Ax to Grind

by Lauri Goodman Lampson

Planning Design Research Corporation

Everyone talks about the knowledge gap – or better yet, the cavern – that exists in the energy industry.  It’s been written about and discussed in countless forums, many of which emphasize the importance of knowledge sharing and improved collaboration between those on their way out and those on their way in.

Improving collaboration comes in many different forms.  For some in the oil and gas business, collaboration has come by breaking down walls, literally, to get personnel out of enclosed, private offices and into workplace settings where knowledge can truly be shared.

If you’re thinking of transforming your workplace and doing away with private offices, don’t think of it as a move to an “open” workplace.  And it’s certainly not a move to “cubicles.”  Instead, think of your transition out of private offices as a move toward creating a more collaborative environment. 

That doesn’t mean the process is easy.  Transitioning employees out of private offices is never a popular decision, even if the change is beneficial to the organization. 

Against this backdrop, here are five of the more critical steps oil and gas companies should take when considering a transition from a private office workplace.

1.  Get your employees involved in the transition.  Create teams where impacted personnel can have a say.  Give them choices in their personal workspaces, create focus groups and challenge your employees to solve issues associated with the change.

2.  Create a model workspace.  Use a controlled space to set up what a new workspace will look like, down to the smallest detail.  Set up times for employees to experience the model.  Demonstrate how the new workspace can be customized to their needs and how it will help them work better as a team.   

3.  Offset the takeaway of private space with givebacks.  Consider ergonomic furnishings, improved technology tools, more access to natural light, or a more appropriate environment that better supports the work.  The transition out of private offices may allow for greater workplace flexibility, additional amenities or a better location.  The transition will be easier if employees are convinced there is something in it for them. 

4.   Measure the success of the change.   Conduct pre and post-occupancy surveys to measure how employees feel about the transition. You’ll be surprised how much you’ll learn, particularly from comments taken before the transition.  Just one reminder, conduct your pre-occupancy survey early enough to actually incorporate suggestions into your workplace transition.

1. Communicate, communicate, communicate.  Clear enough?  Hold regular Town Hall meetings where on-the-spot questions are addressed. Keep your messages clear, positive and consistent. Make sure your workers understand the business reason for change and how it will positively impact every level of the organization — from top management all the way down.  

Improved collaboration is a management issue, not an architectural one.  If you’re going to transition your organization out of private offices, then do it for the right reason.  You’ll be amazed at how quickly you’ll shore up your company’s knowledge gap.

Lauri Goodman Lampson, lglampson@pdrcorp.com, is a veteran workplace designer with Planning Design Research Corporation, a corporate architecture firm which creates high-performance work environments for energy companies and organizations of all sizes.

by Jim DeLoach

Risk oversight is a high priority for boards of directors.  Many boards are taking a hard look at their membership, how they operate, the committee(s) to which risk oversight responsibilities have been delegated, and whether their operations and the information to which they have access are conducive to effective risk oversight.    

Key Considerations

“Risk oversight” describes the board’s role in the risk management process.  The risk oversight process determines that the company has in place a robust process for identifying, prioritizing, sourcing, managing and monitoring its critical risks and that that process is improved continuously as the business environment changes.  Through the risk oversight process, the board (1) obtains an understanding of the risks inherent in the corporate strategy and the risk appetite of management in executing that strategy, (2) accesses useful information from internal and external sources about the critical assumptions underlying the strategy, (3) is alert for organizational dysfunctional behavior that can lead to excessive risk taking, and (4) provides input to executive management regarding critical risk issues on a timely basis.  In summary, risk oversight is the process by which the board and management develop a mutual understanding regarding the obstacles the company faces as it executes its business model. 

Questions for Boards

Following are some suggested questions that boards of directors may consider, as appropriate to the entity’s objectives, as they seek to clarify their risk oversight responsibilities:

·         Is there a robust process in place for identifying, prioritizing, sourcing, managing and monitoring the enterprise’s critical risks in a changing operating environment?

·         Do we understand the risks inherent in the corporate strategy?  Is there a sufficient understanding of the significant assumptions underlying the strategy and is a process in place to monitor for changes in the environment that could alter those assumptions?   

