Decline Rates Way Down; BIg Oil Could Spark A Renaissance In US Shale -- Oilprice -- July 4, 2016

Wow, we haven't talked about "decline rates" in a long time. Look at the progress in stemming those huge decline rates. At the beginning of the boom, we saw decline rates over 90% in the first four months; now some drillers are showing decline rates of less than 20% in the same period of time. 

In the early days of the boom I had strong opinions on the "decline rate." In the big picture, my thoughts were completely wrong, but I learned a lot in the process. Having said that, I wouldn't change a thing that I wrote about decline rates at the beginning. Things have changed.

The link:

The collapse of oil prices has killed off any appetite that the oil industry had for megaprojects that cost tens of billions of dollars. With scarce resources, oil companies have shifted their focus, pouring resources into short-cycle projects, which often means shale drilling.

The Reuters analysis found that wells in the Permian Basin in West Texas had decline rates of 18 percent between their point of peak production and the fourth month of operation. That decline rate may seem substantial when compared to conventional wells, but it is way down from 2012 when Permian wells suffered from a 31 percent decline rate over the same period.

More staggering were the decline rates in early stages of the shale revolution a decade ago, which saw output decline by upwards of 90 percent in just a few months.

A more modest drop off in output will put a lot of marginal wells into profitable territory.

It also means that shale drillers can cycle cash more quickly.

"You can have cash flow without having to expend a lot of capital,” Mukul Sharma, a professor of petroleum engineering at the University of Texas at Austin.

Drillers seem to be able to slow decline rates by keeping up high surface pressure, which slows initial production but extends the life of the well, ultimately leading to more overall output. Years ago, companies did the reverse – squeezing out as much oil as possible in the first few weeks, which ended up leading to sharp decline rates and less oil recovered in total.

In short, shale companies continue to tweak drilling practices, which should improve well economics. That will ensure that fracking shale wells continues to see more interest from oil companies than the megaprojects of years past.

Much more at the link. 

Tesla Misses Sales Target; Toyota Dumps The Toyota Prius -- July 3, 2016

Updates

July 13, 2016: in response to lagging sales of the Model S and Model X, despite a shortage of the same, MuskMelon announced that he is lowering the price of the Tesla models S/X.

Tesla said on Wednesday a new version of the Model X crossover, the 60D, will be priced from $74,000, $9,000 less than the Model X 75D. Equipped with a 60kWh battery, the 60D has less torque and a shorter range between charges than the 75D.

We've talked about this before. Folks who can afford a Tesla are not particularly concerned about the price. In addition, with range probably being the #1 issue when folks decide whether or not to purchase an EV, purposely buying a Tesla with a shorter range does not seem like something most folks would want to do. This smacks of buying a Tesla and then parking it in the garage. 

Original Post

 

The announcement of missed estimates, announced on a Sunday during a holiday weekend in the US -- CNET. From The Wall Street Journal:

Tesla said its second-quarter global sales rose 25% to 14,370, less than the 17,000 it had expected, as it worked to produce more vehicles.

Tesla said it produced 18,345 Model S and Model X vehicles in the same three months and that thousands of vehicles were in transit at the end of the three months that ended June 30.

While a 25% increase might seem strong, deliveries of its Model S sedan fell 15% to 9,745. Deliveries of the company’s Model X stood at 4,625. Since last year, the company began selling the Model X sport-utility and it has had problems ramping up production.

Tesla said in a statement that it has now achieved regular levels of higher production and expects to produce 50,000 vehicles in the second half of 2016. Through the first six months it has delivered fewer than 30,000 vehicles.

Also, from Forbes: Tesla's revenue and earnings about to take another hit:
The delivery miss should drop the analyst’s EPS projections further into the red. Keep in mind that before Tesla released its preliminary March quarter results in early April the Street was forecasting it to generate $0.14 in EPS in the June quarter. It had dropped to a loss of $(0.33) before these latest results were released. Gross margins will probably also be hit so the quarter’s loss could easily move above $(0.50) per share.

