Blowout
Page 21
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To hear Austin Holland tell it, it was not a big surprise when his cell phone started ringing a little after two o’clock in the morning of November 5, 2011. Almost two years on the job, and life wasn’t getting any easier for the head seismologist at the Oklahoma Geological Survey. Holland was working as much as eighty hours a week then, trying to keep up with the cascade of data from the cascade of seismic events in Oklahoma. The state was on track for sixty, maybe seventy, magnitude 3.0 or greater earthquakes that year, almost double the already incredible number in 2010. And it seemed to Holland as if they all occurred on the weekend or in the middle of the night. So it figured there was a reporter calling him at two o’clock in the morning on November 5. Actually it was reporter after reporter after reporter. They all wanted a comment on the new earthquake out in Prague, fifty miles due east of that little pine tree planted atop the Devon Energy Center. Holland got out of bed and drove straight over to his office on the University of Oklahoma campus, where he could field calls and do his work without disturbing his wife’s sleep. The “Ask a Seismologist” button on the OGS website was still lit up at dawn, with desperate entreaties from folks in and around Prague. “That may have been an ill-informed button,” Holland later said, drily.
By the middle of the morning, the head seismologist had left his office and taken the sixty-mile drive over to the epicenter of what had been a magnitude 4.8 earthquake, nearly one hundred times the size of a magnitude 3.0 event. Holland stayed busy in Prague supervising the installation of portable seismic monitoring equipment needed to measure aftershocks, and having a look at the damage done to buildings and homes. “There [was] a really impressive shearing of a chimney at one residence where we ended up putting a seismic station where basically the entire top of the chimney was detached from the base of the chimney, and it was only being held by the stovepipe,” he still remembered, more than five years later.
Holland was back home just before eleven o’clock that night, bone tired from the excitement and activity of the day, when he felt a new rumble. This was followed by another round of media calls, more urgent than the night before. The number of “Ask the Seismologist” clicks was off the charts. Turns out the magnitude 4.8 earthquake in Prague had just been a foreshock. The town was hit, only twenty-one hours later, by an earthquake twenty times stronger. At magnitude 5.7, it registered as the most powerful earthquake ever recorded in Oklahoma, stronger even than the seismic pop caused by the explosion of that forty-three-kiloton nuclear bomb under Rulison, Colorado. More than sixty thousand people, in fourteen different states, reported in to the U.S. Geological Survey’s “Did You Feel It?” website. Yes, they did feel the Prague quake—as far away as St. Louis and Dallas and Milwaukee.
In Prague itself, Lincoln County’s emergency manager spent the night assessing damage in the dark. He could make out a boulder that had rolled onto one roadway, buckling in three separate sections of Highway 62, a number of cracked foundations, and a chimney or two collapsed into rubble. “It was,” the emergency manager told reporters, “a pretty ornery little earthquake.” There was more than a million dollars’ worth of property damage, all told, including the collapse of a turret on a building twenty miles from the epicenter. More than thirty aftershocks rippled through Lincoln County in the next ten hours, ten of them greater than magnitude 3.0.
Austin Holland had a pretty clear notion about a likely cause of the single most powerful earthquake in Oklahoma history. Oil and gas frackers in the state were pumping, month after month, fifty million barrels of flowback water thousands of feet underground into permanent disposal wells, increasing pressure and stress near ancient fault lines. “That pressure acts as a lubricant,” Holland explained, but only years later. “It’s not actually the water itself, but the pressure, and the best way to think about that is an air hockey table” and the way those pucks and paddles slide around and smack into each other more easily when the air is blowing than when the table is unplugged. The big magnitude 5.7 boomer had occurred in the vicinity of the Wilzetta fault, and as seismic monitors would soon show, the tip of the initial rupture plane was within 650 feet of an active injection well. There were another 180 active injection wells in that one Oklahoma county.
