Republican Chief of ENR - 10 September 2015 - 21 Letters

8/20/2019 Republican Chief of ENR - 10 September 2015 - 21 Letters

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Douglas A. Grandt PO Box 6603

Lincoln, NE 68506 (510) 432-1452

September 10, 2015

Senator Lisa Murkowski, ChairmanCommittee on Senate Energy and Natural Resource709 Hart Senate O!ce Building Washington, D.C. 20510

ATTN: Ms. Karen Billups

Re: Oil Refining - Considering future eventualities versus the myopia of the present

Dear Chairman Murkowski, (Originally mailed February 15, 2015)

Friday was would have been my father’s 98th birthday. He was an honorable man who taughtme a lot about politics and living an honorable life. He never talked politics. One thing Ilearned from him was to do the best I can based on good information, to avoid rumors andspeculation, to think for myself, to do what is right, and to stand up for what I believe.

I have come to understand something so disturbing that I feel I must speak up, urgently.

For the past several years I have observed and pondered how the CEOs and Boards ofDirectors of the petroleum drilling, production and refining companies have been going abouttheir business. I am not pleased with what I have observed, nor how I believe they will behavein the future. I have come to the conclusion that their invoking “proprietary” and “trade secret”and a total lack of transparency could destroy our economy and society.

I studied Industrial Engineering & Operations Research and Petroleum Engineering at UC

Berkeley. My career positions have always entailed looking into the future and preparing forchange. What I observe in the U.S. is a paradigm of myopiaan avoidance of the future. Ifear that the petroleum industry will behave out of self interestnot in the Public Interest.

Stock buy-back programs, declining earnings, paying dividends with borrowed money whilespending more and more in attempts to discover replacement reserves, shooting themselves inthe foot with a short-term production boom of tight formation oil and gas, relying on tarsandsbitumen to feed starving refineries that should by all rights be retired, pushing to export the glutof domestic oil and gas stockpiled with no ready marketsall of these point to near-termcollapse of the once-profitable house of cards. What will they do at break-even?

Ask CEO Rex Tillerson if ExxonMobil will remain in business approaching marginal profitability,as earnings seriously erode, as dividends begin to fall below expectation. Call Mr. Tillerson and

CEOs of all petroleum refiners in the U.S. to a Committee hearing and ask the tough questions.

We cannot afford to let refineries go out of business or declare bankruptcy prematurely. Howcan we compel each of the oil refiners to operating right down to their very last refinery. With aserious effort to avert the worst case climate scenarios, this is now upon our doorstep.

Sincerely yours,

Doug Grandt


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Douglas A. Grandt PO Box 6603

Lincoln, NE 68506 (510) 432-1452

September 10, 2015

Senator Lisa Murkowski, ChairmanSenate Committee on Energy and Natural Resources709 Hart Senate O!ce Building Washington, D.C. 20510

ATTN: Ms Karen Billups


Dear Chairman Murkowski, (Originally mailed February 27, 2015)

Two weeks ago today would have been my father’s 98th birthday.

Four years ago today, we celebrated his 94th. It took him 12 days to die on his terms.

One thing I learned from him was to do the best I can based on good information, to avoidrumors and speculation, to think for myself, to do what is right, to stand up for what I believe.

Two weeks ago I wrote that I know something disturbing that I must share with you, urgently:

For the past several years I have observed and pondered how the CEOs and Boards ofDirectors of the petroleum drilling, production and refining companies have been going abouttheir business. I am not pleased with what I have observed, nor how I believe they willbehave in the future. I have come to the conclusion that their invoking “proprietary” and“trade secret” and a total lack of transparency could destroy our economy and society.

I studied Industrial Engineering & Operations Research and Petroleum Engineering at UCBerkeley. My career positions have always entailed looking into the future and preparing forchange. What I observe in the U.S. is a paradigm of myopiaan avoidance of the future. Ifear that the petroleum industry will behave out of self interest not in the Public Interest.

Stock buy-back programs, declining earnings, paying dividends with borrowed money whilespending more and more in attempts to discover replacement reserves, shooting themselvesin the foot with a short-term production boom of tight formation oil and gas, relying ontarsands bitumen to feed starving refineries that should by all rights be retired, pushing toexport the glut of domestic oil and gas stockpiled with no ready marketsall of these point tonear-term collapse of the once-profitable house of cards. What will they do at break-even?

I again suggest that you ask Rex Tillerson if ExxonMobil will remain in business as profitabilitydeclines, as earnings erode, as dividends begin to fall below expectation. Call Mr. Tillerson andCEOs of all petroleum refiners in the U.S. to Congressional hearings and ask tough questions.

We cannot afford to let refineries go out of business or declare bankruptcy unexpectedly. Wemust require the oil refiners to operate until their very last refineries refine their very last drop.With a serious effort to avert the worst case climate scenarios, this is now upon our doorstep.

Sincerely yours,

Doug Grandt


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Douglas A. GrandtPO Box 6603

Lincoln, NE 68506 (510) 432-1452

September 10, 2015 Senator Lisa Murkowski, Chairman

Senate Committee on Energy and Natural Resources709 Hart Senate Office BuildingWashington, D.C. 20510



Dear Chairman Murkowski, (Originally mailed March 2, 2015)

The article “Investors ask oil companies to disclose refineries' risks from climate change”appeared in The Guardian on February 26. I found it very alarming to read the following:

“[T]he US Securities and Exchange Commission in 2010 issued guidance suggesting thatcompanies disclose climate change-related risks that might affect their bottom lines. But oilcompanies have largely ignored this guidance, which isn’t legally required.

Of the companies studied in the report, only Phillips 66 has disclosed any physicalclimate risks in SEC filings, according to the report, which calls the Texas-basedcompany’s disclosures “poor”.

In its 2014 filing, Phillips 66 stated: “To the extent there are significant changes in theEarth’s climate, such as more severe or frequent weather conditions in the markets weserve or the areas where our assets reside, we could incur increased expenses, ouroperations could be materially impacted and demand for our products could fall.”

And in its most recent earnings statement, filed last week, the company said climate changeposed a serious potential risk to its business.

None of the companies provided information on how they will prepare for these risks.

“Really in the end, the industry is damned if it does and damned if it doesn’t when it comesto climate change,” says Andrew Logan, director of sustainability advocate nonprofit Ceres’carbon asset risk program. “If oil companies continue along the business-as-usual

path, they’ll either be hit by demand risk and the rise of clean energy, or by themassive physical impact of climate change, or perhaps both.”

[Lead analyst at the Center for Science and Democracy] Goldman’s report recommendsthat the SEC push companies to follow its guidelines for disclosing climate change risks.

An SEC spokesperson said the guidelines aren’t mandatory and aren’t actively enforced bythe SEC: “companies can use the guidance to assess their own facts and circumstances onthis issue and provide disclosure to the extent material to investors”.

Congress has an obligation to compel the industry to behave in the national and public interest.

Sincerely yours,

Doug Grandt

[email protected]

http://www.sec.gov/news/press/2010/2010-15.htmmailto:[email protected]


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Lincoln, NE 68506 (510) 432-1452

September 10, 2015

Senator Lisa Murkowski, ChairmanSenate Committee on Energy and Natural Resources709 Hart Senate Office BuildingWashington, D.C. 20510




If the current situation for refineries could be seriously precarious, would you be concerned?

During the past month, I have sent you three letters expressing my concern about an issue thatis not being discussed, but which could spell economic and social disaster for Americans.

