AJ Rice: Red Oil Beneath The Texas Prairie?

By: AJ Rice:

If Texas were its own country, it would be the world’s third largest oil producer. Only Russia and Saudi Arabia produce more oil per day than the Lone Star State.

Right up until Coronavirus crashed the world’s economy, this was seen as an unalloyed success. America was becoming energy independent. We were producing so much oil we had gone from being a massive oil importer to an important exporter. With energy independence comes enhanced national security. The stronger US oil production industry led to lower and more stable energy prices.

But, the Coronavirus pandemic and the Saudi-Russian oil price war have changed everything, hopefully that will soon turn around. Texas producers that were thriving just weeks ago are now reeling, laying off workers by the thousands and teetering on the edge of bankruptcy. Whiting Petroleum has become the first Texas producer to actually file for Chapter 11 in the wake of these two shocks. More will follow.

Bankruptcies and layoffs are bad enough. But there may be another and even greater threat on the horizon.

As smaller and medium-sized producers lose revenue to falling oil prices, their value drops precipitously. This leaves them vulnerable to being bought up by larger firms.

It also leaves them vulnerable to takeover by foreign firms. There is no law preventing Texas and other American oil producers weakened by the current market from being snapped up for pennies on the dollar by whatever or whoever can write a big enough check. Most of the world is reeling, including China. But China has massive government-backed companies that probably have the juice to buy up American oil firms.

Lest anyone think I am merely supplying nightmare fuel for the sake of it, foreign firms including a mainland Chinese firm already operate in the Permian. One such firm is Surge Energy. In the United States, Surge is based in Houston. But it’s actually a creation and wholly owned subsidiary of Shandong Xinchao Energy Corp. Ltd. Shandong Xinchao is, as you may have guessed from the name, a Chinese firm. It is based in the coastal province of Shandong, across the Yellow Sea from the Korean peninsula. It is the birthplace of Confucius. China’s first home-built aircraft carrier is called the Shandong. It’s a strategically important province, and since 2015 it has a corporate hook in the Texas oilfields.

On its own, China produces less than 5 million barrels of oil per day. It consumes about 13 million barrels per day. That difference has to come from somewhere. China is, as we all have noticed more lately, not a normal country. It’s a communist dictatorship. Shandong Xinchao Energy Corp. Ltd exists under that aegis, the more or less fascist public-private system that has powered China to become the world’s second-largest economy. China’s viral lies are harming the entire world’s ability to function. And that’s driving the price of oil down to historic lows, which in turn is driving the value of oil producers down, leaving them vulnerable to takeover.

Surge Energy is not a bit player in the Permian. It is in the top 20 of Texas producers, pulling about 2% of the total oil out of the ground. Smaller producers in the Permian than Surge make billionaires.

I am not suggesting in any way that the virus is some kind of conspiracy to enable China to buy up the Permian. But enabling Chinese and other foreign firms to buy up distressed Texas oil producers may well be one of its side effects. If that happens, there goes our energy independence, economic security and national security.

The oil under our land is a national security asset and an economic asset. You cannot yet power the modern world or a modern military without oil. You cannot manufacture thousands of the products we take for granted without oil. Oil makes the world go ‘round.

The mere possibility that a power as opaque, dishonest, and hostile as communist China could use the present crisis to make significant -- permanent -- ownership changes in Texas oil country should deeply concern us all.