Thursday Round-Up; The Energy Debacle In The Northeast Continues: Barnes And Noble On Its Last Legs -- New Business Model Needed; Heavy Crude Oil Burns Too When Trains Derail; "Every Norwegian" Now A Millionaire; President Obama To Designate The Eagle Ford Area A "Promise Zone"

The British newspapers (on-line) continue to do a better job reporting news in the US. The (London) Telegraph noted that Niagara Falls has frozen -- a reader sent this to me, asking if anyone has seen this reported in any US newspaper? Certainly not the New York Times. Isn't that where Niagara Falls is located? In the backyard of The New York Times? Must be an inconvenient truth.

*******************************

I see Yahoo!Finance is reporting that oil is down to $87.50/bbl.

*******************************

A reader provides a great new energy link: breakingenergy.com.

******************************** 

I doubt I'm the only one that gets a bit irritated by pundits suggesting "Bakken oil" is a hazard. LOL. Railroads carry much more hazardous "stuff" than Bakken oil (like chlorine gas and propane). Regardless, it's "nice" to see that it's not just Bakken oil that burns when oil tank trains derail: it is being reported that a train carrying heavy oil from Canada derailed, and, lo and behold, that oil burned, too. Rigzone is reporting:

A Canadian National Railway train carrying crude oil and propane derailed and caught fire in New Brunswick on Tuesday night after the emergency brakes were activated, federal safety officials said on Wednesday. The accident, the latest in a string of derailments that have put the surging crude-by-rail business under scrutiny, involved 17 cars on the railway's main line, Canadian National Chief Executive Claude Mongeau told a news conference. Five cars carrying crude from western Canada and four carrying propane were among the derailed cars, he said.

Who in their right mind would put propane tank cars along with crude oil tank cars on the same unit train? Might as well add radioactive waste to the mix to get a really, really good story.

********************************

[Update to the story below, January 21, 2014: Reuters is reporting that the Norwegian pension fund is underperforming the market in general, returning less than 4 percent per year. Four percent is the target, but the fund is heavily restricted by what it can invest in. Be that as it may, at least the fund is getting 3 percent or better. It's my understanding that the North Dakota "Legacy Fund" is idling in cash.]

I'm in a great mood. There is so much to post I won't get to all of it today. I will be out and about later, and won't be able to blog as much as I otherwise would.

As noted last night, every Norwegian (in the country of Norway) is now "technically" a millionaire. They have reinvested their oil royalties into equities and property around the world and now own 1% of the world's wealth, as it were. North Dakota has a legacy fund and when it was first announced the state made a big deal to say they would not invest the money in "anything," except to let it sit there in cash. I don't know what they are doing now.

If that's still their investment strategy, that's sad. One of the largest, most conservative, most respected funds in the United States grew 36% last year. From the money.usnews website:

The fund has returned 36.61 percent over the past year, 18.52 percent over the past three years, 19.82 percent over the past five years, and 7.27 percent over the past decade.

And so it goes.

**************************

The energy debacle in the northeast continues. All of their problems, from my perspective, were man-made. More on that later, with lots of links, but regular readers knows the story. [August 17, 2016: more here.]

***************************

Despite the frigid weather in North Dakota, work goes on. The number of active rigs is near it's all-time high (at 193) and if one considers the effectiveness of the current rigs vs the rigs two years ago, it's an even bigger story.

****************************

RBN Energy: excellent, simply excellent in-depth review of CBR. A must-read. I scanned through it quickly. Will come back to enjoy it when I have more time. RBN Energy is still the best source for fossil fuel education, mostly oil and gas.

****************************

Keloland is reporting:

The U.S. Army Corps of Engineers says electric power generation from the Missouri River's six upstream dams fell far below average in 2013.

The corps says energy production from the dams in the Dakotas, Montana and Nebraska totaled 7.6 billion kilowatts of electricity last year, down from 10.4 billion kilowatts in 2012.

Corps spokesman Mike Swenson says more water was kept in reservoirs last year to make up for a dry 2012.

The shortfall in production meant the Western Area Power Administration had to get energy from other, more expensive sources. And that cost is passed on to ratepayers.

A reader points out that some might argue that mismanagement by the Corps precipitated some of the problems. Be that as it may this is what I found most interesting. The writer says: 

The shortfall in production meant the Western Area Power Administration had to get energy from other, more expensive sources. And that cost is passed on to ratepayers.

And what would those "more expensive sources" be? Yup, solar and wind. And much, much more expensive. Coal is dirt cheap, and natural gas is almost as cheap. 

I pretty much don't care about relative costs between "fossil fuel" and "renewables" any more. Americans have spoken and they like to "feel good": spending more money on energy (for whatever reason).

****************************

The president has identified five areas in the United States with severe poverty. He will establish "Promise Zones" in those five areas. I'm thrilled to see the federal government is throwing money toward Texas, the state that probably needs it least. Not only that, President Obama is throwing money toward San Antonio which is in the middle of its own mini-boom with the Eagle Ford, a oil play that will rival the Bakken. I believe the Eagle Ford has already surpassed the Bakken in output. But if the Federal government is throwing money around, no harm in sending it to Texas.

I'm about as tired of President Obama as I can possibly be. And that's not partisan. 

*****************************

A reader wanted me to take a look at CLR's January, 2014, corporate presentation. 

