Dear President Trump – What Are You Doing About Energy?

By Terry Hallmark, Instructional Assistant Professor, Honors College

Dear President Trump,

I thought I’d drop you a line. They had a symposium at the University of Houston recently on “The Future of Energy Policy.” It was good. Even tempered. A Democrat and Republican Republican U.S. Rep. Pete Olson and Democrat Rep. Gene Greeneven got along, and no one had a bad word to say about you.

That was refreshing, because lately everywhere I go on campus someone is cracking a joke every time your name is mentioned. Guess it’s because it’s a university campus – you know, where lots of left-leaning college professors hang out. A fellow who ran a bar in Brooklyn laughingly used to call professors “the Intelligenski,” because they think they’re smarter than everybody else. They can’t believe anybody would be foolish enough to pick you over Hillary. Well, I think they’re the fools. Plenty of folks voted for you – after all, you won – they’re just afraid to admit it. Maybe there needs to be something like Alcoholic Anonymous, you know, like Trump Supporters Anonymous –TSA – although it might get confused with the gang that makes you take your shoes off at the airport.

Seriously, the numbskulls who don’t like you say you’re dumb as a shovel, but you don’t get as rich as you are by being dumb – and besides, shovels are useful, especially when you’re digging holes. Plus, you’ve got the support of some smart, conservative academic types. A few weeks ago, the Chronicle of Higher Education published an article about a bunch of political scientists at the Claremont Colleges in California you’re apparently leaning on for advice. That’s where I got my Ph.D., so I know nearly all of them. Charles Kessler, who got most of the coverage in the article, was the chairman of my dissertation committee. He’s an expert on American Political Thought (back when Americans were thinking) and on the U.S. Constitution and the Federalist Papers (the “go to” handbook on how the Constitution is supposed to work). He and his buddies will be handy.

And what about your cabinet appointees, especially those who know something about energy? Rex Tillerson was a bold pick as Secretary of State. I used to work in the oil industry for this outfit called IHS, and the firm has a week-long shindig every spring called CERAWeek, where all the energy execs hang out, network and give talks. It’s run by a member of your Strategic and Policy Forum, Dan Yergin. I spoke there once. Tillerson spoke there in 2015. He has a presence, as they say. He is an Eagle Scout, and he’s from Texas. That means he’s solid and will probably do a good job.

And since he used to run ExxonMobil, he knows energy and has experience with Vladimir Putin and other heavy-handed types. He also knows about oil exploration in garden spots like Chad and Equatorial Guinea – where the people don’t give a flip about their Size 3 carbon footprint and the leaders have names that are impossible to pronounce. (Try saying Teodoro Obiang Nguema Mbasogo three times fast.) I’m a little bit worried, though, because you’re both big time wheelers and dealers at the highest levels of Big Oil and Big Buildings. Hope you guys don’t have to have your egos shoehorned into the Oval Office just to have a chat.

I’m not quite as gung-ho about your pick for Secretary of Energy, Texas’ ex-Governor, Rick Perry (now a member of your National Security Council). Sure, he’s smarter than folks think, he’s won more races for governor than anybody in the state’s history, and Texas is a big energy state – but I still wonder why you picked him. I’m not sure he’s got what President George H.W. Bush used to call “the vision thing.” He’s run for your job twice, and you’ll remember he wanted to shut down the Energy Department. Now I guess he doesn’t. Kinky Friedman, this musician/comedian/writer from Austin, ran against Perry for governor a few years back and called him “Governor Good Hair.” Maybe that’s why you picked him. You clearly know a good ’do when you see one.

As far as the issues go, I think you’ve got some things right, including support for the Dakota Access and Keystone XL oil pipelines. You’re going to take some heat from environmentalists, but don’t let that bother you. Those pipelines mean jobs for Americans, and don’t worry about all those reports casting doubt on that. If the Canadian oil intended for the Keystone XL pipeline doesn’t come here, it’ll go someplace else – like China. That’s no good.

