The Second-Coming of Petroleum in Texas

Petroleum in TexasThe Texas state government just ended 2013 with an $8.8 billion revenue surplus. The state runs on a two-year budget cycle, and during that time natural gas produced $2.6 billion in state taxes and oil production contributed $4.4 billion in tax revenue – a 42% and 80% increase in revenues from the previous two-year cycle!

For those of us who lived through the “oil bust” in the 1980s, when prices fell like an asteroid because of an international surplus, it’s hard to fully fathom this second-coming of petroleum and its importance to our state. Oil went from $33 a barrel in the early 80s – when it was predicted to rise to $100 – to just $10 a barrel in the mid-80s. Today a barrel of oil generally sells between $90-110, or more, and that is what has made drilling in Texas profitable, again.

Coupled with more efficient extraction methods, production of oil and gas in Texas can continue or even increase for years to come. The Permian Basin has long been the center of Texas petroleum production, and is still a leader, but the Eagle Ford shale and Barnett shale formations are quickly catching up with both liquid and natural gas production. About $6.7 billion in royalties were paid out in 2010 (most recent data available) to private landowners in Texas.

The number of jobs and amount of private wealth, for blue and white collar workers, that is being created is staggering. Oil and gas generated a total payroll of $48.7 billion in 2012 – an average of $128,100 per worker – nearly half of the total for the entire U.S. Last year, about 380,000 people in Texas were employed in the oil and gas industry, while the industry directly or indirectly affects about 2 million jobs.

In fact, there are so many open jobs in the petrochemical field in Texas, oil and gas companies are running out of people to take the jobs. In the Houston/Gulf Coast area, Exxon is partnering with local community colleges to recruit and train job candidates. You’ll see more and more initiatives like this in coming years since the industry is adding about 30,000 jobs annually.

More jobs, more tax revenue, more income, more personal wealth – that’s what the oil and gas industry has brought to Texas in the last few years. In fact, Texas is helping move the national conversation from “energy independence” to actually lifting the 40-year-old ban on exporting oil. It has been about 30 years since the bottom fell out of the petroleum market for Texans, but the industry has been fully resurrected – and the future looks even brighter.

The Oil Industry in 2013

Oil and Gas Industry With 2013 in the history books, it’s time to take a look back at the year that was in the oil and gas industry.

Overall, it was a banner year for oil production in America. The U.S. Energy Information Administration has reported that 2013 marked the highest annual increase in oil production in our history, producing over 7.5 million barrels a day more than the previous year. As we’ve previously mentioned, much of this can be attributed to the uptick in oil production right here in Texas mainly from the Eagle Ford formation and the Permian Basin.

The rousing successes of the large shale plays in America have led the way in a worldwide trend. The U.S. Energy Information Administration has estimated that 10 percent of the world’s crude oil resides in shale worldwide. Countries such as England, Mexico, and Saudi Arabia have begun exploring their own shale formations in light of this success.

Venezuela continues to limp when it comes to oil production. Since Hugo Chavez took office in 1999, the country’s oil production has continued to drop annually. Some reports indicate that oil exports have dropped by half since that time. In 2013, the trend continued, as oil production fell by 235,000 barrels a day. With Hugo Chavez’s passing in March, it remains to be seen how Venezuela’s oil production will change in the new year.

In Russia, all signs pointed at it being a good year in terms of oil production. Russia produced more than 530 metric tons of oil in 2013, several tones higher than their 2012 output. Vladimir Putin even went on record saying that production is the best it has since the 1990s. To help spur this growth, Russia had implemented several new laws to help increase oil production.

China surpassed America as the largest crude oil importer. With a billion more people in its borders than America, this doesn’t come as quite a surprise. Some may even wonder why it took so long. Overall, China imported 280 million metric tons of crude oil in 2013, a four percent increase compared to the previous year.

It was an exciting year in the oil and gas industry. Overall, oil production worldwide is trending upward. In 2014, if you are interested in selling your oil or gas royalties, don’t hesitate to contact us.

