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Oil #1: We Buy Oil

Sep 19, 2016
Originally published on September 26, 2016 9:57 am

Oil is everywhere, and in nearly everything: Our phones, our clothes, our food, and our medicine. It has driven industrial progress and technology. It has shaped our civilization, powered its rise. Despite all this, oil has exacted an enormous price: our climate is changing, smog is smothering cities around the world. That all comes, in part, from burning fossil fuels like oil.

Yet — how many of us have actually seen crude oil? How does it get from ground to gas tank? And who are the people along the way turning thick black crude into light, clear, gasoline. Oil companies are some of the largest businesses on earth, but there are thousands and thousands of tiny operations that are just as essential to the oil industry. We wanted to get to know them.

Here at Planet Money, we thought the best way to see into the business of oil would be to get into the business of oil. Today on the show, that's exactly what we're going to do, starting with a briefcase full of cash and plane tickets to Kansas.

Find the rest of the five part series here. And some photos here.

Music: "Wasting Away" and "Feel It Now." Find us: Twitter/ Facebook.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

ROBERT SMITH, HOST:

Stacey Vanek Smith.

STACEY VANEK SMITH, HOST:

Robert Smith.

SMITH: I am so excited for this trip. Let's make sure we have everything. We have our tickets, right? We have airplane tickets.

VANEK SMITH: We have our tickets.

SMITH: We're flying into Kansas City, Mo., and then we're driving into Kansas.

VANEK SMITH: Yeah, we're renting a car.

SMITH: And we have hotels where?

VANEK SMITH: In Wichita.

SMITH: McPherson, Kan.

VANEK SMITH: And Omaha.

SMITH: And Omaha.

VANEK SMITH: Yeah.

SMITH: And we have found somebody who will sell PLANET MONEY a hundred barrels of crude oil.

VANEK SMITH: Yes we did. Yes we did. It was a long journey.

SMITH: It was a really long journey. In order to buy crude oil, PLANET MONEY had to register as an official purchaser of oil in the state of Kansas. And we had to find middlemen. We had to find truckers. We had to find a refinery willing to take our oil.

VANEK SMITH: And then there was NPR management. They kind of freaked out when we took this idea to them. They were like, what if you spill the oil?

SMITH: Yeah, an NPR oil spill sounds terrible.

VANEK SMITH: That sounds really bad. Also, what if you can't sell it? What are you going to do, take 100 barrels of oil and stack them in the office?

SMITH: But we worked it out. We have finally worked it out. And Stacey - Stacey, look what I got.

(SOUNDBITE OF BRIEFCASE BEING UNLATCHED)

VANEK SMITH: (Laughter). Why did you get a briefcase?

SMITH: So that I could make that little click, and...

VANEK SMITH: What's in the briefcase?

SMITH: ...Look what's inside.

VANEK SMITH: That is a stack of hundreds. How much money is this?

SMITH: $10,000.

VANEK SMITH: I'm holding $10,000?

SMITH: (Laughter). Of NPR's money.

VANEK SMITH: I've never had this much money in my life.

SMITH: Here, give it back.

VANEK SMITH: I could run outside...

SMITH: Nope, nope, nope, nope.

VANEK SMITH: ...And buy a car.

SMITH: Give it back. Give it back. I'm putting it back in the briefcase. Let's go buy a hundred barrels of crude oil.

VANEK SMITH: Let's do it.

SMITH: Hello, and Welcome to PLANET MONEY. I'm Robert Smith.

VANEK SMITH: And I'm Stacey Vanek Smith. Oil is one of the biggest economic forces on Earth. It has driven industrial progress and technology. It has shaped our civilization, and it's an intimate part of our lives. Oil is in our phones, our clothes, our food, our medicine. Oil has given us all of these gifts, but it has also exacted an enormous price. Dealing with climate change and getting off of oil are two of the biggest challenges we face as a planet. In spite of all of this, most of us have never even seen oil in its raw form.

And even though oil companies are some of the biggest businesses in the world, it is really hard to get inside of them. The whole industry is sort of veiled in mystery. Here at PLANET MONEY, we thought the best way to see into the business of oil would be to get into the business of oil. Today on the show, that is exactly what we're going to do.

SMITH: Over the next few episodes of PLANET MONEY, we are going into the oil business. We are going to buy a tanker full of crude oil. We are going to transport it. We are going to sell the oil, refine oil and ship it through a pipeline to its final customer.