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Toyota Dumps The Prius

Wow, the beginning of the end. Remember this post about 18 months ago:

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Flashback

Honda Accord Sales Beat Toyota Prius In California -- First Time Ever (February 13, 2015)

Gas2 is reporting:

California is known for imposing tougher environmental regulations on car manufacturers than the EPA...

It became fashionable for every Hollywood star to have one parked in the garage alongside the Jaguar/Ferrari/Lambo. California has a lot of High Occupancy Vehicle (HOV) lanes on its many freeways and Prius drivers were allowed to use them even if they were driving alone. How cool is that? Eco-snobbery drove Prius sales through the roof, making it the best selling car in the state year after year.

Until recently.

During the first quarter of 2014, the Honda Accord muscled its way to the front of the line, edging out even the mighty Prius as California’s best-selling car. There are a couple of reasons for this.

Today, July 3, 2016, Don sent me this story: Toyota dumps Prius as sales collapse.

Hybrid and electric cars were the rage when gas prices where high. The grandfather of the category has been the Toyota (NYSE: TM) which recently fell on very hard times. Sales of the hybrid were off 26.7% to 11,027 in June and 25.2% to 67,405 for the first six months. Incentives on the Pruis (sic) have dropped to .9% for 72 months.

The Prius first came off the production line in 1997. Toyota has sold 3.7 million worldwide since then. Recently sales have been challenged by an army of other hybrids and the new found (sic) attraction of all electric cars like the Tesla  Model 3 which will be priced at $35,000 before government incentives, that could be several thousands of dollars more (sic). That will bring the car to about the same price level as a well-outfitted Prius. Granted, the Tesla will not be available until 2017, but the company has several hundred thousands of orders.

24/7 Wall Street suggests that Toyota dumping the Prius gives the edge to others, specifically, Tesla. One could also argue this is simply re-arranging the chairs on the USS EV Titanic.

Remember: Tesla orders cost only $1,000 and are completely reimbursable. Tesla orders mean absolutely nothing. 

And "..the Tesla will not be available until 2017." MuskMelon himself has said that there is little chance he will meet that deadline.

Without question, the #1 state for Prius sales: California. On June 20, 2016, just a few weeks ago it was announced that California "unplugged the state's electric car program."

Most recent (May, 2016) EV sales are posted here; we will know the June, 2016, sales later this week. In 2016, Toyota Prius has fallen off the cliff, selling about 5 cars/month. Prius sales crashed in early 2015.

I can't find the post, but I believe I posted earlier that the reason Toyota Prius fell off the cliff last year was because it announced it would be phasing out the Toyota Prius. Meanwhile, Toyota still has plent of EV hybrids to watch:

Virtually every large global manufacturer has one or more hybrid models. This was not the case when the Prius first hit the market. Even Toyota current has hybrid and FCV (fuel cell vehicle) of its Camry, Avalon, RAV4, Highlander, and Marai models.  In a sense, Toyota competes against the Prius.

Some Unfinished Business -- Off The Net For Awhile, Going Biking -- July 3, 2016

I'm not sure if I will get back to this or not, but the dots are interesting to connect:

• Paul Krugman's book review in recent issue of The New York Review of Books
• Elizabeth Warren
• Dodd-Frank
• hedge fund industry in turmoil
• the implosion of an $8 billion hedge fund
• May 2012 - A public pension, the New Jersey State Investment Council, commits $150 million to Visium’s healthcare fund
• July 2015 - The University of Michigan’s endowment commits $50 million to Visium
• Fall 2015- Another public pension, the State of Michigan Retirement Systems, commits $100 million to Visium
•  June 2016 - portfolio manager Sajay Valvani commits suicide

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Tough Philadelphia Commute Tuesday

One-third of light rail has been taken off-track. Fortunately it's great biking weather.

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A Note For The Granddaughters

The new Douglas MacArthur biography is out, about $28 (before tax) at B&N; $24 (free shipping) at Amazon.com. I read a MacArthur biography some years ago, at least the first part. Once the part on WWII started, I pretty much quit reading. I always find the "coming of age" or the first 25 years of a person's life the more interesting.

