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Tuesday, October 27, 2015

Establishment Of Non-Governmental Strategic Petroleum Reserves -- October 27, 2015; 4/4 Bakken Wells To DUC Status; Statoil Reports High-IP Well

With the new, relaxed rules recently announced by the NDIC, we will start to see changes in the Bakken and in the daily activity report. Today's report included a list of seven (7) EOG wells in the Parshall oil field that have been "temporarily abandoned."I only looked at one of the file reports and it said that the well would be temporarily abandoned and would be brought back on line when oil prices improve. I assume that is true for all of them. [This is not something new; EOG has done this before. To the best of my knowledge, only EOG has done this -- or it's the only one that has really stood out.]

So, we now have at least three categories of wells that can be brought back on-line fairly quickly if need be:
  • wells on the fracklog; DUCs; wells that have been drilled to total depth but not fracked;
  • wells that are on-line but are choked way back to minimize production and flaring;
  • wells that have been completed and are temporarily abandoned simply because of low prices; they will be inspected annually to insure they remain in good operating order
I've mentioned this before. I assume similar things are happening in the Permian and the Eagle Ford. If so, it is very clear that many (most?) of these wells could be brought to full production within days, if not hours. I think we are seeing a new phenomenon: the birth of a national non-governmental strategic petroleum reserve (NGSPR)

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10/27/201510/27/201410/27/201310/27/201210/27/2011
Active Rigs68195182186200

Wells coming off confidential list Wednesday:
  • 30434, SI/NC, SM Energy, Anne 13B-19HN, West Ambrose, no production data,
  • 30652, SI/NC, XTO, Smouse 31X-28C, West Capa, no production data,
  • 30684, SI/NC, MRO, Charlie 24-10H, Reunion Bay, no production data,
  • 31034, SI/NC, Statoil, Vachal 3-34 6H, Alger, no production data,
Three (3) producing wells completed:
  • 29230, 3,071, Statoil, Heen 26-35 7H, Todd, t9/15; cum --
  • 29623, 293, SM Energy, Dohmstriech 15-20HS, Musta, t10/15; cum --
  • 29624, 186, SM Energy, Dohmstriech 15B-20HN, Musta, t10/15; cum --
Four (4) new permits --
  • Operators: XTO (3), EOG
  • Fields: Tobacco Garden (McKenzie), Parshall (Mountrail)
  • Comments:

Boots Back On The Ground In Iraq, Syria -- US Varsity To Take On ISIS Junior Varsity -- SecDef -- October 27, 2015

Story here.

Budget/Authorization
This year's defense authorization bill may be the most closely watched bill in many, many years by those currently serving.

Because it does not affect me, I have not been follwing this year's defense authorization bill (which was vetoed by President Obama). Ironically, it may be the most watched bill by those currently on active duty.

The proposed authorization bill has huge retirement benefit reforms; the bill does not affect me, so I had not been following it, but when the president vetoed it -- which is almost as rare as hen's teeth for a president to veto a defense authorization bill, my interest was piqued.

I predicted this would happen when they introduced TSP (401k for the military) -- back in 2000 or thereabouts.

Individual TSP accounts have gotten so huge, that Congress is asking -- why generous pensions ON TOP of TSP? This was not the intended consequence, but it was predictable.

Again, it won't affect current retirees.

Here's the story (I may have some points on the margin incorrect):
1. Right now, those who serve less than 20 years get no pension, no retirement. But they can leave with TSP account. But most younger enlisted probably don't enroll. 2. Congress / military want more young enlisted to enroll in TSP for the member's own good. 3. TSP is now optional, but new bill would mandate / require ALL members place at least 1% of their salary into TSP (I don't know what the max is). 4. The government WILL MATCH up to 5% -- huge, huge benefit. This is quite amazing. This is new and the government will match your first 5% contribution. $50,000 annual salary x 0.05% = $2,500 from the govt to invest in the stock market, essentially. 5. So, even though those leaving the military before 20 years won't get a pension, they could have a huge TSP account. A million-dollar TSP is not out of the question. 6. THE BAD NEWS and why current active duty are watching closely: to pay for this -- to pay for the matching 5% from the government, pensions will be reduced by 20%. Retirees at 20 years now get 50% of their base pay; going forward they would get 40%, a significant reduction. For 30 year-retirees, the current pension is 75% of base pay (if disabled even 10%, fully tax-free). 30-year retirees would get 60% of their base pay, hardly better than what 20-year retirees get now. 7. Some things to consider: it would result in a lot of 20-year vets to get out of the service, which is good; a lot of 20+ active duty members are dead weight, simply waiting to retire at 30 years for full pension a huge amount of government money would go into the stock market of course, everyone in the military, even those leaving before 20 years, would have something in their bank account.

The bill was vetoed for other reasons but my hunch is that the retirement reform portion is a huge reason for the veto. McCain is the prime mover on this bill and he hates the military "pork" and I think he hates "lifers" -- the kind of stereotypical "lifers" he probably sees in his home state.

