A Cornerstone Commodity on Our Side - Q&A with Outgoing Chairman Jack Ekstrom
by Jack Ekstrom, Chairman on August 11, 2015 - 7:50am
For the past year, Jack Ekstrom has served as chairman of Western Energy Alliance. An outspoken champion of the oil and natural gas industry, Jack offers his insights on the state of the industry. For nearly 40 years, he has worked in various roles focused on government affairs and public outreach. Today, he is vice president of corporate and government relations at Whiting Petroleum.
This week at the Alliance’s Annual Meeting Jack concludes his one-year term, over which the industry has experienced more than a 50% drop in oil prices, growing regulatory burdens from the federal government and continued attention from the public. He offered the following observations on each of these topics.
Q: You have been involved with Western Energy Alliance for many years. In addition to spending the past year as chairman, you’ve helped steer the direction of the organization as an active board member. What’s the biggest change you’ve seen and how does it impact us moving forward?
While not a founding member, I joined the Independent Petroleum Association of Mountain States (IPAMS) in the late 1970s when it was about a year old. At that time industry was attempting to cope with a blizzard of new federal initiatives–Roadless Area Review and Evaluation I (RARE I) and RARE II, the Federal Land Policy and Management Act (FLPMA), a new Department of Energy and a consolidation of federal jurisdictions including the Bureau of Mines, Federal Energy Administration and others into the Department of the Interior.
The biggest change, on several levels, is the growth of federal micro-management of every aspect of public lands use. Grazing, the 1872 Mining Law, recreational activities, oil and natural gas leasing and exploration and virtually every other activity have been restricted, subject to lawsuits or had fees dramatically increased.
This sea change in public land use restrictions has driven multiple industries onto state or private lands to the detriment of the public’s right to realize the economic benefits of the lands it owns, and to the detriment of the states which formerly benefited from a larger share of federal royalties.
Q: What do you see as the future of the Alliance and its role in advocating for the oil and natural gas industry?
Western Energy Alliance has become and will continue to be the voice of energy producers across the Intermountain West. While state organizations effectively serve their members in governors’ offices and legislatures, the Alliance stands alone as the voice of reason and science in energy development matters on public lands. From BLM Regional Management Plans, EPA’s air and water adventures and Forest Service mandates, the Alliance has been and will remain the leading voice advocating rational policy solutions to counter adventuresome overregulation and extremism on the part of environmentalists and their advocates in government.
Q: Much has been written in the past year on lower oil prices. Compared to other downturns you’ve experienced, how are U.S. producers positioning themselves differently to sustain this pricing environment and remain competitive?
Top of mind in virtually every industry professional was and is the mantra “Don’t let me blow another oil boom.” With the dramatic turnaround resulting from the shale boom, I believe the large majority of producers was devising plans to survive and even thrive with low prices. The evidence is clear; public companies are trimming their capex to grow within cash flow, they have driven down costs, and they are partnering with service companies so that both can weather the downturn.
The industry is not just the E&P companies—it is drilling contractors, pressure pumping providers, water haulers, marketers, pipelines and ancillary service providers. It is our charge to assist them in surviving so that experienced and competent entities are there for us when prices and demand inevitably rise.
One activity that is not subject to reduction is our public outreach. Alliance members and the Alliance as an entity are engaging in communities, in legislatures and with policymakers even in non-producing states to deliver our value proposition—our record on jobs, revenue to state and federal treasuries and our declining reliance on unstable/hostile sources of crude.
Q: So far this year the Obama Administration has issued numerous new rules and regulations. How does industry balance spending time, energy and financial resources to meet the growing list of regulatory requirements with competing in the global market where low prices constrain revenues?
Industry has few options in the regulatory quagmire the Obama Administration has expanded so dramatically. Failure to maintain records and invest in compliance risks severe penalties and public backlash. Non-compliance is simply not an option, though divining the path through frequently conflicting regulatory regimes is a daunting challenge.
Environmental, Health and Safety (EHS) staffs have grown by multiples as they are charged with compliance across OSHA, EPA, BLM, USFS and widely varying state and local regulations. These “costs of doing business” were more readily absorbed with high commodity prices. In this low price environment, with a reduced rate of activity, the press to add EHS staff has eased.
The outlook for the near term is not good as regulations on fugitive emissions and Endangered Species listings loom for the Sage Grouse and a number of other species. There are forecasts predicting $50 oil and sub-$3 gas for 10 years. Those are dire conditions if they prove true. However, we should never discount industry’s innovative record and improving Estimated Ultimate Recoveries (EURs) due to advances in fracking and drilling efficiencies.
Low prices affect all world producers, and the casualties will be greater in foreign countries that have fragile economies, political dissent and unrest. I count U.S. resilience and innovation as winners over the long term.
Q: Despite polls that show strong support among the public for overturning the crude oil export ban of the 1970’s, members of Congress are historically hesitant to act on this issue. When you talk to lawmakers, how do you convince them this 40-year old ban is outdated?
To date, neither I nor the industry have succeeded, however we are progressing. Much about our industry is counter-intuitive–low crude prices equal higher profits for refiners, environments improve when oil and gas is produced in the U.S. versus other less conscientious nations, the industry is subject to multiple layers of burdensome, onerous regulation, prices are determined in the free market, and so forth.
No other commodity is subject to export restrictions, not even the products created from a barrel of oil. The notion that we will run out of oil should we export what we produce is nonsense, just as it is nonsense to believe we will run out of food due to our exporting grain, beef, milk and every other foodstuff. The rationality of the argument becomes clearer when crude is compared with other commonly and freely traded commodities. That said, an administration philosophically opposed to hydrocarbon fuels is unlikely to enact any policy that allows our industry to advance in any way, much less prosper.
Q: Switching from politics to public opinion. We now live in a world of sound bites, and people learn about complex activities through snippets of information, often pushed by opponents of industry. What makes it hard for the public to understand the oil and natural gas industry and overcome misconceptions about how operators are regulated and what actually takes place on a well pad?
The hardest part is that the science is complex and there are so many moving parts in the oil and gas value chain. The old misconception about dropping a “straw” into a subsurface “oil lake” and sucking out the crude is difficult to overcome. I show elected officials a core sample of Bakken or Three Forks shale and there is disbelief and wonder that oil and gas come out of something that has the consistency of their granite counter top.
Portrayals of industry have typically been larger than life—think movies such as “Giant,” “There Will Be Blood,” “King Kong” and television series “Dynasty” and “Dallas” where JR is thrown out of “the cartel.” We have an enormous bias to overcome. To most news consumers a drilling rig or wellhead malfunction is not just an industrial mishap, just as the minor tremblors likely caused by wastewater disposal are not minor events in the public mind.
Industry’s efforts to reach out to the media and to other opinion makers are making a difference, but the road is uphill and the goal is not in sight. It would be a Herculean task without the dissembling and fear-mongering by the Green movement. With that willful and well-funded opposition, we as an industry must stiffen our resolve; we have facts and the delivery of a cornerstone commodity on our side.