VANEK SMITH: Your gas tank.

SMITH: To your gas tank. Now, you know, if we had done this story, you know, five years ago, 10 years ago, we would be flying to Saudi Arabia and trying to do a deal with them.

VANEK SMITH: Yes, and we would also need a much bigger briefcase.

SMITH: Because, of course, oil was more expensive then.

VANEK SMITH: Yes, exactly. But these days, the biggest producer of petroleum in the world is us. It's the United States. Over the next five episodes, we are going inside the U.S. oil business.

SMITH: We're going to meet the people and make the deals ourselves.

VANEK SMITH: In cash.

SMITH: In cash. First step - we have an appointment with a preacher in Kansas.

(SOUNDBITE OF MUSIC)

SMITH: I'm going to be honest with you. I came to suspect that this project we were doing at PLANET MONEY was cursed - was cursed from the very beginning because everyone kept saying, no, no, we are not going to sell oil to you. No, you can't do that. No, that is not physically possible.

VANEK SMITH: Finally, a Kansas oilman named Jason Bruns said yes. He had a tank full of crude oil that he would be willing to sell us. Also, he's a pastor, so we figured we could trust him. And we booked our tickets.

SMITH: Then, over the Fourth of July weekend, we got bad news about our oil tank.

JASON BRUNS: It got hit by lightning.

VANEK SMITH: It got hit by lightning?

BRUNS: Yeah, and it burned the oil up, so there was nothing left.

SMITH: Was there a fireball, or what happened?

BRUNS: Yeah, yeah, that - it did burn for two or three hours. And tanks that are split in half, and the tops were blown out of them and ash everywhere. And all the trees around it - or the few - the few trees that around it are burned up, and all the - it's just burned up. It's ash. It looks like a forest fire.

SMITH: We seriously talked about giving up.

VANEK SMITH: But a few weeks later, Jason called us up and said he had another well with oil that he'd be willing to sell us. So he gave us directions to a cow pasture close to the border of Kansas and Oklahoma.

SMITH: So it's Friday morning in Wichita, Kan. We get up. We are ready to head down there, and this is what we hear.

(SOUNDBITE OF THUNDER)

VANEK SMITH: We are cursed.

SMITH: We're cursed.

VANEK SMITH: It is pouring rain, and the oil truck that was going to haul our oil calls us up and says, no way are we going to be able to get our truck into that muddy field to get your oil.

SMITH: Yeah, but we go anyway.

VANEK SMITH: Aw.

SMITH: Oh, there's cows. Oh, wait, there's a lot of cows.

VANEK SMITH: You know, I think I was picturing some barren wasteland with oil derricks as far as the eye could see. But in Kansas, the oil wells are really charming and beautiful, actually.

SMITH: Oh, they're coming this way. All right, go.

VANEK SMITH: (Laughter). No.

They're tucked into these vast fields of wheat and corn. And so Robert and I drive down this long, straight road.

SMITH: All the roads in Kansas are precisely straight.

VANEK SMITH: That's true. And we veer off into this prairie grass through this herd of black cows, and we find Jason.

SMITH: Hey. Good to meet you, Jason.

BRUNS: Yep, nice to meet you.

SMITH: He is a big man with an outlaw's beard. He's standing next to his red pickup, and next to him is this rusty machine plunging a metal rod into the mud.

VANEK SMITH: So what are we looking at right now?

BRUNS: What are you looking at? Oh, that's a pumping unit.

SMITH: A pumping unit? Just like in the movies? It goes up and down and looks like a...

BRUNS: Like a teeter-totter, I've been told. And then other people I've heard say it looks like a big hammer. But to me, it's just a pump unit. I've been looking at them since I can remember. I was 4 years old, so it's always been a pump unit to me.

VANEK SMITH: This is where our oil is coming from - out of this well. Although, I have to say, it looked a little rough around the edges.

SMITH: It's a little janky.

VANEK SMITH: But Jason tells us it has been running for 40 years, almost as long as he's been alive.

SMITH: Jason's done just about all the jobs you can do on an oil field. He was a roustabout, which is basically, like, a handyman. He's drilled wells, and he's taken wells apart when the oil ran out. And on Sundays, he preaches the gospel.

