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SHALE OIL & GAS BUSINESS MAGAZINE

MARCH/APRIL 2016

RELIANT PRESIDENT DISCUSSES POWER IN TEXAS

WHERE TEXAS HISTORY BEGAN:

MUSEUM OF THE COASTAL BEND

ENERGY EDUCATION IN TEXAS FACES CHALLENGES

WILL CHEAP OIL CAUSE MEGA-MERGERS?

B&B BUTCHERS & RESTAURANT: AN OLD-FASHIONED STEAKHOUSE

A RICH TEXAS HISTORY WORTH REPEATING

SEA OF CHANGE: PORT OF

VICTORIA BHP BILLITON RANKS FIRST IN TRANSPARENCY AND ENVIRONMENTAL BEST PRACTICES MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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SHALE OIL & GAS BUSINESS MAGAZINE  MAR/APR 2016


CT

Redefining

Continuous Teamwork is the way STEP Energy Services is redefining coiled tubing. There’s a reason we call our employees “professionals”. They are the experts. They are passionate about the execution of safe projects and committed to providing energy producers an unparalleled level of service; what we call the “exceptional client experience”. From customized engineering programs and real-time data monitoring, to flawless execution in the field, our professionals work as a team to save our clients time and money. We are redefining CT and redefining the industry. Coiled Tubing • Fluid and N2 Pumping Services

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Specializing in oilfield supplies and service throughout the Eagle Ford Shale  Oilfield Experts specializes in machine parts and machine work (wireline, coiled tubing, fracturing and gun loading departments).  Providing a full line of automotive and truck parts and accessories (OEM and after-market parts).  We offer a full line of gauges, butterfly valves, complete line of tools (Proto Tools), filters, chemicals, gear oil and synthetic gear oil, silicones, hydraulic hoses and hydraulic fittings, starters, alternators (12 and 24 volt), serpentine and V belts, hydraulic motors, pumps.  We are open and provide hot shot services 7 days a week and 24 hours a day. 

Free delivery service with a quick turn around time.

 Oilfield Experts offers great service with affordable prices for all your oilfield, automotive, and mechanical needs. 

Hydraulic pumps, motors and relief valves

Exclusive Dealer for the Eagle Ford Shale Territory PYRICOAT: is an all-natural soil treatment application designed to inhibit the oxidation process of soil with harmful metals and minerals. By coating the soil with Pyricoat, minerals will be encapsulated, which will stop any liquids from further contamination such as coal mining runoff. This application has increased acidic waters PH levels from 3.4 to 6.5 for over three years now in alpha test in coal mining areas. FECONTROL: is an all natural product used to binds, encapsulates and creates a carrier for iron sulfites and other damaging microscopic particles from crude oil. When applied to crude oil directly it reduces iron, sulfides and other corrosives by up to 93% when separated. Using this product will save downtime by reducing maintenance days by eliminating the corrosive iron sulfides from the crude before being introduced into the refineries. This application will also augment the existing downstream process of removing iron from crude oil. RELOAD: is an all natural product use for treating frac and produced water. This product creates a top layer of hydro Cardons in Frac or produced water. This application is perfect for recovering oil from the formation fracturing process in the flow back and produced water will help in the recycling of the

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water for reuse in the formation fracturing process. ReLoad is most effective when introduce into holding tanks or holding ponds with a circulating pump. ReLoad will also help keep out moisture when needed. ReLoad is used on water for the separation of water and hydro carbons PREMIUM RELOAD: is an all natural product use for treating frac and produced water. This product binds and encapsulates the heavy metals including the damaging iron sulfites and keeps them from the oxidation process. The method reduces iron sulfates by 90% and makes the separation of solids from water more efficient. This product pushes the hydrocarbons to the surface while creating a layer of encapsulated metals. This application is perfect for recovering oil from the formation fracturing process in the flow back and produced water will help in the recycling of the water for reuse in the formation fracturing process. Premium ReLoad is most effective when introduce into holding tanks or holding ponds with a high turbulence application. Premium ReLoad also binds heavy metals in acidic water and helps eliminate corrosive effects. Premium ReLoad is use on water for inert effect on heavy metals.

Clint Schweers / oilfieldexperts@gmail.com  MAR/APR181 2016 13611 U.S. Hwy S., San Antonio, Texas 78223 / (210) 471-1923

SHALE OIL & GAS BUSINESS MAGAZINE


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AEP Texas: Your Business Partner in Shale Oil & Gas Extensive shale oil/gas reserves are located in and around geographic areas that align with the AEP Texas electric delivery service territory. Let the AEP Texas service team assist you with timely information regarding the location, capacity and availability of AEP Texas facilities. To request electrical service or gain access to a certificated planning map, please complete the information request form located at www.AEPTexas.com/shaleoilgas Contact: Bradley Lenz 361-881-5455 bhlenz@aep.com

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John Longoria 361-881-5867 jflongoria@aep.com

www.AEPTexas.com/shaleoilgas @AEPTexasEconDev


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MARCH/APRIL 2016

CONTENTS FEATURE

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Powering Texas

COVER STORY

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The Port of Victoria has grown quickly with the shale boom and will continue to flourish with oil and gas exports on the rise.

INDUSTRY

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Getting Technical in Texas

POLICY

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COVER AND TABLE OF CONTENTS PHOTOGRAPHY BY: MIKE SIZEMORE

INDUSTRY

28 Which Five Shale Companies Are Doing the

Best in the Low-Price Environment and Why?

30 U.S. Crude in the Global Market 32 A Brief History of the Oil and Gas Industry in the Wake of the Shale Revolution

34 Women’s Energy Network 36 Texas Alliance of Energy Producers 38 Energy Education in Texas Faces Challenges

POLICY

44 A History Worth Repeating 46 From Railroads to Regulating Oil and Gas

BUSINESS

50 The Billionaire’s Secret Purchase

LIFESTYLE

54 All-Natural Treatment for Beautiful Skin

SCENE

60 SA to DC 60 Coalition Blowout 62 BHP Billiton Press Conference

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Hardships and Opportunities

BUSINESS

48

The Big Deals That Made Big Oil

LIFESTYLE

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B&B Butchers & Restaurant

COMMUNITY

56

Where Texas History Began

SCENE

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Cover Party MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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ADVISORY BOARD

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Omar Garcia Senior Advisor

bradley h. lenz

Thomas Tunstall, Ph.D

As President and CEO of the South Texas Energy & Economic Roundtable (STEER), Omar Garcia is an expert on business opportunities associated with the Eagle Ford Shale. He works with the oil and gas industry, local officials, community members, regional stakeholders, educational institutions and economic development organizations to ensure that the oil and natural gas industry in South Texas is advancing in a positive way that is beneficial to both the community and the industry. Garcia has more than 12 years of economic development experience, and he spent two years working for Bank of America as Vice President of Business Development for the bank’s treasury management division. He is a certified economic development finance professional through the National Development Council, and he graduated from St. Edward’s University with a major in international business and Spanish. In 2010, Gov. Rick Perry appointed Garcia to the Texas Economic Development Corporation.

Bradley H. Lenz is the Director of Economic and Business Development at AEP Texas. As Director, he oversees the company’s economic and business development operations, including oil and gas operations. This activity extends throughout the AEP Texas service territory. Previously, he was the Operations Support Manager of the Electric Distribution System of AEP Texas. His responsibilities included resource planning and managing the electric distribution budget, back-office functions and annual storm restoration drill to prepare for hurricanes and other major natural disasters. Prior to operations support, Lenz held several management positions with AEP Texas and the former West Texas Utilities Company. Lenz began his career in 1991 with West Texas Utilities in Abilene as an Engineer in marketing, focusing on commercial customers. Prior to that, Lenz was a cooperative student with TXU Electric. Lenz earned a bachelor of science degree in electrical engineering from Texas A&M University in College Station and has completed the Ohio State University Leadership Development program.

Thomas Tunstall, Ph.D., is the Research Director for the Institute for Economic Development at the University of Texas at San Antonio. Previously, he was a Management Consultant for SME and the Component 1 Team Leader for the Azerbaijan Competitiveness and Trade project. Tunstall also served as an Advisor Relations Executive at ACS and was the founding Co-chair for the Texas chapter of the International Association of Outsourcing Professionals (IAOP). He has published a business book titled “Outsourcing and Management” (Palgrave, 2007) and was the technical editor for “Outsourcing for Dummies” (Wiley, 2008). Tunstall has consulted in both the public and private sectors. In 2005, he completed a long-term assignment in Afghanistan, where he was Deputy Chief of Party for a central bank modernization project. In 2006, he taught Ph.D. candidates in a business and government seminar at the University of Texas at Dallas.

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LOCATIONS IN TEXAS

1 GOAL - YOUR TOTAL SATISFACTION FLEET SALES AND SERVICE • PICKUP AND DELIVERY ALVIN BAILEY | ABAILEY@KAHLIGAUTO.COM | 830-480-3656 The Kahlig Auto Group are Minority Owner Dealerships MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE 13


PUBLISHER’S NOTE OIL & GAS BUSINESS MAGAZINE

THE JANUARY/ FEBRUARY WOMEN’S ISSUE WAS A GREAT SUCCESS and received fantastic feedback on the featured inspiring leaders! It’s an issue I enjoy working on and promoting each year. For this issue, we are focusing our content on the history of the oil and gas industry and how that history affects our future. Most people are aware of the downturn the U.S. oil and gas industry is facing at the moment. As the publisher of a news source, I feel it is my duty to educate the community on the importance of this industry. Though many companies and families are feeling the effects of the low price market, history proves that the market will rebound and the oil and gas industry will once again be back in full swing. The key to being prepared for the rebound lies in continuing to promote STEM educational programs and oil and gas career paths. When the industry is ready to ramp up production again, there must be a skilled workforce ready to do the work. We hope to see oil and gas companies continuing to support the educational programs. I’d like to close my letter with an open invitation to all our readers to email me with questions or story ideas that you want to see in SHALE Magazine. Part of our mission is to promote the education of the community on oil and gas topics. So, please feel free to email me at kym@shalemag.com with questions or concerns, and I will do my best to get one of our experts to address your submission in a future issue of SHALE.

VOLUME 3 ISSUE 2 • MARCH/APRIL 2016

KYM BOLADO

CEO / PUBLISHER CHIEF FINANCIAL OFFICER Deana Acosta

EDITOR IN CHIEF Lauren Guerra

ART DIRECTOR Elisa G Creative

COPY EDITORS

Katie Buniak, Maegan Sheppard

VICE PRESIDENT OF SALES Liz Massey Kimmel

ACCOUNT MANAGERS

Susan Brown, Kristy Sommers

ONLINE CONTENT MANAGER Fernando Guerra

SOCIAL MEDIA DIRECTOR Courtney Boedeker

CONTRIBUTING WRITERS

Scott Bayley, David Blackmon, Darrin Brust, Alex Charfen, Omar Garcia, Lauren Guerra, Jason Isaac, Bill Keffer, Gloria Leal, Dr. Ken Morgan, David Porter, Thomas Tunstall, Dan Watson

STAFF PHOTOGRAPHER Malcolm Perez

KYM BOLADO

CONTRIBUTING PHOTOGRAPHER Mike Sizemore

CEO/Publisher of SHALE Oil & Gas Business Magazine kym@shalemag.com www.shalemag.com For advertising information, please call 210.240.7188 or email kym@shalemag.com.

SHALE OIL & GAS BUSINESS MAGAZINE MISSION STATEMENT:

SHALE Oil & Gas Business Magazine is a statewide publication that showcases the dynamic impact of the Texas energy industry. The mission of SHALE is to promote economic growth and business opportunities and to further the general understanding of how the energy industry contributes to the economic well-being of Texas and the United States as a whole. SHALE’s distribution includes industry leaders and businesses, service workers, entrepreneurs and the public at large.

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For editorial comments and suggestions, please email lauren@shalemag.com. SHALE MAGAZINE OFFICES: 5600 Broadway Ave., San Antonio, Texas 78209 18756 Stone Oak Pkwy, Ste. 301, San Antonio, Texas 78258 For general inquiries, call: 210.854.3361 Copyright © 2016 Shale Magazine. All rights reserved. Reproduction without the expressed written permission of the publisher is prohibited.


