Boom & Bust: Oil and Economic Development in Rural America

By: Bradley Harn, Senior Staff member

Residents in the Midwestern United States may feel that concerns over oil production are far removed from their everyday lives. However, residents in small towns throughout North Dakota have had their lives changed by oil in recent years.[1] “The oil is being drawn from a formation beneath the land here and parts of eastern Montana and Canada. Named the Bakken, after the owner of the land where oil was first found, it was identified more than 50 years ago, but no one figured out how to tap into it successfully until recently.”[2]

This transition from sleepy small town to rapidly expanding oil city has been documented in the Planet Green TV show “Boomtown,” which documents the 1,000 resident town of Parshall, North Dakota.[3] Perhaps most interestingly, the oil is allowing substantial sums of money to pour into the region. For example, there have been “payments of five, six and seven digits to town residents who might not earn money of that magnitude in a decade.”[4]

An outside observer must question how beneficial this oil money will be in the long run. There have been historical examples of how the oil boom actually harmed other communities in the region. “In places like Williston, a city of more than 12,000 about 70 miles west of Stanley, people have been through such a boom before and suffered through the bust that followed. When oil showed promise in the early 1980s, some thought Williston’s population would grow to 40,000. City officials took on more than $20 million in debt to build streets and sewers for subdivisions that never arrived after the price of oil collapsed in the mid-1980s.”[5]

And certainly there are problems the present oil boom has created immediately. “Roads and water systems are being used at levels unseen here. The number of workers switching to oil jobs — the oil industry in the state expects to need 12,000 new workers by 2010 — has left some restaurants shortening their hours, county and town officials leaving positions unfilled, and at least one desperate fast food place offering signing bonuses.”[6]

The citizens of the state are divided on how to invest the money, be it on infrastructure, education, or otherwise.[7] They regard it as a “homegrown stimulus package.”[8] The experience of Parshall, North Dakota could prove to be an interesting case study for economic development strategies in rural communities.

[1] Jon Caramanica, A Little Place That Finds Itself Big Money, N.Y. TIMES, January 28, 2011, http://tv.nytimes.com/2011/01/29/arts/television/29boomtown.html.

[2] Id.

[3] Id.

[4] Id.

[5] Monica Davey, Oil in North Dakota Brings Job Boom and Burdens, N.Y. TIMES, January 1, 2008, http://www.nytimes.com/2008/01/01/us/01dakota.html?pagewanted=2.

[6] Id.

[7] Lauren Donovan, Looking Ahead: Where Will North Dakota’s Oil Money Go?, THE BISMARK TRIBUNE, May 5, 2010, http://bismarcktribune.com/news/the-changing-landscape/3fdad8d2-57f7-11df-970b-001cc4c002e0.html.

[8] Id.

Lower Yield Still Equals High Reward

By: Stephen M. Frazier, Senior Staff Member

Corn prices are at an all time high and grain farmers are cashing in. Projections indicate that corn prices will remain high for the rest of the year, and potentially into the first part of 2012. As a result, farmers are skipping crop rotations and replanting corn in fields where corn was grown the previous growing season. This practice is known as corn-on-corn crops.

Crop rotation is a practice used by farmers where they rotate the planting of wheat, corn, and soybeans on farm land. This is often necessary because the continuous growing of corn, particularly in no tillage situations, leads to an increased incidence of crop disease.[1] This is especially true of diseases that are caused by pathogens that survive in crop residue or in the soil.[2] Additionally, crops rotation helps to decrease the growth of weeds, crop residue, and insects that would otherwise occur in fields that were continuously planted with the same crops. Finally, experts tend to agree that crop rotation is needed to maximize the yield on crops. Failure to do so normally results in a 10 to 20 percent harvest decline from prior year yields. [3]

Despite serious negative implications, corn-on-corn crops are becoming a worthwhile gamble for many grain farmers. The Chicago Board of Trade corn futures hit a record high of nearly eight dollars a bushel in June.[4] Farmer Brian Schaumburg of Illinois echoed the sentiment of many farmers regarding the planting of corn-on-corn crops. Schaumberg stated that, “[l]ast year and this year, we’re seeing a little drag but, even so, corn pays,” and “[c]orn on corn hurts in some places but there’s places it’s awful good.”[5] As a result of the increasing corn prices, experts tend to believe that farmers are and should be “willing to plant corn after corn as long as yields do not decrease much beyond 20 bushels [per acre] versus corn after soybeans.”[6]

Farmers have experienced turbulent times during the past half decade. The rising fuel costs, economy woes, and frequent droughts have left farmers struggling to make a profit. Therefore, many farmers see the high corn prices as a means to recover past losses. While failing to rotate crops may have some negative implications, the potential for large profit margins in many cases outweigh those risks. However, farmers need to consider the future costs of failing to rotate their crops.