·         Are we and executive management on the same page with respect to how much risk the entity is willing to accept and the risks the entity should avoid (i.e., the entity’s risk appetite)?  Is there sufficient dialogue enabling appropriate and timely board input to executive management on the risks undertaken? 

·         Are policies in place for managing significant financial and commodity risks on an enterprisewide basis?  Has management quantified the loss exposures involving these risks and prepared response plans to address multiple future scenarios? 

·         If new and complex risks emerge, are the appropriate expertise, processes and information brought to bear to ensure that there is an understanding of the emerging risks and their implications to the enterprise’s strategy and business model?

·         Is the board receiving the information it needs to foster effective risk oversight?  Is there sufficient agenda time for discussing the enterprise’s risks with the appropriate individuals?   In what areas does the organization need to improve its capabilities and information for managing risk? 

·         Does the organization have a process for thinking about the “unthinkable”, i.e., the plausible scenarios that could occur over the time horizon covered by the corporate strategy and business plan?  Has management considered how the entity would respond should any of these scenarios occur?  Has considering these scenarios created awareness of the forces affecting the organization in the present that can make it captive to events in the future?    

·         Are the enterprise’s “tone at the top” and culture conducive to effective risk management?  For example, does the compensation structure reward short-term risk-taking without taking into account the potential longer-term effects on the company?  If there is a chief risk officer, does that individual have the right skills and is he or she positioned to be successful?  Does he or she provide the board with timely information about the company’s risks?  Does the board avail itself to the appropriate officers of the company and the requisite expertise needed to oversee the key risks the enterprise faces?  Is it clear that executive management will pay attention to the warning signs posted by the risk management function at the crucial moment? 

As the board organizes for, and allocates time and resources to, risk oversight, it should consider the above questions.

Jim DeLoach is Protiviti’s Managing Director responsible for the firm’s Governance Services and Enterprise-wide Risk Management.  He is chair of Protiviti’s Sarbanes-Oxley Act PMO, co-author of Managing business risk: An integrated approach and of numerous articles on business risk assessment and management.  His book, Enterprise-wide Risk Management: Strategies for linking risk and opportunity, was the first written on the subject of enterprise risk management.  Jim served on the COSO Advisory Board on the Enterprise Risk Management – Integrated Framework, and has delivered numerous presentations on risk management to companies and groups in 26 countries.  Additional information about his, and Protiviti’s, views on risk management and board risk oversight responsibilities are available at http://www.protiviti.com/en-US/Pages/default.aspx.  Jim can be reached at Jim.DeLoach@protiviti.com.

By Karen Naumann, APR

Communication professionals should manage communications function. Too often, engineers, geologists, administrative assistants, and other non-communication professionals are assigned the responsibility of public relations…However; the communication field has evolved into a complicated, highly specialized field that can produce mission critical outcomes.

As a management function, professional business communicators:

• Anticipate, analyze and interpret public opinion, attitudes and issues that might impact, for good or ill, the operations and plans of the company;
• Counsel management at all levels with decisions, courses of action and communication, so as to take into consideration their public ramifications and the company’s social responsibilities;
• Research, on a continuing basis, programs of action and communication that informs of the success of an organization; and
• Plan and implement efforts to influence or change public policy.

To do this successfully, a fundamental knowledge of communication theory and its applications, advance research capability, strategic planning, implementation and evaluation techniques are required. None of which is part of a science-rooted education.

While longer-established specialties within the communication field, such as advertising, are understood by non-communication professionals, other niche communication areas, such as public relations are not. Public relations is not synonymous with publicity, which is actually a small subset and specialized discipline within public relations. And, it is not practiced by spin doctors or flacks. Public relations is even more than managing the flow of information between a company and its stakeholders, the communications discipline engages and informs key audiences, and builds important relationships. It has a real, measurable impact on the achievement of strategic goals.

The outcomes achieved by professional communicators, such as public relations practitioners, are critical to the success (or failure, if done poorly) of a company. For example,

• Awareness building;
• Organizational motivation, which builds morale, teamwork, and productivity;
• Issue anticipation, which gives early warning of issues, change, and unrest;
• Opportunity identification of new markets, services, products, methods, allies, and positive issues;
• Overcoming executive isolation, which enables realistic, competitive, enlightened decisions; and
• Social responsibility, which enhances economic success through trust.

