Limited production start-up at In Amenas

Photo: Kjetil Alsvik / Statoil

Algerian facility was target of terrorism…

Published: Saturday, February 23, 2013 9:55 AM CST

On Friday, the In Aménas gas facilities in Algeria operated by the Joint Venture partners Sonatrach, BP and Statoil, initiated a limited production start-up. The news came in a press release issued by Statoil.

Production from the plant’s train 1 was started-up following a detailed review of technical integrity, security, and other conditions, and after the partners had concluded that the criteria required to ensure a safe restart of train 1 had been met. The remaining two production trains were damaged during the terror attack, and will not be put on stream until it is safe to do so.

The physical inspection of train 1 was conducted by Sonatrach on behalf of the Joint Venture, and the documentation has been fully reviewed by both Statoil and BP.

“The Joint Venture has initiated a limited production start-up at In Amenas. We thank Sonatrach for the work they have done and continue to do on behalf of the Joint Venture, during this difficult time for everyone involved”, says Lars Christian Bacher, executive vice president for Development and Production International in Statoil.

During the production start-up phase, the facilities will be operated by Sonatrach on behalf of the Joint Venture. Statoil and BP staff will not yet be redeployed but technical specialists will provide support when needed, in line with strict security procedures established for short-term visits.

Statoil is currently in a close dialogue with Algerian authorities, Sonatrach and BP about the necessary conditions for full production and a redeployment of staff.

“The safety and security of our people is our utmost priority. We will take whatever time needed to conduct all required assessments and reviews and take all necessary precautions before we consider a re-entry of Statoil personnel,” says Bacher.

Coinciding with production start-up, Sonatrach will hold a commemoration ceremony at the In Amenas facilities Sunday 24 February in connection with the Algerian Day of Nationalisation of Hydrocarbons. A memorial monument with the names of the victims of the terror attack will also be unveiled.

Primary Files Completion Reports on Teton, Pondera Wells: Weekly Oil Report

Patterson Rig #12 drills at Primary Petroleum’s Dupuyer Ridge well on January 8, 2012. Sun Times photo by Darryl L. Flowers
Published: Saturday, February 23, 2013 9:53 AM CST

Compiled by Darryl L. Flowers

New Locations

In Powder River County’s Bell Creek Field, Denbury Onshore, LLC has been approved for two wells that will target the Skull Creek Formation: the Bell Creek Consolid. 33-09R, located at NE SE 33-8S-54E (1900 FSL/661 FEL); and the Bell Creek Consolid. 34-13R, located at SW SW 34-8S-54E (623 FSL/720 FWL). Both wells have a Proposed Depth of 4,700 feet.

New Locations – Horizontal Wells

In Richland County, Continental Resources Inc. was approved for the Fabian Federal 1-10H. The Bakken formation well has a Surface Hole Location (SHL) at SW SW 10-26N-55E (275 FSL/1260 FWL) and a Probable Bottom Hole Location (PBHL) of 20,104 feet at NE NW 3-26N-55E (200 FNL/1980 FWL).

Re-Issued Locations

Anschutz Exploration Corporation was greenlighted for the Whitecalf 1-4-30-11, with an SHL at NW NE 4-30N-11W (940 FNL/1853 FEL) and a Proposed Depth of 7,285 feet. The Whitecalf will target the Kootenai formation.

Permit Modifications / Corrections

In Richland County, XTO Energy Inc. was approved for a Permit Modification/Correction on the Dige 41X-29DXA. The Bakken Formation well has an SHL at NE NE 29-23N-59E (230 FNL/1170 FEL) and a PBHL of 20,625 feet at SE SE 32-23N-59E (250 FSL/100 FEL).

Completions

Primary Petroleum Company USA, Inc. reported the completion of five wells across Pondera and Teton Counties. In Pondera County, Primary reported the Dupuyer Ridge 14-27-28-7, with an SHL at SE SW 27-28N-7W (770 FSL/1847 FWL); the Dupuyer Ridge 16-35-28-8, with an SHL at SE SE 35-28N-8W (797 FSL/664 FEL); and the Benton Bench 4-5-28-4, with an SHL at NW NW 5-28N-4W (2279 FNL/330 FWL) as completed.