Kudos to you, too, for being bullish on fracking. The country’s awash with shale oil and gas, and oil exports are back for the first time in years. Just when it looked like oil prices might put the kibosh on several fracking projects, low oil prices have allowed them to move forward. Voila, “Permania”! The giant shale play in the Permian Basin could have 20 billion barrels of oil and 16 trillion cubic feet of natural gas. That means more oil on the market and lower crude oil prices, which give our friends in OPEC and the Russians a bad case of nerves. Good.

All the shale oil and natural gas showing up to the Energy Prom brings me to my last point. A decade ago everyone was babbling about “peak oil” and the evils of those God-forsaken, gas-guzzling Hummers. Now the issue is “peak demand,” and GM doesn’t even make Hummers anymore (they were ugly). In 2006, the US ranked 11th in the world in proven oil reserves. Now, thanks to the fracking boom and shale oil, the U.S. is Numero Uno. Check it out. America is great again.

A speaker at the UH symposium said oil and natural gas are cheap, reliable and plentiful sources of energy. He’s right, but that’s just for now. A decade’s nothing – just two years past the end of your next term in office. If nothing else, the last 10 years have shown us just how quickly things can change, and change is certainly in the air when it comes to energy. So, go long – take the blinders off and think about energy out 30 or 40 years. Don’t be afraid to cozy up to new sources of energy, including renewables like solar and wind. Not many people know it, but Texas produces more energy from wind than any other state (plenty of hot air). I’m afraid you’re going to have to finalize a split with coal, though. That miner’s daughter’s not coming back.

Well, that’s it for now. I’ve got to go fill up my car and then wade through as much of Alexis de Tocqueville’s Democracy in America as I can manage before noon (it’s a beast – be glad you don’t need to read it). Maybe I’ll write again sometime. Until then, I remain,

Yours in oil (crude, that is – with associated gas),

Politicus Maximus Texanus


Terry Hallmark is an Instructional Assistant Professor in the Honors College. He teaches the Human Situation sequence, along with courses in ancient, medieval and early modern political philosophy, American political thought, American foreign policy and energy studies. His current research is focused on the political rhetoric and writings of Will Rogers. Prior to his appointment in the Honors College, Dr. Hallmark worked in the international oil and gas industry, where he had a 30-year career as a political risk analyst. He has been an advisor to international oil exploration and service companies, financial institutions and governmental agencies, including the World Bank, U.S. Department of Defense and members of the intelligence community. He is the Honors College coordinator for the minor in Energy and Sustainability Studies.

International Politics Is Always A Risk For Oil Companies, But Business Conditions May Matter More

By Terry Hallmark, Instructional Assistant Professor, Honors College

The field of political risk assessment has been in existence for roughly 40 years, and I was a practitioner in the international oil and gas industry for 30 of those, from 1983 to 2013. When I told someone that I was a political risk analyst, the next question was usually “Do you travel?” (not as much as one might expect); and then, “How many countries do you cover?” (90).

Once the preliminaries were over, the conversations usually turned to the risks themselves – all the “shoot ‘em up” stuff folks might come up with if they think about political risks – war, civil unrest, political violence, regime instability and the like. It always came as a surprise, though, when I noted that while international oil companies care about such risks – because they can mess up operations in a big way and the mitigation takes time and money – they’re not the oil companies’ primary concern.

International oil companies are more interested in what might be called commercial risks – opposition to foreign investment, repatriation difficulties and ad­­verse contract changes.

Last year was a busy one for contract changes – 40 countries changed contract terms in 2016, and predictions are that 2017 will be just as busy. That has implications that go beyond a company’s bottom line, potentially even affecting the price of oil.

Opposition to foreign investment can range from a country being completely closed off to foreign oil exploration to protests by environmentalists or indigenous peoples. Oil companies will simply look elsewhere if they can’t get in or if working in a country is too big a hassle. Repatriation of oil earnings can be a problem, too, but it is more an irritant than anything else, since the regulations are either stipulated in the contract or set forth in standing law.