These outcomes are delivered through strategic plan development that produces measurable results from specific objectives that are directly tied to business goals. Strategies, such as the following, are often part of a professionals strategic plan development:

o                    Event Planning – detailed, creative, and advanced planning and management of events that promote client objectives, control costs, and initiate newsworthy activity;

o                    Advertising – information placed in the media as an identified paid sponsor of time and space;

o                    Media Relations – use of the media when communicating with a client’s public;

o                    Issues Management – proactive anticipation, identification, evaluation, and response  to relevant public policy issues;

o                    Community Relations – positive involvement within the community; and

o                    Training both presentation (prepare designated spokespeople to become confident, effective presenters that are essential when attempting to acquire prospective clients and selling in other business situations) and media interviews (preparation of clients for a successful interview with various members of the media).

The above focus heavily on public relations, which tends to be the most misunderstood communication specialty. But other specialties warrant a clear definition as well. Below are well-known definitions put forth by Cutlip, Center and Broom.

Marketing is the management function that identifies human needs and wants, offers products and services to satisfy those demands, and causes transactions that deliver products and services in exchange for something of value to the provider.

Advertising is information placed in the media by an identified sponsor that pays for the time or space. It is a controlled method of placing messages in the media.

Regardless if the responsibility is public relations, marketing or advertising, it is unfair and unrealistic to expect a geologist, engineer or administrative assistant to manage successfully the role of communication, much less produce positive outcomes. It also puts a company at an unfair disadvantage. So, when reviewing the org chart, make sure you have the right communications people on the bus - and in the right communications seats (apologies to Jim Collins).

Karen Naumann is a Partner at Magnolia Sky Communications and a member of the Public Relations Society of America.

By C. Paul Davis

The sooner the key world oil players (oil company executives, consultants, advisors, economists, and my barber) come to an agreement on the world’s oil energy supply the better.  This includes Pro-Peak Oil advocates and Con-Peak Oil advocates.  Today, we have confusion where we need clarity. Today, we have disagreement where we need agreement.  Today, we lack an honest energy plan where we need a “real” plan. A plan we can agree on and one that will work. 

Oil energy has only been with us for a short period of time (150 years), but it creates over 40% of the world’s total energy supply.  In fact 70% of this oil energy is used to produce gasoline or various distillates to meet today’s transportation needs.  Without enough oil (meaning enough oil supply to meet today’s world oil demand) everything could come to a screeching halt–figuratively and literally.  

The world won’t run out of oil any time soon, but it is slowly running out of plentiful cheap oil.  For all intents “cheap oil” is gone forever.

Also, if we don’t have enough oil to make gasoline for our cars or fuel for our planes, trains, buses and trucks, where are we going to find the oil that we need to produce over 300,000 consumer products we use and need every day of our lives?

I want to believe so much that “unconventional oil and bio-fuels” will make up the short fall in oil supply, but based on what I know it can’t happen today because of costs, a lack of land, destruction of the environment (land, air and water), and excessive need for our valuable water resources.  Also, the Energy Returned on Energy Invested (EROEI) challenge must be addressed and solved.   Right now unconventional oil requires more energy than the energy it produces. This is a far cry from the high EROEIs (20:1 or greater) we historically experience with conventional oil.  

Even though I have personally come to accept Peak Oil as a reality based on my extensive study and due diligence over the past four years, at the same time, I want to be wrong – dead wrong – because the consequences are too dire, if Peak Oil is for real.

It is time for all of the major oil producing countries (particularly OPEC countries) to provide accurate and documented evidence regarding the magnitude of their oil reserves and the physical status of their oil fields. If we really wanted to know how bad the oil situation really is or, alternately, how really good the situation is, the information could be made available if there was a global sense of cooperation.  The nice thing about telling the truth is that you don’t have to remember what you said—the facts are the facts.  The time for truth has arrived or we as a country, and the world more generally, are going to go blindly down the energy road not knowing what lies ahead.

Comprehensive studies undertaken by Messrs. Hirsch, Bezdec, Wending, and others found that it will take at least two decades to build the infrastructure and implement the requisite major changes in moving from oil energy to alternative forms of energy and we are just barely getting started. 

