After 28 years in the energy industry, Ryan Lance, ConocoPhillips chairman and CEO, has seen much: booms and busts, price spikes and declines and those occasional moments when stability breaks out.
Just a decade ago, Lance, who spoke at IHS CERAWeek 2013 on March 5, said the world’s energy security was in doubt. Surplus production capacity was falling and Asia’s high demand growth was competing for finite supplies.
Five years later, a global recession was piled on top, from which developed countries have not fully recovered economically. Nor has energy demand growth rebounded.
“As a result, today we don’t know which risk is greater – supply disruption or falling demand. This causes ongoing uncertainty, particularly for oil prices,” Lance said.
Lance said the government needs to get out of the way of industry, put it on the same taxation playing field as other industries and let it bring jobs and revenue to the country. He also said government regulations need to be science-based, not made on presumptions about industry techniques such as hydraulic fracturing.
Since the 1990s, the world has been tilted on its side, Lance said. Energy demand growth has shifted from nations aligned in the Organisation for Economic Co-operation and Development (OECD), toward developing nations. Demand for the non-OECD companies has accelerated, while supply sources have slid back toward OECD countries such as the United States, Canada and Australia.
Lance said the shale revolution had helped make that happen, creating a brave new world. But challenges abound.
For one, new drilling sometimes occurs in areas unaccustomed to development. That’s provided an opening for opponents of fossil fuels.
“Our critics have focused on the hydraulic fracturing completion process. And they’ve succeeded in creating fear and rallying support,” Lance said.
At stake is abandoning potential economic stimulation and job creation. “There’s risk that society won’t see the shale revolution through to its full potential – due to misinformation and fear,” he said. “We must address this as an industry – working in collaboration with government, communities and our other stakeholders.”
ConocoPhillips Capital expenditures
Annual Capital $16 billion
Exploration & Appraisal
Industry is taking steps, but more likely needs to be done, Lance said. Many industry players have disclosed data to the public, for instance, and adopted best operating and environmental practices, Lance said. ConocoPhillips cooperated with the U.S. Environmental Protection Agency and Bureau of Land Management as the agencies gathered data on hydraulic fracturing.
Still, the skeptics are not satisfied.
“It doesn’t take long for critical stories and videos to spread in today’s 24/7 Twitter world,” he said. “So we must always demonstrate environmental stewardship, safety and good community relations.”
But to some extent, industry and government have shared goals that Lance thinks should lead to regulations that are smart and based on science and not supposition. Both, for instance, want to ensure that society has access to affordable energy, in a sustainable and socially responsible manner.
Government faces its own new challenges, including greater pressure to facilitate development, while mitigating local impact.
“But there’s opportunity as well – for economic growth, job creation and revenue generation,” Lance said.
The two can get along. In the Eagle Ford field, industry worked with government and farmers to address water use during a drought.
“Rather than requiring recycling – which is impractical there – we used saline water,” he said.
Likewise, in the Permian Basin, the industry committed nearly a million acres to help the U.S. Fish and Wildlife Service protect the habitat for the Dunes Sagebrush Lizard. That helped avoid listing the lizard as an endangered species, which could have restricted access and increased costs.
“Hopefully, there is more collaboration in our future. And there are other suggestions for government,” Lance said.
Government, he said, should give credit where it’s due to oil and natural gas production.
ConocoPhillips E&P Statistics
Production 1,475-1,525 MBOED (2013e)
North American Gas
LNG + International Gas
Proved Resources 8.6 BBOE (YE 2012)
Resources: 43 BBOE (YE 2012)
Lance said many foreign visitors come to Houston and ask what one government police allowed access to unconventional resources.
“The answer is there was none. The answer is industry did this,” he said. “We’re the reason this renaissance is going on.”
Lance pointed out that the resource revolution started in North America not merely because of geological potential but infrastructure advantages. A large rig fleet, skilled workforce, well-established legal and regulatory systems and a good environmental and safety record all facilitated development.
The United States led the way, as well, because mineral rights are privately owned and available for leasing.
“We refer to gas as Nature’s Gift, and shale liquids are a second gift. But producing them and getting them to market takes ingenuity, technology and investment,” he said. “So recognize our industry for what we contribute – 9.6 million jobs supported here in the U.S., and economic stimulation at a time when it’s badly needed.”
The government should also tax the industry fairly, Lance said.
“Energy companies make easy targets, although we already pay higher tax rates than other industries,” Lance said.
But development lives or dies on fiscal terms and government should set competitive tax rates that allow investment, job creation and prosperity to continue.
Lance also called for government opening up more areas to development and facilitating the permitting of infrastructure, such as capacity to transport oil from the new shale fields and Canada’s oil sands.
The industry should also compete on a level playing field, Lance said.
“Don’t pick preferred energy sources or solutions. After all, the Obama administration itself says the U.S. needs an “all of the above” energy policy,” he said. “It should live up to those words. Let the market choose the best ways to supply affordable energy and meet environmental standards.”
Lance also said the United States should allow liquefied natural gas (LNG) exports.
“Governments should be good international trading partners,” he said. “We live in an interconnected, mutually dependent world that needs free trade”
Lance heads what is now considered the world’s largest purely upstream company.
The company is also pursuing opportunities in the Gulf of Mexico, Angola, Bangladesh, Malaysia and Australia.
ConocoPhillips will spend $8 billion in the Eagle Ford during the next five years, with production expected to more than double in about two years. During the same time period, the company will commit $4 billion in the Bakken and $3 billion in the Permian, said David Tameron, Wells Fargo Securities senior analyst.
Lance said unconventionals are a boon to industry, government and the people, but challenges remain, from understanding the way fluids flow through certain rocks to optimal rig spacing.
“There is still much to learn,” he said.