Kevin-Sunburst Oil and Gas Producers Speak Out

By Jessica Sena | Posted: Friday, February 6, 2015 12:07 pm

A worker on a small rig drilling a vertical gas well in Pondera County checks a rock sample.

HELENA, MT – Northern Plains Resource Council (NPRC) has identified several priority bills which they are calling “landowner protections” for this year’s legislative session.

Over the last two weeks, the Senate Natural Resources and House Federal Relations, Energy, and Telecommunications (FRET) Committees have held hearings on the bills, which were met with opposition from several Montana oil and gas producers from Shelby, Kevin, Oilmont, Sunburst, and Cut Bank.

Water Testing

SB 172, a bill sponsored by Sen. Stewart-Peregoy (D-Crow Agency) would require notification to all persons within a half a mile of a proposed well site including information on baseline water testing available at the expense of the well’s applicant. Additionally, SB 172 would require two follow-up tests to be completed once a well is plugged.

Proponents, a majority of which are members with NPRC, said that the public has the right to know the quality of their water before and after drilling operations.

Opponents included the Montana Petroleum Association (MPA), and several oil and gas producers, including Gary (Mac) McDermott, representing the Northern Oil and Gas Association and MCR, LLC; and Patrick Montalban, Mountainview Energy Ltd.

The Montana Bureau of Mines and Geology provides publicly available information from existing statewide monitoring wells on the Ground Water Information Center online. The Bureau has wells in every county of Montana, and receives funding through the Resource Indemnity and Ground Water Assessment account paid into through natural resource taxes paid by industry.

Additionally, DEQ and DNRC have conducted recent tests around the state in “high risk” areas where oil and gas activity is prevalent, with grant money appropriated by the Legislature in 2013.

Bonding

SB 173, a bill to increase bonding and impose idle well fees, carried by Sen. Christine Kaufmann (D-Helena) was also heard in Senate Natural Resources. Kaufmann and proponents, including NPRC members, the Montana Environmental Information Center, and Montana Audubon, claimed that wells needed to be properly indemnified, and that increased bonds were necessary to ensure available resources for the proper plugging of wells.

Opponents from north central Montana included Duane and Marilyn Enneberg, Rick Rice, Gus and Billiette Coolidge, Lucille Knap, Mac McDermott, and Patrick Montalban, all representing small oil and gas businesses. MPA and the City of Shelby also testified against the bill, as well as representatives from MDU and Continental Resources.

Increased bonds and idle well fees (which the bill does not define) would effectively shut down development of marginal (stripper) & wildcat wells, said opponents. Low oil prices have already affected the economics of drilling for all operators.

Jim Halvorson, Division Administrator of the Board of Oil and Gas, was present for all bills as an informational witness. Halvorson said that the number of abandoned wells has been on the decline, with only fifty eight remaining on the Board’s file. The oil and gas account has approximately $7 million dollars available, with additional financial resources in the RIGWA account which is capped (per a constitutional requirement) at $100 million dollars annually.

Setbacks

SB 177, carried by Sen. Mary McNally (D-Billings) would establish setbacks from well sites. Using the definition of “inhabitable real property”, wells would have to be 1,000 ft. from property lines and all surface water, lest the surface owner waive the requirement. Several amendments to the bill have since been added, including a provision intended to disallow any interference with mineral rights.

Supporters of the bill, all of the same supporters for the previously stated bill, claimed that it was a bill for property rights, adding that several other oil and gas states have passed setback rules.

Opponents, namely oil and gas producers and mineral owners, claimed that the bill was a regulatory taking of mineral rights, that it lessened the economics of drilling wells, even preventing vertical drilling in many areas, and that it conflicted with existing statute on the designation of spacing units.

A spokesperson for the MPA said that Montana’s oil and gas production pales in comparison to states with setback rules, with Montana ranking 12th in oil production, and accounting for roughly 1% of total U.S. oil production. Setback rules proposed in SB 177 would be the most restrictive of any that have been imposed in other states.

The Board’s Jim Halvorson and Monte Mason for the DNRC rose as informational witnesses.

The State owns roughly 5 million acres in surface rights and 6 million acres in mineral rights. Should the bill, which has been tabled, be revived by a blast motion and passed, mineral owners and State Trust Lands could see a significant decline in production and revenue.

Frac Disclosure & Notification

HB 243, a bill to require a 45 days pre-frac notification and full disclosure of frac fluid chemicals, was sponsored by Rep. Mary Dunwell (D-Helena). The Montana Board of Oil and Gas Conservation (BOGC) promulgated rules in Aug. of 2011 to require prior and post fracturing disclosure of chemicals. Disclosure is available to the public through FracFocus.org.

Opponents stated that the notification requirement was in addition to existing rules and statute for notices, and said that delaying completion operations (fracturing) may jeopardize the process altogether.

Well owners do not always know whether or well will be fractured. Well stimulation activities take place after the drilling. The notice requirement may also open the door for interveners to unnecessarily delay or prevent fracturing, which is a process well owners negotiate with service providers who perform the fracturing.

Opponents also said that there was no demonstrated deficiency with existing rules and regulations.

In November, the USGS study concluded that oil and gas activities in the Williston Basin (Bakken) had not affected groundwater quality. Montana has not had a single case of groundwater contamination by fracturing discovered or reported to the Board by any regulatory agency in the more than 60 years that the process has been used in the state.

Pits

HB 253, a bill to prohibit earthen pits and require closed-loop [drilling] systems, was heard most recently in House FRET. Rep. Virginia Court (D-Billings) was the bill’s sponsor, and said that closed-loop systems were more environmentally beneficial and economically feasible than alternative methods which include earthen pits for drill cuttings.

The bill attracted resounding opposition from Shelby’s Mac McDermott for MCR, LLC. and the Northern Oil and Gas Association, Roy Brown for FX Drilling, John Finstad of Keesun Corporation, Garth Owens of Gasco Drilling, MPA and MonDak Utilities.

Montana’s drilling operations and geology vary considerably around the state, and while many Williston Basin operators have elected to use closed-loop systems in lieu of pits, doing so would not be economic for most small producers or wildcat and exploratory wells. Opponents claimed that shallow wells which are drilled with freshwater rather than salt or oil based mud use pits which are strictly regulated by the BOGC. The BOGC does have the regulatory authority to prohibit the use of pits if a factual situation warrants.

House FRET is expected to vote on HB 253 Monday, February 9th at 3:00 pm.

All other bills have been tabled, but may be brought to life by a blast motion with a majority vote on the floor of their respective sponsor’s chamber. In that event, the bill would be debated and voted on by the entire body of either the Senate or the House. Such motions have until the transmittal deadline, February 26th.

Jessica Sena, a former contributor to the Sun Times, now serves as Communications Director with Montana Petroleum Association.

Rep. Zinke Addresses Joint Session; Speaks Of Multiple Use On Federal Lands

By Darryl L. Flowers | Posted: Tuesday, February 3, 2015 5:15 pm

U.S. Rep. Zinke Addresses Joint Session of Montana Legislature
Courtesy photo

Montana’s U.S. Representative, Ryan Zinke addressed a joint session of the Montana Legislature last week.

In his opening, watched via a video link, the congressman spoke about the bureaucracy in Washington, DC, telling the story of his attempt at hanging a picture in his office. Zinke said, “there was a number to call for that,” and when he called the number, “three people show up. We are drowning in bureaucracy.”