In Teton County, Primary reported the completion of the Watson Flats 1-12-23-7, with an SHL at NE NE 12-23N-7W (331 FNL/659 FEL) and the Ralston Gap 4-2-25-6, with an SHL at NW NW 2-25N-6W (1021 FNL/660 FWL).

In Richland County, Brigham Oil & Gas LP reported the completion of the Verrene 15-22 1TFH. The Verrene has an SHL at NW NE 15-25N-58E (300 FNL/1620 FEL) and two laterals, with Bottom Hole Locations (BHL) of 17,673 feet at SW NE 22-25N-58E (2495 FNL/1758 FEL) and 20,218 feet at SW SE 22-25N-58E (248 FSL/1693 FEL), both targeting the Three Forks Formation. The well reported an Initial Potential (IP) of 860 Barrels of Oil Per Day (BOPD); 560 Thousand Cubic Feet of Gas Per Day (MCFPD) and 5,957 Barrels of Water Per Day (BWPD).

Slawson Exploration Company Inc. reported the completion of two Richland County wells, both tapping into the Bakken Formation. The Villain 1-12H, with an SHL at NE NE 12-23N-52E (200 FNL/920 FEL) and a single lateral of 13,462 feet at SE SE 12-23N-52E (680 FSL/717 FEL), reported an IP of 344 BOPD, 371 MCFPD and 147 BWPD. The Rogue 1-36H, with an SHL at SE SE 36-24N-52E (550 FSL/800 FEL) and a BHL of 13,429 feet at NE NE 36-24N-52E (250 FNL/808 FEL) turned in an IP of 220 BOPD, 242 MCFPD and 30 BWPD.

In Roosevelt County, Brigham Oil & Gas LP turned in a completion report for the Crusch 12-1 1H. The Bakken Formation well has an SHL at SW SE 12-28N-58E (300 FSL/1400 FEL) and a BHL of 20,172 feet at NW NE 1-28N-58E (235 FNL/1759 FEL). The Crusch turned in an IP of 973 BOPD, 719 MCFPD and 5,953 BWPD.

Expired Permits

In Richland County, the permit expired for the Hagen 24-34 3-10H, a True Oil LLC well located at SE SW 34-26N-58E (400 FSL/1450 FWL).

Converted to Injection

In Carbon County, Energy Corporation of America was approved to convert the Foothills 6D to injection. The well is located at SW NW 24-6S-17E (2138 FNL/510 FWL).

Darryl L. Flowers is the Publisher of the Sun Times in Fairfield, Montana, www.fairfieldsuntimes.com, and can be reached at publisher@fairfieldsuntimes.com

LINN Energy and LinnCo to acquire Berry Petroleum Company for $4.3 billion

Published: Saturday, February 23, 2013 9:53 AM CST

LINN Energy, LLC, LinnCo, LLC and Berry Petroleum Company on Friday announced in a company press release the signing of a definitive merger agreement pursuant to which LINN and LinnCo will acquire all of Berry’s outstanding shares for total consideration of $4.3 billion, including the assumption of debt. The transaction, which is structured as a stock-for-stock merger of Berry with LinnCo followed by the acquisition of the Berry assets by LINN, is expected to be tax-free to Berry shareholders. This transaction represents the first ever acquisition of a public C-Corp by an upstream LLC or MLP.

Operational Highlights

  • Berry’s long-life, low-decline, mature assets are an excellent fit for an MLP/LLC;
  • Meaningful growth to LINN’s portfolio with increased geographic presence in California, the Permian Basin, East Texas, and the Rockies, as well as the addition of an attractive new core area in the Uinta Basin;
  • Production of approximately 240 MMcfe/d, increasing LINN’s current production by 30 percent;
  • Berry’s reserves are approximately 75 percent oil, which results in a meaningful increase in liquids exposure to 54 percent from 46 percent of proved reserves, pro forma as of December 31, 2012;
  • Proved reserves of approximately 1.65 Tcfe, increasing LINN’s estimated proved reserves by 34 percent;
  • LINN has identified additional probable and possible reserves at Berry of approximately 3.8 Tcfe;
  • Approximately 3,200 producing wells and more than 200,000 net acres; and
  • Potential for production optimization and cost savings.

