Sagging Condensate Margins Affecting Kinder Morgan Splitters -- RBN Energy -- September 12, 2016

Dust Pneumonia Song, Woodie Guthrie

********************************

Active rigs:

	9/12/2016	09/12/2015	09/12/2014	09/12/2013	09/12/2012
Active Rigs	37	69	197	182	193

RBN Energy: sagging condensate margins affecting new Kinder Morgan splitters.

Two new 50-Mb/d, Kinder Morgan-owned and -operated condensate splitters came online during the first seven months of 2015, backed by a 10-year BP commitment to process a total of 84 Mb/d through the units.

Located in the Houston Ship Channel’s refinery row, the splitters were expected to provide a profitable outlet to process growing volumes of the ultra-light crude oil known as condensate. Instead, average plant throughput through July 2016 has been only 71% of capacity, well below the 90% average operating level of neighboring refineries. The relatively low level at which these units have been operating reflects sagging condensate processing margins.

Recent changes in condensate movements reflect broader trends in condensate production, which has declined significantly in the face of lower crude prices and narrowing differentials between condensate and “regular” light sweet crudes such as the Gulf Coast benchmark, Light Louisiana Sweet (LLS).

*************************

More On that EOG Acquisition Of Yates Petroleum

The number of articles over at SeekingAlpha regarding EOG's purchase of Yates Petroleum is quite extraordinary. Here is another one.

A company that rarely acquires others, EOG Resources Inc recently bought up privately held Yates Petroleum Corporation for roughly $2.5 billion, including $2.3 billion in stock and a net $151 million in cash/debt assumed. That's part of what made the news so intriguing, it doesn't hurt EOG Resources' strong balance sheet yet the company gets a much longer top tier growth runway. What also peeped (sic -- the writer probably meant "piqued"; "peep" is what baby chickens do) many investors interest is that EOG was buying up a lot of quality acreage in the Delaware Basin, 186,000 net acres, for around a third to half the price other M&A deals have fetched.

I think EOG got that Permian acreage for a lot less than "a third to half the price other M&A deals have fetched." More from the article:

For a refresher, EOG's premium wells generate a 30% ATROR at $40 WTI, which is what management referred to as a minimum with many of those locations exceeding that rate.

When factoring in other costs, like G&G and infrastructure investments, that goes down to 15%. EOG sees that level as more of a buffer than what to expect its real return to be with tons of room for upside. At $50 WTI, those locations yield an ATROR of at least 60% on an incremental well basis.

EOG Resources repeatedly brought up how it was aware that the market was curious about whether or not the firm could replenish its top tier drilling portfolio as it brings wells online in a low price environment. Before the Yates acquisition, EOG had 3,200 premium locations in February 2016, which shot up to 4,300 premium locations as of August 2016 on the back of cost reductions and stellar operational performance. The Yates deal added another 1,740, bringing EOG's premium portfolio up to ~6,000 locations with room to move higher.

******************************* 

Global Oil Production

OPEC says non-OPEC output stronger than expected.  Two data points:

• there are suggestions that those stories suggesting Saudi Arabia has cut back production may be dubious: "secondary sources such as traders, shippers and consultancies told OPEC that Saudi production continued to climb to 10.6 million bbls/day
• non-OPEC production will fall by about 610,000 bopd, about 180,000 bopd less than previously forecast -- OPEC's estimate

Bloomberg also has the story.

**********************************

Black Lives Matter

Chicago: 3,000 shooting victims as of early September. Data points:

• "Ferguson effect"
• article failed to mention Baltimore's policy: give them some room to destroy
• follows "onslaught of criticism from the Black Lives Matter movement"
• Chicago mayor: Chicago police have gone "fetal" -- less likely to interdict criminal behavior -- that was back in 2015; worsened in 2016
• the city allows the ACLU to review every police stop
• three gangs -- the Vice Lords, Black Disciples and Four Corners Hustlers -- reached a pact in August to assassinate Chicago officer

**************************************

Venezuela -- Tick, Tick, Tick

China rethinks its alliance with reeling Venezuela. Security concerns and unpaid bills, China may be recalculating its alliance with Venezuela. Venezuela may not get meaningful fresh loans or investment from China.

****************************

The Market

Closing: great opportunity for those paying attention. Market surges 240 points --and there you have it; a lot of talk. NYSE --

• new highs: 34
• new lows: 40

Late afternoon: great opportunity for those paying attention. Market surges 240 points -- so much for all that talk about a "Fed" rate increase. NYSE --

• new highs: 27
• new lows: 40

Mid-day: the bleeding has stopped, at least temporarily. Market up about 60 points. NYSE --

• new highs: 20
• new lows: 37 -- it was a huge rout Friday, a loss of nearly 400 points

Open: Computer algorithms in control.

****************************

The Political Page

Perhaps all this will simply burn itself out, but the number of stories about Hillary's "medical event" on Sunday are appearing everywhere. Even the LA Times is having trouble ignoring the story. I cannot even imagine how many times this video is being shown on network television.

Seeing all the headlines in so many different media outlets suggests the sharks smell blood.

During the Khruschhev days of the Soviet Empire, as a kid, I seem to recall all those photographs and stories of Soviet statesmen not in official photographs because of "the flu." I guess in the Soviet Union, "they" got "the flu." In Hillary's America, "we" get "pneumonia."

This is an important link not to lose; hopefully the link won't break for at least one year. 

***************************

Valiant Ambition: George Washington, Benedict Arnold, and the Fate of the American Revolution

Nathaniel Philbrick

c. 2016

DDS: 973.4 PHI

Chapter 2

The Mosquito Fleet

The detailed story of Brig Gen Benedict Arnold's successes in the fall of 1776 on Lake Champlain. By capturing Fort Ticonderoga he prevented the British from joining up with Admiral Howe and General Howe to the south (in NYC) and cut America in half.

Benedict Arnold's home: New Haven, CT. His wife died at this time; he left three sons to fight on Lake Champlain.

The story of Benedict Arnold's success taking Montreal and his defeat at Quebec are also discussed.

All in all, a naval battle on Lake Champlain.

The Brits ordered their troops "back up the lake to St Johns for the winter (winter of 1776 - 1777), Arnold cold take consolation in knowing that that no matter what the cost, he had done it -- he had prevented the British from taking Fort Ticonderoga and continuing to Albany and, eventually, to NYC. And perhaps just as important, while Washington's army to the south continued to suffer setback after setback, Arnold had shown that it was possible to stand up and fight." -- p. 56