Rep. Zinke spoke about public lands, saying, “Our public lands are sacred. Public access and public lands and Multiple Use are part of our heritage. But, so is the mismanagement, and that’s when we have to take a stand.”

“Multiple Use” refers to the Multiple-Use Sustained-Yield Act of 1960, in regards to National Forests.

The congressman said that part of the problem with public lands is that the authority of local Forest Service staff has been  “stripped away”

For more about Rep. Zinke’s address, and other news from the Montana Legislature, see http://www.fairfieldsuntimes.com/news/article_cf8f7f12-abf0-11e4-b1e8-177a26ff5311.html

Montana Senate President Discusses Energy Legislation

By Mike Ellerd Editor-In-Chief Petroleum News Bakken | Posted: Tuesday, February 3, 2015 4:18 pm

 Montana State Senator Debby Barrett, R-Dillon

After serving a combined 14 years in the Montana House of Representatives and Senate, term limits put Sen. Debby Barrett in her last session, and she is ending her legislative tenure on a high note serving as president of the Senate. That distinction makes her the first woman ever elected as the leader of either chamber in the state’s 126-year legislative history.

As a rancher in Beaverhead County in far southwestern Montana, Barrett’s home is a long way from the current epicenter of Montana’s oil and gas activity in far eastern Montana, but in no way does that diminish her knowledge of and involvement in legislation that could affect the industry.

Barrett sat down with Petroleum News Bakken on Jan. 23 in her capitol office in Helena and shared her views on some of the more important oil and gas-related legislation facing Montana lawmakers in the state’s 64th legislative session.

Infrastructure funding

Petroleum News Bakken: Gov. Bullock is proposing $391 million in infrastructure spending in House Bill 5, also known as the “Build Montana” bill, of which $45 million is earmarked for oil-impacted communities in eastern Montana. Under the bill, the spending would be funded through a combination of cash and bonds. How do you feel about the need for infrastructure spending in those impacted communities as well as the funding method the governor proposes?

Barrett: You asked first about infra- structure. The Legislature has for decades and decades had infrastructure funding in a series of house bills that are introduced each year. We have House Bill 6, renew- able resource grants; House Bill 7, reclamation and development grants; House Bill 8, renewable resource bonds and grants; and HB 11, the Treasure State Endowment. And we’ve passed those every session.

So the Legislature has a track record, decades long, of taking care of infrastructure. It’s steady, it’s sustainable and we have done that forever. What the governor did this year — after requesting that each of these bills be drafted — he swept them all into one bill, House Bill 5, and he added his bonding wishes on top of that, and he’s calling that the “Build Montana” but it looks more like the “Buy Montana” to me.

Petroleum News Bakken: This obviously would be a question for the governor, but what do you think was the impetus behind combining the bills?

Barrett: I think it’s political. You know in Montana we don’t have ear- marks — what’s in a bill has to be in the title of the bill. But we do have “log rolling, ” and that’s where you put a little bit of something for each community, for each school, for everybody, in this huge funding bill and then you think it will pass the Legislature because there’s something for everyone.

But I think that’s not the way you should do things — we should prioritize. There are some projects in HB 5 that are probably necessary at this time and should be funded and that’s why we have the Legislature so you can prioritize these projects.

Petroleum News Bakken: Do you think that might be a likely prospect that HB 5 gets split into a number of separate bills?

Barrett: I hope so. And as I said, it’s worked for decades and I think we should do that.

Petroleum News Bakken: Back to the $45 million for oil-impacted communities, regardless in what bill that funding ends up, is it safe to assume that there is consensus on both sides of the aisle that those communities need that money?

Barrett: We know there is an impact there and those counties do need to be taken care of. And there are impacts in other counties. If there are impacts across Montana then I think we need to look at those — not just focus on eastern Montana but all communities that are really in need and we should address those and if they fall under the right criteria we should take care of them.

Petroleum News Bakken: On funding, the governor proposes to use a combination of cash and bonds and argues that interest rates are low and Montana has a high rating and he would argue to take advantage of that.

Barrett: I have seen several times this year where the governor has said we have some money out there that’s drawing 17 percent interest. Well we do and that’s our retirement funds and they are in the stock market and that isn’t the money that we can use for bonding for infra- structure. The cash we have on hand is drawing, the last I looked and this was a couple of weeks ago, 0.14 percent. And he says it’s better to borrow it at 3 or 4 percent than spend our cash — I don’t agree with that. Yea, the rates are low compared to the past, but they’re still more than for the cash we have on hand.

Greater sage grouse

Petroleum News Bakken: Another proposal by the governor is funding of the sage grouse conservation plan for which approximately $10 million is earmarked in HB 2. The plan is modeled after a similar plan in Wyoming and is intended to leave management of the species to the state and avoid a threatened and endangered listing. And the plan has the sup- port of industry. What level of importance do you put on the sage grouse management plan and how the governor proposes to deal with it?

Barrett: We have no choice — we’re between a rock and a hard place when it comes to endangered species and especially the lawsuits behind sage grouse that brought the governor’s executive order at the end of last session that Montana had to have a sage grouse plan focused on habitat, not the species. The species is alive and well in Montana, it’s thriving. But it’s the abuse of the Endangered Species Act that connected us with 10 other states — there are now 11 states that all have to come up with plans focused on habitat.

The Wyoming plan might not be the best plan for Montana. Their core habitat areas are on public lands, and in Montana our core habitats are found on private lands. So there’s a vast difference. And Wyoming also has a wildlife fund that they have put money into for years, but in Montana we don’t have a wildlife fund — our funding is coming out of the general fund. The Endangered Species Act is supposed to be a federal mandate and a federal act and they should pay for it. They paid for wolf management until the wolves were delisted, and they should do the same with sage grouse.

Taxation

Petroleum News Bakken: A bill draft, LC1619 (which may or may not be introduced), would propose to eliminate the state’s drilling tax incentive for oil and gas wells and would retroactively apply to wells drilled on or after Jan. 1, 2015. The money generated by the state through the elimination of the drilling incentive would be placed in the state’s highway revenue account. How do you feel about the idea of eliminating the drilling incentive?

Barrett: When we get back to the taxes and incentives in Montana, it always amazes me — a couple times a year we see statistics from across the states showing how good Montana is doing, but mostly what that is based on is we do not have a sales tax. So they say it’s easy to do business in Montana, tax-wise, because there’s no sales tax, but we have a business equipment tax and these companies have a lot of equipment. They have to pay that every year but with the sales tax they wouldn’t — once they pay it, it’s done.

So Montana doesn’t have a business-friendly tax climate as far as I’m concerned and that’s why there is the need for these incentives. I would not like them to go away and I’ve always supported them.

Enhanced regulations

Petroleum News Bakken: There are a number of bills and bill drafts (identified as LC) that increase the level of regulation on oil and gas operations. SB 177 establishes 1,000-foot well setbacks from surface water bodies; HB 243 requires disclosure of fracturing fluids along with property owner notification requirements; LC977 would establish entirely new standards for oil field waste disposal; and HB 253 prohibits the use of reserve pits. What are your views on such bills and do you think additional regulation is necessary in the state?

Barrett: We have the Board of Oil and Gas (Conservation) and they are out there and they are active and they are doing their job. If they see a need and bring for- ward a bill for further setbacks or to protect water in the state, I would take a serious look at that. But these bills and LC numbers, I think they’re just coming from people who are just are anti-resource development. And it’s certainly over-regulation and just trying to stop development all together.