Financial Highlights

  • The transaction is expected to be highly accretive to distributable cash flow per unit. In the first full year following closing, accretion is expected to be in excess of $0.40 per unit.
  • LINN plans to recommend to its board of directors an increase in the current quarterly distribution of 6.2 percent. LINN’s current quarterly distribution of $0.725 per unit, or $2.90 per year, would increase to $0.77 per unit, or $3.08 per year. The recommended increase is anticipated to take effect in the quarter immediately following the closing of the transaction, which is estimated to occur on or before June 30, 2013.
  • LinnCo’s current estimated annual dividend of $2.84 per share includes a reduction of $0.06 per share for taxes, which LinnCo now estimates to be zero for 2013. Therefore, management estimates that the LinnCo dividend per share for the quarter ended March 31, 2013 will increase 2 percent from $0.71 to $0.725 per quarter, or $2.90 per share on an annual basis.
  • LinnCo’s management intends to recommend to its board an increase in LinnCo’s dividend by 8.5 percent following the closing of the transaction to $3.08 per share on an annualized basis, which includes the $0.18 per share increase in LINN distributions.
  • Due to the significant accretion expected from this transaction, LINN’s coverage ratio for the second half of 2013, assuming the transaction closes on or before June 30, 2013, is expected to be approximately 1.20x including the anticipated distribution and dividend increases.
  • All stock consideration and greatly increased size are expected to result in significantly improved debt metrics.
  • As part of the transaction, Berry will be converted into a limited liability company and then it will be contributed to LINN in exchange for LINN units. This arrangement allows LINN to own Berry’s assets in a pass-through entity without any immediate payment of tax.

“This transaction creates tremendous value for LINN Energy, LinnCo and Berry equityholders. We are pleased to have been able to achieve such a mutually beneficial outcome,” said Mark E. Ellis, Chairman, President and Chief Executive Officer, LINN Energy. “Berry’s assets are an excellent fit for LINN, and we believe this transaction generates significant accretion to our distributable cash flow per unit.”

“We have great respect for what the Berry management team has accomplished and consider the Berry employees to be an important part of this transaction,” added Ellis. “We welcome them to LINN and believe that together, we will be positioned for great success in the future.”

Robert Heinemann, President and Chief Executive Officer, Berry Petroleum Company, said, “Today’s merger announcement with LINN Energy marks the beginning of a new, important chapter in our company’s history. Berry and LINN have demonstrated the ability to prudently grow their businesses while delivering value and returns to their respective shareholders and unitholders. Berry’s portfolio fits well with LINN’s structure and asset base, and the combination of the two companies will create one of the largest independent E&P companies in North America. This transaction consideration delivers substantial value to Berry shareholders with the opportunity to participate in the upside potential of the combined, growing company.”

Transaction Terms & Structure

Under the terms of the agreement, which was unanimously approved by the boards of directors of LINN Energy, LinnCo and Berry, LinnCo has agreed to issue 1.25 common shares for each common share of Berry outstanding prior to the merger. The consideration to be received by Berry shareholders is valued at $46.2375 per Berry share based on LinnCo’s closing price as of February 20, 2013. This represents a premium of 19.8 percent to the Berry closing price on February 20, 2013, and a premium of 23.1 percent to its one month average price at that date.

The acquisition, which is expected to be tax-free to Berry’s shareholders, is structured as a stock-for-stock merger. In connection with the merger Berry will be converted into an LLC. Upon completion of the merger, LinnCo will contribute the Berry assets to LINN in exchange for LINN units.

