Friday, August 26, 2016

China's Peak Oil Problem; We Endorse Renewable Energy -- But Not In Our County -- San Bernardino, California -- Los Angeles Times -- August 26, 2016

Note: there is an interesting convergence of five articles today (which are all linked below):
  • the RBN Energy article
  • the Permian article
  • The Street article
  • the Iran article
Whether there "is something going on" or whether this is simply coincidental, we will see. I foreshadowed all of this -- purely serendipity -- in a "not ready for prime time" posting on August 19, 2016 -- just one week ago.

And then add this sixth article: China's decline in oil production echoes globally.
China’s struggling oil sector has entered a challenging new phase: long-term decline of its domestic production.
Oil production in China likely peaked last year at around 4.3 million barrels a day, according to new data and interviews with industry executives. The development has significant implications globally, including the potential for higher crude prices over time as China steps up imports to meet rising demand at home.
“The turning point that we’ve been searching for, for years, is happening now,” said Kang Wu, vice chairman for Asia at energy consultancy FGE. As an oil producer, he said, “China is entering long-term stagnation and decline.”
If folks recall, Prince Salman was in China this past week.

From the EIA today:
Members of the Organization of the Petroleum Exporting Countries (OPEC) earned $404 billion in net oil export revenue in 2015. These earnings represent a 46% decline from $753 billion earned in 2014.
Although these net export earnings include Iran's revenues, the net export revenue is not adjusted for possible price discounts that Iran may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran's oil sales were in place. --- EIA
Active rigs:

Active Rigs3175195185189

RBN Energy: E & P upstream CAPEX bottoms, signs of growth emerge.
In their second quarter 2016 earnings announcements, North American exploration and production companies (E&Ps) announced relatively minor changes to the steep reductions in 2016 capital budgets they unveiled around the first of the year. Total 2016 “finding and development” spending for 46 leading U.S. producers was an estimated $41.0 billion, down 51% and 70% from investment in 2015 and 2014, respectively, and slightly lower than the $41.9 billion forecast for 2016 spending in year-end 2015 announcements. The second-quarter reports over the past few weeks also confirmed the initial guidance of a 4% production decline in 2016 after 7% and 6% increases in 2014 and 2015.  However, as we discuss today, a look behind the headline numbers indicates that cuts in capital expenditures (capex) look to have bottomed out, and that the industry may be poised for a turnaround in drilling activity later this year into 2017.
One important sign of this apparent turnaround is a more than 20% increase in the U.S. drilling-rig count since the last week in May. That gain reverses two years of steady weekly declines, although the current count of 496 rigs represents only one-quarter of the number operating at the peak in mid-2014. While the Permian Basin accounts for the majority of the new rigs, signs of renewal are popping up in other basins like crocuses emerging from snow-dusted lawns in early spring.
Before we take a closer look at the current trends, let’s review how we got here. RBN Energy has been closely following industry investment since the beginning of 2015.
Back in May 2015, we provided an overview of the 2015 capital spending and oil and gas production trends for our “universe” –– a select group of the 30 largest U.S.-based E&P companies –– based on guidance given during the first quarter of 2015. Our goal was to understand how companies are responding to the challenge of lower oil prices in their capital spending (i.e. drilling) and expectations for production (productivity). We divided the universe into four peer groups: Small/Mid-Size Oil-Weighted E&Ps, Large Oil-Weighted E&Ps, Diversified Natural Gas-Weighted E&Ps, and the Appalachian Gas-Weighted E&Ps.
Later, we did a deeper dive analysis into the two oil-weighted peer groups in the study. We found that the Large Oil-Weighted E&Ps were cutting back by a lower percentage than the Small/Mid-Sized Oil-Weighted E&Ps because the bigger players are generally more financially secure and are better able to fund investment through the price cycle. The Small/Mid-Sized Oil-Weighted E&Ps, meanwhile, were focused on aligning spending with cash flows, with the aim of self-funding capital investment.
Then, we analyzed the natural gas-weighted peers. Our analysis revealed that the U.S. diversified natural gas companies were slashing capital spending in light of weak profitability, which in turn dampened production growth. In contrast, the Appalachian gas producers were the most profitable group in our analysis because they were slashing costs while still increasing their output.
In August 2015, we updated our analysis to reflect second quarter 2015 guidance and noted that the Small/Mid-Sized Oil-Weighted E&Ps were the only peer group growing capital spending given the weak oil and gas price environment.
Later, we updated our analysis of all peer groups based on year-end 2015 earnings releases and 2016 guidance issued by our 30 target companies. In our most recent update, we highlighted that oil and gas production finally started to level off after nearly two years of crushing capital spending declines.
Permian land rush. Land buyers stampede into Texas oil patch.  Wall Street's rush to Permian Basin is sign that long-awaited recovery in oil and gas prices maybe in the offing.