If the Obama Administration would make finding a solution to oil energy a high priority, I know the scientists and engineers of our country could invent or find some viable answers to the current world energy crisis.  As I write these words, I fully realize that there are some well-known and respected people in the energy world who will state emphatically (and often) that we don’t have an oil energy problem and we have enough oil for at least the rest of the 21st Century.

Whether the debate is global warming or peak oil, I always ask one question of the people who say the world doesn’t have a problem in either area – “What happens if you are wrong?”  

C. Paul Davis is Senior Vice President Chairman – Advisory Board of Titan Oil Recovery 

Sharon Birkman Fink, President and CEO, Birkman International

Companies in every business sector today require a new generation of leadership.   Employees, customers, stakeholders and governments are taking an unprecedented, active role in decisions that previously were left to the company’s own leaders.  This new paradigm requires that businesses identify those persons in their organizations with high potential for leadership – strong leaders who are flexible, able to cope with change and can guide the organization in accepting and meeting the new demands that it faces. 

The most reliable and practical source of future leaders is the organization itself.  The only typical alternative is to hire away, at significant expense, the talent developed by competitors.  Tomorrow’s leaders may function in administrative management or on employee teams, and may currently fill staff or operational roles.  They are often diamonds in the rough and need to be found and polished, because, even though they understand their company’s business and culture, they may not be prepared to provide the fundamental leadership skills required to meet both internal and external demands.

Companies must begin the effort to identify employees with the requisite leadership traits early in their careers, so they can cultivate the capabilities of these individuals to advantage as the organization requires.  Different types of leaders are needed in different parts of the organization.  What motivates a sales team may be very different from what motivates a financial group.  There is no “one size fits all” solution, either by functional unit or by leadership style. Through personality testing that reveals and assesses individual strengths and weaknesses, companies can identify which of their current staff might have the natural strength or potential leadership style required in specific operations. Leaders can’t master all leadership styles, so the focus must be on the styles that best fit in each area. 

The good news is that basic leadership skills can always be further developed. Assessments can accelerate development by pointing up personal strengths and weaknesses and broadening leadership skills.  Objective methods that find the right fit of person and position will encourage high potential candidates to execute to the fullest of their capacities.  The next step is to provide training and organizational development to advance potential candidates into the right leadership positions.  The training focus should be on measuring and understanding whether the person’s personality traits mesh with specific leadership requirements, and then providing the appropriate mentoring and formal education/training.

Leadership qualities that make a difference in organizational performance can be found within individuals not previously tapped for leadership roles, and specially structured tools for personality assessment can often find these undiscovered leaders.  Personality assessments can economically identify where potential leaders are strongest and weakest, pinpointing the hidden assumptions, motivations or interpersonal styles that may inhibit growth and development.  By identifying which candidates have the potential to be leaders and the type of leader they are likely to be, personality testing establishes a systematic program for leadership development that can benefit the entire organization.

Once potential leaders throughout the organization are identified, individuals with the appropriate attributes to lead in specific capabilities – whether as a shift manager or a CEO – can be given training and organizational development to advance in leadership positions.  The focus of such training should be on measuring and understanding whether the person’s personality traits mesh with specific leadership requirements, and then providing the appropriate mentoring, structured socialization and formal education/training.

This kind of planned approach can spell the difference between an aligned and effective organization and one with a leadership and performance deficit.  Strong leadership in any organization is not a naturally occurring phenomenon.  Leaders need to be identified, skillfully placed in the right position and developed.  Such leaders will be best qualified to spur the improvements in quality and service that all employees must commit to in this era of accelerated global competition.  Better leaders mean better informed and connected employees who are more motivated and productive, and better able to meet the new standards of performance demanded of them.  And leadership potential can be learned, cultivated, honed and enhanced through effective training programs that use accurate personality assessment to identify and nurture employees with the most leadership potential.

 Sharon Birkman Fink is President and CEO of Birkman International, Inc. providing a unique assessment tool that accurately measures internal needs, behaviors, occupational preferences and organizational strengths. She can be reached at 713-623-2760 or sfink@birkman.com

The Birkman Method ® has used over 50 years by more than 2 million people and 5,000 organizations worldwide to guide their hiring, retention, motivational and organizational development activities.  For more information: www.birkman.com or 1-800-215-2760.

