SHALE Magazine January/February 2022 by SHALE Oil & Gas Business Magazine

JANUARY/FEBRUARY 2022

VITAMIN D AND THE PANDEMIC ESG INVESTMENT: THE VIRTUE-SIGNALING OF THE ENERGY WORLD BIOSURFACTANTS ARE READY TO BOOST BAKKEN PRODUCTION

COLD REPORTING BRINGS AVALANCHE OF ATTACKS ON NATURAL GAS ECONOMICS BE DAMNED AND THE DEATH SPIRAL OF SUBSIDIZATION: UNDERSTANDING THE LOW-INFRASTRUCTURE INFRASTRUCTURE BILL

COVER STORY

BIDEN’S ENERGY POLICY A DESTRUCTIVE PLAN THAT HAS MADE ALL FORMS OF ENERGY MORE COSTLY

O I L & G A S P L AY E R S

BUSINESS

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SHALE MAGAZINE  JAN/FEB 2022

JANUARY/FEBRUARY 2022

CONTENTS

SHALE UPDATE

Shale Play Short Takes

FEATURE

Cold Reporting Brings Avalanche of Attacks on Natural Gas

COVER STORY

COVER F11PHOTO/STOCK.ADOBE.COM, TABLE OF CONTENTS JBYARD/STOCK.ADOBE.COM

Concerned about his declining public approval ratings and the impact that high gasoline prices were having on them, Biden and his advisors felt a political need to “do something” to address the situation, always the most dangerous motivation for any political regime.

INDUSTRY

Riding the Wave – How Oil and Gas Deal Trends in 2021 are Shaping the Future of Dealmaking in 2022

POLICY INDUSTRY

BUSINESS

36 Biosurfactants are Ready to Boost Bakken Production 38 With the Spread of Omicron, 2022 Employment

54 Tax Prep for the Individual

Outlook is Still Unclear

POLICY 44 They Had No Idea 46 If You Don’t Fight the Brush Fires, You Can’t Save

Royalty Owner

56 ESG Investment: The VirtueSignaling of the Energy World

LIFESTYLE 62 Vitamin D and the Pandemic

the Forest

48 Economics be Damned and the Death Spiral of

Subsidization: Understanding the Low-Infrastructure Infrastructure Bill

SOCIAL 66 SR Trident

How Decisions Made By Energy Idiots Raises the Cost of Literally Everything

BUSINESS

How Oil Companies Can Maximize Their EHS/ESG Investments

LIFESTYLE

Amrina: Writing the Story of a New Venture SHALEMAG.COM

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VOLUME 9 ISSUE 1 • JANUARY/FEBRUARY 2022

KYM BOLADO

CEO/EDITOR-IN-CHIEF CHIEF FINANCIAL OFFICER Deana Andrews EDITOR David Blackmon

Providing energy for the world while staying committed to our values. Finding and producing the oil and natural gas the world needs is what we do. And our commitment to our SPIRIT Values—Safety, People, Integrity, Responsibility, Innovation and Teamwork— is how we do it. That includes caring about the environment and the communities where we live and work – now and into the future. © ConocoPhillips Company. 2017. All rights reserved.

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ASSOCIATE EDITOR David Porter DESIGN DIRECTOR Elisa Giordano PUBLICATION EDITOR Melissa Nichols COPY EDITOR Nick Vaccaro VICE PRESIDENT OF SALES & MARKETING Josie Cuellar ACCOUNT EXECUTIVES John Collins, Ashley Grimes, Doug Humphreys, Matt Reed VIDEO CONTENT EDITOR Aslan Sukolics SOCIAL MEDIA DIRECTOR Courtney Boedeker CORRESPONDENT WESTERN REGION Raymond Bolado CONTRIBUTING WRITERS Seenu Akunuri, David Blackmon, Bill Keffer, Shannon Lardi, Jason Modglin, David Porter, Thomas J. Pyle, Tom Shepstone, Marty Shumway, Surpreet Singh, Irina Slav, Thomas Tunstall STAFF PHOTOGRAPHER Malcolm Perez EDITORIAL INTERN LeAnna Castro

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For editorial comments and suggestions, please email editor@shalemag.com. SHALE MAGAZINE OFFICE: 5150 Broadway St., Suite 493, San Antonio, Texas 78209 For general inquiries, call 210.240.7188. Copyright © 2022 Shale Magazine. All rights reserved. Reproduction without the expressed written permission of the publisher is prohibited.

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LETTER FROM THE CEO

IN THESE FAST-CHANGING AND UNCERTAIN TIMES, WE VIEW IT ESSENTIAL TO CONTINUE TO SHARE ENERGY INFORMATION YOU CAN TRUST.

Our experts and contributors value the trust and support our SHALE readers give us to be your source for honest energy news. We know that while the world is at a seeming standstill, many energy professionals are working behind the scenes to protect the industry from over-reaching policy and insurmountable financial strain. Please continue to keep an eye on shalemag.com for updates and tune into In the Oil Patch radio show for continued coverage of the global, national and local energy markets.

KYM BOLADO

CEO/Editor-in-Chief kym@shalemag.com

SHALE MAGAZINE  JAN/FEB 2022

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SHALE MAGAZINE  JAN/FEB 2022

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SHALE UPDATE

SHALE PLAY SHORT TAKES By: David Blackmon

Bakken Shale – North Dakota/Montana Associated gas output in the Bakken shale rose in recent months despite a lower rig count, according to Argus Media. Current forecasts show output for the Bakken at 3.07 Bcf/d (87mn m³/d) in December and 3.08 Bcf/d in January, according to the U.S. Energy Information Administration (EIA). Associated gas production for the Bakken shale in January is forecast to be the highest since March 2020, when it was 3.17 Bcf/d, just shy of the all-time high of 3.18 Bcf/d in November 2019.

Denver/Julesberg (DJ) Basin - Colorado

A survey of operators in the Rocky Mountain region conducted by the Federal Reserve Bank of Kansas City found that natural gas production is expected to continue to decline during 2022 unless the Henry Hub index price for gas remains above the $4.00 per MMBtu level. According to survey respondents, the average price needed to significantly boost drilling and completion activity was $4.27/MMBtu. Despite occasional jumps to that level since last September, the average Henry Hub price in recent months has overed just below the $4.00 mark.

Permian Basin – Texas/New Mexico

After experiencing a cautious recovery throughout 2021, the Permian Basin entered 2022 in full boom mode, setting a new regional production record during the month of December and serving as home to over 45% of all active drilling rigs in the country. The U.S. EIA projected that the domestic industry would raise overall oil production by 1 million barrels per day during 2022, and the bulk of that additional production will likely come out of the Permian. With many OPEC+ countries having run out of excess producing capacity, the Permian region will play a key role in the industry’s ability to meet growing crude demand during 2022 and beyond.

SHALE MAGAZINE  JAN/FEB 2022

Eagle Ford Shale – Texas

Activity in the Eagle Ford Shale continues to ramp up, as higher commodity prices make more drilling locations economic to drill and frack. Baker Hughes reported on Jan. 14 that the rig count in the Eagle Ford had jumped by five to a new total of 43 active rigs in the region. It was the biggest single-week jump and highest total rig count the region has seen in over two years.

Marcellus/Utica Shale – Pennsylvania/West Virginia/Ohio

Things are also looking up in the Marcellus/Utica region, as higher natural gas prices produce a more profitable picture. In Pennsylvania, a new report from the Independent Fiscal Office credits a surge in natural gas prices for driving collections from the state’s impact fees to an estimated $233.8 million for 2021. The total collection is projected to be $87.6 million higher than the previous year when the pandemic cratered the price of natural gas and the fees paid per well.

Haynesville/Bossier Play – Louisiana/East Texas SCOOP/STACK Play – Oklahoma

Big SCOOP/STACK producer Continental Resources announced major organizational changes in midJanuary. Doug Lawler, former CEO of Chesapeake Energy, became the company’s new Chief Operating Officer and Executive Vice President. Jack Stark, Continental’s current President and CEO, will retire in late Spring 2022. Upon his retirement, Stark will be retained as a senior advisor to the company's new President and CEO, Bill Berry.

Chesapeake Energy announced in mid-December that it is in advanced talks to acquire Chief Oil & Gas in a deal worth approximately $2.4 billion, including debt. A Haynesville pioneer, Chesapeake returned to the area with a $2.2 billion acquisition of Vine Energy in late 2021. Chief Oil & Gas is one of the larger producers in the Marcellus shale region of the country.

About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at editor@shalemag.com. SHALEMAG.COM

 FEATURE

Cold Reporting Brings Avalanche of Attacks on Natural Gas

he start of the year saw expected winter cold fronts arrive in Texas. Like clockwork from an increasingly coordinated campaign against natural gas, media breathlessly reported an estimated 1 billion cubic feet of gas was flared in the Permian Basin alone, resulting in a 25% reduction in natural gas supplies, higher pollution and the prospect of Winter Storm Uri level interruptions in electricity delivery to homes and businesses. None of this occurred, and subsequent corrections were issued. The increasing use of headlines as clickbait while hiding the facts behind paywalls that prevent any challenging of stories is then used by opponents of domesticallyproduced oil and natural gas to attack with zero concern for increasing reliability. These antics are very reminiscent of what we see on the national stage to blame domestic producers for high energy prices while begging OPEC to produce more. Whether local or global, placing reliable, affordable and clean energy as a higher priority will lead to better energy policies benefiting consumers and U.S. producers. By mid-week, claims were revised from nearly 1 billion cubic feet of natural gas flared due to cold weather issues down to 1 million cubic feet that was flared, a thousand-fold drop. By then, the damage had already been done as a runaway echo chamber of Twitter and wire services repeated the same falsehoods. The incomplete picture came

SHALE MAGAZINE  JAN/FEB 2022

Consumers demand reliable, affordable and clean-burning domestically produced natural gas to meet the growing complexities in our electricity grid and the energy shortages facing the global community. We have the resources to meet those challenges with policymakers focused on facts, not Twitter from some media reports utilizing pipeline nominations (contract requests for space in a pipeline system to transport gas) to estimate real-time gas production. That approach is speculative and cannot be refuted until after data is fully collected, especially given that gas trading markets were closed for the holiday weekend. By the end of the week, the Energy Information Administration data showed impacts were minimal to production, emission events were low, short-lived, environmentally safe, and, more importantly, no electricity interruptions. As operators know, production can fluctuate daily for a variety of reasons that may or may not have anything to do with the weather. But lost in the daily review is the incredible growth of natural gas production over the past decade. Texas has increased natural gas production by over 50% since 2010. Production continues to grow and will likely surpass an average of 30 billion cubic feet per day in 2022. This means vastly more gas is available in Texas to meet all market needs, and

any fluctuation in production is a temporary change from a much higher production total. Production is also just one piece of the puzzle to keep gas flowing to Texans and electrical power producers throughout the state. Gas storage plays a very important role. Processed, dry gas that is already in storage, ready to flow to homes and power plants, is critical to maintaining reliability by smoothing out any production fluctuations. According to the Railroad Commission, Texas has approximately 448 billion cubic feet of working gas already in underground storage, and, anecdotally, pipelines report generators are investing in more firm storage to meet their seasonal needs. Maintaining electricity flow to critical natural gas systems was the impetus for the January 15th deadline that the Commission imposed on operators, pipelines and saltwater disposal wells to file the necessary paperwork to protect those assets from electricity interruption. The Railroad Commission and the Public Utility Commission

are developing a natural gas supply chain map that will determine weatherization requirements to further insulate delivery of natural gas: protecting assets with hardening and a guarantee to keep electricity flowing. All this work has shown considerable progress on beefing up an electric grid that has an everincreasing demand for natural gas as the only quick way to ramp up emergency backstop when other energy supplies drop. Baseload thermal generation has not grown with Texas’ increasing population, but wind and solar have. The Electric Reliability Council of Texas estimates that some 50,000 new megawatts in wind and solar capacity will be added to the grid in 2022, making the intermittency challenge bigger for policy leaders to solve. Despite the hopes of some, wind and solar are not alternatives to natural gas but complementary, helping both to grow in demand and necessity. Making it work here in Texas provides a roadmap for the broader U.S. and the rest of the world that will need greater natural gas supplies to expand their wind and solar usage. Much like the attacks in Texas, critics are missing the broader energy issues facing our world. European allies and trading partners are facing shortages this winter, resulting in increased use, record amounts of coal and heating oil being consumed and skyrocketing prices on energy which has hamstrung manufacturing, industry and agriculture. We also know that far too many people in this world

