Mom and pop fracking operations are beating out larger competitors like Exxon.
The fracking industry in the U.S. is booming, with mom and pop operations beating out larger competitors in terms of profit margins stemming from domestic shale drilling operations — from Pennsylvania to North Dakota.
As smaller North American oil companies focus solely on new deposits of oil made available through fracking technology, they’ve seen their opportunities expand exponentially, and they’re left without the worries of global oil and refinery operations.
“It’s a difficult time for big integrateds. They are not seeing production growth, refining margins are deteriorating, and costs are going up. That’s not a good combination,” Edward Jones oil analyst Brian Youngberg told Reuters.
EOG Resources, an operation that currently yields 153,000 barrels of oil a day, is expected to see profits triple this year, reaching $1.92 billion, following a 36 percent increase in shale oil production from 2012. In 2012, the company posted 50 percent earnings per share growth, pointing to oil drilling in North Dakota and South Texas as key sources of revenue.
Pioneer Natural Resources is another relatively small energy company cashing in big with domestic fracking operations. Its profit margin as of June was just shy of 40 percent, with a net income increase from $19 million in December 2012 to $337 million in June 2013, according to Bloomberg.
Meanwhile, Exxon saw a drastic decline in profits last quarter, filing a profit of $6.9 billion, compared to last year’s $15.9 billion — that’s a decline of 57 percent. Oil production for the company fell by 2 percent, yet it still accounted for international recovery of 4.1 million barrels a day.
While news of Exxon’s decline may have given temporary cause for celebration among anti-fracking advocates, it didn’t reflect the industry’s overall success with growing fracking operations.
In all, 2012 was the largest oil production year in the U.S., according to a BP Statistical Review of World Energy report, which claimed the U.S. has the “highest growth of both oil and natural gas,” all having to do with fracking.
Is this how oil companies envisioned it playing out?
When fracking became known as a viable option for oil production, large oil companies that had dominated the market saw dollar signs. Economists predicted the newfound deposits would add earnings and jobs to Big Oil.
Yet some “mom and pop” operations saw the industry available in their backyard, and they jumped at the opportunity to get a piece of the pie. In fact, that’s how it all began. George Mitchell, who owned Mitchell Energy, began drilling for oil deposits hidden below the ground with experimental technology.
According to CNN Money, Mitchell did it in the shadows of Exxon — literally. An experimental drilling site for Mitchell was in Irving, Texas, home to Exxon’s headquarters.
It took Mitchell 20 years to finally get it right, and in 2002, he sold the company to Devon Energy for $3.2 billion. While geologists across the oil business spectrum knew the oil was there, it was Mitchell who finally engineered a way to extract it at a price that made sense for profits.
While Big Oil took notice and began preparing for a fracking boom, the trends are turning back to smaller operations.
Exxon Mobil, the nation’s leading oil company, spent millions on pro-fracking advertisement — $2 million was spent on advertising campaigns in New York alone, where fracking is temporarily halted by a de-facto moratorium.
While those advertisements may have contributed to the rapid growth of the industry, it now seems as though smaller companies benefited from Exxon’s push to sell fracking to the American public.
In April 2012, Exxon Mobil CEO Rex Tillerson told CNN Money’s Brian O’Keefe that drilling oil from America’s shale deposits was the new profit frontier for the nation’s oil giant.
“In fact, Tillerson is betting much of his company’s future growth — and a good portion of his legacy — on the promise of fracking,” O’Keefe wrote.
In order to make that vision a reality, Exxon Mobil purchased XTO Energy, a company that was raring to enter the fracking industry at full-speed. O’Keefe pegs it as the largest Exxon acquisition, carrying a price tag of $35 billion.
At the time Tillerson made his comments, the only roadblock to Big Oil success in the burgeoning American oil market were environmentalists and concerned citizens, neither of whom the CEO regarded as a real threat.
“The most important thing for people to understand about shale gas is it’s just yet the next big resource opportunity for us,” Tillerson said. “The world’s economy has a voracious appetite for energy, so thank God we can do this.”
He might not be thanking God quite so much now, with drastically low recent earnings. Yet the show isn’t over yet for Exxon. While small oil companies have flooded the market in North Dakota, Pennsylvania and Colorado, Exxon still has an opportunity to move ahead in New York.
Exxon’s hope to move ahead in fracking game
There’s just one thing in the way: concerned residents have, up until this point, convinced Gov. Andrew Cuomo that the de facto moratorium is worth holding on to, for the sake of constituents from across the political spectrum who are opposed to the industry.
The moratorium dates back to 2010, when legislators passed a moratorium on fracking. It was vetoed by then-Gov. David Paterson, who instead instituted a temporary ban on the industry, pending an environmental review.
To this day, two environmental review drafts have been presented, yet neither has been deemed adequate. All it would take to lift the moratorium is for Cuomo to accept the next draft, and New York residents are hoping he doesn’t side with the oil industry.
“We have Republicans, Democrats, Independents, people from every part of the political spectrum, and people from every part of the state,” New Yorkers Against Fracking coalition representative John Armstrong told Mint Press News in a June interview, referring to those who are opposed to fracking in New York.
Exxon, on the other hand, is hoping for a Cuomo signature on the next review. Its XTO Company has already purchased 43,000 acres of New York land on the prized Marcellus Shale formation, and is looking to the untapped resource as an opportunity to get back in the game.
According to Geologist Gary Lash, the Marcellus Formation holds more than 500 trillion cubic feet of natural gas, and oil companies are chomping at the bit to get their share. There are also still potential opportunities in California’s Monterey shale formation, which is considered the largest oil formation in the nation.
While the federal government had previously issued leases for oil drilling on 2,500 acres of the California formation, a recent lawsuit filed on behalf of environmentalists claims it was unable to do so, as the proper environmental review was not conducted.
Yet New Yorkers, particularly those who have fought to keep the industry out, aren’t trusting of XTO Energy — with or without its Exxon label.
In July, the Environmental Protection Agency and the Justice Department slapped the company with a $100,000 fine for contamination of a tributary to Pennsylvania’s Susquehanna River.
The contamination stemmed from a 2010 spill in the state’s Penn Township, where inspectors discovered an open valve at a frack water recycling plant had led to a continuous spill into nearby bodies of water. Water in the tributary tested positive for the same chemicals found in the water storage tank.
“Many of the victims of fracking in Pennsylvania have gone out of their way to tell their stories in New York and show New Yorkers what’s happening,” Armstrong said.