[1] Paul Vincelli, Corn & Soybean News, Cooperating Departments: Agricultural Economics, Biosystems and Agricultural Engineering, Entomology, Plant and Soil Sciences, Plant Pathology, Volume VII, Issue II (2007), available at http://www.uky.edu/Ag/CornSoy/cornsoy7_2.htm.

[2] Id.

[3] High Corn Prices Stall Midwest Crop Rotation, Earthweek (Sept. 30, 2011),http://www.earthweek.com/2011/ew110930/ew110930b.html.

[4] Michael Hirtzer, Insight: Chasing high corn prices, U.S. farmers skip rotations, Reuters (Sept. 25, 2011), http://www.reuters.com/article/2011/09/25/us-usa-corn-harvest-idUSTRE78O1ZY20110925.

[5] Id.

[6] Id.

FDA’s Authority to Regulate State-Licensed Pharmacist Medications for Horses

By: Chris DeAgano, Senior Staff Member

The issue of whether the Food and Drug Administration (FDA) has the authority to regulate state-licensed pharmacies from compounding drugs for horses has been debated very recently in a Florida federal court in United States v. Franck's Lab, Inc.[1] This case originated because a Florida pharmacy produced a vitamin and mineral compound(through “compounding”) that was blamed for the deaths of 21 polo horses last year.[2] Drug compounding is a process by which a pharmacist or doctor combines, mixes, or alters ingredients to create a medication tailored to the needs of an individual patient.[3] Compounding is typically used to prepare medications that are not commercially available.[4]

In U.S. v. Franck’s Lab, Inc., the federal court ultimately sided with the Florida compounding laboratory and ruled that the FDA lacked the authority to prevent the laboratory from producing and distributing animal medications compounded from bulk ingredients without the agency's approval.[5] In its decision, the court noted that while the FDA has a difficult task in protecting the health of both humans and animals, the FDA's authority is not unlimited and courts have a role to play in determining whether the agency's actions exceed the statutory powers given to it by Congress.[6]

With the practice of drug compounding being widely-practiced by state-pharmacies, there is a significant interest in a federal agency, such as the FDA, being able to regulate this practice. Furthermore, it may be beneficial to have a uniform set of guidelines for all states, rather than each state having its own laws to regulate state-licensed pharmacies and their compounding practices. While U.S. v. Franck’s Lab, Inc. was decided against the FDA’s power to regulating drug compounding in Florida, there will likely be lawsuits in other states with similar dilemmas in the near future.

[1] United States v. Franck's Lab, Inc., 2011 WL 4031102 (M.D. Fla. Sept. 12, 2011).

[2] Pat Raia, FDA Seeks Injunction Against Florida Pharmacy for Polo Pony Deaths, TheHorse.com,http://www.thehorse.com/ViewArticle.aspx?ID=16220 (last visited 10/10/2011).

[3] Thompson v. W. States Med. Ctr., 535 U.S. 357, 360-61, 122 S. Ct. 1497, 1500, 152 L. Ed. 2d 563 (2002).

[4] Id.

[5] Pat Raia, Judge Backs Pharmacy in Veterinary Drug Compounding Case, TheHorse.com (Sept. 20, 2011), http://www.thehorse.com/ViewArticle.aspx?ID=18853 (last visited 10/10/2011). [6] Franck's Lab, Inc., 2011 WL 4031102 at *35.

[6] Franck's Lab, Inc., 2011 WL 4031102 at *35.

Elk Pose Problems for Kentucky Residents—and Lawmakers

By: John Carter, Senior Staff Member

I recently asked a friend from southeastern Kentucky what he thought about the recent reintroduction of elk that has been occurring in his community. He said, “Well . . . let’s just say it could be better.” My friend is not alone in his opinion. Various residents of southeastern Kentucky have made similar assessments. The reintroduction began in 1997 to replenish the elk population, which was devastated in the late 19th century. [1] An Associated Press article highlights a number of problems that those living in Stoney Fork, KY have experienced in connection with the government’s efforts.[2] The residents cite car crashes and the destruction of fences and gardens as their chief complaints.[3] This criticism brings to the forefront an issue that often confronts those encouraging conservation aimed at restoring ecosystems to a former state: How does one accomplish these goals without negatively affecting the residents of impacted communities?

