Private Governance in Oil & Gas: Permian Strategic Partnership

Private governance can be found in other examples in the oil and gas industry. Just think of the whole communities that exist on offshore oil and gas platforms. Why? Again as explained by Edward Stringham, ‘in many cases government officials do not have the knowledge, incentive or ability to enforce contracts or property rights in a low cost way’.”

Can the private sector assume functions now assumed if not monopolized by government? Such as building what is normally considered public infrastucture?

The answer is yes, as documented by examples and in theory. Regarding the latter, Edward Stringham explains

Government is often dysfunctional and crowds out private sources of order, or it is simply absent or too costly to use. That means parties can either live with their problems or attempt to solve them. In some cases solutions have yet to be found or are too difficult to implement. Such is the world. But quite often solving problems is a profit opportunity and the more at stake, the more potentially profitable the solutions. Throughout history we can see lots of examples of private parties benefiting by figuring out better ways of facilitating exchange or protecting property rights. These protections of the market come not from government but from the market.

An article in the Houston Chronicle last month offered yet another case study from the oil and gas industry: “Permian shale companies pledge $100M to West Texas, New Mexico by Jordan Blum (Some quotations follow:

“Seventeen energy companies operating in West Texas’ booming Permian Basin said they’re pledging more than $100 million to help improve roads, schools, health care, housing and workforce training. The mostly rural region in West Texas and southeastern New Mexico was upended by the oil-drilling resurgence in Permian shale in the last couple of years, and the community services and housing supplies were woefully unprepared for the influx of new people.”

“The Permian Strategic Partnership, which was formed earlier this year, has quickly grown from a handful of companies to 17 and counting. The list includes Big Oil players Chevron, Exxon Mobil and Royal Dutch Shell, as well as a bevy of Houston producers such as Occidental Petroleum, EOG Resources, Anadarko Petroleum Corp., Apache Corp., and major services providers such as Schlumberger and Halliburton.”

“The partnership announced its new pledge to serve as seed money for public-private partnerships to help support the necessary growth. After all, the energy companies struggle to operate on dilapidated roads in cities without the necessary housing, health care and schools to accommodate their employees.”

The partnership’s letter, published in the Midland Reporter-Telegram, was next summarized by Blum. That letter from the undersigned 17 companies is reproduced below. 

… a once-in-a-generation opportunity has brought us together for a common purpose – to strengthen the communities where we live and work.

The Permian is poised to provide energy the world needs, create tens of thousands of local jobs and generate billions in state and local tax revenues. But this potential can only be fully realized if we simultaneously address significant infrastructure challenges and preserve the quality of life that makes so many want to live and work here.

With this goal in mind, our companies have formed the Permian Strategic Partnership, an industry resource that will partner with local leaders and stakeholders to strengthen communities across West Texas and southeast New Mexico for decades to come.

What is happening in the Permian today is nothing short of remarkable. We are becoming one of the most strategically important oil producing regions in the world. We are leading the way to making America energy secure.

Total oil production in the region is expected to more than double in the coming years. At that point, the Permian would be an oil-producing super-power trailing only Saudi Arabia, Russia, and the combined output of all other U.S. producing regions. The Permian has the power to strengthen our country’s energy and economic future in a way not previously imagined.

While the oil and gas business is inherently cyclical, we are convinced that what is happening in the Permian today points to a resilience that is different from the boom and bust cycles of the past. Advances in technology and improved operating efficiencies have helped us produce safely and profitably even when prices are relatively low. We have analyzed various scenarios and believe that, even in a downturn, Permian production will continue to grow in the coming years.

Being such a strategically important oil producing region comes with certain challenges that are stressing our communities. To start identifying these key challenges and understanding future community needs, the Partnership first listened to local organizations and surveyed thousands of our employees who live here.

Collectively, they emphasized the need for safer roads, superior schools, quality health care, affordable housing and a trained work force. As employers, we want workers to move here with their families, build careers, and become a part of the community.

The good news is that the production growth we anticipate will result in billions of dollars of state and local tax revenues that could be directed to help meet these needs. A number of significant charitable foundations are also doing important work in education and infrastructure, and our individual companies are already supporting many community projects. But we feel this uncommon situation requires more.

In the coming months, we will open an office and announce leaders and staff to guide what we expect to be a multi-year effort. Early next year, we will begin a series of community meetings to invite citizen input and harness the volunteer spirit that is so much a part of this region.

We aim to add value to – not duplicate – the important work already being done by local governments, school districts, business organizations, nonprofits and foundations.

As energy companies, we know how to drill wells and lay pipelines; we are not experts in areas such as improving public schools or training medical staff. However, we can partner with schools and colleges to help prepare future workers for the job opportunities that await them.

Our companies make significant, long-term capital investments, and we hope our business expertise can help with planning and projecting future needs. The Partnership will convene conversations with stakeholders and advocate with state and federal officials to garner support for the critical investments in infrastructure improvements in the region.

While our primary financial contribution will be the substantial tax revenues our industry generates, we will also continue to provide funds for selected priority projects, both as individual companies and through the Partnership. Collectively, we are committed to providing more than $100 million over the next several years as seed money to spur additional private sector investment.

This will be a long-term process. Building new roads, recruiting new doctors and teachers and developing new neighborhoods will require years of work, substantial resources and sustained cooperation among many entities. But we share a sense of urgency with our communities to find both interim and long term solutions.

West Texas is known for its boundless optimism and “sky’s the limit” thinking. That “big sky” helps us see the incredible possibilities ahead, just as the beautiful public lands and caverns of southeast New Mexico ground us in the values that make this region so exceptional. Every member of the Partnership is eager to participate in the decisions that will help ensure the full potential of the Permian is realized by all.

– Al Walker, Anadarko; John Christmann Apache; Jeff Gustavson, Chevron; Tom Jorden, Cimarex; Tim Leach, Concho; Dave Hager, Devon; Travis Stice, Diamondback; Doug Suttles, Encana; Chuck Meloy, Endeavor; Bill Thomas, EOG Resources; Jeff Miller, Halliburton; Vicki Hollub, Occidental; Matt Gallagher, Parsley; Tim Dove, Pioneer; J.F. Poupeau, Schlumberger; Staale Gjervik, XTO Energy; Gretchen Watkins, Shell

Private governance can be found in other examples in the oil and gas industry. Just think of the whole communities that exist on offshore oil and gas platforms. Why? Again as explained by Edward Stringham, “in many cases government officials do not have the knowledge, incentive or ability to enforce contracts or property rights in a low cost way.”

 

The post Private Governance in Oil & Gas: Permian Strategic Partnership appeared first on Master Resource.

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December 11, 2018 at 01:05AM

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