O I L & G A S P L AY E R S

|

BUSINESS

|

TECHNOLOGY

|

POLICY

AUSTIN CORPUS CHRISTI HOUSTON MIDLAND ODESSA SAN ANTONIO

RADIO SHOW

KTSA 550 AM/107.1 FM Saturdays 10 p.m. (San Antonio, Corpus Christi)

iHeartRadio KTRH 740 AM Sundays 8-9 p.m.

KWEL 1070 AM/ 107.1 FM Saturdays 1-2 p.m.

(In Houston)

(In Midland)

Now aired throughout the Eagle Ford and Permian Basin

Where industry comes to speak

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sponsored by:

MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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 FEATURE

Powering Texas A Q&A WITH THE PRESIDENT OF RELIANT, AN NRG COMPANY

Thank you for taking time out of your busy day to speak with me, Elizabeth. Can you tell me about the services Reliant offers?

Reliant and our parent NRG take very seriously the responsibility we have as the companies people rely on to power them at home, at work and on the go. Reliant is the largest retail electricity provider in Texas, and from the biggest commercial and industrial companies to the smallest dwellings in the state, we enable people with insights, choices and convenient energy and related services. For business customers, we provide traditional power supply, demand response, backup generation and energy-management systems; and for residential customers our products and services include power to the plugs in people’s homes, home security, home automation, portable power, solar and battery solutions and more. This broad portfolio truly makes us one of a kind.

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You’ve been with Reliant and NRG for 15 years and have industry experience prior to that. How has the electricity industry changed over the years? Where do you see it going in the future?

We’re always focused on our core business — being a reliable power provider to businesses and homes across the state. That said, over time we’ve seen our customers’ expectations go well beyond the walls of where they happen to be on any given day. A perfect example is how technology has changed approaches to electricity supply: technological advances have allowed commercial customers to manage their risk and diversify their energy supply mix. So, whether it’s a large industrial complex or even an individual homeowner, both are now better positioned than ever to understand their energy use, act on that knowledge to control it and potentially reduce their energy costs. We distinguish ourselves in the marketplace with products and services to help our customers realize such savings, and we can only do that by embracing and offering new technologies — something good for our customers and our company.

What are some considerations Reliant brings to commercial customers as compared to residential customers?

We offer both groups comprehensive energy solutions but understand that our commercial customers have more complex needs that often require customized solutions. We’re all about taking the idea of control to an even greater level. We offer seamless backup generation options on-site so these systems can take over if needed — for many power-sensitive businesses that’s a makeor-break consideration. This also works well in conjunction with our demand-response programs, where customers are paid to reduce usage during peak times and grid stress. Plus, in areas around the

BCFC/BIGSTOCK.COM, JAROSLAVAV/BIGSTOCK.COM

R

eliant and it’s parent company, NRG, are leading energy innovation and working to simplify and enhance the way you power your home, your business and your life. The companies take great pride in offering innovative, intuitive tools and plans to empower their customers to manage their electricity usage. Reliant and NRG provide their customers with incentives such as electricity plans that include smart thermostats, allow customers to earn credits for reducing their usage during peak hours or offer solar sell-back options. We had the pleasure of speaking with Elizabeth Killinger, President of NRG Retail and Reliant, on electric power and the company providing unparalleled service to South Texas businesses and residents. Killinger is responsible for directing all aspects of NRG Retail, the leading multi-brand retail electricity business in Texas, the third-largest residential retailer in the Northeast, and the leading portable solar, power and battery business in the U.S.

By Lauren Guerra


Gulf Coast where hurricanes and major storms are a concern, we can install distributed generation solutions for a more resilient approach.

Do Reliant and NRG offer any revolutionary technologies or services that could change the way electricity is offered and consumed in the future?

What’s innovative is our overall technology-agnostic approach. We work with customers to understand and anticipate their specific energy needs and, from there, identify potential solutions and their business impact. Many times the energy approach we recommend is a blend of new and seasoned technologies. As an example, residential customers can manage their energy use with simple-to-use thermostats and lights, and protect and monitor their homes with security offerings including door locks and night-vision cameras — all through a single Reliant mobile app.

Let’s switch gears for a moment. what advice would you offer other women who are considering careers in the electric power industry?

There’s a tremendous range of opportunities for anyone considering a career in the industry, from math, science and other technical fields to creative, marketing and customer service. One insight that can be brought to careers is an understanding of how consumers make purchasing decisions. When it comes to buying products, we’ve seen research showing that women drive 85 percent of household purchases, which gives many women awareness to influence business strategy. As a wife, mother and consumer, I have the benefit of bringing to the table a personal view on the perspective of our customers and how their needs and preferences play out in the real world. That’s something I and many other female professionals leverage when we develop business goals and help lead our companies. For instance, I recently shared my power with one of my daughter’s classmates — he needed to use his tablet at jazz band practice, but it was low on battery and

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he had no way to get powered up. When he confided his dilemma with me, I said, “I’m in the power business. It’s what I do.” I handed him a portable power pack and he was back to practice immediately. Our business is extending from simply powering people’s homes to powering them at home and on the go, with convenient solutions that enable them in this mobile, connected lifestyle.

What is important to commercial customers in South Texas?

Commercial customers want the same things that are important to all our customers — reliable, cost-effective energy and related services that they can build on as future growth takes place, and from a company committed to their community and who will provide excellent service after the sale. In South Texas, we know customers want information about backup generation; and they also have interest in cogeneration facilities and support for operations and maintenance, not to mention sustainable solutions that provide pragmatic economic as well as environmental benefits — all areas where we lead the market.

What makes you excited about coming to work every day?

I’m dedicated to bringing the best service, choices and options to our customers, making electricity easy and accessible to better their lives and being there for them when they need us most. That’s a universal consideration for all our customers, from the largest manufacturing facilities and office buildings to small- and medium-sized businesses to residential. We’re a trusted provider that our customers count on to navigate the varied set of decisions around how they power their homes, businesses and lifestyles, and ultimately find the best fit to empower their lives. It’s all about helping customers stay in charge of their energy consumption and making informed decisions, backed by our deep expertise across all facets of our industry.

To learn more about Reliant and NRG’s innovative services, products and plans, visit www.reliant.com.

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COVER STORY

SEA OF CHANGE:

PORT OF

VICTORIA HOW THIS SMALL PORT GREW WHEN THE EAGLE FORD ROARED By: Brett Podkanowicz Photos by: Mike Sizemore

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F

or hundreds of years, ports have served an important role in the establishment and spread of commerce. Coastal cities experienced exponential growth as seafarers traveling to and from these and other locations, providing more expansive trade opportunities and economic security. As civilizations grew, canals were built. This allowed for even greater commerce after the establishment of port cities, as people could live farther away from major sources of water but still have access to goods and services. Fast-forward to modern times, and ports are still significant, though their cargoes have evolved: Spices are now petrochemicals, pottery is machinery, and wheat is oil. When the oil and gas industry in Texas began to swell as it entered and progressed into the new millennium, the need for greater infrastructure to handle transportation of the produced natural resources similarly grew in earnest. Much of the transportation of these resources occurred via roads and highways; this added to already burgeoning traffic, especially in the Greater Houston metropolitan area. Houston’s proximity to the Gulf of Mexico historically made it an area of critical logistical importance. In recent times, however, alternative options have been sought out to better distribute the sheer magnitude of cargo entering and exiting Texas along the Gulf of Mexico. While pipelines are oftentimes the cheapest form of transport for crude oil, certain physical limitations make it difficult to utilize this method for all areas — oil can only flow so far as the pipeline infrastructure is built out. Large barges are a useful workaround to ship and move crude oil domestically. In the last few years, using barges as floating storage has also become more commonplace in the industry, as investors seek to arbitrage the spread between the current depressed West Texas Intermediate pricing and the assumed increase in price in the months that follow, otherwise known as contango. Though the reasons are myriad, the opportunity was there for the taking for other Texas port cities to become even more involved in these operations. The Port of Victoria — through the competent, thoughtful decision-making process of its leaders both past and present — has emerged as a rising star among its brethren port cities not only in Texas but across the United States, as well. Though the Port of Victoria is credited with a present economic impact of approximately $10 billion for the South Texas region, its beginnings were much more modest. As Lynn M. Alperin provides in History of the

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Intracoastal Waterway, business owners and community leaders from Victoria, Texas, laid the formative groundwork in 1905 for what would become a network of navigable waters from the Great Lakes in the northeastern United States down to the Gulf of Mexico and along the Texas and Louisiana borders. The impetus for this decision was the potential cost savings that would be achieved with this method versus transport over land, which would set the tone for the present-day Port of Victoria. This network would eventually become known as the Intracoastal Waterway, a major network of waters and channels that plays a large role in domestic shipping and transportation of materials. Today, the Port of Victoria’s economic impact looms much larger than what could have been conceived by those Victoria citizens who over 100 years ago set into motion the events necessary for the port to exist in its current form. Victoria arguably became a proper port in 1968, when the 35-mile Barge Canal was completed — construction on this structure began in 1951. Over the years, various improvements have benefited the port. In 1988, Congress authorized a widening and deepening of the Barge Canal, which commenced in 1995 and was ultimately completed in March 2002. The timing of this major improvement seems quite prescient, as less than a decade later the Eagle Ford Shale roared to life. Just prior to the Eagle Ford’s awakening, Robby Burdge assumed a leadership role at the port. He was appointed in July 2007 after approval to expand the Port Commission from three to five members was secured during the 2007 legislative session, and became Chairman in 2012. Commissioners serve two-year terms, and the Commission is essentially a self-directed body. Notably, the port’s Commissioners are not paid, including Burdge — they are local business owners and entrepreneurs volunteering their time and expertise for the benefit of the community at large. The Port of Victoria has positioned itself as a major commercial hub in the state of Texas under Burdge’s leadership, having anticipated the potential seismic shift in activity and commerce that the Eagle Ford represented several years ago.

THE PORT OF VICTORIA AND EAGLE FORD WORKING TOGETHER The Port of Victoria has played an integral role in the South Texas economy for decades. Yet, the discovery of the Eagle Ford less than a decade ago has accelerated its growth and magnified its overall importance and impact in a relatively short period of time.


revenue for some time, current decreased crude oil prices have not negatively affected the port, which has secured long-term leases with certain clients. Some of these leases last as long as 30 years, which will allow the port to better weather vacillations in commodity pricing and industry slowdowns. “From an oil and condensates perspective, we are roughly 15 percent off,” Burdge notes. “Our frac sands are down considerably, around 50 percent. What we have seen, quite frankly, has not been across the board across our clients. Some clients who have positioned themselves with futures have either picked up or maintained compared to others who have slowed down.” During the recent shale boom, myriad loads of proppant were transported through the port. With 2016 came a decrease in these shipments. However, gravel and grains still frequent its docks, just as they always have. With the influx of activity, the port has been able to use the commensurate increase in revenues and fees and then reinvest that capital into improving its facilities. “We have taken every dollar that we pull in as net revenue and we have poured that back into infrastructure,” says Burdge. “That has allowed us to rely more on the revenue base from our clients out there and to rely less on the taxpayers. So it has been a great win-win for how public-private partnerships are supposed to work, and how government should work as far as reducing taxpayer burdens while allowing industry to take the lead.” Chairman Burdge credits the Eagle Ford Shale with playing a large role in what the port has been able to accomplish in the last decade or so, and believes that it has taken the local area to greater heights with all deliberate speed. “The Eagle Ford Shale, quite frankly, has allowed the Port of Victoria to move light-years ahead with respect to our growth and preparing ourselves for additional growth,” he says. “Without the Eagle Ford and without that movement, would we be where we are today? Probably 20 years from now.” Having the foresight to realize the Eagle Ford’s potential as an opportunity for the port before it even began production cannot be overstated. Chairman Burdge points out that “early on there was a lot of speculation on the potential of what the Eagle Ford was going to be, so

THOUGH THE PORT OF VICTORIA IS CREDITED WITH A PRESENT ECONOMIC IMPACT OF APPROXIMATELY $10 BILLION FOR THE SOUTH TEXAS REGION, ITS BEGINNINGS WERE MUCH MORE MODEST As Burdge joined the Commission around this time, possibly no one else has a better perspective on this meteoric growth and influence. “There is no doubt the Eagle Ford has been a game changer, and what that has done for the port has been phenomenal,” Burdge observes. Prior to the Eagle Ford, major products that traveled through the port included chemicals, farm products, sand and gravel. For the resounding majority of the port’s existence, crude oil was not a commodity that passed through its waterways. In the several years since the Eagle Ford became a major shale player, oil exports traveling through the port soared from zero to over 2 million barrels per month. The port also has a million-barrel on-site storage capacity. As a result of the Eagle Ford’s reliance on hydraulic fracturing, there was also a jump in the amount of sand being imported via the port to be used as proppant in stimulated horizontal wells. Though the Eagle Ford boom provided more opportunities and

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THERE IS NO DOUBT THE EAGLE FORD HAS BEEN A GAME CHANGER, AND WHAT THAT HAS DONE FOR THE PORT HAS BEEN PHENOMENAL.” ― ROBBY BURDGE

the port and our resource team looked at the liquid dock and began to look at the costs associated and the potential revenue. We went to the Railroad Commission and shared with them what our plans were. Their input and guidance validated where we thought the Eagle Ford was going and it allowed us to move forward and position ourselves so that when the growth did occur, we were ready.” Both entities proactively worked together to achieve a mutually beneficial result, which has since then become a staple for the port and its leaders — seeking out viable symbiotic partnerships. Ultimately, the Port of Victoria’s planning and calculated risk-reward assessment paid off. “Oil and gas has without a doubt been the driver that has allowed the port to grow not just rapidly, but has prepared us and put us on the map globally for site selection crews who are looking at expanding into South Texas or the U.S.,” Burdge notes. Although the price of oil is lower in early 2016 than industry members would prefer, the recent repeal of the crude oil export ban should bode well for the port going forward. “We think it’s still a little too early to tell, but I do believe that by lifting the ban, it gives shale producers a stronger arm in an already cutthroat global market,” Burdge says. “It will have benefits down the road, without a doubt.”