Mexico Passes Legislation to Open its Oil and Gas Market to Foreign Investment

Mexico Parts of America and the Middle East have long been considered the major players in the oil and gas market. And while that’s not necessarily incorrect, other countries such as Mexico are beginning to make waves with oil and gas extraction as well.  Mexico recently passed legislation that will likely make the country a larger player in the global oil and gas market. But not everyone is happy about it.

For more than 75 years, all of Mexico’s oil extraction has been undertaken by one firm: Petroleos Mexicanos, commonly called Pemex. Pemex was established in 1938 when the then Mexican president took the side of striking oil workers who were against oil companies that were foreign-owned.  The workers wanted an increase in pay and the ouster of foreign-owned oil companies in Mexico. The subsequent increase in pay and political jockeying all but eliminated foreign involvement in Mexico’s oil. Pemex’s reach is so substantial that even if a citizen discovers oil on their land, it is still Pemex property. Despite its nationalized position, Pemex is still heavily taxed, which has put the company in a poor financial situation that has limited its ability to further oil and gas exploration and extraction in Mexico. Its position also restricts access to technology from outside nations, crippling any technological advances. These factors have left Mexico lagging behind other nations in the oil and gas arena.

But all of that may be changing. In mid-December 2013, the Mexican Congress voted to end Pemex’s grip on the country’s oil production by allowing foreign oil companies inside the borders. The bill is a drastic one as it even changed parts of the country’s actual constitution. Proponents of the bill claim that offering contracts to foreign companies will bring in billions of additional revenue for the country and offer a competitive oil market for citizens, which will help keep prices low.  Opponents fear that foreigners will take advantage of Mexico, and will lose its source of national pride. Also, many Mexicans are concerned that foreign companies will ship money out of the country that would have otherwise remained in Mexico.

As production and revenue began declining over the past few years, it was time for Mexico to make a drastic change, but even experts are floored by the scope of this recent move. Estimates expect the subsequent oil boom to change the landscape of the oil industry. There is still a lot that needs to be done behind the scenes in terms of actual law making. But in 2014, the spotlight will be on Mexico to see how this change shapes the future of the entire industry.

John F. Kennedy and Texas Oil

John F. KennedyThis month marks the 50th anniversary of the assassination of the 35th President of the United States, John F. Kennedy.  Many events have been held throughout Dallas and the United States to commemorate President Kennedy’s legacy.  In evaluating his presidency, what often gets overlooked is his role in Texas oil, and the shape the industry took (or didn’t take) based on his involvement.

Since 1926, oil companies had large tax concessions, which allowed them to hold more resources that were vital for the continued development of American lands to produce oil. This oil was needed for military efforts and citizen use, which is what the tax incentive sought to spur. An added result of these tax breaks were larger financial returns for “oilmen” in the form of both lower taxes and increased oil production. The oil depletion allowance allowed oil companies to keep 27.5 percent of their revenue tax free. President Kennedy intended to re-evaluate America’s oil needs, which could have involved doing away with the tax concessions the industry enjoyed. Removals of these tax incentives were estimated by World Petroleum to subtract more than $250 million in additional profit.

President Kennedy’s involvement actually stretches back to his vice president, Lyndon B Johnson, while Johnson was a senator. Jane Wolfe recounts in her book, The Murchisons: The Rise and Fall of a Texas Dynasty, that Johnson would often meet with Texas’ most influential oilmen prior to becoming vice-president, and discuss politics with them, alluding to which senator needed support in order to keep the tax incentives flowing. The oilmen then ensured that these politicians had the financial means to push their legislation forward. Johnson’s charm with Texas oilmen soured when he joined Kennedy’s presidential ticket. Johnson joining Kennedy meant that oilmen lost an ally in the senate. And while they were upset at Johnson, they were also likely frustrated in having little influence with President Kennedy. The oilmen’s fears were correct, and in 1962, President Kennedy and Congress passed The Kennedy Act, a piece of legislation that removed distinctions between company’s profits, created to dissuade American companies from investing abroad. This act especially pinched oil companies. It’s estimated that it cost them 15 percent of their profits on foreign investments.

