Truth and Transparency

I have been in the oil and gas business for over forty years and in the communications space for about that long as well. I think that gives me a unique perspective. Reflecting on our public image, I’m afraid we got it the old fashioned way – we earned it.

While much of that earned image was created by past sins, a few still dog us today. Those we should work to eliminate. But a good deal of our image problem has been our communication strategy… or lack thereof.

A case in point is the American horizontal drilling and fracking industry. It is without question the most impactful segment of our industry. Advances in horizontal drilling and fracking technology have been a “game-changer” for America and our allies.

However, their communication style is largely one of hype and denial which doesn’t serve them or the rest of the industry well. I believe it’s time they switched this strategy of hype and denial to one of honesty and transparency.

The horizontal fracking industry is currently experiencing both profitability and environmental problems.

There are articles published almost every day about capital fleeing the drilling sector because at this price level, most horizontals (90% by a WSJ survey) do not make a profit. If investors are in the hole by 80 billion (according to the WSJ) no wonder drilling capital has all but dried up. Oil obtained with “funny money” produces “funny oil” and is unsustainable. The investment community has finally caught up with the hype of big wells touting almost endless reserves. The reserves that these companies have projected are now known to be much less than was originally revealed.

The major issue seems to be that subsequent wells after the first ones are drilled are coming up around 40% short of initial projections. This is most likely an honest mistake that the companies themselves didn’t anticipate. It seems as if the horizontal community is slow to acknowledge this if they do at all. A far better strategy would be to publicly acknowledge the inaccuracy of their projections, after all, they were projections.

They then could bridge to a message of “yes our subsequent wells are not as productive as we thought. That is why we are working on technology to solve the problem as well as cost-cutting measures to bring us back to profitability.”

So far their environmental problems have yet to be widely publicized. They are more serious with greater long term consequences.

Earthquakes are now fairly well acknowledged to be caused by water disposal in high volumes and under high pressures. Fracking itself has been known to cause minor earthquakes but rarely with a magnitude of over 3.0. Induced seismicity events from oil and gas industry activities have been mostly confirmed in Arkansas, Colorado, Oklahoma, and Texas. In Oklahoma, the major earthquakes, caused by water injected in high volumes under high pressure into the Arbuckle formation, which is right on top of the basement rock, have mostly been eliminated by controlling, and in some cases, ceasing injection in that formation.

But the regulatory bodies have unintentionally created a bigger problem by permitting shallower wells to be drilled to handle the water that formerly went into the Arbuckle. Now injecting water in those formations, which simply could not hold the massive volume of water created by horizontal frack jobs, has most certainly caused at least one serious “purge” or breakout to the surface.

The last data that I saw showed that several hundred wells had pressure on the surface casing, which is the string set and cemented below fresh and treatable water to protect them from harm. A failure of the surface pipe or the cement around it would likely cause a purge to the surface and could endanger groundwater.

Though the companies and their regulatory body have finally acknowledged this problem, they have underplayed it in the news. In fact, an unsuspecting public could even believe they are caused by some natural occurrence.

This communication strategy is a mistake, even if the regulatory body doesn’t know exactly how to remedy the problem. Admittedly, the industry and even those that regulate them have a long history of non-disclosure or even cover-up of problems.

The industry has traditionally, with few exceptions, had an impenetrable wall of an understanding that we would all stick together and not talk about problems like this.

Well, I guess I penetrated that wall. I have been cast by some of the large horizontal fracking companies as anti-oil and gas simply by openly talking and writing about the truth. They even cringe when I use the word “fracking”.

But it’s my concern for the long term health of our industry that we should shine a light on these concerns and commit to addressing them.

It should never be considered divisive to tell the truth. Hype and denial are horrible communication strategies and need to be replaced with honesty and transparency. These companies may not like the truth. But I believe it’s the only communication strategy that serves our industry well over the long run. Once the public catches on, and with an active, anti-fossil fuel environmental movement, they will.,we will lose even more credibility with an already skeptical public. And if the public believes our industry shouldn’t exist we will not prosper long.


~Mike Cantrell

Obama’s Energy Policy: Death By A Thousand Cuts

Christopher Helman Forbes Staff

Contributor Group Energy


This is a guest editorial by Mike Cantrell, president of the Domestic Energy Producers’ Alliance

What sounds like the title of an Alfred Hitchcock movie is actually the Obama Administration’s strategy to kill America’s oil and natural gas production. And it should scare the living daylights out of us all.

