Sunday, January 29, 2017

Anticipating A Tough Day For The Market On Monday Following Last 72 Hours -- January 29, 2017


January 30, 2017: market (Dow 30) down almost 200 points; the S&P moves down a full percent.
Original Post
Disclaimer: this is not an investment site.

I don't think the "market" is going to like the way the Trump administration handled the immigration problem: futures for Monday morning are now down 80 points. The "market" was looking for a reason to take profits.

A Note For The Granddaughters

"The Planet That Wasn't There," Thomas Jones, London Review of Books, essay re: The Hunt for Vulcan: How Albert Einstein Destroyed a Planet and Deciphered the Universe, Thomas Levenson.

Link here

Two pages long, this article seems to be divided into four parts:
  • the current search for another planet in our solar system;
  • how Neptune was discovered;
  • the search for a planet situated between Mercury and the sun (apparently does not exist); and,
  • how Einstein explained Mercury's erratic behavior.
I'm posting the note because I'm interested in the first "part": the current search for another planet in our solar system:
  • primary researchers: California Institute of California, Konstantin Batygin and Michael Brown 
  • five dwarf planets
  • Pluto (August, 2006, went from a planet to a non-planet to a dwarf planet)
  • Eris 
  • Haumea
  • Makemake 
  • Ceres: the largest body in the asteroid belt between Mars and Jupiter; the other four are beyond Neptune 
  • the search is being done primarily using the Subaru telescope on Hawaii
  • the search is expected to take six years
  • the "planet" is going by the name, "Planet X"
  • "Planet X" is suspected because of the highly elliptical orbit of Sedna
  • Sedna: a "short-period" comet that originated from the Kuiper belt (disc) beyond Neptune
This is the kind of stuff that would have fascinated me in high school. It still does, but perhaps not as much.

Minimal Reporting Expected Monday From The Bakken -- January 29, 2017

Monday, January 30, 2017
  • 31904, SI/NC, BR, CCU Golden Creek 3-1-26TFH, Corral Creek, no production data,
Sunday, January 29, 2017
  • 31905, SI/NC, BR, CCU Golden Creek 2-1-26MBH, Corral Creek, no production data,
Saturday, January 28, 2017
  • 32679, SI/NC, WPX, Caribou 33-34HG, Reunion Bay, no production data,
  • 32728, 165, Crescent Point, CPEUSC Suitor, Little Muddy, t11/16; cum 2K over 52 days;

32728, see above, Crescent Point, CPEUSC Suitor, Little Muddy:

DateOil RunsMCF Sold

Plastic Bags

My wife's family lives out in Los Angeles where there is a complete ban on plastic bags, with some exceptions, but apparently the ban is nearly 99% effective. My wife re-uses plastic bags, like most Americans, for almost everything: "brown-bag" lunches; carrying snacks to a granddaughter's soccer game; wrapping food waste before throwing it in the garbage; and so on and so forth. We save all our old plastic bags and use and re-use them over and over again.

The plastic bag situation has gotten so bad out in Los Angeles that she now mails plastic bags to herself (when she visits) and to her extended family out in southern California.

So, if you see someone using plastic bags in southern California, don't be harsh on them; the bags may have come from out-of-state.

Russia Selling Off Its Crown Jewel? -- January 30, 2017

The price of a Big Mac Combo Meal in New York City: $8.

The price of a Big Mac Combo Meal in Paris: €8.

Current conversion: $1 = €0.93.

About 1:1.

Data points, Russia-Rosneft-Italy-Qatar-Swiss Glencore mega-deal:
  • mega-oil deal: late, 2016, Russia sold almost 20% of its stake in its giant oil company -- Rosneft
  • stake sold for slightly more than €10 billion; valuing Russia's stake in the company (before the sale) at €52 billion
  • Putin: called it the largest sale and acquisition in the global oil and gas sector
  • also one of the biggest transfers of state property into private hands since the early post-Soviet years
  • buyer: Qatar and Glencore
  • Glencore: Swiss oil trading firm
  • Glencore: only €300 million, less than 3% of the purchase price; Glencore said it limited its interest to just half-a-percent of Rosneft; likely to be a Cayman Islands company whose owners cannot be traced
  • public data and "inference" suggests:
  • Qatar: €2.5 billion
  • Glencare: €0.3 billion
  • Intesa (Italian bank) loan: €5.2 billion
  • shortfall: €2.2 billion 
  • the full €10.2 billion traces back to Russia's second-largest bank, state-controlled VTB
If I read that correctly, the government of Russia backed/guaranteed the deal until Intesa's loan arrived (but again, I may be misreading this)

Why is this important?
  • Rosneft: world's largest listed oil company by output; one of two crown jewels of the Russian state;
  • Gazprom: Russia's other crown jewel
  • Qatar (from the article):
  • they like investing in energy
  • they saw the upside in Rosneft
  • they saw the upside in building relations with Russia
  • Russia's role in Middle East politics is only set to rise
As I skim through the milliondollarway articles on Qatar, two things jump out at me:

Crude Oil: Consumption Vs Production -- EIA -- January 29, 2017

When Saudi Arabia dispensed with quotas and agreed to let OPEC members produce at whatever rate they wanted, there was a lot of speculation regarding their reasoning.

The two reasons most commonly cited:
  • concern about US shale / tight oil revolution; and, 
  • Saudi Arabia preserving market share within OPEC
I think there were at least two other reasons but I won't go into that now; it will distract from the bigger point.