Nobody can predict exactly how future events may play out, but we should not let ourselves beblind-sided for a conscious lack of awareness and consideration of foreseeable events.

Further to my letters of February 15, February 27 and March 2, on March 10, 2015, Reuters published, the article “Exxon, Shell's spending patterns may help them through oil price drop.”

Consider the implications of refining companies going out of business unexpectedly. Reuters’ assessment is an indication that the industry is anything but stable for the foreseeable future:

Exxon Mobil and Royal Dutch Shell are likely to withstand the oil price collapse better than

their rivals because they are closer to finishing expensive investment projects.

Chevron and Total, on the other hand, are both in the midst of large project spending cyclesand will need to tap into more debt in order to stay afloat.

While all companies are expected to keep paying high dividends by increasing borrowing,Exxon and Shell appear to be most able to cover both spending and dividend payouts if oilprices stay at current prices.

According to analysts at Jefferies, Exxon and Shell have 2015 breakevens of $75-$80/bbl,healthier than Chevron, BP and Eni's respective breakevens of $95, $100 and $120.

All of the big oil firms are expected to see negative cash flows this year, according toMoody's, and will turn to borrowing in order to cover costs.

Who will survive and who will fail? What are the ramifications for the economy and society ifworst-case scenarios come to fruition? What can our government do to avert the worst?

Ask refining CEOs and Board Members how they will respond when financials go negative.

Sincerely yours,

Doug Grandt

[email protected]

mailto:[email protected]


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Lincoln, NE 68506 (510) 432-1452

September 10, 2015 Senator Lisa Murkowski, Chairman

Senate Committee on Energy and Natural Resources709 Hart Senate Office BuildingWashington, D.C. 20510

ATTN: Karen Billups



What is ENERGY INDEPENDENCE, really? With Saudi Arabia’s decision to keep the flow ofoil high to retain market share, they have hijacked the world with a flood of oil at reduced price,some say with the explicit intention of destroying the economics of unconventional deposits of

shale oil and tarsands. Do they intend to extract all of their resources—before the end of oil?

The March 1, 2015 edition of Washinton Specter raises the issue squarely front and center:

Late 21st-century graduate students of business studying the growing problem of strandedassets will almost certainly focus on the history of Canada’s Athabasca Oil Sand (aka tarsands). The case studies they read will either describe the gradual abandonment of theworld’s largest reserve of bituminous crude or they will read about the tar sands’ miraculouslast-minute escape from becoming the world’s largest stranded asset. For either outcome,the turning point they will look back on is just about now.

In some respects Alberta’s gigantic deposits of bitumen, a dense mixture of sand and heavycrude oil, third in size only to the reserves of Saudi Arabia and Venezuela, were stranded

from the start by location. Situated in the heart of a vast boreal forest at the center of a verylarge continent, they are hundreds of miles from the nearest refinery and thousands morefrom navigable tidewater.

Of course, some of Alberta’s crude has made its way to market, but so much slower than itcould have, or was projected to, that producers, refiners, shippers, banks and otherinvestors in tar-sands development are beginning to wonder whether they have backed agood play by investing over $160 billion to turn tar into oil.

So the economic stranding process has already begun. Five global energy giants—Shell, Total, Suncor, Statoil and Occidental—have cut bait on major bitumen deposits in

Alberta, in which they had already invested billions. Suncor has just slashed another billiondollars from its capital spending program and $800 million more from operating expenses.

And as oil prices slide lower, commercial and investment banks are reconsidering futureunderwritings. An industry that recently envisioned doubling production over the next20 years is now looking at something closer to the opposite, a halving of productionor worse in far fewer than 20 years.

Please ask refining CEOs and their Boards how they will behave as Corporate profits fail.

Sincerely yours,

Doug Grandt

[email protected]

http://www.wsj.com/articles/suncor-energy-cuts-capital-spending-due-to-low-oil-prices-1421188673http://en.wikipedia.org/wiki/Big_Oilhttp://grist.org/news/blame-canada-greedy-for-oil-money-the-country-is-turning-into-a-rogue-petrostate/http://en.wikipedia.org/wiki/Boreal_forest_of_Canadahttp://www.merriam-webster.com/dictionary/bitumenhttp://en.wikipedia.org/wiki/Oil_sandshttp://en.wikipedia.org/wiki/Athabasca_oil_sandshttp://en.wikipedia.org/wiki/Stranded_assetmailto:[email protected]


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Lincoln, NE 68506 (510) 432-1452

September 10, 2015 Senator Lisa Murkowski

709 Hart Senate Office BuildingWashington, D.C. 20510


Re: Oil Refining - Considering future eventualities versus the myopia of the present (letter #6)

Dear ENR Chairman Murkowski, (Originally mailed April 2, 2015)

Is the U.S. ENERGY INDEPENDENT if the oil industry becomes a collapsing houses-of-cards?

• Is “energy security” paying dividends and buying back shares of stock with borrowed money?

• Is “energy security” production companies going out of business due to the low price of oil?

• Is “energy security” relying on short-lived “tight oil” requiring ever more drilling and fracking?

• Is “energy security” curtailing investments in wells needed to keep production just “stable”?

• Is “energy security” ExxonMobil doubling the capacity of its Beaumont Refinery by adding “athird crude distillation unit”? (See http://bit.ly/Beaumont31Mar15) Ask CEO Rex Tillerson ifthe that third crude distillation unit might have the sole purpose of exploiting a new loopholethe Obama Administration created—first reported on New Years Eve by 247wallst.com:

The Commerce Department’s Bureau of Industry and Security (BIS) said that it hasapproved requests by some companies to export lightly refined condensates….

The news is that the agency has spelled out for the first time (in an FAQ of all places)what the rules are. The agency defines crude oil as liquid hydrocarbons that have notpassed through a distillation tower. The definition includes “reconstituted crudepetroleum, and lease condensate and liquid hydrocarbons produced from tar sands,gilsonate, and oil shale.” These may not be exported.

What may be exported are lease condensates that have been “processed through acrude oil distillation tower.” That passage transforms the unexportable crude into anexportable refined petroleum product. As the BIS notes, “Petroleum products aresubject to few export restrictions.”

Why now after months of dithering around? Could it be that the Obama administrationhas figured out that exporting near-crude is more likely to keep crude oil costs lowthan it is to raise them. If U.S. crude from shale plays in North Dakota can get into theinternational market, and the Bakken producers can keep their costs under control, theUnited States may be able to take a bit of market share away from the Saudis.

As Chairman of the Senate Committee on Energy and Natural Resources, please convene andask CEOs if they will supply us fuels when profits fall. How long will they keep rolling the dice?

Sincerely yours,

Doug Grandt

[email protected]

http://www.bis.doc.gov/index.php/policy-guidance/faqshttp://247wallst.com/http://bit.ly/Beaumont31Mar15mailto:[email protected]


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Lincoln, NE 68506 (510) 432-1452






U.S. ENERGY INDEPENDENT does not come from the likes of ExxonMobil holding us hostageto rectify their having “shot themselves in the foot.” The glut from the shale oil and gas boom was their own miscalculation. Now, they are holding a gun to our collective head, demanding

that their cash flow and earnings be protected by allowing the glut of excess production toflood the international markets to fetch higher prices. That, in turn will raise domestic prices.

Where is the industry taking us? Are We the People beholden to the industry for the fossil fuelsthey provide — are we expected to acquiesce to their experiment with our economy? Who willbale them out when their accumulated miscalculations and hubris result in financial collapse?

