Thursday, August 6, 2015

Survival Mode -- August 6, 2015

Explorers in need of cash are selling oil fields as last resort.
Energy explorers reeling from the rout in oil prices are looking for liquidity in an obvious place: their rocks. Having exhausted other ways to raise cash as a glut of global supply depresses prices, a slew of producers from Anadarko Petroleum Corp. to Comstock Resources Inc. announced more than $2.4 billion in asset sales last month, according to data compiled by Bloomberg.
Selling oil and gas fields to pay off lenders and fund new drilling -- often a wildcatter’s option of last resort -- is surging after a six-month lull.
There’s more to come -- by one estimate, another $20 billion this year -- as executives at Occidental Petroleum Corp., Whiting Petroleum Corp., Penn Virginia Corp., Exco Resources Inc., Chesapeake Energy Corp. and Ultra Petroleum Corp. have all said in recent weeks that they are selling assets or exploring sales.
The surge shows how the industry’s two-pronged strategy for staying financially healthy since oil prices started tanking -- raising capital while tightening belts -- may not be enough, particularly for companies with a lot of outstanding debt. Bank regulators are getting nervous about the industry’s exposure to drillers, creating another incentive to sell assets.
“For the most part, lending banks have worked with their clients to provide temporary relief,” said Ron Gajdica, co-head of energy acquisitions and divestitures investment banking with Citigroup Inc. “That relief can’t go on forever.”
See my comments about Jay Gould at this post earlier today

The Ledecky Slam; Schumer Slams Obama -- Augsut 6, 2015

The Katie Ledecky Page

From Reach For The Wall:
The international swimming community, gathered here for the FINA World Championships, got a one-day respite from the tasks of recalibrating its record book and getting its collective head around the phenomenon in its midst.
Katie Ledecky swam again Thursday, for the fifth day in a row, but this time was all giggles and hugs and goofy smiles as she and three teammates swam off with the gold medal in the women’s 4×200 freestyle relay, Ledecky’s fourth of this meet.
“We had a blast out there,” said Ledecky, the 18-year-old from Bethesda. “It was so much fun being in the ready room with those girls, just so relaxed.”
On Friday, the pursuit of history begins again, with the preliminary heats of the women’s 800-meter freestyle, one of three events in which Ledecky holds the world record. The finals are Saturday, and if she wins – and no one in the world is within 10 seconds of her this year – she will complete an unprecedented sweep of the 200, 400, 800 and 1,500 freestyles at a single world championship.
It is a feat that has no official name, but one that may henceforth be known as the Ledecky Slam.
1500 Meter Women's Freestyle World Record, 2015

Speaking Of Slams

Schumer won't support Obama on Iran. At least that's what the New York Times is reporting. Schumer still has a political future left. In New York. The state with the highest percentage of Jews in the United States. The state with the largest number of Jews in the United States -- and by a wide, wide margin. President Obama is a lame duck. He has no political future but worse than that, he has thrown his turban in with the enemies of Israel. From The Times:
As if on cue, Representative Eliot L. Engel of New York, the ranking Democrat on the House Foreign Affairs Committee, who was widely expected to oppose the deal, announced his opposition Thursday night.
Mr. Schumer’s announcement comes as Representative Nancy Pelosi of California, the minority leader, labors to build a firewall in the House in support of the deal, which has been denounced by Prime Minister Benjamin Netanyahu of Israel. At six meetings in recent weeks, Ms. Pelosi has assembled an informal team of Democrats determined to win over the 146 House Democrats needed to uphold a veto.
But Ms. Pelosi’s team had had its eye on Mr. Schumer, conceded Representative Jan Schakowsky, Democrat of Illinois and one of Ms. Pelosi’s deputies on the Iran deal.
Ms. Schakowsky said that Democratic leaders had never put Mr. Schumer “in the ‘yes’ column,” but that “the calculation still is we’ll have the votes” even without him.
So far, 12 Senate Democrats and one Democratic-leaning independent, Senator Angus King of Maine, have announced their support for the deal. Two others, Senator Bernie Sanders, a liberal independent from Vermont, and Senator Jack Reed of Rhode Island, the ranking Democrat on the Armed Services Committee, have all but announced their support.
That's 15.


