Student Post: Time to Restore "Drill, Baby, Drill" Mentality?

Our [textbook] author notes that cargo owners are not liable for spills under the Oil Protection Act of 1990.  This week in New Orleans, District Judge Carl Barbier ruled Transocean was able to escape liability for compensatory damage stemming from their Deepwater Horizon rig which exploded in the Gulf of Mexico a little over a year and half ago.  The Judge upheld the pertinent parts of the lease agreement it had with British Petroleum (BP) that indemnified them.  This is standard in the industry.

                  This decision comes at the back drop of “The number of offshore rigs world-wide is back within one percentage point of the all-time peak in 2008, with more than 90% of the world's ultra-deep rig-those that can drill in water more than 7,500 feet deep booked through the end of 2012, according to Barclays Capital.” WSJ.  All of this seems quite remarkable when you factor in the future of off shore drilling in the Gulf was in doubt (at least in the U.S.) in the months that followed the Deepwater Horizon oil rigs explosion.  The U.S. Department of Interior (DOI) declared a moratorium on new drilling permits a few weeks after the explosion which, on top of the hold on granting new leases, also put a halt on existing deep water drilling.  This caused many of the lease holders to leave the area as well as pending lease recipients lost patience with permit delay and began drilling in other parts of the world. In my opinion, the moratorium was a pretty arbitrary stance to take since the goal was to clean up oil spill and they effectively stopped the use of functioning oil rigs that were unrelated.  The moratorium and slowing of issuing permits also cost jobs in Gulf States, which were already suffering from high unemployment, as of this summer more than 60,000 jobs had been lost in the Gulf States alone since 2008. I believe the DOI, along with the administration reactionary approach to the oil spill which although was terrible; was overly burdensome for an oil and gas extraction industry that has a pretty strong safety record.  According the Bureau of Labor Statistics, oil and gas extractions industry is lower than 89% of the total working industry groups.  The factors that all led to the gushing oil was a high unlikely worst case scenario. The cleanup effort paired with the many species of bacteria and water currents all but eliminated much of the underwater oil and methane by the fall of 2010.
                  This past week President Obama, at his State of the Union Address, set a goal of opening up 75% "of our potential offshore oil and gas resources." Although the specifics remain unclear, the President seems to have changed his stance.  I do think that some regulation is necessary but also industry that self-regulates; it was economic and public relations disaster for BP, Transocean, Halliburton and the industry as a whole when the oil rig exploded.  The Oil Pollution Act has held BP responsible for cleaning up the accident to which they have already paid out over 7.8 Billion with much more likely to come. Transocean, escaped liability in this case but the company still could be on the hook along with BP and Halliburton for fines between $5 and $20 Billion combined under the Clean Water Act.  Some safety standards to prevent further accidents such as this are warranted but permit issues continue to hold back the development.

Offshore drilling is crucial to our economy it keeps a healthy check on the prices of oil, as the authors of our book detailed at length the dangers of what can happen when we lose the handle on our ability to keep the price of oil at a stable amount.  Offshore Drilling in the Gulf is also essential to US Economy from 2001-2009, Royalty revenues and lease sales generated in excess of $75 billion dollars paid to the Federal Government.  With unconventional sources of extraction expanding movement from the Middle East back West is under way. Oil reserves in Canada and Brazil experienced huge increases over the past decade as a result.  As the major oil companies start to leave the Middle East for more politically stable countries, now should be the time to embrace the move instead of discourage by restricting the availability of offshore drilling on our coasts so that the price of oil cannot be manipulated by circumstances beyond our control. 

[Resources:]

 http://online.wsj.com/article/SB10001424052970203363504577185284108934976.html Wall Street Journal
http://www.bls.gov/iif/oshwc/osh/os/ostb2071.pdf U.S. Bureau of Labor Statistics
http://www.noia.org/website/staticdownload.asp?id=45798 National Ocean Industries Association
http://online.wsj.com/article/SB10001424052970203718504577181782951904336.html?KEYWORDS=gulf+offshore+drilling
http://www.boem.gov/Oil-and-Gas-Energy-Program/Energy-Economics/Fair-Market-Value/econFMV.aspx Bureau of Ocean Energy management
http://online.wsj.com/article/SB10001424052970204479504576638731600191382.html?KEYWORDS=moratorium+gulf+
http://online.wsj.com/article/SB10001424052970203436904577150910025591788.html  

Student Post: Regulation and Profit Are Not Mutually Exclusive: Norway's Oil Industry

Chapter 6 of the text begins by pointing out that the US and Canada are, “virtually the only countries on earth where minerals can be owned privately.”  This follows a section of the reading full of stories about oil spills, pipeline explosions, and a description of the remedial and arguably ineffective federal regulations that followed these incidents.  When private industry holds too much sway with federal regulators, safety and environmental interests often lose to the deep pockets of the oil industry.  Take, for instance, the BP oil spill.  The Deepwater Horizon well did not have a remote control shut-off switch because they are not mandated by US regulations. It was proposed that the switch be made mandatory, but the Bush administration did not want to inconvenience the oil industry by requiring them to spend $500,000 per switch.