The reintroduction of an animal into any region will inevitably lead to increased interaction with humans. This is simply a matter of logic. However, that interaction does not necessarily lead to negative consequences. A great number of people in eastern Kentucky support the elk reintroduction program, and local governments, realizing the potential for revenue, are especially fond of the return. The homepage for Knott County, KY’s website proudly proclaims, “Knott County, Elk Capital of the East.”[4] A 2001 survey found that “[o]ver 1,081,000 individuals participate in wildlife viewing and bird watching in Kentucky creating 11,481 jobs and generating over $600,000,000 dollars for [the] economy” and “[t]he number of participants and jobs created . . . mak[e] it one of the fastest growing ‘industries’ in Kentucky.”[5] Though these stats may console government officials, they do little to quell the concerns of residents. Stoney Fork resident Lou Brock, who collided with two elk while driving his truck, probably has little patience for arguments about increased revenues; he is more worried about the $9,000 in repair bills he had to pay.[6]

Lawmakers have considered allowing elk introduction only with prior approval of community residents.[7] In 2010, the Department of Fish and Wildlife moved over 45 elk to an abandoned coalmine site.[8] Furthermore, an “extra hunting period was held for locals in January[, 2010] to help control the elk population in specific areas.”[9] Considering that the population is nearing the 10,000 elk target set by officials,[10] it is clear that problems will become more numerous and efforts to appease the communities affected by the reintroduction will continue.

[1] Revived, Then Reviled, Elk Now Hunted in This Part of Kentucky, MSNBC.com (Feb. 11, 2011, 6:21:48 PM), http://www.msnbc.msn.com/id/41522427/ns/us_news-environment/t/revived-then-reviled-elk-now-hunted-part-kentucky/#.TpMcab-I0tg.

[2] Id.

[3] Id.

[4] Knott County, KY (Oct. 10, 2011), http://www.knottky.com.

[5] Elk and Wildlife Viewing – Economic Impact, TrailsRUs.com (2001),http://www.trailsrus.com/elk/economic-impact.html.

[6] Revived, Then Reviled, Elk Now Hunted in This Part of Kentucky, supra note 1.

[7] Bruce Schreiner, The Early Birds Catch a Look at Elk on State Parks’ Tours, Kentucky.com (Oct. 10, 2010 10:00 AM), http://www.kentucky.com/2011/10/10/1915062/the-early-birds-catch-a-look-at.html.

[8] Dori Hjalmarson, Kentucky’s Elk Population Close to 10,000 Target, Kentucky.com (Apr. 24, 2010 6:15 AM), http://www.kentucky.com/2010/04/24/1237904/kentuckys-elk-population-close.html.

[9] Id.

[10] Id.

Brazilian judge cites environmental concerns in halting Amazon dam construction.

By Roger Battiston, Senior Staff Member

Recent construction on what is to be the world’s third largest hydroelectric dam has been halted by a Brazilian judge. The 17 billion dollar Belo Monte dam was planned to be built in the Amazon rain forest, along the Xingu River, and has been in the works for about 30 years.[1]

As a result of stiff opposition by indigenous tribes and environmental conservatives, the project was shelved until recently, when construction was approved in early 2010 by Brazil’s environment agency.[2] Opponents’ main opposition to the construction of the 11 gigawatt-producing dam was the amount of land that will flood by damming the Xingu River, roughly 500 square kilometers, which would displace thousands of indigenous people.[3] In addition, the dam would wreak environmental havoc on portions of the Amazon by partially drying up a 62 mile stretch of the Xingu River, thereby devastating local wildlife.[4] The Brazilian government argued that the massive dam is needed to meet the explosive demand in energy that has resulted from Brazil’s expansive economy and that the effect of the dam would be directly felt by indigenous people.[5] To counter opposition, the Brazilian government required the company slated to run the dam, Norte Energia, to spend about 800 million dollars off-setting environmental consequences from the project.[6]

Construction of the 3.75 mile long dam has faced legal hurtles since its approval.[7]Construction was first halted when a Brazilian judge found that a number of environmental conditions of the approval of construction had not been met.[8] That decision was subsequently overturned.[9]The most recent injunction halting the project was issued by Judge Carlos Eduardo Martins, who cited concerns that the dam would harm the fishing stocks of the Xingu River.[10]

Environmental concerns will always be an issue when infrastructure projects on the scale of the Belo Monte dam are implemented. However, the Brazilian government has recognized the potential for damage and laid out conditions to ameliorate the consequences. In order to provide for Brazil’s burgeoning economy, dam construction should be allowed to continue.

