The Country - Oil

“Don’t buy it at the station, you can get it now for free, Just come on down to the shoreline where the water used to be.” The Oil Song, Steve Forbert

Some positive and negative reports regarding oil this week.

On the negative side, if you are a Gulf Coast resident affected by last summer's disaster, came reports that the BP is contesting as too generous,  the formulas used by the Gulf Coast Claims Facility responsible for the management and processing of claims against the $20 Billion escrow fund that BP set aside, and that the fund administrators are  too slow in payments.  As is to be expected unfortunately, funds like this will draw out people trying to game the system (e.g. one individual filed a claim for the entire $20B) and slow down the process for those truly in need.  As a corporation serving the needs of its shareholders, BP is well within its right to contest the formulas used, but this adds another blotch to its public image.

I think even more disturbing are the assertions that what was once touted as being an open and transparent public process, is anything but.  With these sums of money involved, everything should be on the public record.

On an environmental front, there are conflicting reports on the long term environmental impact of the disaster - one  report, indicated that the state of the Gulf is much worse than expected, and another report commissioned by the Gulf Coast Claims Facility, and completed from start to finish in less than 2 months, indicates that the gulf, for the most port, should return to normal by next year.  I do not envy the judge having to weigh the merits of claims in this case...

On a positive note, I was somewhat encouraged to read this week an article in the NY Times  on a consortium called The Marine Well Containment Company (“MWCC”) which appears to be an industry-wide effort to mitigate the impact of future Deepwater Horizon type catastrophes.  

This was one of the things that I called for in my letter to the Obama administration last year (see the P.S. in my first posting on this blog). 

While it is a good start, some key questions which need answering are: 

Are the services and product limited to the Gulf of Mexico?

In the company documentation, it appears that these services and capabilities are limited to the Gulf of Mexico (“Membership is open to all oil and gas operators in the U.S. Gulf of Mexico.”)

In my opinion this type of system should be required/replicated in all areas where underwater oil exploration(http://en.wikipedia.org/wiki/Offshore_drilling#Main_offshore_fields ) is taking place (like having a fire extinguishers co-located in the areas where fires are likely to occur, or in strategic locations – stairwells and exits) so that if/when a blowout occurs, we don’t have to wait while it is transported across the globe to where it is needed.

What are the targeted response times?

Once a blow-out occurs and  the proverbial “911” call has been made, what are MWCCs targeted response times to:
a) contain the “spill”, and
b) cap and seal the well.

Will membership be a pre-requisite to the issuance of any underwater drilling permits?

If no, and the drilling company does not have a tested proven alternative, then the drilling company should be required to post costs of using the equipment “on-demand” in an escrow account.

It's The Economy, stupid!!!

James Carville, the fiery policy wonk behind Clinton's successful 1992 Presidential Campaign,  is said to have coined the phrase and posted the quote prominently in the Clinton campaign headquarters as a means to focus everyone's attention on what was important at the time.

Some 19 years later, it is still relevant, although a more effective means to focus our government efforts (Federal. state, and local) might be to have everyone in office watch the animation The Geography of a Recession (http://www.latoyaegwuekwe.com/geographyofarecession.html)  at the start of each working day.

When I look at the current "focus" of our politicians, it all seems to be predominantly aimed at slashing costs, even though, for the most part their attention seems to be on delivering the impression of doing so (e.g. attacking earmarks),  as opposed to some meaningful efforts to address some of the underlying root causes of the deficit.

It reminds me somewhat of the myopic focus of companies trying to address significant changes in the business climate in which they operate through keeping the same business strategy, but reducing their work force (in effect slashing costs) by 10% every six months or so in an effort to get back to profitability.  In effect, in my opinion, this is what the Fed tired to do to stave off the effect of the housing bubble bursting through reducing interest rates by 0.25% to 0.5% every six months - eventually you run out of cards in the deck, and by that time you have missed opportunities to get ahead of the curve.


What I expect of our politicians and business community is to craft and implement policies and strategies which create sustainable opportunities for wealth creation across all segments of society.  I do not believe that we as a country can survive in a global economy if our sole or predominant focus is on the services sector - eventually we must start building stuff again.