If it comes from the right source — if there’s a problem out there — we deal with it. Montana has great environmental laws. We have NEPA (National Environmental Protection Act) and MEPA (Montana Environmental Protection Act). So our environmental laws aren’t the problem. And I think they (the environmental laws) have taken care of the types of issues that are in these bills.

Reclamation bonds

Petroleum News Bakken: SB 173 sets reclamation bonds at $20,000 to $60,000 and $250,000 for multi-well pads. Is reclamation bonding an issue with legislators and in these amounts are they reasonable?

Barrett: I don’t think they’re an issue now, I don’t think they’re needed and I don’t think they’re reasonable. I think again it comes from people who are anti- resource development and they’re trying to stop it by any means possible.

Petroleum News Bakken: From an oil and gas news perspective, reclamation and reclamation bonding have not been a problem in Montana, so when bonding emerges it draws attention.

Barrett: I have not seen these (reclamation) problems. If they come to committee and show us there is a problem somewhere in the state that would be one thing, but if we’re just passing things needlessly for more and more regulations. I don’t favor that.

Petroleum News Bakken: Does the Board of Oil and Gas Conservation have a good relationship with the Legislature in terms of bringing issues forward?

Barrett. Yes. Yes. We have the Environmental Quality Council that meets in the interim and they look at all of these issues with all of the boards and all of the development, and if there’s a problem it comes forward and I have not seen any of these proposed bills as problems that have come forward.

Flaring

Petroleum News Bakken: Another bill draft, LC551, sets a flaring limit of 35,000 cubic feet per day. While flaring has been an important issue in North Dakota, and that state is working hard to reduce flaring, natural gas flaring has not generally been viewed as problematic in Montana, which produces a fraction of the oil and gas produced in North Dakota. What do you think about legislation restricting flaring?

Barrett: I think it would be premature and counterproductive to look at another state that might have a problem and then bring in a bill in Montana to prevent something that may or may not ever hap- pen. It would just be focused on stopping development and I can’t support it and don’t think my caucus could either.

Oil and gas trust fund

Petroleum News Bakken: Another bill that’s been drafted but not yet introduced is LC1157, which proposes to put a constitutional amendment before the voters on Montana calling for the establishment of a permanent oil and gas trust fund similar to the state’s coal severance trust fund. What are your thoughts on such a trust fund?

Barrett: I don’t think we need this trust fund. I think it was a detriment to coal production in the state of Montana and I would hate to do the same to oil and gas.

Thanks to our friends at Petroleum News Bakken for kindly allowing us to reprint this article. For more information, please visit Petroleumnewsbakken.com

Arctic Oil On Life Support

By Nick Cunningham for Oilprice.com | Posted: Monday, February 2, 2015 2:32 pm

Statoil Offshore Rig, Heidrun
Photo by Harald Pettersen – Statoil

Oil companies have eyed the Arctic for years. With an estimated 90 billion barrels of oil lying north of the Arctic Circle, the circumpolar north is arguably the last corner of the globe that is still almost entirely unexplored.

As drilling technology advances, conventional oil reserves become harder to find, and climate change contributes to melting sea ice, the Arctic has moved up on the list of priorities in oil company board rooms.

That had companies moving north – Royal Dutch Shell off the coast of Alaska, Statoil in the Norwegian Arctic, and ExxonMobil in conjunction with Russia’s Rosneft in the Russian far north.

But achieving the goals of tapping the extensive oil reserves in the Arctic has been much harder than previously thought. Shell’s mishaps have been well-documented. The Anglo-Dutch company failed to achieve permits on time, had its drill ships run aground, and saw its oil spill containment dome “crushed like a beer can” during testing. That delayed drilling for several consecutive years.

However, the first month of 2015 has darkened Arctic dreams even further. Oil companies are scratching their heads trying to figure out how to deal with a collapse in oil prices, now below $50 per barrel. With virtually every upstream company around the world slashing spending, it is the highest-cost and riskiest projects that are getting scrapped first.

Statoil, the semi-state-owned oil company from Norway, has been an offshore leader and Arctic pioneer. After having watched Shell fumble its Arctic campaign, Statoil put its drilling plans off the coast of Alaska on ice. But now with rock-bottom oil prices, Statoil has even shelved Arctic drilling plans in its own backyard. Bloomberg reported on January 29 that Statoil does not plan on drilling in the Barents Sea this year. It also let several Arctic exploration licenses off the coast of Greenland expire.

In December, Chevron suspended its drilling plans in Canada’s Arctic indefinitely.

In Russia, Arctic dreams are also going to disappoint, although for different reasons. Last year, Rosneft – operating in conjunction with ExxonMobil – announced a major discovery in the Kara Sea. Rosneft’s Igor Sechin said that the field could hold as much as 730 million barrels of oil. “This is our united victory, it was achieved thanks to our friends and partners from ExxonMobil, Nord Atlantic Drilling, Schlumberger, Halliburton, Weatherford, Baker, Trendsetter, FMC,” Sechin said in a statement. “We would like to name this field Pobeda,” the Russian word for victory.

But western sanctions may delay the victory. ExxonMobil is prohibited from working with Rosneft, and had to wind down its operations shortly after the discovery was announced. Worse for Rosneft, ExxonMobil was the one that had the drilling rig under contract, apparently the only platform that would work for the well.

Reuters reported on January 30, 2015 that Rosneft would have to delay drilling until 2016 at the earliest. “There will be no drilling in 2015. There is no platform and it is too late to get one. The project was initially created for Exxon’s platform,” a Rosneft source told Reuters. ExxonMobil has already pulled its platform out, and has it under contract until July 2016. Drilling may not begin for another year or two, and production from the world’s most northerly oil field will not begin until sometime in the 2020’s, barring other setbacks.

That leaves Shell, the company with the spottiest Arctic record. Shell announced $4.16 billion in fourth quarter profits, a decline from the previous quarter, but a decent showing relative to its peers. Nevertheless, the company also announced $15 billion in spending cuts over the next several years. “The macro environment has moved against us,” Shell CEO Ben van Beurden said after releasing the quarterly figures.

Curiously, however, amid all the spending reductions, Shell hopes to once again return the Arctic, after a two-year hiatus. Perhaps that is because of the sunk costs – Shell will spend around $1 billion on its Arctic program whether or not it is drilled because of all the ships and other logistics already under contract. Shell still needs to obtain several permits and clear legal hurdles, but if all goes according to plan, the company could begin drilling this summer.

It is up to Shell then to keep the oil industry’s Arctic dreams alive.

Source: http://oilprice.com/Energy/Crude-Oil/Arctic-Oil-On-Life-Support.html

Oil Prices Changing The Face Of Global Geopolitics

Posted: Monday, February 2, 2015 2:00 pm

 Russian President Vladimir Putin
photo courtesy kremlin.ru

In a documentary that aired recently on the Canadian Broadcasting Corporation’s popular The Fifth Estate program, an allegory of Vladimir Putin was presented. The wily Russian president was described growing up in a shabby St. Petersburg apartment, where he would often corner rats.

Now, punished by low oil prices and Western sanctions against Russian incursions in Ukraine/ Crimea, Putin is himself the cornered rat. Many wonder, and fear, what he will do if conditions in Russia become increasingly desperate.