His bill would help get rid of "lifers" and would certainly make pensions less of a "red flag" by non-military folks who think retirees have way too many benefits.

President Obama was probably pushed by the military generals he sits with (periodically) to veto this retirement reform as written.

They are probably working the numbers, trying to get the 40% for 20-year retirees close to 45% or even all the way back to 50%. Same for the 30-year retirees; there it's even more important -- 75% cut to 60% (very, very close to present day 50% for 20-year retirees) -- is probably not palatable.

[$150,000 pension would be cut by $22,500 / year if the pension went from 75% base pay to 60% base pay. That's almost $2,000/month -- a house payment. Withdrawing 4% from the TSP on an annual basis at time of retirement, one would need a TSP account of $562,500 to get the $22,500, and that just brings one back to "even." The guys who thought of this expected the TSP would be "in addition to the pension" not to make up for cuts in the pension. As I said earlier in the article this was predictable. I was on active duty when they introduced the TSP and we talked about this, saw this coming.]

If most retirees are like me they don't look at the TSP as part of their retirement, or something to live off, unless they have to. Rather, they never cash in their TSP. They leave it to their spouse. That was a change in the TSP some years ago -- unlike classical 401k which must be spent by time of death, the military TSP can be left fully intact to the spouse. And, of course, if the spouse dies before spending it all, it goes to the grandchildren.

The higher ranking officers (from O-5 -- lieutenant colonels; O-6 -- colonels or captains [US Navy]) and lower-ranking general officers (one- and two-star) don't want to lose their 75% retirement which is huge, and a cut to 60% would probably not offset the TSP, even though it could be huge.

The cut for 20-year retirees would almost be a slap in the face. Obviously most 20-year retirees get back into the civilian work force, but they start out as a new employee, not as an employee with 20 years of seniority.

Live Blog Updating Apple's Earnings -- Should Start Getting Data At 3:30 P.M. Central Time -- October 27, 2015

Drudge Headlines The Day After

Cook on fire: biggest annual profit in history.
Apple cash swells to $206 billion. 

Twitter stock plunge .. where are the users?
Transcript


Tim Cook on the Apple Watch:
Sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter. And to give you a little additional insight, through the end of the quarter, in fact the Apple Watch sell-through was higher than the comparable launch periods of the original iPhone or the original iPad.
And we were able to do that with having only 680 points of sale. And as you probably know, as I had reviewed earlier, the online sales were so great at the beginning, we were not able to feed inventory to our stores until mid-June. And so those points of sale pretty much, the overwhelming majority of the low numbers of sales were not there until the last two weeks of the quarter.
Thinking differently:
Q: I think in your prepared remarks you talked a little bit about your market share of iPad in the US above $200 being 78%. And I'm wondering if you think about the iPhone and your market share in the premium category, how do you think about it? So I've seen market data that says 60% market share for phones above $300 or you have actually 90% market share for phones above $600. And I'm wondering if you could maybe talk about how you think about your market share, where you play given that your ASP is comfortably above $600? What do you think your market share is above $500 or $600 in smartphones? And how do we think about that, that market share going forward?

Tim Cook: We look at it a bit differently than you do. We look at it as our job is to grow our products regardless of the price, which means that we need to convince in some cases people to move from one price band to the other.
And that we think if we do a great job with the product that people will be willing to spend more because they get so much more out of it. And I think you can look at the results on the iPhone and see that in action. I mean, we grew 87% in China. We grew 90%-plus in India. Emerging markets are growing 65%.
These numbers are unbelievable and they're done in an environment where it's not the best of conditions. So that's how we look at. We don't do the MBA analysis of there's only X people buying in a price band and therefore we can only get X minus Y percent. That's not the way we've ever looked at it. If we did, we wouldn't be shipping any products.
Android Users Switching To Apple

From Macrumors:
During today's fourth quarter earnings call, Apple CEO Tim Cook said the company saw its highest rate of Android "switchers" Apple had ever measured in 4Q 2015.

According to Cook, 30 percent of customers who purchased an iPhone were upgrading from an Android-based smartphone, the largest number of switchers it had seen in the three years since it started measuring switching rates. "It's a huge number and we're very proud of it," said Cook.

Based on the growing number of Android users switching to an iPhone along with the number of people who have not yet upgraded, the company believes iPhone sales during the first quarter of fiscal 2016 will be strong.

Only one third of Apple customers have upgraded to an iPhone 6, 6s, 6 Plus, or 6s Plus, leaving two thirds of the company's customer base using older iPhones and ripe for a new iPhone.

For the past several quarters, Tim Cook has commented on the growing rate of Android switchers, noting earlier this year that the debut of the larger-screened iPhone 6 and iPhone 6 Plus, which better compete with larger-screened Android phones, had spurred high numbers of Android switchers. 
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Almost 400 iPhones/Minute Sold In Most Recent Quarter

92 days in the quarter = 132,480 minutes in the quarter.