Humans had already proven themselves capable of inducing seismicity, and it didn’t require a nuclear blast. Back in the 1960s, technicians at the Rocky Mountain Arsenal chemical weapons manufacturing center thought they had come up with a novel hazmat disposal system: over the course of five years, they had simply injected 165 million gallons of hazardous liquid waste deep underground. That genius move triggered a seismic swarm topped off by a 5.3-magnitude earthquake near Denver. The weaponeers halted the injections immediately. “The U.S. Army Corps of Engineers and the U.S. Geological Survey (USGS) determined that a deep, hazardous waste disposal well at the Rocky Mountain Arsenal was causing significant seismic events in the vicinity of Denver, Colorado,” was the very tardy admission embedded in an Environmental Protection Agency study a quarter century later.
Holland did not bring up the Rocky Mountain Arsenal debacle in his public statements in the aftermath of the Prague earthquake. He remained, as always, honor-bound by the requirements of good science. He would not speculate about a specific event without hard facts. “We know that this is an old fault, now reactivated, interacting with the North American plate and generating pressure,” he told reporters. “What we can do is use and learn from these instruments so we can make decisions for the future.” Oklahoma’s head seismologist didn’t yet have the data to prove the cause of the Prague earthquake swarm was wastewater injection. And he wasn’t even sure if his duties included the issuance of public warnings. “The primary role of the Oklahoma Geological Survey was to help the state understand its natural resources and appropriately exploit those natural resources,” Holland explained in a sworn deposition for a civil suit concerning the Prague earthquakes. The OGS “has nothing about protecting the population of Oklahoma in its mission statement—well, I guess maybe loosely.”
There does appear to be some leeway in the state constitution’s vaguely worded charter of the Oklahoma Geological Survey. But “consideration of such other scientific and economic questions as, in the judgment of the Survey shall be deemed of value to the people” was a phrase that offered little real guidance. And a lot of political and legal cover for public officials who chose to look the other way. Holland’s state overseers were not keen to cross swords with the real powers in Oklahoma, which were oil- and gas-producing titans like Aubrey McClendon at Chesapeake and Larry Nichols at Devon and Harold Hamm at Continental Resources.
And so, in March 2013, Austin Holland’s bosses at OGS produced an official statement on the state’s recent, destructive, and unprecedented earthquake activity: “The interpretation that best fits current data is that the Prague Earthquake Sequence was the result of natural causes.”
Austin Holland knew better. “It’s given me heartburn ever since this statement was made,” he later admitted. It’s true that Holland, at that time, was unable to say for certain what was the cause of the largest earthquake in the history of the state. He was still gathering data. But he did know by then that the chances of the earthquake being “naturally occurring”—as the statement said—were very small. He at least knew for sure that that interpretation most definitely did not fit current data.
There would come a time when Austin Holland would no longer hold his tongue about the dangers posed by the best practices of the fracking industry. “So like if you’re handling explosives,” he explained several years later, when he was no longer in Oklahoma. “Now most of the time when people are handling explosives, nothing happens. Right? But there’s a chance that something can go wrong, and it carries extra risk. And I think the scientific community would agree that wastewater injection deep within the earth…is an ultrahazardous activity. Because you can’t control the risk.”
Looking down from above, as one approached the city of Sochi by air at the end of the summer of 2011, a bright new future appeared to be a-sparkle. Sleek new structures were shimmering into view on the eastern edge of the Black Sea as the Russian Federation geared up to host the next Winter Olympics. The sun glinted off glass panels being fastened into place on the outside of the Iceberg Skating Palace, the Adler Arena speed-skating venue, and the Bolshoy Ice Dome. It lit the new steel frame of the forty-five-thousand-seat state-of-the-art stadium under construction. Winning the rights to host the 2014 Games had been, in itself, a major feather in the federation’s ushanka. (Assuming a fur cap can sport a feather.) The victory represented a momentous step in Russia’s fitful post-Soviet reentry onto the international stage. Russia’s political leaders meant to use the opportunity to remind the world of their country’s long history as a cultural and commercial power—and to prove that its cultural and commercial future was just as sparkly. The Russian economy was growing at more than 4 percent a year in August 2011, thanks in no small part to an acceleration in foreign investment. Ninety billion dollars of new foreign money had flowed into the country in the previous month alone, triple what it had been that same month a year earlier. And the greatest boast the Russians could make at the end of that summer was that the single most profitable private company in the West wanted a piece of the action. The Russian government had chosen Sochi as the optimal spot to make this happy fact known to the world.