BRUNS: I'm not your cookie-cutter mold for a preacher. I'm probably not your - I know I'm not your cookie-cutter mold for a oil producer.

SMITH: He's been doing this since he was a kid, traveling from well to well with his grandfather. When he was 23, he had his first accident.

BRUNS: We were - we were working on a well - one of my grandpa's wells one day, and I stepped over beside the rig and grabbed a chain and hooked the chain up. And he tightened into it with about 10,000 pounds of pressure, and my hand was between it and the piece of metal. And metal doesn't give. That was in a day's work.

SMITH: Wait, wait, wait, wait. What did you do? I mean, you just screamed, or what did...

BRUNS: No, I just said - I said, ah. And then my grandpa loosened off the brake, and whenever he looked at me, I said, let's go to the hospital. And he said no. He said, let me see it. And I said, no, it's bad. I - I'm messed up. I lost my finger.

VANEK SMITH: Jason holds up his hand. It's this big, strong hand. And there is a stump where his middle finger used to be. But the point of the story isn't actually about his finger or even being careful on oilfields or anything like that. Jason tells us the story because he is still amazed at what his grandfather did after he dropped Jason off at the hospital.

BRUNS: And he said, well, I guess you don't need me to go. We're going to go finish up. Is that all right? I said, that's fine with me, so he went home.

SMITH: So he went back to the site?

BRUNS: Yeah, he went back and finished the job. So they worked that night until about 5 o'clock at night. My grandpa was the toughest man I ever knew in my life.

SMITH: It's really his grandfather who inspired him to save up and buy this well a few years ago. It taps into this vast reserve of oil that is deep under the ground underneath Oklahoma and Kansas. It's about a half-mile down. It's called the Mississippian layer. And basically, this pump unit plunges a metal rod into that layer. And then, with each stroke, it pulls out a little bit of oil.

VANEK SMITH: In its day, this well might have been a gusher. But now, it only produces a barrel or two of oil a day.

SMITH: And that's probably why Jason was the sole person willing to sell us oil - because these wells are known as stripper wells. They're operated by independent guys like Jason who are trying to make just a little bit of money before the oil runs dry. This one may stop at any time.

BRUNS: The most majority of the Mississippian crude has already been burnt in your car, yes.

VANEK SMITH: So this is, like, the bottom - the bottom of the milkshake?

BRUNS: Yeah, the tail end. The bottom of the milkshake, I like that.

SMITH: You've got to suck that much harder.

BRUNS: Yep, yep. You've got to work harder to get it out of the ground.

SMITH: It's all in pipes, but since we are here to buy oil, like, we want to see the oil.

VANEK SMITH: Yeah, we want to see the bottom of the milkshake.

SMITH: So he turns this little, tiny faucet on the side, puts a bucket underneath, and out pours a lot of water, which is what's in the ground, and a little bit of oil.

VANEK SMITH: Oh, my gosh. It's - it is the color of coffee.

BRUNS: Mm-hmm, yeah. It looks like a good latte (laughter).

VANEK SMITH: Can we touch it? Is that cool?

BRUNS: Yeah, you can.

VANEK SMITH: Oh, it's cool. Oh, that feels really weird. This is - this is our oil, right?

BRUNS: Right now it's my oil.

VANEK SMITH: I thought this was, like...

BRUNS: But it's going to be your oil (laughter).

VANEK SMITH: I thought in this - I thought, like, this was, like, handshake country.

BRUNS: Oh, yeah, it is, but we haven't shaken hands yet.

SMITH: Jason seems to remember that this is an actual oil deal, and so he switches into this salesman mode. He is super proud of his oil. All oil, he says, is not the same. Some of it is dirty and gunky, but look at my stuff.

BRUNS: It's sweet oil. It's good oil. It's light oil. It's not - it's not thick. It's not heavy crude. It's the sweet crude, what people want.

SMITH: Like Saudi-Arabian-oil good?

BRUNS: No, no. I'm not sure about Saudi Arabian oil, but it's good for these parts of the world.

SMITH: He's super into it. He takes us over to see the tank, which is this huge, black cylinder about twice our height. And he says, take a look inside.

VANEK SMITH: Oh, that's deep. Can you yell something down there?

BRUNS: Hello.

VANEK SMITH: I don't know. It looks OK to me.