We need to manage the industry’s decisions for the sake of public interest and national interest.Please call them to task, develop a strategy to get control, assure true energy independence.

This is no April Fools joke. One analyst had the courage to publish the following assessment,which — when taken in context with countless other assessments that also hint at a precariousfuture for the fossil fuel industry — points to serious risk for our economy. Read this critically:

Exxon Mobil - The Company That Buys High And Sells Low April 2, 2015 | Aristofanis Papadatos | http://bit.ly/ALPHA2April15

Summary

• XOM is reportedly escalating its plans to expand the capacity of its Beaumont refineryfrom 344 Kbbl/day to 850 Kbbl/day in a multi-billion dollar project.

• While the U.S. refining margins are high at the moment, the outcome of this investment isunpredictable and will largely depend on whether the ban on oil exports is repealed.

• The article discusses a series of critical decisions that XOM has made in recent years,

which have been marked by buying high and selling low..

Exxon Mobil (NYSE:XOM) is reportedly escalating its plans to expand the capacity of itsBeaumont refinery from 344 Kbbl/day to 850 Kbbl/day in a multi-billion dollar project. Themanagement previously intended to double the capacity of its refinery, but it now seemsdetermined to expand its capacity even further. While the U.S. refining margins areparticularly high at the moment, the outcome of this investment is unpredictable and willlargely depend on whether the U.S. government will continue to ban oil exports in the future.

In addition, although it is really hard to evaluate this decision of the management at themoment, it is safe to claim that it has a similar character to some past decisions; investing in

[email protected]

http://seekingalpha.com/news/2404186-exxon-reportedly-seeks-850k-bbl-day-goal-for-beaumont-refinery-expansionhttp://seekingalpha.com/symbol/xomhttp://bit.ly/ALPHA2April15mailto:[email protected]


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Senator Lisa Murkowski April 7, 2015

Page of2 3

a sector while it is thriving. Unfortunately, due to the multi-year lag between the investmentdecision and the beginning of cash inflows, the results of past decisions have often turnedout to be very poor. The article discusses a series of critical decisions that the company has

made in recent years, which have been marked by buying high and selling low, and havethus, pronouncedly hurt its shareholders.

Natural gas

Exxon Mobil acquired a major producer of natural gas, XTO Energy, in a $41 B ($31 B plus$10 B debt) deal in 2009. As the success of any deal depends on its price, the deal hasproved very unfortunate for Exxon Mobil, as it was concluded in a context of elevated pricesof natural gas (around $6). To be sure, natural gas has traded much lower in recent years -roughly 50%, on average, below the then-prevailing price.

It is evident that the return on investment of this deal has been very poor, and it will takeseveral years to Exxon Mobil to earn back the amount it spent on that acquisition. Theverdict is so obvious that even the CEO of the company admitted two years ago that the

timing of the deal was too unfortunate for the company. Therefore, the company essentiallywasted almost all its earnings from its best year ever (in terms of earnings), 2008.

Oil

During the last 4 years, in which oil was hovering around $100, Exxon Mobil excessivelyincreased its capital expenses for upstream projects. To be sure, as the table shows, thecompany allocated almost all its earnings to capital expenses in the last few years.

The unfortunate factor is the significant, multi-year lag between the time of investment andthe time of incoming production from these projects. Therefore, the management of each oilcompany should have a correct long-term view and great timing in its critical decisions.Unfortunately for shareholders, the projects with the above expenses were planned withforecasts for oil to remain above $100 for the foreseeable future, and hence, these projectsare condemned to provide poor returns if oil remains suppressed for a prolonged period.

Of course, no one can blame management for its efforts to replenish its oil reserves.However, the cost of most projects largely depends on the prevailing environment duringthe initial phase, and hence, management is supposed either to have timing skills or at leastto even out the great variations of expenses in the long term. Unfortunately, themanagement of Exxon Mobil has recently proved insufficient even for the latter.

Of course, some investors may claim that management has the excuse that very few peoplepredicted the collapse of oil price due to the booming production of shale oil. Nevertheless,the managements of oil majors, particularly that of this premium company, are expected toexecute far above the average and differentiate from the crowd at critical times.

http://breakingenergy.com/2013/05/30/timing-was-off-for-xto-deal-says-exxon-ceo/http://www.eia.gov/dnav/ng/hist/rngc1d.htmhttp://www.marketwatch.com/story/exxon-mobil-to-buy-xto-energy-in-41-billion-deal-2009-12-14


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Senator Lisa Murkowski April 7, 2015

Page of3 3

Share repurchases

The company has consistently repurchased its shares to enhance shareholder returns.Unfortunately for shareholders, the company funded the acquisition of XTO Energy with theissuance of new shares in 2010, when the stock stood at a decade low. Moreover, now thatthe oil producers are facing the headwind of cheap oil, the company has drastically reducedthe annual rate of share repurchases, from 5% in 2011-2013 to 3% in 2014 and only 1% in2015.

Nevertheless, to be fair to management, the poor timing in share repurchases is the normfor the vast majority of companies. More specifically, as share repurchases are the lastpriority - after the capital expenses and dividends are paid - most companies tend torepurchase their shares only when they have ample cash. This invariably occurs duringbooming periods, in which the stock prices are inflated, and hence these share repurchaseshardly add any shareholder value. While most companies tend to make the same mistake,the few companies that keep performing buybacks even during rough times make adifference to their shareholders.

Downstream

While refiners in most parts of the world have suffered from depressed margins in the last 6years, their U.S. counterparts have thrived, thanks to the deep discount of WTI vs. Brent,which has resulted from the shale oil boom. It is remarkable that this advantage of U.S.refineries had remained largely unnoticed in the oil majors till recently, as oil majorsnormally derived about 90% of their earnings from the upstream sector. However, now thatthe oil price has collapsed, the downstream sector has provided significant support on theearnings of oil majors. Therefore, it makes sense that Exxon Mobil wants to spend billionsto expand the capacity of its Beaumont refinery.

Nevertheless, as it will take some years to complete the expansion, the profitability of thisproject will depend on the long-term trajectory of U.S. refining margins. If the ban on U.S. oil

exports is repealed, the refining margins will pronouncedly contract, and hence, this projectwill offer disappointing returns. Therefore, management should carefully evaluate the long-term path of U.S. refining margins, and not just decide based on the recent enthusiasm overU.S. refining margins. Hopefully, they will do their homework this time.

Conclusion

Buying high and selling low is a catastrophic strategy for long-term returns. Unfortunately,this is much easier said than done, as it is much easier to follow the herd than go againstthe flow. To be sure, the herd followers will be easily forgiven if their decision is provenwrong, whereas the ones who decide against public opinion will incur excessive criticism,should they fail. The management of Exxon Mobil has made some poor critical investmentsin the past, which have punished the company's shareholders. Hopefully, their decision to

spend billions on the refinery expansion is based on a solid long-term view. Again, I suggest that you as Chairman of ENR, convene a hearing and ask Rex Tillerson andother CEOs if they will supply fuels when profits fall below breakeven. Ask how they will cleanup the toxic infrastructure in the end. Will Risk Management avert worst case scenarios — theunfathomable, shocking to ponder, economic collapse caused by their decisions and hubris?

Sincerely yours,

Doug Grandt


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Lincoln, NE 68506 (510) 432-1452






Oil Companies’ first quarter results will soon be made public—a golden opportunity for ENR.

