Tribes' billion dollar oil industry ... and now?
Indian Country Today
The future price for a barrel of crude oil dropped below zero on Monday. A new record. A minus sign for a future contract. And a day later the price was not much better. A barrel of crude was trading as low as $6.50 a barrel Tuesday, more than 80 percent lower than the start of the year.
For the tribes and Alaska Native corporations that produce oil or support the oil industry the collapse of the industry means less money across the board.
A year ago the Interior Department was hailing tribal production as a billion dollar business.
Assistant Secretary for Indian Affairs Tara Sweeney, Inupiaq, representing the Trump administration, told the U.S. Senate Committee on Indian Affairs that oil and gas production from Indian Country had almost doubled in one year.
The ten or so tribes with significant oil reserves include the Mandan, Hidatsa, and Arikara tribes in North Dakota, Southern Ute tribe in Colorado, Wind River Eastern Shoshone and Northern Arapaho tribes in Wyoming, Jicarilla Apache tribe in New Mexico, Navajo Nation in the Southwest, and the Osage Nation in Oklahoma. It’s hard to see how they can make a billion dollars in 2020 if prices stay so low.
Several for-profit Alaska Native corporations own subsurface mineral rights and provide oil support services. The dividends they issue to shareholders are likely to be affected by the record low oil prices too.
As a state and federal official, and as a journalist, Larry Persily has long tracked oil development world-wide. He’s Atwood Chair of Journalism at the University of Alaska Anchorage and an oil-and-gas columnist for the Alaska Journal of Commerce.
Persily said this week's drop in oil prices is not a surprise.
“The world has been over producing oil for months now. This is not new. What's new now is how much more we’re producing than the world needs.” He said a few months ago the gap between need and supply was small. “It was making people nervous but not nervous enough to kill prices.”
“This pandemic has made it worse, five times worse" said Chairman Mark Fox of the Mandan, Hidatsa, and Arikara Nation, also known as the Three Affiliated Tribes, in North Dakota, "because now all of a sudden, there's nowhere to put the oil.” Trucks, cars, and airplanes are parked, he added.
And if the companies can’t sell it or store it, Fox said, “then what's going to happen is you're going to take losses in your company because of what it costs to break even.”
He said the price will have to rise significantly before producers can come back on line. “I know a few companies that think they can keep their head above water in the upper thirties, but you know, most of them need to be at 40 [dollars per barrel] or more and we're in the same boat as well too.”
Fox said this price drop has "an immediate effect on all tribes involved in energy" production because so many developers will have to curtail their losses and close wells.
Fox said 90 percent of his tribes’ revenue is from oil.
“All of the general fund things that we do from infrastructure -- building buildings -- taking care of our people, paying for payroll, providing health care, paying for premiums for healthcare coverage, all of these things that we do for our people are in great danger," he said.
Office of Natural Resources Revenue spokesperson Chris Mentasti said the Department of Interior receives royalty payments from oil companies and it pays tribes up to 45 days after the date of production.
“When we go into May and then especially June and July, we're going to get hit so hard that it's going to be difficult," Fox said. "And the only hope we've got is that we get the rebound in May somehow and in June to weather the storm of June, July and August. And then all of a sudden we're getting back, you know, to where can we can operate and sustain operations.”
Fox said the Mandan, Haditsa, and Arikara tribes are looking for ways to keep people afloat while revenues decline and they lose millions of dollars. They have over 16,663 tribal citizens, and 1,600 employees.
The three tribes are drawing oil from the Bakken Formation, the largest group of deposits of oil and natural gas in the lower 48 states. “Experts are saying it could take a year to get back to $45, $50 a barrel oil for Bakken.” Fox said.
The Mandan, Hidatsa and Arikara Nation is currently the nation's top tribal oil producer.
Fox said with oil companies shutting in wells, “We're going to go from 300,000 barrels [per day] to, if we're lucky, we'll be hanging on to 50,000 barrels and that’s, it's looking crazy.”
“We’re going to need a bailout." Fox said. "We are. To protect this valuable resource, we're going to need the federal government to step up and provide some capital similar to that they've done for other major sectors of business in the United States. Step up and say, 'here you go, here's some dollars, you know, to help sustain your operations for your energy.' And whether it's in the form of a loan with forgiveness or just basic injection capital, it don't matter to me. But there needs to be a bailout of great magnitude because otherwise we fall in line with some of these tribes getting a few million here and a few million there. That's really going to do very little for us, with our loss.”
Fox said oil companies always come and go. Some will ride out the storm and others will be forced to sell or go bankrupt.
“But we're talking about Indian country. And Indian country in the United States possesses 30 percent of the nonrenewable energy resources,” he said.
If Congress doesn't provide a bailout, Fox said, “it's gonna undermine about 12 years of development for us in oil and gas, energy development, undermine everything, where we're going to have to, you know, take all our investment resources, all the money that we set aside, we're going to have to use that to survive -- if we survive -- and the whole system will crash.”
Fox said, “My goal has always been to lessen dependence on the federal government because that's the only way that we're ever going to get any social, economic wellness is to stop relying on the federal government. And here we are selling our own resource, very aggressively building infrastructure and moving fast forward.”
Then coronavirus hits and it’s “going to leave us with nothing.”
Engineering, pump operator, and "roughneck" job losses nationally are expected to number in the thousands.
"There have been estimates of 250,000 jobs lost in the oil and gas industry this year," Persily said. "Some certainly will come back when prices come back but probably not all.“ He believes demand is not going to return to pre-COVID-19 levels soon. He said, “This is going to take, I think years before the world consumes as much oil as it did in December, 2019 and you'll start to see some firming of prices.”
Persily said when the pandemic has abated, people may not return to burning oil at the same rate. "Let's use this to go to wind and solar renewables, and hopefully there'll be some tribes positioned to profit from that."
An article by the Institute for Energy Economics and Financial Analysis shows growing interest in Indian Country in renewable resources.
It says young tribal leaders such Cody Two Bears, Standing Rock Sioux Tribe, "see in renewable energy the potential for new jobs, lower electricity costs and energy independence, as well as a path away from the fossil fuel industry they say exploits tribes and their land. Two Bears helped coordinate the construction of the largest solar array in North Dakota — a project germinated from a solar-powered trailer demonstrators used during protests against the Dakota Access pipeline on the Standing Rock Reservation."
On renewable energy, the article quotes Two Bears as saying,"'the more and more we do it, the more and more we’re helping preserve our land for future generations."
The article goes on to note renewable energy projects on the Moapa Band of Paiutes Indian Reservation in Nevada and the Campo Indian Reservation near San Diego. The authors said tribal lands, especially in the Midwest and the West, include areas with some of the best wind and solar resources in the nation.
Corrected to add words inadvertently left out of a quote by Chairman Fox: "We are. To protect this valuable resource ..."
Joaqlin Estus, Tlingit, is a national correspondent for Indian Country Today, and a long-time Alaska journalist.
Indian Country Today, LLC., is a non-profit, public media enterprise. Reader support is critical. We do not charge for subscriptions and tribal media (or any media, for that matter) can use our content for free. Our goal is public service. Please join our cause and support independent journalism today. We have an audacious plan for 2020 and your donation will help us make it so. #MyICT