Fiscal cliff predictions are affecting the oil and gas industry in numerous ways. For example, Rigzone reports, “crude oil futures slid 1% Thursday as doubts about a U.S. fiscal cliff deal eclipsed any optimism about fresh economic stimulus from the Federal Reserve.”
In addition, Andy Lipow, president of Lipow Oil Associates in Houston, said if “significant spending cuts began and we saw an increase in unemployment, that would reduce demand” for oil and petroleum products.” Oil closely tracks employment data because this data is key to predicting the economy and its turns. With more people employed, that means that more oil and gas will be used. However if there are unemployment numbers that continue to rise, that could spell trouble for the oil and gas industry.
The United Kingdom government has approved fracking techniques throughput the UK. In attempts to rival the processes throughout the United States, the UK has restarted fracking of its own. Currently, there is only one company fracking within the UK, Cuadrilla Resources.
In order to gain a better understanding of the potential gains from fracking techniques, the UK government has ordered the British Geological Survey to estimate how much shale gas is in their land.
United States Fracking:
Physicians, Scientists and Engineers for Healthy Energy (PSE) submitted an appeal to fracking to the White House. The group is urging the Government to consider the 2 ethical principles of “do no harm” and of “informed consent.”
US Fracking – What is the big concern?
The main concern is with flowback water produced during the fracking process that comes back up to the surface. Companies still won’t reveal what’s in the chemical fluid mixed with water used to extract the gas citing a potential “loss of competitive advantage.” Several of the medical concerns are expressed on this webpage.
What Else is Current in the Oil and Gas Industry?
Currently, Intangible Drilling Costs have been trying to enter into the spotlight of policy reforms. Both Republicans and Democrats have been discussing IDCs within the oil and gas industry.
Intangible Drilling and Development Costs (IDCs) are explained by the Independent Petroleum Association of America to be either expensed or capitalized on by the company. The IPAA defined shares the following about IDCs: “IDCs include all expenditures made by an operator for wages, fuel, repairs, hauling, supplies, etc., incident to and necessary for the drilling of wells and the preparation of wells for the production of natural gas and oil. In addition, IDCs include the cost to operators of any drilling or development work done by contractors under any form of contract (including a turnkey contract). Such work includes labor, fuel, repairs, hauling, and supplies which are used in the drilling, shooting, and cleaning of wells; in such clearing of ground, draining, road making, surveying, and geological works (as are necessary in preparation for the drilling of wells); and in the construction of such derricks, tanks, pipelines, and other physical structures as are necessary for the drilling of wells and the preparation of wells for the production of oil and gas.”
While both Republicans and Democrats are paying attention to the oil and gas industry and IDCs, little action is expected to happen within the IDC realm this year. Rigzone reports, “FBR Capital Markets & Co. analysts do not expect a policy change in the end-of-2012 fiscal cliff negotiations.”
According to this Rigzone article, there have been 2 key determinants keeping IDC reforms from gaining ground. They include: strong Republican opposition as well as a lack of funding. Democrats are holding a different point of view, according to the article. “’However, we believe that IDC expensing serves an important policy goal for Democrats in encouraging domestic production and energy independence.’”
IDC costs are generally 75% of the costs of drilling a new well. Because Congress and the White House are in a standstill between the Democrats and the Republicans, this may be the perfect time to take the situation into your own hands and reduce costs the most efficient ways possible.
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