 

It is not certain that the switch would have prevented the spill, but considering the relatively low cost, why did we take that chance? Norway has a state-run oil industry and is one of the countries that require the remote shut-off switch as part of a comprehensive regulatory scheme. A report by DNV, a global risk-management company, created a report comparing Norwegian and US offshore drilling regulations. 

 

The report describes Norway’s regulation scheme as performance-based and focused on risk management, while the US scheme is prescriptive.  A performance-based system is a system in which the level of safety and performance is defined and companies are given a relatively high level of freedom in choosing how to meet the standards required.  A prescriptive system sets specific standards for structures and equipment in an effort to prevent accidents and minimize hazards.  In general, the report concludes that the higher level of safety in the Norwegian oil industry is due to the comprehensive regulatory scheme, emphasizing performance-based standards and risk management. 

The Norwegian population, geography, political structure, value systems, and place in the global economy are very different from ours and the priorities of a state-run oil industry are always going to be different from those of a privatized industry.  A state-run system will always need to balance the interests of the economy with the interests of the health and welfare of the people and the environment while a private system is going to be concerned first and perhaps solely with increasing profits. Looking at different websites, what comes up again and again is that Norway is a leader in safety and innovation in the oil industry while also turning a profit.  According to economywatch.com, Norway is the third-largest oil exporter, so I think it’s safe to say that even with the heavy hand of government upon it, the Norwegian oil industry is doing ok. While I would never dare to suggest that we move to a state-run oil company like Norway, I think it is irresponsible of the federal government to continue to allow the oil lobbyists to prevent regulation of the industry and not to look to countries like this to improve our regulations. 

Student Post: Thoughts on Oil Assignment for Jan. 26

I think it is very unwise on the part of environmentalists who support Federal legislation to ‘protect’ environmental interests in the US, with little or no consideration for the market impacts of such legislation.  Since the US reached “peak oil” production in the 1970’s, we have expanded to now be importing 60% of US oil needs from foreign countries, including Saudi Arabia, Venezuela, and other countries hostile to the oil consuming ways of the United States.

Markets for products like oil are inherently unstable, as John D. Rockefeller quickly discovered when he began to monopolize the control of oil refineries in the late 1880’s to stabilize the price of oil developers in the United States.  Since then, after the breakup of Standard Oil due to antitrust laws, first it was the Texas RR Commission which stabilized the price of oil for years (by limiting the output for decades) before the ‘peak oil’ was hit in the United States in the 1970’s and full production then ensued.  Since then it has been Saudi Arabia and OPEC that has worked to stabilize the price of oil so the price doesn’t spike up enough for consumers to limit their use of oil and producers of energy to seek out alternatives. 

But every now and then we are reminded how unstable oil prices can be with disruptions in supplies and huge price hikes (4x previous price ranges), followed by overproduction when oil use falls in response to rapid price increases (like in 2008 when oil ran up to $147/barrel at its peak, to drop to $30/barrel just a few months later). 

While environmentalists like to tout new plans to ‘save whales, fish, or walruses’, the entire US economy can be adversely affected by the whims of the world’s oil producers and speculators in the world oil market.  It seems to me that protecting the world economy from disaster via price stabilization policies is far more important than protecting whales.  We need to be more mindful of the power of the marketplace to affect legislation.  I also find it somewhat amusing that most of the major legislation concerning energy regulation has occurred due to a disaster in the US in some form or another (the Exxon Valdez, Three Mile Island, Chernobyl, etc), not a well thought out, cost/benefit plan.  The US should not handcuff ourselves to environmental interests when the plight of the country can depend on our response-ability – in other words, our ability to respond to the needs of our country. 

If world oil prices were to repeat their price spike of 2006-2008, effectively more than quadrupling the price, we would effectively go from the current price of $100/barrel to $400/barrel.  The world economy as we know it (and the US economy in particular) would end abruptly, or at least be forever impacted by the shocks applied to it.  Amid predictions of world ‘peak oil’ theories, to have handcuffs on oil producers in the form of permanent legislation that protects “whales” is ridiculous.