A SLEEPY LITTLE PORT NOW ON THE RADAR The Port of Victoria is fortuitously situated slightly east of the Eagle Ford Shale. It would be shortsighted, though, to chalk up the port’s success to sheer proximity. Intermodal options of waterway, rail, and a four-lane divided highway mean it has long possessed the infrastructure

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to handle commercial transportation through a variety of avenues. Recent improvements and expansions have augmented the port’s previous features, as it adjusts to a future of increased dependence on the Eagle Ford Shale. These improvements include but are not limited to liquid cargo docks, railway expansion and improvements to nearby roadways and pipelines. A major asset for the port has been public-private partnerships — that is, a government entity joining forces with a private sector organization to achieve a mutually beneficial result. Just as the port is willing to


THE COMBINATION OF PRO-BUSINESS GROWTH AND SAGE USE OF TAXES IS A POWERFUL TANDEM THAT SERVES THE COMMUNITY WELL work with other governmental agencies (like the Railroad Commission of Texas), it is inclined to offer companies the same opportunity. These arrangements with the private sector are oftentimes beneficial for all. For example, the private entity provides the capital to either build or improve the governmental agency’s facility; the creation or improvement of that facility makes the area surrounding that municipality more attractive for businesses; and different private entities are subsequently convinced to work with the municipal government in creating or improving another facility or structure that will serve both parties. Various partnerships and investments over a period of decades have made the Port of Victoria a highly competitive aquatic ingress and egress location in Texas, as well as in the Greater Gulf of Mexico. “I believe the Port of Victoria is that last frontier on the Texas coast because of what we have for highway access, water access, and with dual rail,” Burdge says. The case studies are numerous. The public-private partnership between the port and Equalizer — a shipper that utilizes rail, barge, and truck transport — was cemented 7 years ago, when they sought certain improvements to the port facilities. “Equalizer is a perfect example of a

company that saw the market changing and was able to adapt to that,” notes Burdge. A long-standing partner with the Port of Victoria, the shipper approached the port’s leadership about upgrading the docking facility they used at the time, as well as extending the existing rail. Working together, the desired improvements and upgrades were agreed upon and executed. Devall Towing, which operates a barge fleet in multiple Texas waterways, was in a position to join forces with the Port of Victoria. Devall provided the capital for the construction of an improved fleeting area, and it subsequently operates that facility on a day-to-day basis. Burdge describes the relationship as the “perfect use of public-private partnership. The port did not have to come up with capital dollars, or incur debt or sell bonds. We were able to work with Devall, and it’s been a win-win for everyone.” In pursuing both of these opportunities, publicprivate partnerships have helped both parties meet their overall goals and objectives. Although the port prefers to work cooperatively to bolster its facilities, that doesn’t mean it can’t provide for itself when needs MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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arise. For example, it recently upgraded and automated a manually operated lift bridge. This improvement had just over a $1 million price tag but should recuperate at least half of its cost and reduce burden on local taxpayers when those savings are realized. Final approval on this project was secured in late 2015, and the lift bridge is now fully operable remotely. Though the process took longer than port leaders anticipated, the bridge still serves as a model for similar waterways throughout Texas and the United States. Though Burdge and his colleagues on the Port Commission have achieved great success working with private enterprise, the port is not the only organization in Victoria responsible for drawing business to the area. The Victoria Economic Development Corporation (VEDC) serves as a partner alongside the Port of Victoria, and it played a major role in bringing Caterpillar into the local business community. Many members of the local community favored partitioning a large industrial site nearby to woo multiple parties, but the VEDC held fast to its belief that it could attract a more sizable client by keeping the property intact. This is oftentimes an onerous task, but the VEDC’s efforts were rewarded when Caterpillar announced that the large plot and its comparable economic incentives were just

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what it was looking for. Though the corporation does not occupy any property owned by the Port of Victoria, it may still play a significant role. In all likelihood, Caterpillar will eventually use a specialized heavy-haul corridor that is approved by legislation and designed for shipping cargoes too cumbersome to travel 150 miles by road from the Port of Houston. As the Port of Victoria is a mere 12 miles away from the site, it is well-positioned for the task. As proof of the port’s commitment to continued growth, it was recently granted McCallum Sweeney certification — one of only three sites in the state of Texas to have earned this distinction. Burdge notes that this honor will be “extremely beneficial” for the port going forward. Developed by American Electric Power (AEP), this credential identifies an industrial site as fully serviceable by utilities and whose further development will not be impinged by unforeseen legal, environmental or geological complications. As busy as they’ve been, the port and its leadership show no signs of slowing down. Even though commodity prices are currently caught in the midst of a generational downtrend, Burdge notes that the port is “on the shortlist for a few potential projects,” some of which may be rather sizable. “We’re hopeful they may be game changers for the

Port of Victoria and the South Texas region.” Regardless of potential future clients, it is fair to say that the future is bright in any economic environment.

VISIONARY LEADERSHIP In 2007, just as the Eagle Ford began to garner more attention and notoriety in the industry, the Commission was authorized to expand from three to five members. As a result of this growth, Robby Burdge was added to the roster. Although Burdge now serves as Chairman, he admits that he was not always attuned to the port’s crucial role in South Texas. “While I knew the port was out there, I was not an expert by any means as to really understand the true asset that the port [is], not only here locally, but what it has in the state of Texas and what it has nationally,” he explains. By all means, Chairman Burdge is now fully aware of the port’s importance and enjoys his role as its leader. “The port is an organization that is fun — it’s fun because of the model that we have in place. We have five Commissioners, four who are entrepreneurs and one who is a prior county judge. We have an exceptional resource team of experts in their field — whether it be legal, engineering, marketing, economic development — that I


believe are visionaries,” explains Burdge. If it sounds like Burdge is apt to praise his team and the community before himself, that’s because he is. “I have to give great kudos to prior Commission Chairman Lee Swearingen and prior Commissioner Paul Guthrie, because both of them had the vision to work with prior Mayor Will Armstrong,” says Burdge, complimenting his predecessors. “The Port of Victoria is not about one person — we’re all equal parts of the wheel, and everybody plays an extremely important part in moving it forward. That’s why I believe we are a well-oiled machine, and we are really blessed to have a great resource team. We feel that our job is to provide that vision for the port, to ensure that both short-term and long-term decisions are consistent, and to give the experts the tools to implement that vision.” With Burdge at the helm, the port has sought to reduce its financial reliance on local taxpayers, instead opting to augment capital obtained through the private sector — whether through public-private partnerships, leases, or other fees collected by site occupants — to support its operations and facilities. “Thanks to the financial expertise and leadership of former chairman and current Commissioner Robert Loeb and the business experience

of Commissioner Elton Calhoun, we’ve lowered the tax rate and increased private business at the port,” says Burdge. The data bears this out: From 2008 to 2015, the percentage of taxpayer-provided revenues declined dramatically from 63.6 percent to 26 percent. Burdge is very proud of this statistic, noting that he and the Commission intend to be “great stewards of taxpayer money.” The combination of pro-business growth and sage use of those taxes is a powerful tandem that serves the community well. The port only employs four people, and several consultants. The Commissioners are mostly local entrepreneurs who volunteer their time and knowledge for the betterment of the community. “The Commissioners have a sense of service that allows the operation to run at peak efficiency,” says Port of Victoria Spokesperson Mike Sizemore. “The results are what they are,” asserts Burdge. “You can look at them over time and see that we have continued to be very proactive, but at the same time we understand our fiduciary responsibility and stewardship to the community.” Were it not for Sizemore speaking glowingly about Robby Burdge, it might not be clear to those outside of Victoria County what a key catalyst the Chairman has been in the growth of the port. “Robby’s a little bit modest — he’s

such a leader and visionary on where this community can go and where the port can go,” Sizemore observes. “Without his leadership, this would not have been possible. His motto is, ‘God, family, team, then me,’” which is a mind-set that Sizemore believes Burdge exudes every day. “We are very fortunate to have Robby Burdge as our Chairman — we need more Texans like Robby Burdge.” Burdge marvels at how difficult it would be in today’s world to create the Intracoastal Waterway upon which the Port of Victoria relies. “There’s no way that could be done today, with respect to environmental and other issues, with respect to a national perspective.” Those are the words of someone who is very happy and grateful to have the opportunity to guide the port into the future. Although colleagues like Mike Sizemore give effusive credit to Burdge, it should not come as a surprise that he would humbly defer credit to those around him. “It’s an honor to work with a great group of folks that make this volunteer position fun.”

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For more information on the Port of Victoria, visit www.portofvictoria.com.

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INDUSTRY

Getting Technical in Texas OIL AND GAS DOWNTURN CAN MEAN OPPORTUNITY FOR THOSE WILLING TO LEARN

By: Darrin Brust

college graduates with bachelor’s and master’s degrees, Rigzone.com reported that during the most recent oil boom, the largest growth in the energy sector job postings was in the support areas like oilfield services. Energy sector employers need welders, operators and, in particular, diesel technicians — jobs that don’t necessarily require four-year degrees. Technical schools like Universal Technical Institute (UTI) can open up a world of high-paying opportunities to graduates. While most of our students enroll at UTI with the intention of working at a

car dealership or opening their own repair shop, some of the graduates, particularly from our Diesel & Industrial Technology program, have landed well-paying jobs in the oil and gas industry. Our 45-week Diesel & Industrial Technology program provides students with hands-on training using trucks and equipment from some of the biggest manufacturers in the world. Courses in the program include diesel engines, diesel fuel systems and hydraulic applications, equipping students with the skills and knowledge to work on everything from big trucks and corporate fleets to farm equipment and oil rigs. Oil and gas companies like Schlumberger, Halliburton and Baker Hughes work closely with UTI to find graduates to work on the diesel equipment and engines in the oil field. At Universal Technical Institute, our aim is to continuously improve upon our excellent student outcomes. Better than 60 percent of UTI students graduate* and four out of five UTI graduates find employment in their fields of study within one year of graduation.** The Houston Independent School District’s decision to expand the Energy Institute High School and to support growth of technical education programs is an excellent investment in the pipeline of talent we will need to keep the oil and gas industry flowing. A relationship between oil and gas companies and technical schools can be a win-win situation for everybody involved. Employers are able to add a qualified, knowledgeable asset to their workforce, and the employee is able to build a lengthy, wellpaying career of which he or she can be proud. The oil and gas industry will turn around. When it does, there will be plenty of jobs available; and with the help of technical schools like UTI and programs like the Energy Institute High School, there will be trained people to fill those jobs. Energy Institute High School Principal Lori Lambropoulos says, “We are in this downturn, but as a society we have a responsibility to not let that affect our workforce and to keep ahead of the game.” By equipping tomorrow’s technicians with the skills energy companies need, Career Technical Education programs are doing just that. *As reported in the 2013 ACCSC annual report, approximately 11,908 of the 19,058 UTI students available for graduation in 2013, graduated for a total of 62.7 percent. **Approximately 9,200 of the 9,900 UTI graduates in 2014 were available for employment. At the time of reporting, approximately 8,100 were employed within one year of their graduation date, for a total of 88 percent. Per UTI’s accreditors’ reporting standards, this rate excludes graduates in the following classifications: continuing education, active military service deployment, a health condition that prevents employment, incarceration, international students who have returned to their country of origin or death. This rate includes graduates employed in positions that were obtained before or during their UTI education, where the primary job duties after graduation align with the educational and training objectives of the program. UTI cannot guarantee employment or salary.