Contract changes – especially adverse contract changes – are a different story. Oil companies expect the contracts they sign to hold, but that’s not always the case. There are three kinds of adverse contract changes – nationalizations, expropriations, and simple, unilateral changes by the government to existing contracts. The first two aren’t contract changes in the usual sense of the word, although tearing up an existing contract surely is a “change.” Nationalizations occur when a government takes over a complete industry; in the oil patch, that typically means establishing a national oil company to run things. Expropriations occur when a country unilaterally seizes control, through extra-legal means, of a project or facility. Both are “oil weapons” in a country’s arsenal that can be used to exert power, gain influence and implement foreign policy.

There have been several nationalizations over the years – the Soviet Union in 1918, Mexico in 1938, Iran in 1951 and Argentina, Egypt, Indonesia, Iraq and Peru in the 1960s. And while most analysts believed that nationalizations were long gone and a thing of the past, Bolivia nationalized the country’s natural gas sector in 2006.

Expropriations are more frequent.  For example, Russia took a 50 percent + one stake in Shell’s Sakhalin Island project in late 2006. In May 2007, a subsidiary of Venezuela’s national oil company, PDVSA, assumed control of the Cerro Negro heavy oil project following a decree issued by then-President Hugo Chavez.

Simple contract changes happen all the time. There are two kinds (and this isn’t rocket science): contract changes that are anticipated or known that pertain to new projects and those that are not – contract changes that may come out of the blue and affect existing projects. Wood Mackenzie, a United Kingdom-based oil and gas consulting firm, classifies contract changes as “evolutionary changes” (changes for new projects) and “disruptive changes” (contract changes for existing projects).

Oil companies can generally deal with contract changes that are evolutionary. They simply decide to invest in given country under the terms of the new contract or not.

Disruptive changes can be more problematic in that they can, and frequently do, result in a negative change in cash flow from a given exploration project. However, some disruptive contractual or legislative changes can be positive – i.e. designed to spur exploration activity and investment, such as recent cuts in corporate income tax rates in several countries around the world.

Things have been quite fluid lately, as some 40 countries changed contract terms in 2016. The changes were mostly in response to low oil prices and the subsequent budget shortfalls in oil-dependent countries, which resulted in higher tax rates for foreign oil companies. However, some countries, like the United Kingdom, lowered taxes to help oil companies break even in the low crude oil price environment.

Mexico was the most active country. The United States’ neighbor to the south changed contract terms five times, as it ended more than 70 years of government control of the oil sector. Other contract changes occurred in Russia (which seems to make contract changes constantly), the state of Rio de Janeiro in Brazil and Alaska in the U.S. This year looks to be just as busy as 2106, maybe even busier, as Wood Mackenzie anticipates evolutionary contract changes in Brazil, India, Indonesia, Iran, Mexico, South Africa, Thailand and Trinidad and Tobago; and disruptive changes in Australia, Alaska, Nigeria, Russia and parts of the North Sea. Some of the changes are expected to be positive, others negative, and some are likely to be mixed.

So why does all this matter? Who cares what kind of contract is in effect in a given country or if contract is evolutionary or disruptive or whatever? There are several reasons. At the simplest level, it’s about money. Dealing with an unstable investment climate takes time and trouble, and time is money. Anything that costs major oil companies money has an effect at the pump.  Changes in contracts – especially something like a nationalization or a major expropriation – can roil oil markets and drive crude prices through the roof. They can shut a country off from foreign investment altogether.

Further, a host country’s petroleum legislation, and the contracts that flow from it, is instructive, for it says something about how a country views its position in the international oil arena and what it hopes to gain from its oil sector. Is the country trying to maximize its oil earnings by establishing higher tax and royalty rates or is it trying to induce new investment by cutting taxes and royalties or sweetening the pot in other ways? Also, frequent contract changes, especially if they are adverse changes, are an indicator of how a country does business, how it views foreign investment, and perhaps most importantly, how it views the sanctity of law.