The Senate Committee on Energy and Natural Resources needs to understand the strategies

and prospects for survival Chevron, ConocoPhillips, Enterprise, ExxonMobil, Hess, Marathon,Murphy, Sunoco, Tesoro, Valero, and World Fuels foresee given the poor oil economic climate.With likely failures that would curtail fuel supply, we must develop an action plan for interventionto assure the public interest and national interest — energy security — are the highest priority.

Sunday’s Wall Street Journal headline foretells an energy crisis for the U.S and the world:

Congressional hearings are called for soon to ask the CEOs if they will continue to supply fuelswhen earnings and dividends fall below internal thresholds and operations begin to lose money.

Will Risk Management avert worst case scenarios and unfathomable, too shocking to ponder,economic collapse caused by their demise? How do they plan to finance their toxic clean-up?

Sincerely yours,

Doug Grandt

[email protected]

The world’s big oil companies and their investors are bracing for some of the worst quarterly financial results in recentmemory as the first three months of the year closed with oil trading at about half of its 2014 peak.

The final quarter of 2014 was bad enough. British giant BP PLC announced its biggest quarterly loss since theDeepwater Horizon spill in the Gulf of Mexico in 2010. Exxon Mobil Corp’s. cash flow fell to its lowest level since themidst of the financial crisis in 2009.

The year-end carnage was for a three-month period in which a barrel of oil traded at $77. In the latest quarter, theBrent international oil benchmark averaged $55.13 a barrel.

“It’s going to be ugly,” said Jason Gammel, an analyst at Jefferies. “It’s going to be a really bad quarter.”

Most of the world’s biggest oil companies have already slashed spending, with many of them cutting jobs.

…

In February, Exxon said to cut costs it would reduce first-quarter spending on share buybacks by two-thirds from thepreceding quarter to $1 billion. Chevron Corp. has suspended its buyback program altogether.

Big Oil Companies Brace for Weak Quarter After Fall in Prices

http://quotes.wsj.com/CVXhttp://www.wsj.com/articles/oil-price-drop-hurts-spending-on-business-investments-1427058389http://www.wsj.com/articles/oil-price-pressured-by-growing-inventories-1426242683http://www.wsj.com/articles/exxons-profit-drops-21-1422882396http://quotes.wsj.com/XOMhttp://www.wsj.com/articles/bp-reports-fourth-quarter-loss-1422948198http://quotes.wsj.com/BPhttp://quotes.wsj.com/CVXhttp://www.wsj.com/articles/oil-price-drop-hurts-spending-on-business-investments-1427058389http://www.wsj.com/articles/oil-price-pressured-by-growing-inventories-1426242683http://www.wsj.com/articles/exxons-profit-drops-21-1422882396http://quotes.wsj.com/XOMhttp://www.wsj.com/articles/bp-reports-fourth-quarter-loss-1422948198http://quotes.wsj.com/BPmailto:[email protected]


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Lincoln, NE 68506 (510) 432-1452






Since February 15, I’ve written 8 letters expressing concern about depressed petroleum prices.

April 21 Newsweek underscores a serious conundrum that faces you and the other members

of the Senate Committee on Energy and Natural Resources

which you should be considering:With the United States becoming more dependent upon a petroleum industry that is more andmore subject to external demands from equity marketsincreasing earnings and dividends,and share valuehow will We the People wrest control of our destiny from Corporate Interestand establish a truly secure manifestation of an energy policy solely in the Public Interest?

Congressional hearings are warranted to ask the oil & gas industry CEOs if they will continue tosupply fuels when earnings and dividends fall below breakeven, and unprofitability is imminent.

Sincerely yours,

Doug Grandt

[email protected]

Global banking giant HSBC has warned investors of the growing risk of their fossil fuelassets becoming useless …

In the report, titled ‘Stranded assets: what next?’, analysts warn of the growing likelihoodthat fossil fuel companies may become “economically non-viable” …

“The speed of the collapse in energy prices over the past three quarters has taken the fossilfuel industry by surprise, in our view,” reads the report. “As rigs are dismantled, capex iscut and operating assets quickly become unprofitable, stranding risks have become muchmore urgent for investors to address, including shorter term investors.”

The paper proposes three options for investors - divesting completely from fossil fuels;

shedding the highest risk investments such as coal and oil; or staying the course and

engaging with fossil fuel companies as an investor. The report argues that investors whostay in fossil fuels “may one day be seen to be late movers, on ‘the wrong side of history’”.

HSBC Warns Clients of Fossil Fuel Investment Risks



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Lincoln, NE 68506 (510) 432-1452






This is my tenth letter to you expressing my deep concern about an imminent conflict between1) Corporate Officers’ and Boards of Directors’ fiduciary duty in the face of insolvency, indeedtheir termination of unprofitable refining operations, and 2) national interest or public interest.

In view of expected continuing depressed petroleum prices, I fear that oil refining corporationswill soon face severely declining earnings, dividends, and share value, all of which will bringtheir Officers and Boards of Directors to decisions to curtail production and refining operations.

My fear, which has been growing over several month, is that decisions by those with the bestintentions to fulfill their legal obligations could lead us into territory that nobody is anticipating.

Read the ABA’s August 6, 2010, document “Insolvency and Fiduciary Duties: Advising Directorsand Officers When the Company Cannot Pay Its Bills.” (http://bit.ly/ABA6Aug10)

Officers’ and Boards of Directors’ fiduciary duty to companies like Chevron, ConocoPhillips,ExxonMobil, Marathon, Occidental, etc. and their investors, will likely have dire consequencesfor other businesses and the public unless we prepare to take preventative, controlling actions.

This is what one industry expert has to say, and we can all surmise the disastrous implications:

Prolonged low oil prices will prove that tight oil plays need at least $75 per barrel to breakeven. When oil prices recover to that level, only the best parts of the tight oil core areas willbe competitive in the global market. As production declines from expensive tight oil, oil sandand ultra-deep-water plays, inexpensive Saudi oil will gain market share.

Saudi Arabia is not trying to crush tight oil plays, just the stupid money that funded theover-production of tight oil. Too much supply combined with weak demand created thepresent oil-price collapse. Saudi Arabia hopes to prolong low prices to benefit theirlong-term needs for market share and higher demand. ( http://bit.ly/OilPrice20Apr15 )

Demand the petroleum industry CEOs tell the American public how they will respond when theybecome insolvent. Will they continue to supply fuels when earnings and dividends fall to criticallevels where share price plummets and they are no longer financially viable in the marketplace?

They have the best and brightest working on the problem. Make them reveal the results of theireconomic models. Let’s critique their assumptions, especially the “worst case” scenarios.

Sincerely yours,

Doug Grandt

[email protected]

mailto:[email protected]://bit.ly/OilPrice20Apr15http://bit.ly/ABA6Aug10


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Lincoln, NE 68506 (510) 432-1452





Dear ENR Chairman Murkowski, (Originally mailed May 18, 2015)

This is my eleventh letter to you expressing deep concern about an imminent conflict between1) Corporate Officers’ and Boards of Directors’ fiduciary duty in the face of insolvency, indeedtheir termination of unprofitable refining operations, and 2) national interest or public interest.

We ! e People must demand petroleum industry CEOs tell us — the American public — howthey will continue to supply fuels when earnings and dividends fall to critical levels, share priceplummets, they are no longer financially viable in the marketplace, and they become insolvent.

