusual, but enjoyable.  If you like that sort of thing.  And I do.

Who am I? What am I doing?

I'm starting a blog.  I declare: this is a blog!  I'm not really sure how you begin a blog, but this will do.  Moving along.

Let me tell you a little about myself and my intentions with this blog.  I am a twenty-something law and business student (JD/MBA, Dec 2013) with a passion for creating value.  I go to Texas Tech University, located in Lubbock, Texas which sits at the precipice of the "big country" and the "high plains" of the panhandle.  Cotton is still a big deal around here, and Lubbockites are reminded of that fact daily by the blowing dust and cotton fibers from the hundreds of thousands of acres of exposed soil that surround the city.  But just 150 miles to the south (a trivial distance to Texans) there is a resurging oil boom taking place because of a formation discovered between Abilene and Midland called the Cline Shale, and my aim is to be a part of the effort to capitalize on that resource.

I've got high hopes for this blog; too many goals to list, but I want to name a few.  First of all I want to chart the progress of the oil companies drilling in the Cline Shale region.  Developing a formation can be a decades long process and I think it will be interesting to document how it plays out and who the big individual winners are.  Secondly, I want to write about some of the oil and gas law issues I’ve studied in law school.  I’ll be a practicing attorney soon and I could use the practice and potentially help enlighten some readers on a technical, but not impossible, area of the law.  Thirdly, I want to help people in the West Texas area take advantage of the opportunities the Cline Shale will provide.  Since the national housing market cratered 4 years ago, unemployment has been a major issue in the United States; and Texas, though it has weathered the economic storm much better than most states, still has an unemployment level that is much higher than before the bust.  I see the Cline Shale as a much needed impetus for statewide (and nationwide) economic renewal.  They say a rising tide lifts all boats.  Well I intend to be the bronzed lifeguard pointing at the coming waves.