Speaking of Schumer, does anyone remember this post? My, how times have changed.

Saudi Arabia Looking At Bankruptcy? -- The (London) Telegraph / Sydney Morning Herald -- August 6, 2015

This is quite fascinating. Before going to the link, recall these items regarding Saudi Arabia:
  • the country has a huge under-funded desalination (and existential problem for the Saudis) program;
  • recently cancels a $9 billion solar energy program to pay for their desalination program;
  • recently completes two new in-country refineries with total capacity approaching 1 million bopd; 
  • faces a deficit twice what it forecast, Saudi Arabia says it will go to the debt market for the first time in a decade;
  • President Obama explicitly states the US is no longer responsible for Saudi's security;
  • the tea leaves clearly suggest it is US policy to move Iran to singular super-power status in the Mideast;
  • announces this past week that it will issue $27 billion in bonds;
  • has a shooting war in Yemen; terrorists on its borders;
  • a $35 billion, 5-year program to increase crude oil production announced in 2012, has failed; and,
  • it continues to give away its oil at $60/bbl (when it needs $100 oil to balance its budget).
That $100-oil figure is based on data from at least a year ago. After giving away its oil for the past year at $60/bbl, the $100-oil figure is probably understated.

So, with all that, it doesn't take a rocket scientist to think the unthinkable, but even I couldn't go that far.

But apparently the editors over at The Sydney Morning Herald were willing to go out on that branch. The headline: Saudi Arabia may go broke before the US oil industry buckles.  (Archived)
If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.
The contract price of US crude oil for delivery in December 2020 is currently $US62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6 million barrels a day (b/d) into the teeth of the downturn.
Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.
If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.
"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.
One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.
By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.
Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $US200 billion ($272 billion) of investments.
The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45 per cent this year - and not only by switching tactically to high-yielding wells.
Much more at the link. 

Earlier today while bike riding, I was thinking about Saudi's problems. I thought about what they would have to do. I typed it all out below but then realized that folks much smarter than I would note all the flaws. So, I deleted it.

But if you don't read anything else this week, read the article at The Sydney Morning Herald linked above. The original appeared in The (London) Telegraph, perhaps one of the two best newspapers in the world.


Later, see first comment: 
The succession status/procedures in KSA may be vastly more problematic as the current king is in the process of partially disenfranchising something like 34 out of the current 35 sub branches of the house of Saud.
Diminishing resources will greatly accelerate the tension.
and my reply:
Very, very interesting. I was unaware of that. These three sources provide some insight, in order of importance (first one listed is most important): 

Texas Grid Breaks Record Second Day In A Row; Grid Holds -- August 6, 2015; Maybe That War On Coal Was A Bit Hasty

FuelFix is reporting:
Texas power users broke a record for the second time in two days this week after electric demand peaked at 68,912 megawatts on Thursday between 4 and 5 p.m. See yesterday's report here
The Electric Reliability Council of Texas, which runs the state’s electric grid, said the preliminary estimate for power demand during that hour was the highest it has ever recorded. Thursday’s peak was just ahead of the record set on Wednesday, when demand registered 68,538 megawatts.
From yesterday's' report:
The Texas grid reached 68,459 megawatts within the record 60-minute time frame, which exceeded the previous Aug. 3, 2011 record of 68,305 megawatts.
Texas better start building those solar farms and wind turbines farms post-haste.