They have the best and brightest addressing the problem. Compel them to share the results oftheir economic models. The economic conventional wisdom is that industry must grow or die.We have a challenge to change the paradigm from growing “upward” to growing in breadth withdiversification, from the “traditional” and “conventional” to the “innovative” and “sustainable.”

ENR must guide the petroleum industry to providing We ! e People a choice of fuels, which willalso enhance their longevity as viable and healthy corporations that are intended to live forever.

Petroleum prices where they are and corporate profitability in the balance, we face economicand security uncertainty as a nation because another competing interest is exercising controlover our self-induced vulnerability. The not-unexpected crisis provides America an opportunityto exercise honorable choice. It is choice that makes us an innovative and democratic nation.

Our choice now is whether to battle foreign manipulation of crude supply and price, or to shiftour national policies and human energies away from such conflicts. Stepping into the future iswhat we must compel the oil industry—our national resource—to do. Our future is electric.

Sincerely yours,

Doug Grandt

[email protected]



14/56


Lincoln, NE 68506 (510) 432-1452





Dear ENR Chairman Murkowski, (Originally mailed May 19, 2015)

This is my twelfth letter to you expressing deep concern about an imminent conflict between1) Corporate Officers’ and Boards of Directors’ fiduciary duty in the face of insolvency, indeedtheir termination of unprofitable refining operations, and 2) national interest or public interest.

Does Congress interpret “in the national interest” and “in the public interest” to meanprotecting and preserving all aspects of the commonwealth, the common-wealth, the commonweal, the common well-bring, public welfare? From my research, free-trade is the focus.

I have been unable to find an explicit definition of national interest or public interest. No codeor law defines either. The closest thing to a definition I have found is in Delaware RiverkeeperNetwork’s recently published paper “TPP and Fast Track: What they mean for our Environmentand our Country”. The following portrays most of what I have read by FERC, DOE, and GAO:

The Natural Gas Act (15 U.S.C. § 717b) prohibits the import or export of natural gas, includingliquefied natural gas (LNG), to or from any foreign country without receiving prior approval fromthe U.S. Department of Energy (DOE).

In order to receive approval of an application for export of natural gas to a foreign nation, Section3 of the Natural Gas Act requires DOE to first make a determination that the proposed export ofnatural gas “will not be inconsistent with the public interest.”14 A public interest determinationincludes consideration of both environmental and economic impacts. Section 3(a) thusestablishes DOE’s authority to deny an application requesting authorization to export natural gasto foreign countries upon a showing of inconsistency with the public interest. 15

___________________________

14 15 U.S.C. § 717b(a).“(a) Mandatory authorization order

After six months from June 21, 1938, no person shall export any natural gas from the UnitedStates to a foreign country or import any natural gas from a foreign country without first havingsecured an order of the Commission authorizing it to do so. The Commission shall issue suchorder upon application, unless, after opportunity for hearing, it finds that the proposed exportationor importation will not be consistent with the public interest. The Commission may by its ordergrant such application, in whole or in part, with such modification and upon such terms andconditions as the Commission may find necessary or appropriate, and may from time to time,after opportunity for hearing, and for good cause shown, make such supplemental order in thepremises as it may find necessary or appropriate.”

15 Id.; see also Sabine Pass Liquefaction, LLC, FE10-111-LNG, DOE Order No. 2961 (May 20,2011); Sabine Pass Liquefaction, LLC. FE10- 85-LNG, DOE Opinion and Order No. 2833 (Sept.7, 2010).

BUT ....

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Section 3(c) of the NGA requires the DOE to deem as consistent with the public interest anyapplications to authorize the import or export of natural gas, including LNG, from and tonations which have entered into a free trade agreement with the U.S. requiring nationaltreatment for trade in natural gas – i.e. Free Trade Agreement countries, or FTA countries .

As such, applications for authorization to export natural gas to FTA countries is required, by theNGA, to be “granted without modification or delay.”16

___________________________

16 15 U.S.C. §717b(c)“(c) Expedited application and approval processFor purposes of subsection (a) of this section, the importation of the natural gas referred to insubsection (b) of this section, or the exportation of natural gas to a nation with which there is ineffect a free trade agreement requiring national treatment for trade in natural gas, shall bedeemed to be consistent with the public interest, and applications for such importation orexportation shall be granted without modification or delay.”

I am not a lawyer, but as a former Petroleum Engineer, Industrial Engineer and a CorporatePlanner, I learned early on to clearly document the basis for my work; the assumptions thatdefined the system, facility, equipment, process or economic assessment that went to my bossand the Board of Directors to justify millions of dollars in capital investment. What I have seenin the documents I have read is that they lack a precise definition that transparently explainsdecisions having major impact on the public, local communities, the national economy, ornation security.

The irony of making decisions and recommendations without a definition of public interest isclear in The Department of Energy Office of Fossil Energy’s FE Docket No. 11-128-LNG(Dominion Cove Point LNG LP) Section II, Summary of Findings and Conclusions, which states:

Based on a review of the complete record and for the reasons set forth below, DOE/FE hasconcluded that the opponents of the DCP Application have not demonstrated that the requestedauthorization will be inconsistent with the public interest and finds that the exports proposed inthis Application are likely to yield net economic benefits to the United States.

Likely to yield net economic benefits—that’s it? Section III, Public Interest Standard goes on:

Section 3(a) of the NGA sets forth the standard for review of DCP’s Application:

[N]o person shall export any natural gas from the United States to a foreign country or importany natural gas from a foreign country without first having secured an order of the [Secretaryof Energy25] authorizing it to do so. The [Secretary] shall issue such order upon application,unless after opportunity for hearing, [he] finds that the proposed exportation or importationwill not be consistent with the public interest. The [Secretary] may by [the Secretary’s] ordergrant such application, in whole or part, with such modification and upon such terms andconditions as the [Secretary] may find necessary or appropriate.

15 U.S.C. § 717b(a). This provision creates a rebuttable presumption that a proposedexport of natural gas is in the public interest. DOE/FE must grant such an applicationunless opponents of the application overcome that presumption by making an affirmativeshowing of inconsistency with the public interest.26 ___________________________

25 The Secretary’s authority was established by the Department of Energy Organization Act, 42U.S.C. § 7172, which transferred jurisdiction over imports and export authorizations from theFederal Power Commission to the Secretary of Energy.

26 See, e.g., Sabine Pass, Order No. 2961, at 28; Phillips Alaska Natural Gas Corp. & MarathonOil Co., DOE/FE Order No. 1473, Order Extending Authorization to Export Liquefied Natural Gasfrom Alaska, at 13 (April 2, 1999), citing Panhandle Producers & Royalty Owners Ass’n v. ERA,822 F.2d 1105, 1111 (D.C. Cir. 1987).