In the last six months oil prices have plunged over 50 percent and the Russian economy is hurting. The country now faces slowing economic growth, a depressed ruble, and runaway inflation estimated to be up to 150 percent on basic foodstuffs.

The Kremlin is counting on austerity cuts to help balance its budget, which has revenues coming in at $45 billion lower than earlier projections. The exception, significantly, is defense. With the military exempted from the austerity plan, it begs the question of whether Putin will “play the nationalist card,” such as he did in Crimea, in an effort to strengthen greater Russia during a period of economic weakness.

Georgia On His Mind

We are already seeing this to be the case. As Oilprice.com reported last week, Putin is set to absorb South Ossetia – Georgia’s breakaway republic that declared itself independent in 1990. Under an agreement “intended to legalize South Ossetia’s integration with Russia,” Russia would invest 2.8 million rubles (US$50 million) to “fund the socio-economic development of South Ossetia,” according to Agenda.GE, a Tbilisi-based news site.

The situation is analogous to Crimea because, like Crimea, South Ossetia contains a significant Russian-speaking population with ties to the Motherland.

If Putin succeeds in annexing the tiny province, it will be a real poke in the eye to the United States, which provoked Russia in the early 1990s by promoting construction of a pipeline between the former Soviet republics of Azerbaijan and Georgia. The BTC pipeline moves oil from Baku in Azerbaijan to Tbilisi in Georgia and then onward to Ceyhan on Turkey’s Mediterranean coast.

BTC started operating in 2006. Then, two years later, Putin built his own pipeline to cut out Georgia. The South Ossetia pipeline run by Gazprom stretches 75 kilometers from South Ossetia to Russia.

The current move on South Ossetia is a way for Russia to assert its energy independence in the face of Western sanctions and low oil prices.

It comes as Russia announced plans to divert all of its natural gas crossing Ukraine to a route via Turkey. As Bloomberg reported last week, Gazprom will send 63 billion cubic meters through a proposed link under the Black Sea to Turkey – after the earlier South Stream pipeline, a $45-billion project that would have crossed Bulgaria, was scrapped by Russia amid opposition from the European Union. By sending the gas to Turkey and on to Europe via Greece, Gazprom is in effect sending Europe an ultimatum: build pipelines to European markets, or we will sell the gas to other customers.

According to one observer, the proposed land grab in South Ossetia combined with the snub to Europe by shifting its gas to Turkey and bypassing Ukraine, is a classic Putin power play:

“Russia is preparing to absorb a province of neighboring Georgia, and delivering an ultimatum to Europe that it could lose much of the Russian gas on which it relies,” Steve LeVine writes in Quartz. “Putin has argued that the west is simply intent on ousting him and weakening Russia… Faced with these perceived attempts to undercut him and his country, Putin suggests that he has no choice but to pull around the wagons and stick it out. This could go on a long time.”

Iran: Falling Oil Prices Spur Peace Dividend

Some have speculated that the oil price crash was orchestrated by the Saudis, possibly in collusion with the United States and other Gulf states, to punish Iran, its main political and religious rival in the Middle East.

Whether or not that is true, there is no denying the effects of a low oil price on Iran’s economy. “Iran is already missing tens of billions of dollars in oil revenue due to Western sanctions and years of economic mismanagement under former President Mahmoud Ahmadinejad,” Bloomberg reported on Jan. 7. Like Russia, Iran is looking at spending cuts in next year’s budget, which is based on an overly-optimistic $72 a barrel crude oil price.

However, unlike Russia, which is “circling the wagons” and pulling further away from the West currently, the oil price drop could actually lead to more of a détente between Iran and Western countries. In a speech on Jan. 4, President Hassan Rouhani said Iran’s economy “cannot develop in isolation from the rest of the world,” while at the same time, Iran’s foreign minister was negotiating a nuclear deal that could see the lifting of UN sanctions, the Washington Post observed.

Then there is the cooperation between the West and Iran over the terrorist group ISIS. The National Post’s J.L. Granatsein wrote in a column on Tuesday that Iran has deployed substantial numbers of its Revolutionary Guard elite Al Qods brigade into Iraq and Syria to fight ISIS, along with Western allies including the US, Britain, France and Canada. This is despite Iran’s support for Hezbollah in Lebanon and Syria’s president Assad.

“Politics makes strange bedfellows indeed, but not much can be stranger than this. Led by the Americans, hitherto the Great Satan to the Iranian leaders, the ties between the West and Iran are becoming tighter, each side reacting to the horrors of Islamist fundamentalism throughout the region,” Granatsein writes. “The Iranians have been hurt by sanctions, and they are being wracked even more by the falling price of oil. Easing curbs on trade and Iranian banks may mitigate the effects of the oil price collapse.”

Venezuela Bracing For The Worst

The other major loser in the oil price collapse, Venezuela, may not see such a positive outcome. Wracked by decades of economic mismanagement by Hugo Chávez, the South American oil producer was already struggling to pay its debts when new president Nicolás Maduro came to power.

Now, with inflation running at 60 percent and lines forming outside state grocery stores for food and other basic supplies, Maduro faces the specter of serious social unrest if conditions do not improve. The country has some of the world’s cheapest gasoline prices, but Maduro has refused to end fuel subsidies, fearing, no doubt, a repeat of widespread riots in 1989 that left hundreds dead after gasoline prices were allowed to rise.

Venezuela is even more dependent than Russia on the price of oil, earning some 96 percent of its foreign currency from oil sales, putting Maduro in the untenable position of either borrowing more, despite crushing debts, or slashing spending:

“With only $20 billion left in its reserves, and $50 billion in debt to China alone, Venezuela appears headed toward a choice between abandoning its oil giveaways and defaulting on its debts, or starving its own population to the point of revolt,” according to the Washington Post.

Source: http://oilprice.com/Energy/Energy-General/Crushing-The-U.S.-Energy-Export-Dream.html

MOONCOR COMPLETES ACQUISTION OF 219,000 ACRES OF OIL AND GAS LEASES IN AREA

Posted: Thursday, January 29, 2015 3:51 pm

 A Lodgepole Formation well, the Spring Hill  14-34-27-6HZ, is drilled by Primary Petroleum in 2011.

S

According to a press release issued by Mooncor Oil & Gas Corp. earlier today, the company has completed the purchase of 320 sections of oil and gas leases in Pondera and Teton Counties in Montana. While the release does not mention the name, it is believed that Mooncor has acquired the leases of Primary Petroleum, based on company filings and reports on financial websites.

The Mooncor release reads:

TORONTO, ONTARIO — Mooncor Oil & Gas Corp. (“Mooncor”) (MOO) announced today that its wholly owned subsidiary, Mooncor Energy Inc. (“MEI”), has completed the acquisition (indirectly through the acquisition of a Montana incorporated company) of oil and gas leases and related data over approximately 320 sections (net acres of 219,000) in the Pondera and Teton Counties in Northwestern Montana USA (the “Property”). Mooncor and the sole shareholder of the vendor of the shares of the Montana company acquired share a common director, however the acquisition is not a “related party transaction” as defined under Multilateral Instrument 61-101. The acquisition was previously disclosed on August 14, 2014 and October 16, 2014. MEI will pay the vendor a 1% gross overriding royalty and assume its working interest share of the reclamation costs relating to the previous drilled wells and the ongoing lease payments on the Property. Further details of the Property are disclosed in the August 14, 2014 news release.