Arguably, our economic "success" of the late '90s and the entire '00s, was fueled by easier access to credit and debt, clearly a non-sustainable path as we have seen in the past 3 years.

The Student Loan Mess...
A strong education policy is great and required, but if it means that people graduate from college bearing Student Loans that, in effect, force then into indentured servitude of the banks, we are in effect kicking the can down the road for someone else to clean up.

In my opinion, our college loan situation is another looming financial crisis/bubble (http://www.finaid.org/loans/studentloandebtclock.phtml).  Banks, under the protection of regulation enacted by the federal government, are extending credit and making loans to students which make no economic sense.  What good is it for either you personally, or the country and economy as a whole, if you graduate with a college degree that does not result in personal wealth creation, and in effect all the "added earning value" of said college degree is consumed by paying off a mountain of debt associated with student loans?  Great is you are a bank who loaned the money, with the default risk being absorbed by the government, but not if you are that recent graduate who cannot create personal wealth from your education.

If banks were forced to bear the entire risk of the loans that they issue to students, it would force them to be more accountable to ensuring that the loans make sense.  While the near term effect might be to reduce the number of "eligible" college students, possible beneficial side effects might be to force the "institutes of higher learning" to better control costs and efficiencies, rather than raising tuition rates every year.  They do this, in part "because they can" and because the current structure and availability of student loans enables them.

I am sure that many of you have experienced the frustration of going through the FAFSA (http://www.fafsa.ed.gov/#) application process in an effort to reduce the price of a college degree, only to find that your eligibility had been denied because you have implemented sound financial management policies at home (keeping a rainy day fund, avoiding taking in unwise debt, etc.)  What message does this send to our young adults as they enter into the business world?

Hopefully in a month's time, by my next posting on the economy, I will be able to talk about the great legislation being pursued or better yet enacted by our governments which stimulate sustainable economic growth and wealth creation.

In closing - "It's the economy stupid!!!"

The start of something new

I have always enjoyed discussing the current state of politics, business, and religion, with friends, and thought it would be fun to share my views with others, especially after seeing over the past few years, the drivel being broadcast on the cable "news" channels.  It seems that they first label (Liberal/Conservative, Democrat/Republican, Saint/Nazi or Nazi/Saint) and then provide some feeble justification of their position.

I was triggered by AOL's announcement today, in a desperate attempt to re-invent itself and try and capture back some of its old relevance, that it was buying the Huffington Post (essentially a blog on steroids) for just north of $300 Million - let's hope that they fare better than Rupert Murdoch with his $500M+ purchase of My Space, after which everyone seemed to hitch their social networking wagons to Facebook.

So who am I and why read:
I am a socially liberal but financially conservative individual who thinks of himself as a pragmatist.  I have worked in Corporate America for 25+ years, and for the past 5 years as an Small Business Owner, so I have a first hand perspective of both sides of the business world - although that statement implies that there are only two sides to what is really a multi-faceted equation.  I have voted both Democrat and Republican in local, state and Federal elections, and may lean Democrat, but am not blindly tied to their positions.

I think that with success comes a social responsibility to re-invest a part of the success back into the system or infrastructure in which one has succeeded, and hence am a strong proponent of higher taxes on the wealthy.

What to expect:
In the coming months, and hopefully years, I will be making weekly postings cycling through the following Topics:

• The Economy
• The Country
• Politics
• The World
• Whatever happens to be on my mind before restarting the cycle

In next week's posting, focused on the economy,  I'll share my thoughts on the bailout of Wall Street.

I hope you will find these postings both enjoyable, and intellectually challenging, and share your thoughts on the topics.  If you like what you read - pass this link along to your friends.

Who knows, maybe this will be the seedling that develops into the "Chai Party" - what I somewhat sarcastically think of as a Tea Party with a brain.

Cheers,

Bill

A taste of things to come:
To give you a flavor of the type of postings to expect, I have provided below a mock "Press Release" that I wrote in late May and sent to the White House in reaction to their disappointing "non-reaction" to the BP Deepwater Horizon Oil Disaster - it was not a "spill" per se, as a spill implies to me some finite, contained quantity which spilled.  The numbers listed below (e.g. 90%) are not fixed in stone, but I think it is important to quantify expectations with targets, and then work from there on what is realistic...
 