President Obama, Treasury Secretary Timothy Geithner, Interior Secretary Ken Salazar and Energy Secretary Steven Chu, have all made it clear they want to make fossil fuels more expensive. And after their failed attempt to crush fossil fuels in one fell swoop with cap and trade legislation, they’ve turned to federal agencies to impose a long list of selective and foolish regulations on America’s oil and natural gas producers.

Of course each of these regulations on their own won’t be the death of fossil fuels. But combined,  they’re setting the stage for a chilling ending that will mean the loss of millions of jobs, billions in tax revenue and weaker national security.

Speaking of Hitchcock, let’s talk about birds. The Administration sued seven oil companies for the deaths of 28 birds in North Dakota. The maximum penalty per dead bird is a $15,000 fine and six months in jail. Meanwhile, the Administration is in the process of fast-tracking wind energy development across the United States and providing legal protection to wind operators that kill an estimated 440,000 birds a year. Fortunately, North Dakota Federal judge Daniel Hovland had the good sense to dismiss the complaint saying “To be consistent, the government would have to criminalize driving, construction, airplane flights, farming, electricity and wind turbines … and many other every day, lawful activities.”

Sound absurd? There’s more. In 2010, the EPA slapped a remediation order on a natural gas producer in Texas while the state’s oil and gas regulation agency was still conducting tests regarding alleged water well contamination. After testing was complete, the contamination was found to be naturally occurring and in no way related to drilling. But the EPA’s arbitrary and shameful actions proved the agency can target any company at random and force them to clean up, at their own expense, a problem they had nothing to do with.

And more costly regulations are on the horizon with the U.S. Fish and Wildlife Services now considering the addition of 100 Texas species to the endangered species list. It’s estimated that one species alone, the dune sagebrush lizard, could cost oil and natural gas producers, and state and private royalty owners hundreds of millions of dollars over the next ten years.

But perhaps most troubling could be the reporting of Greenhouse Gas (GHG) emissions on oil and gas facilities in the field. And at what cost? Training, consulting fees, data tracking and ultimate reporting will cost one large independent an estimated $10-$20 million per year. The EPA definitions and thresholds will encompass the smallest to the largest domestic producers.

And to what end? Take your pick – regulatory cap and trade, curtailment, or a new carbon tax. The Obama administration will do through regulation what they could not accomplish through legislation.

In looking for a hint of energy policy that benefits Americans one can reference the administration’s release of 30 million barrels from the Strategic Petroleum Reserve during the Libyan crisis that cost the taxpayer millions of dollars and lowered the price for about a day.

Or you could look to the Administration’s decision to deny the Keystone XL pipeline permit. That decision not only deprives American consumers of oil from a friendly neighbor, Canada, but also means most of the 500,000 bbls per day of oil from the massive Bakken field in North Dakota and Montana will continue to be transported by truck or rail at a much higher cost; ultimately resulting in higher gasoline prices. Of course it’s just a coincidence that Berkshire Hathaway, run by Warren Buffett, one of Obama’s biggest supporters, owns the railroad transporting significant amounts of that oil.

So who’s the ultimate victim in this tale of mounting regulation? The American people. The administration knows that by increasing regulation, it also increases the cost of doing business and ultimately, the price consumers pay at the pump. And by making fossil fuels artificially expensive, they’re clearing the path for their friends in the so-called “green” energy industry.

What’s even more alarming is that all of this comes at a time when America’s abundant supply of oil and natural gas could play a significant role in solving our nation’s most pressing problems—unemployment, debt and national security. For the first time in 62 years, America is a net exporter of petroleum products, and we now count natural gas reserves in centuries. Obviously, we’re now considerably less dependent on foreign oil. America is also benefiting from the $86 million a day that oil and natural gas companies pay to the federal government in taxes, royalty payments and fees. The industry currently supports 9.2 million jobs and, with the right government policies in place, it’s poised to create an additional 1.4 million jobs by 2030.

Any way you slice it, the Obama Administration is out of touch with reality. Let’s just hope this opportunity for a stronger economy and energy independence doesn’t end up like Janet Leigh in Hitchcock’s most famous scene—in a big house with a knife sticking through it.

The writer, Mike Cantrell, is president of Oklahoma City-based Domestic Energy Producers’ Alliance, a unique grassroots approach to domestic onshore energy advocacy and education. DEPA’s mission statement: “We are an alliance of producers, royalty owners, oilfield service companies as well as state and national independent oil and gas associations representing the small businessmen and women of the energy industry. We are devoted to the survival of U.S. crude oil and natural gas exploration and production.”