In connection with approval of the contribution from LinnCo to LINN Energy, the boards of directors of each company formed a conflicts committee to evaluate any potential conflicts that may arise between LINN and LinnCo. To ensure the independence of each of the conflicts committees, two directors resigned from the LinnCo board of directors to serve on the LINN conflicts committee and two directors resigned from the LINN board of directors to serve on LinnCo’s conflicts committee. In addition, in connection with the transaction, one representative of the board of directors of Berry will be appointed to the board of either LINN or LinnCo.

The transaction is subject to the approval of the shareholders of Berry and LinnCo and the unitholders of LINN Energy, as well as customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The transaction is expected to close by June 30, 2013. The combined company will be headquartered in Houston, Texas.

2013 Estimated Cash Distributions (Subject to Board Approval)

LINN ENERGY
First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly $0.725 $0.725 $0.77 $0.77
Annualized $2.90 $2.90 $3.08 $3.08
LINNCO
First Quarter Second Quarter Third Quarter Fourth Quarter
Quarterly $0.725 $0.725 $0.77 $0.77
Annualized $2.90 $2.90 $3.08 $3.08

LinnCo Estimated Taxes

In order to avoid immediate tax on LINN’s acquisition of the Berry assets, LinnCo incurred a deferred tax liability. Because of the incremental costs for LinnCo resulting from this deferred tax liability, LINN has agreed to pay LinnCo $6 million per year for three years (2013, 2014 and 2015) or roughly $0.06 per LinnCo share. Due to the significant estimated shield provided by LINN to LinnCo, LinnCo’s cash tax liability is estimated to be zero for the last two quarters of 2013. In future periods, assuming current estimates for taxable income and capital spending, management estimates that LinnCo’s tax liability will be in the range of 2 percent – 5 percent of dividends paid, which is the same as the estimates provided in the prospectus for the LinnCo IPO. Therefore, this transaction is not estimated to give rise to any additional tax liability for LinnCo over and above the guidance that was previously provided. LINN’s management and board have also agreed to evaluate the need for any additional payments from LINN Energy to LinnCo should taxes be higher than expected.

Senior Notes

LINN expects that the completion of this transaction will trigger change of control provisions in the indentures governing Berry’s existing senior notes. These change of control provisions entitle holders of the notes to receive 101 percent of par for the notes plus accrued and unpaid interest from a change of control offer related to each series of notes. LINN expects any of Berry’s notes not tendered pursuant to the change of control offers to remain outstanding following the transaction, subject to any opportunistic refinancing of such notes it may pursue in the future based on market conditions.

Advisors

Citigroup Global Market Inc. acted as exclusive financial advisor to LinnCo, and provided a fairness opinion to the LinnCo board of directors; Latham & Watkins LLP acted as legal advisor to LINN Energy and LinnCo. Greenhill & Co., LLC provided a fairness opinion to the conflicts committee of the LINN Energy board of directors; Akin Gump Strauss Hauer & Feld LLP acted as legal advisor to the conflicts committee of the LINN Energy board of directors. Evercore Partners provided a fairness opinion to the conflicts committee of the LinnCo board of directors; Locke Lord LLP acted as legal advisor to the conflicts committee of the LinnCo board of directors. Credit Suisse Securities (USA) LLC acted as exclusive financial advisor to Berry Petroleum Company and provided a fairness opinion to the Berry Petroleum Company board of directors. Wachtell, Lipton, Rosen & Katz acted as legal advisor to Berry Petroleum Company.

A Rig is Down

Sun Times file photo by Darryl L. Flowers
By Rachel E. Kelley
Published: Tuesday, February 12, 2013 2:41 PM CST

A shrill ring invades the quiet of our bedroom. Just barely on the edge of sleep, I hear one side of a mumbled conversation, and then my husband says to me, “A rig is down.” A fairly common phrase from him, I know what it means. An oil rig engine needs a part. Rigs can’t run without engines, and just one hour down costs tens of thousands of dollars.  Despite the seduction of sleep, he’ll go save the day like an oilfield superhero. I think of him like that at times like these.

