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Expert: Permian Basin’s place in world market secure
Story highlights
Texas rig count has almost doubled since this time last year
77 percent of rigs in Texas are drilling in the Permian Basin
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Matthew McDaniel | San Angelo Standard-Times
Updated 3:50 p.m. CT March 30, 2017
Black gold, rosy outlook
BIG LAKE — During a recent forum hosted by the Big Lake Economic Development Corp., one of the featured speakers was Texas energy advocate Luke Legate with Austin’s G. Fox Consulting, who reassured the assembly the Permian Basin's place as a key player in the world market is secure for the foreseeable future.
Legate’s talk began with a recap of recent activity at the Capitol involving the Texas Railroad Commission.
“Today they did what they call a ‘sunset renewal,’” he told listeners.
“The commission is the main regulatory body for the oil and gas industry … and without a good regulatory body in place, a lot of the good things we are seeing in the industry could be in jeopardy.”
Legate discussed the proposed legislation, which would keep the agency in place until 2029, without changing its name to the Oil and Gas Commission, as favored by some.
One proposed amendment to the legislation would have required oil-and-gas employers to swear they do not hire undocumented workers, with stiff penalties for perjury.
“You’ll be proud to know that Rep. Drew Darby ran a lot of the meeting,” he told listeners. “There were some people trying to hijack the process — but in the end, it turned out well.”
Legate said having a strong, able regulator is very important for the state.
The Basin
“Texas is No. 1,” he said. “We are the No. 1 oil and gas producing state. If we were our own country, we would be the 10th-largest producer in the world.
“We have surpassed nations in the Middle East … and a lot of that has to do with what happens right here in the Permian Basin.”
Legate said that while other exciting shale plays have made headlines during the most recent booms, the Permian Basin’s proven reserves give it pre-eminence in the state.
“I promise you, when I’m speaking in South Texas, I tell them, ‘Look, y’all are doing great, but the Permian Basin’s still No. 1.
“Every day, the Basin is producing 2.2 million barrels of oil.”
He said a look at the current rig count would bear that out, and it does.
According to Baker-Hughes, as of March 24 there were 809 rigs operating in the United States, and 49.9 percent of them were drilling in Texas.
Of the 404 rigs currently making holes in Texas, 77 percent of them are working in the Permian Basin — 313 rigs total.
Those numbers represent an increase at every level over last year’s count.
At this time last year, there were 464 rigs operating in the U.S., with 209 in Texas; 70 percent of rigs at that time were drilling in the Permian Basin (147).
Legate said even with a depressed market for crude oil, the overall economic impact of this ongoing exploration is impressive, with an estimated production value of about $95 billion in 2013, according to a report prepared for the Permian Basin Petroleum Institute in 2014.
The Current Market
Legate went on to share some insights with the group, detailing the market forces that have been at work for the past few years.
A worker prepares to hoist a joint of drill-stem pipe on a rig working in the Permian Basin.
Brittany Sowacke, Bloomberg
He cited high energy demand around the world as the instigator of the most recent heyday, which lasted until increased inventories resulting from the exploration craze glutted the market.
“The price of oil today is around $50; you’ll remember we had the days of $100 oil a few years back, and then we started to see the bottom fall out — with prices down to $20 or $30.
“A big part of that (price change) was because of our success. … One of the things the industry does really well is to overproduce because everybody wants to get in the game, and then guess what? We’ve got a glut.”
Legate talked about OPEC’s efforts to retain its influential position in the world market, which has been threatened by increased American production.
“We are trusting — but verifying — that OPEC will follow through with promises to curb production, but you can’t go solely on what OPEC’s doing – and that’s a good thing.
“Some of you may remember your history; if the wind blew wrong in the Middle East, the price of oil would spike within days.
“That no longer happens because U.S. production is starting to control the market more. We are producing more than ever, and we have now the ability to sell to the rest of the world.”
Legate spoke about recently changed rules that allow producers to export crude oil for the first time in decades.
“These are products just like anything else, and like any commodity, we should be able to sell it to the world.”
Legate said he is often asked why the U.S. still imports so much oil, and he explained that it’s primarily because of the nation's refining bottleneck.
