Sunday, April 6, 2014

EOG And Decline Curves -- Blair At SeekingAlpha

For those of you who have not had enough calculus and not enough of the "decline" debate, do not despair. A contributor over at SeekingAlpha offers "investors" an opportunity to short EOG.
EOG Resources is the biggest player in Eagle Ford and was the subject of a  by SA Contributor Heather Ingrassia on April 2, 2014. Trading at over 18 times earnings and about 7 times cash flow, EOG is fairly valued at about $100 a share if the reserves turn out to be correctly estimated. If they are overstated, the stock will suffer.
Chesapeake  also has exposure to shale oil in Eagle Ford and shale gas in the Marcellus area. Chesapeake is enjoying very high profitability at natural gas prices of $4.30 per Mcf, offering high leverage to the current hydrocarbon prices with target returns on investment for new wells coming in at 110%. However, at 36 times earnings, the stock has discounted just about everything positive likely to happen and seems quite vulnerable to any pullback in commodity prices or downward revisions to reserves. In the current environment, I think CHK could very easily trade higher, and for the time being, I will simply avoid the stock.
Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

I believe this article could have been written a year ago when the price of EOG was trading at $64 (post-split valuation).

Humdinger of a Winter

How cold has it been this year in Fargo? InForum is reporting:
Deep frost frustrated utility crews in the metro area all winter, freezing far more water lines than usual.
After such a bad year, at least one city is considering charging residents if they need to have a water line thawed more than once during the winter.
Fargo has spent about $300,000 to thaw out about 300 frozen pipes this winter. Typically, only a few thousand dollars are spent thawing about 25 pipes.
“This year was horrific,” said Ben Dow, Fargo’s public works director.
Moorhead Public Service, the city’s publicly owned utility, spent an estimated $15,000 on about 30 frozen pipes this year. One to five frozen pipes is the winter norm, utility officials said.

North Dakota's Other Industry

In The Bismarck Tribune today:
The U.S. Department of Agriculture’s National Agricultural Statistic Service annual puts out a Prospective Plantings report based on a survey of farmers. The report, which came out last week, said North Dakota producers are planning to plant 16 percent more spring wheat than they did last year, about 5.9 million acres statewide. Durum wheat acres are expected to total 1.1 million, up 38 percent.
As prices have started to fade, prospective corn acres are down 23 percent from last year, to 2.95 million acres.
That does not seem trivial: spring wheat up 16 percent, and durum wheat up 38%. Based on this story and earlier stories along the same line, it sounds as if global warming might be favoring North Dakota. 

Did You Attend? I Was Unable To Make It ...

... and I didn't get an invite, regardless, to the party of the year ... smile.

This is what reminded me of the party: North Dakota refinery update. The Dickinson Press is reporting
While the United States hasn’t seen a new refinery in more than 30 years, North Dakota has five refineries proposed that range from planning stages to active construction.
Also in The Dickinson Press, another interesting story. If one gets out west of Williston one starts to get an idea of how these hubs will develop.
So to compete with rail’s flexibility, some predict pipelines will shift to sending oil to “hubs” where it can get on other pipelines and go to different markets.
“You’re gonna see pipelines going to more targeted markets where they can get those barrels to other markets,” Ness said. “... That’s ultimately how those pipeline projects are gonna evolve.”
Enbridge’s 610-mile Sandpiper line, for example, will bring oil from the Bakken to Duluth, Minn., where the oil can go via other routes to Detroit or Toronto.
“There’s a lot of market options once you get that barrel to Duluth,” Ness said.
Something Mr Obama probably doesn't understand. And all the jobs that come with these hubs.

Wells Coming Off Confidential List Over The Weekend, Monday; Nothing Particularly Noteworthy -- The Williston Basin, North Dakota, USA

Monday, April 7, 2014
  • 23593, 2,805, Statoil, M. Macklin 15-22 4H, Cow Creek, t2/14; cum 7K 2/14;
  • 24051, 623, Fidelity, Crane Creek 43-34H, Sanish, t10/13; cum 18K 2/14;
  • 25759, 1,112, Whiting, Marsh 44-18PH, Dutch Henry Butte, t10/13; cum 33K 2/14;
  • 25813, 205, Corinthian Exploration, Corinthian 2-Skarphol 8-33-1-M, North Souris, a Madison well, t12/13; cum 11K 2/14;
  • 25998, 1,608, Oasis, Kelter 7-12H3, Eightmile, 4 sections, no production data,
  • 26047, drl, BR, Capitol 24-7TFH,Westberg, no production data,
  • 26333, drl, Hess, GN-Margaret-158-97-1522H-1, New Home, no production data,
  • 26405, drl, CLR, Annapolis 2-29H1, Dollar Joe, no production data,
Sunday, April 6, 2014
  • 23872, 505, Samson Resources, Almos Farms 0112-4TFH, Ambrose, t12/13; cum 14K
  • 26441, 579, Slawson, Minx 3-29H, Big Bend, t2/14; cum
  • 26454, drl, XTO, Broderson 31X-27G, Siverston, no production data,
  • 26456, drl, XTO, Broderson 31X-27H, Siversont, no production data,
Saturday, April 5, 2014
  • 23595, 2,871, Statoil, M. Macklin 15-22 5H, Cow Creek, t2/14; cum 5K 2/14;
  • 23680, 1,569, WPX, Martin Fox 20-17HC, Mandaree, t3/14; cum 9K 2/14;
  • 25626, 1,089, CLR, Amy 2-5H1, Dutch Henry Butte, t1/14; cum 16K 2/14;
  • 25786, drl, Hess, EN-Cvancara A-155-93-3231H-4, Robinson Lake, no production data,
  • 26050, drl, Samson Resources, Almos Farms 0112-5TFH, Ambrose, no production data,
  • 26091, drl, BR, Big Bend 21-2MBH, Camel Butte, no production data,
  • 26332, drl, Hess, GN-McCoy-158-97-1102H-1, New Home, no production data,
A Note to the Granddaughters
Where Have All The Workers Gone