In addition, Mooncor provides a further update on its February 16, 2012 news release on the closing of its previously announced disposition (the “Transaction”) by MEI of an interest in two oil leases spanning 80 acres located in Lloydminster, Alberta to Madeira Minerals Ltd. (“Madeira”) (nex: MDE. H). MEI and Madeira have entered into a letter of commitment and amended and restated purchase agreement to affirm the parties’ intentions regarding the Transaction, and to recognize improvements made on the property by MEI since the Transaction was first announced. A major work-over of Well 3-28 and minor work-over of Well 4-28 were completed in 2012, in addition to required environmental remediation work. Madeira is a capital pool company and the Transaction is intended to constitute Madeira’s “qualifying transaction” under Policy 2.4 of the TSX Venture Exchange (the “Exchange”). Completion of the Transaction still remains subject to approval of the Exchange, completion by Madeira of a concurrent private placement for aggregate gross proceeds of $1.2 million, and compliance by Madeira with the policies of the Exchange related to completion of a qualifying transaction.

Mooncor Oil & Gas Corp. is a junior oil and gas exploration company. Mooncor holds interests in lands in the Muskwa/Duvernay liquids rich shale gas area in Hamburg, Alberta, and in southwest Ontario where the focus has been on conventional oil and gas opportunities.

Anadarko E&P Onshore Re-permits Two Bakken Wells in Toole County

By Darryl L. Flowers | Posted: Tuesday, January 27, 2015 1:00 pm

 Rig #8 Xtreme Coil Drilling and Coil Services drilling a well, the Barefoot 33C-25 HZ, recently in the Wattenburg Gas Field in the Denver-Julesburg Basin west of Longmont, Colorado. The well, like several others in the area, is being drilled for a subsidiary of Anadarko Petroleum. The region shares some geological characteristics with the Rocky Mountain Front. The Rockies can be seen rising in the background.

1/12/2015 To 1/23/2015

New Locations – Horizontal Wells

In Richland County, Whiting Oil and Gas Corporation permitted a Bakken Formation well, the Hay Creek Federal 24-31-4H. The Hay Creek has a surface hole location (SHL) at SE SW 31-25N-58E (300 FSL/1740 FWL) and a probable bottom hole location (PBHL) of 21,803 feet at NE NE 30-25N-58E (240 FNL/660 FEL).

Re-Issued Locations

In Richland County, three re-issued permits were approved for wells that will be operated by Whiting Oil and Gas Corporation: the State 43-16-2H, with an SHL at NE SE 16-24N-59E (2330 FSL/300 FEL) and a PBHL of 20,234 feet at SW NW 17-24N-59E (2460 FNL/240 FWL); the State 43-16-3H, which has an SHL at NE SE 16-24N-59E (2285 FSL/300 FEL) and a PBHL of 20,157 feet at NW SW 17-24N-59E (1740 FSL/240 FWL) and the State 43-16-4H, with an SHL at NE SE 16-24N-59E (2240 FSL/300 FEL) and a PBHL of 20,680 feet at SW SW 17-24N-59E (660 FSL/240 FWL).

In Toole County, two re-issued permits were approved for wells to be operated by Anadarko E&P Onshore, LLC: the Simmes Ranch 3603-01-41H has an SHL at NW NW 1-36N-3W (450 FNL/245 FWL) and a PBHL of 7,492 feet at NE NE 1-36N-3W (400 FNL/330 FEL); the Simmes Ranch 3603-02-11H has an SHL at NE NE 2-36N-3W (400 FNL/880 FEL) and a PBHL of 6,875 feet at NW NW 2-36N-3W (400 FNL/330 FWL). Both wells will target the Bakken Formation.

Completions

In Blaine County’s Bowes Field, Citation Oil & Gas Corp. reported the completion of the Bowes Sawtooth Unit B208H. The Sawtooth Formation horizontal well has an SHL at NW NW 8-31N-20E (750 FNL/760 FWL) and a bottom hole location (BHL) of 6,217 feet at NE SE 6-31N-20E (1407 FSL/1310 FEL). The reported initial production was 15 barrels of oil per day (BOPD) and 400 barrels of water per day (BWPD).

In Carbon County, Energy Corporation of America reported the completion of the Hunt Creek 1-H, located at SW SW 7-8S-23E (741 FSL/805 FWL). No initial production numbers were reported.

In Dawson County’s Deer Creek Field, Legacy Reserves Operating LP reported the completion of the Deer Creek 8-22, located at SE NE 22-17N-53E (2050 FNL/660 FEL). The Red River vertical well reported an initial production of 321 BOPD, 5,000 cubic feet of gas per day and 1,215 BWPD.

Three Bakken Formation wells were reported as completed in Richland County.

Whiting Oil and Gas Corporation reported the completion of two of the wells. The Sundheim 21-27-3H, with an SHL at NE NW 27-25N-58E (440 FNL/1980 FWL) and a BHL of 20,478 feet at SW SE 34-25N-58E (245 FSL/1907 FEL). The Sundheim 21-27-3H recorded an initial production of 1,293 BOPD, 658 thousand cubic feet of gas per day (MCFPD), and 2,807 BWPD. The Sundheim 21-27-4H has an SHL at NE NW 27-25N-58E (395 FNL/1980 FWL) and a BHL of 21,497 feet at SE SE 34-25N-58E (241 FSL/572 FEL). No initial production rates were reported.

Wrapping up the three Richland County completions is the Babka 3-12H, operated by Continental Resources Inc. The Babka has an SHL at SW SW 12-24N-52E (325 FSL/735 FWL) and a BHL of 15,594 at 1-24N-52E (237 FNL/690 FWL). The Babka reported an initial production of 595 BOPD, 125 MCFPD and 281 BWPD.

Abandoned Wells

In Sheridan County, final abandonment procedures were approved for the Ostby 11-35, located at NW NE 35-31N-58E (825 FNL/1517 FEL). Omimex Canada, Ltd. was the operator of record.

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

The Search Began In 1933

Posted: Tuesday, January 27, 2015 12:53 pm

Drilling at Dammam
J. W. “Soak” Hoover /Saudi Aramco World/SAWDIA

Editor’s note: This article, from 1963, details the search for oil in the Arabian Desert that led to the first discovery there, at the Dammam #7 well. We would like to thank Saudi Aramco World for providing the story and photos. Current and back issues of the magazine are available at http://www.saudiaramcoworld.com

Thirty years ago the rugged Arabian Desert was a place of hardship and adventure for pioneering American oilmen.

A small monoplane flying thousands of feet above the sand massifs of the eastern Rub’ al-Khali is witness to a dramatic instance of man’s ability to package his environment and take it along. Far below the plane on a sun-baked flat, where survival can be a marginal proposition, a group of white cubes glisten in the fierce light.

Down in the midst of this remote desert bivouac a generator hums. It pumps electrical life into the mobile camp and powers its electronic voice. There trained men work efficiently in air-conditioned comfort carrying on the costly search for oil.

However, even before the exploration field parties of the Arabian American Oil Company had large office, laboratory, dining hall and dormitory trailers to support them, the deserts of Saudi Arabia were being forced to yield their geologic secrets.

Let’s go back 30 years and follow two bearded geologists in Bedouin dress into the desert in December 1933. They head across the sandy steppes in a Ford touring car, knowing that at any moment the washboard terrain may break a spring. They are accompanied by a pickup truck, but that is the limit of their automotive equipment.