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While section 3(a) establishes a broad public interest standard and a presumptionfavoring export authorizations, the statute does not define “public interest” or identifycriteria that must be considered. In prior decisions, however, DOE/FE has identified arange of factors that it evaluates when reviewing an application for export authorization.These factors include economic impacts, international impacts, security of natural gassupply, and environmental impacts, among others. To conduct this review, DOE/FE looks torecord evidence developed in the application proceeding.27

DOE/FE’s prior decisions have also looked to certain principles established in its 1984Policy Guidelines.28 The goals of the Policy Guidelines are to minimize federal controland involvement in energy markets and to promote a balanced and mixed energyresource system. The Guidelines provide that:

The market, not government, should determine the price and other contract terms ofimported [or exported] natural gas .... The federal government’s primary responsibilityin authorizing imports [or exports] will be to evaluate the need for the gas andwhether the import [or export] arrangement will provide the gas on a competitivelypriced basis for the duration of the contract while minimizing regulatoryimpediments to a freely operating market.29

While nominally applicable to natural gas import cases, DOE/FE subsequently held in OrderNo. 1473 that the same policies should be applied to natural gas export applications.30

In Order No. 1473, DOE/FE stated that it was guided by DOE Delegation Order No.0204-111. That delegation order, which authorized the Administrator of the EconomicRegulatory Administration to exercise the agency’s review authority under NGA section 3,directed the Administrator to regulate exports “based on a consideration of the domesticneed for the gas to be exported and such other matters as the Administrator finds in thecircumstances of a particular case to be appropriate.”31 In February 1989, the AssistantSecretary for Fossil Energy assumed the delegated responsibilities of the Administrator of ERA.32

Although DOE Delegation Order No. 0204-111 is no longer in effect, DOE/FE’s review ofexport applications has continued to focus on: (i) the domestic need for the natural gasproposed to be exported, (ii) whether the proposed exports pose a threat to thesecurity of domestic natural gas supplies, (iii) whether the arrangement is consistentwith DOE/FE’s policy of promoting market competition, and (iv) any other factorsbearing on the public interest described herein. ___________________________

27 See, e.g., Sabine Pass, DOE/FE Order No. 2961, at 28-42 (reviewing record evidence inissuing conditional authorization); Freeport LNG, DOE/FE Order No. 3282, at 109-14 (discussingsame); and Lake Charles Exports, DOE/FE Order No. 3324, at 121-27.

28 New Policy Guidelines and Delegations Order Relating to Regulation of Imported Natural Gas,49 Fed. Reg. 6684 (Feb. 22, 1984) [hereinafter 1984 Policy Guidelines].

29 Id. at 6685.

30 Phillips Alaska Natural Gas, DOE/FE Order No. 1473, at 14, citing Yukon Pacific Corp., DOE/FE Order No. 350, Order Granting Authorization to Export Liquefied Natural Gas from Alaska, 1FE ¶ 70,259, at 71,128 (1989).

31 DOE Delegation Order No. 0204-111, at 1; see also 49 Fed. Reg. at 6690.

32 See Applications for Authorization to Construct, Operate, or Modify Facilities Used for theExport or Import of Natural Gas, 62 Fed. Reg. 30,435, 30,437 n.15 (June 4, 1997) (citing DOEDelegation Order No. 0204-127, 54 Fed. Reg. 11,436 (Mar. 20, 1989)).

These justifications appear to be “circular logic’ defining public interest with reference to itself.

My previous letters have suggested that we demand petroleum industry CEOs tell us how theywill continue to supply fuels when earnings and dividends fall to critical levels, share priceplummets, they are no longer financially viable in the marketplace, and they become insolvent.

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Up to now, I have believed that Congress—specifically the Senate Committee on Energy andNatural Resources—has the rightful authority to conduct such an inquiry, as both FERC andDOE carry out the laws that Congress passes, laws which are spawned in your committee.

Now, having discovered a conundrum which would make the results of any such investigationmeaningless, given the lack of a precise definition and standard for national interest or publicinterest, I suggest that you first come up with suitable, complete and relevant definitions,and be prepared to hold the petroleum companies accountable to those definitions.

Only then can we compel them to share their visions and results of their economic models, andto explain their business strategies in context with their definition of Corporate Citizen. That willbe an interesting juxtaposition with what you declare to be in the national and public interest.From your usage in the enclosed June 4, 2014, letter to Cheryl LaFleur (then Acting Chairmanof FERC) it is not clear to me how you as ENR Chairman differentiate between the two.

I still believe that we must find ways to avert petroleum production and refining companiesgoing out of business as a result of sustained low commodity prices manipulated by competitiveforces in other parts of the world. I also believe that it is incumbent upon us to change theparadigm from growing “upward” to growing in breadth with diversification, from the “traditional”and “conventional” to the “innovative” and “sustainable.” We must make our national resourcesimmune to the manipulations of a commodity to which we have made ourselves vulnerable.

MY ASK: Therefore, I call upon the Senate Committee on Energy and Natural Resourcesto guide the petroleum industry to provide a choice of transportation fuels, which will alsoenhance their longevity as viable corporations that are intended to live forever.

We must be precise as to what we are demanding of the industry—clear expectations—whenwe demand that they make decisions in the national interest and public interest.

What do we mean by national interest or public interest while corporate profitability is in thebalance, and we face insolvency of the industry? Our predicament is self-induced vulnerability.We have brought it upon ourselves by a laissez-faire attitude with industry behaving accordingto free market conventions. We have allowed a lack of innovation through our investment taxcredits and other subsidies. Now we must level the playing field, force innovation and let true

competition see that “the cream will rise to the top.” Oil certainly is no longer “black gold.” As I suggested yesterday, we must now choose whether to battle foreign manipulation of crudesupply and price, or to shift our national policies and human energies away from such conflicts. I believe our only choice is to step into the future with the pizzazz of the burgeoning electric carofferings and innovation of battery and other not-ready-for-prime-time high tech portable fuels.

Sincerely yours,

Doug [email protected]

Page of4 4



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Lincoln, NE 68506 (510) 432-1452

September 10, 2015

Senate Committee on Energy and Natural Resources

304 Dirksen Senate Office BuildingWashington, D.C. 20510



Dear ENR Staff, (Originally mailed May 28, 2015)

I am gravely concerned for the U.S. economy and social stability in the plausible event that oilcompanies become unprofitable and are forced to close down operations as a result of cashflow and insolvency issues that result from sustained low price levels for petroleum (crude oil).

What I fear is an unexpected (if not unforeseen) scenario in which financial strength of large oilcompanies declineinsufficient to buy the assets of failed companies, leaving a precipitousgap between supply and demand of fuels. Their financial stability is already at a cross-roads.

For the sake of national security and true energy independence, we need to be watchful andsafeguard the vitality of U.S. oil companies as “national resources”as “national treasures.”

We must assess the likelihood that U.S. oil companies will remain in business as the globalprice of crude oil remains low in a worst case scenario. We must prepare for the eventualitythat an economic house of cards could come crashing down, taking stock markets down in ageneral panic as happened in 2002 and 2008. Pensions and life-savings are in jeopardy forpeople in all demographics if a collapse of the oil production and refining industry were to occur.

The oil companies have economic models, which have the capability to evaluate and plan for“what if” scenarios. I believe that it would be in the national interest for the Senate Committeeon Energy and Natural Resources to understand the sensitivity of each oil company’s businessplan to sustained low crude oil prices, and to assess the downside potential destruction to oureconomy in the worst case scenarios of plausible worldwide oil market environments.

In the public interest, I ask the ENR Committee to convene a series of hearings for the purposeof investigating U.S. petroleum production and refining corporations in depth as to how theyenvision sustaining operations while profitability wanes and insolvency spreads. How do theyenvision winding down operations as they struggle to fulfill their fiduciary duty to investors whenprudent businessmen would be curtailing unprofitable operations. Such scenarios are plausibleand we must prepare to respond in order to avert the devastation of the worst case scenarios.

