Sunday, June 1, 2014

Peak Oil Theory Re-Visited

From another "blogger," trends in oil production from the various states (including Alaska), the Gulf of Mexico, and the entire US.

Note this observation for the Gulf of Mexico at the link:
The Gulf of Mexico is going nowhere fast. They are continually drilling new wells in new fields. However the deep water wells have such a very high decline rate that they are just staying even. The EIA is counting on the GOM pumping 2 million barrels per day by 2016 to get them to 9.6 million barrels per day. That is not going to happen. They will be lucky to get to 1.5 bpd. In fact they will be lucky just to hold off decline.
Note the bias with regard to "peak oil theory."

A Note To The Granddaughters

I can remember the exact spot -- within a couple of miles -- where I was the night I heard that Lou Reed had died. I was coming home from the Bakken, back to Dallas, one of my many cross-country trips. It was coming on 10:30 p.m. and I was coming into Oklahoma City. I was fortunate enough, going through the radio stations, to have stumbled across an hour-long, or whatever it was, retrospective on/of Lou Reed. "Pale Blue Eyes" is one of my favorites by Lou Reed, and, then to have found Emmy Lou Harris doing a cover -- quite incredible.

Pale Blue Eyes, Emmy Lou Harris and Sheryl Crow

Chevron Gets Out Of The Renewable Energy Business

Earlier I posted a note on the collapse of "green-energy" jobs in Germany. I was alerted to that story by a reader; it is a story not yet being reported in American mainstream media.

Shortly after receiving that link, I was reading a recent issue of Bloomberg Businessweek. I canceled my subscription but am still receiving the "last" issues -- I discussed "why" some time ago. My granddaughter saw the cover of this most recent issue and thought it was a teen magazine. Based on that comment, I knew I had made the right decision to cancel the subscription. See if you agree.

Having said that, there were two articles worth mentioning in this issue. I forget what the first article was; I'll have to go back and look. The second article was almost a full-page long: "An Oil Giant Dims the Lights on Green Power."

Oh, yes, that first article, how could I forget: "Who Cares About Keystone XL?" A fairly long article for BloombergBusinessweek with a very nice graphic. And yes, KinderMorgan's TransMountain pipeline was featured -- the one that Steyer has invested in. You know Steyer: the activist environmentalist who was instrumental in seeing the Keystone XL killed. Instead of taking a huge pipeline through the desert of western Nebraska to American refiners, he wants to take the same huge pipeline through the Canadian Rockies to ship western Canadian oil to China. LOL.

But I digress. Back to the Chevron article:
In January, employees of Chevron’s renewable power group, whose mission was to launch large, profitable clean-energy projects, dined at San Francisco’s trendy Sens restaurant as managers applauded them for nearly doubling their projected profit in 2013, the group’s first full year of operations. But the mood quickly turned somber. Despite the financial results and the team’s role in helping launch more than a half-dozen solar and geothermal projects capable of powering at least 65,000 homes, managers told the group that funding for the effort would dry up and encouraged staffers to find jobs elsewhere, say four people who attended the dinner.
For the past eight years, Chevron has promoted “profitable renewable energy” as a core component of its business plan. The company’s slogan, “Finding newer, cleaner ways to power the world,” is splashed across its website. And ads launched in 2010 as part of Chevron’s “We Agree” campaign declare, “It’s time oil companies get behind the development of renewable energy.” Yet Chevron recently has retreated from key efforts to produce clean energy. This includes the renewable power group, which invested in or built utility-scale solar and geothermal projects with margins of 15 percent to 20 percent or more, according to a dozen people who worked on the projects.
Chevron earlier this year sold the 48-person business unit that builds small solar and landfill-gas systems and energy-saving retrofits for federal agencies such as the U.S. Department of Defense. Jim Davis, president of Chevron Energy Solutions for the past 14 years and the executive in charge of many of the oil giant’s clean-energy pursuits, left the company in March. Davis didn’t respond to requests for comment.
Did the tax credits run out?

I've always been fascinated with strategic planning by public companies, and with their "vision statements." I've often said that businesses become / remain successful when they can successfuly identify the business they are in. I was very, very happy to see companies like BP, Enbridge, and CVX engage in renewable energy. It told me they saw themselves as energy companies, not simply fossil fuel companies, or even more limited, oil and gas companies.