By: Sharon Birkman Fink, President and CEO, Birkman International

In the world of talent management, two primary tasks are:  identifying high-output performers and fostering methods to produce them.   For companies that have been faced with hard choices on whether to reduce their workforce and management ranks to match recessionary levels of business, it’s easy to lose sight of the fact that identification and retention of quality performers at every level remains the major human resource challenge.  Cutting first, without an accurate assessment of who the best performers are and how to keep them a vital part of the organization’s future, eliminates muscle and not fat.   Business conditions may already be turning from contraction to expansion, and the companies that have identified and nurtured their best talent will be best positioned to take early advantage. 

Identifying high performers is not an easy task. 

To manage a reduced workforce while still preserving the core human capital for future growth, human resource professionals need to identify and motivate the “keepers”, while dealing with those whose employment is being terminated.   “Retain and gain” is a viable strategy, when properly approached, and the right way to do this is by incorporating a personality assessment as part of a standardized human resources practice.

The best personality tests analyze and report what motivates workplace behavior, and identify the needs that drive behavior in positive and productive directions.  Testing describes desires, strengths, motivational needs and stress reactions for the individual and provides basic recommendations for developing skills when faced with varying environments and people. This helps individuals manage life and work situations in ways that fulfill their motivational needs, and reduce stress that can cause reactions that so often damage relationships and occupational effectiveness.  Tests can help the companies that use them fit employees where they will be most likely to succeed.

Of course, employee retention is not in itself the real goal.  Companies want to retain the right kind of employees, those with the drive and skills that will enable them to grow into greater responsibilities and make more contributions.  Here again, testing provides the crucial insight by offering basic recommendations for how employees can fulfill their motivational needs while best contributing to organizational success.  Testing identifies whether people work better alone or on a team, whether they prefer a structured or flexible work environment, whether they take initiative or need guidance, whether they think in terms of details or the big picture.  Each person will have his or her own strengths, weaknesses, productive behaviors and stress behaviors that may be similar to or differ from his or her peers. Personality testing identifies and brings those characteristics into focus.

Meeting the challenge to identify, build and retain the right people is a consistent effort that integrates personality testing to identify the best talent and training programs that grow the capabilities of these individuals.  Qualities that make a difference in organizational performance can be found within individuals not previously tapped for leadership roles, and specially structured tools for personality assessment can often find these undiscovered performers.  Personality assessments can show where potential top performers are strongest and weakest, pinpointing their motivations as well as subtle aspects of their style that can inhibit their growth and development. 

By identifying which candidates have the potential to excel and the type of excellent performers they can be,  personality testing makes developing leaders a systematic process, not a hit-and-miss effort that can be derailed by reductions in force.  Tests can help the companies that use them fit employees where they are most likely to succeed. The result is better job performance, making it more practical to identify and retain the top performers. This keeps the retention pipeline full with the people best qualified to spur the improvements in quality and service that every company will need in the competitive future business environment.

Sharon Birkman Fink is President and CEO of Birkman International, Inc. providing a unique assessment tool that accurately measures internal needs, behaviors, occupational preferences and organizational strengths. She can be reached at 713-623-2760 or sfink@birkman.com

The Birkman Method ® has used over 50 years by more than 2 million people and 5,000 organizations worldwide to guide their hiring, retention, motivational and organizational development activities.  For more information: www.birkman.com or 1-800-215-2760.

by Charles Dewhurst

It has been a bumpy road for E&P companies this past year, and more dips and curves lie ahead in 2010. The recession will to continue to have a negative impact on demand for oil and gas at least until 2011, according to more than half of CFOs at oil and gas E&P companies in a survey my firm conducted last month. 

But the situation isn’t all gloom and doom. While 45 percent believe access to credit won’t improve at least until 2011, another 40 percent say conditions will improve in the second half of next year. Capital access will remain a top financial challenge for CFOs next year, but it seems the situation is easing a bit. The promising news: almost half (47%) report banking relationships remain very strong. Only 19 percent say those relationships are strained, indicating most companies will be in a good position to bounce back when the environment turns around. Although most say capital spending budgets won’t get back to 2007 levels until 2011 or beyond.