Therefore, please call upon Chevron CEO John S. Watson, ConocoPhillips CEO Ryan Lance,Enterprise Products CEO, Michael A. Creel, ExxonMobil CEO Rex W. Tillerson, Flint HillsResources CEO Bradley J. Razook, Hess CEO John B. Hess, Marathon CEO Lee M. Tillman,Murphy Oil CEO Roger W. Jenkins, Sunoco CEO Robert W. Owens, Tesoro CEO Gregory J.Goff, Valero CEO Joseph W. Gorder, World Fuel Services CEO Michael J. Kasbar, and othersas may be required to get a diverse assessment of the entire spectrum of the industry’s vision.

Sincerely yours,

Doug Grandt

[email protected]



19/56

ATTN: Ms. Karen Billups (Originally mailed June 21, 2015)


Dear Staff and Members of the Senate Committee on Energy and Natural Resources,

It has been three weeks since I hand-delivered my most recent letter to your offices on May 29.There has not been one single response — from any of you — to any of my thirteen letters.

The scenario that I have presented would be disastrous to the American economy and society.BloombergBusiness has published another report that supports the scenario (attached) It isbecause of the oil producing and refining industries’ greed, hubris and foibles that we couldface an unprecedented catastrophe of their making, and unfortunately, your willful blindness.

Senator Angus King is the only one among you who has come close to questioning the validityof the industry’s desire to export their glut of oil. During his questioning of Ms. Karen Harberton June 9th, he managed to “nail her down” to a telling response that they are running out ofstorage and want to sell it on the international market where there is refining capacity for lightoil — U.S. refineries are apparently geared up to process heavy crude and tarsands bitumen.

If you missed it, please listen to http://bit.ly/ENR9Jun15 or read the transcript of Senator King's

question (beginning at 2:03:45) and Karen Harbert's response (ending at 2:05:30).

I have written and emailed Mr. Rex Tillerson (CEO of ExxonMobil) that if there is even a remotelikelihood of a devastating drilling, production or transportation accident (blowout, spill or fire)

we should not even risk it — avoid the risk with zero tolerance. The same message is for you:

If there is a likelihood that there may be an uncontrolled economic collapse caused by one ormore oil producing or refining corporations becoming unprofitable and going out of business,do you think we should be prepared to recognize the symptoms and act to avert catastrophe?

Please call a hearing as requested in my May 29 letter (attached for your convenience).

Sincerely yours,

Doug GrandtEnclosures

[email protected]


Lincoln, NE 68506 (510) 432-1452

September 10, 2015

Senate Committee on Energy and Natural Resources

304 Dirksen Senate Office BuildingWashington, D.C. 20510

http://bit.ly/ENR9Jun15mailto:[email protected]


20/56


Dear ENR Staff,

I am gravely concerned for the U.S. economy and social stability in the plausible event that oilcompanies become unprofitable and are forced to close down operations as a result of cashflow and insolvency issues that result from sustained low price levels for petroleum (crude oil).

What I fear is an unexpected (if not unforeseen) scenario in which financial strength of large oil

companies decline

insufficient to buy the assets of failed companies, leaving a precipitousgap between supply and demand of fuels. Their financial stability is already at a cross-roads.

For the sake of national security and true energy independence, we need to be watchful andsafeguard the vitality of U.S. oil companies as “national resources”as “national treasures.”

We must assess the likelihood that U.S. oil companies will remain in business as the globalprice of crude oil remains low in a worst case scenario. We must prepare for the eventualitythat an economic house of cards could come crashing down, taking stock markets down in ageneral panic as happened in 2002 and 2008. Pensions and life-savings are in jeopardy forpeople in all demographics if a collapse of the oil production and refining industry were to occur.

The oil companies have economic models, which have the capability to evaluate and plan for

“what if” scenarios. I believe that it would be in the national interest for the Senate Committeeon Energy and Natural Resources to understand the sensitivity of each oil company’s businessplan to sustained low crude oil prices, and to assess the downside potential destruction to oureconomy in the worst case scenarios of plausible worldwide oil market environments.

In the public interest, I ask the ENR Committee to convene a series of hearings for the purposeof investigating U.S. petroleum production and refining corporations in depth as to how theyenvision sustaining operations while profitability wanes and insolvency spreads. How do theyenvision winding down operations as they struggle to fulfill their fiduciary duty to investors whenprudent businessmen would be curtailing unprofitable operations. Such scenarios are plausibleand we must prepare to respond in order to avert the devastation of the worst case scenarios.

Therefore, please call upon Chevron CEO John S. Watson, ConocoPhillips CEO Ryan Lance,

Enterprise Products CEO, Michael A. Creel, ExxonMobil CEO Rex W. Tillerson, Flint HillsResources CEO Bradley J. Razook, Hess CEO John B. Hess, Marathon CEO Lee M. Tillman,Murphy Oil CEO Roger W. Jenkins, Sunoco CEO Robert W. Owens, Tesoro CEO Gregory J.Goff, Valero CEO Joseph W. Gorder, World Fuel Services CEO Michael J. Kasbar, and othersas may be required to get a diverse assessment of the entire spectrum of the industry’s vision.

Sincerely yours,

Doug Grandt

[email protected]

P ERSO N AL

SEN AT O R’S EY ES


Lincoln, NE 68506 (510) 432-1452

May 29, 2015

Senate Committee on Energy and Natural Resources304 Dirksen Senate Office BuildingWashington, D.C. 20510



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The Shale Industry Could Be Swallowed By Its Own Debt

BloombergBusiness | by Asjylyn Loder | June 18, 2015 | http://bit.ly/Bloom18Jun15

The debt that fueled the U.S. shale boom now threatens to be its undoing.

Drillers are devoting more revenue than ever to interest payments. In one example,

Continental Resources Inc., the company credited with making North Dakota’s Bakken

Shale one of the biggest oil-producing regions in the world, spent almost as much as

Exxon Mobil Corp., a company 20 times its size.

The burden is becoming heavier after oil prices fell 43 percent in the past year. Interest

payments are eating up more than 10 percent of revenue for 27 of the 62 drillers in the

Bloomberg Intelligence North America Independent Exploration and Production Index,

up from a dozen a year ago. Drillers’ debt ballooned to $235 billion at the end of the first

quarter, a 16 percent increase in the past year, even as revenue shrank.

“The question is, how long do they have that they can get away with this,” said Thomas

Watters, an oil and gas credit analyst at Standard & Poor’s in New York. The companies

with the lowest credit ratings “are in survival mode,” he said.

http://bit.ly/Bloom18Jun15http://www.bloomberg.com/authors/APpq39o3NYw/asjylyn-loder


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The problem for shale drillers is that they’ve consistently spent money faster than they’ve

made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent

$4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year

earlier, while pushing U.S. oil production to the highest in more than 30 years.

“There’s a liquidity issue, and you start looking at the cash burn,” Watters said.

Distressed Debt

Continental borrows at cheaper rates than many of its smaller peers because its debt is

investment grade. S&P assigns speculative, or junk, ratings to 45 out of the 62 companies

in the Bloomberg index.

“Our cash flow easily covers interest costs, and we expect to continue maintaining our

investment-grade credit rating as commodity prices recover,” said Warren Henry, a

spokesman for Oklahoma City-based Continental.

Almost $20 billion in bonds issued by the 62 companies are trading at distressed levels,

with yields more than 10 percentage points above U.S. Treasuries, as investors demand

much higher rates to compensate for the risk that obligations won’t be repaid, data

compiled by Bloomberg show.

“Credit markets have played a big role in keeping the entire sector alive,” said Amrita

Sen, chief oil analyst at Energy Aspects Ltd., a consulting firm in London.