From the weekend edition of The WSJ, Glenn Hubbard asks, "Where have all the workers gone."

The first thing to note is how graphs can be drawn to exaggerate a point. At the linked story there are two graphs: a) the employment numbers, 2004 to 2014; and, b) work force participation, 1990 - 2014. Why did the author not use the same time period for both graphs?

The work force participation graph had a y-axis with a range from 62 to 68%. It is a striking graph, the drop-off in work force participation from more than 67% in 2000 to about 63% in 2014.

A much, much better graph, going back to 1950, is found at wiki.Work-force participation is actually quite flat from 1950, but the drop-off in male participation (from nearly 90% to 70% contrasts starkly with the female participation rate (rising spectacularly from barely 33% when I was born to nearly 60% now that I am a grandparent). This graph is very telling in another sense: while the male participation rate has continued its decline at pretty much the same rate over the last ten years, the rate in decline in female participation rate in one year, 2009 - 2010, was striking. I wish the graph had been extended out to 2014; I'm sure one can find it on the internet somewhere.

The first question that should be answered: is this good or bad, the drop-off in work force participation? But that is a discussion for another time.

The question that was asked, however, "where have all the workers gone" was not answered. The author, after noting the decrease in work-force participation immediately started offering solutions. Unless I missed it, he did not answer the question: where have all the workers gone? I was really hoping for a nice analysis of where all the workers have gone.

My understanding of the definition of "work-force participation" would require a numerator and a denominator. The numerator should be relatively easy to determine: simply the number of folks employed. The denominator is more troublesome. Unless I missed it, the wiki link does not even mention age. Does the work force begin at age 14 or 17 or 18 or 21 or 26? Does the work force end at age 57 or 62 or 65 or 68? Each of those ages was picked for a specific reason.

But for argument's sake, I assume the work-force is defined by age from 18 years of age to 65 years of age. [Later: I guess the lower age begins at age 16.] So where have all the workers gone? The linked WSJ article doesn't even touch that question.

A personal example: there are six members in our extended family: grandpa, grandma, daughter, son-in-law, daughter, son-in-law. Both grandparents are not yet 65 years old. The four children are all in their 30's.

Of the six, three are working (a work-force participation of 50%) and in less than four months that number will change to two workers and four non-workers (a work-force participation of 33%). [The law of small numbers is at work here: when the status of just one person changes, the change can loom large.]

Grandfather: perfect health; could easily keep working; chose not to work; prepared for retirement; no need to work for financial reasons.

Grandmother: perfect health; could easily keep working; prepared for retirement; maximized couple's social security payout by taking social security early.

Older son-in-law: works; independent; needs no outside financial support; top 10%.

Older daughter: works; plans to leave work force when she has her third child this summer; she will pursue a doctorate degree in nursing and return to the work force in three years.

Younger son-in-law: works; independent.

Younger daughter: master's degree; chooses not to work; husband prefers her not to work; prefers to help folks but not be financially rewarded for such work; missionary background.

This little family with a 50% to 33% work-force participation rate and all happy as larks. Interestingly, five of the six pay federal income taxes.

I would be very curious to have a nice in-depth look at where all the workers have gone?

Some thoughts:
  • are Hispanic immigrants coming up from Mexico included in the denominator?
  • what effect do these Hispanic immigrants have on work-force participation?
  • to what degree does the definition of children (through age 26) affect work-force participation?
  • to what degree has the need for a two-income family changed over the past 15 years?
  • to what degree has the extended unemployment benefits affected work-force participation?
  • to what degree has increased disability insurance benefits affected work-force participation?
  • to what degree does the change in the size of the military between the Reagan years and the Obama years affected work-force participation?
  • to what degree has the impact of ObamaCare had on work-force participation?
  • to what degree has administration obstacles, particularly EPA regulations, had on industrial expansion?
  • to what degree has banning of fracking in New York state affected work-force participation?
  • how many banking jobs were lost over the past decade?
  • chicken-and-egg: recession leads to lower work-force participation; lower work-force participation aggravates recession?
The next four years will be interesting. All things being equal there should be two macroeconomic events that will push-pull work-force participation:

Speaking of which, 2015 ObamaCare premiums likely to double

Won't happen. The president, by executive order, will cap 2015 premiums at 2014 levels, and guarantee life insurance companies a bailout for any losses "caused by the 2014/2015 cap."