Energy Policy Woes

A top financial concern weighing on the minds of CFOs for the year ahead: legislative changes. There is an air of skepticism about the Obama administration’s energy policies, especially with regards to cap and trade legislation and proposals to eliminate certain tax incentives. The U.N. Framework Conference on Climate Change taking place right now will put further pressure on the U.S. to push these legislative initiatives forward more quickly. But there are questions about how much weight it will really hold or its impact. Meanwhile, cities such as New York are passing legislation aimed at cutting greenhouse gas emissions and looking to impose energy audits every ten years for buildings bigger than 50,000 square feet to make ‘environmental tune-ups.’ If other cities follow suit, the impact could be greater than originally thought for oil and gas companies not involved in alternative energy.

Financial Challenges

Oil/gas E&P project delays increased during 2009 – 57 percent of CFOs we surveyed say they hits delays or terminated projects completely, compared with 26 percent at this time last year. The main culprits were poor project economics, lack of capital and equipment shortages or delays. The cost of oil field service production and equipment was also cited by more CFOs this year as their biggest financial challenge (9 percent versus 2 percent last year).

Low energy prices, particularly for natural gas,  present another major financial challenge for 2010. This will likely lead to less drilling activity, particularly in the non-conventional shale plays. However, the hope is that lower prices will stimulate world demand for energy and help to pull us out of recession.

As executives work to pull through the rough patch, shareholder eyes are on executive compensation, where scrutiny will continue to ratchet up. Legislative initiatives will put more pressure on companies to eliminate excess. The SEC is expected to announce soon additional details on compensation risk assessment discussions in proxy statements. Our survey found that the industry has been making progress on this front – more companies are tying exec comp programs more closely to performance, and reducing or eliminating executive benefits like SERPs.

So, will there be a return to normal in 2010? Probably not, but conditions are starting to clear.

Charles Dewhurst, a partner and National Energy Industry Practice Leader at BDO Seidman LLP

by Mike Hoff

Nation-states historically go to war for conquest, religious ideals, or old-fashioned imperialism. In our current economic environment, with dwindling natural resources and the faint hope of renewable energy unable to feed current demand, the next wars may very well be fought for oil.

In the last century, armed forces need a steady fuel supply or conquered oilfields to fuel the war machine. As the Cold War cooled, authors like Tom Clancy created fictional scenarios of war-like countries attacking oil-rich nations to fulfill their aggressive maneuvers around the world. And countries currently dependent on foreign oil imports, like Japan or Korea, are considered too fragile to mount a sustained attack on the international stage (should they so desire).

The problem in today’s world, is that the decreasing supply of petroleum resources – the Tupi discovery off Brazil notwithstanding – means that growing nations like China, India, southeast Asia, and even Mexico are discovering their GNP hindered by basic supply concerns.

To remedy this economic shortfall, the Chinese government has aggressively invested in exploration and extraction in Canada, Sudan, and other areas. Russia is increasingly dependent upon Western technology to extract more from harsh Siberian fields. And Brazil, previously reliant upon external nations - such as the mercurial government in Venezuela – is now able to stabilize its economy thanks to the Tupi find.

In the past, New World powers like the US, Russia, Canada, and to varying degrees, southeast Asian tigers like Malaysia, Indonesia, and India have been able to drill within (or nearby) to fuel 20^th century industrialization and growth. But they too are facing the specter of dwindling local supplies and the need to revise extraction methods – both technically and politically – to keep their nations warm and flourishing. For instance, India has abandoned its deep-rooted desire to subjugate Pakistan (for now) for the sake of the IPI Pipeline.

The possibility that nations will war for petroleum products is not a new idea by any means, and many of the current battles, on and off the field, are being fought for natural resources. As the old adage goes, there’s only so much land on the planet; as well as potable water, edible fish, swamplands, and so-on.

The problem for the next few decades is that money, trade, or old-fashioned charm will not be able to acquire the necessary stock. Many predict oil prices will rise to 2007 levels, due to dwindling supply, high demand (particularly China and India), and antagonism in key supply states (e.g. Iraq, Venezuela). It will become obvious to heads-of-state that the lack of this resource will impede economic growth, especially for Second World countries, and negotiation, technological advances, or wealth will not guarantee a steady supply.

These growing nations will certainly consider acquiring petroleum reserves by force when they are turned away for economic or political reasons (conflicting ideology, old grudges, national fear of sharing, etc.). The current incursion of American (Western?) forces in the Persian Gulf may be seen as the bungled manifestation of Good Ole Boy Foreign Policy. However, future generations may regard it as a necessary foothold in an oil-rich area, with a high-output port that local allies (i.e. Israel) cannot provide.

