A?s the saying goes, be careful of what you wish for, lest you get it. After Sen. Barack Obama’s stunning election victory, he well may have wondered what he signed up for. The first time he sits behind that desk in the Oval Office for a quiet, uninterrupted half hour, what will he think?


For Obama, the hard part comes next: governing. There is no doubt the president-elect knows what he wants to do. Experts think he’ll have to govern from the center to get anything done. We’ll see if he is persuasive and decisive. Actually making things happen will be tough against an economic downdraft of incredible proportions, not to mention the inefficiency inherent in the huge federal bureaucracy.


The economy is job one, to borrow a phrase from the beleaguered Ford Motor Co., just one of many corporate supplicants beating on his door. A deficit nearing $1 trillion will give rise to a stimulus plan that includes green jobs that could affect broader energy policy.


Energy and the economy are linked in his mind, and rightly so. But the oil and gas industry is running scared due to the changes in government, and these come on top of lower commodity prices that are wreaking havoc with drilling budgets and capital access. The list of threats is long: Possible windfall-profit taxes. Higher capital-gains taxes. A “use it or lose it” approach to millions of acres of federal leases. A carbon-use tax. An alternative energy focus. Less oil and gas research. Any of these could further upset the upstream apple cart.


Therefore, the call to arms was urgent and the humor black at the 79th annual meeting of the Independent Petroleum Association of America last month. Fear and loathing of Democrats was a common theme.
“No Democrats were harmed in the making of this film,” read an end credit of a funny, warm video tribute to the industry and to this year’s Chief Roughneck Award recipient: former IPAA chairman, and oilman and rancher Diemer True of Casper, Wyoming.


How to proceed in the nation’s capital? “Dull your combat skills and sharpen your collaborative skills to be able to deal in Washington,” advised keynoter Alan Simpson, a former U.S. Senator for Wyoming.


“The opportunity is there to take the decibel level of anti-oil sentiment down,” said Joseph O’Neill, president and CEO of Public Strategies Washington Inc. “I don’t think Washington is poised to go over a cliff. Obama sees his energy policies as inextricably linked to his economic policy. The recognition has sunk in that sending $700 billion abroad for oil (a year) can’t be sustained. Yes, 2009 will be a high-risk environment for this industry and it will require direct engagement, and some compromise, on your part.”


At press time, we did not know who will be the new energy and interior secretaries, and who will be assigned to the 31 vacant seats on congressional committees that handle energy policy. These include six seats on the House Energy and Commerce Committee and seven on its Natural Resources Committee. Meanwhile, 50 newly elected House members and 10 new senators need to be educated about the oil and gas industry.


The IPAA announced a new program, RIG, or Relationships in Government. The goal is to build and sustain long-term, one-on-one relationships between an IPAA member and a member of Congress. It is not a six-week or even a six-month surge of interaction, but a longer-term relationship of face time for education and cooperation.


“Part of the reason for RIG is that we want to keep bad things from getting into these bills before they even get to the floor for a vote. Once they’re on the floor, it is too late for us. We need to educate the freshmen members and their staffs, and the existing members who will be moving up to join the relevant committees,” said Lee Fuller, IPAA vice president of government relations.


That education must focus on what is realistic as opposed to what is exaggerated. For example, the price of oil this year was unrealistically high. It decoupled from demand and the Producer Price Index, to be driven more by the extreme, and volatile, flows of passive index funds, according to Ed Morse, now with Louis Capital Management, and formerly chief economist at Lehman Brothers and Hess Corp. Speaking at Hart Energy Publishing’s Energy Solutions Conference in November, Morse said, “Some 30% of the oil market last year was index money. The inflow and outflow has become increasingly more pronounced.”


“Assets under management for commodity funds were up 658% from January 2004 to May 2008,” added John McNamara of Thomson Reuters.


The education must focus on the fact that alternative energies will at best only feed 1% to 5% of America’s voracious energy appetite. But if the government gets policy right, U.S. producers can continue to chase the 842 trillion cubic feet of shale-gas reserves that exist in this country, per Navigant Consulting Inc.’s latest figures, and continue to chase the 3.6 billion barrels of recoverable oil in the Bakken shale.

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