How GOP Regulation Cuts Will Affect Oil and Gas

Gas industry giants have muddled through eight years of roadblocks, courtesy of the Obama administration, however the past months’ political upheaval has seen petroleum prospects finally looking a bit less sludgy. In fact, the path to a new black gold era seems to be clearing swiftly, thanks to industry support from a GOP-dominated congress, and a Republican president, both of which are currently shredding through Obama’s red tape like a pair of hyperactive scissors.

 

Before the Trump phenomenon and the GOP power scramble-turned-surge, pandemonium was felt not by the established political order, but petroleum execs, who fed around $300 million per year to hordes of lobbyists in hopes of derailing regulatory momentum. Bret Sumner, O & G lawyer and lobbyist with the Western Energy Alliance, said of his group’s push to break limitations on federal land drilling, “This has been a full-court press to block these rules, from a legal standpoint, a policy standpoint and a political standpoint.” Despite its expensive weaponry, the struggle to deregulate oil and gas won sparse success against Obama’s maneuvering.

 

The days following inauguration witnessed an altogether different outcome. Congressional supremacy again rests firmly with the GOP, who have wasted no time driving forward a new agenda presented by a coalition of oil and gas interests as “A Roadmap to Repeal,” or a list of Obama-era environmental initiatives to be considered for immediate slashing.

 

Rules requiring a more efficient approach to methane emissions, disclosure of foreign transactions with publically offered oil, gas and mining companies, and less debris deposited in streams are among the first Roadmap repeals. More are sure to follow, as the president himself has begun taking executive action against several Roadmap items, including the Dodd-Frank Act, a collection of financial reforms issued by Obama as a response to the 2008 recession.

 

If the new political order has its way, the sweeping rules championed by Obama’s administration won’t for much longer stall expansion of “extractive” industries (oil, gas, mining, etc). Excessive bureaucratic interference done with the blessing of the executive branch was business as usual for O & G under the old guard, but now it seems not entirely unwise to anticipate a return to laissez faire approaches not taken since Reagan. Unwarranted intrusion by Obama’s EPA and Departments of Interior and Energy, such as blocking promised drilling permits without explanation, are no more; maybe now, stability for the O & G sector isn’t such a pipe dream.

 

Oil & Gas Predictions for 2017

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You might be thinking that last year’s ridiculously numerous developments in the oil and gas industry couldn’t possibly be matched. You might be muttering thanks as you catch your breath, grateful that finally, the 2016 hurricane has cleared; you might take comfort in some certainty that you and those invested in O & G can at last kick back and enjoy the sweet, uninterrupted trickle of stability. You might be very wrong.

Of course, it’s never easy to predict anything about an industry whose recent trend charts more closely correlate with a profile of the Himalayas than anything resembling stable. Nevertheless, with the following list I will do my best to sketch you at least a semi-coherent picture of what 2017 has in store for the O & G industry.

 

 

  • OPEC countries wiggle around production standards – Each year, the Organization of Petroleum Exporting Countries sets a production quota which limits how much oil member countries are allowed to drum up, and every year, member countries dream up new and innovative ways of skirting these strictures. This year should be no different, which means peace between oil supply and oil demand might again be postponed.

 

 

 

  • Trump’s relationship with Russia leaves a mark – If Trump continues his crusade to improve relations with Russia, it will likely lead to a number Obama’s sanctions being lifted, leaving Russia free to produce more oil. The old administration’s original deal was slated to last six months, so the second half of 2017 might likely see Russia ramping up its exports.

 

 

 

  • Companies benefit from Trump’s deregulation –  The Obama administration’s disdain for oil and gas is hardly hidden. They’ve enacted regulations which made adhering to any sort of federal standard difficult. This inability to develop a coherent strategy due to shifting federal regulation has limited O & G’s profitability, but 2017 should see steps taken to relieve some of the regulatory pressure on the industry.

 

 

 

  • Currently increased prices lead to increased US drilling – OPEC’s recent agreement has granted the US permission to produce more oil. With prices hovering at a profitable $55/barrel, US oil companies will likely find increased production too lucrative to ignore, which will subsequently introduce market volatility as the US’s substantially increased supply plays hell with prices.

 

 

 

  • 2017’s latter half sees an O & G rebound – After an initial production boom floors prices, companies will likely cut back production, which, combined with OPEC’s efforts to limit excessive supply, should result in market stabilization and an eventual rebound.

