20 may 2015 - letters 1-12 for senator al franken

8/21/2019 20 May 2015 - Letters 1-12 for Senator Al Franken

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Senator Al Franken

May 20, 2015

I am a retired petroleum engineer, industrial engineer and corporate planner.Over the past 3 months, beginning February 15, I have written you 12 letters.

They are about a simple concept that nobody to my knowledge is aware ofand I believe there needs to be a discussion about the plausibility of a severdisruption in the supply of fossil fuels for individual and commercial use.

I have come to a conclusion that the current state of global petroleum pricescould result in plausible, indeed, likely catastrophic consequences if people ofconscience and vision do not recognize the possibilities and act accordingly.

Imagine a progressive nation-wide disruption in the supply of essential fuels

• Petroleum and gas production and refining companies’ sudden demise

• Refineries’ throughput of crude falling to the minimum operating capacity

• CEOs and Boards of Directors’ decisions solely to preserve profitability

• Business plans and strategic decisions not in the public/national interest

• Major petroleum refining operations being abandoned when earnings fall

• Sudden and unexpected shutting down refining operations curtail supply

• Unexpected premature shortages of gasoline, diesel, kerosene, etc.

• Disruption of air travel, truck and rail distribution, personal travel by car

Imagine the impact of sustained low price levels for petroleum products

• Drilling new wells in the Bakken and elsewhere is being curtailed

• Falling into negative cashflow and profitability, businesses are failing

• Economic lifespan of the current gas and oil boom are being shortened

• Blue Chip corporations manipulating share price and dividends per share• Debt is incurred to pay dividends due to declining earnings and free cash

• Borrowing to buy back stock is putting large corporations at financial risk

• At what point will declining production make operations unprofitable?

• What are business plans and end-game for unprofitable businesses?

• Do corporations and our government have a plan for a “soft landing”?


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Douglas Grandt

May 20, 2015

Petroleum Engineer

• Humble Oil & Refining Co. (Exxon Mobil)

Industrial Engineer, Corporate Planning, Logistics & Operations Management

• American President Lines (APL)

• Nippon Yusen Kabushiki Kaisha (NYK Line)

Air Pollution Engineer — California Environmental Protection Agency

• California Air Resources Board

• Diesel Risk Reduction Plan (September 2000)

• Commuter Buses and Transit Vehicles

• Commercial Harbor Craft

• Governor Arnold Schwarzenegger — Executive Order (June 2005)

• EO-S-3-05 establishes greenhouse gas emission reduction targets,creates the Climate Action Team and directs the Secretary of Cal/

EPA to coordinate efforts with meeting the targets with the heads ofother state agencies. The EO requires the Secretary to report backto the Governor and Legislature biannually on progress towardmeeting the GHG targets, GHG impacts to California, Mitigation and

Adaptation Plans.

• California Global Warming Solutions Act of 2006 (September 2006)

• Regulation for Energy Efficiency and Co-Benefits Assessment forLarge Industrial Sources (July 2010)

P. O. Box 6603Lincoln, NE 68506

(510) [email protected]

mailto:[email protected]


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Douglas A. Grandt PO Box 6603

Lincoln, NE 68506 (510) 432-1452

February 15, 2015

Senator Al FrankenCommittee on Senate Energy and Natural Resource309 Hart Senate O!ce Building Washington, D.C. 20510

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

Dear Senator Franken,

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

February 27, 2015

Senator Al FrankenSenate Committee on Energy and Natural Resources309 Hart Senate O!ce Building Washington, D.C. 20510



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 own 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 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 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 and

CEOs 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

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 that

companies 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

March 12, 2015




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 thantheir 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]


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Lincoln, NE 68506 (510) 432-1452

March 19, 2015




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 ofshale 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 strandedfrom 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]


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Lincoln, NE 68506 (510) 432-1452

April 2, 2015

Senator Al Franken309 Hart Senate O!ce Building Washington, D.C. 20510

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

Dear ENR Committee Member Franken,

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 administration

has 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 a member 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

April 7, 2015




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, demandingthat their cash flow and earnings be protected by allowing the glut of excess production to

flood 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 Al Franken 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 Al Franken 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 the ENR Committee convene a hearing and ask Rex Tillerson and otherCEOs if they will supply fuels when profits fall below breakeven. Ask how they will clean up thetoxic 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

April 8, 2015




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 strategiesand 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 the

Deepwater 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/BPmailto:[email protected]://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/BP


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Lincoln, NE 68506 (510) 432-1452

April 26, 2015




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 membersof the Senate Committee on Energy and Natural Resourceswhich 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 andengaging with fossil fuel companies as an investor. The report argues that investors who

stay 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

May 11, 2015




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

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]



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Lincoln, NE 68506 (510) 432-1452

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, Section

3 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 exportation

or 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 her usage in the enclosed June 4, 2014, letter to Cheryl LaFleur (then Acting Chairman ofFERC) it is not clear to me how ENR Chairman Murkowski differentiates 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]

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20 may 2015 - letters 1-12 for senator al franken

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