The field party with the two geologists includes an interpreter, a cook, a cook’s helper, a houseboy, a mechanic, a mechanic’s helper, a driver, 30 escorts (a warrant of the King’s good will) and four camel drivers.

The transport includes 25 riding camels and a dozen baggage camels each capable of hauling about 400 pounds. The camels carry three large goat hair tents and a silk tent, grass floor matting, collapsible tables, chairs, cots, food, cooking utensils, gasoline stoves and lamps, and gasoline in five-gallon tins.

In the small mountain of baggage are a chronometer, a surveyor’s transit, a sketchboard, three Brunton compasses, drafting equipment, some one-gallon water cans, half a dozen large waterskins, tools, spare motor parts, spare tires and extra front springs.

The geologists carry no radio. Once over the horizon they will be out of contact with headquarters until they return.

Such was the equipment and mode of travel of an overburdened geological field party in the eastern Saudi Arabian desert late in 1933. It was Aramco’s first field season in the unmapped (or mis-mapped) reaches of its newly acquired 300,000-square-mile oil concession.

The first field season started almost the instant the first two American geologists came ashore at Jubail, Saudi Arabia on September 23, 1933. It ended June 7, 1934 when the summer heat made further field work impractical.

That pioneer season in the desert required an unusual group of men. Their responsibility was great, for their company was investing large sums of money against heavy odds. They had to work fast in an unknown terrain; the depression had crippled the major world economies and the United States had gone off the gold standard. Furthermore, they were halfway around the world from home base.

And yet, despite tough obstacles, the doughty exploration team that started with two men and grew to ten did a remarkable job. Guided by Bedouin trackers well-schooled in the desert traverses, the seven geologists on the team charted dunes, jebels (hills) and sand marshes, and by the end of the pioneer season had determined, and marked for drilling, an area where in less than four years the discovery of oil in commercial quantities would confirm their judgment.

Who were these men? And what led them to the shores of the Persian Gulf to search for oil? All but three of the pioneers were petroleum geologists, and they went to the Middle East because a geologist goes wherever the search for oil may take him. Another was an engineer who had already surveyed one nearby Persian Gulf oil field. One was a mechanic and one was a co-pilot-mechanic, both wanting to try what sounded like an interesting venture.

The roster for the first field season began with geologists Robert P. (Bert) Miller and Schuyler B. (Krug) Henry, who had both searched for oil in the jungles of Venezuela. Miller had arrived in the Middle East in April 1932. He had been sent by the Standard Oil Company of California (Socal) to observe the drilling of the company’s first well on Bahrain Island in the Persian Gulf just off the coast of Saudi Arabia. He was also assigned to determine the best site for the second well.

The Bahrain Petroleum Company, a Socal subsidiary, discovered oil on Bahrain in June 1932. Socal then extended its oil exploration in the Persian Gulf area. In May 1933, the company obtained a concession to search for oil, and develop production, in Saudi Arabia. In order to carry this work forward efficiently, Socal assigned the concession to a new subsidiary, the California Arabian Standard Oil Company, which in January 1944 was re-named the Arabian American Oil Company (Aramco).

Miller had been working in Bahrain for about a year and a half when he drew the assignment to start the geological work on the new Saudi Arabian concession. He knew Arabic and had become skilled in the technical and diplomatic problems of geological exploration in foreign lands.

His partner on the new project, Henry, had been in Bahrain for about a year. Henry, like Miller, had picked up everyday Arabic. Both of them had grown beards and had decided to set foot on the Arabian mainland in desert dress: long shirt, lightweight robe and cloth headdress. The clothing was both functional and politic.

The day they landed, Miller and Henry went to work. Thus, the first field season opened without ceremony.

Four weeks later, J. W. Hoover, another Socal geologist, became the third member of the pioneer party. He came over from Bahrain and landed at al-’Uqair about 100 miles down the coast from Jubail where Miller and Henry had landed. Al-’Uqair was the port for the al-Hasa oasis and had a customs house. At that time about ten people lived there, but in 1922 al-’Uqair had been the scene of a historic meeting at which Great Britain recognized the right of King ‘Abd al-’Aziz to rule the eastern section of Saudi Arabia, an area he had already ruled efficiently for ten years.

Almost as soon as “Soak” Hoover stepped ashore at the customs house Miller took him to a group of limestone hills that Miller and Henry had named the Dammam Dome.

Less than three weeks later the fourth and fifth geologists—Art Brown and Tom Koch—landed at al-’Uqair. Thus, the pioneer group had grown to half its ultimate size by November 10th. In another 11 days Hugh Burchfiel arrived to round out the geological team for 1933.

The seventh man ashore was an engineer, Allen White, another Socal foreign veteran. He too had worked in Venezuela and had surveyed the entire Bahrain concession for Socal. White arrived early in December and took charge of the branch office that Miller had set up in Hofuf, the principal village of the al-Hasa oasis. During the early days of oil exploration, White was the Arabic scholar among the Americans. Before he had been on the scene many weeks the roster of pioneers went up to eight: Felix Dreyfus, a mechanic, came over from Bahrain where he had been nursing a burned hand after arriving from the States with Burchfiel.

The handful of geologists bumping around on hardpan, skirting dunes and digging out of the sand had learned one thing by the year’s end: they couldn’t possibly investigate much of the concession, which covered an area larger than the entire state of Texas, without the help of an airplane.

Early in March 1934, the plane arrived. Aboard were geologist-pilot-aerial photographer Richard Kerr and copilot-mechanic Charley Rocheville. The ten-man team was finally complete with less than three months left to go in the first field season. The plane would soon speed up the desert exploration considerably, but some impressive work had already been done.

During their months of service in Bahrain, Miller and Henry had often seen a group of limestone hills across the water on the Arabian mainland. They were anxious to get a close-up look at them. Within a week of their landing in Saudi Arabia, they had already worked their way inland to al-Hinnah and returned to their temporary headquarters at Jubail. They then reconnoitered about 120 miles of coastal desert southward past Tarut Island and the Qatif oasis and on into the tantalizing limestone outcroppings. On September 28th, five days after landing, they were chipping samples from Jebel Dhahran, the most prominent of the hills they had seen from Bahrain.

Two days later Miller and Henry were in Hofuf examining a house that the Gosabis, the merchant family who acted as agents for the oil company, had suggested be used for exploration headquarters. Miller decided to maintain headquarters at Jubail and use the house in Hofuf as a branch office. The geologists moved on quickly and a few days later were back once again at al-Hinnah. They thus closed their first set of traverses.

When “Soak” Hoover arrived at al-’Uqair on October 22nd, he was accompanied by three Ford touring cars. Miller met him and took him immediately to a new camp at Dam-mam Dome. There Hoover and Henry set to work detailing this important structure. Miller left them two of the Fords.

The automotive inventory grew a week later when Art Brown and Tom Koch arrived at al-’Uqair. Two three-quarter-ton trucks came with them, but they soon proved impractical in the desert.

When Burchfiel came ashore on November 22nd, his first assignment was north of Jubail. He set to work to map the country west of the American headquarters. Before the month was out he was joined by Henry and Hoover, who stopped their detail work down at the Dammam Dome and left their survey stakes in place.