Obama's Unintended Consequences

Is it possible President Obama's war on coal in the United States has had a most unexpected, unintended consequence? IBD is reporting:
At the very moment President Obama has decided to shutter America's coal industry in favor of much more expensive and less efficient "renewable energy," coal use is surging across the globe.
A new study by the prestigious National Academy of Sciences detects an unmistakable "coal renaissance" under way that shows this mineral of fossilized carbon has again become "the most important source of energy-related emissions on the global scale."
Coal is expanding rapidly "not only in China and India but also across a broad range of developing countries — especially poor, fast-growing countries mainly in Asia," the study finds.
Why is coal such a popular energy source now? The NAS study explains that many nations are attracted to "(relatively) low coal prices . .. to satisfy their energy needs."
It also finds "the share of coal in the energy mix indeed has grown faster for countries with higher economic growth."
In sum, using coal is a stepping stone to prosperity. So much for it being a satanic energy source.
Regular readers are well aware of the amount of energy India and China need. I had forgotten about the "poor, fast growing countries mainly in Asia."

The unintended consequence (rapid rise for coal demand outside of the US) was precisely because President Obama had nothing to offer those countries who might have otherwise given up coal. US exports of natural gas and oil would not have solved all the problems, but it might have helped stem the use of coal globally, but alas, President Obama was unable to see that.

Iowa's ObamaCare Co-Op Won't Be The Last (To Fail)

President Obama's legacy won't end with his failure to stem the use of coal worldwide. It will extend to ObamaCare. This is also from IBD. This is not a crackpot, right-wing publication. It has a reputation for unbiased, "bottom-line" reporting:
Bankruptcy: A court filing this week shows that the first ObamaCare-created insurance co-op to fail will likely cost $147 million. How many more will have to go under before President Obama admits to this boondoggle?
A few years ago, the idea of nonprofit co-ops was music to ObamaCare advocates' ears.
Freed from the need to deliver profits to investors, these nonprofits would provide competition and choice to the individual market. That was the theory, anyway.
And there were few places better suited to the success of this concept than Iowa and Nebraska, states that had little competition, where uninsured rates were high and businesses were dropping coverage.
So with millions in federal low-interest startup loans, CoOpportunity was one of the first ObamaCare co-ops to get off the ground.
It was also the first to fail.
The Iowa government took it over in late 2014 and shut it down entirely a few months later.
In his most recent liquidation status report filed with the Iowa District Court in Polk County, Daniel Watkins shows why. As of June, CoOpportunity had $282.4 million in liabilities and just $108.7 million in assets. Among those liabilities is the $147 million CoOpportunity in federal startup and solvency loans that it's unlikely ever to pay back.
These losses came despite the fact that CoOpportunity had far more sign-ups than it had expected.
As far as ObamaCare failures go, CoOpportunity might be the first, but won't be the last.
By the way, this was absolutely predictable and posted several times on this blog when ObamaCare was first being voted upon. The early adopters of ObamaCare paid very little in premiums and being the most chronically ill (AIDS, cancer, mental health issues) used medical resources far in excess of what their premiums covered. 

I assume Iowans are well aware of this story, and they will still vote for Hillary in 2016.

The Proudest, Loneliest Fool I Know, Charlie Rich

Enbridge Storage At ECHO May Lead To More Canadian Crude Oil Being Stored Along US Gulf Coast -- August 6, 2015

For background to EPD's ECHO storage facility in Houston, see these links:
and many more.

Platts is reporting that Enbridge storage at ECHO may lead to more Canadian crude being stored along the US Golf Coast:
Enbridge has subleased crude storage at Enterprise Product Partners' ECHO terminal in Houston, which may result in increased flows of Canadian crudes to the US Gulf Coast, according to a source familiar with the situation.

The Calgary-based midstream company has subleased 1 million barrels worth of storage at the 1.65 million-barrel capacity terminal, which has become a pricing point for Canadian crude in Houston following the Enterprise/Enbridge Seaway twin line beginning service in December and brought the line's capacity to 850,000 b/d. The crude terminal is slated to have 6.5 million barrels of storage available by late this year.

The graphic is hard to read, but the "green" terminals are individual storage areas. The amount of storage is already immense, but the degree to which these storage areas are going to be expanded is simply staggering.