I'm tempted to get the new biography. I was curious what reviewers at Amazon had to say about it but never got that far. I read the author's bio:

Arthur Herman is the bestselling author of The Cave and the Light, Freedom’s Forge, How the Scots Invented the Modern World, The Idea of Decline in Western History, To Rule the Waves, and Gandhi & Churchill, which was a 2009 finalist for the Pulitzer Prize. Dr. Herman taught the Western Heritage Program at the Smithsonian’s Campus on the Mall, and he has been a professor of history at Georgetown University, The Catholic University of America, George Mason University, and The University of the South at Sewanee.  

One of my "top shelf" books is How the Scots Invented the Modern World. This may simply be the best book of its genre. Period. Dot. I've read it twice; parts of it more than several times.

Having said that, I'm not that interested in MacArthur. Maybe I should be. We'll see.

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By The Way

Over at one of my favorite blogs, the author is complaining about Amazon delivery times, even to the point of calling Amazon's delivery-time claims "fraudulent." I posted a comment over at the blog but did not want to start an argument so simply stated that in the DFW area, Amazon's deliveries seem to be as advertised (or better). In fact, reading the other comments, it did sound like the blogger's problems were a one-off, as they say, or an anomaly, as NASA would say.

There were a number of things he said that were wrong; in other instances, he omitted certain important differences between Amazon vs brick-and-mortar, favoring b-a-m.

His complaint was that a couple of books he ordered did not arrive before he left for a trip. The books were to be used on the trip; if he left before the books arrived, they were "useless" to him. Reading between the lines, it sounds like the books very likely arrived in the two-day window, but he left an hour or so before that window closed. In other words, reading between the lines, the "two-day window" closed in the early evening of that second day. The blogger departed in the late morning or early afternoon of that second day. For all he knows, when he returns home, the books will be on his doorstep having arrived "in two days" as advertised.

Regardless, even if the books are late by a couple of hours or a couple of days, in the military we called this "PPP" -- piss-poor planning. If something is that important we would not leave it to the  vagueries of the weather, or air traffic, or ground traffic, or a new driver, or a worker's strike, etc., to get us something we needed that badly. In this case, the books were needed so badly the writer suggests that Amazon's "delivery-time" claims may be fraudulent.

Anyway, sounds like a first-world problem.

How Pinched Is OPEC? -- July 3, 2016

Bloomberg is reporting that Kuwait plans to raise nearly $15 billion to help plug its budget deficit as lower oil price squeezes public finances:

• as much as $9.9 billion from international debt markets
• to borrow $6.6 billion from the domestic market 

The plunge in oil prices has prompted a flurry of international bond sales from the six-nation Gulf Cooperation Council to finance widening deficits that could reach $900 billion by 2021.

Qatar raised record a $9 billion in May, following a $5 billion sale by Abu Dhabi. Saudi Arabia, the biggest Arab economy, has hired JPMorgan Chase & Co., HSBC Holdings Plc and Citigroup Inc. to raise at least $10 billion, according to people familiar with the matter.

It sounds like the Kuwaitis are tapping the US bond market in preference to London due to recent Brexit vote.

The article suggests that this is simply the beginning of such borrowing and it will go on for some time.

Kuwait estimates expenditure for the 2016-17 fiscal year at 18.9 billion dinars, the minister said, while revenue is expected to be at 10.4 billion dinars during the same period. Non-oil revenue will make up 1.6 billion dinars of the total.

Kuwait posted a 5.5 billion dinar deficit for the 2015-2016 fiscal year below the government’s earlier estimate of 8.2 billion. The government hired consulting firm Oliver Wyman & Co. to advise on a debt strategy, the minister said in an interview in May.

 One may be interested in learning a bit about Oliver Wyman.

$900 billion. Sounds close to a trillion. I guess that's why they call it the "trillion-dollar mistake."

