Friday, March 27, 2015

Friday Active Rigs Hold Steady At 97 -- March 27, 2015

The Ultimate Hillary Re-Set: wiped her server clean on October 28, 2014.
“Secretary Clinton unilaterally decided to wipe her server clean and permanently delete all emails from her personal server. While it is not clear precisely when Secretary Clinton decided to permanently delete all emails from her server, it appears she made the decision after October 28, 2014, when the Department of State for the first time asked the Secretary to return her public record to the Department,” Gowdy said.
There is no law that says folks can't wipe their servers clean. And prior to wiping her servers clean, she said she handed over all pertinent information to those who asked for it. Time to move on; there's nothing to see here, as Rush would say. They can question her all they want, but there is no law and apparently "everyone" -- including Colin Powell -- had private e-mail accounts on which they were conducting the "people's business." It will be up to "the people" if this is the kind of person they want leading our country.

Can't Wait To Read The Summary

Breaking news, huge story, tweeting now:
Jury finds for Kleiner Perkins on all claims in Silicon Valley discrimination case filed by former employee Ellen Pao - @WSJbusiness 

 How To Balance A Budget: Drill, Baby, Drill

It looks like they've started fracking in Greece, tweeting now:
Earthquake with preliminary magnitude of 5.5 recorded 37 miles from Karpathos, Greece - USGS

The Bakken
Active rigs:

Active Rigs97196185206170

Seven (7) new permits --

CBR Slowdown Worse Than Predicted -- Bloomberg -- March 27, 2015

Back on March 19, 2015, this was one of the top stories of the week: CBR plummets. That linked a Bloomberg story.

A week later, Bloomberg, again, is reporting:
The slowdown that North American railroad companies had been bracing for in crude oil shipments has turned into a rout, with volumes falling faster than executives had predicted.
With energy companies scaling back drilling after prices for the commodity fell about 50 percent since July, industry executives and analysts anticipated that demand for hauling crude and extraction materials such as frac sand and pipes would slow after a four-year surge. They didn’t expect it to slow this much this fast.
“The impact is occurring more quickly than the rails originally projected to investors,” said Matt Troy, an analyst with Nomura Securities International Inc. in New York. “The consensus view was that very high double-digit growth would moderate to low double digits, and as we have seen in recent weeks we’ve broken that floor and in some cases gone negative.”
Rail stocks and tank-car leasing are reflecting the dwindling traffic. The Standard & Poor’s 500 Railroads Index posted its biggest weekly decline since October and lessors’ rates for oil cars have fallen by about a third in the last six months. 
One would have hoped the economy, after a gazillion dollars in stimulus would have taken off by now to offset the slowdown in oil but that obviously isn't happening. About the only thing taking off right now is increasing violence in the Mideast. 

US Crude Oil Production, Number Of Oil Wells, And Hubbert's Curve -- March 27, 2015

Take a look at Wolf At The Door: The Beginner's Guide To Peak Oil. Right at the top, look at the bar graph curve and then a bit farther down a small table comparing the number of producing wells in the United States and the number of producing wells in Saudi Arabia. It appears that the data was from 2001; the source was dated 2002.

This is the bar graph with the current production noted by the "red" arrow:

Then, a bit further down, at The Wolf At The Door: A Beginner's Guide to Peak Oil, this item and this little table:

So, where do we stand today? For 2014, it was estimated that there were over 1.1 million producing wells in the US. From 240,000 to over 1.1 million, that's almost a 5-fold increase in just a few years.

Saudi Arabia? Back in 2001/2002, the source for the table above said about1,560 producing wells in Saudi Arabia, producing about 4,000 bbls/day/well.

It's hard to know exactly how many wells Saudi Arabia has today but it's probably about 4,000. Producing about 12 million bopd works about to about 3,000 bopd/well.

Disclaimer: I often make simple arithmetic errors. There may be factual or typographical errors in this post. If this information is important to you, go to the source.