“Imports are down,” he told them. “But you’re not going to see an overnight switch by these multimillion-dollar refineries who suddenly decide to say, ‘We’re only going to buy Texas oil, or United States oil.’ It’s an open, fluid market … and we just wanted to be able to participate in it. Now we can.”
Legate talked about how oil companies have changed in response to the lower oil prices, using more technology and streamlining operations, with an eye on profits.
“Some companies might do OK at $35 a barrel; some might not see a profit below $50. It depends on how they have structured their lease holdings, positions and contracts.
“Every company is a little bit different. But as an industry, we like to see things steady. We don’t want the spikes.”
A Cleaner Fuel For The Future
Legate spoke about the future of the industry, citing trends toward fuel efficiency worldwide, with the rise of vehicles running on natural gas and electricity.
“The future is natural gas,” he told them.
Legate talked about efforts to make the Gulf Coast a premier world hub for the distribution of liquefied natural gas, or LNG.
As a fuel for transport, LNG is particularly attractive because it has been concentrated to 1/600th of original volume by cooling the natural gas to -260 degrees Fahrenheit.
Natural gas is regarded as the cleanest-burning fossil fuel, with carbon emissions 60 percent lower than coal, which is an important consideration for countries struggling with polluted urban air.
Legate said buyers in Asia are paying a higher unit price for natural gas because of low supplies.
“They’re paying $12 (per thousand-cubic feet) for gas, and we can sell it to them for a better price. That’s money in our pockets.”
According to the California Energy Commission website, there are 91 LNG receiving terminals worldwide, with Legate speaking about a few more in the works.
The New Administration
Legate said he was asked to speak about how the industry views the recent regime change in Washington, including the confirmation of former Gov. Rick Perry as Secretary of Energy.
“We view this as positive — and it needs to be,” he said. “We want to work with regulators; we want to work with the EPA and the Department of Energy. … We want the kind of relationship where we can say what works best for each situation. ... Science-based regulation, not regulation based on political pressures.”
The Image Problem
During his remarks, Legate acknowledged the industry suffers from an image problem.
“Not so much in Big Lake, Texas … but there are some places where I’ve been booed and spit on.
“There are places where they don’t like the words ‘fracking’ or ‘oil and gas.’ … They seem to think that we can just turn off oil and still lead the modern lives we live today.”
“Right now, we are using every resource at our disposal — wind, solar and fossil fuels — and we’re learning that they all have an important role to play.”
"It's a false choice to tell people they can't be for the environment and be for oil and gas; they go hand-and-hand," he said.
Proposed Refineries
An audience member asked about the impact of a refinery MMEX Resources plans to construct in Pecos County.
He said there are plans for two new refineries in Texas, but noted the permitting process can take years to complete.
“There’s a reason nobody has built a refinery since the early '70s,” he said. “But any time we can increase our refining capacity, it’s a win-win.”
He said large refinery projects mean jobs for hundreds of engineers and construction crews, as well as lower prices for consumers in the long run.
Legate said the demand for petroleum products and the vast reserves in the Permian Basin bode well for jobs and economic security in the area for many years to come.
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Originally Published 3:16 p.m. CT March 30, 2017
Updated 3:50 p.m. CT March 30, 2017
Mentions MMEX
https://t.co/OPV54W6PoZ
Expert: Permian Basin’s place in world market secure
Story highlights
Texas rig count has almost doubled since this time last year
77 percent of rigs in Texas are drilling in the Permian Basin
Aa
_
+
Matthew McDaniel | San Angelo Standard-Times
Updated 3:50 p.m. CT March 30, 2017
Black gold, rosy outlook
BIG LAKE — During a recent forum hosted by the Big Lake Economic Development Corp., one of the featured speakers was Texas energy advocate Luke Legate with Austin’s G. Fox Consulting, who reassured the assembly the Permian Basin's place as a key player in the world market is secure for the foreseeable future.
Legate’s talk began with a recap of recent activity at the Capitol involving the Texas Railroad Commission.
“Today they did what they call a ‘sunset renewal,’” he told listeners.
