By Christopher Helman
Dec. 9, 2016
On Wednesday afternoon I was driving southeast from Houston in the direction of the Houston Ship Channel and its dozens of oil refineries and petrochemical plants. The air here is cleaner now than in decades past, thanks in large part to tighter federal air requirements. And despite regulations, Houston’s Refinery Row continues to grow, processing ever more millions of barrels of oil a day into fuels, plastics and chemicals. For Texas it’s a vital economic powerhouse. For Obama-era environmentalists it has represented a potent source of emissions that need to be controlled and taxed.
So I enjoyed the irony of gazing out my windshield at refineries when the guy on National Public Radio said that President-Elect Trump had named Oklahoma Attorney General Scott Pruitt to head the EPA. Pruitt, hailing from a die-hard oil-and-gas state, has sued the EPA over its attempts to regulate carbon dioxide.
It was the perfect conversation starter with the guy I was scheduled to meet in Pasadena, Texas, that afternoon: Ryan Sitton, one of three elected members of the Texas Railroad Commission. The RRC, as it’s known, has had nothing to do with railroads for decades. But it has everything to do with the exploration, production and transportation of oil and gas in the Lone Star State. Sitton hadn’t yet heard the news about Pruitt, but was thrilled. “I think it’s a great choice. He has a history of being aggressive in breaking down worthless organizations.”
Sitton, 41, loves the idea of President Trump leashing overreaching federal agencies. He rejects any notion that Texans need help from Washington in determining how best to protect their land. The RRC has recently been bickering with the EPA over whether fracking causes earthquakes. The commission also rejects EPA’s proposed rule to regulate methane emissions from oil and gas wells. And it sued the EPA in 2015, claiming that the agency’s attempt to assert authority over every body of water in America was a clear infringment on Texas sovereignty and private property rights. In 2012 the EPA administrator for Texas, Al Armindariz, resigned after video surfaced of him saying that environmentalists needed to “crucify” oil companies. Worse, he had tried it.
“We do have to balance this,” says Sitton. “Not because we’re afraid of the EPA, but because I know that Texas voters expect energy development to be done safely.” The RRC’s stance is clear: the state doesn’t need Washington D.C. to tell it how to manage its land and air and water.
“The RRC has been doing this for decades,” says Sitton. “We know how to site pipelines; we know the safe way to frack wells. The trouble is when the EPA comes in and thinks it knows a better way to manage drilling and fracking and wastewater disposal.”
Texans, he says, will make sure it’s done right. “Texans have pride in their land — probably more than anybody else in the country,” Sitton says. “You will not find a state in the union where the citizens will get as vehemently aggressive as when you start talking about land rights.”
Sitton, 41, says he spends half his time in Austin, 40% traveling around the state, and 10% at the offices of his company PinnacleART, which provides engineering services for many of those giant petrochem plants. He and his wife started the company a decade ago, and business has been good enough that Sitton decided to run for office. Sitton has been publicly endorsed by the likes of T. Boone Pickens and Ted Cruz. He has three kids. Does P90x everyday. Owns a tricycle start up. Maintains a collection of 100,000 Legos. And he’s two years into a six-year term as one of three commissioners. The others, David Porter and Christi Craddick, have worked as attorneys to the oil and gas industry. Sitton is the first engineer to be elected commissioner in 50 years.
In theory, this RRC trio constitutes the most powerful oil regulating body in the United States. Texas produces 2.4 million barrels of oil per day, has 400,000 miles of pipelines, refineries that process some 8 million bpd. The commission, via an arcane rule from yesteryear, retains the authority to limit how much oil Texas producers can pump. “The RRC can set allowables and control production in the state,” says Sitton. A powerful lever if the commission ever wanted to use it. But they don’t.
Trump years should be good ones for Texas oil producers. As a start, says Sitton, “we’ll spend less time dealing with baloney federal issues.” And more time helping Texas oil boom again.
Despite low oil prices the last two years, drilling has continued in the Permian basin of west Texas, with about 100 rigs being sent back to work this year. Even with prices still around $50 a barrel, Texas oil output is expected to grow in 2017. The decision by OPEC to cut its own output has been a shot in the arm to Permian drillers, who are inspired to figure out how to drill faster and cheaper. “There’s a lot of places in OPEC that can’t produce as cheaply as in the Permian basin,” says Sitton. Companies like Pioneer Natural Resources have said that given high enough prices they could double the 2 million bpd currently coming out of the Permian.
Sitton sees Texas becoming one of the world’s “swing” producers. What he means is that the independent drillers of Texas, in aggregate, will come to act like a kind of shock absorber to the global oil markets. This is because of the short-cycle nature of capital investments in places like the Permian. You can decide today to spend $5 million to drill and frack a new well, and in about 30 days that well is probably online and producing about 1,500 barrels per day. If prices fall too low, drilling will just dry up and production will pretty quickly fall off as well. New wells see 50% declines in flow rates within the first year. These short capital-reinvestment cycles plus thousands of drilling locations are why big companies have defered hundreds of billions of dollars in megaprojects. Why tie up capital for a decade building a giant deepwater platform. Just drill in Texas!
“The growth in Texas will be substantial,” says Sitton. “The long-term position Texas is in might be the best in its history. Certainly the strongest in a generation.”
And lest you think this Texas A&M grad is just another yokel who thinks oil and gas are the hammer with which to hit every energy nail, Sitton takes me outside on a tour of Pinnacle’s campus, where workers are installing solar panels on every roof and backup generators powered by natural gas. An engineer, of course he did the math. “If I just bought solar, the payback would be like 14 years,” he says. But he figures that Pinnacle loses enough working hours due to thunderstorms knocking out the power, that the company will make its investment back in about 4 years.
He says he prefers the engineer/geek hat to the political one. “If there’s a bunch of picketers outside the RRC I’m going to go talk with them,” says Sitton. About what? Pipeline safety, hydraulic fracturing, carbon dioxide, climate change. But, he says, as an entrepreneur and an engineer, he believes in a world governed by facts not dreams. “I don’t want political answers, I want geek answers.”
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