The Big Story: The New Persian Empire


December 3, 2016: OPEC freezes production

April 10, 2015: the fractured legacy of the Mideast mapmakers

April 1, 2015: The Washington Times explains why President Obama is taking on the biggest risk of his presidency: negotiating with Iran. 
“With all this turmoil in the Arab world, you need a workable relationship with the other side,” said Shawn Brimley, a former director for strategic planning in the White House. “You can’t argue with Iran’s importance in the region. That’s why Obama is taking this extremely seriously.”
March 28, 2015, 8:50 p.m.: Iran's designs on the Middle East. 

Later, 3:13 p.m.: supporting the idea that Persia is rising, it is now being reported that Saudi Arabia also wants to go nuclear.  Another Obama legacy -- giving the green light to Iran to go nuclear with a) promise to let them develop their program unfettered; and, b) giving top cover to the mullahs by releasing details of Israel's nuclear program.
Original Post

At the link on the sidebar on the right I have something I call "The Big Story." I'm not sure I want to add "The New Persian Empire" to the list of "big stories" but the tea leaves suggest this is the new direction things are taking. The reason I hesitate is because this direction may only be temporary -- as long as this administration is in office. Things may change in two years, but right now it looks like "Persia Rising." I like to limit the "Big Stories" to those that have longevity.

For the archives, it looks like this will be the year that the sanctions on Iran ends. Iran will be able to develop its nuclear program unfettered. With the release of previously-classified US Department of Defense documents regarding Israel's nuclear program, this gives the Iranian mullahs the top cover they need to develop their own program. Iran seems to have successfully exported any internal terrorism to Yemen, Iraq, Syria, Libya, and now, possibly to Somalia. Even as Iraq seems to be imploding -- certainly Iraq's trajectory towards a stronger, safer, westernized nation is going ballistic -- Iran seems to be gathering itself, and preparing to become a major player on the global stage. Even now, which country carries more weight in the UN, Iraq or Iran? That's an open book question.

Bakken Rigs Continue To Fall

Active rigs: down to 97, a new low in the boom ...

Active Rigs97196185206170

Amazon.Com Now Has One-Hour Delivery In Dallas -- March 27, 2015; "Bull Crap"

Two Amazon fulfillment (distribution) centers recently completed in the DFW area.

2017 For Sure; Maybe As Early As 2016

Regular readers know that I have been saying over and over that investors in the oil and gas industry should see an exciting 2017, if not an exciting 2016.

Apparently I'm not in the minority. Rigzone is reporting:
Drilling activity across the global oil and gas industry could return to 2014 levels next year, according to a new report from research firm Wood Mackenzie.
Wood Mac said Thursday that although the oil and gas industry is currently responding to the low oil price environment, with exploration budget cuts in 2015 expected to average 30 percent, drilling activity in 2016 is set to recover as many explorers seize their chance to drill at lower costs.
In its report "Upstream Cost Deflation: How Much Could Costs of Exploration Fall?", Wood Mackenzie noted that the industry is now addressing a longstanding cost inflation issue.
Jumping On The Bandwagon

Yahoo!Finance is jumping on the bandwagon -- how US frackers plan to beat OPEC:
Gary Evans, CEO of Houston-based energy firm Magnum Hunter Resources, has a blunt message for OPEC oil ministers hoping to force down prices and drive American competitors out of business. “OPEC is making a huge mistake,” he says. “We made a lot of money with oil at $100 (per barrel), and we’ll become more efficient and make a lot of money at $50.”
For now, the U.S. energy industry is reeling from oil prices that have plummeted from about $105 a barrel last summer to $50 or so now. The profits and stock prices of energy firms are plunging, with job losses beginning to mount. The global supply of oil has outstripped demand for several reasons, but a big one is the unexpected move by Saudi Arabia—lead member of the OPEC oil cartel—to keep pumping oil amid the glut, a change from its usual practice of curtailing production during soft spells to boost prices. Many analysts believe the Saudis are deliberately undercutting their new competitors in North America, who have been producing record amounts of oil thanks to new hydraulic fracturing technology, or fracking.

The Saudis are right when it comes to costs: Extracting so-called tight oil from shale deposits in America is considerably more expensive than Saudi Arabia’s own drilling costs, which by some estimates is as low as $10 per barrel. What the Saudis may not have counted on, however, is extreme cost-cutting underway at many drillers, which is making them far more efficient and pushing down the price at which they can turn a profit. The Saudis’ market-share move could even backfire, as U.S. frackers become more efficient competitors. “We will figure out how to operate in a lower price environment,” Evans says. “Anybody who thinks our costs are too high – that’s absolute bull crap.”
Much more at the link.