Instead, we need to have a coherent, national policy that stabilizes the US economy and the price of oil as well as other energy.  The goal of being less dependent on foreign oil should be paramount.  ‘Whale’ protection just doesn’t cut it anymore.

Bottom Line: We need flexibility of federal laws regarding environmentalism that provides for protection for habitat and ‘whales’, but not at the expense of the economic stability of the nation.  These laws should be automatically repealed or rescinded for a time period when the nation’s security or economic stability is affected, which is surely going to come in the near future due to some “new” destabilizing market force once world ‘peak oil’ is achieved. 

Student Post: Thoughts on the Tragedy of Commons

Recently, in class the tragedy of commons was discussed through Barnard v. Monanghaela Natural Gas Co. The facts of the case were as follows. There were two pieces of adjoining lands. The owner of one piece of land brought suit to enjoin the other owner from taking natural gas that was located beneath his piece of land. The other owner’s drilling machinery was located on that owner’s piece of land. The Supreme Court of Pennsylvania held that the nature of oil and gas is “fugitive”. Therefore, “every landowner or his lessee may locate his wells wherever he pleases, regardless of the interests of others”. It was the owners responsibility to “protect his own oil and gas” by doing the same. This came to be known as the rule of capture. 

As discussed in class, the effect of this was to allow an inefficient allocation of oil and gas resources. The case of the former oil town Spindletop Texas illustrates the effects of such a rule. After a large reserve of oil was discovered on a field in that town, a series of adjacent wells were constructed to take advantage of that discovery. The net result due to increased oil production was that the value of land was driven up, oil prices were driven down, and the excessive production by multiple wells diminished field pressure very quickly. Eventually, within a decade production had ceased. When this “bubble” burst the town became a ghost town.   This in turn led to a depreciation of land value, lost jobs, and market uncertainty for the local economy. To make matters worse, less than five percent of the field’s oil was produced because of the inefficiency of the production method.

The next topic of discussion was how to overcome the aforementioned problems. It should be mentioned that that absent government regulation, there is no way to prevent this tragedy of commons. Distilling the main points brought up, it seems a multi-layered approach should be taken by the government:

1)      1) Identify existing petroleum needs.

2)      2) Either through public or private companies maintain an efficient production at as low a cost as possible. In order to implement this drilling for oil would have to be allocated separately and strict adherence to the rule of capture would have to be abandoned (i.e. mandatory pooling laws). 

3)   3) Have the produced oil sold at affordable prices (i.e. through market means or subsidies)

Much of the national discussion today revolved around such issues. Whether or not oil subsidies should be continued or market constraints removed, one thing is certain. The issue is NOT about no governmental regulation and government regulation but, rather, the optimal amount that would “tweak” the market to produce optimal results. Given the finite nature of petroleum reserves, alternative energy, and the geo-political situation that exists today, this fact should be emphasized and from which, hopefully, an honest discussion can ensue. 

Student Post: Hydraulic Fracturing Disclosures and Risk Prevention

During Tuesday’s State of the Union Address, President Obama stated:

“We have a supply of natural gas that can last America nearly one hundred years, and my Administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I'm requiring all companies that drill for gas on public lands to disclose the chemicals they use. America will develop this resource without putting the health and safety of our citizens at risk.”

Environmental groups have been trying to push the implementation of disclosure of the chemicals used in the hydraulic fracturing “fracking” process to provide public information and to help determine whether the groundwater near the wells is being affected. In 2004 the EPA conducted a study, mentioned in our reading, that concluded by saying fluids used during fracking posed little threat to water sources, but there is still major concerns that the process is contaminating well sources. In 2011 the EPA found evidence to link fracking to well water pollution beneath the town of Pavillion, Wyoming. Encana, the company who owns the natural gas fields where the pollution was found, claims that the low levels of hydrocarbons could have originated from something else, in large part due to the inconsistency in the findings in the wells the EPA tested and the public wells that were not as deep and were not contaminated.  With the present knowledge of what fracking does, what chemicals are involved and the environmental impact they have, there are many questions that remain to be answered as to whether the process is putting the health and safety of the public at risk.  But, will full disclosure of the chemicals used benefit the public and reduce the risk of harm?