SMITH: Yeah, it looked OK to me, too. He says it's sweet oil, which means it's pretty valuable. It doesn't have to be processed very much to turn it into gasoline.

VANEK SMITH: And Jason owns this well with a partner. They paid $60,000 for it. And right now, it's actually turning a profit of about $15,000 a year.

SMITH: It's a great business, unless the oil runs out or your pump breaks down or you lose a finger or you're struck by lightning.

VANEK SMITH: Or the price goes down. Over the last few years, Jason has watched the price of oil go crazy. It's spiked. It's plunged. And a lot of that has been because of fracking, which has flooded the market with American oil. And Jason said it is getting harder and harder to justify owning these oil wells.

BRUNS: There's times I've thought about getting out of it, but then you can't sell it for nothing. It's not worth anything. You know, it's not worth the value it was. So you think, well, I'll just get through a little further and get down the road a little longer, and the price will come up. And if I want to sell, don't sell when it's low. We know that. You got to sell when it's high. Well then, the oil comes back up, and you think, man, things are good. And why would I sell now? We're making money. Everything's going good. So you're just on that rollercoaster. You just, you know, stay on or get off. And I've stayed on, so...

SMITH: Which sounds good to me. Let's get on the roller coaster. Let's negotiate the price for our 100 barrels of oil.

VANEK SMITH: And we actually thought this would be pretty easy. I mean, after all, there is a global price for oil. You hear about it on the news all the time. It's not a secret. And, in fact, while we were driving over to Jason's well we heard on the radio that the price of oil was going down, and we were excited. We thought, this is good for us. This is a good time to buy oil.

SMITH: We are going to make money. But when you actually get out to the oil patch and you try and do a deal like this, you realize that there are all of these slightly different prices that people are paying for oil. Jason pulls out his smartphone, starts to look at it.

BRUNS: It takes a while down here. We're in bed reception. There we go. Now it'll pull up. Then we can see here all the prices. So Kansas common, south central Kansas, eastern Kansas, Nebraska.

SMITH: Every place has a different price. And some of them are really different. So, for instance, Kansas common costs around $33 a barrel.

BRUNS: Wyoming sweet costs $6 less than that.

SMITH: But, of course, Jason isn't pointing to the cheap one. He is pointing to the most expensive column.

VANEK SMITH: The one at the top.

BRUNS: Oklahoma sweet. That's our column. Right now, the average on Oklahoma sweet is $41.83 for the month.

VANEK SMITH: I thought it was Kansas sweet, though.

SMITH: Yeah, we are in Kansas.

BRUNS: Yeah, we are in Kansas.

SMITH: Are you pulling a fast one on us?

VANEK SMITH: Why should we pay Oklahoma sweet prices?

BRUNS: Because that's what the other oil trucks that'll come if you don't get it will pay me (laughter).

SMITH: It's at this moment that I realize that we do not have a lot of negotiating power, since he's the only person who will sell to us in all of Kansas.

VANEK SMITH: We're starting to get a little worried and kind of give each other these looks. And Jason kind of steps in and starts explaining, like, no, no, no, you don't understand. Actually, my oil is worth more than your typical Kansas sweet because I'm so close to the border with Oklahoma.

BRUNS: The more southern Kansas you are, the sweeter your crude is, the more they pay.

VANEK SMITH: So it's, like, location, location, location?

BRUNS: Yeah.

SMITH: A huge part of the cost of oil is transporting it. And the cheapest way to transport oil is by pipeline. So basically, if your oil is close to a pipeline, you get a higher price for your oil.

VANEK SMITH: And Oklahoma is the pipeline capital of the United States. And Jason points out his oil well is only about a five-minute drive to the Oklahoma border.

BRUNS: OK, so that seems legit. But I pull out my phone. I check. Oil prices are dropping as we are doing this negotiation.

VANEK SMITH: Yeah $41.83 seems high.

SMITH: It's in a dip. It's on the way down. It's headed - it's hitting the downward slope.

BRUNS: So you're thinking, like, $41.80 probably.

SMITH: Well, you just knocked three cents (laughter) - you just knocked three cents off of that.

BRUNS: I feel you. I mean, that's kind of what I was thinking. I mean, it's probably...

SMITH: I mean, the deal - like, the...

BRUNS: You buying lunch?

SMITH: I will definitely buy lunch.