For newbies, just one example: when I first started blogging about the Bakken in 2007, it routinely took 45 - 60 days to drill one well and then they fracked it with 14 stages, and maybe 1 million lbs of proppant. Now, they drill these wells in less than 15 days (in as few as 9 - 10 days) and then routinely frack with 36 stages and over 4 million lbs of proppant. The drilling costs have come way down; fracking is now the big cost. 

And that's not "bull crap."

Lufthansa's Unlimited Liability -- March 27, 2015

For the archives.

March 28, 2015: another note on Germanwings liability -- according to The Guardian:
An international agreement generally limits airline liability to around $157,400 for each passenger who dies in a crash if families do not sue, but if families want to pursue compensation for greater damages, they can file lawsuits. 
Lufthansa has offered victims' families an initial 50,000 euros. The money will be separate from the compensation the airline will have to pay for the disaster. 

Original Post

Bloomberg is reporting:
The families of passengers on the doomed jet operated by Deutsche Lufthansa AG’s Germanwings will able to seek unlimited recoveries from the carrier because the pilot may have deliberately crashed the plane into the French Alps, lawyers said.
“The liability for the victims would be uncapped,” said George Leloudas, a lecturer at Swansea University College of Law who specializes in aviation law. “From the perspective of the airline it’s difficult. There are no real defenses that you can use. It is irrational. That is why you buy insurance.” 
I wrote a reader either yesterday or two days ago (I forget) that the average payout would be $5 million/passenger. That sounds low but two infants would collect far lower as just one (very cold) example. 150 x 5 = 750 million; rounding, gets us to $1 billion. Bloomberg continues:
“We believe there is at least $1 billion of insurance cover on offer for Germanwings,” James Healy-Pratt, an aviation lawyer at Stewarts Law LLP in London, said in a phone interview. “We have actually assessed the likely compensation total to be around $350 million.”  
Well, isn't that helpful. I'm sure the juries will be told that the airline has "at least" $1 billion of liability insurance. If this weren't going to be litigated in Germany, I would wager we will see at least one $100 million settlement.

Lufthansa will probably cut some of the losses through profits made on all the ticket sales to US lawyers heading to Germany.

Wasting His Breath

Exploration of the Arctic by the US won't begin under this administration. The AP is reporting:
The U.S. should immediately begin a push to exploit its enormous trove of oil in the Arctic waters off of Alaska, or risk a renewed reliance on imported oil in the future.
The U.S. has drastically cut imports and transformed itself into the world's biggest producer of oil and natural gas by tapping huge reserves in shale rock formations. But the government predicts that the shale boom won't last much beyond the next decade. [Which decade are we talking about? The Bakken will easily last through 2030 and might finally be over by 2100.]
In order for the U.S. to keep domestic production high and imports low, oil companies should start probing the Artic now because it takes decades of preparation and drilling to bring oil to market, according to a draft of the study's executive summary.
"There will come a time when all the resources that are supplying the world's economies today are going to go in decline," said Rex Tillerson, CEO of Exxon Mobil and chairman of the study's committee. "This is will be what's needed next. If we start today it'll take 20, 30, 40 years for those to come on."
Disclaimer: this is not an investment site. Do not make any investment, financial, relationship decisions or travel plans based on anything you read here or think you may have read here. It may "take 20, 30, 40 years for those [projects] to come on" but I think investors in the oil and gas industry are going to see exciting things in 2017, and possibly as early as 2016.

Costo - American Express
An Aesop Fable

I haven't been to a Costco in a very long time. Until yesterday.

Our older daughter invited me to join her at Costco yesterday; she had some things she needed to pick up, mostly related to the youngest granddaughter.

I had forgotten how nice Costco was; also how incredible the savings were.

This particular Costco is located in a very high-income area near the DFW airport. Each of those customers might have had an American Express card through Costco. I thought about that yesterday while looking at all the customers. Costco recently announced it had parted ways with American Express and will partner with another credit card company.

