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Page added on November 12, 2014
On Guar Beans and Fracking Giants
Last year on July 4, North Dakota oil and gas billionaire, Harold Hamm just couldn’t contain his patriotic enthusiasm. In an op-ed commentary published by Forbes, Hamm wrote, “America has a long history of achieving the impossible. We defeated the British. We landed on the moon. We invented the Internet. And now we can add horizontal drilling to the list of American innovations that have changed the world forever.”
Frustrated that hydraulic fracturing (fracking) has been getting all the attention surrounding the shale oil/gas revolution, Hamm insisted, “What is new is horizontal drilling. In 2000, there were less than 50 horizontal drilling rigs in the US and experts believed we had reached peak oil. In 2009, the Domestic Energy Producers Alliance issued its Declaration of Energy Independents [sic] due to the phenomenal turnaround caused by horizontal drilling.” With 1,200 horizontal drilling rigs in the US by 2012, Hamm enthused, “This advanced technology allows us to drill two miles down, turn right, go another two miles, and hit a target the size of a lapel pin.”
The combination of horizontal drilling and fracking certainly is a remarkable feat that has not been fully understood. Take, for example, the statement made by Pioneer Natural Resources (PNR) CEO Scott Sheffield during a quarterly conference call in 2013. Sheffield was discussing PNR’s horizontal drilling and fracking in the Permian Basin of Texas. Sheffield said, “What’s interesting, in six months, it’s reached 140,000 barrels of oil equivalent. Our typical vertical well takes 30 to 35 years to produce 140,000 [barrels] on a vertical well. So we did that in six months.”
What seems like an offhand comment needs to be spelled out clearly: By switching from vertical well drilling to horizontal drilling and fracking, the company was able to suck out three decades worth of oil and gas production in six months! No wonder shale wells are depleted in about three years, as Canadian geologist David Hughes and others have pointed out, creating a drilling treadmill just to maintain continuous production and resulting in areas of North American that look like a pin cushion.
Billionaire Harold Hamm is right: the shale revolution is pretty astonishing, and the most surprising thing about it is that it all pretty much depends on a little bean.
A Little Bean
It sounds like something out of Brothers Grimm or Hans Christian Anderson. The giant shale oil/natural gas industry is actually dependent upon a little green bean, which is grown mainly by peasant farms in India. Without the guar bean, the industry would come crashing down like the giant felled in Jack and the Beanstalk.
Guar beans are crushed to make guar gum, which has unique binding, thickening and emulsifying properties making it a crucial ingredient in the drilling slurries used to fracture shale rock formations. In the fracking process, millions of litres of water and fracking chemicals, mixed with large volumes of frac-sand, are pumped under extreme pressure into each well. Guar thickens the fluids, helping to keep the grains of sand in suspension until they are forced into the fractures blasted into the shale rock. The sand holds the fractures open while the oil or gas seeps out to the wellhead. Without guar gum, the frac-sand would simply fall to the bottom of the well.
Until about a decade ago, guar was bought mainly by the food industry, which uses guar gum as a thickener for things like for ice cream and ketchup, and as an ingredient that keeps bakery goods moist. Guar grows best in heat and full sun, with frequent rains. Thousands of farmers in India, where most guar beans are grown, make a hard-scrabble living planting guar in July and selling their few acres at the farm-gate in October. Most of those farmers also grow millet, lentils and carrots.
Then, like something in a fable, a big change came.
With the advent of horizontal drilling and multi-stage fracking, the primary frackers like Halliburton, Schlumberger, Baker Hughes, Calfrac Well Services gradually started buying up guar gum like there was no tomorrow.
A report by IMR International placed the turning point at 2010. IMR founder, Dennis Seisun, told the media, “Basically the oil people are big buyers, big spenders. They go to the guar suppliers and say, ‘What’s your price, and give me all you got.’ The food industry is getting left behind.”
Before the shale boom, the food industry was paying about $2,000 for a ton of guar gum. By 2012, the price was $28,000.