Fifteen (15) New Permits, North Dakota, August 6, 2015; Western Canadian Select Crude (Canadian Oil Sands) At $27.47

Tweeting now: Western Canadian Select crude oil at Hardisty, Alberta, falls $1.08 Thursday to $27.47/b, lowest since 2006.

Active rigs:

Active Rigs73191183204184

Wells coming off the confidential list Friday:
  • 29729, 753, Hess, EN-Weyrauch B-154-93-3031H-10, Robinson Lake, t7/15; cum --
  • 30255, drl, XTO, Tobacco Garden 11X-17A, Tobacco Garden, no production data,
Fifteen (15) new permits --
  • Operators: BR (7), HRC (5), Whiting (3)
  • Fields: Elidah (McKenzie), Antelope (McKenzie), Park (Billings)
  • Comments: the 7 BR permits are for two pads, a 4-well pad, and a 3-well pad, in section 29-151-97; the HRC permits are for one 5-well pad; the Whiting permits are for a 3-well pad (see below)
General location of BR's two proposed pads in the Elidah oil field, as noted in today's daily activity report:

Thursday, August 6, 2015 -- Part II; XOM To Expand In The Permian

Gasoline demand (dynamic link):

Risk Of Social Unrest

Back on February 23, 2015, I suggested there was a risk for serious social unrest in the smaller crude oil exporting countries. I also suggested that countries that depend on OPEC largesse, like Palestine, were at particular risk. It looks like someone is reading the blog. The linked article doesn't say that explicitly, but it's not hard to connect the dots:
“As Iran comes back to the market, under the current Saudi oil policy, it is still more likely in our opinion that any sustained price recovery will come through another OPEC country breaking down than from North American crude oil production collapsing."
The same article noted:
Norbert Ruecker, head of Julius Baer commodities research, told the WSJ that oversupply concerns are a burden on oil prices. “Shale oil producers are lowering costs swifter-than-expected, proving their superior competitiveness within the industry,” Ruecker told the WSJ, adding that US unconventional producers have surprised many with their “resilient production.”
Railroad History

In four short pages (pages 113 - 115) in Appetite For America by Stephen Fried, c. 2010, provides some analogies that might be relevant today for the oil and gas industry. Paraphrasing:
Since the beginning of the Civil War, the US government had given away almost one-tenth of all the land in the entire continental US to the railroads to encourage construction and development. Most of these land grants were in the central and western stages, where the railroads controlled over 30 percent of the land. 
Then Grover Cleveland was elected president.
Cleveland orders a massive investigation of the land grant system, and the railroads were forced to return about 80 million acres.
Next, the president began to look into the "monopoly-like" powers the railroads had and began to take measures to change that. The biggest change: the creation of the Interstate Commerce Commission, which Congress established in 1886, the year the Supreme Court ruled against the railroad fare system. Overnight, the President and Congress basically added a fourth branch to the American system of government: the federal regulatory agency. The ICC was the first such government regulatory agency.
With the creation of the ICC, the railroads went wild competing with each other, trying to undercut one another.
In the chaos of this new economics of railroads, William Strong (president of the Atchison, Topeka, and Santa Fe railroad at the time) believed that only a few of the strongest would survive. He felt he was left with no choice -- his Santa Fe had to get much bigger and more powerful very quickly, or it would be swallowed by Jay Gould and the other big eastern financiers who were still the power players in the industry.
By the way, Barstow, CA, is named after William Barstow Strong.

Australian Wind: For The Archives

Website: Hornsdale wind farm.  As of this date, August 6, 2015, 35% of proposed power has been bought; 0% construction.
Press release from The Lead.
315 MW; $250 million.

The Apple Page

From Macrumors:
In an interview with USA Today, Apple's Eddy Cue reveals that Apple Music currently has 11 million users taking advantage of the initial three-month trial period, with two million of those taking advantage of the family plan that will cost $14.99 per month once the trial ends. A single-user membership will be priced at $9.99 per month. 
This Is Not An Investment Site
Reporting today:
The list may or may not be accurate; things change.