Yesterday while enjoying my Polish hot dog and 20-oz diet Pepsi (free refills) for $1.50 ($1.62 with tax), I thought it was  a huge loss for American Express to lose the Costco account.

I thought about blogging about that yesterday but then decided not to. Until now. Today Barron's is reporting that it may have a silver lining for American Express to have lost this account:
American Express explained the backstory of Costco. Sounds like they were in a situation where the demands were such that renewing Costco would have lowered returns, and at the expense of better deals due to rigid non-competes.  
Sounds like a modern-day Aesop's fable.

On the way home, I noted that the Costco parking lot was overflowing, hard to find a parking spot. Just down the street, Sam's Club's parking lot was relatively empty.

Maybe Sam's Club has a bigger parking lot.

Update On Cushing's Reversal In Fortunes -- March 27, 2015

Market Realist has a very, very interesting update on the reversals of Cushing story -- quite fascinating.

The graph and the list of pipelines -- both mind-boggling.

First the graph:

Now the pipelines that made the difference:
As new infrastructure came online, it enabled more crude oil to move out of Cushing. As a result, inventories at Cushing had been in a declining trend for the better part of 2014. The new infrastructure included, but not limited to:
  • TransCanada’s  Keystone XL Pipeline
  • Cushing Marketlink Pipeline
  • Enterprise Product Partners’  and Enbridge’s ( joint venture Seaway Pipeline
  • The new infrastructure included TransCanada’s Keystone XL Pipeline and Cushing Marketlink Pipeline, Enterprise Product Partners’ ( and Enbridge’s  joint venture Seaway Pipeline
  • Magellan Midstream Partners’ Longhorn Pipeline
As a result of these pipelines, refiner demand from the Gulf Coast sucked crude oil supplies from Cushing down to as low as ~17.9 MMbbls at the end of July 2014.
Currently, stocks have rebounded to 54.4 million barrels.
Had the Keystone XL North been approved and operational, we would not have seen the 2014 dip.

Also, note the US situation for overall crude oil storage.

Hanging Whistler's Mother

The Los Angeles Times is reporting:
Hanging a masterpiece on the wall of a museum is a lot like hanging a flea market painting up in your living room. Eyeballing makes all the difference.
"Can we see what it would look like 5 inches to the right?" asks Norton Simon Museum associate curator Emily Beeny on a recent Monday evening.
Inside the Pasadena museum, five men and one woman in somber, solid-colored clothing maneuver James McNeill Whistler's massive 1871 painting "Arrangement in Grey and Black No. 1" on a rolling wooden cart called an A-frame.
You might know the painting by its more famous unofficial name: "Whistler's Mother."
It's getting an entire wall to itself in Pasadena as part of a 19th century masterpiece swap with the Musée d'Orsay in Paris.
Joining it in the gloaming for the spirited hanging are Édouard Manet's "Emile Zola" (1868) and Paul Cézanne's "The Card Players" (1892-96).
An American living in Paris, "Whistler's Mother" has not visited Southern California since 1933 when she was 72 years old and put on view at the Los Angeles County Museum of History, Science, and Art in Exposition Park (now the Natural History Museum). The passage of time has not changed her and she still wears the same outfit: a simple long-sleeved dress of midnight black with white lace cuffs and a plain white bonnet.
Whistler painted his mother, Anna, in 1871 when she was living with him in London's Chelsea. The Musée du Luxembourg acquired the piece in 1891 and it went on to be the first American painting to hang at the Louvre. Whistler, who struggled financially, had briefly handed his work over for credit after it met with a lukewarm reception at the Royal Academy of Art.
On this trip the painting is making a single, three-month stop at the Norton Simon for the exhibition "Tête-à-tête." During that same time the Orsay will display its exchange students from Pasadena, Pierre-Auguste Renoir's "The Pont des Arts, Paris" (1867-68), Vincent van Gogh's "Portrait of a Peasant (Patience Escalier)" (1888) and Édouard Vuillard's "First Fruits" (1899).
Through June 22, 2015 -- it looks like we will miss it. We won't be back in Los Angeles until July. Should we move our trip up? We saw all these paintings when we were stationed in Europe many years ago, but it would be fun to see them again.