Between 2006 and 2011, North American frackers quadrupled the amount of guar gum they were using, driving the amount up to one billion pounds in 2011. According to Report on Business (December 2012), a typical shale oil well “consumes roughly 4,000 kilograms” of guar gum. By 2012, Halliburton alone was using 14 million pounds of guar gum per month.”
Meanwhile, those peasant farmers in northwestern India (especially in Rajasthan state) couldn’t believe their good fortune. With the frackers and the bakers and the ketchup makers all vying for guar, the price started rising like some moist gluten-free muffin. Guar farmers took out loans to buy equipment and extend their guar acreage. A few bought SUVs or gold bars, becoming the envy of their neighbours. Then those neighbours by the thousands stopped growing lentils and millet and jumped on the guar bean bandwagon. By 2012, 8.6 million acres of guar beans were being grown in India and the price just kept rising.
The price cut into the profitability of the frackers, who were paying some 30 per cent of their well-service costs just for a bean. During the summer of 2012, the situation reached a climax. As The Guardian UK (December 18, 2012) reported, by that point demand for guar was so strong “that panic buying set in and prices were doubling week-by-week.”
While the guar gum price was reaching toward US$28,000 per ton (with an increase 1,400 per cent in a single year), one of the fracking giants took action. Halliburton CEO David Lesar complained to Reuters (July 20, 2012) that guar had “the fastest-moving commodity price that I have ever seen.” But the Reuters writer noted “Halliburton itself probably contributed” to the volatility “by embarking on an aggressive and successful campaign to build up a private stockpile that would protect it from future supply gaps.” Halliburton reportedly stockpiled 4 months’ worth of guar gum, adding to the panic buying by others.
As The Wall Street Journal (December 5, 2012) reported, “U.S. oil-services companies, worried that a drought in India would hurt guar output, began to stockpile the gum, which they buy from Indian processors or through commodity-trading companies like Connell Bros. Co., a division of Wilbur-Ellis Co. At the same time, India-based commodity speculators began to ramp up the price of the bean and gum on local futures markets.” The WSJ writer called it “a classic bubble.”
The Bubble
Like many agricultural commodities, guar is overlaid by an infrastructure of traders, bankers, speculators, exporters – all of whom were getting very rich on guar. According to The Guardian UK , as the price of guar was escalating in the summer of 2012, “one of India’s biggest guar exporters, Vikas WSP, gave away 3,000 tonnes of guar seeds to encourage farmers to switch away from cotton and other crops to guar bushes.”
Finally, India’s commodity-markets regulator (the Forward Markets Commission) stepped in during late summer 2012 and suspended futures trading because of suspicions of “market manipulation.” As globalresearch.ca reported (September 18, 2012), day-traders and rogue brokers were having such a guar speculating frenzy that “twice the size of annual production of the [actual] crop was traded in the futures markets on a single day.” Other speculators were buying up and storing guar in warehouses (financed by private banks) to raise the price.
The FMC’s market suspension, coupled with the massive stockpiling by US frackers, suddenly plunged the price of guar to about $7,000 per ton – a bursting of the bubble that meant many farmers who had taken out bank loans based on the high guar price were suddenly in trouble.
Nonetheless, with free seeds available from exporters, farmers in three Indian states increased their guar acreage by almost 30 per cent in 2013, only to see another price bubble, and another crash by November 2013, with the regulator again stepping in to investigate.
Given such a volatile market, the oil-services giants decided to make their own fracking guar substitutes.
Into the Laboratory
Calgary-based Trican Well Services Ltd. touts its trademarked guar substitutes TriFrac-C and Novum, which the company’s 2012 Annual Report says “have been field tested by Trican customers and results have been equivalent to or have exceeded guar-based systems.”