Finally, it’s worth reiterating: international oil companies are far more worried about getting into a country, getting the company’s money out of the country and being able to work under the auspices of a stable, signed contract through the life of the project than they are about the political risks in the country. And since contract changes – especially adverse or “disruptive” ones – usually occur unexpectedly, an effort to develop a method perhaps capable of anticipating such changes would seem in order.

That could be a good topic for another blog post down the road.


Terry Hallmark is an Instructional Assistant Professor in the Honors College. He teaches the Human Situation sequence, along with courses in ancient, medieval and early modern political philosophy, American political thought, American foreign policy and energy studies. His current research is focused on the political rhetoric and writings of Will Rogers.  Prior to his appointment in the Honors College, Dr. Hallmark worked in the international oil and gas industry, where he had a 30-year career as a political risk analyst. He has been an advisor to international oil exploration and service companies, financial institutions and governmental agencies, including the World Bank, U.S. Department of Defense and members of the intelligence community. He is the Honors College coordinator for the minor in Energy and Sustainability Studies.

Oil And Violence In The Niger Delta Isn’t Talked About Much, But It Has A Global Impact

By Terry Hallmark, Visiting Clinical Instructor, Honors College

There have been numerous reports over the last 18 months about terrorist attacks in Europe, the United States and elsewhere. But one long-running hotbed of political violence, Nigeria’s oil-producing Niger Delta, has garnered only a modest amount media attention.

Maybe it’s because the conflict between anti-oil insurgents and the government has gone on for so long, some 20 years, that there’s a bit of “Niger Delta fatigue.” Or perhaps it’s because the Niger Delta militants have no ties to radical Islamic groups like al-Qaeda or ISIS and have shown little or no interest in maiming or murdering the innocent – opting instead to attack targets like drill sites, pipelines, tankers and facilities in order to stifle oil production and cripple the Nigerian government economically.

Or it could be that the conflict hasn’t gotten as much play in the press as it deserves simply because international oil companies working in dangerous places is “old news.”

Because crude oil is such a valuable commodity, international oil companies are practically fearless, impervious to the threats posed by guerrillas, terrorists and insurgents; many of the oil workers are rough and tumble types – “adrenalin junkies” who enjoy the rush of going into such areas to get hydrocarbons out of the ground. But regardless of why the conflict has flown under the radar, what’s gone down in the Niger Delta over the last two decades is worthy of attention – much more so than Boko Haram – for it has a direct impact on the level of oil sector investment and operations in the area, Nigeria’s oil production and economy, and even world oil markets and oil prices.

Peace won’t be easy, but an uneasy détente is possible. Whatever happens will affect not only on oil companies, but consumers, too.

The story, in brief, is as follows: In the late 1980s, several indigenous tribal groups began raising concerns about international oil company operations in the Niger Delta, a region of about 27,000 square miles, larger than the state of West Virginia. The largest and best known of the groups was the Ogoni, an indigenous people of (now) nearly 1 million people. The Ogoni and other ethnic groups – the Ijaws, Itserikis, Urhobos, Isikos, Liages, Ikwerres, Ekpeyes and Ogulaghas – complained that Shell, Mobil and other oil companies were prospering at their expense, as the ethnic groups saw little of the wealth generated by the oil production, while suffering the fallout from widespread environmental degradation caused by exploration and production efforts.

The Ogonis’ response to these perceived wrongs was confined, at least initially, to protests, low-level acts of civil disobedience and minor, occasional acts of sabotage, along with the formation in 1990 of the Movement for the Survival of Ogoni People (MOSOP), led by author and environmental activist Ken Saro-Wiwa. The conflict escalated over the next few years, and in November 1995, SaroWiwa, and eight other activists were hanged by the Nigerian government.

The hangings radicalized the Niger Delta opposition groups, which began to organize and engage in acts of violence and terrorism directed at oil interests.