XOM To Expand In The Permian

Link here.
Exxon Mobil today announced it has executed two agreements to obtain horizontal development rights in 48,000 acres in the core of the Midland Basin.

The two agreements include an acquisition and farm-in adjoining XTO’s existing acreage position in Martin and Midland Counties, providing rights to all intervals within the basin. The acreage will be operated by ExxonMobil’s subsidiary XTO Energy Inc.
“The recent emergence of strong Lower Spraberry results, combined with the established Wolfcamp intervals, demonstrates the significant potential of the stacked pays in the Midland Basin core.”
ExxonMobil has executed five agreements in the Midland Basin since January 2014, providing the company with over 135,000 operated net acres.
Can't Please Everyone

Link here.
In interviews and in hundreds of comments on Facebook, Wal-Mart employees are calling the move [to boost store workers' minimum wage] unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn. New workers started making a minimum of $9 an hour in April and will get at least $10 an hour in February.
Some workers also said they suspect their hours are being cut and annual raises reduced to cover the cost of the wage increase for newer workers. Wal-Mart denies that and says it’s taking steps to ensure all employees have an opportunity to move into higher-paying jobs. Along with bumping up the minimum wage, it increased the amount workers receive when promoted, boosted pay for some managers and raised the maximum pay for all hourly positions.
One word: kwityerbitchin. Life ain't fair. 

Thursday, August 6, 2015

Every well -- 100% -- coming off confidential list today went to DRL status.  Four DUCs.

Natural gas fill rate (dynamic link): 32. In the East Region, stocks were 69 Bcf below the 5-year average following net injections of 36 Bcf.

Active rigs:

Active Rigs75191183204184

RBN Energy: opportunity to attend an RBN Energy conference.

EIA "energy nugget":
Russia is the world's largest producer of crude oil (including lease condensate) and the second-largest producer of dry natural gas, after the United States. Hydrocarbons play a large role in the Russian economy, as revenue from oil and natural gas production and exports accounts for more than half of Russia's federal budget revenue. However, recent international sanctions on Russia, coupled with low oil prices, have put pressure on the Russian economy…Russia exported more than 4.7 million barrels per day (b/d) of crude oil and lease condensate in 2014, based on data from the Federal Customs Service of Russia. Countries in Asia and Europe received more than 98% of Russia's crude oil exports. --- EIA
Job watch: initial unemployment claims increase by 3,000 to 270,000. That's on top of the 12,000 increase last week.

Flashback: I missed this but it turns out that global peak oil was reached July, 2008. Tom Whipple, a 30-year CIA analyst, and "one of the most highly respected analyss of peak oil issues in the US"  noted that global oil production of 88 million bopd in July, 2008, was the high-water mark for crude oil production. His summary paragraph:
At this point, the oil age will be closing down. Worldwide production will be declining rapidly through a combination of lower demand and then depletion. In four years sustainable production capacity is likely to be down from 87 million b/d to the vicinity of 80 million [global petroleum and other liquids]. In 10 or 15 years world production is likely to be in the vicinity of 50 million b/d and by mid-century 20 or 30 million. By the end of the century, oil production will be nearly gone and will be restricted to high-value uses for which there is no alternative. Future generations will either adopt alternative forms of energy, far more efficient machines, or do without. And it all started last July.
Global crude oil production, EIA: link here.
  • 2008, average: 74 million bopd
  • 2012, average: 76 million bopd
  • 2013, average: 76 million bopd
  • 2014, average: 78 million bodp
  • 2015, through April, 4-month average: 80 millioin bopd
  • 2014, through April, 4-month average: 77 million bopd
  • 2013, through April, 4-month average: 76 million bopd
Global petroleum and other liquids, EIA: link here. (Compare with Tom Whipple above.)
  • 2016e: 96 million bopd
  • 2015e: 95 million bopd
  • 2014: 93 million bopd
  • 2013: 91 million bopd