Baker Hughes trademarked something called “AquaPerm,” while Halliburton rolled out “PermStim” – leading a business writer for Reuters (August 13, 2012) to note that they “sound like hair care products” but could be “a big prize for oil services companies as they try to stabilize costs.” By 2013, Schlumberger was advertising its trademarked guar-substitute, “HiWay.” Most of these laboratory substitutes use biodegradable polymers, thought to be more “green-friendly” than other chemicals.
But according to market trends analyst Thomasnet.com (May 9, 2013), “…there isn’t anything currently available with the reliability and quantities of guar gum.” Others have noted that the industry likes to claim its proprietary fracking fluids contain common food ingredients, like guar. For example, the American Petroleum Institute’s July 2014 report, Hydraulic Fracturing: Unlocking America’s Natural Gas Resources, uses images of a tube of lipstick and an ice cream bar (which both contain guar gum) as examples of the nonthreatening ingredients in fracking fluids.
By 2014, India’s The Economic Times (February 6, 2014) was reporting that guar demand from the US oil/gas sector was again on the rise, with Halliburton and Baker Hughes “the two major buyers of India’s guar gum.” Whether that means “PermStim and “AquaPerm” delivered less than stellar fracking results is not clear.
Ironically, however, increasing climate change is causing weather-extremes that endanger India’s guar crops – another form of volatility for the sector but this time by delayed, weakened, or heightened monsoon seasons. Many peasant farmers themselves, who profit little from the price increases, appear to be turning away from guar, apparently having lost faith in the economic “trickle-down” theory. A July 2014 Guar Gum Report: India from corporate advisor threeheadedlion.com quotes farmers saying they are less interested in growing guar. This year a delayed monsoon season was followed by intense monsoon flooding that wreaked havoc across India.
Perhaps fossil-fuel induced climate change will itself be the giant-slayer that brings down the fracking industry. Otherwise, maybe the Big Green NGOs could use their millions to provide free seeds for other crops and help India’s peasant farmers transition away from guar.
21 Comments on "On Guar Beans and Fracking Giants"
coffeeguyzz on Wed, 12th Nov 2014 5:40 am
Two factors are appearing that may temper, somewhat, the expanding use of guar in the frac’ing world – the growing recognition of the higher effectiveness of so-called slickwater fracs in many formations, and the recently introduced array of Resin Coated Sands (RCS) that temporarily makes the proppant more ‘buoyant’ during delivery.
coffeeguyzz on Wed, 12th Nov 2014 6:07 am
Hamm’s above observations regarding the significance of horizontal drilling, BTW, need to be viewed in conjunction with the recent advances of micro seismology-techniques with which some contributors on this site have great familiarity. Hydrocarbon seams as thin as ten feet can be successfully stimulated with great precision. Each of the Bakken’s 4 currently accessed benches/layers average only 50 feet in thickness. Operators in the Eagle Ford are placing laterals in a ‘high/low’ configuration to better take advantage of the EF’s 200 foot thick payzone – thus greatly increasing that field’s ultimate yield.
Final note, the author curiously conflates the 140k-in-six-months results with a 30 year recovery amount. The author does not seem to recognize that the shale hydrocarbons would have zero recovery prior to recent advances.
He may be unaware that 95% of the hydrocarbons still remain in formation, although recent research portends huge changes in that aspect in the not too distant future.
shortonoil on Wed, 12th Nov 2014 7:11 am
The technology employed by the shale industry has certainly been amazing. They can now produce 3.3 mb/d of hydrocarbons that no one can afford.
This will go down in history as bigger than the army’s $24,000 toilet seat!
rockman on Wed, 12th Nov 2014 7:18 am
Let’s clear up some of the obvious BS that Harold also knows is BS.
“In 2000, there were less than 50 horizontal drilling rigs in the US…” There is no such thing as a hz drilling rig. The service companies didn’t run out and build hz drilling rigs. The same rigs that drill hz holes also drill vertical holes. What he’s intentionally misstating is that 1,200 rigs were drilling hz holes in 2012. And a new phenomenon? About 20 years ago most of the rigs in Texas were drilling hz holes in the Austin Chalk formation.