48 million iPhones / 132,480 minutes = 362 iPhones sold / minute

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Live Blog Immediately As Numbers Were Being Released
Started at 5:30 P.M. Eastern Time
Live blog also at Wall Street Journal. MarketWatch live blog here.

From MarcketWatch:
Apple Inc. reported stronger-than-expected fourth-quarter earnings and sales after the market close on Tuesday.
While this is typically Apple’s second-weakest fiscal quarter of the year, coming just ahead of the busy holiday shopping season, analysts were anticipating strong iPhone sales, fueled by the release of the iPhone 6s and iPhone 6s Plus, for which Apple began taking preorders in September.
The notes below taken from the first link (the WSJ link).

Huge beat: $1.96 vs $1.88 forecast.

Shares up $1.50 (so far).

Net:  $11.12 billion.

Margin: 39.9% (wow).

Great China (Hong Kong): revenue, $12.52 billion. (That’s surpassed Europe recently, by the way. Europe in Q4 was $10.58 billion. Americas was $21.77 billion.

iPhones: revenue: $32.21 billion … unit sales: 48 million

Mac revenue: $6.88 billion … unit sales: 5.71 million.

Shares up $1.61.

iPad revenue: $4.28 billion … unit sales: 9.88 million

Shares up $.169.

Revenue from services, which includes iTunes and Apple Pay, was $5.09 billion.

Shares up $2.01.

Revenue from “other products,” which includes the Watch, the TV streaming box and Beats, was $3.05 billion.

Revenue from “other products,” which includes the Watch, the TV streaming box and Beats, was $3.05 billion.

Shares up $.275.

Over at CNBC.

Shares up $3.44.

The iPhone unit sales were more than the 39.27 million a year earlier, and that can safely be tied to the China bounce. The number was, though, short of the 48.2 million expected by analysts who were polled by Fortune. (The question is how much stock Wall Street puts in that forecast. Fortune has been doing it for a while.)

Comment: give me a break: 48 vs 48.2 million.

Shares up $3.50.

Net was up a robust 31%, and the per-share gain was even more — and above Street forecasts – thanks to Apple’s buyback program. Revenue was up 22%, and came in a hair above what analysts had expected. (Analysts’ forecasts, mind you, were pretty much the top end of what Apple said it would pull in during last quarter’s call with analysts.)

It looks like the shares will settle in around $2.50 higher in after-market trading.

Back to the WSJ blog:

Looking ahead, Apple expects gross margin of between 39% and 40%, and it sees revenue of between $75.5 billion and $77.5 billion. Analysts had penciled in 39.8% and $77.14 billion.
The Journal’s Daisuke Wakabayashi, who has his arms around all of these numbers, wrote his first cut at the earnings story.

In an interview, Cook told him that despite all the concerns about whether Apple can continue growing iPhone sales, “We’re pretty confident that we can grow this quarter despite having the mother of all comps.” Last year, the holiday quarter benefited from not only the bigger phones, remember, but the injection of sales from China.

I sometimes wonder if Apple’s press release can just be copied from a template, with new numbers filled in. In it, financial chief Luca Maestri nodded to the “record” quarter — Apple’s had so many record quarters I can’t keep count. He also threw some big numbers at people clamoring for a big capital return to shareholders: We returned $17 billion to our investors during the quarter through share repurchases and dividends, and we have now completed over $143 billion of our $200 billion capital return program.

Comment: I guess exuberance has died off. Shares are back to about $1.50 above the close in after-market trading.

The growth was fueled by record fourth quarter sales of iPhone, the expanded availability of Apple Watch, and all-time records for Mac sales and revenue from services. “Fiscal 2015 was Apple’s most successful year ever …”

Comment: about the only thing not mentioned -- iPads -- 'cause everyone in the world already had an iPad before this quarter and they last ... 4EVR!

3Q15 GDP Forecast Drops Again! Down To 0.8 Percent -- October 27, 2015

The GDPNow model (a dynamic link) nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.8 percent on October 27, down from 0.9 percent on October 20.
The model's nowcast for the contribution of inventory investment to third-quarter real GDP growth declined from -1.9 percentage points to -2.0 percentage points after this morning's report on durable goods manufacturing from the U.S. Census Bureau. The final nowcast for third-quarter GDP will be released tomorrow after the Census Bureau releases its advance report on U.S. international trade in goods.
This only adds to the story with this headline: Rate hikers at the Fed are running out of ammo.
The conditions add up to a headache for the Fed during a year in which Chair Janet Yellen and her top lieutenants repeatedly have expressed a desire to begin the rate normalization process. The first hike was supposed to happen in March, which would have been five months after the Fed ended its quantitative easing program, a series of monthly bond purchases that exploded the central bank's balance sheet past $4.5 trillion.

