Texan fracking advocate out to ‘dethrone Opec’

Chris Faulkner, a Texan whose profile as an advocate for the shale oil business in the US has far outgrown the size of the company he runs, is on a mission to “dethrone Opec”.

Mr Faulkner, the chief executive of Dallas-based Breitling Energy, is in the UAE on what he says is a regular fact-finding tour and to share his views on international oil policy.

“About twice a year I go to the Middle East to tour the region, hold meetings and see first-hand what’s going on there,” he explains. “It helps us strategise at Breitling Energy to understand the dynamics that you don’t read in the headlines.”

Breitling Energy is minuscule by industry standards – with revenues of about US$16 million and net earnings of just over $800,000 in the second quarter of last year, the latest data available. However, Mr Faulkner has garnered considerable media attention in the US for views that he himself bills as “controversial” on environmental regulations for hydraulic fracturing or “fracking” and more recently on the idea of a North American counterweight to Opec, what he calls “Nopec”.

“It makes a lot of sense,” he argues. “Opec has been losing its credibility, its viability and its ability to control the price of oil globally. [Nopec] doesn’t have to be adversarial to Opec but can be a sizeable counterbalance and take advantage of the chink in the armour.”

There is “a small but growing swell of support” for the Nopec idea, including some political support in Washington, Mr Faulkner claims, although that does not include anyone in the current Obama administration, of which he is not a supporter.

What would Nopec look like and what would it do? “Not a cartel, obviously,” Mr Faulkner says, “but a coalition of resources, trade, technology and cooperation between Canada, Mexico and the United States. Combined and working together, North America could generate upwards of 20 million barrels of oil per day, and that should be enough to permanently dethrone Opec as the sole regulator of world oil prices.”

There is a precedent for a North American equivalent to Opec: the Texas Railroad Commission, which set world prices for much of the first half of the previous century, when the state dominated world oil production.

But few in the industry see much prospect for a revival of any explicit US price-setting role.

“It’s highly unlikely, for legal and practical reasons, that any entity here in the US could set quotas for the production sector as the TRC did in the past and as Opec does today,” says Jay Hauck, head of The Crude Coalition, a Washington DC-based lobbying group for refiners and other interests that, among other things, opposes lifting restrictions on US oil exports.

“Because US drillers respond to price alone, and not some domestic ‘oil czar’, I do not see how American oil exports would disrupt Opec’s power to set the price of crude,” Mr Hauck says.

Indeed, it is the widespread view in the industry that the Saudi-led Opec strategy has since last year been aimed at letting the oil price drop to squeeze off the market higher-cost North American production.

That strategy has backfired, Mr Faulkner asserts.

“The exercise the Saudis have put us through has made us stronger and better,” he says. “They thought they could push prices down and cause massive bankruptcy. What they didn’t realise is that for the last few years [US fracking companies] have been pushing to innovate and drive technology further: we can do now with two drilling rigs what it used to take three, and in 20 days what used to take 30.”

That means the break-even price for new wells at the Permian Basin in Texas, where Breitling Energy mainly operates, is now down around $30 per barrel, Mr Faulkner reckons.

But there have been signs that the US fracking sector is responding to lower oil prices – with a sharp decline in the number of rigs operating since the end of last year, according to data from Baker Hughes, a large oil services company.

Smaller companies in the shale oil sector are falling into the hands of larger, stronger players, illustrated by last week’s $2.1 billion bid by Noble Energy for Rosetta Resources.

Mr Faulkner says Breitling Energy is looking to buy other companies itself, although the company’s over-the-counter traded shares have fallen sharply since last year and are quoted around 20 cents versus 78 cents last summer.

How did Mr Faulkner gain such prominence as an industry voice in the media? The Houston Chronicle wondered in a profile last September. Especially as the 37-year old is a relative newcomer to oil, having been until a few years ago an internet entrepreneur.

In an industry where many executives tend to be reticent, “Faulkner draws attention as an energy executive who is unusually candid and accessible to media, large and small”, the newspaper concluded.

That includes a willingness to take positions on fracking that draw a lot of heat from environmentalists, local communities and politicians. He has even written a pro-fracking book, The Fracking Truth.

He is now more than willing to push some of his individualistic arguments onto a more geopolitical level.


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