BRUNS: If you get it for $41?

SMITH: $41 if I buy lunch?

BRUNS: Yeah.

SMITH: Well, wait, wait, wait.

VANEK SMITH: You know, OK, if this is an oil deal, I have to say I did not picture, like, two guys on cell phones. This is making me a little sad. I wanted, like, I don't know - like, spitting in the dirt or something. Like, I don't know - fist fight?

SMITH: This is my first time doing a negotiation, so I'm trying hard at this point.

VANEK SMITH: I'm sorry, Robert. It just came into my head.

SMITH: Now, to be fair, oil deals are almost never done this way anymore in person. Normally, the bids are on computers there's long-term contracts. But doing it in person did give us one more card that we could play.

It still - it still seems a little bit expensive. So I'm going to show you something here that might help you change your mind, maybe lower it a little bit.

BRUNS: I see.

(SOUNDBITE OF BRIEFCASE BEING UNLATCHED)

BRUNS: Oh, yeah - cash money. Yeah (laughter).

VANEK SMITH: Jason is beaming now. And he tells us that there are some less-than-ethical folks out here who would give us a pretty big cash discount.

SMITH: Because they wouldn't have to report their profits on their taxes. And Jason swears, oh, no, no, no, no. I'm not that kind of person.

VANEK SMITH: But he says he will budge a little.

SMITH: If we do it in cash, can we get, like, you know, $40? Good on the $40?

BRUNS: $40? Yeah, I'd probably do that.

SMITH: Let's do the handshake. All right.

BRUNS: All right, deal.

VANEK SMITH: That was, like, a $4,000 handshake.

BRUNS: I - let me - I don't - not that I don't trust you, but let me count this, if that'd be all right.

SMITH: Wow, they're new. They're, like, new bills.

BRUNS: (Laughter). Well, thank you, sir.

SMITH: The deal's done.

VANEK SMITH: Jason does not get all the money. He has a business partner who owns a share of the well. Also, the farmer whose land the well is on gets a cut. And there will be paperwork.

SMITH: There will be lots of paperwork, but a handshake is a handshake.

VANEK SMITH: So wait, do we officially own the oil now?

BRUNS: You officially own the oil now - a hundred barrels of the oil.

VANEK SMITH: Robert Smith, we did it. We bought oil.

SMITH: High-five. The curse is reversed.

VANEK SMITH: Well, assuming, of course, that the ground eventually dries out and the oil truck can eventually get in to get our oil out of the tank.

SMITH: It will be a very short series if we don't. Coming up on the next PLANET MONEY, we got the oil. Now, we've got to transport it, refine it, set our price and sell it.

(SOUNDBITE OF MUSIC)

SMITH: Let us know what you thought of today's show or if you'd like to buy some oil. We have a hundred barrels of it. You can email us - planetmoney@npr.org - or you can find us on Facebook or Twitter. We are @planetmoney.

VANEK SMITH: Robert, we got to go out and do this fun deal in the field.

SMITH: That was the best part of this.

VANEK SMITH: It was really fun, but there were many, many months of work and toil and phone calls that went into this. And most of those were done by Alex Goldmark, our senior producer, and Jess Jiang, our producer, also Nick Fountain, who, incidentally, produced today's show. If you're looking for another podcast to listen to, check out NPR's Pop Culture Happy Hour. Every week, they talk about the new books and movies and TV shows out in the world. And they have great discussions with people like Trevor Noah and Shonda Rhimes. So check it out on the NPR One app or at npr.org/podcasts.

SMITH: I'm Robert Smith.

VANEK SMITH: And I'm Stacey Vanek Smith. Thanks for listening.

SMITH: If you could sign this just as a receipt that I handed you that money.

BRUNS: OK.

VANEK SMITH: This is on, like, a reporter's notebook.

SMITH: (Laughter). I mean, I figured, like, I'm good on a handshake, but NPR's going to want to see something.

VANEK SMITH: That's a very nice signature.

BRUNS: You didn't write plus lunch.

VANEK SMITH: I like that you're focused on lunch. I'm also focused on lunch.

BRUNS: Yeah, I'm getting dry. I'm kind of parched here.

VANEK SMITH: Is there, like, a typical lunch place that you go to after an oil deal?

BRUNS: A close one. Transcript provided by NPR, Copyright NPR.