A year later, in 1963, President Kennedy proposed removing the oil depletion allowance, the main tax incentive for oil companies. Estimates showed that it would have cost Texas oilmen $300 million in profits each year. But as we all know, the unthinkable happened on November 22, 1963, when President Kennedy was assassinated. Johnson abandoned the discussion of removing the allowance, as did his successor, President Richard Nixon. Given the size and influence of the oilmen and the rampant nature of skepticism surrounding President Kennedy’s death, some have proposed that his assassination was directed by oilmen, as famously covered in Barr McClellan’s book, Blood, Money & Power: How L.B.J. Killed J.F.K. although the Warren Commission concluded that Lee Harvey Oswald acted alone in killing Kennedy.

Top Paying Jobs in Oil and Gas Extraction

Oil and Gas ExtractionThe number of jobs created in the oil and natural gas industry has grown rapidly in the United States. Specifically, the oil and gas extraction subsector is one of the fastest growing in terms of job creation in the country over the last several years.

Industries in the Oil and Gas Extraction subsector operate and/or develop oil and gas field properties. Such activities may include exploration for crude petroleum and natural gas; drilling, completing, and equipping wells; operating separators, emulsion breakers, desilting equipment, and field gathering lines for crude petroleum and natural gas; and all other activities in the preparation of oil and gas up to the point of shipment from the producing property. This subsector includes the production of crude petroleum, the mining and extraction of oil from oil shale and oil sands, and the production of natural gas, sulfur recovery from natural gas, and recovery of hydrocarbon liquids.

There are a wide range of occupations within the oil and gas industry that are benefitting from this growth, each with varying degrees of responsibilities. We have created a profile of the highest paying jobs in oil and gas extraction using salary information based on 2012 data from the United States Bureau of Labor and Statistics.


Petroleum Engineers

Average Hourly Wage: $77.43

Average Annual Wage $161,050

Requirements: Bachelor’s degree

Petroleum engineers are hired to create, calculate, design, test and implement strategic methods that maximize the profits of oil and gas recovery and extraction. They also estimate the amount of recoverable volume of resources before extraction begins by analyzing data using their expert knowledge and understanding of oil and gas behavior within the earth’s surface. In addition, they also financially analyze the operation to ensure the operation proficiency allows maximum return on the labor.


First-Line Supervisors

Average Hourly Wage: $38.68

Average Annual Wage: $80,450

The first line supervisors oversee and coordinate activities of construction or extraction workers to maximize their strengths and overall labor cohesiveness. Work experience in a related field is required to become a first-line supervisor in the oil and gas industry.


Service Unit Operators

Average Hourly Wage: $23.00

Average Annual Wage: $47,840

Requirements: Moderate-term on-the-job training

The primary responsibilities of a service unit operator, also called “fishermen” among other names, are operating equipment to increase the flow of oil from producing wells and to removing any obstructions from the drilling wells that may impact the flow of oil.  This is a vital job, ensuring that oil flows adequately and freely in order to maximize output.


Rotary Drill Operators

Average Hourly Wage: $27.69

Average Annual Wage: $57,590

Requirements:  Moderate-term on-the-job training

Rotary drill operators set up and/or operate drills to remove oil and gas from the ground. They also remove core samples for testing during oil and gas exploration. One of the most important aspects of their job includes physically controlling the machines and processes such as the use of measuring devices in construction or extraction work, as well as extracting core samples.


Derrick Operators

Average Hourly Wage: $24.95

Average Annual Wage: $51,890

Requirements: Moderate-term on-the-job training

Derrick operators are responsible for maintenance and upkeep of oil and gas drilling equipment, preparing and operating pumps to circulate mud through the drill hole, controlling drill pipe placement, and inspecting and repairing the drill rigs. Without proper equipment, oil and gas cannot be extracted, making derrick operators a vital part of the team.


Wellhead Pumpers

Average Hourly Wage:  $22.69

Average Annual Wage:  $47,190

Requirements: Moderate-term on-the-job training

Wellhead pumpers are tasked with operating the pumps and auxiliary equipment that produce the flow of gas and oil from the wells. Some outfits also require wellhead pumpers to supervise pump workers on producing wells. Being prepared and responsive to emergencies that may arise is also an important role of their job. In addition, they must be well informed with environmental regulations in case an emergency situation arises.


