This Boom will be Sustainable

By A.L. Parlow
Contributing Writer

John Strand’s October 13, 2011 op-ed offers a sobering view of the seeming contradictions in the development of the Bakken play. Its sheer enormity as the largest energy play ever developed in the United States is, indeed, breathtaking. The projected advancement in technology to access far more than the fractional amounts of oil land gas now accessible to the industry is equally impressive.

However, the Bakken’s extraordinary potential to create high paying jobs, serve North Dakotans and the state government along with its contribution to national energy security is, indeed, tempered by the kinds of social, environmental and cultural costs that have been referred to as a “natural resource curse” in many resource–rich countries. Brazil, Nigeria and Ecuador come to mind.

It doesn’t have to be that way.

Scope and Frenzy
The Wall Street Journal reported that the shale frenzy has helped pushed the total value of U.S. oil and gas deals beyond $292 billion over the past two years. Last week, Kinder Morgan Inc. indicated it planned to buy El Paso Corp. in a $21.1 billion deal, suggesting that the shale gas play will require billions in distribution systems.

Shale is creating winners and losers in the domestic energy industry. Kerr–McGee Corporation, lost market share after passing on shale, was acquired by Anadarko Petroleum Company in 2006. Companies like the highly lauded Fortune–500 Devon Energy acquired Barnett Shale and is now building a 50 story headquarters.

Such significant growth and long term potential is bringing interest from energy companies around the world, suggesting the possibility of a major industry consolidation. Norway’s biggest oil company, Statoil, is seeking to increase its 375,000 acre holdings in the Williston Basin by purchasing Texas–based Brigham Oil for $4.5 billion – the costliest major Bakken deal on record, according to Bloomberg News.

As costs decrease to find and extract Bakken oil, major companies such as Exxon, ConocoPhillips and Royal Dutch Shell have reportedly expressed interest in acquiring companies in an environment where oil is approaching $90 a barrel and a break-even price at $55.

The industry, wagering billions that shale energy is sustainable, plans to expand the play further south, with test wells planned for the Tyler formation, located about one-half mile above the Bakken and into South Dakota.

Regulatory Direction and Initiatives
But federal regulators, local communities and non–governmental organizations are raising red flags. Director of North Dakota’s Department of Mineral Resources, Lynn Helms, recently told the Wall Street Journal, that along with the “exciting growth opportunity – at a rate of 5-10% per month – there is also some fear.”

Community concerns are broad: ranging from a combination of how to capture and process flared gas, to repairing rutted roads, navigating an explosion of truck traffic, and issues involving safety and maintenance.

Other issues include how to cope with elevated prices for food and rents, recovering a loss of local “mom and pop” jobs to a higher paying oil industry, and dealing with impediments to farming and ranching. Issues abound with protection of drinking water, air quality, watersheds, aquifers and quality of life.

Industry leaders point to regulatory, financial and infrastructure barriers that bring the kind of uncertainty that contains the potential to impede development, and ultimately production. Nearly everyone agrees that the Bakken must be developed as an environmentally sustainable field.

The federal policy, somewhat of a paradox, contains the potential for strict regulation.

In April, President Obama outlined an energy strategy that called for more domestic oil and gas production, along with rules to make production – such as hydraulic fracturing – safer.

Increasing Regulatory Scrutiny
But with mounting environmental concerns, pressures for federal regulatory action are increasing. Two weeks ago, the Environmental Protection Agency announced plans to regulate the disposal of fracking wastewater. Until now, the EPA has left the job to the states.

Last month, Secretary of Energy Steven Chu released the Shale Gas Subcommittee Advisory Board’s ninety-day report. The report identified two key points: the need for industry–wide ‘best practices’ standards, and a process of broad public information to the state, local communities and Native American tribes.

That fracking is controversial is clear. In June, the New Jersey legislature banned hydraulic fracturing. In May, France’s National Assembly approved a bill to prohibit fracking and repealed previously granted licenses. New York’s Governor Andrew Cuomo supports the use of shale oil over nuclear plants – but with “rigorous and effective protections.”

North Dakota: A Model for Best Practices
With North Dakota about to surpass California as a major oil producing state, it is perfectly poised to become a national model for ‘best practices.’  For example, the Canadian approach to solve the gas flaring problem addresses both environment and financial costs of capturing gas by building a multi–stakeholder consensus–based approach that includes industry representatives, government agencies and community groups.

Similar consensus strategies are already evident. The North Dakota Study Group discussions that include the oil industry, State Tax Department, Industrial Commission and Department of Health, reflect the significant but early stages of proactively and strategically bringing together the various stakeholders in the State – producers, industry, state, Native American tribes, agriculture and community groups – to balance conflicting interests and grab the regulatory reins before external forces define the terrain.

CSR
Perhaps a most useful tool to accomplish this consensus building, generally referred to as Corporate Social Responsibility, has offered successful approaches in the U.S. and abroad when industry, government and community seek to find common ground on difficult and, often, contentious issues.

State–wide Round Tables
Navigating the boom from social, environmental and revenue and national security perspectives could include, for example, a series of state–wide ongoing round tables that involves the key players from all sectors of North Dakotan society, developing a comprehensive strategic assessment and plan that takes direction from the roundtables, and, perhaps, most importantly, ensure a communications strategy that ensures critical information about this multi–party stakeholder process reaches all parties.

Given the reputational and opportunity costs with growing unfavorable publicity for this remarkable play, and the looming potential for federal rather than state regulatory oversight, North Dakotans have an equally remarkable opportunity to build consensus on difficult issues that involve tax incentives, industry investments in infrastructure, water quality and other matters.

State Takes the Lead: Voluntary Approaches
The EPA Region 8 advisor on Energy and Climate, Kate Kay, told the North Dakota Petroleum Council at its last annual meeting that the federal government doesn’t believe “one size fits all,” and that the government is closely watching the state given the scale and opportunity for a “significant domestic play.”

It would appear that the closely watched Bakken play offers North Dakota the opportunity to take hold of the bit and get ahead of the potentially looming regulatory and media curve, in part, to avoid the polarizations that often define the energy terrain.

Such initiative could, indeed, assure that this boom will be sustainable.

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Bio:
A.L. Parlow, A.L. Parlow & Associates, has advised CEOs, top management, government and non–governmental organizations on Corporate Social Responsibility issues both domestically, on BP–related projects, and worldwide. See: http://www.sustain-the-globe.com

A.L.PARLOW & Associates
A. L. PARLOW, Esq., MSt.
1831 Belmont Road, N.W.
Washington, D.C. 20009
USA
+202.234.1856
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http://www.sustain-the-globe.com

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