This is the Islamic view on lending:

Asian Millionaires Now Control More Wealth Than US Millionaires -- Forbes -- July 3, 2016

Link here.

HNWI: high net worth individuals; high net defined as greater than $1 million in assets.

The figure "$1 million" seems incredibly low to be called "high net worth" considering the market value of homes in parts of the US. It's possible this definition does not include one's primary residence based on this paragraph:

Asian millionaires now control more wealth than those in North America, primarily driven by financial services, technology and healthcare. Capgemini found that Asia’s millionaires were worth $17.39 trillion at the end of 2015, slightly ahead of North America’s $16.61 trillion.

Whatever.

The second thing that jumped out at me: this was driven by China and Japan. We've been told for the past year how badly the Chinese economy has been doing; and, we've been told for decades how Japan's economy has simply stagnated. Whatever. China and Japan apparently "outscored" the energy center of gravity, Canada, the US, and Mexico. 

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WikiLeak Factoid

In 2015 Hillary Clinton's campaign HQ moved to 1 Pierrepoint Plazza just a few floors under DoJ head Lorreta (sic) Lynch. 

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Fox Poll Registered Voters

By a 40% to 20% margin, or greater gap -- broadly speaking -- US registered voters said these three things would make the US safer (or I suppose, at least make them feel safer):

• profiling 
• more guns
• temporary ban on Muslims entering the US

My question: with an administration "open-door" policy along the Mexican border (Texas, Arizona, California) why do we even have "passport control" at JFK, DFW, LAX, MIA? Even SecState John Kerry says it will be a borderless world. Or already is, depending how one parses his speech.

The immigrant song, or is it the immigrant's song?

Immigrant Song, Karen O With Trent Reznor and Atticus Ross

Nearly 100 Killed Overnight In Suicide Bombing In Baghdad -- July 3, 2016

Updates

Later, 11;09 a.m. Central Time: The New York Times finally has this as a headline story, noting that this is the third mass killing in about as many days. I wonder if their editors are in agreement with POTUS that this series of mass murders is evidence of desperation. It almost seems to be in retribution following the story that US gunships picked off hundreds of ISIS fighters in convoy leaving Fallujah after losing that city/battle. The New York Times has a story/graphic purporting to show where ISIS has lost ground in Iraq and Syria, no doubt provided by the Obama administration. I guess this is akin to the "body counts" during the Vietnam war. 

Later, 11:07 a.m. Central Time: now we learn through Fox News that it was "twin bombings." That was probably stated elsewhere but only Fox News  had it in the headlines. The Los Angeles Times has barely acknowledged it. Perhaps for the LAT, #BaghdadLivesDon'tMatter.

Later, 10:17 a.m. Central Time: not even linked at Drudge yet. Death toll is now at 126 including 25 children. What a great legacy. Doesn't even make the front page headlines at Los Angeles on-line; headline story over there: Tesla and Google and self-driving vehicles (SDVs).

Later, 8:19 a.m. Central Time: after the Istanbul airport suicide bombing POTUS said it showed that this was an act of desperation (or did he misspeak and mean an "act of devastation"?), that ISIL was losing. For a losing team, the JVs are doing well. The New York Times notes that the Baghdad bombing overnight is the third highly successful mass bombing by ISIS in about as many days. I would hate to see what ISIS could do if it were not losing.
 

Original Post

Link here.

I haven't seen this reported in the US mainstream media, so I do not know if it's accurate. If it is accurate, I do not know whether it is news or simply another data point in the Mideast.

The MJVT ("the mideast JV Team") has taken responsibility.

By the way, this team now goes by several names (depending on who is reporting): ISIS (US mainstream media); ISIL (community organizers like President Obama); Daesh (US royalty like current SecState); and the MJVT (a spaceholder until the team comes up with a "marketable" name that can be copyright and sold for use on hoodies).