Gas Compressor and Gas Pumping Station Operators

Average Hourly Wage:  $24.58

Average Annual Wage:  $51,120

Requirements: Moderate-term on-the-job training

Gas operators man the steam, gas, electric motor, or internal combustion engine driven compressors that recover gases such as butane, nitrogen, hydrogen, and natural gas. In addition to operating their stations, Gas operators take samples of gas and perform test to determine the quality. If a problem arises, they must be respond by adjusting the control room and delegate any necessary course of action to resolve the issue.


Surveying and Mapping Technicians

Average Hourly Wage:  $29.00

Average Annual Wage:  $60,320

Requirements: Bachelor’s degree

Perform surveying and mapping duties, obtaining data used for construction of wells, and create source data maps.  Technicians are also tasked with analyzing the data from surveys, well logs, bore holes, and aerial photos.  They also verify the accuracy and completeness of each map.

As you can see, there are many lucrative positions in the oil and gas industry, and the trend certainly indicates that there will be ample opportunities moving forward.

Safety in the Oil and Gas Industry: H2S

Oil and Gas SafetyWorker safety in the oil and gas industry has improved dramatically over time, and working in the field is a much safer occupation today than it has been historically. Despite residual risks, employment opportunities in the oil and gas industry have increased wildly recently, as we’ve written about before.

The industry has identified many chemicals and natural hazards and mitigated the risks by setting regulations and standards in place to ensure the safety of employees. For instance, oil and gas drilling personnel may be working in areas with a high concentration of hydrogen sulfide, or H2S, which can cause serious injury or even death upon exposure. H2S is a highly toxic, colorless gas that appears naturally as a result of organic decomposition. The gas can be identified by its rotten egg smell, and prolonged exposure to the gas can damage the senses, leaving people without the sense of smell. Since H2S gas is heavier than air, the most concentrated hydrogen sulfide levels are found closer to the ground, making the gas potentially fatal to workers who pass out in its presence.

The oil and gas industry and its safety and regulatory commissions have addressed the problem of H2S exposure to reduce the risk of harmful injury or death on the job. When working in areas where high concentrations of H2S are present, workers must complete the required training courses before starting their assignments. Most workers are also required to wear H2S gas detectors and oxygen tanks at all times on the job. Working in pairs with oxygen tanks is another common way to reduce the risk of an H2S incident. If one worker should lose consciousness because of exposure to H2S, the second worker can provide the fallen worker with oxygen from their tank, move their partner out of the area, and then call for help.

The Occupational Safety and Health Administration (OSHA) keeps a very close eye on all employers in the oil and gas industry to ensure employees are provided the necessary equipment and hazard training. Employers and employees must be in compliance with OSHA standards and all rules, regulations outlined in the OSH Act of 1970. To reduce the risk of burns caused by explosions, workers are required to wear flame retardant clothing, boots, and hand protection while working around flammable and combustible materials.

Even with the abundance of training, certifications and protective equipment required in the oil and gas field, unfortunately accidents and injuries can still occur.  The industry is, and has been, working around the clock to come up with safer methods and processes to make working around heavy machinery, natural elements, and other materials safer for all industry employees.

Switch Examines Energy Resources and the Transition to Clean Energy

200403745-001The future of clean energy is explored in the 2012 documentary film, SWITCH, which was recently shown at a screening presented by the Dallas Electric Club at Southern Methodist University in Dallas. The film explores many energy hubs around the world to help viewers understand how energy is produced, how much each source is producing, the economics of energy production, and public opinion. From coal to solar and everything in between, the film puts all energy resources and production under a microscope. Director Harry Lynch told the audience that he and the film crew wanted to show a nonpartisan story on energy.