“This advanced technology allows us to drill two miles down, turn right, go another two miles, and hit a target the size of a lapel pin.” It really is very cool technology. I am a geosteering geologist that was hitting those tiny targets 20 years ago. Yep: drilling a lateral 5,000’ is cool. But not as cool as the 30,000’+ laterals Maersk has been drilling offshore Persian Gulf for some years now. BTW I was offered thru my Brit company a gig as one of their geosteerers but my MS eventually eliminated offshore work for safety reasons.
“Our typical vertical well takes 30 to 35 years to produce 140,000 [barrels] on a vertical well. So we did that in six months.” What he fails to point out is that the hz well will also take 30 to 35 years to produce its ultimate recovery. And that vertical wells (which are also typically frac’d) in fractured reservoirs also produce the great majority of the URR with a similar very short time. So yes: hz wells recover their cost quickly…which is an economic requirement given they tend to cost many times more than a vertical well. BTW good vert wells also tend to recover their cost in such a short time. The real advantage of a hz well is that the chances of hitting the natural near vertical fractures is much higher than you can do with vert wells.
“Billionaire Harold Hamm is right: the shale revolution is pretty astonishing, and the most surprising thing about it is that it all pretty much depends on a little bean.” The shale plays are equally dependent upon direction drilling equipment, drill rigs, etc. But the shale plays depend on one factor more than all the others combined: high oil prices. Everything being done on a technical level today could have been just as easily done 10 years ago. And the knowledge of the hydrocarbons in the shales has been known much longer. The lack of one critical component kept the shales from booming a decade ago: a high oil price.
And one more comment: “The author does not seem to recognize that the shale hydrocarbons would have zero recovery prior to recent advances.’. Not true but a valid spin IMHO. I drilled and frac’d my first EFS over 25 years ago. And yes: it was a crappy well. But it did ultimately produce about 15,000 bbls. And the first EFS completions were done more than half a century ago with equally unimpressive results. I also did one of the first “mega fracs” (500,000+ pounds of sand) in 1979 in the Edwards carbonate shale in Texas.
But as I said I believe the spin coffee is going for is valid: the shales would never be a much of a play without the hz and frac’ng technology. OTOH, as I pointed out above, they also wouldn’t be much of a play without high oil prices either. Otherwise we would have seen the shale play booming long before now.
coffee – Check out synthetic proppants. Some “float” even better than RCS. As long as oil prices stay up the service companies will keep tweaking the process.
Northwest Resident on Wed, 12th Nov 2014 10:14 am
“They can now produce 3.3 mb/d of hydrocarbons that no one can afford.”
And in their wake, they leave a massive pile of accumulated debt which will most certainly never be paid back, and the strewn bodies of uncounted investors who “bought the hype” and forked over their money, thinking they were getting into the next “get rich quick” scheme when in fact they were just piling on to the bottom of a doomed Ponzi scheme.
And don’t forget about the many billion$ in government subsidies that the government handed over to the oil companies.
Anything to keep the BAU ball rolling forward for a few more days.
oilystuff on Wed, 12th Nov 2014 10:41 am
I have had oil and natural gas production for over 50 years; I have never once gotten a check from the government, not for drilling a well, or not drilling a well, nada. I have in fact, compared my tax burdens to other industries in the US and without question, local to state to federal, I pay much higher rates than any other industry I know. Google it.
I get to write off a portion of the costs of drilling a well from my gross taxable income each year, similar to somebody in the lawn business buying a new mower. I am a small operator, I get an additional “depletion” allowance that I can also deduct from my taxable income each year. It isn’t much. Big companies don’t get that allowance.
