Monday, May 26, 2014

Another Western Country Starts To Throw In The Towel On Renewable Energy -- Australia

I bet it's difficult for Bloomberg to have to write these stories; the stories don't fit the script. The link is here:
An Australian government agency expects to announce a second agreement within three months to fund a renewable energy project at a remote mining operation before the government moves to wind it up.
The Australian Renewable Energy Agency, which this week provided money to a Rio Tinto Group plant, had planned to allocate as much as A$300 million ($277 million) to projects that provide solar and wind power to mines and surrounding communities, Chief Executive Officer Ivor Frischknecht said today by phone. It’s unclear how much of that money will be awarded after the government earlier this month said it plans to scrap the agency to save A$1.3 billion.
“It may end up substantially less than that,” he said.
The agency, which said yesterday that it provided A$11.3 million to fund a solar project at Rio’s Weipa bauxite mine in Queensland state, is seeking to increase the use of renewable energy in diesel-powered regions of Australia. First Solar Inc. and Ingenero Pty agreed to provide solar power to the mine.
And so it goes. 

Actually, it sounds a bit Kerry-esque: Australia funds a renewable energy project before the government "wraps it up."

All that time, money, and trouble, and the government might save $1.3 billion .. but according to the article, probably a whole lot less. It hardly seems worth it, does it?

Now Bakken Natural Gas Carried In Pipelines Is Spontaneously Exploding

Everyone knows how Bakken crude oil has a propensity to explode when trains carrying the stuff go off the track(s).

It turns out that Bakken natural gas is even more volatile, exploding spontaneously when carried in natural gas pipelines. The Bismarck Tribune is reporting:
A natural gas pipeline ruptured and exploded, sending flames shooting high into the sky in far northwestern Minnesota on Monday.
"The flames were over 100 feet in the air so it was really something out there," said Jim Duckstad, the county's 911 coordinator. People who called in said it sounded like a jet engine.
Nobody was injured, but six or seven families living within two miles of the site were evacuated, he said.
The gas line was shut down and the fire extinguished itself around 8:30 a.m., he said.
The pipeline is owned by Viking Gas Transmission Company.

You have no idea how much I wanted to leave the post above the asterisks "as is," but I was afraid folks from New York City (and maybe even Minnesota) would really believe there is a difference between "Bakken natural gas" and "regular natural gas." So, don't write me. Yes, I know "Bakken natural gas" is not spontaneously exploding in pipelines.

Or is it?

Update On The Russian-Chinese Natural Gas Pipeline; The Ukraine "Crisis"

Isn't this interesting? Ukraine, which we were all told was broke (financially), has found a way to make up all the back-payments it owes for Russian natural gas. AP is reporting:
A proposed solution to a dispute over Ukrainian natural gas debts to Moscow would see Ukraine's gas company pay $2 billion to Russia's Gazprom this week and trigger talks on the price Kiev should pay for future deliveries as it tries to avert a supply cutoff ...
...  "we are not done" but said he is optimistic of an agreement.
The proposal calls for Ukraine's Naftogaz to make an initial $2 billion payment to Gazprom on Thursday to settle part of Kiev's outstanding bills for gas delivered between November and March.
One wonders where the $2 billion came from for past payments plus the payments that will be needed going forward? I am aware of only two countries that could come up with that kind of cash for this kind of deal ... and would be willing to pay. The total bill currently owed by the Ukraine is $3.5 billion. The bigger question is the price they will pay for Russian natural gas going forward.

The Ukraine is still important to Russia. I can't remember if I linked the WSJ op-ed, but even with the Chinese-Russian natural gas pipeline that would not be adequate for Russia's balance of payments. Russian still needs income from gas it sells to the Ukraine/EU and the pipeline isn't going to be on-line for a couple of years.