As an investor in CVX, this change is no big deal. The profits generated by the CVX-renewable group were a rounding error. For a small rounding error, the company was getting huge positive PR and a seat at the table of renewable energy.

So, when CVX drops renewable energy completely there have to be a lot of story lines. Here goes.

The first story line is this: even though CVX sponsored some (albeit very little) renewable energy projects, it didn't get them a seat at President Obama's renewable energy table. CVX might have gotten a seat somewhere in the room but for all the clout the company had (based on market cap) they weren't seated too close to the big guy. After awhile, it gets personal.

Second, note the timing: the announcement comes near the end of the Obama presidency. Early on, CVX did not know which way the tea leaves would float and hedged their bets. Now, with less than a thousand days of this presidency, the writing is pretty much on the wall, and the final graffiti will be posted tomorrow. Contrary to his speeches, President Obama's energy policy is NOT "all of the above."

A third story is the nut of the story: Chevron is getting out of renewable energy simply because the industry is collapsing. Chevron may see itself as an energy company but "renewable energy" is not even big enough to be a niche going forward. I came across this Chevron article in BBW at the very same time as I received the link to "Germany green-energy jobs collapse." It doesn't take a Greenpeace activist to sort this out. Even in the most pro-environmental country in the western world, the industry is collapsing. [The best Greenpeace was able to do in its most recent multi-million dollar venture was to delay Statoil from drilling in the Arctic by 89 hours. Yes, 89 hours. And Greenpeace said it was happy with that "success."]

One of the reasons I'm a poor investor is that I'm not a detail person, which brings us to our fourth story line. Again, from the article:
A pullback from renewables doesn’t surprise some analysts, who say returns of even 20 percent can be bested by oil and gas projects that can generate profits of 25 percent to 35 percent. “Renewables for oil companies are sort of like the coffee shop inside Bloomingdale’s,” says Oppenheimer analyst Fadel Gheit. “On their list of priorities, it will always be at the bottom.”
As a less-than-great investor, I don't get excited about 20 percent vs 25 percent margins as a stand-alone reason to buy into something or to jettison something. If renewable energy had a future, a CEO would be willing to accept 20 percent vs 25 percent for a bigger payoff down the road. This sounds like CVX realizes there is no payoff down the road for renewable energy.

The fifth story line is really part of the fourth story line: 20 percent returns are nothing to scoff at. Is your savings account, or even your investment portfolio, providing you 20 percent returns year-after-year? Not likely. The fifth story line? "Yes, I like 20 percent returns, but when it's a rounding error, and I have to look at three PowerPoint slides every month on renewable energy, this stuff becomes a distraction. It takes my focus off the stuff that really counts. Let's go golfing. And s**tcan the PowerPoint slides on renewable energy."

I don't remember where I saw it, or if it was even connected with this article, but someone commented on why it was important for Big Oil to remain committed to renewable energy. The argument was this: renewable energy is the energy of the future, and to ignore it puts companies like Chevron at big risk. The example: Kodak probably wishes it had paid closer attention to digital photography. That brings us to our sixth story line: CEOs and many people on the boards of directors, which often include the likes of Algore, are not dumb people. In addition, they are movers and shakers who will drive the story lines for the 21st century.

So, I guess two more story lines. Assuming smart guys like Algore sit on these boards and they eschew renewable energy, what does that tell the rest of us? Finally, the last story line (for now): good, bad, indifferent, when companies like Chevron get out of renewable energy that was actually returning twenty percent, what does that tell investors about the future of renewable energy?


This story on CVX, an earlier story Spain (Iberdola), and Germany's return to coal is a trifecta: Spain, US, and Germany and the future of renewable energy. I track the "big stories" here, including "Europe At A Tipping Point." I've marked my calendar: June 1, 2014: the beginning of the end of renewable energy. 

For The Archives -- The Shale Oil Plays

I am posting this link because of the two graphs. The first graph at the link is stunning, to say the least, and will be nice for the archives. If the link is broken over time, the graph shows the oil production coming from the four top US shale plays -- Bakken, Eagle Ford, Niobrara, and the Permian -- between 2007 and 2014.

The second graph is a bit more personal.

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.

Okay, back to the second graph, and why it's a bit more personal.