The Oil and Gas Industries are currently exempt from the Safe Drinking Water Act, meaning the EPA has no authority to require chemical disclosure. Several states have enacted legislation that requires the disclosure of fracking chemicals, and many energy companies have voluntarily reported what chemicals they use on fracfocus.org. On this public site you can look up individual wells and see the chemicals and in what percent they are used.  One can hope that when Mr. Obama compels all companies fracking on federal lands to disclose the chemicals they are using it will set an industry wide standard of doing so.  

The benefit of disclosure has yet to be seen, although it puts some transparency into the industry and educates the general public, for most of the public having access to the name of a chemical you have never heard of does nothing to actively do anything to combat the risks that “fracking” may be causing. States have also been implementing ways of properly encasing the cement walls used in the process, disposing of the waste water, and having procedures for cleaning up spills.  These defenses towards environmental impact seem to be important preventative measures, but the technology is so new and untested that without the knowledge of the chemicals there is really no way to know whether these walls and methods of clean up can prevent contamination.  The disclosure of the chemicals will also allow environmental groups to look into and learn more about the long term consequences this can be having on the water supply.  It seems to be too early to say without a doubt that fracking is a risk free form of extraction, but full disclosure is a step in the right direction to prevent harm. With the water incident in Wyoming and the recent earthquake in Yougstown Ohio that is being attributed to an increase in hydraulic fracturing it is likely that even more state and federal legislation will be showing up to regulate the process.

Student Post: Controversy Over Regulation of Hydraulic Fracturing

A current controversy regarding the petroleum industry in our state and across the country, is the environmental impact of hydraulic fracturing, referred to as “fracking” in the industry. Fracking is used to maximize oil and natural gas extraction in well drilling in shale formations. Once a well is drilled, millions of gallons of water, sand, and proprietary chemicals are injected under high pressure into the well. The pressure fractures open the shale and props open fissures that enable natural gas and oil to flow more freely out of a well.  

 

Fracking is used to increase well production and extend the life of a well. For each well, between 80-300 tons of fracking water, sand, and chemicals will be injected into a well and then disposed of in flowback pits. Presently, the gas industry is not required under Federal law to disclose the chemicals used. In 2005, the Bush/Cheney Energy Bill exempted companies from disclosing the chemicals used during hydraulic fracturing to the Environmental Protection Agency. This is now commonly referred to as the “Halliburton Loophole”. However, scientists in independent testing have identified volatile organic compounds such as benzene, toluene, ethylbenzene and xylene in fracking fluid. Volatile organic compounds are considered highly hazardous to human and animal health. They are categorized as carcinogens and linked to a host of medical illnesses and death. 

 

A controversial documentary regarding potential impact on the environment, well water, and human health from hydraulic fracturing came out in 2010, called Gasland. Groups of concerned citizens have been raising alarms throughout the country, pushing state legislators to require disclosure of fracking chemicals. Petroleum companies argue that the chemical compositions used in fracking are covered by trade secret and they are already required to disclose any spills and carry bonds intended to cover cleanup costs. Texas was the first state in the nation to pass a 2011 law requiring disclosure of chemicals in fracking. Currently, Arkansas, Montana, Wyoming, and Texas require companies to disclose the chemicals in fracking fluid but not their concentrations. Colorado requires companies to disclose concentrations of all chemicals in hydraulic fracturing and also asks drillers to make public some information about ingredients considered trade secrets. Louisiana and New Mexico require disclosure of some chemicals deemed workplace hazards by the Occupational Safety and Health Administration. Other states, including Michigan and Pennsylvania, have proposed similar regulations. In New York, environmental groups have been rallying at their capital for a legislative ban on hydraulic fracturing of natural gas wells, saying no amount of regulation can adequately safeguard water supplies from contamination.

 

On November 9, 2011, the North Dakota Industrial Commission proposed new rules governing the practice of hydraulic fracturing that require the disclosure of fracking chemicals within 60 days of completing fracking on a well. The proposed rules on chemical disclosure state:

           "After the hydraulic fracture stimulation is performed the owner,             operator, or service company shall post on the FracFocus             Chemical Disclosure Registry the following stimulation detail:


Fracture date, state, county, American petroleum institute number, operator name, well name and number, longitude, latitude, longitude/latitude projection, production type, true vertical depth, total water volume, and hydraulic fracturing fluid composition as follows:


(1) Trade name


(2) Supplier


(3) Purpose


(4) Ingredients


(5) Chemical abstract number


(6) Maximum ingredient concentration in additive


(7) Maximum ingredient concentration in hydraulic fracturing fluid

If during the stimulation, the pressure in the intermediate casing-surface casing annulus
exceeds three hundred fifty pounds per square inch [2413 kilopascals] gauge, the owner or operator shall verbally notify the director as soon as practicable but no later than twenty-four hours following the incident…."[1]

After much debate, these rules were approved by the North Dakota Industrial Commission on Monday, January 23, 2012, but still face review by a legislative oversight committee. Lynn Helms, director of the Department of Mineral Resources, expects the new rules to be in place by June 2012. 