About the author: Darrin Brust is Campus President at Universal Technical Institute-Houston and can be reached at dbrust@uti.edu.

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PHOTO COURTESY OF UTI

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n a constant drumbeat of news about layoffs and plummeting oil prices, the November 2015 Associated Press article “Despite Oil Bust, Texas Prepares More Students for Oil Jobs” by Will Weissert resonated with me and gave me a feeling of hope knowing that our state is investing in our students’ future despite the current downturn. The article explains that thousands of oil and gas industry jobs are evaporating like flares flaming out over natural gas wells. But in forward-thinking Texas, education officials at the high school level are preparing more young people for the oil patch. I’m encouraged by our state’s high school educators acknowledging the potential for successful careers in the oil and gas industry, and helping students get an early start. For high school graduates who see the downturn in the oil and gas industry as an opportunity to sharpen their skills, there are options. Many people think that working in oil and gas requires an engineering degree or MBA. While the industry still needs plenty of


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INDUSTRY

Which Five Shale Companies Are Doing the Best in the Low-Price Environment and Why? By: Dan Watson, Accumyn Consulting Affiliate Director

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If the company does survive and prosper, all constituencies will benefit — if not, all will lose What is the investor’s perspective?

The investor’s viewpoint must also incorporate time. Are the best companies those who do best when commodity prices are going up, going down or going nowhere? It depends on one’s time horizon. From June 2012–January 2016, we have seen oil prices move up from $80 in June 2012 to $106 in June 2014 to the current price of just under $30. Since this time period encompasses high volatility and a wide range of prices, the best companies over this horizon are those that have done well over the entire 43-month cycle. The chart on the left tells the story of how companies have fared over the cycle so far and shows the share price of 40 domestic companies whose market capitalization in June 2014 was greater than $500 million. The horizontal axis shows the share price on June 30, 2012. The vertical axis shows the recent share price. The diagonal 45-degree line shows those points along which the share price in each period would be the same. Companies shown above this diagonal line had share price appreciation over the 43-month period. As shown in the chart, this is a very exclusive club of five companies: Diamondback Energy (FANG), EOG Resources (EOG), EQT Corporation (EQT), Cimarex Energy (XEC) and Pioneer Natural Resources (PXD).

SSUAPHOTO/BIGSTOCK.COM

B

efore you read any further, make a note of how you would answer the question above. Now consider your relationship to the companies you listed. If you happen to be the CEO of any company on the list, you probably picked that one because it has solid, experienced, skilled, even gifted management. If you are an employee, the company for which you work may or may not have appeared on your list, depending on how things are going at the office or worksite. If you are a supplier, you may have decided based upon how important a customer the company is, if it pays on time and how often you are pounded to lower prices. If you are a customer, you are probably thinking about the company’s reliability and its likelihood of staying that way. If you are a lender to shale operators, your list most likely consists of those companies that are most likely to pay you back. If you are an investor, the companies on your list are those you own because you think they will eventually survive and prosper. All of these viewpoints are valid for their purpose, but right now the investor’s viewpoint is the most important because it subsumes all others. If the company does survive and prosper, all constituencies will benefit — if not, all will lose.


Three additional companies did relatively well, declining by less than 20 percent: Newfield Exploration (NFX), Concho Resources (CXO) and Cabot Oil & Gas (COG). These companies are shown to the left of the diagonal dashed line. The remaining 32 companies in the universe appear below the dashed line and have fared considerably worse. Eleven are shown as the dots on the horizontal axis indicating these companies’ share prices are measured in pennies. The steep price decline of the 32 companies has had a significant impact in the makeup of the industry. In June 2012, these 32 companies represented 60 percent of the market capitalization of the 40-company universe. As of mid-January 2015, these companies were only 25 percent. This is a near complete role reversal with the top five companies who in June 2012 were 28 percent of the universe and now constitute 58 percent.

Companies differ financially in two key respects that explain over half the variability in their performance

Why has company performance been so widely diverse?

Superficially, one might expect all shale companies to perform roughly the same. After all, after adjusting for quality and transportation differentials, all companies face the same selling price. But as we have just seen, performance varies widely. Companies differ financially in two key respects that explain over half the variability in their performance. These two factors are market capitalization and the share of debt in a company’s total capitalization. They are offsetting factors. Larger market capitalization at the beginning of the period is positive for performance, while higher debt loads are a negative factor. About another 10 percent can be explained by an individual company’s sensitivity to crude price movements. These factors make intuitive sense. Larger companies have better access to capital, as evidenced by both Diamondback’s and Pioneer’s recent sales of new equity. Companies that are not highly leveraged are not under pressure to produce and therefore raise cash to pay interest on debt. The strongest companies have also demonstrated an ability to manage the downside. In the move up to June 2014, nine companies saw their share price increase by over 100 percent, and seven companies saw increases over 75 percent. While four of the five best companies enjoyed increases of over 100 percent, they maintained their

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position by giving less up on the way down. Size and lower leverage played a key role in helping the top five manage the downturn. At the top of the cycle in June 2014, these five companies as a group had a debt-to-total-capital ratio of 28 percent, while the remaining companies stood at 48 percent.

What does this mean for the future?

Assuming we are in a “prices will be lower for longer” world, these results portend more of the same. Big companies will tend to become relatively larger at the expense of smaller companies. The commodity price buoyancy of years past that ushered many companies into existence and made their growth possible has been replaced by sinking prices, which will have the opposite effect. Many of the companies in the lower portion of the chart will cease to exist. The assets they own, however, will not disappear with them. These will remain, but under new ownership, most likely one of the top five companies, each of which has the size and financial staying power to acquire now and wait for the cycle to turn. None of this is to say that the next few quarters will be easy for the best companies. Upcoming earnings reports from all parties will be dismal. The main idea, however, is not so much what is in the 2015 annual report, but rather if the company will survive long enough to issue an annual report for 2016. The five best are survivors.

About the author: Dr. Dan Watson is an expert on econometric and statistical analytics, valuation analysis, economic financial damage claim computations, and risk management. He teaches security and asset valuation at Rice University. Dr. Watson is an Affiliate Director at Accumyn Consulting. For more information, visit www.accumyn.com.

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INDUSTRY

U.S. Crude in the Global Market

W

ith the price of a barrel of oil hovering consistently around $30, we are all feeling the effects of this recent slump in oil prices. We understand that many South Texans are concerned with job security and the Eagle Ford Shale’s sustainability. While the industry is in a downturn, we are all adjusting our finances and waiting for prices to rebound. When that time comes, we will all be thankful that the ban on crude oil exports has been lifted. Although the effects of this legislative decision will not be seen immediately, it will benefit the oil and gas industry and our country for years to come.

Our country can finally join other topproducing nations that freely trade oil and natural gas, adding stability and security to the global market For the first time in 40 years, we saw the first shipment of Eagle Ford crude leave from the Port of Corpus Christi headed to Italy. U.S. oil and gas producers now have the

choice to compete on the global market and sell domestically produced crude oil. Our country can finally join other top-producing nations that freely trade oil and natural gas, adding stability and security to the global market. Crude oil exports will provide allies and trading partners with a reliable and secure energy alternative. The previous export ban allowed for the trading of limited volumes of crude oil with Canada, while allies in Europe and Mexico and other trading partners continued to push the U.S. government to modernize its crude export policy. STEER is pleased with the reversal of this policy, which will have long-term benefits for the Eagle Ford Shale region, including future job growth and sustained production. Hailed as a blueprint of bipartisan compromise, this deal would not have been possible without the hard work and commitment of some of the South Texas legislators who represent us in Washington, D.C., and understand what this meant for the longterm economic impact of oil and natural gas in our area. While some characterize policymaking in Congress as shortsighted, this deal will undoubtedly serve the citizens of South Texas far longer than the 40 years it was in place. With the Eagle Ford’s proximity to the Port of Corpus Christi, crude oil produced in the shale play can be efficiently exported. Long term, this could also mean a transformation for Corpus Christi and South Texas, with a new focus on overseas shipments. While the impact will not be immediate, lifting the ban will ensure long-term growth and sustainability in the region. STEER is appreciative of the support we received from our South Texas legislators who ensured the antiquated ban on oil exports was repealed. These legislators understood that this was the right decision for the economy, for national security, and for those who choose to live and work in the Eagle Ford Shale region.

About the author: Omar Garcia is the President and CEO of the South Texas Energy & Economic Roundtable (STEER). STEER connects the oil and gas industry to South Texas communities, facilitating and coordinating communication, education and public advocacy surrounding the production of energy resources in South Texas. For more information, visit www.steer.com or email info@steer.com.

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GORBOVOI81/BIGSTOCK.COM

By: Omar Garcia


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INDUSTRY

A Brief History of the Oil and Gas Industry in the Wake of the Shale Revolution By: Thomas Tunstall, Ph.D.

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ecent events in the oil and gas industry have defied conventional expectations in many ways. The shale revolution has been the catalyst that resulted in U.S. oil production jumping from around 5 million barrels per day in 2008 to over 9 million barrels currently. Natural gas production in the U.S. now clocks in at over 25 trillion cubic feet (TCF) annually — the largest level of production ever, with records dating back to 1900. And yet, as significant as these events are in and of themselves, the follow-on effects have been even more staggering and unexpected. The U.S. is now the source of the world’s second lowest price for natural gas, where it currently sells for about $2 per TCF. Only Qatar produces natural gas for a lower cost, estimated to be about $0.75 per TCF. However, unlike the U.S., Qatar does not have an equivalent workforce or industrial capacity. As a result, billions of dollars of investment in manufacturing, refining and export facilities have been made in port locations like Corpus Christi, Texas. The latest shoe to drop was the lifting of the U.S. ban on crude oil export in December 2015. For the first time in 40 years, the U.S. now freely exports crude oil, in addition to natural gas. And once again, WTI now often sells at a premium to Brent crude instead of a discount. So, how did we get here? While the first oil well in the world was drilled in 1847 in Baku, Azerbaijan, the first U.S. well was drilled in 1859 in Pennsylvania. Texas arrived on the scene when Spindletop started gushing in 1901. Demand for oil surged even more when Henry Ford introduced the Model T in 1908. The affordability of the first mass-produced car dramatically increased automobile ownership and gasoline consumption. Oil production in Mexico began not long after in 1910, when a discovery was made in Tampico. The further dominance of the Texas oil industry was cemented with production in the Permian Basin beginning in 1921, and then in 1930 in the East Texas Oil Field. Not long after in the Middle East, large quantities of oil reserves were discovered in Kuwait and Saudi Arabia in 1938. Although OPEC wasn’t formed until 1960, by 1971 the organization had nationalized most of the country members’ oil assets. In 1973, OPEC initiated the oil embargo, which caused prices to skyrocket. In response, President Gerald Ford signed into law the Energy Policy and Conservation Act in 1975, which banned crude oil export, except to Canada with a special license. Over its lifetime, OPEC has had limited success trying to manage oil prices. During the mid-1980s, for example, Saudi Arabia grew weary of trying to prop up worldwide prices by limiting its own production. So, in 1985, Saudi Arabia began producing at full capacity, in much the same way the country decided to do around Thanksgiving 2014. Both actions precipitated a sharp drop in crude oil prices. The shale revolution has also shifted expectations with regard to natural gas. While oil and refined products have moved around the world on tankers for decades, natural gas has been transported primarily through pipelines until recently. The seeds of change in natural gas markets were planted in 1996 when Qatar

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opened the world’s first large liquefied natural gas (LNG) export facility. Several export terminals in the U.S. are presently in various stages of approval as well, with the first one now in operation. Yet just a decade ago, it was natural gas import terminals that were under construction in the U.S. The unexpected events of the shale revolution have resulted in the U.S. becoming both an oil exporter (once again) and a natural gas exporter, in addition to its long history as an exporter of refined products. It’s hard to believe that in just a few short years, shale oil and gas — almost exclusively produced in the U.S. to date — have transformed global markets so significantly. No doubt many future energy industry developments will be equally surprising.

the first U.S. well was drilled in 1859 in Pennsylvania

About the author: Thomas Tunstall, Ph.D., is the Research Director at the Institute for Economic Development at the University of Texas at San Antonio. He was the principal investigator for the Economic Impact of the Eagle Ford Shale studies released in May 2012, March 2013 and September 2014, as well as the West Texas Energy Consortium Shale Study. He has published peer-reviewed articles on shale oil and gas, and has written op-ed articles for The Wall Street Journal. Dr. Tunstall has spent a significant portion of his career on overseas workforce and economic development assignments in such locations as Azerbaijan, Afghanistan, Kenya and Zambia. He holds a Ph.D. in economics and public policy and an M.B.A. from the University of Texas at Dallas, as well as a B.B.A. from the University of Texas at Austin.