Casey Hoerth On SandRidge Over At "Seeking Alpha"

Casey Hoerth on SandRidge over at Seeking Alpha:
Of all the horizontal drilling plays, the Mississippi Lime is often regarded as the most disappointing. Between 2009 and 2010, a litany of well-known oil and gas companies entered this play situated between Kansas and Oklahoma: Shell, Chesapeake, Encana, Apache, SandRidge and a few others.
Among these five big players, only one remains: SandRidge Energy. When others left, SandRidge not only hung around, but picked up the pieces. The company now has over 2 million acres of leasehold in the Mississippi Lime.
The other four left for similar reasons. They saw returns not hitting production targets, and therefore redeployed assets elsewhere. Returns were challenged for a few reasons: A disappointingly low oil cut, very high decline rates, high well costs in a fairly low-populated area and, perhaps most of all, the issue of saltwater in the geology. In some locations, the ratio of hydrocarbons to saltwater coming out of the well was as high as 1:10. Dealing with all that saltwater can be a huge deterrent, especially when other plays are yielding oilier cuts without the saltwater.
SandRidge, for its part, had been caught in a proxy battle which resulted in the ousting of its former CEO Tom Ward, who was also the co-founder of Chesapeake Energy. Much like Chesapeake under Aubry McClendon, SandRidge bet big on certain plays, acquired lots of contiguous acreage, and drilled as many wells as it could.
And as was the case with Chesapeake, SandRidge's new management team was left to clean up the ensuing mess. It turns out, however, that SandRidge has, as one of the few players left in the Mississippi Lime, managed to transform the Mississippi Lime into a reasonably profitable play. Better yet, the market seems yet to fully realize this fact. This article will focus on what SandRidge did in order to find treasure in what so many others forsook as trash.
Data points:
Based on today's pricing, the average SandRidge well now provides a rate of return of 64%; a huge improvement over the previous players who vacated the play. While 64% may not come close to rivaling the Eagle Ford or Bakken, such a return is nothing to laugh at. Even better, as SandRidge reduces its well cost, returns will jump to 79% within three years, and even up to 128% in the further future.
By the way, I am seeing the same thing in the Bakken:
SandRidge has a lot of acreage in the Mississippi Lime. Instead of maximizing drilling, last year SandRidge's new management took a different approach: Focus on the proven sweet spots and avoid the 'dud' areas. In other words, management got picky.
Much more at the link. SeekingAlpha has a way of archiving these "better" articles putting them off-limits unless one has a subscription. 

Record Number Of Wells Coming Off Confidential List On Tuesday, May 27, 2014 -- The Bakken, North Dakota, USA

