Drilling advances

	Vol. 231 No. 1
JIM REDDEN, CONTRIBUTING EDITOR

Time for US politicos to take a road trip

It’s time for another installment of As the US Non-Energy Policy Turns.

In the most recent episode, we find US Secretary of the Interior Ken Salazar, the guardian of all federally controlled lands, at the podium, giving the industry a tongue-lashing over what he implied was its cut-and-run approach to drilling on US-held property. Although he provided no details, Salazar did say operators can expect much tougher environmental scrutiny when attempting to sink a bit within the more than 260 million acres under US Bureau of Land Management control. A considerable portion of those 260 million acres lie in the gas-rich Rockies.

Salazar scolded the industry, arguing that, for too long, it has treated federal lands like its personal “candy store.” He presented a litany of abuses, charging operators with coming in and taking “whatever they wanted,” “[running] afoul of communities,” “[carving] up the landscape” and “[creating] uncertainty for investors and industry.” Frankly, the part of his homily that accused drilling operations of creating uncertainty for investors and industry has left me scratching my head.

Naturally, his harangue drew sharp rebuke from the American Petroleum Institute and other industry organizations. The API, for one, labeled his comments part of a “troubling trend of hobbling companies’ ability to develop much-needed domestic energy supplies.” The Independent Petroleum Association of Mountain States joined the choir, expressing disappointment at seeing the Interior Department “moving toward a bureaucratic command-and-control system in which government bureaucrats—rather than scientists with expertise in natural gas and oil developments—dictate where energy development should occur.”

While I’ve always been hesitant to give blanket endorsement to industry-speak on its face, this time I must agree wholeheartedly.

Of course, the oil and gas industry has an overriding responsibility to balance its drilling operations with the health and welfare of the local environment and communities. Overall, the industry’s recent record on that front has been relatively unblemished. On the other hand, if and when abuses do occur, they should be dealt with swiftly and harshly.

What I find disturbing about indiscriminate invectives such as Salazar’s recent performance is not how the trade associations will react, but the potential response of the operators themselves. You have to wonder how long before those with the wherewithal will tire of the unremitting condemnation and pack up their rigs and move elsewhere. Believe it or not, there are countries where the prospects are just as promising, or perhaps more so, and operators can actually drill with government support.

An admittedly informal survey revealed any number of locations where the powers that be actually encourage operators to develop oil and gas reserves. These include some of the most environmentally conscious nations on earth.

Take Manitoba, for example. The official website of the Canadian province boasts that it “combines all the best elements of a memorable vacation—four distinct seasons of sunshine [and] nature untouched by the spoils of modern life.” Yet, in its ongoing effort to “encourage investment in the exploration for and development of Manitoba’s petroleum resources,” the province recently extended its earlier-enacted Drilling Incentive Program for another five years.

Last year, the international playground of Argentina, which prides itself on its “gorgeous landscape,” nevertheless announced a sweeping Petroleum-Plus tax rebate program, aimed at giving “companies an incentive to explore for and produce more oil,” as stated in December 2008 by Planning Minister Julio De Vido.

Perhaps no sector on earth is more devoted to and protective of its natural environment than Western Australia, which, nonetheless, announced last April that it will offer government funding for innovative drilling in Western Australia’s under-explored areas “to ensure the future prosperity of WA’s resources sector,” as Acting Mines and Petroleum Minister Simon O’Brien put it.

Australia’s closest neighbor, New Zealand (“close” being an overnight plane ride), is widely regarded as an outdoor paradise, with vibrant tourism, fishing and agriculture. Even so, the twin-island nation not only offers drillers attractive tax incentives, but has even earmarked $20 million in the most recent federal budget to fund a comprehensive seismic acquisition program with all the resulting data shared with operators, free of charge.

These are but a scant few of the countries that adhere to uncompromising environmental protection policies but, at the same time, take an active role in promoting their oil and gas industries.

What’s particularly dumbfounding about Salazar’s comments is the timing of it all. In the first place, the price of the candy that Salazar claims the industry is plucking off the shelves at will has dropped to the point that many of the smaller independents, which produce a considerable amount of US onshore gas, are finding the ends ever harder to meet. There’s also the matter of the US being gripped in a near-historic Arctic freeze that even brought snow to Houston and has left escapees of northern blizzards shivering in the usually tropical winter haven of Florida. There’s also the matter of soaring unemployment nationwide. And let’s not forget that the current administration is on a perennial soapbox promoting clean energy.

Between an extremely harsh winter, low commodity prices and high unemployment, one would think policy makers would try to encourage, not discourage, production of clean-burning natural gas. Perhaps they should take a cue from their neighbor to the north. Recognizing that the economic downturn is impacting operators and residents alike, the province of Alberta, which certainly is no stranger to bone-chilling winters, last year unveiled new drilling incentives to ensure that the burner tips remain lit, while at the same time helping put Albertans to work.

Is anybody in Washington taking notes?