The second graph shows the share price of Continental Resources (CLR) beginning in 2009 and going to May 14, 2014. You will note that you could have bought shares in CLR for as littel ast $15/share back in 2009. It doubled to $30 within days, and by 2012, it was up to $90/share. And, of course, it's now about $135, I guess.

The reason that it's "personal" is because a reader sent me a copy of The Frackers by Gregory Zuckerman. The book starts out with the story of Harold Hamm at dinner with a couple of Merrill Lynch reps. They were discussing Hamm's plan to take his company public. Literally as the decision was being made to go forward with the IPO, one of the ML reps took a telephone call to learn that a Bakken well had just been completed ... and it was dry. The question was whether Hamm wanted to continue with the plans to go public, knowing they might have to lower the IPO price. Hamm went ahead with the IPO, pricing shares at $15, exactly where the graph at the linked site begins. 

It's fun to see the human dimension, as it were, behind the mundane graph.

Regardless what you think about the CLR story and that second graph, that first graph at the link is pretty stunning -- the one that shows production from the US shale plays over the past few years.

Potpourri -- Cleaning Out The Mailbox -- Nothing About The Bakken -- For The Archives; If The President Really Wants To Cut Greenhouse Gas Emissions, He Needs To Push US Toward Deep Recession

Bloomberg is reporting: EPA told to enforce rules nationally after court loss.
The U.S. Environmental Protection Agency can’t enforce rules inconsistently across the country, bypassing a region where it lost a lawsuit and putting companies in the rest of nation at a competitive disadvantage, an appeals court ruled.
The U.S. Court of Appeals in Washington today set aside an EPA directive to regional officials saying they should subject pollution permits for industrial facilities to a laxer standard in four states covered by a decision of the U.S. Appeals Court in Cincinnati. The existing, stricter regime continued to apply in the rest of the country. 
As soon as I read that, I thought of another US District Court case in which the judge ruled for North Dakota in the case regarding Minnesota's 2007 Next Generation Energy Act.


Speaking of North Dakota, The Washington Post, in an editorial says that "North Dakota is the best state in America, based on it economic recovery. A huge thanks to Steve for sending me this link; I never would have seen it, otherwise.
The numbers show that North Dakota is rebounding best. The state’s unemployment rate fell from an already low 4.1 percent to 2.6 percent, the lowest in the nation. The median income increased 4 percent, placing the state in the top five in income growth. The median home price rose 16 percent, from $112,300 before the recession to $130,500 just after, by far the sharpest percentage increase in the country.
Other states deserve credit for making a comeback: But no state has pumped up more in all three categories than North Dakota.

For the archives. While listening to the president's speech on Monday announcing his executive actions on greenhouse gas emissions, you might want to have this fairly-recent-WSJ article within arm's reach:
U.S. carbon-dioxide emissions have fallen dramatically in recent years, in large part because the country is making more electricity with natural gas instead of coal. Energy-related emissions of carbon dioxide, the greenhouse gas that is widely believed to contribute to global warming, have fallen 12% between 2005 and 2012 and are at their lowest level since 1994, according to a recent estimate by the Energy Information Administration, the statistical arm of the U.S. Energy Department. 
According to the article, if President Obama really wants to cut global greenhouse gas emissions he needs to push the US into a severe recession, and hope the recession spreads globally, especially in India and China. A huge decrease in GDP will probably do much more than anything any president can do with executive orders. History suggests that the biggest positive correlation to decreasing CO2 emissions is a recession, the more severe the better.

I Can't Help It If I'm Still In Love With You, Linda Ronstadt and Emmy Lou Harris

Newfield Reports A Nice Well; 7 Of 13 Bakken Wells To DRL Status; Monday, June 2, 2014; Spain Moving Away From Renewable Energy; Europe Turning To Coal -- Infrastructure At Risk