Rex Tillerson, CEO of that exalted Western corporate behemoth, was alert to the Russian leadership’s keen desire for recognition and celebration, so he made a point to be there personally in Sochi on August 30, 2011. Loyalty and friendship were the coins of the Russian realm. So Tillerson clearly understood his presence at the ceremony announcing a spectacular and unprecedented new partnership between the biggest oil company in America and the biggest oil company in Russia would generate a nice little fund of goodwill. And Tillerson reckoned he would have to bank a lot of goodwill to keep this unlikely deal on track for the years—decades, actually—it would take to reap the biggest possible rewards. There was a lot of risk in this deal; Tillerson’s trip to Sochi was all about risk management.
CEO Tillerson could afford to take some big chances in the middle of 2011. He had a lot of irons in the fire for ExxonMobil just then, and most of them were hot. Industry analysts heralded “a return toward the boom days that preceded the financial collapse in 2008.” By almost any measure in 2011, the company was outperforming every other non-state-run oil and gas producer on the planet. Tillerson and team had just reported a free and clear take of $21.3 billion in the first half of 2011, which put them within reach of the all-time world record for annual corporate profits. ExxonMobil stock had risen 45 percent in thirteen months, nearly double the rise in the stock exchange indexes and crude oil prices. The corporation’s oil production numbers were up 10 percent in a single year, and its production of natural gas was up almost 25 percent. The management team had expanded ExxonMobil’s footprint all over the United States, buying access to millions of acres of shale gas deposits in Pennsylvania, in Arkansas, in Louisiana, and at shale gas ground zero, the Barnett formation in Texas, whose bounty spread right to the doorstep of ExxonMobil’s corporate headquarters in Irving. Add to that, Tillerson’s engineers had recently won the trust of the Regulation and Enforcement department of the Bureau of Ocean Energy Management, which had just approved ExxonMobil’s application to restart drilling operations in the Gulf of Mexico. The BOEMRE bosses were happy to discover that the ExxonMobil proposal “complies with the rigorous new safety standards implemented in the wake of Deepwater Horizon.”
Even so, domestic production was but a small trickle in the great ExxonMobil oil and gas flood. Team Tillerson was on the prowl all over the world, and not just where they had a long history of work—like Qatar and the Gulf of Guinea off the western coast of Africa. The company had announced the discovery of a new oil field in the East Java province of Indonesia; negotiated a deal with a Chinese company to “jointly assess shale gas potential” in Sichuan province; and fracked its first shale gas wells in Poland, a country that promised more recoverable shale gas than any other sovereignty in Europe.
But all of that glorious news paled against the gleaming possibilities that presented themselves in Russia. No other spot on earth could equal the allure of Eurasia’s hydrocarbon honeypot. The actual quantity of oil and gas beneath Russian soil was a closely held state secret, but what was known tantalized oil and gas execs around the world. Russia already produced close to 15 percent of the world’s oil, and that was with the same rusty technologies employed by Soviet-era drillers. There were reliable reports that Russia held more natural gas underground than any other country on earth—as much as a quarter of the entire world supply. But it was hard to know for sure how much oil and gas might be sequestered deep in the tight shale formations of western Siberia, or how much might be just offshore, on the continental shelf—on the edge of the Black Sea to the south, or the Sea of Okhotsk to the east, or most intriguing of all, in the Kara Sea to the north, in the Arctic Ocean.
ExxonMobil’s soon-to-be partner, Rosneft, the state-controlled oil company that owned the rights to drill the Russian continental shelf, had concluded that there were at least 36 billion barrels of oil in the Kara Sea alone. Add in the natural gas there, and the number rose to 110 billion barrels of oil equivalents. That was a potential game changer for Tillerson—quadruple the amount of ExxonMobil’s current reserves, worldwide. So it didn’t take a genius to know the trip to Sochi to massage the fragile Russian ego was a must.