Tuesday, May 27, 2014 (for some reason a number of these wells were not reported though NDIC says they come off confidential list today -- maybe will be reported later)
  • 25596, drl, HRC, Fort Berthold 147-94-2B-11-5H, McGregory Buttes, no production data,
  • 25610, 189, Triangle, Frederick James 149-101-3-10-2TFH, Antelope Creek, t12/13; cum 16K 3/14;
  • 25611, conf, Triangle, Frederick James 149-101-3-10-3H, Antelope Creek, a nice well,
  • 25673, drl, Statoil, Lucy Hanson 15-22 3TFH, Catwalk, no production data,
  • 25708, 711, OXY USA, State Kary 4-19-18H-144-96, Murphy Creek, t11/13; cum 42K 3/14;
  • 25845, 1,283, Emerald Oil, Caper 6-22-15H,  Boxcar Butte, t11/13; cum 44K 3/14;
  • 26181, 11, Corinthian, Corinthian Brandjord 8-31 1H, Northeast Landa, a Spearfish well, t2/14; cum 170 bbls; 
  • 26323, drl, HRC, Fort Berthold 148-95-22C-15-9H, Eagle Nest, no production data,
  • 26512, drl, WPX, Mabel Levings 14-23HW, Mandaree, no production data,
  • 26594, 369, CLR, Luptak 1-24H1, Ukraina, 30 stages; 2.4 million lbs sand/ceramic; t3/14; cum 14K 7/14;
  • 26632, drl, CLR, Mack 9-2H2, Antelope, no production data,
  • 26652, drl, XTO, Jan 14X-34B, Siverston, no production data,
  • 26791, drl, Hess, BB-Bellquist-150-95-1110H-5, Blue Buttes, no production data,
  • 26875, drl, CLR, Lawrence 10-24H2, North Tioga, no production data,
  • 26891, drl, Slawson, Alamo 4-19-18TFH, Big Bend, no production data, 
    Monday, May 26, 2014
    • 25876, 267, Samson Resources, Bel Ari 2314-5H, Ambrose, t4/14; cum --
    • 25930, 1,430, Whiting, Schilke 34-32-2H, Pleasant Hill, t11/13; cum 30K 31/4;
    • 25982, 2,513, Whiting, Norgard 41-14-2H, Ellsworth, t11/13; cum 42K 3/14;
    • 26613, 47, Enduro, MRPSU 29-24, Mouse River Park, a Madison well, t1/14; cum 2K 3/14;
    • 27056, drl, Petro-Hunt, Van Hise Trsut 153-95-28D-21-2HS, Charlson, no production data,
    Sunday, May 25, 2014
    • 25878, 214, Samson Resources, Comet 2635-5H, 4 sections, Ambrose, t4/14; cum --
    • 26293. drl, HRC, Fort Berthold 148-94-35C-26-5H, McGregory Buttes, no production data,
    • 26296, 1,415, Whiting, schilke 14-33-2RH, Pleasant Hill, producing, re-entry wells tracked here, t11/13; cum 28 3/14;
    • 26297, 2,272, Whiting, Schilke 14-33RH, Pleasant Hill, producing, re-entry wells tracked here, t11/13; cum 47K 3/14;
    • 26527, 353, Hunt, Antelope 1-31-30H, Sather Lake, t3/14; cum 9K 3/14;
    • 26651, drl, XTO, Jan 14X-34E, Siverston, no production data,
    • 26761, dry, Flatirons Resources, Sundbak 31-11, Torning, a Madison well,
    • 26874, drl, CLR, Lawrence 11-24H1, North Tioga, no production data,
    Saturday, May 24, 2014
    • 25489, 433, American Eagle, Janice 2-3-163-101, Colgan, t3/14; cum 10K 3/14;
    • 25672, drl, Statoil, Larsen 3-10 5TFH, Williston, no production data,
    • 25877, 591, Samson Resources, Bel Air 2314-7H, Ambrose, 4 sections, producing, t4/14; cum --
    • 26633, drl, CLR, Mack 8-2H, Antelope, no production data,
    • 26792, drl, Hess, BB-Belquist-150-95-1110H-6, Blue Buttes, no production data,
    • 26892, drl, Slawson, Alamo 5-19-18TFH, Big Bend, no production data,
    A Note to the Granddaughters

    I don't know if this is good news or bad news.  This week I am in my Twin Peaks phase. There were 29 episodes.

    Twin Peaks These, Angelo Badalamenti

    CEOs Shifting Health Care Cost: Unintended Consequences For Retirees; IRS Says "No" To Same Tactic For Employees


    May 27, 2014: Daily Ticker takes a look at this new rule; I comment on it; too early to tell how this will play out. 

    May 26, 2014: it looks like the Obama administration / IRS have done an end-run around this little gambit. It will be interesting if this is the end of the story. This is very, very good news for existing employees. Not such good news for those looking for employment. On the other hand, now that the defines health care as part of one's salary, it's very possible companies could tie hourly wages and/or salaries to health care costs.

    May 26, 2014: hospitals starting to cut "charity" care, also being reported in The New York Times

    Original Post

    ObamaCare: CEOs Are Shifting Health Care Costs To Employees, Retirees

    We've talked about this before. ObamaCare was never about the "30 million uninsured." ObamaCare was all about saving CorporateAmerica. The Department of Defense saw the coming trainwreck: but for the military, the trainwreck was not ObamaCare. The trainwreck for the military was the ever-increasing health care costs for active duty and retirees. Unfortunately for the military, that trainwreck is still coming.