Now, the target again appears to be March, but in 2016. Traders at the CME assign just a 1 in 20 chance that the FOMC will announce a hike on Wednesday. The outlook has dimmed so much that traders say there's a 16 percent probability the Fed will still hold steady next September. 
One can argue how good, bad, or indifferent the last three/four Fed chairs have been (Janet Yellen, less than two years; Ben Bernanke, almost 8 years; Alan Greenspan, almost 19 years; Paul Volcker, 8 years) but none of them have been blamed (at least to the best of my knowledge by Krugman, Rush, or Savage) for having destroyed the US economy, but with less than two years on the job, Janet will raise rates at her own great peril. The good news is this: if she missteps, she will be close to the end of her four-year post and/or she will have a lot of time to dig herself out of her own hole, depending how one measures time.

Solar Farm Being Built In "Sunny" Buffalo, New York -- October 27, 2015

Quick: what retail store is the largest retailer in the US by number of stores?

Kohl's.

Kohl's is the largest U.S. department store chain by the number of stores, with around 1,200 as of February 2013. Why would I care?
Apple updated its Apple Pay participating issuers list today, adding Kohl's as the first U.S. retailer accepting store-branded cards that offer discounts and rewards. The department store chain confirmed on Twitter that iPhone users can make purchases using Kohl's Charge Cards on Apple Pay starting today.
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Cuomo For President Of The World

 Updates

October 27, 2015: before reading the story below about the huge solar farm being built in "sunny" Buffalo, New York, go back and read this story about the success of the solar farms built in the "sunny" suburbs of Minneapolis. This was the beginning of that post:
Apparently, "everyone" from the reporter to the engineers were surprised about the relative lack of sunshine in Minnesota, or at least the lack of predictability. [Note to engineers: the days get shorter in the winter in Minnesota. It's been that way for millenia.]

In Minnesota:
A state mandate requires investor-owned utilities to generate 1.5 percent of electrical power from solar by 2020, one way or another.
So, they have a "Twin Cities solar power demonstration" but it looks like there wasn't a lot of pre-planning.
“We’ve seen pretty significant output differences between December and June and July, which is anticipated, though I guess we didn’t have a firm concept of how large of a difference that might have been, when we started the project,” said Andy Bergrud, senior engineering project manager for Great River Energy.
Don was kind enough to provide the number of "sunny" days in the following cities (he provided the links if anyone needs them, just ask):
  • Jordan, MN: 197
  • Maple Plains, MN: 193
  • Maple Grove, MN: 196
  • Buffalo, NY: 155
  • US Average: 205
  • Bowman, ND, yes, Bowman, North Dakota: 214 
  • Las Vegas, NV: 294
Einstein's definition of insanity: doing the same thing over and over and expecting a different result.

Original Post
 
From the folks who ban fracking, will now put up solar panels in the snowiest city in the US. The New York Times is reporting:
On the often cloudy shores of the Buffalo River, where a steel factory once thrived, lies the rising framework of one of New York’s most ambitious economic endeavors ever: a giant solar panel factory that the state says will be the largest of its kind in the Western Hemisphere.
Gov. Andrew M. Cuomo has committed up to $750 million to the project, the biggest economic development effort he has undertaken in his five years as governor. 
In doing so, he has not just bet big on solar energy, a competitive and rapidly growing business, but also on the success of SolarCity, a fast-growing California company that will operate out of the factory that the New York State will own.
The potential benefits seem substantial: The state has said the 1.2 million-square-foot SolarCity factory, which is scheduled to open in early 2016, will create 5,000 jobs, with 3,000 of them in western New York.If the demand for solar power grows, and the companies the state has attracted are able to capitalize on that, then it could be well positioned to profit.
Companies lured to New York by generous state grants have created jobs, often in struggling regions or cities like Buffalo. The government hopes a virtuous cycle will follow, and public money will attract private investment.
Memo to self: check back on this story in five years. LOL. And the taxpayers will pay for this boondoggle also. Promoted by Elon Musk.

I can't find a solid estimate for the cost of this solar farm but it sounds like about $6 billion. Someone said SolarCity will be investing $5 billion in the project and the state about a billion works out to $6 billion / 1,000 MW = $6 million / MW -- about what I would expect. Solar remains the most expensive energy out there, even more expensive than off-shore wind. Buffalo, of course, is noted for its sunny days. LOL.

Cuomo: preparing for his 2020 presidential big. Hillary will be 73 years young by then ... or something like that -- I think she will be 69 when she votes next year ... 

Russia Burning Through Cash; Rainy Day Funds Running Out As Early As Next Year; When Shove Comes To Push In The Mideast -- October 27, 2015

Back on October 20, 2015, I wrote this "not for prime time" essay:
In response to a reader talking about $30 oil in the near future, I had this reply:
The problem I see is that Russia can't survive on $30 oil, and now getting into a shooting war, they will spend even more money.

Maybe a year of stability ($30 oil) but once Russia has eradicated those fighting Assad, Putin can look at the bigger picture: Russia/Iran/Syria vs Saudi Arabia.