Scott Tinker, an expert on global energy reserves, policy, and geoscience, serves as the film’s narrator. As Tinker prepares to visit various energy sources around the world, he explains that the average person uses 200,000 watt hours every year. Tinker uses the number of watt hours used by one person every year to measure the output and production of every energy source he visits. For example, Tinker visits Perdido in the Gulf of Mexico, the world’s deepest offshore oil drilling and production platform that produces enough energy from natural resources to meet the power needs of one million people per year while a wind farm with 4,000 windmills in Denmark can power 340,000 people per year.

The film helps viewers understand that energy extraction from every source doesn’t come without its challenges and tradeoffs. There are costs to every energy source and the challenge is creating clean energy at a cost that is acceptable to the public. The film asserts that the goal for our species moving forward is to produce clean energy at a reasonable cost.

Astonishing technological advances have been made over the years, moving us closer to our clean energy goal. But the current technology and methods of capturing, storing, and using this clean energy are often too expensive to be embraced globally. For instance, we have the knowledge and capabilities to capture and store carbon dioxide emitted by coal-fired power plants to produce “clean coal,” but doing so on a large scale requires more funding money and the resources to capture the carbon dioxide.

Energy transportation is viewed as another major issue contributing to the high cost of clean energy. How do we transport the energy from its source, and at what cost? And it isn’t just financial questions that are raised. Are we willing to erect potentially unsightly windmills in major metropolitan areas to power every home, or can power lines be used on 100-year old family farm to transfer energy across cities?

The film reaches a close as Tinker begins to subtract from his 200,000 watt hours of energy use per year by installing energy efficient lights and insulation in his home. Not surprisingly, we rely extensively on “dirty energy” such as coal and fossil fuels; the cheapest energy is the dirtiest energy. The transition to clean energy can be made, but the film tells us it will likely require the use of natural gas and nuclear energy in combination with renewable energy, a crossover of foundational energy and the energy of the future.

But before we can begin to make the transition, the film urges society to start changing its energy behavior and the way energy is viewed.  Changing society’s energy behavior is the most important part of the future of energy. Not everyone needs to install solar panels on their homes to provide them with electricity, but seeing homes with solar panels will get people to consider conservation in a different light.  Focusing on energy efficiency is the first step toward meeting our energy goals.

Is Oil Drilling Creating Jobs?

oil worker standing at pipelineThe oil and gas industry is the leading industry for job creation in the United States. Recent studies have shown that the oil and gas industry job growth is not only the fastest growing industry in the U.S. but also has added the most number of jobs since 2007 with no signs of slowing down.

Unemployment concerns have badgered Americans for several years. In August 2013, overall unemployment and job growth in the U.S. dropped to its lowest point since December 2008. Despite the drop, employment in the oil and gas industry has seen huge gains. As new drilling technology continues to be developed and new shale plays are discovered, the results are large employment increases in the oil and gas industry.

The U.S. Energy Information Administration has reported jobs in the oil and gas industry increased 40 percent while total U.S private sector employment increased by only one percent from the beginning of 2007 through 2012.  By the end of 2012, jobs related to drilling wells accounted for more than 90,000 jobs, oil and gas extraction and exploration accounted for 193,000 jobs, and oil and gas support made up more than 286,000 jobs in the United States, a very impressive overall effect on the economy.

For a 10-year period, service operators and petroleum engineers were among the ten fastest growing jobs in the U.S. Service unit operators working in natural gas extraction represented the  fastest growing job in the country from 2002 to 2012.  Service operator job growth has increased by 335 percent since 2002. Service operators make a median annual pay of $41,000 a year. The second fastest growing occupation in the U.S. is petroleum engineering, which has grown 227 percent from 2002 through 2012.

Aside from employing hundreds of thousands of workers, the oil and gas industry has also added close to $75 billion in state and federal revenues and contributed $283 billion to the U.S. GDP in 2012. It’s safe to say that the oil and gas industry is creating jobs and will continue to do so for the foreseeable future. In fact, by 2020, oil and gas industry employment in the U.S. is expected to grow from 2.1 million to an estimated 3.3 million.