    The Department of Defense might have been the first to see the trainwreck coming, but Corporate America also saw that healthcare costs were unmanageable: a) rising quickly; and, b) unpredictable.

    Hillary and Barry were able to change the discussion from how do we save Corporate America to how do we insure "30 million uninsured"? The answer was ObamaCare.  Had Hillary won, it would have been HillaryCare. They already had RomneyCare in Massachusetts, so had he won ....

    ObamaCare was never about insuring the "30 million uninsured." The proof is in the pudding, the number of folks who actually signed up for ObamaCare. A few million newly insured were eligible all along for Medicaid. ObamaCare might have signed up two million uninsured (and, of those, a million might pay their first month's premium). The president called it a major success; two million people signing up; and, then he fired the person who made it all succeed, Ms Sebelius.

    ObamaCare did not sign up man of the 30 million uninsured, but ObamaCare will allow Corporate America to shift health care costs from the CEO to the employee and to the retiree.

    Yahoo!Finance is reporting just that: employees are shifting the burden of health care to retirees --
    If you expect your employer to help cover the cost of your healthcare in retirement, you may be unpleasantly surprised.
    The number of employers providing health benefits for retirees has been in a state of steady erosion over the past few decades — dropping from 40% of firms to 28% between 1988 and 2013, according to a new report by the Kaiser Family Foundation. At larger companies (200+ employees) the drop has been even more dramatic, falling from 66% to 28%.
    As it stands, fewer than one in five employees work for a company that offers health benefits to retirees.
    "It's hard to forsee a scenario where this trend will be reversed," says Trisha Neuman, senior vice president of the Kaiser Family Foundation and co-author of the report. "Employers are making decisions on an annual basis on how they want to structure their plans. They’re deciding what they’re willing to pay.”
    The root of the decline is simple enough: Healthcare is growing increasingly expensive, and as retirees live longer each year, covering their medical expenses will only grow costlier. 
    To mitigate future costs, some firms are capping their contribution to retiree health care, while others are tightening their eligibility standards for coverage by raising minimum age and years-of-service requirements. Newer hires may be excluded from coverage altogether. In a recent survey by Prudential Insurance Company of America, nearly half of 1,000 employers said they are considering moving to a defined contribution model, which would cap their contribution to retiree health coverage at a predetermined amount.
    For young retirees, the blow to retiree health benefits has been cushioned by the implementation of the Affordable Care Act and the new healthcare marketplace. In the past, retirees who were too young to qualify for Medicare relied on employer-backed health coverage to fill in their gap in coverage until they turned 65.
    For investors: this is great news. Health care expenses are going to decrease dramatically by nimble firms dropping retirees from company health care plans.

    IRS Bars Employers From Dumping Workers Into Health Exchanges


    May 27, 2014: Rick Newman, over at Daily Ticker, analyzed the new IRS rule (see original post). I'm not sure I agree with his analysis but it hleps sort out the nuances of ObamaCare. I was "thrown for a loop" when I read the new IRS rule, to say the least. I still feel unintended consequences of this rule are yet to play out -- the rule is less than 72 hours old.  

    Original Post

    The New York Times is reporting:
    Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling.
    Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day — or $36,500 a year — for each employee who goes into the individual marketplace.
    The ruling this month, by the Internal Revenue Service, blocks any wholesale move by employers to dump employees into the exchanges.
    Under a central provision of the health care law, larger employers are required to offer health coverage to full-time workers, or else the employers may be subject to penalties.

    Many employers — some that now offer coverage and some that do not — had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.
    I have a tag at the bottom of the blog on this very issue. 

    This is a very interesting development and creates significant new issues: we are back to a) higher costs for employers; and, b) unpredictable health care costs.