Companies In The News -- March 27, 2015; 5/6 Of Bakken Wells To DRL Status Or Shut-In When Coming Off Confidential List

Initial data for wells coming off the confidential list today have been posted. Five of six (5/6) wells coming off confidential status go to DRL status or are shut-in (inactive). That's one way to stop flaring. 

Disclaimer: this is not an investment site. Do not make any investment, financial, or relationship decisions or changes in travel plans based on what you read here or think you may have read here.

COP. From Seeking Alpha:
  • ConocoPhillips says it has hired the Bank of Nova Scotia to advise on the sale of ~20% of its production in western Canada outside of the oil sands.
  • Production from the properties in Alberta, British Columbia and Saskatchewan is mostly gas and totals ~35K boe/day.
  • COP has operations across western Canada and the country’s Arctic region, including ~1.1M acres of land in the oil sands.

Chesapeake. Investopedia trying to sort out Chesapeake's announcements yesterday:
This past week, there were two interesting news items relating to Chesapeake Energy. First, earlier this week, the company announced that it was cutting another $500 million out of its 2015 capital budget. Then, around the same time as the capex cut announcement, it was revealed that activist investor Carl Icahn had boosted his stake in the company from 9.98% to 10.98%. While the disclosures are likely not related, both suggest the company is doing the right things to position itself to create value for investors over the long term.
Winstream, press release:
Windstream Holdings Inc. announced today the company's board of directors has given final approval, subject to certain terms and conditions, for the tax-free spinoff of select telecommunications network assets into Communications Sales & Leasing, Inc., which will become an independent publicly traded real estate investment trust (REIT). In addition, the company's board of directors declared a prorated cash dividend subject to the closing of the spinoff.
Windstream expects to distribute approximately 80.1 percent of CS&L shares on April 24, 2015, to Windstream shareholders of record as of April 10, 2015.
Windstream will make a cash distribution equivalent to a prorated $.25 quarterly dividend to Windstream shareholders of record as of April 10, 2015. The company would expect to make the payment on April 24, 2015.
Following the spinoff, Windstream will continue to be listed on Nasdaq under the symbol "WIN," while CS&L expects to list its common stock on Nasdaq under the symbol "CSAL."
MarketWatch on Calumet:
Dakota Prairie Refinery ($100 million): A joint venture with MDU Resources that's slated to come onstream in the first quarter of 2015 and will process crude oil produced in the nearby Bakken Shale, ensuring access to inexpensive feedstock. The facility will have a nameplate capacity of 20,000 barrels per day.
Speaking of diesel refineries in the Bakken, I haven't heard a thing on the proposed Trenton refinery in a long time. Nor has there been any follow-up on the $150 million casino that was mentioned in a Williams County commission meeting some time ago.

News Embargo

It was reported some time ago that there was a news embargo on Ebola stories coming out of Ebolaland. Considering the lack of real news coming out of the Mideast despite the extent to which the Mideast is in free fall suggests there is a news embargo coming out of the Mideast also.

Reason #456,798 Why I Love To Blog

From the Fiscal Times:
Let’s get this straight. Benjamin Netanyahu, the elected head of government of a US ally, defies Obama on a policy that impacts Israel’s security, then apologizes for it, and yet is considered someone who lacks credibility.
However, when the head of state of a nation that has sponsored terrorism for decades openly says, “Death to America,” the Obama administration shrugs off the statement as mere domestic politics and considers him a credible partner for peace.
We are truly through the looking glass with this President.
It has become abundantly clear that Obama wants a deal for the sake of claiming a foreign policy achievement, no matter what the cost, and no matter what it does to our allies, especially Israel.
The situation is reminiscent of another confrontation between Western powers and an extremist dictatorship that professed its own destiny to rule the world, and where the dictator even wrote out his plans for world domination and practically begged everyone to read them.
Jay Leno's jaywalkers: Mein Kampf? A new on-line shopping site?

Reason #456,798 why I love to blog? I said the same thing yesterday: President Obama doesn't care at all about the details or the implication of an Iran deal. He simply wants it checked off as done, as part of his "bucket list." Somewhere on his way to Harvard University, he learned the importance of bullet accomplishments on a resume regardless of whether they were real accomplishments or whether they meant anything or whether they were actually helpful to leave his world a better place  than when he found it. It's all about inflating his legacy for Encyclopedia Brittanica and the wiki entry ten years from now.