Slide 3: CLR Bakken production up 51% over comparable quarter one year ago

Slide 6: CLR acreage in the Bakken -- 1.2 million acres; almost 100% is held by production; "expansion" posted at the slide; some of it in the Richland fairway on the North Dakota side of the border

Slide 7: plans for 2014 -- 1) analyze results of density well projects; Hawkinson, Tangsrud, Rollefstad, Wahpeton; 2) continue delineating the TF; already 3,800 square miles of TF delineated; 3)300 net wells in 2014; three additional density projects -- Hartman, Mack, and Lawrence

Slide 8: CLR will move from a 1,320-foot pilot (Hawkinson, Tangsrud, Rollefstad) to a 660-foot pilot (Wahpeton, Lawrence, Mack, Hartmen) -- 32 wells in a drilling unit (31 new wells)

Slide 9: Hawkins project successful

Slide 10: in the Antelope play -- 350 wells over next 4 - 5 years; MB, TF1, TF2, and TF3; at 30 wells/year = 10  years of drilling inventory. 30-well pads; two will be drilled this year. Pipeline infrastructure to this area has been improved; "~50 wells (gross) budgeted for 2014, with large production impact in 2015

Slide 11: wells are now budgeted at $7.5 million, down from $9.2 million one year ago (2012); industry average was over $11 million in 2012. I believe there are some other costs coming down that are not reflected in drilling/fracking costs

A reader asks the question: might we see about 30 operated CLR rigs (up from 20 now) in the Bakken this year (2014). The reader bases this on calculations using data on slide 17. In addition to that data, remember slide 7: 300 net wells this year. Of course all of them won't be operated by CLR (and yes, I know the operated/non-operated clouds the issue) but I still use one rig drilling 10 wells/ year. So, 300 net wells this year could equate to 30 CLR rigs in the Bakken. It's hard to believe that will happen, but two things: a) CAPEX increases and well costs go down; b) Hess says they are bringing in more rigs. Strike while the iron is hot?

Slide 22: Bakken well economics. At $60/bbl, CLR's rate of return is 25%; at $80/bbl, it approaches 45%. EOG says they are getting 100% rate of return on their wells in one year.

*******************************  
Barnes and Noble

Update, February 10, 2014: Barnes and Noble will axe the Nook.

The Nook, of course, is the tiny little piece of hardware that competed with Kindle and iPad—although it turns out it didn’t compete very well. Another interesting implication of this is that Microsoft in April 2012 invested $300 million in Barnes and Noble valuing the Nook division at $1.7 billion.

In addition, Microsoft committed $180 million over three years in guaranteed revenue share and $25 million a year for international expansion, again all for the Nook, which no longer exists.

It’s not clear what this means for Barnes and Noble over the long term since the company is basically worthless without those payments. It’s also unclear what this means for Microsoft, but Barnes and Noble is popping on the idea that getting out of this largely worthless hardware division is good news. It’s also good news for Amazon, of course, and iPad to a lesser extent-- but then again they weren’t really competition anyway.

Advice for Barnes and Noble (original post):

I hate to post this. Barnes and Noble is one of my favorite stores. I occasionally break my rule not to pay full-price for books by buying at Barnes and Noble. I prefer to buy from used book stores (particularly Half-Priced Books -- big in Texas), and if I can't find what I want at used book stores, I buy from Amazon. Even with free shipping, I generally get things in three or four days (or less, which seems hard to believe). But occasionally I find something at Barnes and Noble I decide to buy.

Having said that, Barnes and Noble is generally way over-priced. If I had more time, I would provide examples. There must be a heck of a lot of inefficiency at Barnes and Noble. There is always a lot of foot traffic, but there are also a lot of folks who sit in comfortable chairs, uncomfortable chairs, or on the floor to read books. I often see stacks of books that will need to be re-shelved. And many of the books are left in condition that render them un-sellable.

I am not a "member" of Barnes and Noble. I don't pay the annual $25 fee to get "an extra 10% off" from purchases. But after seeing the most recent sales numbers (below) and what I saw at the Barnes and Noble stores in the past two weeks suggests to me that B & N needs to do something if it wants to survive.

Here's the sales numbers coming out after the holiday season:

• core comparable bookstore sales declined 0.2% (remember, CLR's production increased 51% year-over-year)
• retail sales (brick-and-mortar and on-line) decreased almost 7% year-over-year
• the decrease was attributed to a 5.5% decline in comparable sales and store closures; this excluded Nook sales
• Nook sales decreased 60% year-over-year
• Nook device sales decreased almost 70% from a year ago
• Nook content sales decreased almost 30% from a year ago

I would do three things if I ran B & N as one last hope to survive:

• discontinue the Nook; partner with Apple
• convert to sales club model (Sam's or Costco's model): everyone pays $30 annual fee; card-entry required
• raise the bar significantly on the retail experience to "make" folks want to visit

As it is now, B & N is giving away their inventory: folks read for free; use the internet for free; browse for buys; and shop for best price at Amazon.

*****************************

Ford raises its dividend 25%.

******************************

A Note To The Granddaughters

My Yahoo!Calendar reminds me that Linda passed away January 23, 2006. Linda was the love of my life, my first "true love." We talked of marriage but told me to "experience life" and date other women before we were to settle down. She was a woman of the 60's. She had grown up in the feminist movement on the East Coast including four years in Boston.  She never married. She died following a heart transplant for an idiopathic cardiomyopathy. I believe she was 53 years old.