(By the way, one wonders who their "western" advisor was back in 2014; or, if they made their decision without "western" advice).

Regardless of what Saudi Arabia was thinking back in late 2014 when OPEC abandoned the quotas, it is pretty clear that Saudi Arabia, in hindsight, clearly misread the situation.

In hindsight, it now appears that the US shale / tight oil revolution has upset the status quo, but the jury is still out whether US shale can truly make that big a difference in world oil supply. My hunch: at $50 oil, shale will not make a huge impact on global supply; at $150 oil, US shale will make a larger impact on global supply but to what extent, hard to say.

In hindsight, it almost seems that had Saudi Arabia and OPEC maintained orderly changes in quotas (up and down) the cartel could have:
  • maintained better pricing control, and perhaps maintained oil at $100/bbl for quite some time; and, 
  • adapted to US shale revolution; force Saudi Arabia to become "leaner and meaner"; or think beyond simply oil production
Regardless, here's the "past" and the "future" according to the EIA:

Update On ExxonMobil, The Permian, Natural Gas, And Petrochemical Focus -- January 29, 2017

This is an incredibly good article on the state of US shale from a global perspective. Although the writer focuses on ExxonMobil and the Permian, the writer provides a lot of insight for US shale.

Disclaimer: this is not an investment site.

The article comes from ICIS Chemical Business. I was alerted to it through a reader who caught it at an investing message board.

It should be noted that this article is very, very good, but most (if not all) of it has been previously reported in more detail by RBN Energy. The writer seems to suggest that ExxonMobil had the Permian figured out some time ago, but to me, it seems, ExxonMobil was "johnny-come-late" when it comes to the Permian. The writer does not address the issue why EXOM shares have done quite poorly when compared to its peers. 

Data points:

  • ExxonMobil and Wolfcamp shale formation
  • even as far back as ten years ago, the Permian Basin was struggling to find workers to fill the 2,000 odd jobs it had open
  • Wolfcamp now a new play due to hybrid technology: vertical wells, horizontal drilling, and fracking
  • the Permian withstood the 2014 oil price crash the best
  • higher productivity per well (not mentioned: generally a bit more "gassy" than the Bakken, but not nearly as "gassy" as the Eagle Ford)
  • chief operators in the Permain had better access to cash
  • mergers and acquisitions are being noted
  • Wood Mackenzie estimates the Permian has attracted 14% of global deal flow in 2016
  • slowly but surely carved out a chunk of the Permian
  • beginning in early 2014, ExxonMobil has signed five agreements that just about doubled its operations in the Wolfcamp
  • late in 2016, it created a crude oil logistics venture with Sunoco: Permian Express Partners (previously discussed
  • recently, ExxonMobil had acquired 250,000 acres in New Mexico's Delaware Basin from the Bass Family of Fort Worth,TX (previously reported)
Well completion costs
  • ExxonMobil  has cut drilling and completion costs by 30 to 40 percent from 2014 to 2015
  • break-even at an oil price of $40/bbl (compare to $30/bbl in some spots in the Bakken) 
  • ExxonMobil has been looking at increasing the amount of production per rig, per well (regardless whether it is in the Permian or in the Bakken)
Investment paying off
  • project start-ups helped offset the natural decline in oil fields; the setback from Canadian wildfires; and, downtime in Nigeria
  • ExxonMobil "far ahead of its peers" in squeezing more earnings out of every dollar of capital it employs
  • ROACE: return on average capital employed: higher than CHevron, Shell, Total, or BP during 2011-2015
  • ExxonMobil had an industry-leading ROACE of 7.9% in 2015
  • [the writer does not answer the question: if ExxonMobil is the leader in ROACE, why does XOM share performance not reflect that? Answer: share price in the oil industry also related to reserve replacement and ExxonMobile has not been doing well of later; that explains why it doubled wdown in the Permian; reserves in the Permian seem to have no limits]
  • the writer cautions investors to look at ROACE when ExxonMobil published its 2016 figures
Positioning itself for the future
  • a focus on natural gas, though historically ExxonMobil is all about crude oil
  • petrochemicals: has introduced a major expansion in Texas including a world-scale ethan steam cracker and associated polyethylene facilities
  • joint-venture partner: SABIC
  • 1.8 million tonnes of ethylene per year near Corpus Christi
  • the site will also include a monoethylene glycol (MEG) unit and two polyethylene (PE) units
  • [SABIC: Saudi Arabia; previously discussed]
  • another ethane-fed cracker with a capacity of 1.5 million tonnes per  year is due to start up this year at its Baytown petrochemical complex near Housotn
  • at nearby Mont Belvieu, it plans to add 1.3 million tonnes of PE capacity
  • building another PE unit of 650,000 tonnes per year at Beaumont
  • Mont Belvieu and Beumont projects combined will increase ExxonMobil's US PE production by 40%; making Texas the focal point of PE supply for the company
  • the Permian, being more "gassy" fits into the ExxonMobil focus on petrochemicals very, very well 

Steady At 38 Active Rigs -- January 29, 2017

Active rigs:

Active Rigs3845146190187

How's that renewable energy working out? Via Twitter:

The article is over at Bloomberg. An observation: I could be wrong, but it's my impression that Los Angeles has pretty much eliminated "smog" to this degree over the decades.