I see oil rigs every day. Similar to the Eiffel Tower, they are a massive construction of steel beams, cables, and our country’s flag fluttering at the top as if they represent something inherently American. Perhaps they do. After all, the oil rig has a reputation. The rig, whipping boy of environmentalists everywhere, has become something more than just a means to get oil; it embodies many things: greed, abuse, capitalism, rape of the earth, pillaging of natural resources, money, power, inequality, pollution.

But to some of us saving a rig is a big deal. Like saving Freddie-Mac. Or Lehman Brothers before its crash in ‘08. Or the auto industry. Like saving the California Grey Whales in Barrow, Alaska in 1988. How ironic.

I’m no stranger to irony. When I drive by an oil rig at night, and the thing is lit up like some kind of heavenly beacon of hope, I inevitably measure the angles of my reasoning and find them incongruent. The uninvited feeling of pride I get when seeing a rig still hangs decidedly under ‘need to reconcile’ in the orderly convictions of my mind.

Many times I’ve examined the conflicted feelings whose origins belong to the oil rig. Aside from its sheer size, the oil rig is not so amazing in-and-of itself. However, the bright lights and heavenly luminescence only make the feeling that much stronger like dramatic music does for movies. Oil rigs are dirty and dangerous up-close.

I often wonder if I’m the only one that sees a rig this way, but I realize the irony has nothing to do with how others see a rig. The paradox lies with me, the avid proponent of clean energy and technology, who admonishes her children to never neglect the sanctity of life, even if such life resides in a caterpillar or housefly. “We respect the earth. We respect all God’s creations,” I tell them. My son stepped mercilessly on a beetle once, and I nearly lost it. How do I remain in awe of the oil rig yet stand so avidly on the side of my earthly home?

I suppose, in my mind, hope trumps the realities of oil. The hope inspired by a rig is bigger than anything the rig may mechanically do. The rig saved us: my husband, my children, and me. Even that wouldn’t be enough for me to revere the rig this way, but it didn’t just save us. The rig saved that dirt and grease-clad man in front of me at the post office whose hands bear the evidence of manual drudgery. He’s mailing his son a Transformer toy for his birthday because he can’t be there. He’s here, in North American Siberia to save his family.

The rig saved the guy and his daughter who slept in the church parking lot under some bushes while they looked for jobs to save the rest of their family back in Washington. It saved the man lugging his meager belongings in a backpack down the side of the road on his way to find the well-springs of hope promised by the rig. His rolled-up sleeping bag slaps the back of his legs as he walks, urging him onward toward his goal.

The artist from Arizona, who custom designed welded architecture, came here too. The housing bubble devoured his dream and his livelihood as if they never were. But the rig saved him and his family.

The rig saved the guy who lost his job—there are so many of those guys. Hundreds of thousands the rig has saved. Perhaps millions. The rig has the power to save every person that comes here.

So when a rig is down, we have to fix it. The rig has lives to save.

Rachel E. Kelley “blogs” under the name “Zealous Mom” at http://zealousmom.areavoices.com/. Kelley lives in Williston, ND which she describes as “… the happiest place on earth (Sorry Disney World) where everyone has a job and makes plenty of money thanks to that fantastic industry you all depend on to run your cars.  Seriously, this place is like Mecca and I love it.” The post was sent to the Sun Times by Montana Petroleum Association.

Wyoming’s True Oil, LLC Greenlighted For Richland County Well: Weekly Oil Report

Published: Tuesday, February 12, 2013 2:41 PM CST

Compiled by Darryl L. Flowers

New Locations – Horizontal Wells

In Daniels County, Sagebrush Resources II, LLC has been approved for the Gunderson 1-8H. The well has a Surface Hole Location (SHL) at NW SW 8-35N-51E (2417 FSL/320 FWL) and a Probable Bottom Hole Location (PBHL) of 13,659 feet at SE NE 17-35N-51E (1980 FNL/660 FEL). The well targets the Bakken Formation.