PIOREGUR/STOCK.ADOBE.COM

By: Jason Modglin

continue to suffer in energy poverty without clean, reliable cooking fuels and electricity. According to Our World in Data, “About 3 billion people in the world do not have access to modern energy sources for cooking and heating their homes. They are suffering from indoor air pollution as a consequence, and millions die every year.” Despite some radical environmentalist calls to reduce energy consumption, we know wealthier nations continue to demand more to power new technologies like cloud computing, cryptocurrencies, and electric vehicles. To meet the needs of both the developed and developing world, we need policymakers focused on how to grow the energy pie, not toss the 80% being met by fossil fuels out, subjecting billions to wait for wind

and solar saturation to reach their reliability needs. The U.S. dramatically increased natural gas production through innovation and efficient practices. The delivery of natural gas has brought U.S. manufacturing jobs back and, according to the federal government, saved American families $204 billion a year through lower electricity, oil and natural gas prices — the equivalent of $2,500 a year for a family of four. While growing our economy and maintaining reliability, domestically-produced natural gas has brought considerable emissions reductions to the United States. U.S. production is cleaner than our competitors because we have both high environmental and labor standards. Juxtapos-

ing U.S. production with the world’s should mean even in the most austere demand for oil and natural gas forecasted by the International Energy Agency that American-made should be prioritized and valued. Americanproduced natural gas can meet those energy needs and prevent growing dependency on Russia. This would be a win for national security but also for our environment. According to Texans for Natural Gas, “U.S. LNG reduces emissions by 50% compared to coal when used for power generation in countries like China, India and Germany. Russia’s flaring intensity is 143% higher than the United States, and 239% higher than Texas’ Permian, demonstrating that America produces natural gas in a much more sustainable

fashion than other global producers.” To help Europe and reduce global emissions, we need more U.S. natural gas production. Consumers demand reliable, affordable and clean-burning domestically produced natural gas to meet the growing complexities in our electricity grid and the energy shortages facing the global community. We have the resources to meet those challenges with policymakers focused on facts, not Twitter. About the author: Jason Modglin serves as the President of the Texas Alliance of Energy Producers.

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SHALE MAGAZINE  JAN/FEB 2022

SAGITTARIUS PRO/STOCK.ADOBE.COM

cover story

BIDEN’S ENERGY POLICY

A DESTRUCTIVE PLAN THAT HAS MADE ALL FORMS OF ENERGY MORE COSTLY By: David Blackmon

SHALEMAG.COM

n November 23, 2021, as the price for West Texas Intermediate (WTI) crude oil hit $78.50 per barrel, U.S. President Joe Biden issued an order to the U.S. Department of Energy (DOE) to release 50 million barrels of oil from America’s Strategic Petroleum Reserve (SPR). Concerned about his declining public approval ratings and the impact that high gasoline prices were having on them, Biden and his advisors felt a political need to “do something” to address the situation, always the most dangerous motivation for any political regime. Markets immediately responded to the Biden order by running oil prices up, not down, because they understood that the amount of oil involved was just a nominal gesture, a drop in a vast ocean of a 100 million barrel-per-day market. The oil price did start to fall when trading resumed two days later, the day after Thanksgiving, but that was due to the outbreak of the Omicron variant and fears of its potential to destroy oil demand, not related to Biden’s release. Those fears were quickly erased in the market’s collective hive mind within a few weeks. WTI traded at over $85 per barrel on January 15, 2022, and most major analysts are now projecting that $100 oil is just around the corner. Memories of the administration’s SPR release are mostly out of mind, returning briefly only whenever DOE gets around to releasing a new tranche of a few million barrels to one of the larger U.S. refining companies for processing. On January 16, Valero, ExxonMobil, Marathon and Phillips 66 were among the bidders for a total of 18 million barrels offered by DOE in its first organized sale under the Biden order. The price for oil went up that day, not down. All of this lack of real consequence coming about from such a high-profile presidential action provides just one more example of what little real power any U.S. administration has to actively intervene in a meaningful effort to impact oil prices set on a massive, global market. Things just do not work this way, and you really must wonder why Mr. Biden still, after all his decades in Washington, DC, does not recognize that. After all, Biden was already a veteran in the Senate as he watched then-Presidents Gerald

SHALE MAGAZINE  JAN/FEB 2022

Ford and Jimmy Carter flail about during the 1970s, outlawing crude oil exports, implementing various regimes aimed at price controls, passing a Fuel Use Act that forced the building of hundreds of new heavy-polluting coal-fired power plants across the country because they were sure we were running out of natural gas. On and on, the brain-dead interventionist energy policy choices went. No bad idea seemed too awful for consideration, and it all culminated in 1980 with the passage by a Senate in which Biden held a seat of the Windfall Profit Tax, the single most brain-dead policy choice of them all. Despite all of his long history with utterlyfailed energy policies — most of which he supported, of course — Biden thought it a great idea in November to trudge down that road to inevitable failure one more time. It was just one in a long line of policy failures the first year of his presidency produced, failures that only served to promote higher costs for all forms of energy, not just gas prices at the pump.

IT ALL STARTED WITH KEYSTONE XL Writing in January 2021 about President Biden’s day-one executive order to kill the Keystone XL Pipeline, I warned that that action was just an opening volley in a war on the domestic oil and gas business that would only intensify over the four years of his presidency. Anyone who may have thought the president would be satisfied with killing one pipeline and holding up new federal leases for a few months did not understand the gravity of the industry’s situation as this new government took power and began to exercise it. Nor did they fully understand the nature of the people the new president was nominating to hold the key positions in his administration related to energy policy. The decision to kill Keystone XL on the administration’s first day was as symbolic as it was substantive, a signal sent to the climate alarm lobby that the hundreds of millions of dollars it spent funding the Biden/Harris campaign and campaigns of other Democratic candidates would be paid pack many times over.

The question that too few, if any, in the news media asked the new president is, why? Why would a president who, at least during his campaign, portrayed himself as a champion of the environment move to cancel a pipeline that has pledged to turn itself into America’s first all-renewable energy interstate/international pipeline system? Other than a simple raw exercise in political power designed to impress one of the Democratic Party’s most loyal and powerful interest groups, the move makes little sense. It also shows how dominant the anti-fossil fuel lobby has become in recent years over one of that Party’s former powerful interest groups, organized labor. Reacting to President Biden’s decision, Thomas Pyle, President of the American Energy Alliance, put it this way, “The Keystone pipeline is nearly completely built and an important link for North America’s economic security. The decision today to rescind the permit makes it crystal clear that Mr. Biden stands with the extreme green lobby and not average Americans.” In a press release issued just before Biden took office, TC Energy, the owner and operator of the Keystone XL System, made a series of strong environmental and labor-related pledges in a last-ditch attempt to head off the looming presidential order to cancel its permit. Among those commitments were the following: • The Keystone XL System would achieve net-zero emissions in its operations by the year 2023 • While the net-zero goal would be achieved largely through the trading in renewable energy credits, the system would become fully powered by new investments in renewable energy capacity by 2030 • A promise to “spur an investment of over $1.7 billion in communities along the Keystone XL footprint creating approximately 1.6 gigawatts of renewable electric capacity, and thousands of construction jobs in rural and Indigenous communities” • The company also committed to “working with union labor in the U.S. and Canada,” pointed to the fact that “Keystone XL has also signed a Memorandum of Understanding (MOU) with North America’s Building Trades Unions (NABTU) to work together on the construction of TC Energy owned or sourced renewable energy projects” “Since it was initially proposed more than ten years ago, the Keystone XL project has evolved with the needs of North America, our communities and the environment,” said Richard Prior, President of Keystone XL. “We are confident that Keystone XL is not only the safest and most reliable method to transport oil to markets, but the initiatives announced today also ensures it will have the lowest environmental impact of an oil pipeline in terms of greenhouse gas emissions. Canada and the United States are among the most environmentally responsible countries in the world with some of the strictest standards for fossil fuel production.” So, you might ask, why would a Democratic Party president move on his very first day in office to cancel such an environmentally responsible project committed to investing $1.7 billion in new energy capacity projects, one that planned to use union labor to boot? It’s a valid question, but the answer is pretty obvious: Opposition to Key-

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SHALE MAGAZINE  JAN/FEB 2022

stone XL has been one of the main goals of the anti-fossil fuel lobby for a decade now, and no promises made today will change that fact. Yes, TC Energy has been able to build out the vast majority of the overall Keystone XL System and place it into service in the U.S., but the northern extension into Canada facilitating movement of oil sands crude into the U.S. was, for the environmental left, a bridge too far (even though, in a bit of irony, the cross-border portion of the line was already constructed and in place when Biden issued his order). With the stroke of a pen, a sitting American president told a private company that the $8 billion in investments it had already made related to a key infrastructure project did not matter and that it would have to just eat that money despite the fact that it had not been found to be in violation of a single U.S. law, regulation or permit. That is truly extraordinary, an outright authoritarian action by any measure. And it was all about political payback. As Barack Obama famously said in 2009, elections have consequences, and the cancellation of a key piece of America’s first truly all-renewable oil pipeline systems ended up becoming one of the consequences of the 2020 presidential election.

IGNORING A COURT DECISION RELATED TO BIDEN’S LEASING BAN Even adverse decisions in the U.S. courts do not appear to affect the administration’s drive to punish what it obviously sees as a disfavored industry. Secretary of Interior Deb Haaland’s (herself a longtime anti-oil and gas activist) long efforts to enforce Biden’s ban on the conduct of new federal lease sales is a prime example. Shortly after that order was issued in January 2021, 13 state attorneys general filed a suit in a Louisiana federal court challenging its constitutionality. On June 14, the judge in that case issued a decision overturning that order, applying it nationwide. In his ruling, the judge stated that the plaintiff states had established that they would suffer severe economic harm due to the leasing ban, noting that “Millions and possibly billions of dollars are at stake." In a statement following the judge’s decision, an Interior Department spokesperson said the agency would issue a report that "will include initial findings on the state of the federal conventional energy programs, as well as outline next steps and recommendations for the Department and Congress to improve stewardship of public lands and waters, create jobs, and build a just and equitable energy future." The industry celebrated this victory, with Louisiana Attorney General Jeff Landry calling it "a victory not only for the rule of law but also for the thousands of workers who

produce affordable energy for Americans," but the celebration was short-lived as the Interior appeared to be taking no real action in response to the judge’s order. In late July, Sec. Haaland claimed the ‘report’ would be coming soon. “We promised early summer,” Haaland said during a visit to Colorado. “It’s early summer. We’re still working on it.” Perhaps she was biding her time, waiting for the U.S. Senate to approve Biden’s nomination of his nominee to become the Director of the Bureau of Land Management, a long-time anti-development radical and alleged domestic terrorist named Tracy Stone-Manning. Ms. Manning spent years working for an anti-logging group that engaged in the practice of spiking trees with metal spikes, an act that endangered the lives of loggers working in the forest. In 1989, this group inserted 500 pounds of these spikes into trees in an Idaho forest in order to halt the operations there. She has been unapologetic for her actions, was what one agent called an uncooperative and evasive witness during FBI investigations and provided conflicting accounts of her involvement in these acts. One retired agent told reporters that she “absolutely refused to do anything” to help in the investigations. On the same day Haaland issued her statement regarding the report, Stone-Manning’s nomination was advanced from the Senate Energy and Natural Resources Committee on a straight party-line vote. Coincidence? Smart people don’t believe in them. Ultimately, Haaland, Stone-Manning et al. were forced by the courts to restart the federal oil and gas leasing program, but only after they had exhausted every procedural arrow in their quivers. In the process, they had made their point clear: This administration considers oil and gas to be a disfavored industry, and its apparatchik will spend four years working to limit it in favor of preferred industries like wind, solar and electric vehicles.