By the end of January 1934, they had mapped as far west as al-Lihaba. Work proceeded simultaneously to the south where Koch and Brown were mapping the desert west and north of Hofuf. White had arrived early in December to take charge at Hofuf, and he was busy transferring data from the field parties to the base maps of the reconnaissance.

After Christmas the services of a good mechanic were available with the arrival of Dreyfus. During January and February the field parties made long desert traverses. They suffered their difficulties with few complaints, but they knew for all their effort they were making little headway in their tremendous task. Brown and Koch had set up a camp northwest of Hofuf at ‘Uray’irah, and to the north Henry, Hoover and Burchfiel continued to move west from Jubail deeper into the desert.

When Kerr and Rocheville arrived with the plane in early March, several weeks passed before the Saudi Arab government permitted them to use it for aerial reconnaissance. On March 30th they made their first aerial traverse. Throughout April and May they were able to get in three or four good flying days a week with two geologists aboard to observe and sketch terrain features. In late April they were permitted to start flights into the interior and to use their radio.

At the end of April the plane set Henry and Hoover down in a new base camp 150 miles west of Jubail, the deepest ground penetration yet into the desert. But early in May, Henry and Hoover were called in from the desert and sent back down to the Dammam Dome to finish their detail work. On returning to their old camp they found that the survey stakes had been destroyed, probably by passing Bedouin.

By the end of May it was getting hotter by the day, and the time had come to pull in all the geologists from the desert camps. Time was needed to study results and replenish the pioneer team, some of whom were ill. Charley Rocheville needed hospital care—he was the first “casualty” among the explorer vanguard.

On June 6th Dick Kerr came down from Jubail to the camp at the Dammam Dome to take pictures. The same day, Henry and Hoover completed their detail work on the structure. The next day the branch office at Hofuf closed, and Allen White went up to Jubail. The wings of the plane were folded back, and it was wheeled away for the summer.

When “Krug” Henry and “Soak” Hoover finished their last day’s work at the Dammam Dome, they built a cairn of rocks where they thought it would be best to drill the first oil well in Saudi Arabia.

The visitor who today flies over the air-conditioned trailers of an Aramco field party might well be amazed if he were swept back in time and saw the black tents and touring cars and the tired, bearded men in desert dress who raised the historic rock cairn among the limestone outcroppings.

Ten men had changed the map of Saudi Arabia during the first field season in the desert. None of them could know how great the changes really were.

This article appeared on pages 17-19 of the February 1963 print edition of Saudi Aramco World.

Back To Basics: Why Conventional Drilling Makes Sense in 2015

By James Stafford | Posted: Tuesday, January 20, 2015 1:17 pm

 A conventional well is drilled along the Eastern Slope in Pondera County.
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This New Year, an old trend may become a new trend as conventional drilling in North America is once again in the spotlight at a time when oil prices continue their slump and the unconventional becomes increasingly uneconomical.

Advanced horizontal drilling and hydraulic fracking for extraction is much more expensive than conventional drilling. While these high-cost methods are the technology that ushered in the North American shale boom, in times of oil price troubles, plenty are moving back to the basics. Unexplored conventional plays are set for a mini-boom of their own.

The surge in high-tech exploration and production has been led by small to mid-sized independent companies who could foot the bill for expensive drilling and extraction as long as oil prices were high and the risk-to-reward ratio favorable. This was a great plan when oil prices were over $100 a barrel.

Most independent drillers hit a break-even point around $80-$85 per barrel for shale drilling.

Beyond this, shale wells deplete much faster and during peak production, they are “highly leveraged to the prevailing energy price”. So when you sink millions into a shale well for quick reward when oil is at $100 a barrel and it suddenly plummets to $60 per barrel—you’re out a lot of cash and it is no longer feasible to produce.

One way for investors to hedge their bets is to look away from the shale cash cows and towards underexplored conventional plays that don’t require expensive horizontal drilling or fracking for extraction.

Going vertical is the safer bet, and there are two key areas that stand out: The all-time favorite Permian Basin in West Texas, and the prolific and still underexplored Saskatchewan province in Canada.

In the US, nearly 95% of new oil production between 2011 and 2013 was from seven key regions where horizontal drilling and fracking rule the day, led by North Dakota’s Bakken, South Texas’ Eagle Ford, and the Permian Basin in West Texas and New Mexico.

But what you may not know is that the Permian Basin isn’t all horizontal. In fact, just before the oil price slump, it was just getting to the point where horizontal drilling was starting to outpace vertical drilling.

The decline rates for these key regions speak volumes. The Eagle Ford region has an approximately 62% decline rate, the Bakken region 54%, and the Permian—where vertical plays a key role—has only a 33% decline rate.

In September, Encana Corp. (NYSE:ECA) agreed to acquire Athlon Energy’s (NASDAQ:ATHL) Permian basin assets for $7.1 billion. While horizontal wells are the longer-term plan, current production is almost entirely from vertical wells and Athlon had 1,121 vertical wells versus 17 producing horizontal wells on its acreage.

At the other end of North America, all eyes are on Canada’s Saskatchewan province, where Suncor Energy (SU) and Cenovus Energy (CVE)—two of the biggest oil sands producers in Canada—maintain significant profit margins despite all.

More narrowly, market attention is latching on to the Williston Basin, which is already producing 1 million barrels of light crude oil per day and is on track to double this with new wells coming online. Yet there remains a great deal of exploration to do here, and this basin is expected to come up with another major sweet spot.

Within this prospective sweet spot lies the Little Swan, whose name belies its potential to be the next major discovery with an extremely attractive risk-to-reward ratio. This is, after all, the single-largest oil permit in Saskatchewan.

Recently acquired in part by a small, fiery independent company called Bayhorse Silver Inc. (TSX Ventue:BHS), Little Swan, in the prolific Williston Basin is a 253,000-acre oil and gas prospect that is an extension of oil bearing formations of North Dakota and Montana, according to geological reports that indicate high potential for a new discovery.

What makes this area particularly attractive to prospective investors who are shell-shocked by the oil price slump is that drilling will be cheap. Bayhorse estimates that a 1,200ft-well would cost only $500,000 because there is no need for horizontal drilling or fracking.

Overall, Canada–the world’s fifth-largest oil producer and a country with more proven crude oil reserves than anywhere outside of Saudi Arabia and Venezuela—is shaping up to become a better bet for anyone who recognizes that the frackers are now a gamble, and even more of a gamble than expensive oil sands, which take a lot of upfront investment but don’t decline like shale.

Source: http://oilprice.com/Energy/Crude-Oil/Back-To-Basics-Why-Conventional-Drilling-Makes-Sense-in-2015.html

Mining & Forests… Case No. 1: Then and Now

By Jim Peterson | Posted: Tuesday, January 13, 2015 1:00 pm

Black Hills Expedition of 1874, as photographed by William H. Illingworth.

In the summer of 1874 – not quite 11 years after he won the Congressional Medal of Honor in the Battle of Gettysburg and less than two years before he was killed in the Battle of Little Big Horn – Brevet Major General George Armstrong Custer led an expeditionary force of 1,200 on a 1,200 mile trek through the Black Hills.

Apart from confirmation of the presence of gold in the Black Hills, the expedition’s most enduring historical contribution was an extensive set of photographs taken by pioneer photographer William H. Illingworth. Seventy-three of his glass negatives survive today, and provide contemporary forest observers with a startling record of the difference between Black Hills forests then and now. Most apparent is the fact that there are far more trees in Black Hill’s forests today than there were in 1874. The photographs, taken before logging began, also bear witness to a long history of fire, though none show grassy savannas punctuated by groves of large ponderosa pines, a setting often associated with fire-dependent ecosystems.