Harry Reid Not Running For Re-Election; Flaring In North Dakota -- March 27, 2015

Middle East in free fall. Seems to mirror exactly what I wrote yesterday.

Germanwings co-pilot found psychologically unfit during early pilot training, as far back as 2009; eighteen months of psychiatric treatment. Is the airline industry/Lufthansa that short of pilots that eighteen months of psychiatric treatment not disqualifying? Did the co-pilot have another connection with the airline to get that job? Physician's statement found in co-pilot's belonging (WSJ reports): medical leave of absence valid/justified through March 24, 2015. Date of crash: March 24, 2015. (Yeah, that makes sense: the physician hands the note to the patient to take to his employer. Was the co-pilot on Prozac? Well-known association with suicidal ideation.) Described as a "quiet person." Still lived with parents; had separate apartment. Think "self-loathing." Folks ask why he would want to kill 150 people; spent 9 months as flight attendant while on medical / psychiatric leave. A reader noted that the US does not require psychiatric evaluations for folks running for president or even serving as president.

Speaking of psychiatric evaluations, in the midst of a Mideast free fall, SecState warns of "global warming refugees" in the "not-too-distant future." They Syrian refugees, apparently, are an old-story.

Fourth quarter US GDP unrevised at 2.2%. Eight years of recovery and a gazillion dollars in stimulus and this is all we have to show for it: a) an unapproved Keystone XL pipeline; and, b) a 2.2% GDP? Wow. 

Active rigs in North Dakota:

Active Rigs99196185206170

RBN Energy: flaring in the Bakken finally winding down.
Producers in the Bakken are making progress reducing the natural gas flaring that had put an unwelcome spotlight on the region. The fix, spurred in part by tightening regulations, is being made possible by the addition of new gas processing capacity and increased efforts to use “stranded” gas at the well-site. (A drilling slowdown associated with soft crude prices is providing an assist.) Today, we take a fresh look at what’s been happening on the flaring front in western North Dakota, where gas flares still light the nighttime sky.
The flaring of large volumes of associated natural gas in the Bakken continues to attract attention from critics. As we said a while back in Why Will Bakken Flaring Not Fade Away?, there are environmental and economic reasons for flaring. In any situation where natural gas (primarily methane, a particularly potent greenhouse gas) would otherwise be vented into the atmosphere it’s much less damaging to the environment if that gas is burned off. From an economic perspective, flaring allows oil production (which has been the primary driver of Bakken activity) to start before pipeline infrastructure is in place to take away the associated gas that is produced. As we explained in Set Fire to the Gas--The Fight to Limit Bakken Flaring, connecting wells to gas gathering systems and processing plants isn’t a cure-all.
New wells produce gas at higher initial production rates and higher pressure, and gas from these new wells takes up pipeline capacity and knocks older, lower-pressure wells off the gathering system, causing their gas to flow back to the wellhead and require flaring.  It is a complicated system with no easy fix.

Macrumors is reporting:
Apple today officially announced April 10 grand openings for its three dedicated Apple Watch shops located in high-end department stores in London, Paris, and Tokyo. As previously outlined, the store-within-a-store locations are at Selfridges in London, Galeries Lafayette in Paris, and Isetan in Tokyo.
The new locations appear set to handle only Apple Watch viewing and sales, with customers being directed to other Apple retail stores for their support needs.

The Selfridges Apple Watch shop will be located near the entrance to the iconic Wonder Room, a massive shopping hall that houses a wide selection of luxury jewelry and watch brands alongside a concept store and mezzanine wine bar. Apple has reportedly been drawing employees from other retail stores in London to staff the new shop. The Galeries Lafayette shop will take over four balcony sections overlooking the main rotunda of the department store. 
We visited Paris and London often while we were assigned overseas. Calling these locations "high-end" is an understatement. These are exclusive.

The hardest thing analysts will have getting their arms around regarding these Apple stores: this is not going to be "high volume." This is a completely different market with a completely different purpose.