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State-controlled Russian television cameras were on hand in Sochi to record the signing of the new strategic alliance between ExxonMobil and Rosneft. The agreement, which called for an immediate investment of $3.2 billion to develop the oil and gas in the Kara Sea, was heralded as a partnership of equals, each of whom brought something of real value to the table. Rosneft offered its “unique resource base” (all that oil and gas off Russia’s Arctic coast) and ExxonMobil its “unique technology” (a track record of at least trying to tackle the obstacles of offshore drilling in the Arctic). One Russian official in Sochi complimented Exxon on the fact that its platforms in Canada “can sustain an impact from a one-ton iceberg.”
When Tillerson spoke for ExxonMobil at the signing ceremony, his flat, Texas-twang corporate-speak belied his actual and very real enthusiasm. “This large-scale partnership represents a significant strategic step,” he droned. “This agreement takes our relationship to a new level and will create substantial value for both companies.” The most compelling spokesman on the Russian side was not a Rosneft executive but a Russian government official. Vladimir Putin, prime minister of the Russian Federation, as well as its former and soon-to-be-again president, did not hide his enthusiasm for this new partnership. He showed particular pride in the fact that the deal gave Rosneft a stake in ExxonMobil wells working the Gulf of Mexico and Canada, and promised enormous amounts of money for further exploration and drilling projects in Russia. He expected the first $3.2 billion to be a minuscule percentage of future spending. “Including funding for development, infrastructure and new construction, the amount of investment could reach 500 billion dollars,” Putin said, and then paused for a moment to let that sink in. “The scale of the investment is very large. It’s scary to utter such huge figures.” When have you ever heard Putin describe something—anything—as “scary”?
Putin’s closing remarks were music to Rex Tillerson’s ears and signaled that all his hard work over the previous months on this deal was already paying dividends. Tillerson had been in talks with one of Putin’s key consiglieri, Igor Sechin, who had been not only Putin’s handpicked head of the government’s energy policy but also Putin’s handpicked chairman of the board of Rosneft. What Tillerson needed most from Sechin was an assurance that the Russian government would reward
ExxonMobil’s expertise and its investment by applying a de minimis tax burden to its profits and a de minimis regulatory regime to its operations. That important request—it seemed to Tillerson that day in Sochi—had been received on high. “The Russian government,” Putin said, “will support your efforts to ensure the success of your business in Russia.” Those words portended many happy days to come for Tillerson and suggested the twenty-hour flight to the resort town on the Black Sea had been well worth the effort.
There were still plenty of details to work out, but the partnership agreement with Rosneft put Tillerson within reach of a bounty he had been chasing for more than fifteen years. While George Mitchell and his engineers were trying to unlock the secrets of hydraulic fracturing, Tillerson had been trying to unlock the secrets of doing business (always risky) in post-Soviet Russia. By the time he showed up at Sochi in the summer of 2011, Tillerson appeared confident he was putting ExxonMobil’s money on the right horse, in the right way, at the right time: he was all in on Vladimir Putin. The 2012 Russian elections were just six months away, and Putin appeared eager to shove aside his protégé and chosen presidential placeholder, Dmitry Medvedev. The oil deal celebration at Sochi was meant to send a strong signal of Putin’s control to the Russian electorate, and to the rest of the world. Which it did. “Putin demonstrated he is firmly in charge and ready to remain Russia’s paramount leader by securing the deal with Exxon,” read a next-day analysis by Reuters.
“If ExxonMobil had tried to make the deal with Medvedev, nothing would have happened,” an analyst at Russia’s Center for Current Politics opined. “Even if they had got something with Medvedev, the deal could have collapsed at any time, whereas Putin will be the guarantor.” If anybody had doubts about that, some breaking news in Moscow quickly became a powerful piece of corroborating evidence. The day after the deal was signed—that very next morning—armed Russian bailiffs executed a raid on the Moscow offices of ExxonMobil’s rival BP, which had been relying perhaps too heavily on the wrong horses in Russia to help it complete its own partnership deal with Rosneft. The Russian authorities peremptorily ordered all employees out of the BP offices and gathered up evidence to be used in an 87-billion-ruble lawsuit filed by supposedly disgruntled Kremlin-friendly TNK-BP stakeholders.