21 June 2015 Letter to Senate Committee on Energy

8/21/2019 21 June 2015 Letter to Senate Committee on Energy

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Re: Oil Refining - Considering future eventualities versus the myopia of the present (letter #14)

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 is

because 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'squestion (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 or

more 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 Grandt

Enclosures

[email protected]

Douglas A. GrandtPO Box 6603

Lincoln, NE 68506 (510) 432-1452

June 21, 2015

Senate Committee on Energy and Natural Resources

304 Dirksen Senate Office BuildingWashington, D.C. 20510

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


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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 is

because 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'squestion (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 or

more 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 Grandt

Enclosures

[email protected]


Lincoln, NE 68506 (510) 432-1452

June 21, 2015

Senate Committee on Energy and Natural Resources

304 Dirksen Senate Office BuildingWashington, D.C. 20510


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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

mailto:[email protected]


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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


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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.

Documents

21 June 2015 Letter to Senate Committee on Energy