Speaking of which, the JV Team could pattern itself after US sports franchises (for example, MLB, NFL, NBA). The International JV League could have three conferences: the North American Conference; the European Conference; and, the Mideast Conference. Each conference would have the original teams and then expansion teams. In the Mideast Conference, the original teams could include the Baghdad Bombers, the Fallujah Fanatics, the Cairo Killers, and the Damascus Demons. Istanbul being on the west side of the strait would field a team in the European Conference, perhaps the Istanbul Insurgents. And, of course, the Paris Baguettes; the London Loonies; and the Berliners.

But I digress, if this story coming out of Baghdad overnight is accurate and if the US mainstream media does not report it to the degree one might expect, one can assume mass suicide bombings in the Mideast are as "routine" as killings in Chicago.

Last year in Chicago -- over the entire twelve (12) calendar months -- there were almost 2,000 shooting victims. Through the first six months of this year (2016), Chicago reports almost 3,000 shooting victims, putting Chicago on track to exactly double the number of shooting victims in one year. This works out to more than 10 shooting victims per day.

And except for Chicagoans, I don't think anyone is even following this story. I'm not even sure folks in Illinois outside of Chicago are following this story. What interests me is the analysis, which I haven't seen yet. Why is this happening? Why is this happening, now? As soon as I saw this story -- sent to me by Don -- this was my "minimally" edited reply:

I doubt the Chicago "knife and gun clubs" are really doing anything differently this year than last year.

My hunch is that the police have decided it's not worth their reputations or worth their lives to get involved; they show up "after" the incident, instead of getting there first and trying to stop something. If they get there "early" they risk being charged with murder, or getting shot themselves, leaving behind a spouse and three children.

By the way, speaking of which, was anyone surprised by the minimal US mainstream reporting with regard to the suicide bombing at the Istanbul (Turkey) International Airport last week (or whenever it was)? I was surprised by the relative lack of US media interest, and was unable to come up with a reason.

Whenever I have a question I cannot answer, I tell the granddaughters I google it or "follow the money." In this case, neither googling nor "following the money" explained why the Istanbul suicide bombing received so little US attention. But then it was very, very well explained by Rush. I tend not to listen to Rush much any more but by serendipity I happened to catch his insight on the bombing.

I guess I have to add a third option when something cannot be explained:

• google it
• follow the money
• if it's "political," check in with Rush

The Brexit -- A Bit Of Humor -- July 3, 2016

First, divide and rule:

The Foreign Office: Just Like Old Times

Second, we've seen this movie before -- 2,000 years ago when the Brits decided to kick the Romans out:

What Have The Romans Ever Done For Us?

US Propane Exports -- One Of The Top US Energy Stories Of The Decade -- July 3, 2016

Flashback: I don't know if folks recall, but during the winter of 2013 - 2014, the US was experiencing a severe propane shortage.

Fast forward to summer of 2016: US propane exports are expected -- by the end of this year -- to exceed those of Qatar, Saudi Arabia, Algeria and Nigeria combined.

Back on  April 29, 2016, RBN Energy provided an incredible update of the US propane story -- this is a huge turnaround story in less than three years -- and very few Americans are even aware of it. For me, it has not sunk in, and I follow energy pretty closely (at least superficially). Look at some of the data points:

• US domestic production of NGLs (like propane and butane is soaring
• US liquified propane gas (LPG) exports in the past three years have rocketed to the top
• US exports of LPG now surpasses exports by the old Big Three: UAE, Qatar ("cutter"), and Algeria
• the rise in LPG exports may be ending
• exports from the Gulf coast may be in for a decline
• more propane and butane from the Marcellus and Utica will be re-routed to Marcus Hook, PA
• demand for new propane dehydrogenation plans and flexible steam crackers will be climbing

And this has only just begun. Remember, this turnaround story occurred before the expansion of the Panama Canal. It was just late last month that the first propane-laden "New Panamax" vessel that transited the canal:

RBN Energy: a propane-laden VLGC inaugurates the expanded Panama Canal.

After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan.

What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets.

For more on how US ports are prepared for the Panama Canal expansion, see this post.