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INDUSTRY

A LOOK BACK IN TIME AND PREVIEW INTO THE FUTURE

Special to SHALE

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he Women’s Energy Network (WEN) was established 22 years ago when the energy industry was a particularly lonely profession for the limited number of women serving in a broad array of energy-based careers. Women found themselves lacking professional outlets where they could discuss the unique challenges of the industry and bond with other women. For Karyl Lawson White, the founder of WEN and an energy attorney, a professional women’s organization in the energy industry was her personal call to action. In 1994, with a handful of colleagues and a vision of success, the Women’s Energy Network was officially born. White built the first professional organization dedicated to women working across the energy value chain on the foundation of networking. Membership spread quickly by word of mouth, which still holds true today. As the organization grew steadily, one significant aspect set it apart from all other groups with similar intent. Instead of focusing its membership on one particular group of women in the energy industry, WEN embraced a more diverse group of members, including attorneys, accountants, engineers, traders, human resources professionals, owners, operators and high-level executives. The only requirement for membership was professional involvement. The organization held monthly luncheons and happy hours in downtown Houston and compiled an extraordinary list of industry leaders to serve as keynote speakers during its informational luncheons. Still focused on the principles of how the organization was founded, WEN continues to serve its diverse membership by providing programming based on educational and leadership development, philanthropy and networking. Now, WEN offers over 60 events a year and has a mentoring program that is second to none. The luncheon program has grown to three locations across the city of Houston and continues to provide high-caliber speakers to its membership. In addition, the organization offers a number of leadership opportunities for women in various levels of their careers. One key to WEN’s lasting success is its strategic partnerships with community, industry and educational organizations, such as the American

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WEN Houston Chapter Presidents Karyl Lawson White, 1994–1995 Teresa Bushman, 1996 Dorothy (Wilson) Marchand, 1997 Meg Healey, 1998 Carol McCutcheon, 1999 Robin (Dyer) Owen, 2000 Leesa Foster, 2001 Tammy Naron, 2002 Kay Henry, 2003 Lynda Duffy, 2004

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Rachel Clingman, 2005 Gene Ann Herrin, 2006 Kate MacDougall, 2007 Elizabeth Matthews, 2008 Kim Randolph, 2009 Jana Grauberger, 2010 Jeannie Gardner, 2011 Lori McDowell, 2012 Kimberly Wilson, 2013 Gindi Eckel Vincent, 2014 Dannetta English Bland, 2015 Tomira Eason, 2016

For more information about WEN, please visit www.womensenergynetwork.org.

PHOTOS COURTESY OF WEN

Women’s Energy Network

Petroleum Institute, Offshore Technology Conference and the University of Houston. As WEN reflects on the past 22 years, it revisits its vast and meaningful accomplishments, and it looks to the future for continued growth and success. “This began as a small networking group in Houston and has bridged together professional women across 10 chapters who are enthusiastic about the energy industry and determined to prepare the next generation of female leaders,” says Dannetta English Bland, the Immediate Past President of WEN. Growth equals change. For this organization to stay at the forefront of the industry and to be the vital force for women to grow as professional individuals, WEN has to continue to break ground in the field. The organization’s landscape will expand to match the growing needs of the energy workforce. For example, it will place an increased focused on science, technology, engineering and math (STEM) through its biannual charity luncheons, university programming and Young Women Energized events. Likewise, in order to attract and retain entrepreneurial millennials in a technology-driven world, WEN offers an array of programming, such as quarterly Leadership Power Hours, podcasts, mentoring and an electronic library of thought leadership topics on the go. “We will continue our focus on building the WEN brand and expanding our reach across the globe. We anticipate incorporating new student chapters, acquiring new community and industry partners, as well as establishing our first national board,” says Tomira Eason, 2016 WEN President.


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INDUSTRY

Texas Alliance of Energy Producers A HISTORY OVER 75 YEARS IN THE MAKING By: Gloria Leal A storied history entwined with development and growth of the oil and gas industry and the politics of the time, shaped by a cast of characters made of legend ― the original “wildcatters”.

T

he Texas Alliance of Energy Producers is a statewide association representing independent producers, service providers and other professionals. It was created in 2000 through the merger of two regional associations, the North Texas Oil & Gas Association and the West Central Texas Oil & Gas Association organized in the 1930s. With over 3,000 members in 300 cities and 29 states, the Alliance is the largest state independent oil and gas association in the nation. In 2015, the Texas Alliance of Energy Producers united with National Energy Services Association based out of Houston to better serve the needs of both membership groups. Led by Alex Mills, President and Executive Director, and George Rogers, Chairman of the Board, the Alliance celebrated its 75th anniversary in 2005. The purpose of the Texas Alliance of Energy Producers is threefold: education about the industry, advocacy on behalf of its membership; and providing member services. Alliance is the proud sponsor of the famed South Texas Wildcatter events held in Fort Worth, Houston and San Antonio, and the originator of the Legends Merit Award honoring members who have made a longtime contribution to the betterment of the industry, community and country. The list of award recipients is a virtual who’s who in Texas oil and gas.

Based in the oil patch, the Alliance represents the interests of the oil and gas industry at both the state and federal levels of government. The Alliance’s commitment is to ensure that tomorrow’s energy policy will be one in which members can grow and prosper. Its effectiveness relies upon speaking with one unified voice. According to Mills, “together we are strong … individually, our voice becomes fragmented and weak.”

and an annual meeting and expo ― deemed to be the largest in the Southwest. This year’s meeting will focus on the problems — and opportunities — created by the current downturn. The Alliance hosts regulatory compliance seminars and has developed a successful workers compensation and insurance program for its members, resulting in significant dividend payments. During the legislative session, the Alliance’s government affairs group monitors and aggressively lobbies on behalf of independents in the industry. During the interim period, the Alliance holds monthly corporate issues meetings in Austin, monitors the Railroad Commission and other agencies, participates in legislative hearings and meets with other associations to develop, support and deliver joint messaging. Entering a new chapter in its evolution, the Alliance recently announced the appointment of John Tintera, former Executive Director of the Railroad Commission, as executive Vice President, Government Relations. Gloria Leal was named General Counsel in an outside counsel capacity, and Bill Stevens was appointed, Chief Lobbyist ― all are based in Austin.

Based in the oil patch, the Alliance represents the interests of the oil and gas industry at both the state and federal levels of government Independents drilled 96 percent of wells and produced 88 percent of the oil and gas in Texas. The oil and gas industry paid a recordbreaking $15.7 billion in Texas state and local taxes and royalties in fiscal year 2014. These taxes deposited into the Rainy Day Fund directly fund public education, transportation, Medicaid and other essential services.

The Texas Alliance of Energy Producers invites you to join them at the Alliance Expo & Annual Meeting on April 19 and 20, 2016, in Wichita Falls, Texas. Visit www.texasalliance. org or call 800-299-2998 for more details.

75th Anniversary and Forward

The Texas Alliance is active year-round, hosting regional education meetings, seminars

About the author: Gloria Leal is an attorney and government affairs consultant in Austin, Texas. Leal has a solo practice primarily relating to energy, environmental and healthcare matters. She also represents the Texas Alliance of Energy Producers, a national association of independent producers and service providers. She can be reached at GLealLaw@sbcglobal.net.

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INDUSTRY

Energy Education in Texas Faces Challenges By: Texas State Rep. Jason Isaac and Dr. Ken Morgan have an environmental footprint that should be understood. It is important that our students learn about all facets of the energy options available in Texas. Third, geosciences are deemphasized in the new Texas Essential Knowledge and Skills (TEKS) standards. These standards govern information and analysis that Texas students need to master in order to pass and graduate. Without an understanding of geoscience, it’s almost impossible to talk about how Texas energy resources are produced. Fourth, the link between energy and quality of life is missing in the discussion. Our life expectancy, air quality, income and access to clean water have increased significantly over the past centuries because of energy, and much of it is produced here in Texas. This is one of the most important messages for our children to hear, because to fully appreciate and understand energy production in Texas, they need to know how it impacts their lives; and they should be proud of their state for making the world a better place.

Texas Energy Education Project

Thanks to a collaboration between the Texas Natural Gas Foundation, the State Energy Conservation Office and the Texas Regional Collaboratives at The University of Texas at Austin, science teachers will have a highquality energy supplement to teach their students about natural gas and other Texas fuels. The Texas Natural Gas Foundation is assembling an advisory panel, led by Dr. Ken Morgan, to provide expert information to curriculum writers

About the authors: The Hon. Jason Isaac graduated with a degree in marketing and a minor in management from Stephen F. Austin State University. He serves in the Texas House of Representatives serving Blanco and Hays counties. As a small-business owner, he has focused on making the trucking industry more efficient, profitable and safer.

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as they revise the energy supplement to reflect current knowledge and practices about Texas energy. The Texas Energy Education Project (TEEP) curriculum supplement will be a multi-year project. As units are developed, they will be rolled out and tested through the Texas Regional Collaboratives’ extensive network of classroom science teachers. The previous supplement generated nearly 750,000 unique website visitors annually, demonstrating demand for high-quality educational curriculum about Texas energy. Although the units will focus on Texas energy, they are designed to be picked up and customized by other states. The first units will cover: ● Energy Resources: serves as an introduction to the course and will address basic questions, including “What is energy?” and “What are the forms of energy?” ● Energy Economics: looks more specifically at examples of energy resources currently available and explores their costs and benefits. ● Energy in Your State: explores in-depth the energy resources that are abundant in Texas. The Texas Natural Gas Foundation is a 501(c)(3) nonprofit. One of its main projects is to produce and distribute this energy curriculum for Texas students, with an emphasis on natural gas. We need to educate our students and their teachers about our abundant Texas energy resources and the vital role that they play today in supporting our schools and our economy, and properly prepare students for jobs in the energy sector of the future. If you are interested in joining these efforts, visit www.txng.org.

Dr. Ken Morgan obtained degrees in geology, environmental engineering and resource management prior to taking a position as a professor at Texas Christian University. In 2008, he founded the TCU Energy Institute.