Between 1874—when gold was discovered near Custer City—and 1898, the year before Case No. 1 was sold to the Homestake Mining Company, miners and town builders harvested 1.5 billion board feet of timber from the Black Hills. They paid nothing for what they took. In fact, in 1878 a Congress anxious to aid the mining industry—which it viewed as a key player in western economic development—passed the Free Timber Act allowing miners to take from public land whatever timber they needed for their mining operations. The only restrictions: trees less than eight inches in diameter could not be cut and tree tops had to be disposed of to prevent forest fires. While these restrictions suggest the federal government had a passing interest in forest conservation, unregulated logging continued until February 1897 when President Grover Cleveland created the nearly one million acre Black Hills Forest Reserve, outlawing logging and, in effect, mining, which could not continue without timber.

President Cleveland created this reserve—and 12 others—at the urging of the National Forestry Commission, a group appointed by the National Academy of Sciences, which had been asked by the government to prepare a “rational forest policy” for the United States. Several commission members visited the Black Hills and concluded that minus quick action its forests would soon disappear altogether to the detriment of government hopes for settling the West. In fact, as early as 1892, one Department of Agriculture field agent predicted that “it will be no wonder if in a short time the dark pine forest is gone and the name ‘Black Hills’ has become meaningless.”

Predictably, President Cleveland’s action outraged miners and townspeople alike. In its February 27, 1897 issue, the Custer Weekly Chronicle declared, “The executive order…may be safely regarded as one of the most vital blows at civilization, so far as the Black Hills is concerned, that has ever been perpetrated by the ruler of any nation in the history of modern or ancient times.”

Not all of the commission members agreed with Cleveland’s order. Most notably, Gifford Pinchot, one of the era’s leading conservationists and an early advocate for science-based forestry, had misgivings about the philosophical underpinnings of forest preservation. He favored adoption of management principles developed in Europe at least a century earlier: efficiency, rational planning, scientific management and continuous production based on removal of old timber in order to encourage growth in the most desired tree species.

In June 1897, barely four months after Cleveland created the no-harvest reserves Congress bowed to western economic interests, ratifying the Organic Administration Act. Most significantly, the Act declared that the reserves existed “…to furnish a continuous supply of timber for the use and necessities of citizens of the United States.” It also gave the Secretary of the Interior the power to make regulations under which mining, lumbering and grazing interests could use public forests.

That fall, Pinchot toured the Black Hills, and in a history making November 3 meeting, convinced Homestake Mining Company officials they should side with him in his quest to bring science-based management to the reserves. Mindful of how quickly its economic fortunes had been changed by Cleveland’s order, company officials agreed to submit a formal request to the Secretary to purchase timber under terms spelled out in the Organic Act. It was a huge victory for the opportunistic Pinchot, who a year later was named Chief of Interior’s Bureau of Forestry.

Three months later, in February 1898, Homestake Mining filed its formal written request to purchase timber from the federal government, but it would be another year and a half before the application was approved, the sale volume estimated and the deal sealed. Nevertheless, Pinchot’s timing had been perfect. Here was a brutalized forest in desperate need of scientific management, and here was a company that needed a long-term timber source in order to maintain its immensely profitable mining operation. It could ill-afford to further anger a conservation-minded citizenry that feared the nation might soon run out of timber.

“There is no other forest in the United States in which practical forestry is more urgently needed, or in which results of such importance may be more easily achieved,” Pinchot wrote in a later report. “Upon its preservation depends the timber to supply a great and rapidly growing mining industry.”

Logging on Case No. 1—the first ever government-regulated timber sale—began just before Christmas 1899. Homestake paid $14,967.32 for about 15 million board feet of live and dead timber. Even then, it was an inconsequential sum for one of America’s largest mining companies, but getting the wood proved to be quite another matter. It took an army of horse loggers about eight years to complete eight separate contracts, one for each section from which timber was harvested. In all, about 2,000 acres scattered across 5,100 acres were logged.

About 5000 board feet of timber was removed from each acre—in trees up to 30 inches in diameter. Initially, the government allowed loggers to remove all trees larger than eight inches in diameter, but required that two larger trees be left on each acre as a seed source. But midway through the first year of harvest, the minimum diameter for trees harvested was increased to 14 inches which—counting seed trees— meant that about 500 board feet of standing timber were left on each acre. Clearly, the government’s forest officers—those charged with enforcing the logging contract—saw themselves as managers of a forest they believed could produce timber in perpetuity. A 1924 Forest Service survey suggests their instincts were correct. It revealed per acre volume had already increased 441 percent, to 2,600 board feet per acre.

In the years since, portions of Case No. 1 have been separately harvested five times: a CCC thinning in the 1930s, a post and pole thinning in the 1960s and actual timber sales in 1977, 1989 and 1990. In a 1968 ceremony, the Forest Service commemorated the two billionth board foot removed from the Black Hills National Forest by harvesting a 203 yearold ponderosa pine from the Case No. 1 site near Nemo. The occasion marked the fourth time the Nemo site had been thinned since Case No. 1 crews left the tree behind in 1899. Reporters who attended the ceremony seemed to grasp its significance—and the role Pinchot had played in insisting that a well-regulated forestry program could serve the nation’s economic interests while conserving its forest reserves.

“With harvest of the two billionth board foot, the Black Hills will have produced as much or more wood than there was estimated to have been standing when logging started here,” the Rapid City Journal noted in its June 23, 1968 edition. “Case No. 1 is more than history. The old sale area has been a proving ground for forest management. Here the basic precepts of careful logging were first laid out.”

Apart from representing a vast improvement over the hell bent free timber era, Case No. 1 became the economic cornerstone for dozens of still prosperous communities in rural South Dakota and Wyoming. Though it would be another 90 years before economic and ecological sustainability were seen as interdependent, Pinchot and his colleagues believed that if they managed the forest—making certain a new forest replaced the one that was harvested—they could also sustain the communities that purchased and milled federal timber.

Today, dozens of major federal laws and thousands of regulations—the Case No. 1 legacy—govern when, where and how logging occurs or if it can occur at all. In fact, many foresters now believe the regulatory process has become so cumbersome that it is counterproductive. Even more worrisome are the numerous proposals now before Congress that, if adopted, would outlaw timber management in National Forests. Before trading a century of success in forestry for a set of environmental unknowns, Congress ought to revisit the principles embodied in Case No. 1:

• The nation’s timber supply is not inexhaustible.

• A well-regulated forestry program can serve the nation’s economic interests while conserving its forest reserves.

• For conservation to succeed it must first be turned into an economic asset.

Based on what we saw in the Black Hills, these principles are as valid today as they were when Pinchot and the Homestake Mining Company came to terms with each other a century ago.

Jim Petersen is a co-founder of the non-profit Evergreen Foundation, and publisher of Evergreen, the Foundation’s periodic journal. Evergreen Foundation was established in Medford, Oregon in 1986 to help advance public understanding and support for science based forestry and forest policy. The organization’s original sponsors were all members of the Southern Oregon Timber Industries Association. This article can be found at http://www.evergreenmagazine.com/author/jpetersen/