So far this year, S&P lowered the outlook or downgraded the credit of almost half of the

105 U.S. exploration and production companies that it rates, according to a May report.

Financial Drain

Companies have reduced spending to cope with lower prices, but those cuts will

eventually lead to production declines, further shrinking revenue, Watters said.

West Texas Intermediate, the U.S. benchmark grade, lost 11 cents $60.34 a barrel in

electronic trading on the New York Mercantile Exchange at 1:04 p.m. Singapore time on

Friday.

U.S. oil production will begin to fall this month and will continue to slide until early 2016

as shale drillers reduce spending, the Energy Information Administration said in a June 9

report.

Interest expense can drain a company’s finances. At this time last year, Quicksilver

Resources Inc. was spending more than 20 percent of its revenue on interest. The

company missed a debt payment in February and has since filed for bankruptcy. Sabine

Oil & Gas LLC missed an interest payment in April and another this month.

http://www.eia.gov/forecasts/steo/report/us_oil.cfm


23/56

Representatives of Fort Worth, Texas-based Quicksilver and Sabine, based in Denver,

didn’t return calls or e-mails seeking comment. Sabine shares fell 96 percent in the past

year to 8.5 cents, and its bonds are trading for less than 23 cents on the dollar.

Corporate Defaults

Oil and gas companies accounted for one-third of the 36 corporate-debt defaultsworldwide this year, and missed interest payments are the leading cause of default,

according to a May 14 S&P report. Companies including SandRidge Energy Inc.,

Breitburn Energy Partners LP and Halcon Resources Corp. have raised cash by taking on

new debt or issuing new shares.

The new debt issued by Halcon and SandRidge is secured by oil and gas assets, making it

less likely that unsecured bondholders will get repaid in a default. Both companies’ older,

unsecured bonds are trading at distressed levels. Halcon’s are going for 72 cents on the

dollar or less and SandRidge’s for 62 cents or less, according to data compiled byBloomberg.

The new borrowing can be expensive. Oklahoma City-based SandRidge issued $1.25

billion of second-lien debt this month at 8.75 percent interest, more than all but one of

their existing bonds, records show. The company paid $24 million in fees and will add

$109 million a year to interest payments, which are already eating up 29 percent of its

revenue.

“It provides us with liquidity we otherwise wouldn’t have had,” said Justin Lewellen, a

SandRidge spokesman. “It bought us some significant time.”

SandRidge’s shares fell 84 percent in the last year to $1.08.

The financial troubles of the smaller players become amplified with lower oil prices, Sen

said.

“We haven’t seen the worst,” she said.


24/56


Dear Members of the Senate Committee on Energy and Natural Resources,

You have not responded to any of my 14 letters on this subject from February 15 to June 21in which I have explicitly and comprehensively requested you to call CEOs of petroleumproduction and refining corporations to a hearing to investigate prospects of their becoming

unprofitable and going out of business in view of sustained low international market prices.

Your response is requested. I’ve provided a multiple choice survey for your convenience:

Please indicate your opinions and beliefs. Return in the stamped self-addressed envelope.

Sincerely yours,

Doug Grandt

Lisa Murkowski709 Hart

Jeff Flake413 Russell

Maria Cantwell511 Hart

Elizabeth Warren317 Hart

Lamar Alexander455 Dirksen

Cory Gardiner354 Russell

Al Franken309 Hart

Ron Wyden221 Dirksen

John Barrasso307 Dirksen

John Hoeven338 Russell

Martin Heinrich702 Hart

Shelley Capito172 Russell

Mike Lee361A Russell

Mazie Hirono330 Hart

Bernie Sanders332 Dirksen

Bill Cassidy703 Hart

Rob Portman448 Russell

Joe Manchin306 Hart

Angus King133 Hart

Steve Daines320 Hart

James E. Risch483 Russell

Debbie Stabenow731 Hart

I share your concern oil companies may go out of business if oil prices remain low

I am not concerned that oil companies may go out of business if prices remain low

I doubt that CEOs and Boards of Directors will act in the Public and National Interest

I always trust CEOs and Boards of Directors to act in the Public and National Interest

I agree, in these times, U.S. oil companies must be treated as National Resources

I agree that oversight of oil company decisions is in the Public and National Interest

I agree that Congress should clearly define Public Interest and National Interest

[email protected]


Lincoln, NE 68506(Originally mailed June 21, 2015) (510) 432-1452

Sept. 10, 2015Members of the Senate Committee on Energy and Natural Resources




25/56


Dear Members of the Senate Committee on Energy and Natural Resources,

Apparently the mere suggestion that continued low oil prices could make oil production andrefining operations unprofitable and cause them to go out of business is unspeakable, to the

point of silencing the most powerful among American citizens and leaders. Your responseto my request has been complete silence—absolute zero. Is it just wishful thinking that youwould at least respond with a form letter that you will take my concerns under advisement?

What is happening in Greece could happen in America due to our vulnerability to oil pricing.

Please scan and email your responses to me at [email protected] or mail USPS.

.

Doug Grandt

[email protected]

Members of the Senate Committee on Energy and Natural Resources ATTN: Ms. Kren Billups

Lisa Murkowski709 Hart

Jeff Flake413 Russell

Maria Cantwell511 Hart

Elizabeth Warren317 Hart

Lamar Alexander455 Dirksen

Cory Gardner354 Russell

Al Franken309 Hart

Ron Wyden221 Dirksen

John Barrasso307 Dirksen

John Hoeven338 Russell

Martin Heinrich702 Hart

Shelley Capito172 Russell

Mike Lee361A Russell

Mazie Hirono330 Hart

Bernie Sanders332 Dirksen

Bill Cassidy703 Hart

Rob Portman448 Russell

Joe Manchin306 Hart

Angus King133 Hart

Steve Daines320 Hart

James E. Risch483 Russell

Debbie Stabenow731 Hart

As a member of the of Energy & Natural Resources Committee, I believe & opine









Lincoln, NE 68506 (510) 432-1452(Originally mailed June 6, 2015)

September 10, 2015

mailto:[email protected]:[email protected]


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Please scan and email your responses to me at [email protected] or mail USPS

.

.


.

.


Lisa Murkowski, Chairman of Energy & Natural Resources Ctee believe & opine:








Lamar Alexander, Member of Energy & Natural Resources Ctee believe & opine








John Barrasso, Member of the Energy & Natural Resources Ctee believe & opine








mailto:[email protected]:[email protected]:[email protected]


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.


Shelley Capito, Member of the Energy & Natural Resources Ctee believe & opine








Bill Cassidy, Member of the Energy & Natural Resources Ctee believe & opine:








Steve Daines, Member of the Energy & Natural Resources Ctee believe & opine:










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Jeff Flake, Member of the Energy & Natural Resources Ctee believe & opine:








Cory Gardner , Member of the Energy & Natural Resources Ctee believe & opine:








John Hoeven, Member of the Energy & Natural Resources Ctee believe & opine:










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Mike Lee, Member of the Energy & Natural Resources Ctee believe & opine:








Rob Portman, Member of the Energy & Natural Resources Ctee believe & opine:








James E. Risch, Member of the Energy & Natural Resources Ctee believe & opine










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Al Franken, Member of the Energy & Natural Resources Ctee believe & opine:








Martin Heinrich, Member of the Energy & Natural Resources Ctee believe & opine








Mazie Hirono, Member of the Energy & Natural Resources Ctee believe & opine:









8/20/2019 Republican Chief o

Documents

Republican Chief of ENR - 10 September 2015 - 21 Letters