GOODLUZ/BIGSTOCK.COM

W

e recently took part in a discussion with a group of Texas science teachers about the need for an energy curriculum in Texas public schools. Most children have no idea what it takes to power their cell phones, provide them with clean water and allow Amazon to deliver their games. How is it possible that in the nation’s top energy-producing state — the state that is responsible for a third of natural gas produced in the U.S., leads the nation in oil production and wind power generation, and has made the U.S. a global energy powerhouse — that our children know so little about where energy comes from and the advantages and disadvantages of each energy resource? The science teachers we spoke with outlined the challenges for us. First, they feel unprepared to discuss the environmental impacts of extracting and using fossil fuels. They’ve all read news headlines about earthquakes and hydraulic fracturing, but, unfortunately, no one has explained to them that the likely cause of the earthquakes is disposal wells sited on old fault lines, not drilling operations. Second, they weren’t aware that renewable energy technologies also have environmental impacts. The rare earth metals in hybrid car batteries, wind turbine generators and solar panels are largely extracted in China, as companies in the West have shut down their rare earth mining programs. While wind and solar energy resources are clean and abundant in Texas, the technologies used to harness them do


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MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

43


POLICY

Hardships and Opportunities THE OIL BUST OF THE ’80s

G

iven that the theme of this issue of SHALE Magazine is the history of the oil patch, and that oil as of the time I’m writing this is sitting around $32 a barrel, I figured I’d write a little bit about the history of the oil crash of the 1980s and the impact it had on government policies. This is the fourth major bust in oil prices that has taken place during my career in the business, which goes back to 1979 when I landed my first job out of college as a junior revenue accountant at the Coastal Corporation. Those of you with long memories — or who just like to read books written by the great Daniel Yergin — know that the price of crude had begun to rise significantly in late 1978, as Saudi Arabia decided to cut back its production; and by the summer of 1979 it had risen to more than $30 a barrel. That price in 1979 was a heck of a lot more expensive than the same price in 2016, so policymakers in Washington reacted to public outrage at having to pay $1 a gallon for gasoline by passing into law the infamous Windfall Profits Tax (WPT), about which I wrote at length in the July/August issue of this magazine last year. Suffice it to say that the passage of that idiotic law was not exactly Congress’s finest moment. Despite the confiscatory nature of the WPT, the domestic industry then experienced a big ol’ boom that would last well into 1985. During that time, we all got fat and happy, which is what we in our industry tend to do during a boom. Employee head counts swelled, new office buildings began to enhance the skylines of Dallas and

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In Texas, the effects of the bust were especially damaging, as the state was far more dependent upon the oil and gas industry at that time than its far more diversified economy is today Houston, everybody started getting perks like company cars and twice-yearly raises and bonuses, and, as always, we all thought the good times would never end. One fellow who had gotten wealthy on oil investments moved from Louisiana to my old hometown of Beeville, Texas, bought what had been the school system’s administrative building, hired 30 people and gave them all BMWs to drive. We thought that was pretty cool at the time.

BASHTA/BIGSTOCK.COM

By: David Blackmon


For those of us who deal with legislative and regulatory policy, the lesson to be learned from the bust of the 1980s is that every bust presents both hardships and opportunities

That is, until the leaders of Saudi Arabia got tired of their country being the only member of OPEC that actually abided by its supposed production quota, while everyone else cheated and raked in the cash. In September of that year, the Saudis flipped the figurative finger to the global community, announced they were abandoning their role as the world’s swing producer, and began producing at 100 percent capacity (sound familiar?). As the Saudis raised their production from a low of about 3.5 million barrels of oil per day (BOPD) to over 9 million, a huge glut was created on the global market. That glut eventually rose to as much as 5 million BOPD in early 1986, and prices rapidly crashed from $40 a barrel to as low as $6 over the next year.

In Texas, the negative impacts came quickly and were very visible. Rigs began to be stacked in huge holding yards all over the state, as the rig count fell from 2,300 in late 1985 to about 1,000 a year later. Layoffs came quick and were very deep. Businesses that had been started up in hundreds of communities all over the state closed their doors and shuttered their windows. The number of high-rise cranes dotting the Houston and Dallas skylines fell quickly from scores to a handful and then, ultimately, became extinct. I remember one fellow, who had opened what had become a sizable pipe yard and oilfield equipment operation right on I-37 in Mathis, Texas, found himself trying to make ends meet during 1985 selling used cars before finally giving up the ghost and abandoning the operation in late 1986. The pipe and equipment sat and rusted for years before finally being taken away, a sad and enduring memory of a boom that had abruptly ended. The oil bust in turn led to the collapse of the savings and loan industry in Texas and nationally, as many such lenders who had loaned money to oil-rich individuals and businesses to finance homes and commercial enterprises found those loans going bad in droves. More than 1,000 such associations failed between 1986 and 1995, costing the taxpayers more than $132 billion in the process. The crisis ultimately led to the passage of major reforms of the industry, beginning with the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and establishment of the Resolution Trust Corporation, which handled the disposition of the many failed institutions and their deposits. The 1980s bust also had the happy effect of ultimately leading to the repeal of the WPT. Because the law was stupidly based on an assumption that the price of oil would always go up — all historic indications to the contrary notwithstanding — by 1985, the WPT was generating no money at all to the U.S. Department of Treasury. So in 1987, Congress voted to get the thing off the books, and President Ronald Reagan happily agreed. In Texas, the effects of the bust were especially damaging, as the state was far more dependent upon the oil and gas industry at that time than its far more diversified economy is today. The 1987 session of the Texas Legislature had to cope with a multibillion-dollar budget shortfall, forcing dramatic cuts to state services in order to balance the budget. The state’s unemployment rate was significantly higher than the national average, and its economic growth rate was significantly lower than nationally for the duration of the decade of the 1980s. The 1989 legislature, in an effort to encourage the Texas industry’s return to health, produced what has become an enduring and extremely beneficial tax program that remains in effect to this day: the High Cost Gas Severance Tax Incentive Program. The first version of this program was signed into law by Gov. Bill Clements in June of that year. The program offers a reduction in the state’s severance tax in order to encourage the development of deep and expensive-to-develop natural gas resources that otherwise might not be developed, and it has placed Texas at a competitive advantage to other states in attracting industry capital to the state. The implementation of this program was an immediate success, as companies brought dozens of new rigs online to drill for gas in very deep and tight conventional formations in South and West Texas. Its ongoing existence was later one of the main reasons why the Barnett Shale became the first major shale natural gas formation to be developed, beginning in the late 1990s. Without this program, Barnett Shale wells would not have become economic to drill until years down the road. For those of us who deal with legislative and regulatory policy, the lesson to be learned from the bust of the 1980s is that every bust presents both hardships and opportunities. The current bust will be no different in that regard, and several years from now we’ll be able to look back on the opportunities related to public policy that were identified and seized during this otherwise difficult time.

About the author: David Blackmon has spent 35 years in the oil and natural gas industry, in a variety of roles. He has spent the last 20 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david.blackmon@shalemag.com.

MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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POLICY

A History Worth Repeating By: Bill Keffer

T

he story of oil and gas in the United States is the story of how the Industrial Revolution shifted into warp speed when it suddenly found an energy source that was not only abundant and cheap, but was also significantly denser and more powerful than any previous alternative. With the advent of automobiles and the internal-combustion engine, there immediately became an enormous market for gasoline, one of oil’s chief byproducts. World Wars I and II were so incredibly dependent on the oil being found and produced throughout the nation, but most especially in Texas, that it has become a principal observation about those time periods that the Allies “floated to victory on a sea of oil.” The myriad applications of oil and natural gas in our supercharged economy since that time are impossible for anyone to fully comprehend. From the fuels used by our airliners, interstate truck fleets, automobiles and military; to the energy sources for our power plants and electric grids; to the countless manufactured products, plastics and building materials that pervade every level and corner of our everyday life. That kind of story deserves an appropriate amount of awe and respect — and education, so we don’t fall victim to the kind of illiteracy that leads to forgetting just how our parents, grandparents and great-grandparents accomplished what they did and gave us what we have. While it is true that the generally recognized birth of the U.S. commercial oil industry is the well drilled by “Colonel” Edwin Drake near Titusville, Pennsylvania, in 1859, I would humbly propose that, when oil was struck near Spindletop, Texas, in 1901, the epicenter of the domestic oil industry moved to Texas, and it has stayed here ever since. Much like the popular bumper sticker, the oil industry might not have been born in Texas, but it got here just as fast it could. Since that time, Texas has had a rich history of substantial oil and gas production in just about every corner of the state. From the first wells drilled around Nacogdoches and Corsicana between 1860 and 1900 to Spindletop in 1901, to the North Texas fields in and around

Burkburnett and the near-West Texas fields around Ranger and Desdemona, to the tremendous East Texas field discovered in 1930 and the Permian Basin discovery begun in the Big Lake field by the University of Texas’ Santa Rita No. 1. Then there’s the more recent resurgence of tightshale gas and oil discoveries in the Barnett Shale, Haynesville Shale, Eagle Ford and — rediscovered for the umpteenth time — the seemingly endless number of formations comprising the Permian Basin. Throughout history, Texas has demonstrated over and over again that we are the undisputed champion of both oil and natural gas production in the entire U.S. Since the theme of this issue is the history of oil and gas in Texas, it is difficult for me not to approach that topic through the prism of my own personal experience. Despite growing up in Dallas, I spent a lot of time in the small oil boomtown of McCamey in Upton County, where I was born and where my mother’s family lived. That town was founded in 1925, when

George McCamey struck oil; and my mother’s parents struck out from Stephenville, where they were living at the time, to move to this boomtown and start a new life. It was a Wild West existence during those early years, where your best shot at law enforcement was self-help. In fact, one documented story describes how two alleged bank robbers were shot and killed by the Upton County Sheriff, only to find out later that the two unlucky fellows were oilfield workers who had been characterized as bank robbers because the Texas Bankers Association had a standing $5,000 offer for dead bank robbers, and the sheriff thought he had a clever idea. My father returned from World War II and took a job as the store manager in McCamey with the oilfield-supply company Continental Emsco, whose well-known logo throughout the oilfield was a green triangle. He proceeded to spend the next 45 years with the same company, living in San Angelo, Texas; Calgary, Alberta, Canada; Tulsa, Oklahoma; Dallas; Midland, Texas; and Houston. My own personal career veered onto the oil and gas highway when I took a job as in-house litigation counsel for the Atlantic Richfield Company (ARCO). ARCO had a fascinating corporate family tree, starting with the merger of the Atlantic Refining Company from Pennsylvania with the Richfield Oil Company from California. Along the way, ARCO acquired the Sinclair Oil Company and a host of other smaller oil companies, until it finally was acquired itself in 2000 by BP. Over the years, I have had the privilege and opportunity

About the author: Bill Keffer is a contributing columnist to SHALE Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He served in the Texas Legislature from 2003 to 2007.

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Throughout history, Texas has demonstrated over and over again that we are the undisputed champion of both oil and natural gas production in the entire U.S.

of handling cases in just about every producing state, including California, Montana, Kansas, Arkansas and Mississippi, and, of course, a hefty list of cases in Texas, New Mexico, Oklahoma and Louisiana. I have represented industry, and I have represented landowners; and, here’s a news flash — neither side consists exclusively of sinners or saints. I also have had the awesome opportunity to serve in the Texas Legislature as a state representative, which included a stint on the House Energy Resources Committee. One of the incredible revelations I experienced was that, out of 150 representatives and 31 senators, there were maybe five members who were truly conversant on oil and gas issues. I don’t think that number has improved any since my departure. Gov. Rick Perry appointed me to the Interstate Oil and Gas Compact Commission (IOGCC), where I continue to serve today. The IOGCC was created in 1935 in an urgent effort by the states to prevent President Franklin D. Roosevelt from taking over the national management and regulation of the oil and gas industry. It was a successful move back then; but that fight certainly hasn’t gone away. The oil and gas industry has a rich history in the U.S., especially in Texas. Now I teach law students about the law in this area. Here’s my course in a sentence: “Oil and natural gas made our country and state great — any questions?”

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MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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POLICY

From Railroads to Regulating Oil and Gas A BRIEF HISTORY OF THE RAILROAD COMMISSION OF TEXAS

H

ave you ever wondered why the state agency responsible for regulating the Texas oil and gas industry is named the Railroad Commission of Texas (RRC)? Don’t worry, you aren’t alone. While many have wondered, few know the history of the oddly named agency, which unsurprisingly was originally created to oversee railroads. In the 1800s, before oil and gas took its seat on the throne, railroads were king in Texas. Throughout the early to mid-19th century, tracks began proliferating across the state, bringing with them economic growth and vitality to small Texas communities. The need to regulate this growing industry, however, soon became apparent. In 1853, the Texas Legislature approved “An Act to Regulate Railroad Companies,” which required annual reporting, regulation of rates and liability for debt, among other provisions. Yet there was no one to actually oversee or enforce these regulations, and the rules were basically ignored. So, in 1891, the Texas Legislature created, through constitutional amendment, the Railroad Commission of Texas. Meanwhile, as railroads were approaching the height of their success and facing new regulation and oversight, elsewhere in Texas a new and different kind of success was inconspicuously bubbling out of the ground. In 1894, the first major oil discovery in Corsicana marked the beginning of the Texas Age of Oil, followed shortly by the iconic Spindletop gusher in 1901. Over the next several years, wildcatters and boomers lined the Texas landscape, feverishly drilling and abandoning wells with little regard for waste or pollution. Lawmakers attempted to pass rules conserving the state’s oil and gas resources but, as with early railroad regulations, the rules were rarely followed without an agency to provide oversight and enforcement.