[1] Reuters, Brazil approves Belo Monte hydroelectric dam, The Guardian, June 1, 2011,http://www.guardian.co.uk/environment/2011/jun/01/brazil-belo-monte-dam.

[2] Id.

[3] Tom Phillips, Brazil to build controversial Belo Monte hydroelectric dam in Amazon rain forest, The Guardian, Feb. 2, 2010,http://www.guardian.co.uk/environment/2010/feb/02/brazil-amazon-rainforest-hydroelectric-dam.

[4] Reuters, supra note 1.

[5] Phillips, supra note 3.

[6] Id.

[7] Reuters, supra note 1.

[8] Associated Press, Judge suspends construction of huge dam in Brazil’s Amazon region,The Washington Post, Sept. 29, 2011, http://www.washingtonpost.com/world/americas/judge-suspends-construction-of-huge-dam-in-brazils-amazon-region/2011/09/29/gIQAbXnW7K_story.html.

[9] Id.

[10] Id.

Bureau of Land Management Comes Under Fire Over Efforts to Reign in Wild Horse Heards

By Roy York, Staff Member

On June 13, 2011, the Federal Bureau of Land Management (BLM) announced a decision to capture all 800 wild horses in two designated preserves in Southern Wyoming, surgically sterilize them, and release only a small number back into the wild, effectively dooming the herd.[1] After significant public outrage, the BLM revised the plan on June 22, 2010, to gather only 90 percent of the horses, spay no mares, and return gelded wild horses to the preserves.[2] The BLM maintained that the number of wild horses in the area was “in excess and subject to gathering and removal.”[3]

After a year of frustration with Secretary of the Interior Ken Salazar,[4] the Western Watersheds Project, a leading environmental organization, and the American Wild Horse Preservation Campaign filed suit in the U.S. District Court for the District of Columbia seeking to block the BLM from carrying out the plan. In response, on August 5, 2011, the BLM changed its stance yet again and planned to remove 90 percent of the horses, skew the ratio in favor of stallions, and inject the mares with birth control to slow population growth.[5] The gathering was completed on August, 31, 2011.[6]

The actions of the BLM sparked a federal complaint in this instance, but gathering, relocation, and population control efforts have been a hot-button issue for years. In 2006, wild horse activists filed a complaint in federal court to enjoin the BLM from herd management citing the BLM’s track record of mistreating horses.[7] The BLM came under fire again in 2010 after horse population control efforts went awry in Nevada.[8] The resulting deaths, castrations, and abuse of captured wild horses led to protests from animal rights groups and other activists.[9] Currently the BLM is considering public input on a proposal to eliminate federal reserves for wild horses in favor of grazing land for livestock over the next 15 to 20 years.[10]

The BLM argues that the measures are essential to controlling the growing wild horse population and marinating the viability of herds and horse habitats. Salazar’s revised plan to deal with the overpopulation may end up costing the federal government more money than it is saving by controlling horse population on public land if the BLM continues to come under fire for its practices. Expect this to continue to be an issue in the future as the BLM continues to aggressively fight the overpopulation of wild horses.

[1] Lance C. Porter, White Mountain – Little Colorado Herd Management Areas Wild Horse Gather,Bureau of Land Management Rock Springs Field Office Decision Record (June 13, 2011), available athttp://www.blm.gov/pgdata/etc/medialib/blm/wy/information/NEPA/rsfodocs/whitemtn-wind/rev-ea.Par.54148.File.dat/DR.pdf.

[2] Lance C. Porter, White Mountain – Little Colorado Herd Management Areas Wild Horse Gather,Bureau of Land Management Rock Springs Field Office Decision Record (June 22, 2011), available athttp://www.blm.gov/pgdata/etc/medialib/blm/wy/information/NEPA/rsfodocs/whitemtn_littlecolo.Par.28805.File.dat/2011_modifiedDR.pdf.

