This post is also available at my LinkedIn page.
As soon as I walked out of the NRG Center in Houston after the last portion of my July ’13 bar exam, those in the immediate vicinity might have heard a “whoosh” noise – that was the sound of my immediately ejecting 95% of bar study material out from my head, presumably never to be needed again. It’s interesting to look back in hindsight at what I was good at, bad at, and laugh at tested material I never anticipated seeing in practice. Case in point, I remember doing my one day of bar review on something called “oil and gas law;” having gone to law school in New York, this topic was not regularly debated over water cooler discussion in the law review office (full disclosure, I am pretty sure I did not bomb by oil and gas law essay on the exam – I think?). As an alternative example, Civil Procedure was anathema to me – no matter how hard I tried, its myriad rules just did not want to stick in my mind. Obviously the basics I still remember, but the nuances and subtleties might as well have been in Swahili in my review materials. On the whole, though, I think I retained most of the broad frameworks surrounding these areas of law, which has helped me at different times subsequently.
My efforts to keep myself solid on “legal basics” in areas I don’t really deal with regularly came in handy last week, though, and reminded me of the value of having the fundamentals in your craft down even if they don’t necessarily apply to your specialty. In reviewing some courthouse records to solidify title for a particular assignment in Upton County, I saw that the materials including a case commenced about a decade ago yet still unresolved – this case was a lease royalty language dispute, and of course the file was pretty huge. Anticipating myriad exhibits and other explanatory materials, I instead found the file to be 95% pleadings and procedural motions – the “Civ Pro” part of my brain awoke and cried out, as if millions of my brain cells cried out in terror and were suddenly silenced. There were impleader and intervention motions galore, which I was able to deftly navigate, more or less; my advantage in having some clue about these Civ Pro filings worked and what they meant allowed me to dispatch with the case certainly much faster than a regular title abstractor would have been able to.
The above story is not really important, but it does give a bit of color to my overall point that, whether you are starting out or rather experienced in a certain field, having the knowledge and ability to handle the tasks/info that falls into the “basics” category will distinguish you as someone who can get the job done. For the rookie, having the basics down will demonstrate a desire to improve professionally and commit to providing good work-product; for the vet, having the basics down demonstrates a lack of complacency and a desire to make sure his or her foundation is solid enough to support the added weight and height of greater skills and development. It seems simple, and it is – but imagine a limo driver who didn’t know the local layout of streets, a carpenter who didn’t know what types of wood are better for certain work, or a quarterback who didn’t understand the core tenets of his coach’s offense. All of the “extras” that you bring to the party don’t mean nearly as much if it’s without a sound foundation consisting of the basics.
This post is also available at my LinkedIn page, available here.
Like most of my oil industry readership, I see WTI crude oil prices as a proxy for its overall health and robustness; lower prices = less “healthy,” higher prices = more “healthy.” We have all watched oil prices crater to an unsustainably low ~$26/bbl and have been urging it higher ever since. Like you, there was a sense of significance (at least to me) when oil futures contracts broke the $50 barrier. It’s been an impressive run, to effectively have doubled in price from the lows only several months ago. In fact, it’s impressive enough to warrant further analysis.
The biggest takeaway that I would impress on anyone is that the current foundation underlying recent bullishness in oil prices is, shall we say, akin to a well-developed game of Jenga. Demand forecasts have been OK, but the real strength has come from supply disruptions (Nigeria and Fort Stockton, mainly, and potentially Venezuela in the near future). Supply disruptions are generally not long-term prospects, and if/when some or all of them are ameliorated – or when other countries step in to fill those missing marginal barrels – the storyline of burgeoning supply will probably take hold once again. In addition to this, there has been industry chatter and statements (see, e.g., Scott Sheffield’s recent comments regarding their view of $50/bbl oil) that shale oil will up production once $50 seems like it will hold. I imagine that most producers will exercise due prudence in letting the market “tell” us, so to speak, if it is ready for production increases; however, any that jump that gun in a meaningful way could upset market upside.
Ultimately, I think that watching how oil pricing reacts to certain market events will be an accurate temperature of what the market really thinks, in terms of overall bullishness and bearishness. Whenever some bad news hits the market, if oil prices can hold against the downward pressure that would go a long way towards demonstrating that the oil markets are more optimistic than the overall narrative currently indicates.
Per the Dallas Morning News (amongst other myriad news outlets), it appears that a measure to ban hydrofracturing bans is only a matter of time and ceremony, as Texas Governor Greg Abbott is expected to sign off on the bill that has been paraded through the State Capitol and easily passed both legislative houses. The subject has been one of much contention and has come to a head in recent months, as Denton, Texas residents had voted to authorize a hydrofracturing/”fracking” ban within municipal limits. The article points out that this legislation would also put a kibosh on ordinances addressing underground activity, such as wastewater disposal wells.
Without getting too political, it is certainly interesting to watch a state whose citizenry and politicians largely oppose the federal style of government and would profess states’ rights (or a small-c confederacy) bend over backward to bend their true political beliefs to accommodate the oil industry, but that is for political scientists and pundits to dissect and debate. The move has been made to protect the oil and gas industry in the state, clearly; but, it also preserves the exploration and mineral rights of those interest owners who believe that they have the right to harvest those resources.
It is no surprise, then, that the standard upon which potential and enacted municipal ordinances will be measured under this forthcoming law is not only one of reasonability, but “commercial reasonab[ility’.” This gives courts immense discretion in determining whether or not a town’s ordinance impinges on oil and gas industry activities. One would imagine that barring a devastatingly damning congruence of facts, that Texas courts will be hesitant to impose great burdens onto the industry.
Tangentially, it is interesting that a more liberal and federal-leaning state such as New York has used the process of cramming a ban on high-volume hydrofracturing down the throats of all state citizens, yet Texas, which is arguably diametric on many political issues, is about to use the same process to cram its own version of a ban, which itself bans any fracking bans. The juxtaposition is certainly interesting.
Expect much litigation in this space, with courts being highly reluctant to bring the hammer against the industry at large. I dare say that any decisions against the oil and gas companies and/or operators will be disclaimed as to that particular entity too, unless either 1) the transgression is severe enough to warrant industry-wide change, or 2) altering the action or behavior that caused the transgression would not be financially or logistically onerous.