CONGRESSIONAL DEMOCRATS GO AFTER WASTEWATER DISPOSAL Congressional Democrats rolled out another frontal assault on the nation’s oil and gas industry in early summer, this time in the form of language contained in their massive CLEAN Future Act, sponsored by New Jersey Rep. Frank Pallone. As detailed in a report from Rice University’s Baker Institute, the language would reclassify returned water from oilfield drilling operations as a “hazardous waste” under the provisions of the federal Resource Conservation and Recovery Act (RCRA). From the Baker Institute report: Section 625 of the act holds particular importance, as it would task the administrator of the U.S. Environmen-

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SHALE MAGAZINE  JAN/FEB 2022

BBOURDAGES/STOCK.ADOBE.COM

The decision to kill Keystone XL on the administration’s first day was as symbolic as it was substantive, a signal sent to the climate alarm lobby that the hundreds of millions of dollars it spent funding the Biden/Harris campaign and campaigns of other Democratic candidates would be paid pack many times over

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tal Protection Agency (EPA) with determining whether certain oil and gas production byproducts — including produced water — “meet the criteria promulgated under this section for the identification or listing of hazardous waste” within one year of the bill’s enactment. 3 The EPA defines produced water as “the water (brine) brought up from the hydrocarbon-bearing strata during the extraction of oil and gas.” Such a change would do great harm to the upstream industry’s ability to get its business done. This brine — which is basically all that’s left once any solids have been removed from the returned water — has always been disposed of in Class II disposal wells, which exist in the tens of thousands across the country. Such wells are regulated by state agencies like the North Dakota Industrial Commission, the Oklahoma Corporation Commission and the Texas Railroad Commission. But this reclassification would require the water to be disposed of in Class I wells governed by the U.S. EPA and its delegates, like the Texas Council on Environmental Quality. As the Baker Institute points out, only a few hundred such wells currently exist in isolated pockets, most along the Gulf Coasts of Texas and Louisiana. If your goal is to damage the U.S. domestic oil and gas industry, this is a fairly ingenious approach. As the report’s authors point out, the language in the bill envisions a short timeline for implementation that would afford the industry little time to adjust. One industry executive I contacted said the change would be “potentially disastrous” for the business. While it all sounds quite dire, one elected official in Texas was not so sure. Given his background in the waste disposal business and his current status as one of the state’s three members of the Railroad Commission, I contacted Commissioner Jim Wright to get his thoughts on the subject. Though he acknowledged the seriousness of this proposed change, he was a little more sanguine about the industry’s ability to cope with anything that comes down from Washington over the next few years. “I think we are in for a crazy four years. There is going to be a lot of stuff thrown at the wall — what sticks, I’m not real sure,” he said. “If this does come to reality in whatever fashion, I think that our industry will adapt.” Not an unreasonable presumption given the industry’s long history of successfully adapting to a constantly-changing regulatory environment. Wright pointed out that advances in technology in this century have enabled the industry to create uses for the returned water that are viable and scalable. He focused on two in particular: “One is for re-fracking, and the second is to utilize it for irrigation. We have seen a lot of development of technology related to both,” he said. “We are going to be looking very hard at trying to simplify the process of encouraging recycling of that water.” While Commissioner Wright’s optimistic outlook has a strong basis in fact for many companies, there is no ques-

SHALE MAGAZINE  JAN/FEB 2022

tion that if passed, this provision would have a significant impact on some operators’ ability to get their business done. This, of course, is the reason why it is being pursued by Biden and congressional Democrats. As of the end of 2021, the CLEAN Future Act was still pending on the agenda of the House Energy Resources Committee. Some of the language contained in this bill was also included in the larger “Build Back Better” welfare state expansion and Green New Deal funding bill sought by Biden. That bill was also stalled at the end of Biden’s first year in office. At a rare press conference held on January 19, Biden promised to break the BBB bill down into smaller chunks, and hoped to start moving those through the congress as part of his legislative agenda for 2022. We can be sure that this effort related to Class II disposal wells will rear its head again during the course of the year.

DEMAGOGUING THE INDUSTRY ON MYTHICAL TAX “SUBSIDIES” ONE MORE TIME Nowhere has the intensification of this war on oil and gas become clearer than in Democrats’ current efforts to raise taxes on the industry. In its “Green Book” related to the administration’s “Build Back Better” bill, the Treasury Department uses this coded language to describe one of the overarching goals of the program: “Replacing fossil fuel subsidies with incentives for clean energy production.” This, of course, is nonsense, as I have written many times over the past decade. It is a simple fact that the oil and gas industry does not receive “subsidies” of the type that wind, solar and electric vehicles enjoy, i.e., direct transfer payments from the government to enormous corporations like Tesla, General Motors and Ford, totaling billions of dollars every year. Some in the industry — mainly small producers and royalty owners — do benefit from the expensing of intangible drilling costs, which is similar to appliance manufacturers or pharmaceutical companies expensing their own cost of goods sold every year. Small independents and royalty owners also benefit from percentage depletion, a provision that is similar to the depreciation of inventory in other industries. Despite these realities, Biden proposed to single oil and gas out by repealing those oil and gas-related provisions, which have existed in the tax code for more than a century, along with every other tax treatment in the IRS tax code specific to the industry today. In all, the Green Book contains

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a whopping total of $147 billion in new industry taxes, which would negatively impact mainly the red states where oil and gas are produced in the U.S.: Texas, Alaska, Wyoming, Montana, Louisiana, North Dakota, Ohio and Pennsylvania. In most respects, it is the same nakedly political move that was attempted during all eight years of the Obama/Biden administration without success. We’ve seen it all before, most of it, anyway. One clever new means of attacking America’s oil and gas industry is the proposal by the administration and many congressional Democrats to double the rate of taxation from a little-known tax provision called the Global Intangible Low-Taxed Income (GILTI) tax. Created as part of the 2017 tax reforms, GILTI was originally intended as a way to tax companies that move their intangible assets — like intellectual properties — overseas to lower tax-havens. The tax was specifically intended to target industries like pharmaceuticals and technologies in which companies have easily moveable, intangible assets. International producers in the energy industry have become unintentional collateral damage of the tax. The industry is capital intensive and has tangible assets. Companies have to operate where the resources exist in the ground, often in far-away countries like Niger, Guyana, Gambia and Suriname. They are not operating overseas as a way to game the tax system. Responding to the GILTI proposal, Jessica Boulanger, a spokeswoman for the Business Roundtable, said, “The potential international tax increase is as large as any corporate rate increase and at least as damaging for the competitiveness of U.S. companies because it hurts their ability to compete in foreign markets head-to-head with foreign companies whose countries don’t impose such a tax.” The Biden/Democrat proposal to double the rate from 10.5% to 21% would make U.S. companies less competitive in the global marketplace, likely raising little real new tax revenues to the government as companies sell off international assets. It’s a fool’s game entirely designed as a punitive measure on a disfavored industry, the sort of policy move one would expect to see from authoritarian governments in third-world countries. But this is not some third-world country. It is the United States of America, and the domestic oil and gas industry must find ways to survive this increasingly authoritarian government for at least another three and a half years. As Commissioner Wright told me, these years truly are going to be crazy.

WHERE DOES BIDEN GO FROM HERE? It’s a very interesting question, one that was not entirely clear as Biden’s first year in office ended on January 20, 2022. His Build Back Better bill was dead, stalled in the Senate thanks to the steadfast opposition of West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Sinema. As the Chairman of the Senate Energy Committee, Manchin wields tremendous power over legislation related to energy policy. Given that Build Back Better contained roughly $600 billion in new subsidies for “green” energy sources as a part of Biden’s Green New Deal agenda, much of which would work to damage the coal and natural gas industries that are so crucial to the economy in his home state, Manchin was never able to reach any compromise with the radical leftists who have made those subsidies among their top legislative priorities. No one should think that Manchin is steadfastly opposed to such subsidies, though; he just wants to ensure they are “paid for” by offsetting taxes in congress’s arcane scoring system conducted by the Congressional Budget Office. In Mid-January, E&E News reported that Manchin had told them he supports some of those provisions but that he was not currently engaged in any negotiations on breaking them into a smaller

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package with other Senate Democrats or the White House. Sinema has also expressed support for many of these Green New Deal subsidy provisions. So the possibility remains that much of that subsidy money could come back up for congressional consideration during 2022. This is really central to the Biden agenda on energy and the environment. That $600 billion was designed to fund efforts to try to reach the absurdly unrealistic targets Biden had set in early 2021 for expansions of wind and solar in the nation’s power grid and to subsidize more charging infrastructure for electric vehicles, as well as consumer purchase of them. For example, one of the major subsidy provisions would provide for a federal subsidy of $12,500 per EV purchased. That would be in addition to the federal, state and local subsidies already in place. Another would create a $65 billion slush fund for buildout and expansion of transmission lines dedicated solely to bringing electricity generated by wind or solar power to distant markets, even though few such projects have even been identified as needed at this point. Another $213 billion would be dedicated to retrofitting homes and businesses to meet green energy standards, again without having identified a specific list of major projects to be funded in advance. Make no mistake about it, none of these “green” energy things are going to happen without the subsidies since so few are profitable enterprises that would be funded by private equity during the normal course of business. The only way any of them could become profitable would be for the cost of energy generated by oil, natural gas, coal and nuclear to become more expensive in the marketplace than these “green” energy sources happen to be. And it is once one understands that reality that one quickly realizes why every energy policy this administration and congress have pursued has been designed to make those traditional sources of energy more expensive. That’s part of the plan. So, when we look ahead to what the Biden energy policy is likely to look like going forward, we only really need to look at the parts of it that he was unsuccessful in enacting during 2021. It will be a continuation of the same policies and spending plans, only the effort related to policy work will now shift away from congress to the federal regulatory agencies. The massive spending plans that were all crammed into the Build Back Better bill will now be broken up into smaller pieces and either moved as stand-alone bills or by attempting to attach language to other legislative vehicles. The problem the administration and congressional Democrats will face there will be the fact that they also failed to revoke the Senate filibuster rule for budget-related bills in January, thanks to the opposition of the same two moderates, Senators Manchin and Sinema. So, unless they can succeed in attaching all the subsidy language to an omnibus budget package at some point, they will need to figure out a way to get to 60 votes in favor of such profligate spending. That means they would need at least 10 Republicans, perhaps as many as 12, should Manchin and Sinema continue to be holdouts. All of which adds up to this final conclusion: At the end of his first full year in office, Joe Biden’s disastrous energy and environment agenda cannot be said to be fully dead. But it is on the legislative equivalent of life support, and so long as Manchin and Sinema don’t have changes of heart, its prospects for ultimate survival will become increasingly dim with every passing day during 2022. With Republicans looking likely to reacquire strong majorities in both houses of Congress in November’s midterm elections, whatever hasn’t passed by Election Day will safely be declared officially dead then.

It is the United States of America, and the domestic oil and gas industry must find ways to survive this increasingly authoritarian government for at least another three and a half years

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INDUSTRY

Riding the Wave – How Oil and Gas Deal Trends in 2021 are Shaping the Future of Dealmaking in 2022 By: Seenu Akunuri, PwC US Oil & Gas Deals Leader

2021 was another tumultuous year across many different parts of the energy industry, with businesses of all sizes finding new ways to adapt their operations in the face of ongoing disruptions and uncertainty caused by the COVID-19 pandemic. For the oil and gas (O&G) sector, and particularly for dealmaking within O&G, the pandemic accelerated trends that had been gradually emerging. Many of these industry movements are addressing attitude shifts toward the expansion of renewable energy options, pressure for lower-carbon technologies, and realigning of assets across the O&G space. In December, PwC released our 2022 Deals Outlook, which examines how dealmaking in 2021 could affect the future of deals in 2022. Overall, the unrelenting pandemic created a need for

flexibility in dealmaking in 2021, as seen in the deal structures. We saw deal volume increase to prepandemic levels, as the number of deals (152) exceeded those in 2019 (134). O&G deals in 2021 totaled more than $130 billion. This rebound foresees continued levels of high transaction volume in 2022, especially given that the volume of deals greatly increased in the second half of 2021. This increase was particularly present in upstream, where the majority of growth occurred in the past 12 months, bringing a wave of momentum to close out the year with anticipated growth continuing into 2022. While increases in deal volume and value give us optimism for 2022, companies should consider several key factors that emerged in 2021. One of the biggest trends we’ve observed is how energy companies of all sizes have felt growing pressure from environmental, social, and governance (ESG) concerns, as well as shifts in public policy trends. This pres-

sure will likely encourage more fossil-fuel-related divestments and ongoing attention shifts toward expanding into renewable energy technologies. As a result, we expect 2022 deals to be driven by the re-

About the author: Seenu Akunuri is PwC’s U.S. Energy, Utilities and Mining Deals leader, where he consults with both audit and non-audit clients on valuation trends, hot topics and industry issues. With 20 years of worldwide business valuation experience, Seenu has built a solid reputation for solving complex valuation issues around mergers, acquisitions, divestitures and other domestic, global and cross-border transactions.