[3] Id. at 1.

[4] Alan Prendergast, Ken Salazar: Frustration riding high over his wild horse plan, Denver Westword(June 14, 2010, 4:45 PM),http://blogs.westword.com/latestword/2010/06/ken_salazar_frustration_riding.php.

[5] White Mountain/Little Colorado Wild Horse Gather Decision, Bureau of Land Management Rock Springs Field Office Decision Record (August 15, 2011), available athttp://www.blm.gov/wy/st/en/info/news_room/2011/august/05rsfo-wmlc.html.

[6] Daily Gather Reports, Bureau of Land Management (September 1, 2011),http://www.blm.gov/wy/st/en/programs/Wild_Horses/2011wmlc-gather/gath-reports.html.

[7] George Knapp, Wild Horse Advocates File Injunction Against BLM, 8NewsNow.com,http://www.8newsnow.com/story/5860063/wild-horse-advocates-file-injunction-against-blm.

[8] Alan Prendergast, Wild Horse Debacle: BLM under fire over roundup deaths, castrations, Denver Westword (April 26, 2010, 3:56 PM),http://blogs.westword.com/latestword/2010/04/wild_horse_debacle_blm_under_f.php.

[9] Id.

[10] Alicia G., Days Left to Help Save Wyoming’s Wild Horses,Care2.com (September 4, 2011, 7:59 PM),http://www.care2.com/causes/days-left-to-help-save-wyomings-wild-horses.html.

Environmental Groups Score Victory in Selenium Lawsuit

By: Raabia Wazir, Staff Member

On October 3, 2011, a coalition of conservation and environmental groups completed a two million dollar settlement with Arch Coal and its subsidiaries over continued and repeated selenium violations at six coal mining sites in southern West Virginia.[1] Selenium is a natural occurring element that poses no threat to humans when present in low levels, but when it exceeds Safe Drinking Water Act threshold levels of 0.05 parts per million, selenium exposure can cause damage to the liver, the kidneys, and to the nervous and circulatory systems.[2] In fish and other wildlife, ingestion of toxic amounts of selenium can cause total reproductive failure, birth defects and damage to gills and internal organs.[3]

The settlement is the most recent of a series of legal victories for groups trying to force the coal industry to clean up runoff pollution from mines into surrounding streams and ground water. The fight over selenium began in 2003, when the EPA released the Draft Programmatic Environmental Impact Statement on Mountaintop Mining/Valley Fills in Appalachia, a broad federal report that turned up repeated violations of selenium water quality standards. [4] In 2004, a U.S. Fish and Wildlife Service reported further selenium problems downstream from major mining operations.[5]

Most significantly, last year, U.S. District Judge Robert Chambers cracked down on the coal industry for failure to meet compliance deadlines for selenium cleanup in Ohio Valley Environmental Coalition, Inc. v. Hobet Min., LLC[6] and Ohio Valley Environmental Coalition, Inc. v. Apogee Coal Co., LLC[7] for violations of the Clean Water Act (CWA) and the Surface Mine Control and Reclamation Act (SMCRA). Judge Chambers ordered the Patriot Coal subsidiaries to install a “fluidized bed reactor" to biologically treat water discharge from the mine, the corporate-wide cost of which was disclosed by Patriot to be nearly 400 million dollars over 30 years.[8] Lawyers for the citizens groups involved in the suits argued that these costs indicate that selenium-contaminated sites should not be permitted at all because “treatment becomes a long-term responsibility that could outlive the coal companies and then fall on the public.”[9] However, despite continued legal victories by environmental activists, currently no such restrictions have been enforced.

[1] Press Release, Ohio Valley Environmental Coalition, Groups Secure Agreement from Arch Coal to Treat Pollution from Coal Mines (October 3, 2011),http://www.ohvec.org/press_room/press_releases/2011/10_03.html.

[2] Sierra Club, Toxic Selenium: How Mountaintop Removal Coal Mining Threatens People & Streams (April 2009), available athttp://www.sierraclub.org/coal/downloads/Seleniumfactsheet.pdf.

[3] Id.