Federal tax incentives were created more than 50 years ago to offset the risks that operators take spending enormous amounts to money to extract hydrocarbons. I’d say that system has worked pretty well over the years. The amount of money that I can deduct from my taxable income, already subject to ridiculously high tax rates, is far from a subsidy. I get tired of hearing that “subsidy” bullshit all the time.
ghung on Wed, 12th Nov 2014 10:42 am
Rock: The good news is that Blue Bell doesn’t list guar gum as one of its ingredients, unlike many ice creams, although it’s likely that ‘Beaver Butt Juice’ is part of their concoction:
http://www.earth911.com/business-policy/business/you-put-what-in-my-ice-cream/
Northwest Resident on Wed, 12th Nov 2014 11:02 am
oilystuff — I think that is the first time I ever mentioned anything about oil subsidies despite reading and hearing about it all the time. I had no idea that there were sensitivities to that subject. From Wikipedia:
Types of energy subsidies are:
Direct financial transfers – grants to producers; grants to consumers; low-interest or preferential loans to producers.
Preferential tax treatments – rebates or exemption on royalties, duties, producer levies and tariffs; tax credit; accelerated depreciation allowances on energy supply equipment.
Trade restrictions – quota, technical restrictions and trade embargoes.
Energy-related services provided by government at less than full cost – direct investment in energy infrastructure; public research and development.
Regulation of the energy sector – demand guarantees and mandated deployment rates; price controls; market-access restrictions; preferential planning consent and controls over access to resources.
Failure to impose external costs – environmental externality costs; energy security risks and price volatility costs.[5]
Depletion Allowance – allows a deduction from gross income of up to ~27% for the depletion of exhaustible resources (oil, gas, minerals).
The subsidies exist. They are fact. There arguably are and have been beneficial to the general public — I suppose that argument can be made, as in, the subsidies have helped to balance the extreme risk/cost of oil extraction and kept the price lower for consumers. Somebody is paying for them — or, rather, the FED is creating new money to pay for them most likely. It actually isn’t bullshit, just another inconvenient fact.
shallowsand on Wed, 12th Nov 2014 4:17 pm
Northwest. I mean no personal offense to you or anyone else by this post, however.
You mentioned a lot of subsidies. The only one that would apply to a small independent oil producer that would differ from any other small business owner would be the 15% depletion deduction for marginal wells. It is one that the Obama administration continues to target as a “Big Oil” subsidy, even though it only applies to small companies and royalty owners. I am far from an Obama basher, but I get very tired of his administration referring to this depletion deduction as a tax break for “Big Oil”.
On top of federal and state income taxes, small independent producers pay sales taxes on all purchases of equipment and supplies, just like any other business, pay FICA taxes for employees, just like any other employer, pay federal and state unemployment taxes, just like any other employer, pay severance taxes, which are paid to the state as a percentage of GROSS oil sold (paid even if, after expenses, the well is in the red) pay ad valorem taxes (i.e. real estate taxes) on each lease, and pay annual well fees to the state for each well. Small independent producers also carry liability insurance, worker’s compensation insurance (which is at a high rate) auto insurance, environmental liability insurance, and health insurance for their employees, at least if they hope to employ good workers.
It is so easy to throw around the subsidy for “Big Oil” b.s. and paint every oil producer as someone with their hand out. It could very well be that all of the subsidies you list are afforded to the companies that have enough $$ to do some serious lobbying.
I know I sound like a whiner, and probably am. However, I do not understand why the masses love “small business” but don’t consider small independent producers “small business”. If you equate oil to smoking cigarettes and burning coal, I guess I can see why one would have that viewpoint. Heck, now that pot is legal in some states, I assume the small oil producer can add yet another group of small business owners that rank ahead of him or her in the general public’s perception. LOL.
Northwest Resident on Wed, 12th Nov 2014 4:28 pm
shallowsand — I never take offense, and there isn’t anything in your pov to be offended about.