It might take awhile, but I have trouble believing Putin is in as deep as he is in Syria just because he "likes" Assad. As someone else said, Obama handed Putin the "key to the Mideast" and I think Putin will take advantage of that -- Pan-Shia Persia (90-95% of Iranians are Shi'a and 5-10% are Sunni [Wiki]).

Persia is chomping at the bit to be the Mideast leader once again. Putin is chomping at the bit to be the "Lawrence of Arabia Putin of Persia" and/or Alexander the Great. There's probably already a Hollywood writer fleshing out the movie script.
I had no plans to post that (which I wrote last night) but then this story popped up this morning:
Saudi Arabia's foreign minister on Monday urged Iran to stop "meddling" in the affairs of the kingdom's neighbours, warning that Riyadh stood ready to confront Tehran's actions
Iran openly backs President Bashar al-Assad in the Syrian war and is accused of also being behind rebels who overran large parts of Yemen last year and early this year.
Also, this story was linked/posted a few days ago: Saudi Arabia is waging an oil war with Russia, reported in The Chicago Tribune:
President Vladimir Putin tries to restore Russia as a major player in the Middle East, Saudi Arabia is starting to attack on Russia's traditional stomping ground by supplying lower-priced crude oil to Poland.

At a recent investment forum, Igor Sechin, chief executive of Rosneft, Russia's biggest oil company, complained about the Saudis' entry into the Polish market. "They're dumping actively," he said.

Other Russian oil executives are worried, too. "Isn't this move a first step toward a redivision of Western markets?" Nikolai Rubchenkov, an executive at Tatneft, said at an oil roundtable Thursday. "Shouldn't the government's energy strategy contain some measures to safeguard Russia's interests in its existing Western markets?"

European traders and refiners confirm that Saudi Arabia has been offering its oil at significant discounts, making it more attractive than Russian crude. And, even though most eastern European refineries are now technologically dependent on the Russian crude mix, Russia's oilmen are right to be worried.
It may be getting more urgent for Russia every day. Being reported today:
Russia says it's likely to deplete one of its two rainy day funds by the end of next year as tries to plug the state deficit amid the economic downturn.
The economy, battered by low energy prices and Western sanctions, entered recession this year for the first time since 2009.
Finance Minister Anton Siluanov told the parliament Tuesday that the Reserve Fund, which holds 4.7 trillion rubles ($74 billion), is likely to halve by the end of the year with oil prices as low as they are — and be depleted by the end of 2016.
The other fund, now at 4.9 trillion rubles ($75 billion), is largely used to support infrastructure projects.
The Russian economy is forecast to contract by 3.9 percent this year and grow by 0.7 percent next year.
Russians are used to austerity. But the risk is that this becomes more about "existence" than "austerity" for Putin. And that's why I re-posted the "not ready for prime time" comments above.

We're getting closer and closer to asking which countries default first?

Target Zone Efficiency -- October 27, 2015

Some time ago (if I find the link, I will post it), I opined that CEOs of Bakken operators will expect that their roughnecks and geologists keep the wellbore in the target 98% of the time or better. Anything less will result in a bit of discussion.

Note the percent the wellbore was in the target in these two wells reported today, just as an example:
  • 27001, 1,428, HRC, Nelson 157-100-25A-26-3H, Marmon; it appears gas averaged about 2,000 units along the lateral; spiked to near 3,000 units; in-zone percentage and footage are 77.7% and 7,780 feet; the target was a 10-foot window between 13' and 23' below the top of the middle Bakken; 34 stages, 4.1 million lbs, t4/15; cum 64K 8/15;
  • 29839, 1,033, CLR, Maynor 1-35H, Crazy Man Creek, a 3-well Ecopad; an 11-foot target zone situated between 16' and 27' beneath the base of the upper Bakken shale; alternately, a 14-foot target zone between 15' and 29' feet beneath the upper Bakken shale; ; total gas was static, ranged around 800 units but 2,000 units at the toe; remained in the target zone for 6,009 feet, 64%; 30 stages, 3.5 million lbs, t5/15; cum 61K 8/15;
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A Note to the Granddaughters

Several years ago, our middle granddaughter -- this would have been when she was in kindergarten or first grade -- won the prize for guessing the number of jelly beans in a jar at some school contest when she was in school in Belmont (Boston), Massachusetts. She and I sat down in front of the jar, counted the beans on the bottom "row" and then counted the "rows" and then provided an estimate. She won; I've long forgotten the specifics. (By the way, when they were announcing the results of the various contests to come up to collect their prizes, Olivia was standing on the steps up to the stage before the announcement, because as she later told me, she "knew she was going to win." LOL.