There Will Be Blood: Film Review

Drilling Rig at NightThere Will Be Blood is a 2007 American drama written and directed by Paul Thomas. The film stars Daniel Day Lewis, who won the Oscar for the Best Performance by an Actor in a Leading Role for his portrayal of Daniel Plainview. The film itself won the Oscar for Best Achievement in Cinematography and was nominated for six more Oscars, including Best Motion Picture of the Year, making it one of the most successful oil industry films in history.

There Will Be Blood covers the tale of oil discovery and drilling in the United States. The film takes place during the late 1800s into the early 1900s and tells the story of oilman Daniel Plainview, who travels to Little Boston, California to purchase land to drill for oil and grow his oil empire. He meets with townspeople and landowners to discuss purchasing their land and what he and his workers aim to do on their property in terms of oil discovery. Plainview’s hard work and relentless land and oil rights acquisitions lead him to success and wealth.

The movie highlights the dangers of oil drilling during a time when drilling equipment and techniques were not as advanced as they are today, both in technology and safety. In the film’s opening scene, Plainview is seen lowering himself down into a well he is digging by hand. Plainview, alone, falls to the bottom of the well where he becomes injured and unable to stand, but finds rock containing precious minerals. As the well begins to produce oil, we witness the pulley system, consisting of a large log with ropes and wheels covering the opening of the well, collapse and fall to the bottom of the well, crushing and killing the workers inside.

One of the workers who dies in the well left behind a son, who Plainview then adopts as his own. Later in the movie, when Plainview’s son is an adult, we learn that Plainview only took the boy in so that he would seem like a “family man” and landowners would be more likely to sell them their drilling rights.

One of the most fascinating aspects of this film is how it shows the evolution of the oil industry and oil drilling technology in the United States. As the movie progresses, we see how oil production evolves from extracting oil and digging wells by hand to the use of more modern technology such as the  steam-powered well.

The title of the movie becomes more and more fitting as the story progresses. Plainview also kills or betrays characters throughout the movie to acquire their land while many characters meet grim outcomes in the drilling process. Unfortunately, both are reflections of the time. Anyone involved in the oil industry in some form would do well to watch There Will Be Blood, and understand how far the industry has come.

Federal Government Restores States’ Mineral Royalty Payments

Mineral leasing is big business particularly in the late 1800s and early 1900s when the federal government was building infrastructure and the majority of America remained largely unexplored. During this time period, the General Mining Act was established in 1872 that allowed citizens to freely prospect public lands for minerals. The law instantly created a rush of prospecting, and many citizens captured land at a rapid pace.

The Mineral Leasing Act of 1920 was later enacted that established compensation owed to states for mineral development. Under the law, the companies extracting the oil, gas and minerals pay a fee when they lease a piece of federal land and then they pay the federal government a royalty from the revenue that is generated from the sale of the minerals produced from the land.  In turn, the federal government returns the royalties earned from the production of minerals on these lands to the states. The states use these funds to pay for schools, roads, and infrastructure projects.

However, during the 2013 fiscal year, the federal government withheld the royalty money from Colorado and 33 other states as the result of a budget sequester.  The federal government asserted that the royalty payments were expenditures and could be retained as part of the sequester.

However, the Conference of Western Attorney Generals contended that the mineral royalty payments to the states were not gifts. The group asserted the payments were the result of the Mineral Leasing Act that determined states needed to be compensated for their respective mineral development.

Under pressure by elected officials, the U.S. Department of Interior recently announced that it will release a total of $110 million in mineral royalty payments to the 34 states.

The remaining issue that lawmakers will continue to address is protecting royalty funds in the future. Wyoming representative Cynthia Lummis has introduced the State Mineral Revenue Protection Act bill that would eliminate the federal government’s “middle man” status when it comes to states’ mineral revenue. The bill would ensure that all of the funds go directly to the state in a timely manner, eliminating money being re-routed to the federal government. The states depend on these funds, and could face serious issues if the money becomes held up at any point during the process.

What do you think of the existing and proposed royalty payment plans? Is the existing payment plan a relic of yesteryear or is the proposed bill a much needed arrangement? Leave a comment and let us know your thoughts.

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