I’m so far from an expert on oil subsidies and which producers get them and who gets what and why — I did not mean with my original comment on the subject to imply that oil producers are standing around with their hands outstretched waiting for taxpayer dollars to be provided by Uncle Sam. My only point was that fracking/unconventional oil production has accumulated a significant amount of debt which will never be paid back, and that as it now turns out a lot of investors are losing big time on their investments in those oil production efforts. And, as an aside, not to mention that another part of the accumulated debt that could be added to the total is the billion$ in government subsidies — not that billion$ have been handed directly to oil producers, but billion$ in public debt has been added to the total as a result of those subsidies. It was supposed to be a minor point. I am just now finding out that there is some sensitivity to the imagery that the term “government subsidies” implies. I know the oil producers like rockman and oilystuff and others on this site are tough individuals who worked hard and made it on their own, and I can understand why they might bristle at the implication that they’ve “taken handouts”. My apologies — it wasn’t meant that way at all, and I never thought about it that way. Maybe others do. I was only thinking of the accumulated debt.
oilystuff on Wed, 12th Nov 2014 5:14 pm
Mr. Northwest, I did not glean from your response to my post that you thought that the oil and gas industry was looking for a handout, not at all. No need to apologize, sir. I cannot speak for Mr. Shallowsand but I would venture to guess that he would agree with me in saying that just about every thing mentioned in Wikipedia about oil subsidies has absolutely nothing to do with the real oil field. We get to write down certain costs associated with doing business, like any other business, and we get the depletion allowance of 15%. In fact, mineral and other royalty owners get the same 15% tax deduction.
And respectfully, that is what this notion of subsidy is, merely taxes on doing business that might be paid to the government and don’t get paid. There is no exchange of real money. These tax “incentives” have helped develop a robust and healthy domestic oil and gas industry that has then paid in hundreds of billions of dollars in other taxes over the decades.
Fellas like Shallowsand and I need those incentives when it comes time to risk hard earned money drilling more wells. The big oil companies that Americans love to hate don’t even get to take depletion allowance.
And by the way, I could not agree with you more regarding the debt load of the unconventional shale industry. Has intangible tax write offs provided incentive to drill those stinkin’ shale wells? Yes, sir. Big time, and I don’t like it either. My greatest fear when all that stuff first got started 7 years ago was that someday the American taxpayer might get left holding the bag on all that debt. That would be the ultimate in “subsidies” and I am with you 110% on that.
Davy on Wed, 12th Nov 2014 5:47 pm
Oily, my support for you guys is total. When one understand just how vulnerable we are to liquid fuel shortages we should treat you guys like emergency services. Years ago this case may have been hard to make but now we are on the knife edge of collapse. Oil is the key to maintaining complexity. The last thing we need is to punish those who provide. With the coming decline in the value of oil and the compression of the economy I am all for oil subsidies.
Northwest Resident on Wed, 12th Nov 2014 6:34 pm
oilystuff — The only benefit then of my offhand comment about oil subsidies is that I have learned a lot about them that I wouldn’t have otherwise known, thanks to your and Shallow’s feedback. Challenge me and set me straight any time. Ultimately, I’m here to learn and to share what I *think* I know (or speculate on what might be true) with others. Actually, I consider myself more of a “color commentary” type of guy. I depend on you guys and others, along with the articles I read here and elsewhere, for the cold hard facts.
oilystuff on Wed, 12th Nov 2014 7:12 pm
Thank you, guys. to be in the oil business often means most Americans hate your guts. It’s nice to hear something good now and then.
shallowsand on Wed, 12th Nov 2014 7:20 pm
Northwest. I tend to miss the point of other posters more often than not, so I apologize for that. I am also in agreement that the shale boom could cause a lot of issues if we continue on the downward trend in prices and stay there for awhile. However, I seriously doubt that there will be a “oil company” bail out like there was a bank bailout. I think the bondholders/shareholders will take the loss, as it should be.
It will be bad for the workers, however, and I will feel bad about that.
Also, the point of my post was not just to blow off steam, but also to provide some information. I would further note that all miners are allowed a depletion deduction, such as coal, limestone, etc. The marginal oil and gas percentage depletion deduction is a true subsidy, however, as it can continue to be taken past zero basis.