“The commission is the main regulatory body for the oil and gas industry … and without a good regulatory body in place, a lot of the good things we are seeing in the industry could be in jeopardy.”
Legate discussed the proposed legislation, which would keep the agency in place until 2029, without changing its name to the Oil and Gas Commission, as favored by some.
One proposed amendment to the legislation would have required oil-and-gas employers to swear they do not hire undocumented workers, with stiff penalties for perjury.
“You’ll be proud to know that Rep. Drew Darby ran a lot of the meeting,” he told listeners. “There were some people trying to hijack the process — but in the end, it turned out well.”
Legate said having a strong, able regulator is very important for the state.
The Basin
“Texas is No. 1,” he said. “We are the No. 1 oil and gas producing state. If we were our own country, we would be the 10th-largest producer in the world.
“We have surpassed nations in the Middle East … and a lot of that has to do with what happens right here in the Permian Basin.”
Legate said that while other exciting shale plays have made headlines during the most recent booms, the Permian Basin’s proven reserves give it pre-eminence in the state.
“I promise you, when I’m speaking in South Texas, I tell them, ‘Look, y’all are doing great, but the Permian Basin’s still No. 1.
“Every day, the Basin is producing 2.2 million barrels of oil.”
He said a look at the current rig count would bear that out, and it does.
According to Baker-Hughes, as of March 24 there were 809 rigs operating in the United States, and 49.9 percent of them were drilling in Texas.
Of the 404 rigs currently making holes in Texas, 77 percent of them are working in the Permian Basin — 313 rigs total.
Those numbers represent an increase at every level over last year’s count.
At this time last year, there were 464 rigs operating in the U.S., with 209 in Texas; 70 percent of rigs at that time were drilling in the Permian Basin (147).
Legate said even with a depressed market for crude oil, the overall economic impact of this ongoing exploration is impressive, with an estimated production value of about $95 billion in 2013, according to a report prepared for the Permian Basin Petroleum Institute in 2014.
The Current Market
Legate went on to share some insights with the group, detailing the market forces that have been at work for the past few years.
A worker prepares to hoist a joint of drill-stem pipe on a rig working in the Permian Basin.
Brittany Sowacke, Bloomberg
He cited high energy demand around the world as the instigator of the most recent heyday, which lasted until increased inventories resulting from the exploration craze glutted the market.
“The price of oil today is around $50; you’ll remember we had the days of $100 oil a few years back, and then we started to see the bottom fall out — with prices down to $20 or $30.
“A big part of that (price change) was because of our success. … One of the things the industry does really well is to overproduce because everybody wants to get in the game, and then guess what? We’ve got a glut.”
Legate talked about OPEC’s efforts to retain its influential position in the world market, which has been threatened by increased American production.
“We are trusting — but verifying — that OPEC will follow through with promises to curb production, but you can’t go solely on what OPEC’s doing – and that’s a good thing.
“Some of you may remember your history; if the wind blew wrong in the Middle East, the price of oil would spike within days.
“That no longer happens because U.S. production is starting to control the market more. We are producing more than ever, and we have now the ability to sell to the rest of the world.”
Legate spoke about recently changed rules that allow producers to export crude oil for the first time in decades.
“These are products just like anything else, and like any commodity, we should be able to sell it to the world.”
Legate said he is often asked why the U.S. still imports so much oil, and he explained that it’s primarily because of the nation's refining bottleneck.
“Imports are down,” he told them. “But you’re not going to see an overnight switch by these multimillion-dollar refineries who suddenly decide to say, ‘We’re only going to buy Texas oil, or United States oil.’ It’s an open, fluid market … and we just wanted to be able to participate in it. Now we can.”
Legate talked about how oil companies have changed in response to the lower oil prices, using more technology and streamlining operations, with an eye on profits.
“Some companies might do OK at $35 a barrel; some might not see a profit below $50. It depends on how they have structured their lease holdings, positions and contracts.
“Every company is a little bit different. But as an industry, we like to see things steady. We don’t want the spikes.”