SHALE MAGAZINE  JAN/FEB 2022

positioning and optimizing of portfolios to adapt to changing markets and ESG trends, as well as an increased focus on two other areas that are commanding heightened attention within the industry: cyber security and infrastructure resiliency, as several high-profile cyber incidents caused disruptions throughout the O&G supply chain. These forced companies to re-examine their systems, upgrade their cyber security to protect assets, harden their infrastructure, and re-assess the resiliency of their cyber footprints. Throughout 2021, we saw the industry increasingly consider public policy initiatives focused on the reduction of carbon emissions and combating climate change as a dealmaking factor. This shift in public opinion trends was coupled with growing investor demands towards ESG-conscious business operations. It resulted in energy companies exploring options for adding renewable energy and cleantech assets to their energy mix. We expect this to continue to influence dealmaking in 2022, as expanding domestic policy initiatives look to favor renewable and efficient technology development aimed at incorporating these assets into upstream portfolios over more traditional energy production sources in O&G. We may also see further evidence of a trend toward the potential for large energy companies to either divest assets or move operations in response to evolving regulatory and tax policies. While there was momentum for greener energy previously, the pandemic has accelerated these efforts due to potential infrastructure investment initiatives and a renewed focus on climate change. If larger upstream companies divest existing assets to focus on ESG and greener investments, midstream and downstream companies may grow cautious in the next decade about committing to expensive projects. Last year we saw this transition into a prominent trend throughout O&G that will likely expand and continue to influence dealmaking in the years ahead. The future of dealmaking in 2022 for O&G should see companies considering these trends to influence their capital and investment decisions and operations to continue “riding the wave” of growth in O&G and across energy throughout the New Year.

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INDUSTRY

Biosurfactants are Ready to Boost Bakken Production By: Marty Shumway

he global oil market faces a number of challenges in its efforts to meet the growing demand for energy in profitable and sustainable ways. A current undersupply of oil in the market is a major contributor to rising oil and gas prices. And, as operators strive to increase their production rates to meet projected demand in the coming

SHALE MAGAZINE  JAN/FEB 2022

decades, they face a $600-billion shortfall in planned investment over the next ten years, experts predict. Adding to these challenges is a push by government regulators and capital providers for the industry to extract more oil in cost-effective ways while meeting net-zero emissions targets. Unconventional oil plays like North Dakota’s Bakken Shale face additional challenges in their

drive to meet these demands. For example, most shale plays — and the Bakken is no exception — typically only recover less than 10% of the original oil in place. Some horizontal wells drilled toward the center of the Bakken’s Williston basin over the past ten years have experienced decline rates of up to 85% in their first few years of production. The Bakken is unique in that

it is one of the most mature unconventional oil plays in North America. As such, there are thousands of mature producing wells that can benefit from an enhanced oil recovery (EOR) program to increase production in an operator’s existing asset base without the time and expense required to drill new wells. In tight oil plays, however, conventional EOR methods such as waterflooding, chemical

floods, gas injection and thermal methods can be capital intensive and operationally complex with long payback times. These realities are forcing Bakken operators to find new ways to boost production in declining shale wells and improve initial production in new completions. Any new innovation would ideally help North Dakota recover its position as a leading oil producer while helping operators reach the state government’s net-zero carbon goal by producing low-carbon, low-cost barrels of oil. A Sustainable Solution North Dakota’s government has taken a role in helping the oil and gas industry boost production against a backdrop of growing economic and ESG challenges. The North Dakota Industrial Commission (NDIC), which is charged with conducting and managing certain utilities, industries and business projects on behalf of the state, approved a grant in early 2021 to trial a novel class of green biosurfactants in shale wells. These surface-active agents are sourced from naturally occurring, renewable agricultural raw materials — many of which are native to North Dakota. Environmentally friendly, the biosurfactants biodegrade into materials that are not harmful to the environment and are produced with a near-zero carbon footprint. In addition to their ESG-friendly properties, biosurfactants generally possess highly complex molecular structures, giving them superior multifunctionality and sustainability compared to more conventional, hydrocarbon-based surfactants. The most unique characteristics come from biosurfactants produced through fermentation. These biosurfactants have critical micelle

concentrations (CMCs) of less than 50 ppm, a fraction of the 100-500 ppm CMC range of their conventional surfactant counterparts. This typically results in lower treatment dosage rates required to mobilize oil or penetrate and disperse deposits. The smaller size of their micelles (as low as 1-2 nm) allows biosurfactants to penetrate a shale reservoir rock’s nanopores, which are inaccessible to larger surfactant micelles (typically 100 nm). Once in the nano-sized rock matrix, biosurfactants deliver faster and lower interfacial tension reductions and alter the wettability of the rock — translating to higher efficacy in mobilizing oil at much lower dosages. Laboratory and field studies confirm that biosurfactants remove more trapped oil at as little as 1/10th of the dose rates of conventional surfactants. Biosurfactant treatments are also longer-lasting, possessing superior reservoir adsorption and retention. The biosurfactants slowly desorb over time, allowing increased production levels from a treated reservoir to be maintained for many months after a single treatment. These unique adsorption/desorption characteristics, coupled with their low dose rates and no need for expensive surface equipment, allow operators to realize a two to three times return on their investment in a few months. Proving Its Potential From the Permian to the Appalachian, biosurfactants from oil innovation company Locus Bio-Energy Solutions have consistently outperformed traditional surfactants in hydraulic fracturing and EOR applications — and at a fraction of the cost and environmental impact. These successes convinced the NDIC to authorize a grant to Creedence Energy

A novel green technology is showing promise in helping the Bakken Shale reclaim its position as a top producer with the development of low-cost, low-carbon barrels Services for the use of Locus BioEnergy’s biosurfactants in several wells throughout the Williston Basin. The trials, which began in the first quarter of 2021, are aimed at evaluating the biosurfactants’ ability to increase oil mobility, boost production from declining wells and improve initial production (IP) in newly completed wells. Just four months after the first treatment in two declining wells, the biosurfactants increased per-well production by more than 1,700 barrels of oil — a 70%-plus production increase compared to pre-treatment levels. Based on current oil prices, this treatment has generated more than $140,000 in additional revenue per well. This early success convinced Creedence Energy Services to sign an exclusive agreement with Locus Bio-Energy Solutions to distribute the biosurfactant treatment to fields across the Williston Basin. As part of this new agreement, Creedence has begun exploring biosurfactant use in other applications, including initial frac jobs in new well completions and expanded re-frac operations. A mature well was re-fracked with a biosurfactant treatment and compared to two analog wells treated with hydrocarbon-based

surfactants. At 75 days after the re-frac, the biosurfactant-treated well produced over 3,500 barrels of additional oil. This was a 16% increase in production compared to the performance of the two surfactant-treated analog wells, which produced an average of 21,874 barrels of oil in the same time frame. This production increase translated to more than a quarter of a million dollars of revenue that would not have been realized without the biosurfactant. Sustainable production gains such as these are a clear indication that biosurfactants can help operators achieve their goals of boosting production from declining and new wells alike while lowering their costs to weather fluctuating oil prices. Locus Bio-Energy’s sustainable, cost-effective, and production-enhancing biosurfactant solutions have received industry accolades and awards in recent years, including an emerging technology of the year from S&P Global Platts, a top upstream solution from World Finance. The new partnership between Creedence and Locus Bio-Energy Solutions shows promise in helping the Bakken Shale reclaim its position as a top producer with the development of low-cost, low-carbon barrels.

About the author: Martin (Marty) Shumway is a licensed Professional Engineer (PE.72266), Certified Petroleum Geologist (CPG #6025) through AAPG and an industry speaker with more than 20 years of experience in the mining and petroleum industries. He currently serves as a Technical Director for the globally recognized biosurfactant company, Locus BioEnergy Solutions. He earned both his Bachelor’s and Master’s degrees in Engineering from The Ohio State University.

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INDUSTRY

With the Spread of Omicron, 2022 Employment Outlook is Still Unclear

he employment picture for 2022 remains cloudy thanks to mutations of COVID-19, most recently with the omicron variant. Since March 2020, prognosticators have tried to pinpoint when things will return to normal or, failing that, what the new normal will look like. While no definitive answers are available, pieces of the picture are starting to emerge. Unemployment rates in San Antonio are not quite at pre-pandemic levels, which hovered at around 3% in early 2020, but they are closer now, falling from double digits in April 2020 to just below 5% in October of 2021. However, the nature of work and the types of jobs held by workers has and continues to undergo change, causing a widespread reevaluation of work-life balance and the unspoken agreement between capital and labor. In many instances, underemployed workers have taken the opportunity to trade up to higher-paying jobs with better working conditions and benefits packages. Expect to see more of the same in 2022. The types of jobs currently in demand both locally and nationally include higher and lower skill levels across several industry sectors. Among those are health care, construction, delivery services, IT application development, essential goods retailers, contact tracers and telecommunications. These represent just some of the areas that have seen worker demand surge in the face of the

SHALE MAGAZINE  JAN/FEB 2022

pandemic. Other sectors such as restaurants, lodging, sports and concert venues continue to recover as well, though more slowly and unevenly. COVID-19 and associated new working conditions inadvertently gave working folks the opportunity to reexamine their lifestyles. According to anecdotal evidence compiled by Richard Sifuentes, director of the UTSA Small Business Development Center, many gig workers prefer the ability to set their own hours, as opposed to adhering to a fixed schedule at a fixed location. The increased demand for delivery services, among others, has clearly boosted opportunities for these workers, but such jobs lack health care coverage and other important benefits. The City of San Antonio SA: Ready to Work program – the successor to the Train for Jobs SA initiative – beginning in early 2022 seeks to skill up San Antonio’s workforce in order to provide access to quality jobs. Analysis undertaken by UTSA indicates that lack of economic inclusion costs the city between $2 to $10 billion annually in gross metropolitan product. With an overall metropolitan product of around $132 billion, lack of economic inclusion represents a significant drag on overall economic output. Some employers have responded to worker shortages in a more traditional manner by increasing wages, vacation time and sick leave. While the most visible examples locally are large

Since next year seems almost certain to hold additional surprises, planning for predictable events will better prepare us for those harder to forecast

MAHA HEANG 245789/STOCK.ADOBE.COM

By: Thomas Tunstall

companies such as Frost Bank and USAA, evidence suggests that smaller employers are taking similar steps. In the near term at least, workers enjoy greater leverage than in past years. How long that trend will continue remains unclear. Many legislators were reluctant to sign on to relief packages even

in the early stages of the pandemic, and this past December, legislation designed to provide additional relief to beleaguered workers stalled in Congress as pressure mounts to roll them back. These include the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in 2020 and the $1.9 bil-

lion COVID-19 Relief Bill passed in 2021 — both of which seek to assuage the impact of COVID-19 on workers. Despite recent inadvertent gains by workers — the result of pandemic relief efforts — it’s worth noting that over half the employees in the U.S. still live paycheck to paycheck. This is especially true for residents of San Antonio, which lags in disposable income after living expenses per capita in every city in Texas except for McAllen. Clearly, economic rewards have not been shared equally across society. For example, if the minimum wage had kept up with increases in productivity, as had been the case between World War II through the 1970s, it would pay more than $20 an hour. If the minimum wage had kept up with increases in senior executive pay, it would be north of $30 an hour, and if the base wage had kept up with Wall Street bonuses, it would be over $40 an hour. These are eye-opening comparisons. While folks on the street may not necessarily be able to articulate these statistics, they certainly know that income increases have flowed primarily upward. The long-overdue conversation about the division of economic rewards has bubbled to the surface, now apparent for all to see. If workers have struggled to maintain standards of living on the one hand, investors, on the other, have fared very well indeed. Large corporations invested significant amounts of cash into stock

buybacks and dividends, in many cases, far in excess of earnings, something made possible only by Federal Reserve-fueled lowinterest rates. So, although investors benefited before, during, and after the pandemic, workers fell further behind. The recurring images of billionaires taking obscenely expensive joyrides into space simply serve to stoke class antipathy even more. In this unprecedented environment so favorable to investors and senior management, their complaints regarding worker shortages at $7.25 an hour begin to ring hollow. The ongoing friction caused by widespread income and wealth inequality festering in the background for decades has been brought center stage by COVID-19. For 2022, things could take a turn in any number of directions. The omicron variant promises to inject still more uncertainty into the economic picture for at least the first half of the year, perhaps longer. The possibility of another variant emerging looms large as well. Even more troubling, the next shoe could drop from some altogether unexpected quarter, delaying full economic recovery into 2023 or beyond. For now, we should hope for the best, prepare for the worst and – above all – get vaccinated and wear those masks. Since next year seems almost certain to hold additional surprises, planning for predictable events will better prepare us for those harder to forecast.