[4] Ken Ward Jr., Selenium showdown: Key hearing over coal’s water pollution begins today before Judge Chambers, The Coal Tattoo (August 9, 2010),http://blogs.wvgazette.com/coaltattoo/2010/08/09/selenium-showdown-key-hearing-over-coals-water-pollution-begins-today-before-judge-chambers/

[5] Id.

[6] Ohio Valley Envtl. Coal., Inc. v. Hobet Min., LLC, 723 F. Supp. 2d 886 (S.D.W. Va. 2010).

[7] Ohio Valley Envtl. Coal., Inc. v. Apogee Coal Co., LLC, 744 F. Supp. 2d 561 (S.D.W. Va. 2010).

[8] Ken Ward Jr., Environmental groups hail selenium ruling as 'game changer', West Virginia Gazette. September 1, 2010, http://wvgazette.com/News/MiningtheMountains/201009010983.

[9] Id.

Oil and Gas Industry Resisting New Regulations

By: Elizabeth Watson, Staff Member

There is ongoing disagreement between American oil companies and the federal government in regard to oil and natural gas exploration and production in the United States. But which side is more convincing? Are the oil industry’s hands unnecessarily tied by the federal government, or are increasing regulations justified?

The National Petroleum Council estimates that oil and natural gas production in North America has the capacity to double by 2035, if the federal government will untie the industry’s hands.[1] The industry looks to the new rules for onshore production, the de facto moratorium recently lifted in the Gulf of Mexico, and the postponing of scheduled lease sales on the outer continental shelf as examples of the federal government’s recent restrictions on operations.[2]

To support the assertion that untied hands leads to greater production, the industry cites the states’ experiences who, by loosening restrictions on the “hydraulic fracturing technique used in shale gas production,” to extract oil, saw much economic gain.[3] In considering production success, the pattern, according to oil companies, is clear—“[r]egulatory and environmental reviews were largely the responsibilities of state and local governments, and disagreements could often be resolved at the local level.”[4] Oil companies worry if the federal government does not lessen restrictions that foreign companies will avoid working here because it is too costly, time consuming, and often involves government challenges played out in administrative reviews and federal court.[5] This in turn will decrease American jobs, decrease the amount of revenue the federal government receives from oil leases, and increase American dependence on foreign energy.[6]

The Obama Administration opposes these claims and points to the “use it or lose it” policy of federal oil and gas leases and the industry practice of “lease squatting” as the reasoning behind oil industry complaints.[7] The Interior Department, the regulatory body that assigns federal leases, provides a five to ten year exploratory period for a company to find oil and natural gas.[8] The federal government claims this period fully allows oil companies to assess a lease and determine its viability. The oil industry itself acknowledges that the “use it or lose it” doctrine is not a new development, but argues the doctrine has always restrained the oil and gas industry because, from the time a lease is issued, “the clock starts ticking.”[9] Enforcing this policy provides no greater obstacle than it did in the past. Additionally, in an effort to discourage the practice of “lease squatting,” where oil companies hold onto large tracts of land for many years without development, the administration proposes to almost triple prices at this year’s offshore lease sale (December 14, 2011), to “ensure areas with the greatest resource potential are developed.”[10] And, to further appease those holding leases affected by the six-month moratorium following the BP oil spill, Obama has extended leases for another year. [11]

The problem with this debate is that both sides are persuasive according to where one sits and what one seeks to protect. Consider this fact: the Department of Energy’s Energy Information Administration found that from 2005 to 2010, 34 percent of all exploration wells drilled dry, and eight percent of all development wells drilled dry, with oil companies paying the federal government for leases regardless of success.[12] The argument supporting loosened regulations on oil companies looks to the amount of risk and money involved in the oil production process, and advocates freedom and time to make wise development choices. After all, the companies are the industry experts. Furthermore, the federal government receives great revenues from the oil industry. With more leases and production, the government makes more money.

However, looking at the same facts listed above, those supporting greater regulation of oil companies also look to the success rate and risk involved, but through a different lens. They argue that drilling, with such potential devastating effects, necessitates strict oversight from Congress and regulatory agencies. One need only recall the recent BP oil spill to find support for this argument. Furthermore, many reject that increased production in itself is a positive, as opposed to looking for alternative fuel sources.

So, what happens next, and who is right? We will have to watch the upcoming lease sales and pending court cases, such as ExxonMobil v. Salazar, to see. It is hard to believe that this debate will ever be fully resolved because it concerns deeply held political beliefs.