 

 

The Oil and Gas Industry: A Recap of 2016 Events

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To say the least, 2016 has been a tumultuous year for the Oil and Gas (O &G) industry. In truth, market events year have blasted O & G like the pressurized spray of hydraulic fracking drill rips through shale, sending investors, prices and predictive analyses on a whirling, white-rapid roller coaster of a route, eventually ending in a place altogether alien. Yes, the industry has moved on and if 2016 events are any indication, those invested in O & G should accustom themselves to quick, ambiguous shifts as modern energy practice continues its metamorphosis.

 

Any year this memorable begs a recap, so with the following list let’s examine 2016’s major oil and gas happenings, and brace ourselves for the moment when pressure strikes the market again.

 

 

  • Drilling costs took a dive – Costs of installing and operating wells have plummeted, with a significant number of companies reporting a 50% decrease in expenses involved in installing wells throughout 2016’s later months. This price dive owes itself to the industry tradition of consistently innovating new and efficient drilling and rig tech.

 

 

 

  • Expected ultimate recoveries climb – EURs, or predictions for net recoverable product in a given area, flew to new heights this year, subsequently dropping economic barriers for the startup of new drilling projects. Technical tweaks like advanced hydraulic fracking techniques and fine-tuned detection equipment have contributed to this, since workers can now more efficiently target large, concentrated pockets of oil.

 

 

 

  • Oil booms in the Permian Basin – The US Geological Survey estimates that around 20 billion barrels worth of oil flows beneath the Wolfcamp shale play in Texas’s Permian Basin oil region, blowing away previously underwhelming predictions regarding the outlook of US oil supplies.

 

 

 

 

 

 

  • The US is now a net exporter of natural gas –  Discoveries of huge reserves of natural gas hidden in Southwestern US shale plays, as well as the construction of continental pipelines which ship gas to Canada and Mexico, sent LNG (liquefied natural gas) exports rocketing past previous records. The US now exports more natural gas than it imports, a phenom unimaginable even a decade prior.

 

 

 

  • Fracking is absolved of its environmental sins – Inaccurate media reports claiming the EPA had reversed its findings regarding fracking’s non-impact on natural water sources had no bearing on actual EPA findings, which indicated that fracking itself has no widespread impact on the stability and safety of America’s underground water stores.

 

 

With the election of a president who certainly seems to be pro O & G, and the cabinet and congressional powerhouse shaping up much the same, it seems oil production companies which struggled coming into 2016 might at last breathe a sustained sigh of relief as the new year dawns and passes. Or not. Whatever happens, I, for one, am enthusiastic to see how 2017 plays for O & G.

 

Shifting Industry Trends Could Combat Oil and Gas Bust

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It is hardly a secret that the oil and gas industry has been racked with struggles in recent years. Extensive supply and waning demand have borne a global price plummet which blindsided investors and left oil execs itching to seek out innovative and efficient ways to streamline production and heal financial hemorrhages.

Andreas Kleinshimdt, in an article for Siemens, one of the world’s largest energy and engineering companies, states  

The low price of oil is both a challenge and an opportunity for the industry. Well-run oil and gas (O&G) companies that are strong today are likely to emerge even stronger after prices rebound. While the availability of oil fields and the associated equipment is always paramount for them, during a slump they have every reason to also focus on cost-effective production.”

For O & G to optimally shrug off price drops and re-stimulate industrial growth, the industry must adapt to a changing landscape where resource scarcity is no longer an issue and advances in oil production methods mean a one-size-fits-all approach to operational procedure is no longer ideal.

Creating a less centralized and more agile management structure could allow companies to mediate challenges rapidly and efficiently. A loose, informal, team-based management style would take advantage of individual expertise to quickly generate specific, objective-based operational prototypes and quickly respond to issues.

Innovations in digital analytics and monitoring tools are another agent of optimization; digital tech could allow companies to act proactively to avoid profit pitfalls such as machinery breakdown and dwindling reservoirs. According to projections by Mckinsey and Company, applying digital technologies to the oil and gas sector could cut capital expenses by as much as 20%.

Digitized resource management could bring an as yet unprecedented level of transparency into oil and gas operational processes, providing data which boosts the accuracy of predictive models and increases workforce efficiency. In addition, replacing manned labor with automated manual processes would limit instances of human error and dispel potential safety catastrophes.

For years, analytics have been employed in retail and other sectors to gauge consumer habits and gain clarity into market trends. As digital practices continue their leak into the oil industry, oil companies can expect a better view into oil and gas consumption trends, facilitating contingencies for or even preventing unexpected price fluctuation.

Digital tech’s potential to ease efficiency and revolutionize operational methods within the oil and gas sector should not be ignored. Nor should analytic practices and decentralized, objective based management, as all have proven themselves a boon when applied in numerous industries, and there is no reason that oil and gas should not expect to gain from making good use of them.