About the author: Thomas Tunstall, Ph.D. is the senior research director at the Institute for Economic Development at the University of Texas at San Antonio. He is the principal investigator for numerous economic and community development studies and has published extensively. Dr. Tunstall recently completed a novel entitled “The Entropy Model.”

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POLICY

How Energy Ignorance Leads to Cost Increases On Everything

s the year 2022 begins, the U.S. domestic oil and gas industry stands poised for a major boom year. The Baker Hughes active rig count rose back above 600 in January, still well below the highs of 2016 through 2019, but a far healthier level than the depths under 200 seen during the COVID bust of 2020. As is almost always the case, this new boom is driven by high commodity prices. The price for West Texas Intermediate topped the $85 per barrel mark in midJanuary, double its level from a little more than a year before, and all signs are that it will continue rising throughout 2022, barring a major global recession or a renewed COVID-related pandemic. Demand for crude globally continues to outpace all analyst projections (You’d think they would learn sooner or later to adjust their always-wrong expectations.), as does demand for natural gas. Demand is especially strong for oil and gas produced in the United States, as evidenced by the fact that exports of both commodities produced in America set new records during the 4th quarter of 2021. Where crude oil is concerned, much of that U.S.-centric demand is the result of many of the OPEC+ countries struggling to meet their production targets as they run out of spare producing capacity. That

SHALE MAGAZINE  JAN/FEB 2022

is not a problem here in the United States, where the Energy Information Administration (EIA) projected in its January update that producers would increase production by 1 million barrels per day during 2022. That is certainly achievable, and it could go even higher if predictions of $100 oil by the likes of Goldman Sachs, J.P. Morgan and others come about during the year. Frankly, I think we’ll be there well before summer, and a $150 per barrel price is not out of the question later in the year. With the industry having massively underinvested in the finding of new reserves since 2015, thanks to the capital-constraining efforts of the ESG investor community, the sky literally is the limit where oil prices are concerned in the years to come. Demand for LNG is being particularly driven by the growing energy crisis in Europe, as countries like Germany, France and the UK begin paying the price

for their stupid policy decisions of the last 15 years that have led to a massive over-reliance on unreliable, intermittent wind and solar energy sources. Again, much of this dumb decision-making can be attributed to the whims of ESG investors and the radical left-wing environmentalist community. It’s all basically a plague of stupid energy policy on our society, driven by the upper 1/10th of 1/10th of 1 percent of the global elite who set unrealistic global environmental targets and goals at conferences like the Paris Climate Accords of 2015 and last year’s COP 26 Conference held in Glasgow, Scotland. They all fly into these European cities in their private jets — or, like Leonardo DiCaprio, sail there on their 417 ft. long yachts — attend all the receptions and $1,000 dinners, make inflation-causing decisions for everyone else, and then fly home carrying the $25,000 gift bags that are handed out. Governments in North America,

We all moan about the 50% rise in gasoline costs we saw in the U.S. during Joe Biden’s first year in office, but few of us are aware that the real cost of solar and wind power rose even more than that during 2021

the EU and some parts of Asia then go about enacting braindead energy policies designed to allow politicians like Joe Biden and John Kerry to signal their virtue to the globalist leaders like UN Secretary-General Antonio Guterres and International Energy Agency chief Fatih Birol — and, of course, DiCaprio and Al Gore — and the result is the outrageously high cost of all forms of energy we see impacting our society today. We all moan about the 50% rise in gasoline costs we saw in the U.S. during Joe Biden’s first year in office, but few of us are aware that the real cost of solar and wind power rose even more than that during 2021. Even fewer of us are aware that the price for lithium — one of an array of critical minerals that must be available for electric vehicles (EVs) and wind and solar to exist — rose by a somewhat amazing 477% during the same 12 months. That is not a typo. Why does that matter? It is because the EV industry has irrevocably tied itself to lithium-ion battery technology, for starters. Every increase in the price for lithium inevitably results in a higher price for that Tesla or Ford F-150 Lightning you’re thinking about buying. Lithium is also one of the critical minerals that goes into the manufacture of every solar panel and the wind turbines atop all those 500 to 700 ft. tall wind towers you see covering West and

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By: David Blackmon

South Texas now. Plus, the vast preponderance of what little battery backup storage capacity for wind and solar that exists today is of the lithium-ion variety, although some companies are working on scalable alternatives. Here’s the real dirty secret that no one in the renewables or EV industries wants you to be aware of: Last July, the IEA projected that, in order to meet its laughably unrealistic climate change goals, demand for lithium globally would need to increase by 900% just by 2030. If that seems unrealistic to you, then you should know that IEA also projects that lithium demand would further need to rise by 4,000% (again, not a typo) by 2040. Yet, we see none of the governments in North America, the EU or Asia outside of China doing anything to ease restrictions on the permitting of mining and evaporative operations for the production of more lithium within their borders. The most recent lithium-related news item was of the government in Serbia canceling the permit of a planned multi-billion dollar Rio Tinto mine in response to the protests of the leftist environmentalist movement. With China firmly in control of more than 90% of the global supply chain for lithium and other critical minerals, the Biden administration promised in June of last year to mount a “whole of government” approach to securing the supplies and supply chains for future U.S. needs. If it has made any progress on that effort in the intervening nine months, it has not made anyone aware of it. It is more than likely that nothing has been done. Literally. The big news recently out of Europe is that governments there have been scrambling to secure supplies and supply chains related not to lithium but for … natural gas. Because the real crisis facing Europe this winter is how to keep the lights on and homes heated as wind and solar continue to fail to deliver on their unrealistic promises that were

made to secure hundreds of billions of dollars of virtue-signaling government subsidies. The end result of all this policy insanity is higher prices for all forms of energy for everyone. Higher prices at the pump, higher utility bills and higher transportation costs that raise the retail prices for every consumer good. It is all a hidden tax caused by these stupid, virtue-signaling politicians that hit the poorest in our society the hardest. You would think that at some point, all

the liberals among us would find it within their souls to care and stop electing energy idiots to office. But in this world of the Biden administration, that obviously has not taken place yet.

So, word to the wise: Just prepare yourselves to keep paying more because this administration of energy idiots has three more years to go.

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POLICY

THEY HAD NO IDEA By: Bill Keffer

t is an observable truism that rejecting a reality does not result in removing that reality; it only makes the person doing the rejecting look ridiculous. One wonders if, years from now, social commentators will scratch their heads in confusion regarding our concerted and seemingly relentless effort to refuse the abundant, affordable, powerful energy resources of oil, natural gas and coal in exchange for energy poverty and economic upheaval — all in the name of an undeniably uncertain belief that we can influence the global climate in any meaningful way, if at all. Will our descendants look favorably upon our decision to precipitate economic recession or depression, poverty and death from inadequate access to energy, electricity and fuel in the short term — indeed, in real-time — because we believed we could stop or slow down hurricanes, tornados, wildfires, floods, droughts and every other unwelcome event in Mother Nature’s arsenal? The deleterious effects of energy poverty are demonstrable and certain; whereas our ability to change weather patterns could be fairly characterized as “not so certain.” I just started a new semester, teaching a brand-new group of law students in my Oil & Gas Law I course. As I often do, I surveyed

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the students regarding their familiarity with oil and gas and their knowledge about the pervasive roles that oil and natural gas play in our twenty-first-century economy in the form of electricity, fuel and an endless list of manufactured products. As part of the set-up for that question, I have my students read several articles and watch several videos that do a good job presenting the substantial ways in which oil and natural gas make modern life possible. I am always heartened to read the students’ responses. Invariably, they confess that they had absolutely no idea how important oil and natural gas are to absolutely everything we do every day. I only spend one day at the start of each semester to cover this topic, but if I didn’t do it, they would never know it. Admittedly, there is so much more to know, but at least I have opened the door for them to this reality, a reality that they now can develop further. While it is encouraging to add, even a few, to the number of those who are now aware, it is nevertheless disheartening to realize how many are not, and will never be, aware — and how many of those are affecting our energy policy. The Texas Oil & Gas Association (TXOGA) just released their Annual Energy Economic Impact Report for 2021, and it is, once again, a sobering reminder of

just how much the oil-and-gas industry contributes to the Texas economy. It would be informative, educational and refreshing to see the various media outlets publish this information for the general population. My guess is, however, that you will be reading about it this one and only time in my column in this industry magazine. Well, if nothing else, please forward this information

to your friends and colleagues yourself; sometimes, self-help is the only option. TXOGA’s report states that the oil-and-gas industry paid a total of $15.8 billion in state and local taxes and state royalties in 2021, which translates to $43 million every day. There is no other industry that can make such a representation. Adding it to totals from past years dating back to 2007, which

The Texas Oil & Gas Association (TXOGA) just released their Annual Energy Economic Impact Report for 2021, and it is, once again, a sobering reminder of just how much the oil-and-gas industry contributes to the Texas economy

is only 15 years (when TXOGA started tracking this data), that comes out to $178.7 billion. Not to state the obvious — but that’s a lot of money. The oil-and-gas industry also employed 422,122 Texans in 2021, which is an even more impressive number, given the effects of COVID and the adverse policies of the Biden administration. Employees in the

oil-and-gas industry were paid an average of $108,988 per job in 2021. Employees in other private sectors averaged only $63,027 per job. An oil-and-gas industry employee paid more than $37,000 in state and local taxes and state royalties, on a per-employee basis. TXOGA states that this amount is 6.3 times more than any other private sector paid on a per-employee basis. Every direct

job in the oil-and-gas industry created an additional 2.2 indirect jobs. In other words, in addition to all of the benefits we derive from oil and natural gas, its employees also carry a substantial portion of the public-sector load. State-owned lands with oiland-gas production generated almost $1 billion in royalties for the Permanent University Fund, which benefits the University of Texas and Texas A&M University systems. They also generated $1.1 billion in royalties for the Permanent School Fund, which benefits K-12 in our public schools. On a more local basis, independent school districts received almost $2 billion in local property taxes from the oil-and-gas industry. Counties received $640 million in local property taxes from the oiland-gas industry. Another significant, but typically unknown, way in which the oil-and-gas industry benefits all Texans is by paying into the Economic Stabilization Fund (aka the “Rainy-Day Fund”). This fund was created in 1988 by an uncharacteristically visionary state legislature, and its revenue comes from the severance tax imposed on oil and natural-gas production. In 2021, the oil-and-gas industry paid another $1.1 billion into the fund, bringing the current balance to over $10 billion. In its 33-year existence, the oil-and-gas

industry has paid over $18 billion into this account. Funds from this account have been used to pay for public schools, transportation projects, future water infrastructure needs, disaster recovery, and more. It has been very comforting to know the state has such a rainy-day fund; it would also be nice for Texans to know where that money comes from. Texas is the number-one producer of crude oil and natural gas in the U.S. The TXOGA report states that Texas accounts for 43% of the crude oil production in the U.S. We also account for 26% of the natural-gas production in the U.S. Texas also provides 31% of the nation’s refining capacity. Apart from the rest of the U.S., if Texas were its own country, we would rank third in the world in crude-oil production, behind only Russia and Saudi Arabia. For those in positions of leadership, authority and responsibility, who passionately but all too casually call for an end to oil and natural gas, one has to wonder if they have even the slightest concept as to what they are wishing for. A simple review of just how much the oil-and-gas industry meant to Texas in 2021 alone should be enough to give even the most ardent opponent of oil and gas some pause. If it doesn’t, how can they possibly be taken seriously?

About the author: Bill Keffer is a contributing columnist to SHALE Oil & Gas Business Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He also served in the Texas Legislature from 2003 to 2007.