Earlier this week at the day care center for the youngest granddaughter, Olivia (the middle granddaughter, now a fourth grader) had the opportunity to do this again. This time it was candy corn in a jar. She won the jar, guessing 153 candy corns; the actual number was 150. I was not there to help this time. The winner is shown as the mother (Kiri) -- probably a legal thing in Texas -- minors not allowed to engage in such "gambling" activity, but it was Olivia who guessed the number, or at least that's what I was told. Whatever. Here's the jar:


This also gives me an opportunity to post her state testing results that we just received this past week. She took the test in the spring of 2015, when she was in third grade:


Her parents asked her and her teachers if she should be "telescoped." Students who are particularly good in math, are "telescoped" into a higher grade level. They go to a different classroom or in some cases to a different school to take "higher" math (for example, fifth graders would go across the street to the middle school to take math). Her teacher said that Olivia is "right on target" and should remain in the math class she is already in. Olivia agrees. She had a good rationale for her decision, but I've forgotten what she said. Something to do with soccer. I assume the teacher did not want to lose a "good" student.

I think the one question she missed on the math portion had to do with the rate of speed of a descending submarine as it burns more fuel (becomes lighter) while moving into denser water (required a  bit of calculus). Or just a lucky guess -- it's all bubbles. The sort of bubbles President Obama wants to get rid of.

Buy High, Sell Low -- US Government Economics 101 -- October 27, 2015; Is The Bakken The New Stragetic Petroleum Reserve?

This may explain why the price of oil continues to drop. Wow, this puts additional pressure on Saudi Arabia and OPEC. I marvel at how things have changed. A few years ago it was all about "peak oil" and $150 oil. Now there's a glut of oil as far out as one can see.
Bloomberg is reporting:
The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties.
The proposed sale, included in a bill posted on the White House website, equates to more than 8 percent of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be “deposited into the general fund of the Treasury,” according to the bill.
Short term, and perhaps a knee-jerk reaction, this seems like a bad omen for the domestic oil and gas industry, but then this:
The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74. The U.S. may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines.
With regard to energy, this is a most exciting time to observe tectonic changes that were never, ever expected. (Memo to self: send another note to Jane Nielson). But more importantly, Saudi Arabia is living on borrowed time, perhaps ten years, whereas the US and Russia will be in the catbird seat of energy after 2020.  

With regard to the price of oil and the amount of oil being released from the SPR, let's keep it in perspective. 
  • the sales don't begin until 2018
  • the sales go on for eight years
  • the annual rate is 5 million bbls (14,000 bopd)
  • 14,000 bopd of "new" oil coming unto the market won't even be noticed
  • the annual rate is 5 million bbls; North Dakota, despite all the headwinds, produces 5 million bbls in four days; unfettered, North Dakota could produced 5 million bbls in two days
Question: heavy oil or light oil in the SPR? The refiners need heavy oil, not more light oil.

The other interesting point: are the Bakken, Eagle Ford, and Permian the new strategic petroleum reserves. In those shale basins two things are going on:
First, companies are choking back on production on new wells. They can open the spigots in one hour if necessary; that's faster than what the SPR can do -- to open the SPR spigots require action by "someone" in Washington, DC, and that will never occur in one hour. My hunch is that North Dakota could increase production by 250,000 bopd if all spigots were opened wide. And that's just North Dakota.
Second, the fracklog in the Bakken has likely surpassed the 1,000 mark. At a measured pace, they can be brought back on line at three wells/day, and at 2,000 bopd, one could see 6,000 bopd increase each day for quite some time (yes, the 2,000 bopd initial rate would decline, yada, yada, yada,) but the fracklog is not trivial. 
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Misleading Title and More Of The Same

I was not going to post this article over at SeekingAlpha, with the headline that Big Oil is "in bed" with Saudi Arabia. It seemed the title was misleading and too much of the "Saudi perspective" everyone has been reporting for months. In other words, not much new in this article. But if I don't post it, I will have a gazillion readers sending me the link.

Let's get this out of the way first: the title is misleading. Big Oil is not in "cahoots" with Saudi Arabia. Big Oil is simply Big Oil. Read the article. I think Big Oil is mentioned once in that long article and certainly not in "cahoots" with Saudi. One can argue whether Saudi Arabia is out to "crush" shale. But for argument's sake, let's say the kingdom is out to crush shale; Big Oil is not out to "crush" shale. (If it did, that would be fine: the price of oil would hit $200/bbl; 50% of US production now comes from shale, and nothing will replace it for years.)

But this is where I really have problems with the article, as I wrote to Don (this is not ready for prime time):
The problem I have with the article is the emphasis the writer puts on Saudi's ability to control the price of oil. No doubt that is still true, but each day it becomes less and less accurate.

On the "increase" side: I think Saudi has pretty much come close to maxing out what they can produce; they need more oil for domestic consumption; Saudi itself has admitted that they are living on borrowed time, maybe ten years.

On the "decrease" side: there is no question that the price of oil would spike if OPEC announced they were cutting back, but there is so much oil in the ground in the US -- fracklog and choking back -- that the US could easily make up the difference. The press, of course, would go nuts with an announcement that OPEC is cutting back, but this is nothing like the embargoes of the past, or the cuts in the past. Things have changed.

I have never seen anything like this and if you had asked me in 1995 if there would ever be a glut of oil in my investing lifetime, I would have laughed. I don't think anyone has really figured out what this all might mean.