Monday, June 2, 2014
  • 26036, 45, Corinthian, Corinthian Skarphol 8-33 2H, North Souris, a Spearfish well, t12/13; cum 13K 4/14;
  • 26630, drl, CLR, Mack 22-2H1, Antelope, no production data,
  • 26873, drl, CLR, Lawrence 7-24H2, North Tioga, no production data,
  • 26928, 1,363, BR, Craterlands 11-14TFH-R, Hawkeye, t3/14; cum 9K 4/14;
  • 26979, 714, Petro-Hunt, MM Wold 160-94-31A-6-1HS, North Tioga, t4/14; cum 5K 4/14;
  • 27071, drl, Mountain Divide, Reistad 26-35S-1H, Fortuna, no production data,
Sunday, June 1, 2014
  • 24754, drl, Statoil, Melissa 31-30 2H, East Fork, no production data,
  • 24759, drl, Statoil, Melissa 31-30 7TFH, East Fork, no production data,
  • 25675, drl, Statoil, Lucy Hanson 15-22 5TFH, Catwalk, no production data, 
  • 26473, 959, Newfield, Rolfsrud State 152-96-21-16-12H, Westberg, t3/14; cum 33K 4/14;
  • 26510, 1,420, WPX, Mabel Levings 14-23HX, Mandaree, t5/14; cum 2K 4/14;
  • 26511, 1,64, WPX, Mabel Levings 14-23HB, Mandaree, t5/14; ;cum 3K 4/14;
  • 26569, 305, KOG, W Nystuen 159-98-15-9-4-2H3, Big Stone, t2/14; cum 9K 4/14;
  • 26789, drl, Hess, BB-Belquist-150-95-1110H-3, Blue Buttes, no production data,

26473, see above, Newfield, Rolfsrud State 152-96-21-16-12H, Westberg:

DateOil RunsMCF Sold

Dream Lover, Sandra Dee and Bobby Darin


Bloomberg is reporting: Europe is turning to coal -- instead of natural gas --
Natural gas-fired power plants accounting for almost 30 percent of Europe’s capacity are at risk of shutting or being mothballed as utilities opt to burn cheaper coal, according to the International Center for Natural Gas Information.
European Union power generators’ demand for gas plunged 33 percent, or 51 billion cubic meters, in the past three years, the organization said today in a report. That equates to a year of French consumption, said Cedigaz, as the center is known. Gas’s share of the EU electricity mix slumped to 19 percent in 2012 from 23.6 percent in 2010, it said.
Coal prices dropped 32 percent between the middle of 2011 and the end of last year as surging U.S. shale-gas production reduced the solid fuel’s share of the nation’s power generation, according to Cedigaz. That prompted producers to export coal, creating a glut, it said. Gas prices, mostly linked to oil, rose 42 percent between 2010 and last year, the report showed.
“If all gas power plants currently under review by major European utilities are closed, this may lead to the closure of about 50 gigawatts of capacity by 2015-16, or 28 percent of the current capacity,” said Cedigaz, based in Rueil-Malmaison in western Paris. “This capacity is needed to ensure security of supply when wind and sun are not producing.”
I'm having a little trouble understanding the entire article (see last paragraph of the linked story) but the general gist of the story is consistent with what we've been hearing for the past year.

Spain: Moving Away From Renewable Energy 

When I think of Iberdola, I think of Spanish renewable energy. When you go to the wiki link on Iberdola, you will see why. I'm not going to go through all the numbers, but the general gist is that this is a company focused on renewable energy.

Oh, before we get started, a reminder: the unemployment rate in Spain is 26%. CNBC calls a rate of 26% "massive." I would tend to agree.

Okay, back to Iberdola.

For a company focused on green energy, it's surprising to see that it just signed with Cheniere for a 20-year supply of LNG for its customer base in the UK and Spain. [It was interesting to note that this was not only for Spain, but also for the UK. Remember, it is expected that the UK will run out of its own natural gas within three years.] FuelFix is reporting:
A Cheniere Energy subsidiary has agreed to a 20-year deal worth $5.6 billion to supply liquefied natural gas to Spanish power and generation company Iberdola. 
Iberdola agreed to purchase 400,000 metric tons annually from Cheniere’s planned Corpus Christi facility once its liquefaction Train 1 comes online. That rate doubles once the facility’s Train 2 come online. The facility is slated to have a total of three trains. Once completed, Iberdrola’s commitment would equal about 6 percent of the facility’s capacity.
Iberdola officials said it would use the natural gas to supply its markets in the UK and Spain.
This story, the earlier story on CVX jettisoning its renewable energy division, and Germany's return to coal is a trifecta: Spain, US, and Germany and the future of renewable energy. I track the "big stories" here, including "Europe At A Tipping Point." I've marked my calendar: June 1, 2014: the beginning of the end of renewable energy.