Battles for refined oil will be quickly exacerbated by those nation-states with imperialist or alienist agendas – and these nations number among the majority of the large producers. Countries that have long yearned to go to war with each other – Iran and Iraq, Pakistan and India, China and Taiwan – can easily hide their militaristic desires under the guise of securing future petroleum resources. Should all-out aggressions flare (again) in the Middle East, citizens will rejoice in the streets in Israel, Palestine, Jordan, Syria, Egypt, Iraq and Iran, that the battle has finally come to bear. This hatred and tribal pugnacity will inflame conflict in oil-producing nations, where there may have been temperance if the supply was more plentiful.

Military strategists will note that few of these conflicts can be successfully fought with merely conventional weapons – but the presence of the U.S., Russia, and China in tinderboxes such as the Middle East, north South America, and ex-Russian states will deter overly aggressive moves. It would be impossible for any Middle Eastern nation, for example, to lob a nuke at their “Western” enemy (Israel, Saudi Arabia, Kashmir, Turkey, etc.) without drawing the armed reprisal of Europe, Russia, or the U.S. (Note that China may be able to stand pat on many of these skirmishes – as long as it doesn’t threaten its peace-loving northern neighbours!). But populous growing nations like India and Russian can rely on million+ armies to carry the war back and forth across the region.

Not only will sabers be drawn and armed divisions deployed, the next generation will see environmental concerns in unspoiled areas of Alaska, northern Russia, Canada, and the coasts of Norway and Brazil discarded as secondary to the need for more petroleum.

It follows that a pessimistic historian could expand this scenario to suppose that all nations would take advantage of this Dwindling Resources War to bully weaker neighbours in Central America, Indonesia, Korea, the Baltic states, and all points of Africa - likely under the cloak of battling terrorism or supporting Freedom Fighters. Far more likely is large drilling platforms becoming military camps in Nigeria, Norway, Canada, Saudi Arabia (obviously), Kazakhstan, Venezuela, and the Gulf of Mexico; any attack from any side will be met with “extreme prejudice.” This state of military affairs would, conversely, leave oil-poor nations in South America, Northern Europe, Africa, and Australia (as usual) largely unaffected.

If oil-producing nations longing for war find themselves the envy of have-not neighbours restricted in their recovery from the current economic crisis, the long-term effects could mirror those of any popular doom-saying fiction writer: limited nuclear combat, population reduction, military occupation, and the forced redistribution of wealth.

Or, on the other hand, perhaps such fear-mongering and hawkish predictions are out of step with today’s global economy. Perhaps OPEC will show price restraint, people will lose their irrational fears of nuclear power, oil-rich nations will embrace democracy and abandon religious fanaticism, ethical grudges will heal, and a safe, renewalable power supply will be deployed across current infrastructure to support the wealth and happiness of over 6 billion people.

Mike Hoff works for the private consulting company, Hussar Innovations

by Marc Smith, IPAMS Executive Director

Last week, IPAMS released an analysis highlighting the irregularities in the Department of Interior’s (DOI) natural gas and oil leasing program.  The findings were significant and demonstrate a marked change at the DOI in regards to developing the vast amounts of domestic energy that lie beneath the public lands of the Intermountain West.

It has become clear that DOI is making it difficult for independent western producers to continue developing the clean natural gas our nation needs to reduce greenhouse gas emissions, backup wind and solar energy, and increase our energy security.  Western natural gas producers have a great answer for some of the most pressing economic and environmental challenges of our times – It’s the clean domestic energy we produce.  Natural gas can help clean up our air, keep our economy moving and reduce dependence on foreign oil. 

Interior Secretary Salazar has repeatedly stated that the Obama Administration is not “anti-oil and gas,” yet when it comes to Interior’s onshore natural gas and oil program, the record suggests otherwise. A series of Interior decisions has created uncertainty in the management of the onshore program, threatening the supply of domestic energy.

Developing American clean energy requires a partnership with government and community stakeholders.  We are all accountable to the American public to ensure that responsible development occurs.  As such, we don’t believe it’s unreasonable to ask the Department of Interior to explain the rationale for its decisions and express concern when trends are not headed in the right direction.