 

In my personal interaction with Bakken workers on oil and workover rigs, I have heard more than a few times that oil has to stay above $60/barrel and ‘fracking’ has to be available to harvest oil, otherwise the cost of production will be too high to make it economically feasible to capture Bakken oil. There is a roar in the oil patch insisting the state better not crack down on fracking too much, or the golden goose will fly away. The Director of North Dakota’s Department of Mineral Resources has gone on record asserting the Environmental Protection Agency may halt fracking in the oil patch, causing public paranoia and visions of thousands of workers unemployed overnight, houses being abandoned, businesses shuttering their doors, and bustling oil towns from Williston to Belfield emptying out.[2] The EPA is currently in the process of conducting a Congressionally-ordered study of hydraulic fracturing, but says that fears of a moratorium on fracking are unfounded.

 My personal opinion is petroleum companies should be willing to invest more money into safety measures and take precautions to limit well water contamination and environmental destruction up front, rather than waiting for a disaster to happen and facing government crackdown. I would like to see a more proactive approach in the energy industry, rather than reactive. Regardless, as a future attorney in western North Dakota and eastern Montana, large portions of my future income could arise from fracking torts in the next decade.

Below are links to articles, if anyone would like to read more information about the controversy.

·       Bakken Watch, a group site for concerned citizens, who have videos asserting air quality is unhealthy near ‘fracking’ sites, photos documenting truckers leaking chemicals, and spills occurring from flowback pits: http://www.bakkenwatch.org/

·       MSNBC article, EPA: Fracking Likely Polluted Town’s Water, available at:http://usnews.msnbc.msn.com/_news/2011/12/08/9302971-epa-fracking-likely-polluted-towns-water

·       Bismarck Tribune: http://bismarcktribune.com/news/state-and-regional/epa-says-fears-about-fracking-moratorium-unfounded/article_8a72ba30-1ae3-11e1-a738-001cc4c03286.html

·       Recently proposed NDCC regulations on ‘fracking’:https://www.dmr.nd.gov/oilgas/rules2012changes.pdf

·       FracFocus Chemical Disclosure Registry: http://fracfocus.org/

·       Businessweek article, Obama Pushes Natural-Gas Fracking to Create 600,000 Jobs, available at:http://www.businessweek.com/news/2012-01-25/obama-pushes-natural-gas-fracking-to-create-600-000-jobs.html

·       Link to EPA’s study of hydraulic fracturing and its impact on drinking water:http://www.epa.gov/hfstudy/index.html

---

[1] N.D.C.C. § 43-02-03-27.1(2)(i); N.D.C.C. §43-02-03-27.1(3)

[2] Lauren Donovan, Helms Says EPA Could Halt fracking in Oil Patch, Bismarck Tribune, Nov. 29, 2011,available at: http://bismarcktribune.com/news/state-and-regional/helms-says-epa-could-halt-fracking-in-oil-patch/article_fe9a3284-18b9-11e1-ba39-001cc4c03286.html.

Student Post: Concerns with Oil Production

One of the major issues covered during the previous two class periods has been oil production.  It has been put forth that the United States, as well as the world, needs to trim its oil consumption and begin transfer to another source of energy.  No matter what that energy source may be now or in the future, there are issues with making that change. 

There are two issues that need to be put forward in terms of changing our energy standards.  First, there is limited oil yet to be discovered.  The Earth is a finite place, and oil is a finite product that takes millions of years to form.   Besides some of the recent finds, like the Bakken formation, oil production will stop.  That point may come 10, 20, or 100 years from now, and if we are not prepared this country could return to the dark ages. 

Making substantial energy policy changes will force the hand of many people, and it will ruffle some feathers.  Economic idealists will argue that when the demand comes, renewable energy resources will take over as the dominant commodity.  That may be true, but what happens if those products are unavailable to us. 

This brings me to my second point.  Why not spend the money developing renewable energy while we can afford it?  Most of the products we take for granted are made from petroleum products.  Lubricants, gasoline, paraffin wax, polymers including plastics, and diesel fuel are all created from petroleum.  At some point this will go away unless there is innovation in the field.  