Another issue for the fledgling oil industry soon bubbled up — transportation. The oil only had value if it made it to its market. In the early 1900s, the most common method of delivery to refineries was rail, which fell under the jurisdiction of the Railroad Commission. Over time, pipelines also emerged as a preferred mode of transportation for oil, and correspondingly the need to regulate pipelines emerged. In 1917, the Legislature designated oil pipelines as common carriers, giving jurisdiction and oversight to the Railroad Commission, as it was already regulating transportation of oil by rail. In 1919, the RRC was also granted authority over oil and gas production and the Commission’s Oil and Gas Division was officially created. The RRC’s regulation over the oil and gas industry didn’t truly set in until the 1930s, after it intervened and cut production in the East Texas Oil Field. Consequently, the Legislature clarified and reinforced the Commission’s authority to prorate production — entrusting the agency to conserve the state’s natural resources, protect correlative rights and prevent pollution. Since that time, the Commission has firmly maintained a leading role in the regulation of oil and gas in Texas. From the 1930s through the 1960s, the RRC was essentially responsible for setting world oil prices. In the 1950s, it is estimated that the agency controlled more than 40 percent of U.S. crude oil production and roughly half of estimated national proved reserves. The Commission is and has long been a world-renowned leader in energy regulation, and our regulatory framework has served as a model for oil and gas groups around the globe. Over the decades, the Railroad Commission’s involvement with railroads shifted from economic regulation initially to safety oversight. It eventually ended economic regulation in 1984; and in 2005, all remaining safety oversight was transferred to the Texas Department of Transportation. Today, the Railroad Commission of Texas has regulatory jurisdiction over the oil and natural gas industry, pipeline transporters, the natural gas and hazardous liquid pipeline industry, natural gas utilities, and the liquefied petroleum gas (LPG)/liquefied natural gas (LNG)/compressed natural gas (CNG) industries, as well as coal and uranium surfacemining operations. Additionally, the Railroad Commission is responsible for research and education to promote the use of LPG and natural gas as alternative fuels in Texas.

In 1919, the Railroad Commission was granted authority over oil and gas production and the Oil and Gas Division was created

About the author: Commissioner David Porter was elected statewide to the Railroad Commission of Texas on November 2, 2010. A certified public accountant and successful small business owner, Commissioner Porter has worked with oil and gas producers for nearly three decades, providing strategic financial advice and tax counsel. For more information about the Railroad Commission of Texas, visit www.rrc.state.tx.us.

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HEADSHOT PHOTO BY MICHAEL GIORDANO

By: David Porter, Texas Railroad Commission Chairman


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BUSINESS

The Big Deals That Made Big Oil WILL CHEAP OIL TRIGGER MORE MEGA-MERGERS? By: Scott A. Bayley

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companies dominated the industry, empowered by access to 85 percent of the world’s proven oil reserves. However, the nationalization of much of the world’s reserves ended this domination. Oil prices began to tumble in 1997, from $26 to under $11 by late 1998. It took a year for this 58 percent price drop to rebound, but prices collapsed again by 30 percent during 2001. Except for Shell and Total S.A., Big Oil’s roots are in Standard Oil. Standard Oil was formed by John D. Rockefeller in 1870 and became the first and biggest integrated oil company of its time, producing, transporting, refining and marketing oil in the U.S. In 1911, it was found guilty of monopolizing the industry, and a court order dissolved it into 34 smaller regional companies. ExxonMobil’s roots trace to four Standard Oil companies, including Standard Oil of New Jersey. Exxon and Mobil, the two largest descendants of Standard Oil, merged in 1999 in a historic $81 billion deal. Adjusted for inflation, the deal today would be $125 billion (see accompanying table.) Exxon defended the merger by citing price pressure on crude oil, the need for greater efficiency and new competitive threats overseas. Chevron descended from Standard Oil California. Its dramatic discoveries in Saudi Arabia helped the company to reach its current size. The company began exploring in Saudi Arabia in the early

SHALE OIL & GAS BUSINESS MAGAZINE  MAR/APR 2016

TK KURIKAWA/BIGSTOCK.COM

F

rom a peak of $107 per barrel in mid-2014, oil prices have dropped 75 percent to a 13-year low of $26 in early 2016. Market watchers are familiar with the ongoing fallout — idled rigs, slashed capital budgets, layoffs and bankruptcies. Another likely consequence of a stubborn price collapse is industry consolidation. This includes big companies buying smaller companies to gain access to energy resources. Some companies want to shed exploration assets or business units that are a drag on profits. For example, Chesapeake Energy has sold producing wells in Oklahoma, while Hess Corporation has gotten rid of its refining and downstream assets. Among the largest E&P company acquisitions has been Noble Energy’s $3.9 billion purchase of Rosetta Resources, WPX Energy’s acquisition of RKI Exploration & Production for $2.75 billion (plus assuming 400 million in debt), and Occidental’s $1.3 billion purchase of Three Rivers, all in the Eagle Ford or Permian Basin.  These transactions are dwarfed by the industry transformation of Big Oil at the end of the 1990s, when the number of super majors — the world’s largest non-state-owned oil companies, integrated from upstream exploration to downstream marketing — was reduced from 11 to six. In search of a competitive advantage, and with oil at its lowest price in 30 years, a flurry of mergers and acquisitions created ExxonMobil, BP, Total S.A., Chevron, ConocoPhillips and Shell. Before the 1970s, large oil


1930s, partnering with The Texas Co. (later Texaco). In 1944, this partnership became Arabian American Oil Company, or Aramco. But Chevron lost its favorable position in Saudi Arabia during the period of nationalization. It merged with Gulf Oil in 1984, the biggest merger ever at that time, and with Texaco in 2001. Shell began in the early 1900s by the merger of British Shell Transport (created as an oil shipping company in 1878) and Holland’s Royal Dutch (created in 1890 to explore oil in the Dutch East Indies). In 2005, as a result of major structural reorganization, the 100-year partnership was dissolved and a single company,

discoveries in Alaska and the North Sea. BP merged with Amoco in 1998 and acquired Arco and Castrol in 2000. These major oil findings and mergers and acquisitions helped the company to reach its current size. Total S.A. began as Compagnie Française des Pétroles, founded by the French government after World War I to implement a national oil policy. The company inherited a share of Turkish Petroleum Company, which had been seized as war reparations, upon the signing of the San Remo Treaty in 1920. The settlement gave the company access to oil fields in Iraq. Total S.A. became the first foreign oil company allowed back in Iran since the overthrow of the shah in 1979, sticking with projects there despite U.S. sanctions and opposition. Total S.A. merged with Belgium’s PetroFina in 1998 and its French rival Elf in 1999. ConocoPhillips has roots in another Standard Oil company, Continental Oil. It became the third-largest American oil company by the merger of Conoco and Phillips in 2002. In 2012, it shed its downstream sector in a spinoff of this business to Phillips 66. ConocoPhillips explained this restructuring as a move to optimize its portfolio, enhance returns and increase financial flexibility. ConocoPhillips continues to operate as an exploration and production company. The mega-mergers in the late 1990s and early 2000s created today’s super majors. It was rumored a year ago that Shell was taking a hard look at a staggering acquisition of BP. But talk of such a mega-deal was quieted when Shell announced its $70 billion acquisition of BG Group in an aggressive move to be the world’s dominant supplier of liquefied natural gas. There are fewer super majors today, which may make it harder for further consolidation among the world’s largest integrated oil companies. But history proves that the biggest oil companies always seek a competitive advantage from combining businesses when justified by price, strategic fit and cost efficiencies. The steep and rapid decline of oil prices in this current downturn may be the catalyst that again causes major changes in the oil industry.

The mega-mergers in the late 1990s and early 2000s created today’s super majors Royal Dutch Shell, was created. Shell did not merge with another international oil company in the late 1990s. However, in 2002, Shell purchased Enterprise Oil (the UK’s largest E&P company at that time) and Pennzoil-Quaker State (a motor oil company descendent of Standard Oil). Shell is now the world’s largest non-state-owned oil company. BP traces its history to Standard Oil Indiana (Amoco) and the predecessor of British Petroleum, Anglo Persian Oil, which was formed in 1908 to explore oil in Iran. The Iranian nationalization in 1953 took away two-thirds of the company’s production. The company responded by increasing output in Iraq and Kuwait, and developing new resources around the globe, including major oil

Scott A. Bayley, Founder and President of Houston-based companies Accumyn Consulting and Bayley & Company CPAs, has provided economic and financial advisory, valuation of complex securities and closely held business, and accounting services to corporations and individuals for over 30 years. To learn more about this author, visit www.bayleycpas.com.

MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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BUSINESS

The Billionaire’s Secret Purchase By: Alex Charfen

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very billionaire (not millionaire) I have ever known has one thing in common: They’re comfortable. I don’t mean the fuzzy slippers, nice couch, programmable thermostat kind of comfortable. I mean the private jet, personal assistant, full of “eccentricities,” they-are-who-they-are brand of comfortable. When I share this insight, people typically say something like, “Well, of course they’re comfortable. They’re billionaires.” But these people are missing the point. I’ve had relationships with billionaires going back more than 20 years. I’ve actually watched friends become billionaires, and I’m going to fill you in on a little secret: The billionaires I know who made their money in this lifetime started out relatively humble, and learned to find comfort long before they were billionaires (or even millionaires). I feel privileged to have been around them, because I was able to watch as they found ways to do less, but specialize more. I didn’t always understand billionaires and their “eccentricities.” I remember watching as a friend’s laundry was delivered to his home in elegant boxes. His clothes were folded and wrapped in tissue paper like they were brand new. To save time, he used a laundry service. I was 23 years old and could barely afford to do my own laundry, much less have someone else do it. I thought he was crazy. But the changes my friend experienced were dramatic. As he allowed people and services to do more for him, his income continued to rise exponentially. When I saw him a few years later, he had two people working at his house, a driver and a team of about 20 people in various roles around him. I still thought he was crazy. Then in my late 20s, I visited my friend again. We took a ride in his helicopter to see his new sailboat. Things had continued to change, only this time he had a team, drivers, pilots and a captain. Now, I’m embarrassed to admit it took me this long, but I had finally figured out how he was skyrocketing ahead: He viewed his time as more valuable than money. I had always known him to be relatively conservative with his money, but when it came to freeing up his time to focus on the important things in business and life, my friend spared no expense. Since he was a good friend, I asked him, “Are you ever embarrassed by how many people help you get through the day?” I will never forget how he looked at me. He was at first taken aback, but then leaned in like he was going to reveal the meaning of life. “It would have been irresponsible for me to do anything that one of my team members did today,” he said. “They would have been uncomfortable and worried. Each one of them is here for a reason, and many of them played a role in training and hiring each other. They know that the more they help me get accomplished, the more secure we all are, and the more we can grow our foundation. I have had this discussion with everyone on my team. They would think I was crazy if I got in the way.” My life changed that afternoon. I finally got it — every billionaire’s secret purchase is time. From that point on, I committed to building my own team and finding ways to get out of the way. I remember how hard it was to ask for help, but how easily it came when I did. As long as I was willing to provide my team with the protection and support they needed, I was never without help. By the time I met my wife, Cadey, I was 30 years old, had a maid, remote personal assistant, grocery delivery service, laundry service and a car detailer, and went to a full-service gas station. I was also running a consultancy with a strong team that was incredibly productive. I had learned to buy time.

At first, Cadey thought the team and support structures were weird. Then she became an entrepreneur herself, and we started working together. Our combined acceptance of and reliance on our team, and our willingness to view time as a precious currency, created even greater levels of success for both of us. We were able to put our company on the Inc. list of fastest growing companies in America three years in a row, won dozens of awards and have become independently wealthy. We know that the only way we got here and have any chance of staying here is to provide all the protection and support we can for our team, and get out of the way. We advise every business leader we work with to buy time, far before they think it is even possible. The on-demand economy makes it easier than ever to buy more time: hire a private driver with Uber, get your groceries delivered with Instacart and ask your personal assistant for a favor with Favor. Need a private jet? There’s an app for that. There’s a lot of talk around being laser-

He viewed his time as more valuable than money focused, but I have found that entrepreneurs and business leaders have a hard time attaining it. So here’s the formula: Increasing the protection and support around you will lower pressure and noise in your life so you can focus solely on what you do best. This will allow you to do the same for your team so that together you can all make your greatest contribution to your business, your customers and the world.