E & P companies target potential of STACK, SCOOP plays. Rigzone:
Seeking opportunities economic at lower oil prices, some oil and gas firms are ramping up investment and activity in the STACK (Sooner Trend Anadarko Basin Canadian and Kingfisher Counties) and SCOOP (South Central Oklahoma Oil Province) plays in Oklahoma.

In June, Marathon Oil Corp. said it would acquire PayRock Energy Holdings LLC, a producer operating in the Anadarko Basin STACK play, for $888 million from venture capital firm EnCap Investments. Marathon’s acquisition of STACK assets – which Marathon President and CEO Lee Tillman called in a June 20 press release one of the best unconventional U.S. oil plays – is part of the company’s strategy for coping with low oil prices.

Devon Energy Corp. has also expanded its investment and activity in the STACK play; this includes its acquisition late last year of Anadarko Basin assets from Felix Energy LLC for $1.9 billion. Devon plans to deploy an additional $200 million in capital for its 2016 upstream program in the STACK and Delaware Basin, where it said it might add as many as seven operated rigs during the second half of 2016, the company said in an Aug. 3 press release.

Operators are still testing the limits of the STACK play, which was discovered by Newfield Exploration Co. In the STACK, oil and gas companies are testing the oily potential of the Mississippian-aged Meramac moving west as well as the Osage and shallower, Pennsylvanian-aged Oswego northeast. This year, the play – the core of which exists where Kingfisher, Canadian and Blaine counties meet – has been among the most resilient in terms of rig count. Van Slyke attributed this resiliency to operators drilling to test new opportunities and to hold acreage by production.
This will be the last time oil is "down." -- The Street
We've tried to work inside a very long-term and a relatively short-term strategy when it comes to investing in the oil space: Inside the long term, we've been identifying the winners from the losers in the coming fresh oil boom, which I believe will send prices above $100 by the end of 2017. In the short term, we've noticed the vagaries of the financially and rumor-driven oil price that has prematurely inflated many of those stocks, and we've taken a break from investing in those companies until a better value price can be found. 
Now that a good part of the rumor mill has quieted down and the speculative trade has as well, we're starting to see oil move again toward the mid to low $40s.
This, however, will be the last time down for oil -- and your last opportunity to target some great oil companies.
Iran oil production stall ahead of OPEC talks. Why does this not surprise me? Iran's production levels have taken on heightened significance in recent weeks, as OPEC gets ready for talks next month on oil output.


San Bernardino County rejects a controversial solar power plant proposed for Mojave Desert. In The Los Angeles Times:
he San Bernardino County Board of Supervisors has rejected a controversial solar plant proposed for the Mojave Desert’s Soda Mountains, citing concerns that the project would destroy habitat and block ancient trails used by bighorn sheep for thousands of years.
In a 3-2 vote, the board on Tuesday declined to certify documents required under state law in order to issue county permits for the project on public land along Interstate 15 near the entrances to Joshua Tree National Park and Death Valley National Park, and less than a mile from the Mojave National Preserve.
“We endorse renewable energy, but this was the wrong project in the wrong location,” said Supervisor Robert A. Lovingood. 
America's Mountain Of Cheese

US government will buy a bit of cheese to support prices. There must be a presidential election this year.

I remember not too long ago, it seems, there were stories how expensive cheese had become. Yup, that was back in 2014, just two years ago. Glad to see that the Obama administration is making a decisive move to get back into dairy supports.

Government's purchase of cheese won't amount to anything.

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