This poses a major problem for the future.   If we come to a point that oil production reaches its downfall, the prices of production will be too great and the market will suffer.  Innovation today requires electricity and production capabilities.

However, production requires lubricants and fuel to power the production plants, and oil, gas, and coal represent a large majority of the electricity production in this country.   The current necessities of production need fossil fuels to survive.

Oil production is important to our society.  It is the lifeblood of the United States.  Manufacturing renewable resources now will save money for the consumer in the future.  While it should be the impetus of the individual consumer to protect themselves from harm, the wholesale changes cannot come from one person.  

A change will come someday when the oil market crashes.  Depending on how we approach the future, the crash landing will either be a little bumpy or catastrophic. 

Student Post: Hydraulic Fracturing, the EPA, and Our Desire for More "Friendly" Oil

There is no question that hydraulic fracturing is currently the best, or most efficient method to extract a larger percentage of oil and gas not only in "tight" formations that make the ordinary method of extraction futile, but fracing allows for less surface wells littering the landscape of our nation and arguably limits the amount of surface pollution that comes with drilling for oil and gas. However, how do we as a nation balance oil extraction with environmental protection without putting the oil industry at a standstill and without negatively affecting our environment at a rate in which it becomes irreparable.  

 

Fracing is a process in which the well operator drills vertically for a distance, but then can turn the drill bit and drill horizontally to tap into the more productive areas of the formation. The process also calls for a fluid to be pumped down the well, creating pressure and opening up fissures to allow the oil and gas to flow through. A mixture, called proppants, is then pumped in to keep these fissures open. 

 

The public and the EPA have been concerned with the negative impacts that fracing may cause, not only to underground aquifers and wells, but to some extent the air as well.  The slurry that is used in hydraulic fracturing is mainly composed of water, but can also contain chemicals and radioactive sand. The exact composition of the slurry depends on the geological formation that has been drilled into. If the oil companies were unable to inject these fluids into the ground, a high percentage of oil and gas would be unattainable at an affordable price. At the same time, this slurry needs to be disposed of at some point during the process and that disposal creates concern over how much negative impact it carries with it. 

 

Despite the public outcry that their drinking water is becoming contaminated, the EPA has largely left the decision of whether or not to allow fracing in a particular area up to that state. There has been some evidence that hydraulic fracturing and the disposal of waste water that has been used throughout the process can contaminate wells and pollute the air, but apparently not enough correlation between the two to have the EPA step in and regulate the process.

 

The reason for the lack of regulation may in large part be due to our nation's continued effort to reduce our importation of oil from countries with unstable governments and tense relations with the US. If we as a nation want to harvest as much oil and gas in house as possible then hydraulic fracturing appears to be the method through which we can accomplish that goal (at least with the current technology available). That being said, the EPA does need to study this issue with greater urgency. The oil boom in western North Dakota does not show signs of slowing down and the effect from hydraulic fracturing may not be known until it is too late to save our quality of life. In the end there is a balance between greater oil and gas production at a cheaper rate and the health and well-being of the public and the earth that we inhabit. It will be interesting to see whether or not hydraulic fracturing has as much of a negative impact as some claim, or if the oil companies are actually able to prevent the pollution of our other natural and essential resources.  

Student Post: Man Camp Dilemma: Local Control vs. Statewide Uniformity

The Glen Ullin, ND City Council recently voted to ban so called “man camps” that the oil industry has been using to house its workers. There has been significant oil activity in the western half of North Dakota, helping to create a massive budget surplus via direct taxation of extracted oil as well as receipts resulting from the economic boom in oil country. This puts North Dakota fiscal situation in sharp contrast to most other states in the union which are struggling to balance their budgets. Although the “man camp” issue is but one problem among many other infrastructure related problems in oil country, it 

provides a useful analysis of the competing interests often found in energy development.

While North Dakota’s oil production has continued to grow rapidly the last several years, the infrastructure (roads, housing, sewage, electricity, healthcare, etc.) has been stretched to the limits in many parts of western North Dakota. The sheer number of oil workers has overwhelmed many small communities and many homes are being bought up by oil companies looking to provide housing to their employees.  Those homes and apartments not sold are now being rented at rates three or four times the price they went for only a few years earlier.  People in many of the oil related industries are making significant salaries through their work, but due to the lack of housing, are left sleeping in their vehicles, campers, or “man camps” (small camps providing basic necessities and shelter to oil workers).

