"I Hate That Oil's Dropping": Why Mississippi Governor Phil Bryant Wants High Oil Prices for Fracking

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Outgoing Interstate Oil and Gas Compact Commission (IOGCC) chairman Phil Bryantย โ€” Mississippi’s Republican Governor โ€” started his farewell address with a college football joke at IOGCC‘s recent annual conference in Columbus,ย Ohio.

โ€œAs you know, I love SEC football. Number one in the nation Mississippi State, number three in the nation Ole Miss, got a lot of energy behind those two teams,โ€ Bryant said in opening his October 21 speech. โ€œI try to go to a lot of ball games. It’s a tough job, but somebody’s gotta do it and somebody’s gotta beย there.โ€

Seconds later, things got more serious, as Bryant spoke to an audience of oil and gas industry executives and lobbyists, as well as state-levelย regulators.ย 

At theย industry-sponsored convening, which I attended on behalf of DeSmogBlog, it was hard to tell the difference between industry lobbyists and regulators. The more money pledged by corporations, the more lobbyists invited into IOGCC‘sย meeting.

Perhaps this is why Bryant framed his presentation around โ€œwhere we are headed as an industry,โ€ even though officially a statesman and not an industrialist, before turning to his more sternย remarks.

โ€œI know it’s a mixed blessing, but if you look at some of the pumps in Mississippi, gasoline is about $2.68 and people are amazed that it’s below $3 per gallon,โ€ heย said.

โ€œAnd it’s a good thing for industry, it’s a good thing for truckers, it’s a good thing for those who move goods and services and products across the waters and across the lands and we’re excited about where that’sย headed.โ€

Bryant then discussed the flip side of the โ€œmixed blessingโ€ย coin.

โ€œOf course the Tuscaloosa Marine Shale has a little problem with that, so as with most things in life, it’s a give and take,โ€ Bryant stated. โ€œIt’s very good at one point and it’s helping a lot of people, but on the other side there’s a part of me that goes, ‘Darn! I hate that oil’s dropping, I hate that it’s going down.’ I don’t say that out-loud, but just to those in thisย room.โ€

Tuscaloosa Marine Shale’s โ€œlittle problemโ€ reflects a big problem the oil and gas industryย facesย โ€” particularly smaller operators involved with hydraulic fracturing (โ€œfrackingโ€)ย โ€”ย goingย forward.

That is, fracking is expensive and relies on a high global price of oil. Aย plummetingย price of oil could portend the plummetting of many smaller oil and gas companies, particularly those of the sort operating in the Tuscaloosaย Marine.

Tuscaloosa and Oilย Price

Governor Bryant’s fears about the price of oil are far from unfounded, serving as a rare moment of frank honesty from Mississippi’s chiefย statesman.


Mississippi Governor Phil Bryant

As discussed in Post Carbon Institute‘s recent report, โ€œDrilling Deeper:ย A Reality Check on U.S. Government Forecasts for a Lasting Tight Oil & Shale Gas Boom,โ€ the fracking industry relies on high oil prices to stay on the drilling treadmill and keep shale fields from going into terminal decline. Further, future projections of shale gas and oil fields are wildly over-inflated, argues the Post Carbonย report.

โ€œOther factors that could limit production are public pushback as a result of health and environmental concerns, and capital constraints that could result from lower oil or gas prices or higher interest rates,โ€ reads a passage in the Post Carbon report. โ€œAs such factors have not been included in this analysis, the findings of this report represent a ‘best case’ scenario for market, capital, and politicalย conditions.โ€

Recent articles published in the business press further highlight the key caveat in the Post Carbon report, as did a recentย Halcรณn Resources Corpย investor callย thatย discussed the Tuscaloosaย Marine.

โ€œTuscaloosa Marine Shale, I’m going to do my darndest to make sure that people understand that we’re highly confident and we like the play,โ€ Halcรณn Resources CEO Floyd Wilson said on the call.

โ€œHowever, it is currently a relatively high-cost play and with currently low crude prices we will not be devoting a significant portion of our resources to TMS in the near term,โ€ Wilson continued. โ€œHaving said that the TMS is certainly more susceptible to low oil prices than our other crude plays due to the higher well costs, a tempered approach to drilling in this play in the near term isย warranted.โ€

A recent report published byย energy investment firmย Tudor, Pickering, Holt & Co., described Tuscaloosa Marine as the shale basin most likely to face severe impacts from the falling price of oil. The Tudor report said that drillers operating in the Tuscaloosa require oil to sell at $70-$90 per barrel for fracking to remain economically viableย there.

The $80ย Mark

Mississippi does not stand alone in feeling the hurt associated with a drop in the global oil tradingย price.

Bloomberg reported that companies operating in Utah and Texas have already slowed down drilling as a result of the high oil prices they had previously relied upon. In total, 19 U.S. shale plays will no longer be profitable if the price of oil continues to fall.

โ€œEverybody is trying to put a very happy spin on their ability to weather $80 oil, but a lot of that is just smoke,โ€ Dan Dicker, president of MercBloc, said in an interview withย Bloomberg. โ€œThe shale revolution doesnโ€™t work at $80,ย period.โ€

Not all industry insiders, however, are trying to spin things.

Ralph Eads, a life-long friend of former Chesapeake Energy CEO Aubrey McClendon and global head of energy investment banking at Jefferies LLC, agrees with Dicker’sย assessment.

โ€œIf prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,โ€ Eads told Bloomberg. โ€œIt will be unchartedย territory.โ€ย ย 

As of November 25, 2014, the price of Brent oil has fallen toย $78.33.ย 

Image Credit: Nasdaq

A Wall Street Journal article from late October concurred with others who said theย Tuscaloosa will take a beating with the fall of the price of oil. But it also concluded that for operators in many other more prolific shale basins like the Bakken Shale and Eagle Ford Shale, $60 per barrel is the break even point, notย $80.

One Mississippi, Twoย Mississippiโ€ฆ

To the smaller companies operating in the Tuscaloosa, recent oil pricing developments are likely no laughing matter.

But that didn’t stop Governor Bryant from cracking a joke to conclude his presentation at the IOGCC annualย meeting.


Image Credit: Interstate Oil and Gas Compactย Commission

โ€œFraser Institute says Mississippi is the second in the world for oil and gas developmentโ€ฆso we came up with this little idea,โ€ Bryant joked. ย โ€œWe have the number one and number three football teams in the nation: one Mississippi, twoย Mississippi, threeย Mississippi. That used to be a call signal for how long you could take before you could rush theย quarterback.โ€

But as with all numbers, it depends on who’s counting.ย And the Fraser Institute is an associate member of the industry-funded State Policy Network โ€œstinkย tanks.โ€

As with shale gas production numbers and figures, it always pays to consider theย source.

Mississippi Governor Phil Bryant; Photo Credit: Wikimediaย Commons

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Steve Horn is the owner of the consultancy Horn Communications & Research Services, which provides public relations, content writing, and investigative research work products to a wide range of nonprofit and for-profit clients across the world. He is an investigative reporter on the climate beat for over a decade and former Research Fellow for DeSmog.

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