The management of federal energy resources has profound implication for the cost of energy, job creation, revenue growth and economic activity.   We were very encouraged to hear that Secretary Salazar believes ‘…it is important for the oil-and-gas industry to have certainty.” We look forward to meeting with Department of Interior to explore ideas about how America can more responsibly develop its federal energy resources.”

Click here to read IPAMS Position Paper: Irregularities in Interior’s Management of the Federal Onshore Natural Gas and Oil Program

About IPAMS The Independent Petroleum Association of Mountain States (IPAMS), founded in 1974, is a non-profit trade association representing more than 400 independent natural gas and oil producers, service and supply companies, banking and financial institutions and industry consultants committed to environmentally responsible oil and natural gas development in the Intermountain West. More information on IPAMS and its members is available at www.ipams.org.

By William O’Keefe

Setting a price on carbon emissions is, supposedly, the main objective of current efforts to pass national climate legislation. Yet, it’s hard to make an intellectually honest argument that the system outlined in the Kerry-Boxer bill would deliver that goal. In fact, it is a certainty that its 2020 goal cannot be achieved while maintaining a healthy economy. Given its heavy reliance on international offsets and the massive giveaways of free allowances, the proposed cap and trade scheme would actually send a mixed price signal — hindering the legislation’s very purpose. 

This predicament is not unique. In fact, a national energy dilemma that transpired 75 years ago has implications for the current Congressional climate policy debate.

In the 1930’s, the Roosevelt Administration faced a major problem with overproduction. This issue stemmed from a particular rule of resource ownership — the law of capture — which applied to mobile below-ground assets such as oil, gas and water. Under the rule, a person who extracted the resource could sell all he or she could pump, regardless of whether it may have migrated from beneath someone else’s land.

The rule promoted oil discovery, but also waste. Landowners surrounding an oil strike would quickly drill their own wells and begin to pump it out, in the process reducing the underground pressure that enabled easy development of the resource.

In the end, overproduction helped turn energy booms to busts and made a lot of America’s oil unrecoverable. The sudden rush meant “competitive suicide” for the oil industry, as independent and major producers pumped so much oil it was being sold below cost. Worried that the situation threatened the “utter collapse” of the U.S. oil industry, Roosevelt’s Interior Secretary, Harold Ickes turned to Interior Department lawyer, J. Howard Marshall II– who would later become an oil titan.

Marshall first considered putting in place price controls, though, soon discovered that a price floor set by government fiat would only put more “hot oil” on the market. So, instead, he implemented a plan to manipulate demand by requiring certificates of clearance for legally produced oil shipped in interstate commerce.

A federal tender board would track the certificates at the refineries and pipelines — the choke points for oil demand and production — to make sure they squared with quotas set for oil leases. And to keep imports from blowing this scheme to smithereens? A special import tax of 21 cents per barrel.

Marshall’s plan eliminated much of the waste by giving participants a more straightforward, reliable method of regulation. Therein lies the lessons for today’s climate debate.

Any emissions plan must encompass all participants. Individual state attempts to control hot oil failed because producers in other states weren’t held to the same standards. Likewise, climate plans that cap one nation’s emissions but leave others unchecked create the opportunity for leakage.

It’s best to apply “regulations to the few at the passes rather than the multitude at the sources (or the even larger multitudes at the markets),” according to Marshall. His regulation wasn’t at the wellhead or gas station but at the choke point of the refinery and pipeline. The choke point for control of human atmospheric carbon is clearly not its emission from millions of tailpipes or homes or small businesses tailpipes. 

Keep the accounting simple. The genius of the tender board and certificates was that a barrel of oil at a refinery or pipeline could be matched to a barrel of production at a wellhead. Most cap and trade plans aren’t so simple, involving numerous types of certificates, like offsets and allowances, requiring all sorts of accounting for emissions, some of which may be totally unverifiable.

Yet, the cap and trade program at the center of both the Senate and House climate bills flout these principles. The 111th Congress needs, instead, to take a page from the “hot oil” hubbub and implement a climate policy that’s transparent, direct, and effective.

William O’Keefe, chief executive officer of the George C. Marshall Institute, is president of Solutions Consulting Inc.