Samson Resources And American Eagle File For Bankruptcy; Bakken Operators; Previously Announced -- Not "News" -- October 27, 2015

The Dickinson Press is reporting:
Two debt-heavy operators in the state, Tulsa, Okla.-based Samson Resources and Denver-based American Eagle Energy, filed for Chapter 11 bankruptcy, planning to sell off Bakken assets to pay back what they owe.
Samson, with production acres in the Three Forks and Middle Bakken plays, has not yet succeeded in selling off acreage.
According to 2012 reports, Samson had 400,000 acres in the Bakken. Later that year, it would sell 116,000 acres, primarily in Divide and Williams counties, to Continental Resources for $650 million. No other sale of assets has been reported by the company since then.
American Eagle held 54,262 acres in the Bakken in late 2014. In early 2015, it sold 1,185 leasehold acres in Divide County for $9.5 million.
The Samson Resources story is not exactly "news." It was announced August 15, 2015, that the company was planning to file for bankruptcy

The American Eagle story is not exactly "news" either. This was announced back on May 11, 2015

Catching Up On Links -- October 27, 2015

It looks like President Obama is edging ever closer to a direct confrontation with the Russian tsar. The Washington Post is reporting that the president is weighing options to move  US troops closer to the front lines in Syria, Iraq. 
The president’s most senior national security advisers have recommended measures that would move U.S. troops closer to the front lines in Iraq and Syria, officials said, a sign of mounting White House dissatisfaction with progress against the Islamic State and a renewed Pentagon push to expand military involvement in long-running conflicts overseas.
The debate over the proposed steps, which would for the first time position a limited number of Special Operations forces on the ground in Syria and put U.S. advisers closer to the firefights in Iraq, comes as Defense Secretary Ashton B. Carter presses the military to deliver new options for greater military involvement in Iraq, Syria and Afghanistan. 
The changes would represent a significant escalation of the American role in Iraq and Syria. They still require formal approval from President Obama, who could make a decision as soon as this week and could decide not to alter the current course, said U.S. officials who spoke on the condition of anonymity because the discussions are still ongoing. It’s unclear how many additional troops would be required to implement the changes being considered by the president, but the number for now is likely to be relatively small.
It looks like that JV team is a bit tougher than originally thought. Whatever.

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October 31, 2015: from The Bismarck Tribune, US Marine Sergeant (Ret.) Krause knows why President Obama is sending troops back into Iraq or Syria or wherever:
"They should have let the generals run the war instead of the politicians ... They lost the war and 50,000 men," Krause said.
Sgt Krause was one of the first 200 US Marines to be sent to Vietnam. He knows how that war was lost, also. 


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Faulty Reasoning

Just the other day we talked about Europe burning wood chips, calling the "move" carbon neutral. Business Insider caught the story and has even more to say about this. The headline: Europe's most popular source of 'renewable energy" is worse for the planet than coal.
Burning wood — technically labeled a "renewable" resource since more trees can be replanted and they'll absorb carbon from the air — is the European Union's largest source of "renewable" energy, and will continue to be through the year 2020, according to the European Parliament.
Yet using wood biomass in power plants is heating the atmosphere faster than using coal does, a deeply reported Climate Central investigation found.
In 2013 alone, Europe burned 40 billion pounds of wood pellets for bioenergy, making up 79% of the world's consumption, according to the European Biomass Association.
Companies are converting their power plants from coal to wood across Europe to meet renewable energy goals, Climate Central reported, and the biggest driver is government subsidies.
This is because the European Union classifies wood-generated electricity as "carbon neutral," so companies end up reporting far fewer emissions than their factories are actually generating.

Tuesday, October 27, 2015 -- Americans Loving Low Gsoline Prices

Active rigs:


10/27/201510/27/201410/27/201310/27/201210/27/2011
Active Rigs68195182186200

RBN Energy: Part 4 -- How Flow Data Provides Transparency Into Natural Gas Production.
The availability of pipeline flow data makes the U.S. natural gas market uniquely positioned to grasp with reasonable accuracy where it stands with regional or national supply and demand on a daily basis. If you understand how to wrangle and finesse this robust data source, you can make a pretty good estimate of where the supply is, where it is headed, how it’s being consumed, and ultimately, what that all means for prices. Today we wrap up our series on natural gas production estimates and how the industry uses pipeline flow data to track gas production trends in real time.
Recap
In Part 1 of this series, we compared the pros and cons of the U.S. gas production data from the Energy Information Administration (EIA): the Natural Gas Monthly (NGM), and two forward-looking reports, the Short-Term Energy Outlook (STEO) and the Drilling Productivity Report (DPR).
In Part 2 we showed how daily pipeline flow data helps fill in the lag in EIA final estimates. We won’t know final EIA estimates for the current month (October 2015) until January, for example, but in the meantime pipeline flow data provides an objective view through the current day. So while the latest (October) DPR is projecting declines in Appalachian gas production (Marcellus and Utica combined) after July 2015, for instance, daily, flow data from our friends at Genscape indicates that production from the region continuing at or near record volumes.
In Part 3, we provided a brief primer on flow data that derives from FERC mandated gas shipper website postings of scheduled gas volumes entering or leaving thousands of interstate pipeline meter points. Querying meter flow volumes by geography and other attributes, and aggregating them up to regional levels can provide a good estimate of market supply or demand on any given day. We showed an example of flow data aggregation for Appalachia production.
We start back today with that same example aggregating production data for the states and counties the DPR use to define the Appalachian region. For easy reference, we reproduce the map from Part 3 again in Figure 1 that shows how meters have physical locations (represented by the black dots) and flow data captures volumes that are scheduled at these points along pipelines. Today we’ll show how the data can be used to follow Appalachia production trends, using Genscape’s real-time natural gas database.
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From Rigzone: is the MLP mojo gaining momentum?
Maybe it was a recent crude rally, a pleasant surprise when distributions began to pick up or investors deciding to adjust to a new normal. Whatever the case, master limited partnerships (MLP) – the most successful of which are typically in the midstream sector – have turned a corner that makes some analysts hopeful the worst is behind the structure Following crude’s collapse last year that ricocheted between upstream and oilfield service revenue for months, many MLPs had subsequently floundered.

But during the week of Oct. 9, the MLP Index posted a 6.1 percent gain – its best week since 2013. And the Alerian MLP Index had a yield of 9 percent Sept. 29, a figure not seen in six years. Shortly thereafter, the U.S. benchmark WTI settled at an 11-week high and worldwide Brent topped $53 per barrel.
From Bloomberg/RigzoneOil at $50 Is 'Gift to World' as Abu Dhabi Sees Higher Prices.
Oil at $50. a barrel is a “gift to the world” as prices should be low enough to spur economic growth, according to the head of Abu Dhabi’s Department of Economic Development.
Prices will probably be at $60 next year, after hitting bottom at $45, Ali Al Mansoori, the department’s chairman, said in an interview Sunday in the capital of the United Arab Emirates, the fourth-largest oil producer in the Organization of Petroleum Exporting Countries. Benchmark Brent crude has dropped 16 percent this year amid a global oversupply and was trading Monday at $47.98 a barrel at 11:55 a.m. London time.

“It is a gift to the world that oil has dropped to $50,” Al Mansoori said. “Would we like for oil to stay at $50? Absolutely not. We would like oil to go to $70, $80, but beyond that I think it would hurt the economic growth.”
Oil demand growth will climb to a five-year high of 1.8 million barrels a day this year before slowing next year amid a weaker outlook for the world economy, the International Energy Agency forecast in its October market report. The market will probably remain oversupplied through 2016 as Iran exports more crude, should international sanctions be eased, it said.
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Americans Love Low Gasoline Prices

Ford misses on earnings (by one whole penny) but the third quarter was its best ever in North America. Business Insider is reporting:
Ford posted its best-ever quarter in North America, driven by sales of the F-150 full-size pickup, which was redesigned to use more lightweight aluminum in its construction.
There were issues with supply of the new truck that weighed on Ford sales earlier in the year. But in the third quarter, the car maker delivered over 207,000 pickups.
Compare the 207,000 pickups delivered in the past quarter to 2,500 Teslas delivered over same period. Speaks volumes.

By the way, GM is having such a great year, the company announced it is raising wages for its employees.
General Motors Co. , which has been delivering some of the richest operating profits in its 107-year history, has decided to do something it hasn’t done in nearly a decade: give its veteran American factory workers a raise.
The No. 1 U.S. auto maker by sales accepted a new four-year wage agreement with the United Auto Workers union late Sunday, just ahead of a strike deadline. Details weren’t immediately disclosed but UAW officials called the proposed GM deal “transformative,” and said it promises “long-term significant wage gains” to factory employees.
If approved, it would be the first time since 2007 that a Detroit labor contract has been considered transformative. Eight years ago, GM, Ford Motor Co. and Chrysler trimmed their labor costs significantly with a new two-tier pay structure and retiree health-care obligations.
Today, GM and its Detroit rivals are flourishing amid the strongest U.S. auto sales in more than a decade and buyers’ appetite for lucrative trucks and sport-utility vehicles. GM last week reported a record third-quarter North American operating profit, and said the region’s operating margin will exceed 10% of sales in 2015, rivaling European luxury brands.
More on Ford, from the AP, data points:
  • record third quarter results; best third quarter ever
  • profit almost doubles from a year ago (up 89%)
  • record set mostly due to higher sales of its new F-150 pickup truck
  • reached full production at its two US factories this past June
  • customers "paying up" for these aluminum trucks; Ford making $2,000 more per F-Series truck compared to a year ago
  • net income rose 129% to $1.9 billion; profit of 48 cents/share vs 27 cents in 3Q14
  • it appears Ford missed by a penny because analysts forecast a 32% tax rate, but Ford's 3rd quarter rate was 33%