There are strong arguments both for and against the use of “man camps” by oil companies. Because of the lack of available housing, and the tendency of such a shortage to increase the going rate for available housing, it seems intuitive that allowing oil companies to build “man camps” could help alleviate some of the problems associated with the oil boom. However, some people in western communities would prefer that the oil industry “riff raff” keep out of their cities. This generalized opposition to “man camps” might be a result of higher incidents of crime and substance abuse by oil workers, or might just be an emotional response to the rapidly changing conditions that the oil boom has created. Either way, there certainly is strong public sentiment in certain areas that is strongly opposed to the growing number of oil workers in their cities.

Fixed income individuals who rent a home or apartment have been hit the hardest by the housing shortage. Senior citizens on Social Security, governmental employees, and students struggle to pay the higher rental rates and are left with very few housing options.

City Councils are concerned that allowing “man camps” near city limits could be a drain on city resources requiring the creation of numerous investments into sewage, water, electrical, and other necessary infrastructure.

Some have called for the state to take a more active role in regulating the creation and maintenance of such “man camps”. A state regulation pre-empting municipal ordinances could be used to require cities to accommodate oil companies looking to build “man camps”. Such a regulation would provide uniformity and predictability for oil companies looking to expand; however, it also poses certain philosophical questions on the role of government.

The use of state regulatory power to allow “man camps” within municipalities would certainly be a constitutional exercise of the state’s police powers.  However, it is less than clear whether such a regulation is sound policy. Advocates for limited government are generally in favor of local, rather than centralized control. As such, it would seem that limited government proponents would prefer to leave the power in the hands of municipalities. On the other hand, a statewide regulation may be a much more effective and efficient way to alleviate the housing problems resulting from the oil boom. Whether such a regulation will be promulgated still remains to be seen.

Furthermore, regulation or not, oil companies need to better work directly with those communities affected and find workable solutions that are both economical as well as respectful of communities that are struggling to adjust to the rapid oil boom. No matter the regulation (or lack thereof); it is in the best interest of these companies to find mutually beneficial solutions within our state. Failure to find such solutions will only create more hostility to the oil industry and its workers.

So what do you think? Should a statewide regulation pre-empt local ordinances regarding “man camps”? Or is this issue better left to municipalities?

Student Post: Rule of Capture v. Correlative Rights

The rule of capture, as laid out in the chapter for Tuesday’s reading, basically stands for the proposition that whatever you can pump out of the ground is yours whether it’s coming from your land or draining off adjacent property. The chapter then goes on to describe the doctrine of correlative rights which, put simply, stands for the proposition that a resource (oil and gas) on your property and other properties held in a common pool cannot be wasted by one property owner to the detriment of other land owners with a stake in the common pool. The cases in the case book show that courts have seemingly grafted the idea of correlative rights onto the rule of capture to limit waste in an oil field.

It seems to me that the two doctrines are the antithesis of one another and the attempt to graft one onto the other creates an unwieldy and virtually incomprehensible legal mess. The rule of capture creates a situation like was seen on Spindletop with overproduction and waste with each owner drilling to get their piece of the pie. Correlative rights if taken to its logical conclusion would allow no one in the formation to drill without paying all other owners of the formation a share of the proceeds because any removal of oil or gas from a finite pool is to the detriment of all other owners.

It seems the case of efficiency and logic (admittedly not a strong suit of the court system or political process) would be to take one path or the other and build a regulatory structure around that rule. It seems to me that in today’s world the rule of capture is essentially nothing more than a fiction, with spacing units, pooling, and drilling regulations in oil fields limiting where can be drilled. Therefore, the correlative rights doctrine seems to have prevailed. Then it seems logical to build a regulatory structure based on that theory if any regulation is to be implemented at all. If correlative rights were to be the basis, one would imagine that every oil field would be unitized and monopolized but clearly this is not the current situation.

Obviously the argument can be made that changing the regulatory structure after the industry is this developed would be detrimental. However, a structure that is more logically consistent and uniform would be a benefit to the industry in the long run. Also, abandoning this fiction of being able to have it both ways would make the legal rights much more clear.

Student Post: Oil: By the Numbers

  Due to the current oil production in the Bakken reservoir, it has become common to think that we have limitless amount of petroleum right under our feet.  While it might be right under our feet, there certainly is a limit on how much oil we can produce. The question then becomes, exactly how much oil is readily available, not only in the Bakken, but throughout the rest of the world. 

    The first chapter of the textbook stated that Americans use roughly 25% of the world’s oil. The problem comes with the realization that the United States has only about 5% of the world’s population.  From these numbers alone, it is clear that we must heavily rely on imported oil to live the lifestyle we are all accustomed to.  
  