In reflection, while the well was capped in a little over 4 months, to my knowledge, should another disaster of this nature occur I do not believe that we have the processes or infrastructure at hand to respond proactively, as opposed to reactively.

I am a firm believer of the saying "When you lose, don't lose the lesson!" I think with respect to the Deepwater disaster,  we lost "the lesson" as well.


What our president should have done to lead the response top the Deepwater Horizon Oil Disaster...

My fellow citizens,  as you are painfully aware, an unprecedented environmental disaster has been unfolding in the Gulf of Mexico since the collapse and blowout of the Deepwater Horizon drilling rig on April 20^th.  This disaster has the potential to cause permanent damage to the priceless ecosystems both on shore, in the Gulf of Mexico, and in the Caribbean Sea and beyond in our oceans.  Your government has been directly involved in and leading the efforts to bring this issue under control.  For more information on the extent of our involvement to date, please visit our website at http://www.whitehouse.gov/blog/issues/Deepwater-BP-Oil-Spill

In addition, you have heard that the ultimate solution to mitigating the ongoing damage is in the drilling of a relief well, or relief wells which are to be completed in August.  These dates, while fixed in everyone’s minds, are optimistic at best.

The well-head for the DeepWater Horizion is one mile below sea level.   In 1979, a similar blowout occurred on the Ixtoc 1 drilling rig in Campeche Bay in the Gulf of Mexico.  The wellhead for the Ixtoc 1 was only 200 feet below sea level, and at the time, after several failed attempts, it took over 10 months before a relief well was successfully completed , and the flow of oil into out ecosystems was finally stopped.

In recognition of the seriousness of the damage to date and its potential for irreparable harm, in addition to our ongoing efforts, I am implementing the following multi-faceted disaster management plan.  My expectation is that the Oil and Gas industry, not only BP, Trans Ocean and Halliburton who were directly involved in the current disaster, but the best minds and resources from across the industry and across the globe, from the drilling companies, oil services companies, transportation and pipeline companies  and oil companies will provide their full support in the refinement and execution of this plan.  Each major component of the plan will be managed by an emergency task force, reporting directly to me on a periodic basis.

1.      Capping the well.

The focus of this task force, reporting directly to Xxxx Xxxxxx, of  the Department of ?????????  will be to ensure the probability of success of the current plan of attack, as well as to develop contingency plans in the event that the current plan of attack does not succeed. I expect to have weekly reviews of their plans and progress and to share these with you as they unfold.

2.      Cleaning up the oil.
The focus of this task force reporting directly to Yyyy Yyyyyy, of  the Department of ?????????  will be to develop plans and execute the clean-up of the oil polluting our fragile ecosystems.  There will be focused  “working groups” developing and executing plans addressing the unique aspects of the clean-up:

- At the well head

- On the ocean surface
- On our shores and in our marshlands
- Undersea plumes
My expectation is that, at minimum, 90% of the oil spilled will be recovered .  

3.      Mitigating the potential for future disasters of this nature.
Until our dependency on Oil (both foreign and domestic) is reduced significantly, the need for exploration and tapping into the existing oil reserves will remain.  In order for us to satisfy this need in a prudent manner, without destroying our environment, we will need to have viable, tested plans in place to reduce the risks of future blowouts of this nature, and should they occur to manage them in a proactive rather than reactive nature.  

To this effect, this task force, reporting to Zzzzz Zzzzz , of  the Department of ?????????  will have the responsibility to develop, test and approve methods and equipment for reducing the risk of disasters of this nature. 
The issuance of any future drilling permit, either offshore or onshore, for oil, gas or shale gas will be contingent upon the strict implementation of and adherence to the policies developed by this task force.   

My expectation is that any future disaster of this nature will be brought under control, and the uncontrolled release of oil into our ecosystems capped within four days of the blowout, and that, at minimum 90% of the oil released into our ecosystem is recovered.

We are a nation that put men on the moon, and in that venture, implemented and executed a successful Apollo 13 recovery.  It is in that spirit of technical and scientific achievement, that I expect our greatest minds across the industry and across the globe to come together and address these issues.

I will convene another press conference on XXX to keep you informed of our progress in each of these areas.