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POLICY

If You Don’t Fight the Brush Fires, You Can’t Save the Forest By: Tom Shepstone

SHALE MAGAZINE  JAN/FEB 2022

Some things are worth fighting to the end because our very future depends upon them ready” and similar rationalizations. But that wasn’t the end of it. Emboldened by his success and lack of major pushback from the industry, the governor decided he didn’t need pipelines any more than he needed fracking. He methodically denied water quality certifications for pipeline after pipeline, killing two major ones and nearly killing a third. He did receive some resistance from one of the utility companies, but, during the final facedown, the latter blinked and decided to join Cuomo in discouraging gas connections. There were some lawsuits,

including a case one of the pipeline developers took to the Supreme Court where it won, only to almost immediately drop the project, the same thing happening with another project opposed by New Jersey. Everything that was gained at such a price was, in other words, thrown out the window, further emboldening governors of the Kathy Hochul mindset. Is it any wonder Hochul senses an opportunity to make political points with New York’s metro voters? It’s a virtually zero-cost way to burnish those environmental

credentials with the all-important urban voters of her state. Who can blame her? And, who would blame New Jersey’s governor for exploiting the same potential. We have made it incredibly easy for them and keep making it easier. The Delaware River Basin Commission, with the same governing majority as the Susquehanna River Basin Commission, just banned fracking. There is serious shale gas activity going on within the latter’s jurisdiction, and a blind horse can see what’s coming next. What is the industry response? Zippo, even though it’s

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he Empire State’s new governor, Kathy Hochul, wants to establish her environmental bona fides. So, what better way to get it done than to jump on the natural gas banning bandwagon as the first state to officially surrender to this absurdity? New York metro voters, after all, know no more about how their energy is produced than their food, and there are many more of them than Upstaters. And, the industry has already given up on New York, so there are only green plaudits coming your way if you are New York’s leader. This is the dilemma in which the natural gas industry finds itself today. It did nothing when Vermont banned fracking because everyone knows the Green Mountains had no shale. If the governor of Vermont is so stupid as to want to ban fracking or, for that matter, pineapple farms, why not let him? Except that Vermont was full of New Yorkers who understood the power of virtue signaling when the idea was to assemble a bandwagon. Then, New York State banned fracking. The precedent had been set, and no one was going to outdo then wannabe President Andrew Cuomo. The industry again did nothing. No lawsuit, no serious challenge of any kind to the then governor before or after the ban, which started out as a moratorium, became a ban “at this time” and finally a permanent ban. Once again, the rationale was “There isn’t much gas there anyway,” “We’ve got plenty al-

perfectly clear the battle should be fought now, not later. We have a recurring pattern, in other words. Don’t worry about the crazies in Berkeley who are banning gas appliances. Except every crazy idea starts in California, and New York is nothing if not a competitor in the worst publicpolicy olympics. It was a foregone conclusion New York would soon make a bid to ban gas when it

argument that New York needs to think about its energy security? Is anyone making it? No. Does New York really want to be more dependent on out-ofstate energy? Or, foreign energy in the pattern of Boston, which actually had to rely on Vladimir Putin’s LNG at one point? Do New Yorkers understand what shifting from gas to electric means, namely coal, gas, hydroelectric

made in two ways. First, by a public relations campaign aimed directly at those places where the crazy ideas emanate, places such as Berkeley and the Big Apple. No mush. No pablum. No appeasement. Just hard-hitting facts and explanations that help our city cousins in blue states appreciate the fact it is their apartments that could go cold if Kathy Hochul’s green dreams

began in California, and that bid would, of course, be substantially higher to grab attention. What to do? The short answer, of course, is to fight and take the battle to the enemy at the first opportunity when the forest fire is just a brush fire. Defending natural gas and the shale revolution needs to be fought by playing offense. Some 61% of homes in New York City, for example, are heated with natural gas, and residential consumption has been growing steadily as New York production has dropped just as steadily. Is this not a strong

and nuclear from elsewhere? Or, solar and wind farms in everyone’s backyard, including those of Manhattanites with second homes in an Upstate they don’t want disturbed? Is anyone making those arguments? No. Those arguments need to be

come true; it is their vacation backyards that will be covered with solar panels generating tiny amounts of energy, and their costs of living that will skyrocket. The other way to get attention, of course, is to sue, and there is not near enough of that. Instead,

the industry is surrendering at every turn and letting the opposition operate not only free in policymakers’ heads but also free of the real cost for their behavior. They are generously funded by nonprofit foundations operating with tax exemption. Sadly, absolutely nothing is being done about it except for those of us who blog and write about it, and we are forever preaching to the choir. What is needed, perhaps more than anything, are lawsuits challenging these tax exemptions, putting a heavy price on the abuse of tax exemption by those pushing the Kathy Hochuls of the political world to play one-upmanship with bans. And, it’s not too late to sue New York for its fracking ban, the DRBC for its ban or Berkeley for its idiotic gas appliance ban. This is a war, and we will not win it without fighting and fighting hard, recognizing that no opponent is unimportant or should be bargained away in a fit of pragmatism. Pragmatism, indeed, is too often our enemy. Does anyone imagine Andrew Cuomo was not seriously empowered when he lost his pipeline battle in the Supreme Court only to win the war as the company then dropped the project anyway? Some battles are costly, to be sure, but losing the war is far more costly. If we are serious about stopping all this banning, we cannot continue to operate purely on pragmatism. Some things are worth fighting to the end because our very future depends upon them. Cannot we admit that the banning of natural gas appliances is an existential threat that will not be diminished by surrendering territory? Cannot we muster the will to fight? It is a critical question. Even more to the point, if not now, when prices are high, when?

About the author: Tom Shepstone is the owner of Shepstone Management Company Inc., a planning and research consulting firm located in northeastern Pennsylvania. He has advised many counties in both New York state and Pennsylvania, as well as other states, on economic development strategies, especially as they relate to rural and agricultural areas. He is also the publisher of NaturalGasNOW.org, a blog focused on the same objective.

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POLICY

Economics be Damned and the Death Spiral of Subsidization: Understanding the Low-Infrastructure Infrastructure Bill By: Thomas J. Pyle

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and it’s barely an infrastructure bill — instead providing incalculable hand-outs and pay-fors in the more than 1,000-page text. Most of the money goes toward funding impractical pet projects, throws good money after bad or otherwise adds up to a colossal waste of resources. Although Biden and company have spent the last month and a half patting themselves on the back for creating “transformational” change, let’s take a look at what the bill actually spends money on. Passenger Rail Despite the fact that rail travel is impractical for the geography of most trips in the U.S. and possesses a waning ridership as well as untenable economics, this bill hands Amtrak $66 billion. The organization’s CEO, Bill Flynn, has already outlined his plans for the new funding. $44 billion will go toward the Federal Railroad Administration, for state-level grantmaking and for other rail projects. Additionally, the agency will use $22 billion to expand its fleet and make improvements across the system in what Flynn called “the largest investment of its kind since Amtrak was founded in 1971.” Although some of this money will go toward expansions in the Northeast corridor where the only profitable Amtrak lines lie, much of it will also go towards funding fundamentally uneconomical lines that connect destinations that are both geographically isolated from one another and are incapable of supporting a level of

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n November 15, after months of political maneuvering, President Joe Biden signed legislation that was billed as a monumental investment in America’s infrastructure. Other than his signature, however, most of the credit for its passage belongs to the other Joe we’ve heard a lot about lately, Senator Joe Manchin of West Virginia. He and his Democratic colleague, Senator Kyrsten Sinema from Arizona, along with a handful of Republicans, are the ones who provided Biden with the win on this legislation. Unfortunately, the only thing the bill will likely build is the profits of the special interests who lobbied tirelessly for it. During the negotiations for this and the associated reconciliation bill, the Democratic caucus was at war with itself for nearly a full year, with both its moderate and progressive members fighting each other for their respective pet provisions. In the end, it was Manchin and Sinema who prevailed. They were able to wrestle this bill from the clutches of House Speaker Nancy Pelosi. Manchin also announced, just in time for Christmas, that he was done negotiating with Biden on the larger “Build Back Better” reconciliation bill as it currently stands, effectively derailing the key legislative priority of President Biden and the progressives. The so-called moderates may have won the day, but the sweeping infrastructure agenda they passed is anything but moderate — spending $1.2 trillion,

With so little in this bill for actual infrastructure, like roads and bridges or moving energy to people who need it via pipelines, the moderates and President Biden should hardly be taking a victory lap ridership that would lead to longterm economy of the line. Although some of the money is earmarked for actual infrastructure improvements like the repair of aging bridges under the tracks and the maintenance and repair of existing tracks, it is more than likely that a large part of the money will be squandered in the end. But, hey, President Biden likes trains, and so do the Green New Dealers, so the economics be damned. Electricity Transmission The bill contains $65 billion for grid infrastructure, most of which is intended to go toward building new transmission capabilities to allow wind, solar and other renewables to wheel power from where the wind blows (sometimes) to where the people live. Since wind and solar can’t be transported like many mineral energies and must be generated and then immediately delivered, their expanded role in the grid would require the construction of massive new transmission infrastructure, especially long-distance high-voltage power lines. The construction of these new lines is not as straightforward as proponents of the forced energy transition would like. A case study of this exists in the form of a recent attempt by HydroQuebec to route transmission lines through Maine in order to deliver electricity to other areas of New England, namely Massachusetts. The people of Maine voted it down — with nearly 59% of voters opposing the provision on a ballot initiative. The spoilage of the state’s forests was referenced as a primary concern. Landowners simply don’t want to allow unsightly transmission lines to traverse their properties, and con-

structing these lines without their buy-in would require the utilization of eminent domain powers on a heretofore unseen scale. A proposal by HydroQuebec to bring the same hydropower into New England through New Hampshire was also rejected by a state committee in 2018. Increasing transmission infrastructure is not so simple as the government writing a blank check. These projects will come up against public resistance and will also have to fight their way through the National Environmental Policy Act’s (NEPA) regulatory morass in order to be built. Although the infrastructure bill establishes a “Grid Authority” to theoretically make the approval process for such projects go more quickly, it does nothing to address the underlying flawed process, choosing instead to work around some aspects of the broken system. The process is unwieldy, long and laborious, as well as being incredibly expensive. For Congress to authorize this scale of infrastructure spending without first working to ameliorate the regulatory costs involved is incredibly short-sighted. If the Biden crew really wanted to make good on their goal of building more transmission, they should have streamlined NEPA. But that is a non-starter for the greens, and so these funds will also likely be wasted. Electric Vehicles The bill sets aside $7.5 billion for little-used electric vehicle charging stations. Because the majority of EV owners are mainly wealthy coastal elites, this provision effectively subsidizes the travel of the upper and uppermiddle class at the expense of

everyone else. It also provides $5 billion for electric and hybrid school buses in an attempt to decarbonize school transportation. One major problem with these EV initiatives is that while we are forcing more vehicles onto the electric grid, problems with NEPA and other rules preventing new generation and transmission capacity from coming online aren’t being seriously altered to make those improvements a reasonable reality. Climate Resilience The bill also contains funds for vaguely defined “climate resilience” and research programs at the Department of Energy. It provides $50 billion for these resilience and cyber-security measures. The stated goal of this provision is to protect the U.S. from both cyber terrorism and extreme weather events such as fires, extreme heat and droughts. How specifically these aims will be achieved is largely unclear. This spending, in particular, seems to be characteristic of Biden’s “transformational” approach — throw money at it and see what sticks. Except this philosophy is hardly transformational when it comes to government spending. Mass Transit Mass transit utilization has been way down since March of last year, thanks in part to the Covid-19 pandemic resulting in more remote work and, therefore, fewer daily commuters. Weekly New York subway ridership was more than 35 million in December of 2019 but was down to just over 20 million in December of 2020. The same pattern can be seen across other city transportation systems. Many city residents are

avoiding tight spaces to reduce contracting variant viruses. But with ridership continuing to slide, the infrastructure bill has designated massive funds for them. Despite the massive nearly $90 billion outlay in the bill, some activists are still complaining that transit didn’t receive enough federal dough. Other Giveaways The bill also includes $5 billion in subsidies for existing nuclear plants to protect them from becoming uneconomical as the result of previous subsidies handed out to wind and solar. So, in essence, the government helped make nuclear uneconomical by lavishing wind and solar with subsidies, and now they want to lavish nuclear with subsidies in order to help them compete with wind and solar. I call this the death spiral of subsidization. At some point, it will be hard to tell whether the government is in charge of our energy choices or we are. But one thing is for certain, if this madness continues, we will all be paying more for our electricity, and it will be less reliable at the same time. Conclusion The infrastructure bill is so full of excessive and wasteful spending that it is impossible to cover every giveaway and subsidy. The ones described above are just some of the most expensive and have the greatest capacity to do harm to our economy. With so little in this bill for actual infrastructure, like roads and bridges or moving energy to people who need it via pipelines, the moderates and President Biden should hardly be taking a victory lap.