  Where then does all this oil reside? According to the Central Intelligence Agency, the United States has the 13th largest proved oil reserves in the world, totaling around 21 billion barrels.  The Bakken formation itself is estimated to put out a total of somewhere between 2-4 billion barrels, with some estimates going much higher than that.  Although this seems like a enormous amount of oil, according to the United States Energy Administration Information, the United States consumes approximately 7 billion barrels of petroleum products every year, ½ of which is imported!  My limited math skills tell me that if we were to rely solely on domestic oil, we only have enough for 3 years.  Other sources say that the United States is sitting on about 10 years worth of oil, but nevertheless, it is apparent that we cannot sustain our petroleum needs by ourselves.  


    The CIA’s website states that Saudi Arabia has the most oil wealth, with around 263 billion barrels.  Second to Saudi Arabia is Venezuela, with about 211 billion barrels. It is interesting to note that the U.S. gets along well with Saudi Arabia, as has long-held ties with the House of Saud, & much of our oil comes from there. Our relations with Venezuela, however, are a different story. If you follow the mainstream media you would have noticed an anti Hugo Chavez sentiment over the last decade.  Could this be because he helped nationalize Venezuela’s oil, so that foreign corporations could not hold more than a 49% share of the oil wealth?  I would say that there is more than a small correlation between the media’s dislike of Chavez & how we has handled his country’s oil wealth for the benefit of his own people.

    Two other countries that are in the top 10 worldwide for oil reserves are Iran & Iraq. Iran comes in at 4th place on the CIA’s list, with around 137 billion barrels, while Iraq comes in at 5th place, with 115 billion barrels.  Don’t forget Libya, which has the world’s ninth largest oil reserves at about 46 billion barrels. I am no statistician, even though I did take stats I & II in undergraduate program, but the numbers indicate that oil interests might be a significant part of why we took over Iraq & Libya, & why we are preparing for war with Iran.  I did learn in statistics that ‘correlation is not necessarily causation,’ but not all the numbers lie.

Student Post: Transportation of Domestic Petroleum: The Keystone Pipeline

The assigned reading on domestic petroleum discussed the Oil business, the History of Petroleum and State Conservation Regulation. Part of the reading brought up the discussion on the methods of transportation of oil and gas products which made me consider the discussion surrounding the proposed Keystone XL pipeline.


The Keystone XL pipeline is a proposed pipeline that would transport crude oil from the Athabasca Oil Sands (Tar Sands) in Northern Alberta to several locations in U.S. including Texas, Oklahoma, and Illinois. The location of the pipeline and its environmental impact have been the source of much controversy and debate on both sides of the border.

The Conservative government in Canada has already approved the conversion of a former natural gas pipeline to one that is able to quickly transport crude oil to the American border. This decision was publicly opposed by many environmentalist groups in Canada for two reasons 1) The construction and location of the pipeline could pose significant risk to the ecosystems it traverses and 2) The extraction of the crude oil for the Athabasca Oil Sands has had a serious negative impact on the surrounding environment.

Nevertheless, the economic benefit presented by the mining of the Oil Sands, and the potential economic benefit of the Keystone Pipeline was deemed to be significant enough to overcome the environmental concerns it raised.

In America, the Obama Administration recently rejected TransCanada’s proposal to begin construction on the expansion of the pipeline throughout several American states. The reasons for American reluctance on this project are mainly due to the conflicting reports on environmental, economic and political impact the project could have.

The approach taken by the Obama Administration on this current issue runs in complete contrast to the approach taken in Canada and the approach described in our readings on page 243 by President Bush. Bush’s Alaska Natural Gas Pipeline Act in 2004 called for the streamline of regulation, a singular environmental impact study, and expedited judicial review. Obama has taken a good deal of time in reviewing the TransCanada proposal for the Keystone Pipeline and has put off its approval until a more thorough impact study can be concluded.

The decision on the Keystone Pipeline does not appear to be an easy one. In a time when America is struggling to produce jobs and stimulate its economy, this project could provide both. It would also reduce American dependence on foreign oil by allowing domestic sources to flow more freely, while also providing a more secure foreign oil source as Canada would be a much more stable trading partner than Nigeria for example. However, the environmental impact could be significant if there were to be a leak or an explosion, the jobs created would only be temporary, and this project would not help to reduce Obama’s stated goal of reducing and eventually eliminating American dependence on oil.

The decisions made on this project will have a significant and lasting impact on both countries and it will be interesting how it unfolds.