The main stream media is so light on the details. So is Washington DC. I also think the disconnect between urban and rural USA is growing, due in large part to the main stream media, which is almost entirely urban based. The actual work done in the oilfield is rural, and unfortunately most urban people have little idea of what really goes on. Same for US agriculture, which also gets a bad rap quite often.
There are some really smart people out here in the sticks and some of us have a more open mind than is reported. Some, of course, and not all. A lot of misinformation out here too.
Makati1 on Wed, 12th Nov 2014 7:24 pm
FYI: “The most detailed breakdown yet of global fossil fuel subsidies has found that the US government provided companies with $5.2bn for fossil fuel exploration in 2013, Australia spent $3.5bn, Russia $2.4bn and the UK $1.2bn. Most of the support was in the form of tax breaks for exploration in deep offshore fields.”
http://www.theguardian.com/environment/2014/nov/11/rich-countries-subsidising-oil-gas-and-coal-companies-by-88bn-a-year
“In the United States, credible estimates of annual fossil fuel subsidies range from $10 billion to $52 billion annually yet these don’t even include costs borne by taxpayers related to the climate, local environmental, and health impacts of the fossil fuel industry.”
http://priceofoil.org/fossil-fuel-subsidies/
Not mentioned is the percentage of the Military budget that goes to protecting/plundering oil resources around the world. Many billions more.
Northwest Resident on Thu, 13th Nov 2014 12:37 am
shallowsand — “It will be bad for the workers, however, and I will feel bad about that.”
I hear you. But look at it this way. The fracking “boom” gave the oil industry one last major shot in the arm. The regular Joes doing the work, including the guys driving the trucks and all the other supporting businesses and industries — they all got one last good ride.
Somebody notable (can’t remember who) called it the oil industry’s “retirement party”, and what a party it was.
If we start seeing a lot of oil industry workers getting pink slips and hitting the unemployment lines in the near future, that (to me) will be a sure sign that we are at the crest of that long slide down to the end of the oil age.
Let’s face it. There aren’t any more “booms” left in the boom/bust cycle that the oil industry has endured since its inception. Like I said on another post, I think this is it, The Last Bust. We’ll see, I could be wrong. But then, where would the next “boom” come from? Another round of fracking and associated astronomical debt accumulation to add on top of what we’ve already got? Somehow, I doubt it.
Like I said, there’s no more booms left in that boom/bust cycle. If that ends up being true, then we’ll be feeling bad about a lot more than just the oil workers, of that I’m sure.
rockman on Thu, 13th Nov 2014 6:58 am
NR – “Failure to impose external costs – environmental externality costs; energy security risks and price volatility costs.” So how much do you pay annually for the environmental externality costs from your consumption of fossil fuels? Are you by chance one of the many tens of millions of folks who have their home mortgages subsidized by the govt? Are you one of the many millions of citizens currently getting direct financial transfers from the govt? Are you one of the many millions of citizens whose products their companies make are competing against foreign imports which are subject to technical restriction and import tariffs?
But I know you understand the system as well as I do: it’s so convoluted almost everyone is getting something from the govt. Something that is being transferred from another party or is being created out of thin air by the Fed “new money” you mentioned.
But let’s focus on what the oil patch has been injecting into the system as well as what it has benefited from the process. For instance I’ll make an offer: I’ll give up my depletion allowance if La. stops taking 12.5% of every bbl of oil I produce. The state has collected 560 million bbl of oil from operators off the top over the last 33 years. And Texas with its “cheap” 4.5% severance tax has taken 550 million bo off the top. So just between those two states the oil patch has “subsidized” those two govts with a little over 1 billion bbls of oil. Let’s use a $25/bbl inflation adjusted average during that time: so this subsidy adds up to about $25 BILLION. Of course, that doesn’t include the severance tax on NG nor the hundreds of millions the oil patch has paid in fees to fund state regulatory agencies.
