Monday -- May 11, 2015; Noble Energy Buys Rosetta Resources; 4 Of 6 Mideast Monarchs Are Boycotting President Obama's Mideast Summit

Updates

May 11, 2015: Obama's collapsing alliances. The Weekly Standard is reporting:

It was a long time ago and a galaxy far, far away: In July 2008, presidential candidate Barack Obama made big, bold news by travelling to Berlin to – as The New York Times triumphantly recorded – “restore the world’s faith in strong American leadership and idealism.” With 200,000 Berliners waving campaign-provided American flags, Obama called for renewing America’s alliances and undoing the cowboy unilateralism of George W. Bush and Obama’s 2008 opponent Sen. John McCain.

The events of recent months are an indication of how spectacularly Obama has failed to fulfill his 2008 promise. This week comes the news that Saudi Arabia’s newly installed King Salman and three of the other six Gulf monarchs are boycotting Obama’s Camp David summit – a meeting called by Obama to reassure the Arab states that the forthcoming nuclear deal with Iran was not a betrayal of their longstanding security relationship with the United States. Beyond their fears of Iran’s nukes, the Gulf states see the rise of an aspiring Persian hegemon – in Yemen, in Syria, in Iraq – taking advantage of, if not actively conspiring with, a retreating America.  In this case “no show” means “no confidence.”

Folks who still support President Obama simply are not paying attention.

Original Post

Big story for today: Mideast friends opting out. First it was King Salman and now it's the ruler of Bahrain -- both "snub" President Obama's Mideast summit meeting according to the WSJ.  White House says it's no big deal; opens the way for a round of golf.

Big story for tomorrow: I think Greece runs out of money tomorrow. In other news, that little boy in Belgium yelled "wolf" for the fifth day in a row. No one is listening any more. [Update, May 11, 2015: Greece made their payment, a day ahead of schedule.]

Delta aircraft "slides" off runway in NYC. I had missed that -- sent to me by a reader. Back in March, 2015. Delta owns refineries using Bakken crude oil, and that's the problem. Bakken oil refined products are really, really volatile and even causing problems for pilots with all that "oomoph." Uff da.

Active rigs:

	5/11/2015	05/11/2014	05/11/2013	05/11/2012	05/11/2011
Active Rigs	84	192	185	209	176

RBN Energy: swapping American light oil for Mexican heavy oil.

In April officials from Mexican national oil company PEMEX expressed confidence that their January 2015 application to the Department of Commerce, Bureau of Industry and Security (BIS) for a license to export U.S. crude under a swap arrangement will soon be approved. The swap would involve Mexico importing U.S. light crude and U.S. refiners buying an equivalent volume of Mexican heavy crude. The transaction would bypass decades old U.S. crude oil export restrictions and indicate a further loosening of the rules after moves to allow condensate exports last summer. In today’s blog “Have Another Swap of Mexican Crude - Will A New Route Open for U.S. Crude Exports?” Sandy Fielden examines the proposed exchange.

Back in 1998 the U.S. Strategic Petroleum Reserve exchanged 11 MMBbl of heavy Maya crude originally purchased from Mexico in the 1980’s for 8.5 MMBbl of lighter Olmeca and Isthmus crude (also purchased from Mexico) in order to meet SPR quality requirements. That crude swap with Mexico occurred at a time when more U.S. refineries were configured to process light crudes and the government wanted to replace SPR heavy crude inventories with lighter oil. Fast forward to 2015 and now the tables are turned. In January PEMEX revealed it has applied for a license to facilitate a crude swap with the U.S. This time around PEMEX wants to exchange 100 Mb/d of their heavy Maya crude with lighter crude now being produced in spades in U.S. shale basins.

The Mexican swap did not involve the SPR this time but rather the BIS. Recall from previous blogs on the topic that the BIS is the government agency in charge of controlling exports of regulated items  – including domestic crude oil. Under arcane 1970’s era rules designed to protect strategic resources, exports of U.S. crude are banned except to Canada or in specific circumstances from Alaska and California. There are a number of other exceptions to the crude export ban including – as it turned out last June – lease condensate that has been processed through a distillation tower. That last exception led to a surge in exports of processed condensate from the Gulf Coast since 2014.

Another exception in the legislation governing crude exports (the Energy Policy and Conservation Act - EPCA) is for crude exported as part of a swap for equivalent crude or refined products into the U.S. That is the exception PEMEX seeks to use to export U.S. crude. According to the EPCA such swaps must be in the national interest and the exporter has to show compelling economic or technical reasons why the exported crude cannot be marketed in the U.S.

We should note that the swap exception in the BIS regulations is a “License” rule – meaning that exporters need to apply to BIS for a non-transferable license for each crude swap. That means granting PEMEX a license for 100 Mb/d would be a one-off decision with every other would-be swap partner required to apply separately for approval. That doesn’t mean it would be difficult – the BIS routinely approves licensed exports to Canada – but it adds a layer of red tape compared to the processed condensate rulings last year that certify the product and process rather than individual transactions.

The bigger question is whether other swaps could follow if Mexico gets the go-ahead? The answer to that question cannot be known, but the list of obvious candidates is not long. Aside from Mexico – a friendly neighbor – other heavy crude producers needing light crude in exchange include Venezuela, Columbia and Ecuador. These three are known to be importing light crude for use as a diluent to blend with their heavy crude to allow it to flow in pipelines for export. But none of these (especially Venezuela) is particularly close to the U.S. politically.  How that might factor into swap decision making is unknown.  But it is clear that  any loosening of the crude export ban is a good precedent for hard hit U.S. producers.

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M & A Begins?

Bloomberg is reporting:

Noble Energy Inc. agreed to acquire Rosetta Resources Inc. for $2.1 billion in stock, giving the natural gas and oil producer a position in two of the largest areas of shale production in Texas.

Noble will also assume Rosetta’s net debt of $1.8 billion, the Houston-based companies said in a statement on Monday. The per-share offer is valued at $26.62, a 38 percent premium to the target’s closing price on Friday. The Eagle Ford basin in Texas was the most productive U.S. oil field at the end of 2013, according to the latest Energy Department data.

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The Kennedys Go Skiing In Rapid City

I was just there -- in Rapid City, a few weeks ago; seemed like summer. Now this. More global warming in the form of snow.

Skyview is reporting: 17 inches of the white stuff in Deerfield, SD; almost 15 inches in Silver City, SD; and, almost 14 inches (two feet) of snow in Rapid City.