In Richland County, two Bakken wells were greenlighted. XTO Energy Inc. was approved for the Dige 41X-29DXA, with an SHL at NE NE 29-23N-59E (230 FNL/1170 FEL) and a PBHL of 20,587 feet at SW SE 33-23N-59E (250 FSL/50 FWL). True Oil, LLC was issued a permit for the Anvick 21-3 3-10H. The Anvick has an SHL at NE NW 3-25N-58E (250 FNL/2400 FWL) and a PBHL of 20,490 feet at SE SW 10-25N-58E (200 FSL/1320 FWL).

In Roosevelt County, Oasis Petroleum North America LLC was OK’d for three wells. The Romo Bro Louise 2759 43-9B has an SHL at SW SE 9-27N-59E (255 FSL/1570 FEL) and a PBHL of 20,444 feet at NW NE 4-27N-59E (250 FNL/1960 FEL); the Romo Bro Margaret 2759 43-9B has an SHL at SW SE 9-27N-59E (255 FSL/1520 FEL) and a PBHL of 20,413 feet at NW NW 4-27N-59E (200 FNL/1280 FEL) and the Romo Bro Ray 2759 43-9B has an SHL at SW SE 9-27N-59E (255 FSL/1470 FEL) and a PBHL of 20,574 feet at NE NE 4-27N-59E (250 FNL/600 FEL). All three Roosevelt County wells will aim for the Bakken Formation.

Re-Issued Locations

Thirteen wells were approved for Fidelity Exploration & Production Co.,.

The wells are, in Phillips County (Bowdoin Field, targeting the Mowry Shale): the Federal 1548, with an SHL at NW NE 30-31N-34E (766 FNL/2526 FEL); the Fee 1539, with an SHL at NE NW 4-31N-34E (580 FNL/1822 FWL); the Fee 1546, with an SHL at NW NW 6-31N-34E (660 FNL/321 FWL; the State 1540, with an SHL at SE SW 16-31N-34E (672 FSL/1764 FWL); the Fee 1530, with an SHL at SE SE 34-32N-34E (762 FSL/669 FEL) and the Fee 1526, with an SHL at NE NW 19-31N-34E (394 FNL/2018 FWL); in Rosebud County (Wildcat, targeting the Heath Formation): the Nefsy 44-2H, with an SHL at SE SE 2-11N-33E (328 FSL/568 FEL). In the Valley County portion of the Bowdoin Field, these wells will target the Mowry Shale: the Federal 1549, with an SHL at NW SW 19-31N-35E (2428 FSL/1049 FWL); the Fee 1536 with an SHL at NW NW 2-31N-34E (1046 FNL/681 FWL); the Fee 1538, with an SHL at SE SE 2-31N-34E (756 FSL/1280 FEL); the Fee 1544, with an SHL at NW NW 26-31N-34E (390 FNL/143 FWL); the Fee 1524, with an SHL at NW NW 27-31N-34E (1255 FNL/428 FWL) and the Fee 1542, with an SHL at SE NE 10-31N-34E (1548 FNL/915 FEL).

Completions

In Glacier County, Newfield Production Company reported the completion of two wells. The Tribal Buffalo Jump 1-28, has an SHL at NE NE 28-35N-11W (244 FNL/255 FEL) and a Bottom Hole Location (BHL) of 10,975 feet at NE NE 28-35N-11W (711 FNL/710 FEL); the Tribal Rumney 1-21H has an SHL at SE SE 21-37N-11W (264 FSL/818 FEL) and a depth of 10,283 feet.

In Richland County, Whiting Oil and Gas Corporation reported the completion of the Hackley 21-30H. The well has an SHL at NE NW 30-26N-57E (270 FNL/2370 FWL) and two laterals, with a BHL of 12,038 feet at SE NW 30-26N-57E (2328 FNL/1886 FWL) and a BHL of 19,600 feet at SE SW 31-26N-57E (690 FSL/2030 FWL), with both laterals in the Bakken Formation. The well turned in an Initial Potential (IP) of 235 Barrels of Oil Per Day (BOPD); 211 Thousand Cubic Feet of Gas Per Day (MCFPD) and 692 Barrels of Water Per Day (BWPD).