And remember the vast majority of that oil we produced belonged to the land owners…not the state. So at least the royalties paid to land owners would seem more justified then paying the states for producing oil the state doesn’t own. And those royalties? Could only find production from 1949 thru 2011. Produced a lot of oil before 1949 but we’ll let that go. And can only guess the average royalty was somewhere between 1/8 and ¼. So let’s go low: 1/8 or 12.5% royalty. Since the oil path produced 214 BILLION bbls of oil during that period the royalty oil would have been a minimum of 27 billion bo. And using a lower inflation adjusted average price of $10/bbl the oil patch has mailed out checks to land owners totaling at least $270 BILLION. Of course that wasn’t payment like a salary: all those folks had to do was sign a lease and then cash their mail box money when it came every month. And of course that doesn’t include royalties for NG. Nor does it include the $100+ BILLION the oil patch has sent the citizens of our great country for the royalty the feds collect from offshore leases.
And we’ll skip over the rather low taxes public companies pay. But let’s not forget the hundreds of $BILLIONS the oil patch has paid out in salaries over the decades…monies that came from the revenue generated from producing oil/NG. So yeah…the oil patch gets some tax breaks…who doesn’t…including you. Difficult to compare one industry to another but all things being equal I curious; what other industry has DIRECTLY contributed as much as the oil patch has?
And lastly I won’t even toss out the staggering amount of dividends the public US oil patch companies have distributed to their shareholders over the decades. There are still a lot of folks that don’t understand the pubcos are owned by tens of millions of Americans. Nearly every union member and a great many local and state govt employees in this country have part of their retirement checks funded by those dividend payments. So let’s be clear: when someone talks about whatever benefits the govt allows for a pubco those perks are being given directly too many millions of citizens.
And notice none of the above statements addressed the obvious need of the economy for the energy companies to do what they do and do it profitable. ExxonMobil makes a sh*tload of revenue of which some portion comes from what perks it might get. But remember all of XOM revenue goes to: salaries of 83,000 folks, taxes, royalty payments to citizens and the state/fed govt and to dividends paid to many millions of the public. What’s left goes to producing more oil/NG and refined products which generates more revenue which is disbursed as I just described. So if folks what to bitch about whatever perks the oil patch gets it’s good to remember that those perks are essentially being given to tens of million citizens. Cut the perks and cut the benefits to them. It’s a very simple dynamic.
Northwest Resident on Thu, 13th Nov 2014 9:26 am
rockman — I really opened up a can of worms, didn’t I? Totally unintentional, I assure you. One word: FUBAR!!!
oilystuff on Thu, 13th Nov 2014 10:53 am
Actually sir, I appreciate the opportunity to download on this matter of what constitutes “subsidy” and the role that tax incentives play in a strong domestic oil and natural gas industry.
Ad valorem taxes on oil and gas production and production equipment in Texas amount to an additional 2% tax, over and above the 4.6% severance tax paid to the State. These property taxes maintain county roads and other community infrastructure and provide the primary source of income to school districts in Texas. All goods and services provided to the oil industry in Texas, from backhoe work to well servicing to fracing to pipe dope is taxed at the rate of 6.75%. Again, in spite of the rhetoric on links like those posted above, the oil industry in the US is the most heavily taxed industry there is, period.
As Mr. Rockman suggests, the tax deductions we are allowed benefit all Americans, in a very big way. As we approach the end of the hydrocarbon era I think now is not a good time to be taking away these incentives.
And while we’re on the subject of giving up depletion allowance, I’ll give mine up if my government will stop penalizing me an additional 15% taxes, just for being self employed and providing employment to a number of good men and women needing to feed their families.
OK, I am done; promise. Thanks for being open minded about it.
ghung on Thu, 13th Nov 2014 11:32 am
oilystuff: “…the tax deductions we are allowed benefit all Americans, in a very big way. As we approach the end of the hydrocarbon era I think now is not a good time to be taking away these incentives.”
Yeah, oily, the age of Faustian bargains. At least you seem to be in tune with that. Our oil predicament is just one of many, but I doubt our descendants will give a shit, either way.