[1] Lucian Pugliaresi, The Lessons of the Shale Gas Revolution, The Wall Street Journal, September 30, 2011, at A13.

[2] House Natural Resources Committee, Democrats Attempt to Resurrect Old “Use It or Lose It” Myth (March 24, 2011), http://naturalresources.house.gov/News/DocumentSingle.aspx?DocumentID=230630.

[3] Lucian Pugliaresi, The Lessons of the Shale Gas Revolution, The Wall Street Journal, September 30, 2011, at A13.

[4] Id.

[5] Id.

[6] House Natural Resources Committee, Democrats Attempt to Resurrect Old “Use It or Lose It” Myth (March 24, 2011), http://naturalresources.house.gov/News/DocumentSingle.aspx?DocumentID=230630.

[7] Deborah Solomon, U.S . News: U.S. to Resume Lease Sales For Oil Drilling in the Gulf, The Wall Street Journal, August 20, 2011, at A3.

[8] House Natural Resources Committee, Democrats Attempt to Resurrect Old “Use It or Lose It” Myth (March 24, 2011), http://naturalresources.house.gov/News/DocumentSingle.aspx?DocumentID=230630.

[9] Id.

[10] Deborah Solomon, U.S. News: U.S. to Resume Lease Sales For Oil Drilling in the Gulf, The Wall Street Journal, August 20, 2011, at A3.

[11] Id.

[12] House Natural Resources Committee, Democrats Attempt to Resurrect Old “Use It or Lose It” Myth (March 24, 2011), http://naturalresources.house.gov/News/DocumentSingle.aspx?DocumentID=230630

ExxonMobil, Russia, and the “Reset” of Relations

By: John Wathen, Staff member

In late August, American oil giant Exxon-Mobil announced an agreement with Russia’s state-owned oil company, Rosneft.[1] The deal grants Exxon, America’s largest corporation, access to the oil fields underneath the Arctic Ocean, which the United States Geological Survey estimates holds one-fifth of the world’s undiscovered oil and natural gas.[2] In exchange, Rosneft, who has long wished to break into the international oil market, will acquire oil fields in Texas and the Gulf of Mexico.[3] Russian Prime Minister Vladimir Putin, who exhibited his enthusiasm for the deal by personally presiding, has stated that the eventual total combined investment could be as large 500 billion dollars, a boon to the Russian oil industry.[4] This deal comes on the heels of an announcement in March by the Obama administration that US/Russian relations must undergo “reset”, as tensions between the two nominal allies have become increasingly strained in the last few years.[5]

The Obama administration should do all it can to facilitate this deal, including easing restrictions on offshore drilling in Alaska and the Gulf of Mexico. Demonstrating a willingness to allow American private companies to partner with Russian business interests will prove America’s commitment to the “reset” of relations. Additionally, long term agreements such as this will ensure a steady supply of oil to the United States. The energy potential of the Arctic Circle, which up until now has been largely untapped, is enormous.[6] The United States cannot afford to hesitate in developing these fields to ensure an adequate share in the benefits. As the partnership is presented to American regulators for approval, long term energy security considerations coupled with a new urgency in US/Russian relations should supersede environmental concerns. A healthy political and economic relationship with Russia, which currently produces more oil than Saudi Arabia,[7] is important to American security and prosperity. This partnership, which is hopefully indicative of future Russo-American business agreements, will go a long way in developing that relationship.

[1] Andrew E. Kramer, Exxon Wins Arctic Oil Deal with Russians, N.Y. Times, Aug. 30, 2011,http://www.nytimes.com/2011/08/31/business/global/exxon-and-rosneft-partner-in-russian-oil-deal.html?pagewanted=1

[2] Id.

[3] Id.

[4] Id.

[5] Desmond Butler, Obama: US has ‘Reset’ Relations with Russia, Associated Press, June 24, 2010,http://www.msnbc.msn.com/id/37892671/ns/politics-white_house/t/obama-us-has-reset-relations-russia/#.ToptO-yTNPw

[6] Steve Levine, Horse Trading with Russia Wins Exxon the Arctic Goal, Foreign Policy (Aug. 30, 2011, 11:19 AM),http://oilandglory.foreignpolicy.com/posts/2011/08/30/horse_trading_with_russia_wins_exxon_the_arctic_gold

[7] Id.