In Roosevelt County, EOG Resources, Inc. reported the completion of two Bakken Formation Wells. The Highline 1-2833H has an SHL at NW NE 28-29N-59E (380 FNL/880 FEL) and a BHL of 19,774 feet at SW SE 33-29N-59E (710 FSL/807 FEL). The Highline reported an IP of 600 BOPD; 300 MCFPD and 3,360 BWPD. The Stateline 12-2932H has an SHL at NW NW 29-28N-59E (325 FNL/1070 FWL) and a BHL of 19,959 feet at SE SW 32-28N-59E (370 FSL/1608 FWL). The Stateline reported an IP of 528 BOPD; 320 MCFPD and 2,352 BWPD.

In Rosebud County, Central Montana Resources, LLC reported the completion of two wells:  the Zeus 1H-13, which has an SHL at SE SW 13-11N-34E (383 FSL/2419 FWL) and a depth of 5,280 and the Poseidon 1H-5, with an SHL at S2 S2 5-12N-35E (480 FSL/2640 FWL) and a depth of 4,600 feet.

Abandoned Wells

In Glacier County, Newfield Production Company was approved to abandon the Tribal Buffalo Jump 1-28. The well has an SHL at NE NE 28-35N-11W (244 FNL/255 FEL), tapping into the Nisku Formation.

In Toole County, Sonkar, Inc. was approved to abandon the I.H. Baker 2. The well has an SHL at SW SW SE 4-35N-2W (220 FSL/2420 FEL).

Darryl L. Flowers is the Publisher of the Sun Times in Fairfield, Montana, www.fairfieldsuntimes.com, and can be reached at publisher@fairfieldsuntimes.com

Increase Federal Revenue By Increasing Energy Production, Not Raising Taxes

By Senator Alan Olson
Published: Tuesday, February 12, 2013 2:41 PM CST

America’s energy producers have been a favorite target of the liberal left for the last few years, even as we’ve seen the incredible job creation produced by the Bakken economic engine.  Technological innovations, like horizontal drilling and hydraulic fracturing, have created an economic boom in many parts of the country and contributed mightily to our otherwise flagging GDP.

What thanks does the energy industry get for their contributions to job creation and economic opportunity?  They are continually threatened with a litany of arbitrary and punitive tax policies that would harm jobs and impede economic growth.

And now the Obama administration is once again ramping up the rhetoric on raising taxes on the energy industry.  Obama and his allies are dusting off some of the same tax schemes that have been rejected before due to the economic harm they would cause our country.  Despite that harm, the left needs more tax revenue to feed the massive government growth created in the past four years, and that planned in the years immediately ahead. They view the energy industry as that old, reliable easy target.

Make no mistake, the incredible government debt racked up during this administration must be addressed, in part through constrained spending and part through increased revenue.  Note that I said more revenue, not higher taxes.

And it’s this same energy industry that is poised to provide a large infusion of new tax revenue if it is allowed the natural expansion that the marketplace wants.  We don’t need to tax energy more—we just need to open all production opportunities.

A recent report by the Institute for Energy Research shows just how much potential exists to increase government revenue.  IER’s study examined energy production opportunities on federal land and waters that are currently off limits.  They found that expanding energy production opportunities could produce $2.7 trillion in federal revenue, and an additional $1.1 trillion in state and local tax revenue over the next four decades.

That’s even more revenue than the various energy tax proposals that have been floated by Democrats.  It seems to me that if we are serious about reducing government debt by increasing tax revenue, then the reasonable way to accomplish this is to increase production, not increase taxes.

But government tax revenue isn’t our only concern; in fact for most people it’s a secondary concern.  The study also showed that opening energy production opportunities on federal property would create over half a million new jobs by the end of this decade, and result in a net increase of $900 billion over the same time period, compared with the status quo.

Increasing energy taxes would have the opposite effects on jobs and GDP.  As energy companies absorb a higher tax burden, they have less capital available to invest in labor, research and development, and new technology.  That adds up to fewer jobs and a potential decline in GDP.