About the author: Thomas J. Pyle is the president of the Institute for Energy Research (IER), an energy think tank and the American Energy Alliance (AEA), a not-for-profit that engages in grassroots public policy advocacy and debate concerning energy and environmental policies at both the state and national level. He served as head of transition for energy under President Donald J. Trump.

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SHALE MAGAZINE  JAN/FEB 2022

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BUSINESS

How Oil Companies Can Maximize Their EHS/ESG Investments By: Shannon Lardi, IsoMetrix

any oil and gas companies have recognized the need for faster and more efficient business processes to compete in a more technology-driven world. Acting as a catalyst in this technological transformation are Environment, Health, and Safety (EHS) and Environmental, Social and Governance (ESG) programs. With a heightened global focus on sustainability and environmental responsibility, combining technology with EHS and ESG practices has become unavoidable. However, many companies are finding barriers to successful tech integration in these spaces — barriers they’ll have to break down to experience tangible success in future projects. EHS and ESG — key technology drivers Oil and gas executives are familiar with EHS and ESG efforts already because of the high-risk nature of the work and because oil and gas projects affect the local communities and environments in which they operate. The urgency surrounding these efforts accelerated in the last four to five years as the conversation concerning sustainability, and environmental responsibility has intensified globally. With this increased focus on corporate environmental practices and proper safety measures, more companies are embracing technological solutions that help improve their safety postures, their environmental impacts, and their capacity for transparency around these efforts. Many businesses are finding that the right invest-

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ment in the right solutions promotes cost savings, productivity and efficiency. Also, it becomes much more feasible to create metrics by which to measure ESG progress and efficiency and document feedback from community stakeholders. Tech advancements also make it easier to combine ESG practices — including ESG reporting — and EHS program management, a custom that is becoming more common for oil and gas companies. Unfortunately, many oil and gas companies discover barriers to adopting new ESG and EHS technology solutions — often selfimposed — which prevent them from reaping the benefits that integrated solutions can provide. Barriers to technological advancements Currently, the biggest barriers to tech advancement within oil and gas companies are the siloed approaches to technology or using different solutions in different parts of the organization. This creates a lack of integration and collaboration between those point solutions. The main cause of these silos is differences in specialization. For example, a company’s safety advisor may have adopted one solution to manage safety risks on-site, while an ESG project director may have selected a completely different solution to manage social risks. Creating silos hinders transparency across departments as it becomes difficult to share data. When oil and gas companies enable transparency through investment in a technological upgrade — specifically a more centralized technology solution — it ensures

a company’s resources are being used efficiently at any given moment. Upgrading also allows a holistic view of an ESG or EHS program to address any gaps or mitigate risks in the project. Another barrier to ESG/EHS technology transformation is an incorrect assessment of organizational readiness. Companies may have the desire to enhance their safety and sustainability efforts but overestimate their capability and preparedness to do so. This usually displays as: • Lack of commitment from key internal stakeholders • Lack of governance to implement and sustain the solution • Lack of scalability or buy-in from departments • Adopting a solution that doesn’t have all the necessary services • Inability to import historical data Removing these barriers will make each technology advancement the asset it’s meant to be. Overcoming integration barriers Companies will begin overcoming EHS and ESG technology barriers once they accurately assess their ability to implement new technology and begin implementing more flexible solutions. The key is integration. Implementing a centralized solution that can share data and address the needs of multiple specializations will make it possible to create seamless processes that span multiple projects. Legacy

systems, while familiar and comfortable, should not hinder integration. It may be preferable to try out a new technology solution if it enables integration across systems, thereby facilitating shared knowledge company-wide. Additionally, companies must be satisfied with starting small. Starting with more manageable projects and then scaling implementation appropriately will ensure there aren’t gaps in EHS and ESG practices. A phased roll-out of ESG and EHS software solutions will prevent wasting time and money on overly large technology implementation projects that the company is not quite ready to take on at once. It will also promote user adoption and user engagement. Masana Fuelling, a Scotlandbased petroleum solutions company, experienced the benefits of ESG and ESH tech advancement through an integrated solution. “When I joined Masana, there was no system in place to manage EHS requirements,” said Mashiza Zama, Health, Safety, Security & Environment Manager at Masana. “There were multiple, disjointed spreadsheets, and it was extremely difficult to collate data and get an accurate picture of what was really going on in the business.” Zama added that data was constantly getting lost, and records were nowhere to be found after completing analysis on a particular project. The company also found that conducting trend analysis was difficult. Working with an integrated technology solution allowed Masana to link its audits, risks and incidents, allowing the team

With a heightened global focus on sustainability and environmental responsibility, combining technology with EHS and ESG practices has become unavoidable

to see everything on one platform. “We can take more control of our risk management by being proactive,” Zama said. “We would not be able to do this without having all of our data in one place.”

Get the most out of your investment Removing barriers that prohibit ESG and EHS technological advancement allows oil and gas companies to use time and resources more efficiently. Not

only does this help ensure a better return on investment in new technology, but it also has the potential to reduce supplemental expenditures on utilizing third parties for data collection. Eliminating gaps in environmental and

sustainability efforts through more advanced, centralized solutions will enable safer projects, happier community stakeholders, and more transparency with investors.

About the author: Shannon Lardi is the Partner Enablement Manager at IsoMetrix, a leading integrated risk management software provider that provides ESG and EHS solutions. She started her career in the United States Marine Corps, working in Communication-Electronics where she developed a passion for driving efficiency with technology. Shannon spent nearly two decades at ExxonMobil, implementing business intelligence tools across the company. Her passion and expertise are focused on building lasting relationships and executing sustainable solutions for the good of the people and the communities we work in.

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BUSINESS

TAX PREP FOR THE INDIVIDUAL ROYALTY OWNER

mong the readership of this magazine are numerous oil and gas royalty owners. The April filing date for individuals will soon be upon us. In this article, we are going to discuss practical income tax considerations of owning royalty interest in oil and gas. This article will not be an in-depth discussion of all issues involved in oil and gas taxation. The difference in individual situations necessitates individualized professional advice. The goal of this article is to make you aware of some of the issues that might be involved in filing an individual tax return with oil and gas royalties, so you can seek advice. The two major types of interest for tax purposes are royalty and working interest. This article concentrates on royalty interest. Royalty interests generally are derived through land ownership. However, as time passes, surface rights are separated from mineral rights. Many times in Texas there are far more royalty owners on a tract than there are surface owners. The major methods through which royalty ownership is obtained are through land ownership,

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inheritance, gift or purchase. You will have a basis in your royalty depending on when and how it was acquired. With land, it would be an allocation of purchase price (or basis) based on the relative value of the royalty and surface interests. Inherited property would be based on the value at the date of death of the person you inherited it from. Purchase price would be the basis when you buy a royalty. In my experience, many small royalty owners never determine what their royalty basis is. This can be costly. When you sell or give away your royalty interest, then knowledge of your basis is important. Let us talk about depletion. There are two types: cost depletion and percentage or statutory depletion. Cost depletion is a simple mathematical computation (once you figure out what your reserves are). You take your lease basis and divide it by the petroleum reserves, which give you a cost factor for production, which you multiply by annual production. Percentage depletion is figured by taking a percentage of gross income from the property, currently 15%. At one time, it was 27 ½%, then it was lowered to 22%. The producer may deduct

the higher of cost or percentage depletion. Percentage depletion as well as cost depletion lowers the producer’s basis in the producing leasehold. Unlike cost depletion, which ends when basis gets to zero, percentage depletion continues as long as there is production from the property, but the basis is not reduced below zero. Many enemies of the petroleum industry complain mightily about percentage depletion and how unfair it is to give petroleum producers an off-the-top 15%

deduction from income. However, there are two provisions that limit the value of percentage depletion deduction to the taxable income from each property and the taxpayer’s total percentage depletion deduction cannot exceed 65% of the taxpayer’s taxable income computed before percentage depletion, certain carrybacks and Section 199A deduction. The first provision would generally not affect a royalty owner. The second provision could, in some cases, affect a royalty owner. However,

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By: David Porter

Many enemies of the petroleum industry complain mightily about percentage depletion and how unfair it is to give petroleum producers an off-the-top 15% deduction from income

when discussing the fairness of percentage depletion, let us not forget we are talking about a depleting asset here. The value of the property is reduced by each barrel of oil or MCF of natural gas produced. Royalty income for individuals is reported on page 1 of schedule E. Report the gross income reported on your 1099’s (assuming your 1099’s are correct); otherwise, you might get a matching letter from the IRS. Deduct your production taxes and gathering, transportation and other charges. Remember you compute percentage depletion on gross income. Especially with gas wells, the check stub difference between net and gross can at times be substantial. Also don’t forget your ad valorem or property taxes on the production. If it’s a tax on the value of your oil and gas well, it belongs as a deduction on schedule E not schedule A. Among other types of transactions that are common to royalty owners are lease bonuses, delay rentals, damages and shooting or seismic rights. Most of these items qualify as ordinary income items. However, landowners may receive damages, and these could be in large enough amounts that it would be beneficial to consult with an expert to determine what part of those damage payments are ordinary income, offset to repairs against property, i.e., fence or road repairs or a return of capital or possibly a capital gain. In future columns, we may examine the far more complex tax world of oil and gas working interest. Please remember this generalized information needs to be reviewed under the prism of your specific situation and by a competent professional who can apply the tax code to your circumstances.

About the author: David Porter has served as a Railroad Commissioner (2011–17) and Chairman (2015–16), as well as Vice Chairman of the Interstate Oil and Gas Compact Commission (2016). Prior to service on the Commission, Porter spent 30 years in Midland, Texas, as a CPA working with oil and gas producers, service companies and royalty owners. Since leaving the Commission, Porter works as a consultant for oil and gas companies. He also serves as Chairman of the 98th Meridian Foundation, a nonprofit concerned with water, energy and land issues.

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BUSINESS

ESG Investment: The VirtueSignaling of the Energy World By: Irina Slav

SHALE MAGAZINE  JAN/FEB 2022

ment in 2020 is quite telling, and the story it tells is one of a shift in investor priorities. Of course, unlike BP, Exxon does not mention in its announcement that it would cut oil production to achieve this net-zero status. In fact, Exxon does not even mention the word oil. The world oil has clearly become too toxic to handle, even by one of the biggest producers of the stuff. Meanwhile, in Europe, ETF providers are shifting their funds to ESG indices, and some

fund managers are finding this unpalatable. According to an FT report citing industry insiders, some fund selectors are feeling “wrongfooted” by the shift, which apparently sometimes happens without prior warning. “Fund selectors hate funds being changed without prior warning,” the senior director of global insights at Broadridge, Chris Chancellor, told the FT. “For (a fund) to change without prior warnings and conversation means (selectors) may have a fund that

doesn’t fit with the reasons they added it to the portfolio. “Change with little warning creates a trust issue,” Chancellor added. “If a change is forced on (a client) at short notice, that doesn’t feel like a partnership, and you lose trust that is hard to build in the first place.” A trust issue in the investment world is the last thing you want to have, and yet the momentum that ESG investing has built up seems too powerful to stop it. And yet, with positive developments such

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hree of the world’s biggest oil companies — BP, TotalEnergies and Shell — won acreage in Scotland’s biggest offshore wind power tender in January. This should have pleased their ESG shareholders, who have been pushing for greater climaterelated commitments. But let’s pause for a moment. ESG is an abbreviation that’s been circulating in the media — and in corporate news and boardrooms — for a while now, and it has been gathering speed. It seems that every company that has any self-respect has prioritized ESG above everything else, possibly even profits. ESG stands for environmental, social and governance: three aspects of corporate behavior that a new generation of investors is seeing as crucial for any company that wants to be attractive. And because this new generation is quite a vocal one, it is making a lot of noise, and the noise is causing changes. Would anyone have expected a year ago that Exxon would ever make a net-zero commitment — Exxon, the biggest public oil company in the world before the listing of Aramco, a major target for oil industry protesters and a huge polluter that stubbornly refused to commit to a renewable shift the way its European peers did? That same Exxon announced on January 18 it planned to become a net-zero company by 2050. That the company’s share price did not dip the way BP’s dipped when it made a similar announce-