A Cleaner Fuel For The Future
Legate spoke about the future of the industry, citing trends toward fuel efficiency worldwide, with the rise of vehicles running on natural gas and electricity.
“The future is natural gas,” he told them.
Legate talked about efforts to make the Gulf Coast a premier world hub for the distribution of liquefied natural gas, or LNG.
As a fuel for transport, LNG is particularly attractive because it has been concentrated to 1/600th of original volume by cooling the natural gas to -260 degrees Fahrenheit.
Natural gas is regarded as the cleanest-burning fossil fuel, with carbon emissions 60 percent lower than coal, which is an important consideration for countries struggling with polluted urban air.
Legate said buyers in Asia are paying a higher unit price for natural gas because of low supplies.
“They’re paying $12 (per thousand-cubic feet) for gas, and we can sell it to them for a better price. That’s money in our pockets.”
According to the California Energy Commission website, there are 91 LNG receiving terminals worldwide, with Legate speaking about a few more in the works.
The New Administration
Legate said he was asked to speak about how the industry views the recent regime change in Washington, including the confirmation of former Gov. Rick Perry as Secretary of Energy.
“We view this as positive — and it needs to be,” he said. “We want to work with regulators; we want to work with the EPA and the Department of Energy. … We want the kind of relationship where we can say what works best for each situation. ... Science-based regulation, not regulation based on political pressures.”
The Image Problem
During his remarks, Legate acknowledged the industry suffers from an image problem.
“Not so much in Big Lake, Texas … but there are some places where I’ve been booed and spit on.
“There are places where they don’t like the words ‘fracking’ or ‘oil and gas.’ … They seem to think that we can just turn off oil and still lead the modern lives we live today.”
“Right now, we are using every resource at our disposal — wind, solar and fossil fuels — and we’re learning that they all have an important role to play.”
"It's a false choice to tell people they can't be for the environment and be for oil and gas; they go hand-and-hand," he said.
Proposed Refineries
An audience member asked about the impact of a refinery MMEX Resources plans to construct in Pecos County.
He said there are plans for two new refineries in Texas, but noted the permitting process can take years to complete.
“There’s a reason nobody has built a refinery since the early '70s,” he said. “But any time we can increase our refining capacity, it’s a win-win.”
He said large refinery projects mean jobs for hundreds of engineers and construction crews, as well as lower prices for consumers in the long run.
Legate said the demand for petroleum products and the vast reserves in the Permian Basin bode well for jobs and economic security in the area for many years to come.
More Top Stories reads for you:
• Why Texas Ag Chief Sid Miller signed a deal with disputed Israeli settlements
He opened trade relations with group of Israeli settlements in West Bank that neither United States nor United Nations legally recognizes....
• Texas church bus crash death toll rises to 13
Church bus carrying members on a spring retreat collided with a pickup, authorities said....
• San Angelo Health foundation awards $178K in grants
Four area nonprofit organizations were recipients...
• Wookie House offers chance to record professionally
Wookie House Recording Studio gives West Texas artists professional recording services...
• Over the River and Through the Woods at San Angelo Civic Theater
...
• White House invites lawmakers to see intelligence material
The White House refused to say on Thursday whether it gave the top Republican on the House intelligence committee access to highly classified materials....
• Tiffany Vazquez: The new kid on the TCM block
Tiffany Vazquez will never forget the phone call she received offering the classic film fan a rare opportunity....
• North Carolina lawmakers vote to undo 'bathroom bill'
North Carolina lawmakers rolled back North Carolina's "bathroom bill" Thursday in a bid to end the backlash over transgender rights that has cost the state dearly in business projects, conventions and basketball tournaments....
• Workplace of Distinction: Mosaic of San Angelo
With a focus on serving people with intellectual disabilities, Mosaic of San Angelo has a reputation of building people's independence and confidence....
• S. Korean court approves arrest of ex-president over scandal
A South Korean court on Friday approved the arrest of former President Park Geun-hye over high-profile corruption allegations that already ended her tumultuous four-year rule and prompted an election to find her successor....
Originally Published 3:16 p.m. CT March 30, 2017
Updated 3:50 p.m. CT March 30, 2017