Finally, increasing energy production increases the supply of energy, which in turn drives down the cost of energy for consumers.  That leaves households with more money to spend elsewhere in the economy.  It also means that energy intensive businesses, like manufacturing, have that much more capital on hand to create jobs.

Obviously, raising taxes on energy would have the opposite effect on energy prices as the cost of the taxes are passed on to consumers.

Those calling for higher taxes on the energy sector in the name of increasing government revenue need to be honest.  There’s a way to do it without the side effect of job losses, lower GDP and more costly energy.  In fact, opening new drilling opportunities has great potential to greatly benefit our economy and our country.

Senator Alan Olson represents Senate District 23, which includes parts of Yellowstone and Musselshell Counties.  He is the chair of the Senate Energy and Telecommunications Committee.

Can America Really be the Planet’s Top Energy Producer?

Chris Faulkner Photo courtesy Breitling Oil & Gas

CEO of Breitling Oil & Gas asks…

By Chris Faulkner
Published: Tuesday, February 12, 2013 2:41 PM CST

For decades, Americans have lamented their dependence on foreign energy, especially Middle East oil. Now, however, the tables are turning. Growing numbers of analysts are concluding that within a decade, America could become the world’s top energy producer.

That would certainly be desirable. Substantial expansion of domestic energy would generate tens of thousands of jobs, lower everyday energy expenses, and eliminate our dependence on unstable Middle East governments.

But that future is far from guaranteed. We have the entrepreneurship and technological innovation we need. The question is whether we’ll have the smart public policies that allow them to flourish. While America’s energy prospects have never been brighter, regulators have never been more vehement in their push for restrictive controls on development of new projects.

Of course, we must protect the environment and ensure worker safety. But lawmakers have gone well beyond that, and they need to scale back the needless and costly rules if we are to have any hope of reaching our full potential.

There are three obvious places to start with reform.

First, regulators need to ease restrictions on hydraulic fracturing.

“Fracking” uses water pressure to extract oil and natural gas from shale formations buried deep under the earth’s crust. This technique is already in widespread use in the Bakken Shale in North Dakota. The energy boom in that state has led to astonishing economic growth and three percent unemployment.

The massive shale deposits in America could, if fully developed, profoundly change our energy landscape. But so far, oppressive state and federal rules have prevented firms realizing this potential.

Most of the environmental concerns over fracking, which turn on possible groundwater contamination, are based on misinformation or a misunderstanding of the process. This technique has been around since the 1940s. Over 1.2 million wells have been successfully fracked. The shale formations disrupted by the process are separated from water aquifers by up to two miles of rock, limestone, sand and earth. And over 99 percent of the standard fracking liquid mixture is simply water.

In other words, fracking presents very little environmental risk — and massive potential for economic gains. By some estimates, natural gas development in the Marcellus alone would create over 100,000 new jobs.

The second major way federal regulators can promote American energy is to open up off-shore energy reserves for drilling. After the tragic Deepwater Horizon spill, the Interior Department instituted a rigid drilling moratorium that effectively halted offshore development. Eventually, the courts forced regulators to ease the ban, but there is still a great deal of uncertainty and delay surrounding the offshore permit process.

Since the moratorium was announced, eleven major ocean drilling operations have closed shop, destroying an estimated 91,000 jobs.

The Deepwater disaster certainly justifies targeted safety standards for offshore drilling. But the status quo is overkill — imagine if federal aviation officials grounded all flights forever after a single crash.

Finally, the Obama administration needs to grant full approval for the construction of Keystone XL — a planned $7 billion, 2,000-mile pipeline that would carry oil from Canadian shales to refineries in Texas.

Extensive environmental analysis by the State Department and others shows Keystone will have minimal adverse effects on surrounding areas. The Constructing and maintaining the pipeline will create 130,000 new jobs.

It is indeed possible for the United States to become the world’s premier energy producer by 2020. But reaching that goal requires policymakers to identify and eliminate regulatory barriers that are now keeping America from achieving its astounding energy potential.

Chris Faulkner is the CEO of Breitling Oil & Gas.