It seems that every company that has any self-respect has prioritized ESG above everything else, possibly even profits

as Exxon’s net-zero declaration come side-effects such as the trust issue. Those European fund selectors that resent their funds being cut off from direct investment in, say, Shell, are not alone. They may not be many, but there are voices sounding the alarm against over focusing on environmental considerations — because the E in the ESG abbreviation tends to draw the most attention, what with the climate protests from the last few years, Extinction Rebellion

and Brussels politicians detailing a whole energy taxonomy for the green transition. Consumer goods giant Unilever has lost the plot with its management prioritizing the display of its sustainability credentials over running the business, the founder and manager of Fundsmith, a top10 shareholder in the consumer products giant, Terry Smith, recently said. The FT quoted the investor as noting that “Unilever seems to be laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.” And Unilever is hardly the only one — all the European oil supermajors prioritize renewable energy over oil and gas, and all of them plan to reduce their oil output in the coming years. Demand might disagree, but in the ESG world, fundamentals are not that important. The ESG trend is increasingly beginning to look like a bestseller. Imagine a book — and this happens a lot in the real world, by the way — that is being advertised as the next huge thing after the Bible, the book you absolutely must read if you want your friends and acquaintances to think you’re smart. The book may well be a pretentious, boring and above all unsuccessful attempt at art, but if ads tell you it’s the must-read for the year and the decade ahead, many will buy into it. Because who wouldn’t want to look smart, right?

It’s very much the same with ESG, even if that trend, unlike bestsellers, has some good reason to exist. It’s right to make businesses more accountable for the effect their operations have on local communities and on the environment. It is also right to hold them accountable for some less than legal governance practices. It’s really a question of overdoing it, and overdoing it is what is happening now. Companies are waving their ESG credentials in the air like a virtue-signaling flag. I recently read an article whose author argued that the E in ESG has become unjustly overemphasized at the expense of the S and the G. Sadly, my memory failed me, and I can’t remember what the article or the author was called, but that statement stayed with me. The E is the most fashionable element of the abbreviation. The E gets the most clicks and the most followers on Twitter. And the E, apparently, gets the most money judging by the ETF index shift in Europe and by investment flows. It also seems to be the source of higher costs here and there. The stampede of investors into EVs, for instance, is perfectly understandable if you follow closely news about government incentives for EV buyers, billions being spent — or at least planning to be spent

— on charging infrastructure, and the more billions carmakers are pouring into their all-electric model lineups for the future. But if you also follow metal price news, you might start to get confused because pretty much all the news from the metal space these days is about shortages and higher prices. Nickel, cobalt, rare earths, lithium — you name it, it’s in short supply. But instead of looking for ways to find alternative supplies, carmakers are doing something very different: They are demanding ESG credentials from their suppliers. Per a report by Fastmarkets, automotive companies required that suppliers of critical minerals pass through a vetting process in order to make sure the minerals they supply were mined environmentally, socially and governancely responsibly. What this amounts to is nothing short of a complete overhaul of priorities. And it means higher prices still because a whole vetting process complete with checks and evidence-gathering cannot be free. But ESG investors want their carmakers ESGaligned, right? And it’s the ESG investors that matter. Twenty years ago, any startup that said it was doing business in or around the internet got millions of dollars without having to disclose business plans or any boring stuff like that. It didn’t end well. Now, companies that say they are making electric cars get millions even before they have a prototype. Companies that build wind turbines get millions because they build wind turbines, and nobody cares about the price of copper or carbon fiber recycling. If it looks like a bubble and walks like a bubble, will it pop like a bubble?

About the author: Irina Slav has been writing about energy, with a focus on the oil and gas industry, since 2006. Her articles have appeared in Oilprice, Fortune, Insider, and Time magazine, among others.

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LIFESTYLE

AMRINA: WRITING THE STORY OF A NEW VENTURE By: Surpreet Singh

ollowing years of experience in the hospitality industry, my brother, Preet Paul, and I had a bank of knowledge when it comes to what customers want, what restaurants are offering and what we could do differently to truly shake up the industry. After traveling to hotspots around the world and conducting some pretty delicious research, we came to the conclusion that now, more than ever, consumers are looking for more than just great food, cocktails and incredible service. Today, customers are drawn to the personality of a restaurant, their values and the overall experience. With that in mind, Kahani Social Group, our hospitality brand, was born. The Kahani Story The word “kahani” translates to “story,” which is the driving force behind the brand. Each concept we open will act as its own book in the library of Kahani. Our group is about being bold and pushing the norms and expectations of hospitality. We’re thrilled to have recently announced the first story on our shelf with Amrina. “Amrina” translates to “princess,” and our concept will come to life through her. After traveling the world, the Indian-born princess settled in The Woodlands, and, much like her, the menu will reflect her international flair and Indian soul. Who is Amrina? Amrina represents women all over the world. While the translation to princess mirrors the luxurious lifestyle associated with the restaurant, it more accurately represents every woman’s ability to make an impact in the world. Amrina is a catalyst that empowers other women, which is expressed through the restaurant’s representation of women-owned and produced wines as well as menu and cocktail items named in honor of dynamic and influential women. She is alluring and mysterious, which is reflected in the design of the restaurant, including the luxurious jewel tones, gold embellished details and complex mix of dimension and texture. Her charming, social personality is also manifested in the spirit of the restaurant in that it’s not just a

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place to sit and eat; it is a complete social experience. From fascinating cocktails to beautifully plated entrees, there’s something that appeals to each of the five senses. Guests can also enjoy the eclectic, chef-driven menu in the restaurant’s cocktail lounge, main dining room, 30-foot indooroutdoor bar which serves both the patio and main dining room, princess garden seating with booths facing the fine wine selection, private dining room, semi-private dining or in-kitchen chef’s table, where Chef Jassi Bindra will serve guests and guide them through the menu himself. The Authors of the Story Our General Manager and our Chef were absolutely the missing pieces we needed to write the story of Amrina. Chef Jassi Bindra’s impressive resume speaks volumes about his industry knowledge and credibility. Before moving to Texas, he was the Executive Chef at Punjab Grill, and his menu and creative execution landed the restaurant a Michelin plate and mention in the Michelin guide in 2019. His vision for the menu tells a beautiful story about where Amrina has been and who she is today. Coupled with Chef Jassi’s expertise, General Manager, Giorgio Ferrero, is uniquely equipped to lead our wine program. Giorgio’s resume includes working alongside James Beard award-winning chefs, earning the Wine Spectator Grand Award from 2008 to 2011 at Valentino in Las Vegas, where he curated a 6,000-bottle wine list and working with Michelin Star Chef, Vincent Pouessel at Aureole. Though my brother and I enjoy cooking and a glass of wine, Giorgio and Chef Jassi are among the best in their fields, and what’s more, they understand and are equally as passionate about the story of Amrina. From social media to the menu and the restaurant design, every step we’ve taken in crafting the Amrina brand acts as another chapter in Amrina’s story, and we’re genuinely thrilled to “publish” it when we open to the public. As we continue to build our library, we hope to bring similar experiences to adventurous diners across the globe.

AMRINA REPRESENTS WOMEN ALL OVER THE WORLD. WHILE THE TRANSLATION TO PRINCESS MIRRORS THE LUXURIOUS LIFESTYLE ASSOCIATED WITH THE RESTAURANT, IT MORE ACCURATELY REPRESENTS EVERY WOMAN’S ABILITY TO MAKE AN IMPACT IN THE WORLD

About the author: In 2021, Surpreet Singh, along with his brother, Preet Paul, founded Kahani Social Group, a luxury boutique hospitality group dedicated to creating unique social experiences. His responsibilities include managing the restaurant group’s operations, and his creative direction and background in the industry play a pivotal role in the development of the brand, which plans to open its first concept in 2022.

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LIFESTYLE

VITAMIN D AND THE PANDEMIC Special to SHALE

o you know your vitamin D level? Most likely, this is not a question you’ve been asked very often. But, with the seemingly neverending COVID pandemic, it is one you should find the answer to. Depending on the source, it is estimated that anywhere from one-quarter to three-quarters of the population of the United States is deficient in vitamin D. To put that into numbers, that is somewhere between 82.75 million and 248.25 million people in this country who are not getting enough vitamin D. Since the primary source of vitamin D is direct sunlight, those numbers could be even higher in the winter months, especially in the north of the country. Why is this important? First, vitamin D is vital to bone health. Without it, it is impossible for your body to absorb the calcium it needs for bone growth in children and bone health in adults, especially seniors. In addition, it is being shown to prevent and treat conditions such as asthma, heart failure, and autoimmune diseases, such as multiple sclerosis and inflammatory bowel disease (Crohn’s disease, ulcerative colitis). The Center for Nutrition Studies website also states, “A 2014 review of 32 studies reported that low vitamin D levels were associated with 90% increased risk of early death! Additionally, two separate reviews of 78 vitamin D supplementation studies reported taking a vitamin D supplement decreased the death rate in healthy adults. Another large review reported that taking a vitamin D supplement decreased the death rate in those who had cancer.” If that isn’t impressive enough, there’s more. By now, you’ve most likely heard of this COVID pandemic. Recent studies out of Isreal found evidence that increasing vitamin D levels in COVID-19 patients helps reduce their risk of severe illness and even death. And they found that those who were already taking vitamin D supplements before contracting COVID were more likely to avoid the worst effects of the illness completely. “We found it remarkable, and striking, to see the difference in the chances of becoming a severe patient when you are lacking in vitamin D compared to when you’re not,” said Dr. Amiel Dror, a Galilee Medical Center physician and Bar Ilan researcher who was part of the team behind the study. “What we’re seeing when vitamin D helps people with COVID infections is a result of its effectiveness in bolstering the immune systems to deal with viral pathogens that attack the respiratory system,” he told The Times of Israel. “This is equally relevant for Omicron as it was for previous variants.” The study went on to report that 26% of COVID patients died if they were vitamin D deficient compared to 3% who were not vitamin D deficient. The recent Isreal study is not the only one finding and reporting on the importance of vitamin D levels in the era of COVID. According to Dr. Mercola, an osteopathic phy-

sician, on the freedomfirstnetwork.com, “Another group of researchers in Spain gave vitamin D3 (calcifediol) to patients admitted to the COVID-19 wards of Barcelona’s Hospital del Mar. About half the patients received vitamin D3 in the amount of 21,280 IU on day one plus 10,640 IU on Days 3, 7, 15 and 30. Those that received vitamin D fared significantly better, with only 4.5% requiring ICU admission compared to 21% in the no-vitamin D group.”

RECENT STUDIES OUT OF ISREAL HAVE FOUND EVIDENCE INCREASING VITAMIN D LEVELS IN COVID-19 PATIENTS HELPS REDUCE THEIR RISK OF SEVERE ILLNESS AND EVEN DEATH Where can you get vitamin D? Technically, vitamin D is not a vitamin because it can be produced by the body naturally when it is exposed to direct sunlight. Depending on how much skin is exposed to the sun, the time of year, and how close you are to the equator, about 10 to 20 minutes of sun exposure when the sun is at its highest is all you will need. However, if you live in the extreme north or south or if it’s winter, you’ll need some more options. There are a few foods that contain vitamin D, such as oily fish, sardines, mushrooms, and liver. But you would have to eat a large amount of those foods to get the amount of D your body needs. Supplements are the most efficient and the easiest way of knowing how much you are getting. There are two kinds of supplements, D2 and D3. D3 has been proven to be the most effective. To know how much you should take a day, it is best to consult your physician. There are many factors at play, such as gender, location, lifestyle, and so on.

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SR Trident

SHALE Magazine and In the Oil Patch Radio Show would like to congratulate Brandon Berryhill and Norberto Arroyo of SR Trident on receiving the Accredited Quality Control Program award for 2022 from ABCTCB (ABC Texas Coastal Bend Chapter). Congratulations!

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