Alex Charfen is co-founder and CEO of CHARFEN, a training, education and consulting organization for entrepreneurs and small businesses. For more information, visit www.charfen.com.

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LIFESTYLE

B&B Butchers & Restaurant

Inside the renovated industrial building, built in 1924, one finds exactly what you’d expect of an old-school steakhouse

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&B Butchers & Restaurant is the brainchild of Restaurateur Benjamin Berg. Born in New York City, Berg spent most of his restaurant career working for upscale steakhouses in key markets including Las Vegas, Mexico City and his hometown. Berg moved to Houston with a vision to bring an old-fashioned steakhouse and butcher shop to the city’s vibrant food scene. He scoured the Houston real estate landscape to find the perfect venue for the unique concept before finally settling on the historic Dittman Bakery building on Washington Avenue, just minutes from downtown. B&B Butchers & Restaurant opened its doors in May 2015, and patrons have been enjoying a dynamic and elegant dining experience and a classic steakhouse menu ever since. Inside the renovated industrial building, built in 1924, one finds exactly what you’d expect of an old-school steakhouse: exposed brick, period lighting, white tablecloths and exceptional customer service. The bar areas on both floors offer a full selection of local and global spirits, beer, cocktails on tap and an evolving, handpicked wine list. Known for its in-house, dry-aged USDA prime steaks, B&B also cooks up other signature dishes, including the Carpet Bagger on the Half Shell, wagyu carpaccio, Chef Tommy’s Bacon, bone-in rib-eye, châteaubriand and beef wellington, as well as an assortment of seasonal sides.

SHALE OIL & GAS BUSINESS MAGAZINE  MAR/APR 2016

PHOTOS COURTESY OF B&B BUTCHERS & RESTAURANT

Special to SHALE


Meanwhile, the Butcher Shop in the front of the building provides a complete bespoke butcher and delicatessen experience featuring thoughtfully sourced products from Texas and beyond. It specializes in custom hand-cuts and whole animal butchery, and also offers house-made and house-cured prosciutto, including hard-to-find items like Gourmet Tennshootoe from The Hamery in Murfreesboro, Tennessee. It’s not unusual to spot businesspeople from nearby downtown stopping in the Butcher Shop to grab fresh New York-style bagels and coffee for breakfast or gourmet sandwiches for lunch — all made daily in-house. Crowd pleasers include the traditional Pain Jambon and the B&B Italian Special, a luscious combination of ham, capicola, mortadella and provolone on semolina bread dressed with house-roasted red peppers and balsamic vinaigrette. Ken Laszlo, B&B’s Butcher and Operations Director, moved to Houston from New York City just to open the neighborhood butcher shop concept. He visits local farmers markets and meets many of his meat producers, meticulously researching each and every product brought across the Butcher Shop threshold. Each steak served in the restaurant is dryaged on-site and hand-cut by the seasoned B&B butchers.

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B&B Butchers & Restaurant is located at 1814 Washington Ave., Houston. For more information, visit www.bbbutchers.com or call 713-862-1814.

MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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LIFESTYLE

All-Natural Treatment for Beautiful Skin

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e all want younger-looking, glowing, smooth, acne-free and wrinkle-free skin. However, not all of us are born with it. So how do we get that naturally beautiful skin? Fortunately, there are facial services given by experienced, knowledgeable aestheticians. A facial deep-cleans, exfoliates and nourishes the skin, promoting a healthier, clearer, well-hydrated complexion and helping your skin look younger. Facials work best

Organic Spa Houston is the skin spa destination providing unique skin care services and nontoxic cosmetic products that enhance your skin’s health, your physical appearance and your mental relaxation. 56

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when they are part of an ongoing program of skin care treatments. Organic Spa Houston is the skin spa destination providing unique skin care services and nontoxic cosmetic products that enhance your skin’s health, your physical appearance and your mental relaxation. When you step into the spa, close your eyes as you lay down, inhale aromatic essences and discover why customers love and trust Organic Spa Houston to renew their skin. The products used in the treatments are inspired by nature and drawn from traditional healing practices. Organic Spa Houston treatment protocols are created to rejuvenate, comfort and enhance

PHOTOS COURTESY OF ORGANIC SPA HOUSTON

Special to SHALE


everyday lives. As a skin care spa, Organic Spa Houston provides something invaluable: expertise. It is the spa’s goal to help your skin become healthier, feel good and look good — organically! From moderate to deep skin restoration, the curated menu of signature organic facials will lift your skin to a new level of health. Potent antioxidant multivitamin facials gently replenish and moisten your skin to a whole new level of health. What makes Organic Spa Houston stand out from other spas in the city is that it specializes in skin care. Each skin treatment is personally tailored to meet your skin’s needs, including anti-aging, anti-acne and anti-stress facial therapy. The spa finds that beauty, regardless of age, responds to the harmony between the instruments, products and hand movements of its aestheticians, who are trained by the world’s most prestigious qualification standards in the field of aesthetics and beauty therapy. Organic Spa Houston is an international CIDESCOaccredited beauty and spa therapy center.

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5600 Broadway Avenue • San Antonio, TX 78209 KingRealtors.com tabitha@kingrealtors.com MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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COMMUNITY

Where Texas History Began

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rom the first inhabitants of the Coastal Bend region, through the many settlers who lived and prospered from the land and sea, the Museum of the Coastal Bend (MCB) displays both permanent and temporary exhibits for your enjoyment and educational purposes, including Where Texas History Began, a permanent exhibit on the last 13,000 years of Texas history. Located in Victoria, Texas, on the Victoria College

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campus, the MCB’s mission is to enhance the appreciation and enjoyment of the region’s heritage. Perhaps one of the most important permanent exhibits on display is not exactly inside the museum walls — it actually lies quietly enjoying the coastal breeze in the lower Guadalupe River valley. Museum research teams have worked with local landowner Invista Corporation to preserve one of the oldest cemeteries in the United States, the Buckeye Knoll. Dating back to about 5,300–4,200 B.C., the cemetery is believed to have held at least 200 individuals along with their many artifacts, surprisingly revealing the existence of a cultivated and teeming Early Archaic culture. Research continues to unveil new information, as the U. S. Army Corps of Engineers undertook a project in 2000–2001 to widen and deepen the Victoria Barge Canal, which runs through the lower Guadalupe River valley connecting industrial plants south of Victoria to the Intracoastal Waterway. Research teams were given time to conduct archaeological investigations; and in April 2006, all human remains and goods were reburied thanks to the agreement between the Lipan Apache Band of Texas and the Invista Corporation. More information on how these findings have given new life to the history of the hunter-gatherers living on the South Texas Plains can be found within the walls of the museum. Surely the cynosure of the museum, the permanent exhibit Fort St. Louis Cannons features seven of the eight iron cannons brought to Texas by the French explorer La Salle. The cannons were discovered in 1999 about 20 miles away. The craftsmanship and ingenuity in building these weapons truly has to be admired in person. Randy Vivian, the President/CEO of the Victoria Chamber of Commerce, says, “People come from all over the state to visit. It shows our history and our story.” MCB strives to bring the past to life, offering group tours, including guided tours for students, which are conducted Tuesdays–Fridays from 10 a.m. to 3 p.m. Visit www. museumofthecoastalbend.org/groups to schedule your group tour. Several captivating activities may be included in your guided tour such as throwing spears, loading cannons, using stone tools and participating in intriguing scavenger hunts. MCB is very proud to be a member of the La Salle Odyssey Project, a cooperative venture of seven Texas Gulf Coast museums. Each participating museum tells a segment of the story of French explorers in Texas captained by RenéRobert Cavelier, Sieur de La Salle. Temporary exhibits may be explored throughout the year, keeping each visit exciting and fresh. Check the Museum of the Coastal Bend’s events calendar for the latest exhibits and events, including Hands on History, taking place March 19 and April 23. Visit www. museumofthecoastalbend.org/events for more information. Admission is “pay what you want” and always free for museum members. For more information on membership options, visit www. museumofthecoastalbend.org/memberships.

For more information on Where History Began, contact MCB Director Sue Prudhomme at 361-582-2436 or sue.prudhomme@victoriacollege.edu.

SHALE OIL & GAS BUSINESS MAGAZINE  MAR/APR 2016

PHOTOS COURTESY OF VICTORIA COLLEGE

Special to SHALE


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SCENE

Cover Party

PHOTOS COURTESY OF SHALE

The January/February cover party honoring Sharon Spurlin of Plains All American Pipeline LP was buzzing with networking! We had a great turnout to hear from our esteemed speakers: Omar Garcia, President of STEER, David Porter, Chairman of the Railroad Commission of Texas, Kym Bolado, Publisher of SHALE Magazine, and, of course, the guest of honor. Guests conversed and enjoyed cocktails and appetizers at The Palm restaurant in Houston on February 18.

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MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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SCENE

SA to DC Representatives of various industries in the San Antonio area gathered and traveled to Washington, D.C., to speak with legislators on topics that affect the Lone Star State. SHALE Publisher, Kym Bolado, along with Omar Garcia, President of STEER, and Chris Ashcroft, Vice President of STEER, discussed oil and gas topics with the elected officials such as Congressman Will Hurd, Congressman Brian Babin and Speaker of the House Paul Ryan.

This year marks the ninth successful Coalition Blowout, in which nine local petroleum-related organizations/societies receive student scholarship donations. The organizations/societies are: South Texas Geological Society (STGS) San Antonio Geophysical Society (SAGS) San Antonio Chapter of the Council of Petroleum Accountants Societies (COPAS) San Antonio Chapter of the American Petroleum Institute (API) San Antonio Association of Professional Landmen (SAAPL) San Antonio Chapter of the Society of Independent Professional Earth Scientists (SIPES) Central Texas Chapter of the American Association of Drilling Engineers (AADE) Desk & Derrick Club of San Antonio (D&D) Balcones Section of the Society of Petroleum Engineers (SPE)

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PHOTOS COURTESY OF THE SAN ANTONIO HISPANIC CHAMBER

Coalition Blowout


MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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SCENE

BHP Billiton Press Conference

PHOTOS COURTESY OF BHP BILLITON

BHP Billiton held a press conference to discuss the issue of transparency in chemical usage, water consumption and quality, waste management, emissions and community impact. The company discussed a scorecard with ratings on companies involved in fracing activities released by the Investor Environmental Health Network (IEHN). For two years running, BHP Billiton has ranked first among other companies. Scoring 32 out of a possible 39 points on the recently released scorecard, BHP Billiton feels it and other energy industry companies are improving their policies to reflect the need for transparency and social responsibility.

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SHALE COVER PARTY SHALE OIL & GAS BUSINESS MAGAZINE

OIL & GAS BUSINESS MAGAZINE

MARCH/APRIL 2016

RELIANT PRESIDENT DISCUSSES POWER IN TEXAS

WHERE TEXAS HISTORY BEGAN:

MUSEUM OF THE COASTAL BEND

ENERGY EDUCATION IN TEXAS FACES CHALLENGES

WILL CHEAP OIL CAUSE MEGA-MERGERS?

B&B BUTCHERS & RESTAURANT: AN OLD-FASHIONED STEAKHOUSE

A RICH TEXAS HISTORY WORTH REPEATING

SEA OF CHANGE: PORT OF

VICTORIA

CELEBRATING MAR/APR ISSUE

featuring

PORT OF VICTORIA

BHP BILLITON RANKS FIRST IN TRANSPARENCY AND ENVIRONMENTAL BEST PRACTICES

FOR INFORMATION ON HOW TO GET INVITED, CONTACT LAUREN@SHALEMAG.COM

OIL & GAS BUSINESS MAGAZINE

WWW .SH ALEMAG. COM MAR/APR 2016  SHALE OIL & GAS BUSINESS MAGAZINE

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TRAIN ELEVATE NETWORK The go-to resource for oilfield service providers, suppliers and manufacturers.

Get connected at PESA.org. 66

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SHALE Oil & Gas Business Magazine Mar/Apr 2016